Coronavirus: 'Spread money far and wide' - financial expert

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Financial expert says that diversification (spreading your risk) is important during this period of uncertainty. Photo credit: Getty.

At a time when record-low interest rates provide little incentive for savers, people with spare cash are encouraged to spread their risk.

Financial expert Martin Hawes said although advice depends on financial goals, for people invested in high-risk assets such as shares, his key message during this period of uncertainty is to diversify.

"Spread money far and wide, for example, if money is already in a growth fund (e.g. through KiwiSaver), anything else should be in something like bank deposits or a well-diversified conservative fund," Hawes said.

If people don't need access to their cash in the short-term, a conservative fund (whether through KiwiSaver or as a standalone managed fund) gives savers the opportunity to benefit when the market turns.

"That will still have some volatility, but it recognises that this [coronavirus] has come on quickly: when it does turn around, I think it will [also] happen quite quickly," Hawes said.

"Having a portfolio that's full of things like fixed interest and cash investments but has a little bit (around 20 percent) of shares and listed property provides diversification and a 'bob each way'," Hawes added.

If people are in a growth KiwiSaver fund already (and their goals and timeframe remain the same), they are reminded not to panic and to stick it out.

"[For example], having ridden a growth fund down - and we may have to ride it further yet - you want to be in a growth fund to ride it back up again."

People invested in shares through KiwiSaver are applying a technique called 'dollar cost averaging', where monthly contributions allow money to be 'drip-fed' into the market, buying them at different prices.

"It's likely that interest rates will [continue to] be extremely low - and that's good for shares," Hawes said.

For people who want somewhere 'safe' to put their money in the short-to-medium term, a term deposit is another option.

Kiwibank savings product manager, Matthew Crowder said that although term deposit rates are heading downwards, the key benefit for savers is certainty.

"Following the OCR cut, term deposit rates have seen decreases of around 0.25 percent, [with most] banks offering one-year term deposit rates of around 2.40 to 2.50 percent per year," Crowder said.

Savers could put money on a six-month term deposit while they wait for uncertainty to clear.

"[Kiwbank] currently has a special term deposit rate of 2.70 percent pa for 6 months," Crowder added.

Lisa Dudson, financial adviser at Acumen, said that if people have spare cash and are wondering where to put it, the key question to ask is 'what's my risk profile?'

"[For example], are you saving short-term for a house deposit  or are you investing for the future?"

That will determine the level of risk to take on: whether it's cash-based or growth-based investments, or a mix of both.

"If I have $100,000, I won't need it for the next five-to-six years and it's part of my retirement planning, [share] markets (e.g. through growth-based managed funds) might make sense, Dudson said.

"If I'm 25-to-30 and I have $100,000 as my house deposit, I'd be saying 'just stay put in the bank,' Dudson added.

Saving and investment options have pros and cons which must be weighed up. As financial decisions should be made based on personal circumstances, Dudson's encourages people to get advice before parting with hard-earned cash.

Clarifying that paying off debt is a form of saving, Dudson's top tips for savers feeling overwhelmed by uncertainty is "don't panic."

"Take a breath, think it through, remember the long-term comeback and revisit your goals, Dudson said.

"Be smart with your money don't get too side-tracked with what's happening internationally.

"Just think about the things that you personally can do today, tomorrow [etc.] that you can control and makes sense for your personal circumstances," Dudson added.