An investment
Volatility is a fact of life and a timely reminder to check goals and timeframes.
Share investors have had a great run over the past 10 years. Memories of the global financial Crisis (GFC) have dimmed and we have been lulled into a false sense of security; we have forgotten that markets don’t always go up.
The GFC in 2008 was bad news at the time, but it resulted in a set of circumstances which put wind in the sails of share markets. The S&P500 index is now three times what it was at its lowest point after the GFC and 70 per cent higher than it was at its highest peak before the GFC. While there was a small degree of volatility in the first few years after the GFC, there has been no major correction since then, and the last 18 months in particular have been plain sailing, with the markets continuing to reach new heights.
However, the world is changing. Post-GFC, markets were fuelled by central banks injecting cash into their economies and dropping interest rates, as a means of avoiding recession. Now that unemployment rates have dropped and company profitability has improved, the threat is not recession but inflation. It’s time to take the foot off the accelerator and put the brakes on.
That means tighter monetary policy and higher interest rates. Alongside this the world political situation has changed and presents risks which could interfere with global economic growth. We are entering a new phase. The recent volatility in share markets is a timely reminder that we need to prepare for the next market correction. There is more volatility to come.
Volatility is a new experience for KiwiSaver investors who have known nothing but stable markets in recent years. For long-term members, KiwiSaver