KEY POINTS:
What is the sound of a bubble deflating? Does it sound exactly like that word recession?
If you read public comments on the NZ Herald website last week, you would have seen dire predictions - claims of a thirst for oil by a US war machine driving the world to financial ruin, and greedy bankers holding Kiwi exporters to ransom drowning out more sombre predictions.
For most economists, a recession is two consecutive quarters of negative economic growth. But a quick glance at New Zealand's GDP figures shows we haven't been doing too badly over the past few years.
Deborah Carlyon, a partner in financial advisory firm Stuart + Carlyon, says the robust state of the job market leads her to think we're not heading for anything too catastrophic.
"The thing that hits people is when they are worrying about their job, or about not getting a job. That's the thing that dampens things down.
"Mortgage rates going up is having an impact on the housing market. One of the things for people is to adjust their expectations."
There were some who had been given "grand sort of presentations" from property investment companies talking about 9 per cent a year increases in values for many years to come, says Carlyon.
"I think if you think those things are going to keep happening, then you will be a bit cavalier about borrowing.
"People need to be much more realistic and more circumspect about what could happen."
Last year, Stuart + Carlyon was selling down some of its better performing investments because it was time to take some profit. This applies to property and shares.
"If you're in for the long term, never sell out of anything completely," says Carlyon. "Take some gains when times have been good. They say, 'why are you selling when it's been doing so well?' It's all a question of making sure you capture some of these gains.
"No one is immune in a market when the sentiment changes. That's what has happened. The sentiment has changed and it's going to be quite rocky for the next six months."
Goldman Sachs JBWere economist Shamubeel Eaqub told the Business Herald this week that losses on the New Zealand Stock Exchange were driven by the impact of a loss of confidence among international investors.
However, he said it was important not to overstate the situation. "We're approaching what would be called a correction rather than a crash."
With the proviso economists have failed to pick the past 10 recessions in the US, Jeff Matthews, a senior financial adviser at Spicers Wealth Management, joins with others in thinking New Zealand's strong labour market points to a soft landing. "There's still a real shortage of labour out there. In that sense it looks like a soft landing if anything. The dairy sector is doing very well and there is largely full employment. So unless one of those two change dramatically, it shouldn't be doom and gloom."
Don't get emotional, says Matthews. "It's a correction, it creates opportunities for fund managers to buy good assets at cheap prices while other people are losing their heads."
It's often hard to convince a client their investment going backwards is exactly the reason why they should be putting more money in, he says.
"They look at you like you've got rocks in your head. They look at you and say, 'you must be crazy'.
"That is the best advice you can give them, but they almost never take it. There will be some buying opportunities, but that's the thing about a correction - it brings opportunities."
Tips for the current climate
* Look carefully at your debt, and think cashflow - being asset rich and cash poor is no way to head into difficult times.
* If you're bleeding money on an investment property in the hope of making a capital gain, then now might be a good time to sell it.
* Are you able to cope with your home not increasing in value for the next five years?
* Think liquidity - how easy is it to cash in your investment if you need the money soon?
Avoiding mistakes
Jeff Matthews outlines five top investment blunders:
* Failing to plan: What are your wants and needs? When do you want to retire? What income do you need? Once you know these answers you can develop an investment strategy.
* Failing to diversify: Don't put all your eggs in one basket. The finance company sector turmoil has highlighted the lack of diversification for many investors.
* Research: Investing blindly is asking for trouble.
* Getting emotional: Don't panic. People need to understand the difference between investing and speculating. It means not getting greedy when markets are booming, and not getting spooked when markets are falling.
* Doing nothing: The biggest mistake anyone can make is failing to invest at all.