22 Aug 2023
Undoubtedly, the investment landscape has changed significantly over the past few months and years. However, the basic concepts of investing have remained unchanged for generations. Our GM of Investor Relationships, Matt McHardy, shares some of the most valuable investment learnings that he believes sets investors up for success.
The fundamental concept I believe is at the heart of any good investment strategy is to go in with a long-term mindset. Economic cycles will come and go, with highs and lows along the way. But if you can ride the wave and avoid crystalising losses in a challenging market, then ultimately you should find yourself in a better financial position over time.
This is thanks in no small part to the magic of compound returns – a phenomenon Einstein called the 8th Wonder of the World. This self-fuelling mechanism of reinvestment is the most powerful ally an investor can have. It’s what elevates investment as a means of wealth creation and explains why it’s never too early to start doing it. Apart from that, there are a few other fundamentals to know when it comes to planning investment strategies and making decisions that will support long-term wealth creation.
Little and often
Diversification can take a variety of forms and is essentially a means of spreading risk. Most commonly it’s thought of through either asset class, sector or geography – a rigour we apply to our portfolios at PMG – but another interesting application of the theory is to use it over time.
Investing smaller amounts at different times, rather than placing all of what you have in at once will give you exposure to different price points and allow you to
manage price risk. At PMG we use this strategy across our portfolios by acquiring property at all points in the cycle, known as Dollar Cost Averaging and it’s a discipline that will likely serve you well over the long term.
Liquidity is key
This probably sounds a little counterintuitive coming from an investment manager, but liquidity is an essential component of successful investment. Keeping cash liquid is about seizing opportunities so you can respond to better buying opportunities quickly.
It’s important to keep an element of cash to hand so you can get ahead while others remain fearful.
J P Morgan coined the term “in bear markets shares return to their rightful owners”. That’s what having an element of available cash reserves provide for.
Its important to recognise that not all investments can provide immediate liquidity, but they still be a meaningful part of every portfolio or strategy as they can reduce portfolio volatility and provide attractive inflation and tax-adjusted returns.
Look past the hype
Life is full of ironies and one of the more obvious ones these days is that in the age of information, discerning the truth has become harder than ever. This is extremely relevant to the world we work in.
While there is lots of solid information out there to learn from social media, message boards and investment sites today are awash with advice and encouragement not to miss out on unmissable opportunities; of stories of how you too could experience overnight success.
Here’s the thing. Success is very rarely an overnight phenomenon. Rather it’s the result of hard graft, discipline, lessons learned – some of them quite bruising – and sacrifice.
There are no shortcuts or cheat codes for investment success, so make sure you do your own research from qualified, quality resources before picking your investment path.
See the glass as half full
Given the elevated levels of geo-political instability and increasing cost-of-living pressures here in New Zealand, most economic commentators are picking that the next 12 months will be a time to survive rather than thrive. But this doesn’t mean that there won’t be opportunities for investors.
We have been careful to position our fund portfolios to be able to take advantage of good buying opportunities over the next year, which we expect to see across a range of sectors including the big three of industrial, office and retail. As ever, our focus will remain on providing resilient returns supported by long-term value growth.
Disclaimer: The information in this blog is of a general nature and was current on 21 August 2023. It is not intended to be regulated financial advice for the purpose of the Financial Markets Conduct Act 2013, and does not take your individual circumstances and financial situation into account. PMG does not provide financial advice. Please seek advice from a licenced financial advice provider before making any investment decisions.
