Investors must battle fear

Investors hamstrung by fearfulness may be putting themselves at risk of ending up in retirement without enough money in the bank.

Thursday, July 28th 2016, 5:59AM

by Susan Edmunds

Gerard Fitzpatrick

That’s according to Gerard Fitzpatrick, chief investment officer of Russell Investments, who addressed the Russell Investments conference in Auckland yesterday.

He said investors needed to achieve their objectives without greediness or fearfulness. Instead, they should be focused on what their goals and objectives were – and stick to them.

Greed was often seen in the markets, he said, such as during the tech bubble and before the global financial crisis. Investors were enthusiastically buying at levels that were too high, and experiencing subsequent failure.

But he said there were also times when there was too much fear in the market and people held back even when investments were well priced.

Fitzpatrick said he had noticed a lot of fear in recent conversations with clients. But people who worried about their investments losing money could leave themselves open to the even greater risk of reaching retirement without enough money to fund themselves, he said.

“I do believe risk is good. If people want to survive the biggest risk is the risk of failure, not having enough in retirement. In a low interest rate environment, it’s even harder so they need to embrace diversified risks that are diligently managed. There is a lot of worry out there.”

New Zealand investors should look to diversify internationally, he said. Interest rates were likely to stay low for a while to come in New Zealand and while the outlook for the economy was strong, he said there were always risks such as the potential for a foot and mouth catastrophe.

"It’s a low-returning environment with concentration risk,” he said. “Investment objectives are generally higher returning and more diversified risk. Is there a better opportunity?”

Fitzpatrick also told conference attendees that investment portfolios should be managed back from “oh no moments”, so that investors could be assured their portfolios could withstand major shocks such as natural disasters or big corporate failures.

He told them that investors should put aside the cliché “trust but verify”.

“Don’t trust and do verify,” he said. “Whether you’re an investor or a fiduciary, standards need to be higher. Don’t be wowed by geniuses out there. Some come across credible with a straight face but they could be wrong. You’ve got to be careful with the so-called geniuses out there.”

Tags: Fixed interest