Investors face new challenges as strong inflationary pressures are expected to trigger rate hikes.
It’s been seven years since the Reserve Bank last raised its official cash rate, which is currently 0.25 percent, but higher rates are here and in sight.
The big banks had already raised deposit and lending rates in anticipation of an RBNZ move, possibly as early as next month.
Financial Services Council chairman Richard Klipin said prudent investors should review their investments and check with their financial advisors.
This is especially true for a growing number of younger investors who have become avid users of apps like Sharesies and Hatch, which offer the opportunity to buy smaller holdings and large companies at low entry prices.
“I think that’s always an issue for investors, absolutely. The markets are always changing. Contexts are always changing and the drop in interest rates stops and probably plateaued before they go up, so yeah … investors make wise decisions all the time, “Klipin said.
“We are in a pretty delicate position here in New Zealand, but also globally in terms of prospects.”
Craig’s Head of Wealth Research, Mark Lister, of Investment Partners said higher rates would favor more conservative investors who have taken riskier positions in recent years in order to generate decent returns.
The changes will benefit companies that have a track record of good management and strong finances, he said.
“We are at a turning point for financial markets and that is really being driven by the post-pandemic recovery last year and what will accompany this economic recovery is higher inflation that we are seeing around the world. here in New Zealand too, and also a gradual move towards interest rates that look like what we would expect in more normal times, “he said.
Investors should plan for changes and consider which companies will do well in times of inflation and growth, such as banks, Lister said.
It is important to consider the fundamentals underlying an investment opportunity, he said.
“You know, when you are a company and your costs are increasing because inflation is higher. Can you increase your prices without losing your customers in order to maintain your margins and profitability?
“That doesn’t mean we’re giving up on our safe, steady performance.”
It is a good time for investors to speak to their financial advisor, or at least take stock of the situation, as the investment landscape could look very different over the next two to four years, Lister said.