In conversation with nestegg, co-founder and co-CEO of Six Parks Pat Garrett explained the lessons from COVID-19 following a decade of good times, with diversification still being key to strong returns.

“For example, in March, local and international equities markets went down from anywhere from 25 to 30 per cent,” Mr Garrett said.

“During that same time, bond ETFs, cash-yielding ETFs, infrastructure ETFs did not go down nearly as much. They went down, but not nearly as much, so a balanced portfolio does not go down as much.”

Mr Garrett believes investors who have set out medium to long-term investment plans need to stick to their guns despite falling markets in the short term.

“The data shows the right move for most people is to ride out these market storms,” he added. 

The investment adviser also highlighted the problem investors have when trying to time a market, which is why he said investors might be better off staying in the market.

“Here is where the problem can happen: if someone doesn’t need to sell to cash but they do it and think they will get back into the market when things are better,” Mr Garrett said.

“They need to get two things right, if that’s your action: when to get out at the right time and when to get back in at the right time.

“Those are two very difficult things to get right on their own, let alone getting them both right.

“What happens more time than not, people tend to sell when markets are down and buy when markets are up.

“They tend to watch the markets go down, go down, and when it feels scary they will sell into cash to elevate that stress. So, in other words, they are selling near the bottom.

“Then things start to get better and there is typically a sting that stays with the investor from the market volatility and they tend to wait to get back in until they have a level of confidence that things are back to usual.

“The recoveries tend to be short and sharp, and if you miss that part of it, then you’re most likely going to buy into the market at a higher price while not getting the benefits of dividends.”