Tim Fairbrother: Ukraine, Covid, GFC - Managing investment fear in a crisis

Financial adviser Tim Fairbrother. Photo / Supplied

OPINION:

I know you're probably thinking another "investment expert" telling you markets are down, which means it is a good time to buy; or that you shouldn't sell for a loss as you only get the price of assets on the day that you sell them; or hang in there and things will improve soon.

These are common themes when markets fall, and investments or KiwiSaver drop quickly.

People get nervous when shares go up the stairs and down the elevator, but that is what they do.

Over the past few years, as markets have continued upwards, investors have held onto some shares, even though the market had become overvalued.

While we are all feeling for the people of Ukraine, during the Covid crash two years ago, markets went down 30 per cent very fast.

In 2008, during the Global Financial Crisis, they fell 45 per cent over six months.

But markets have always recovered and gone on to make new highs, most recently in December 2021.

Earlier this month, America had a booming job addition report. There were 678,000 jobs created in the month of February, about 200,000 more than expected.

The share market, caught up in a cycle of fear around Ukraine, completely breezed over this large detail that America, which makes up 60 per cent of the world's share markets, is still growing at a sharp pace.

An indicator of how the market is generally feeling is the CNN Money Fear & Greed Index.

This considers share price momentum, breadth, strength, market volatility and safe-haven demand.

In January 2022, the index was 65 out of 100 and was sitting in a positive position.

Two weeks ago, it had fallen sharply amid the war in Ukraine, and had an extreme fear indication of 13 - not far off the low during the Global Financial Crisis of 12.

This has now recovered back to a more neutral 44.

Buying fear and selling greed is an age-old tactic when it comes to investing. Buying fear is when you look through the current market noise and observe the fundamentals.

This is what fund managers are doing at present - buying more under-priced stocks.

Selling greed happens when markets are cruising along nicely and don't look to be letting up in their advance.

This is when you should consider changing your risk profile, if you are feeling nervous about the effects on your long-term goals.

Understanding the greed and fear of investing will help you come to terms with how you are feeling right now.

Whether you have a significant sum of life savings invested, KiwiSaver, or some play money in pet shares - succumbing to emotions and selling shares or changing profiles now will profoundly harm your investments.

The best advice I can give you is to ignore your balance for the next month and focus on your long-term plan and the goals you set when you invested.

Let your fund managers, who you entrust your money to, earn their keep - they are not sitting there idle. They will be buying stocks with surplus cash to get into stocks for future growth.

Or you may be in a passive index fund which is buying the whole market, so this will therefore go up once a rebound happens.

Letting emotions govern investment behaviour often leads to irrational decision-making that can cost you dearly.

But, just like everything over time, the fear in the market will fade. When this does, once the Ukraine crisis has some stability, significantly undervalued shares will start increasing quickly back to more realistic values.

One day we will be worrying about the market being overvalued again, as greed sets back in.

• Tim Fairbrother is a financial adviser with Rival Wealth. The information in this article is of a general nature and is not intended as personalised financial advice. We recommend speaking to your adviser before purchasing, changing or disposing of any financial products. Rival Wealth is a financial advice provider (FAP) licensed by the Financial Markets Authority to provide financial advice. Our disclosure document is located at rivalwealth.co.nz or a written copy is available on request.