Sometimes the markets can be a rollercoaster. If you buy shares, you’re buying a piece of a company. That company itself might do well but, because your money’s invested in the share market, your shares are likely to go up and down – known as volatility. In fact, you might see your balance go up and down dramatically. If you’re new to investing, this might make you feel uneasy. So, is it something to worry about?

Let’s start at the beginning

When you decide to invest, decide how soon you need to access your money, and what your goals are. Work out your risk profile. This is an assessment of how willing, and able, you are to take risks with your investments. Then find investments that fit this risk profile, and check their credentials and suitability.

Sorted’s ‘Investor Kickstarter’ online tool can help guide you. If you’re investing for the long term, say 10 years or more, taking on riskier investments will tend to lead to higher returns. Starting small is a good way to check how well you cope with ups and downs of the markets. Can you handle them? If you’re feeling worried, read on.

Being wary is a good thing

Beginner investors often worry about losing money, says Tom Hartmann, managing editor at Sorted.org.nz. “When you don’t know what investing is about, the primary thing is: is it safe? That’s healthy, actually, as today we’re seeing a lot of investment scams. People are right to be wary and right to look at things to see if they’re legitimate or not.”

In fact, entire government regulator sites can be faked. Things that seem legitimate sometimes aren’t, he says. Financial author and seminar presenter Mary Holm says it’s wise to research the quality of the company or fund you’re investing in, before you commit your money. “Check out their credentials and that it’s regulated by the Financial Markets Authority. Also, Google the name of the company, plus the words ‘review’ or ‘fraud’. See what pops up.”

Get used to ups and downs

Once you’ve checked the credentials of where you’ll invest, getting comfortable with investing’s ups and downs over the long term is all part of the journey. Starting small is a good way to find the volatility level you’re happy with, says Holm. “You’ll start to get a feel for your reactions,” Holm says.

“For example, do you panic when your balance drops? If you’re really worried about it, and are looking up your balance all the time, you might not be suited to riskier investments.” Or, maybe you’ll learn to get used to it, Holm says. Someone might have their KiwiSaver money in a conservative fund, and be thinking of trying something riskier, but they’re nervous, says Holm.

“I’d say, put some of your savings, within one provider, into their growth fund, and leave the rest in a conservative fund. Watch your reactions when the markets are volatile.” Sometimes the share market goes up and down, but the long-term trend is usually up. Knowing this can be a comfort, Holm says.

Get your risk level right

Sometimes, worries about your investments might mean you aren’t in the fund with the right level of risk for your situation. When you take on more risk, it often means you’ll get better returns. A growth fund, for example, usually gets higher growth over the long term, but more ups and downs, and risk, along the way.

Riskier or more volatile investments, such as growth funds or shares, are usually only best if you’re going to have the investment for a long time – say, 10 years or more. Experts agree you should get into an investment that has the right level of risk, which depends on when you’ll spend the money, and your risk tolerance.

Then review your position from time to time. Holm says you shouldn’t worry too much about the downwards dips in your shares if it’s long-term money and you’ve spread your investments around. Hartmann says often the markets go up like an escalator – little by little.

“But they come down like an elevator. Then they go up like an escalator again. “In general, the historical trend has been up, over the long term. That’s why the choice of which fund you’re in is linked to how soon you need the money, your ‘time horizon’.” Both say market ups and downs aren’t worth losing sleep over. So, if you’re panicking and feeling worried about your investment choices, take action.

Diversify your investments

One way to help reduce your level of risk is to ‘diversify’, or having a mix of investments. If one investment loses money, you won’t lose everything. Avoid “having all your eggs in one basket”, experts say. One example of a high-risk, non-diversified investment might be putting all your money into buying a lot of shares in one company. If the company goes bust, well, you’re saying goodbye to all your money.

You can diversify in various ways: Risk types – a mix of growth and income investments. Asset classes – a mix of types of growth investments (like shares and property) and income investments (like bonds and cash). Investing in different types of companies (you can do this both in shares and bonds). Investing in different countries (you can do this for most types of investment).

“Be in a fund that holds a variety of investments,” suggests Holm. “If you’re invested in an individual share, it might go up and down, and never come back up again. It’s one of the basic rules of investing, that people spread their money over a lot of different investments, or within a fund that does that for them.”

Set and forget

Experts say it’s not ideal to check on your investments all the time. Holm says: “[Super-investor] Warren Buffett says put your share [records] in the bottom drawer, and don’t look at them for 10 years. It’s not good to be looking at them frequently.” That’s because if you check your balance regularly, you’ll see it go up and down. When it goes down, it might make you unhappy, Holm says. However, it’s good to check in from time to time.

Check you’re on track with your investments, check the investment still suits you and you’re happy with your manager, and check your risk level. “If you check too frequently, you’ll see it fall more often, and you might get panicked or anxious,” says Hartmann. But the biggest danger is you might end up bailing from your choice when the market tips. That’s a bad thing for two reasons. First, because selling up when the market dips means paper losses become real.

Second, because after markets drop, they usually recover. Perhaps not immediately, but at some point. “When you move your money, you ‘crystallise’ your losses, making them real,” Hartmann says. Also: “If you step out of your growth fund, and pull into a conservative fund, you’re also depriving yourself of any future rises or returns,” he says, effectively missing out on the “bounce back”. It’s often best to ride out the ups and downs.

Holm says there has been some volatility in the past year or two, but some time, “in the next who knows when, maybe 10 years” there will likely be a big downturn, or there may be several. But Holm adds there’s an important thing to remember when you’re focused on your investments. “Life’s not all about your savings and your investments. “It’s about your friends and your family, and being in nature and all these other good things that are more important than how much money you have.” So, while keeping track of your shares is important, don’t let it take over your life.

Published 25 November 2019

This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.