Market Volatility and Your Investments with Brad Olsen | Jess Learns to Invest

Market volatility is about how much and how quickly prices in the market change. When prices move a lot, there's a chance to make money, but there's also more risk. Remember, market volatility is normal. In this episode, you'll learn what market volatility is, how it can affect your investments, and what it means for your KiwiSaver.

This episode features Brad Olsen, the Chief Executive and Principal Economist at Infometrics.

Join Jess, a 27-year-old newcomer to the investing world, as she navigates the highs and lows of becoming an investor. Like many of you, she's learning the ropes. Each month, Jess collaborates with a different expert who shares invaluable insights and tips about investing.

At the FMA, we believe in empowering New Zealanders with the knowledge to make informed financial decisions.

Transcript

Jess

Kia ora, my name is Jess I'm from the external communications team here at the FMA. And you're joining me for another episode of Jess learns to invest where I chat to you all about investing. Today we're gonna be talking about market volatility, what it means and how it can impact your investments. 
 
I'm really excited to welcome Brad Olsen to the podcast today. So, you are the Principal Economist at Infometrics, and I believe quite a few people probably have already heard your voice before, because you do quite a lot of speaking engagements. I for one found out about you from Fletch, Vaughn and Hayley. And they like to call you bad news Brad. I'm hoping we can change that today, and you're gonna be good news, Brad. Let's hope you can give us some good news.

Brad Olsen

I'll try. I'll try. It's it's tough. I mean economists are called you know economics is called the dismal science so it seems true. That’s the reason that I get the name bad news Brad, but there's always I think some useful information amongst the bad news.

Jess

Yeah. Hopefully we can spin it into a positive. So whenever I start these episodes, I really love to to know your background, especially when I meet someone who's like the some age to me. I'm always fascinated. How did you get into your investing journey as well? And then just a little bit about your career and your background?

Brad Olsen

Definitely. I mean in terms of investing journey, a lot of that came through from my grandparents. You know, my grandfather and and grandmother, they had some shares at various points. So to mum and Dad, just sort of dabbles and and bits and pieces. But it was a conversation we had. Often you know over the weekend or around the dining room table, mum worked for a bank at the time dad was builder, so like just these sort of conversations around money and and sort of how it worked for us was always pretty constant sort of not super super detailed but we'd be watching this sort of stuff.
 
 To be fair, I was also a nerd from fairly early on. I think at Intermediate School I spent two weeks at the start of the year writing down like stock market prices from the TV news every night in a little notebook. I was keen right you know obviously so all of that I mean I I realised pretty quickly that like money and the numbers were important and so if I could understand them then hopefully I'll have a bit more information on which I could base better decisions and that's sort of true.

Jess

Ohh, that is that's impressive.

Brad Olsen

Today also, where the economic sort of journey came from, I moved down to Wellington to train in economics to, you know, do my degree down here at Victoria University of Wellington had no idea what I was gonna do for a job. I thought, I'll get the degree and then figure it out like everyone right? And it was an interesting one because I got this work experience at infometrics you know very small team that’s been around 40 years now and so it's sort of you know has been a long journey. Not for me personally but for the entire company we've always been quite forthright at you know our hot takes on the economy and what we think it means sort of without fear or favour. No one tells us what to say. We're highly, fiercely independent in our view. And that was quite attractive for me because this sort of stuff is important. But I think that sometimes in the finance game are often a bit too guarded with the big, you know, big words that were used to try and sort of make everything too confusing. So I was quite keen to cut through that and I feel like I've achieved that quite a lot, the last couple of years.

Jess

I love that cause it just goes straight over your head and like my experience growing up was very different, like I don't remember, like my parents did teach me a lot about money, but I don't remember investing ever being a conversation. And really it's only in recent years that I've started to think about it. So I think it's a good messaging to remind people that you can start at any age as well, which is what I really love about having these conversations.

Brad Olsen

Exactly you know, when we were younger, you couldn't invest. It wasn't particularly easy. And that's actually one of the memories that I have going in with my grandparents. They wanted to I don't know if it was to buy or sell some stocks, but they had to go into an investment broker and like it was, it was a really like it was a whole day thing. We'd drive into town. We had to, you know, go and meet with these people. It was all this work to do. I mean it was it was very labour intensive. And of course you know, you probably only deal with a certain amount of money and you know at that point my grandparents had a little bit that they've been saving up over time. But I also remember this the person who was doing it for them gave me a little investment book that I did have a read through. But you know in recent years you have actually been able to do it. I mean I could do it on my phone right now. You can go online. You know through this entire podcast I could be sort of share trading to be fair. I think that's also a little bit dangerous but people do fall into a bit of a trap when they start talking about investing. They think that they are someone on the floor of the New York Stock Exchange with iPhones….

Jess

That's what I thought it was! To me i was like that is too hard.

Brad Olsen

When you're thinking about that sort of longer money journey, it's more about well, how do you make sure you get your money to work best for you? Because by the time retirement or anything else rolls around you trying to get a house deposit or anything you can't sort of make the decision on the day to do something with your money. You've gotta let it build up over time.

Jess

That's a good point. Yeah, that's all about that long term. And so today we're going to be specifically talking about market volatility. It's a term that is just whizzing around at the moment. And it's sort of, it is a word that kind of makes me freak out a little bit. I think it's the volatile part that I'm like ohh, it sounds like a big scary word. Can you explain what it is?

Brad Olsen

The simplest way I think to put market volatility is how much prices go up or down, just how much they change and sort of how quickly as well. And it's both of those I think that are important. Now, often when we talk about market volatility, if you've got some shares, for example, you don't worry as much about volatility on the upside, if it makes you lots of money, you're pretty happy, right? It's on the downside that people worry about, they buy something at a certain price $10 a share. And then if that price is volatile, it goes up to 12 people think ohh, that's quite nice. I've made some money. Then it crashes down to 7. And you go whoa. I just lost a whole bunch. Well, how did this happen? And so it's, you know, changes are uncomfortable to start with, but it's the uncertainty of if it's gone from 11.50 to 7 in the space of four seconds, you just completely lost the plot. Who knows what's happened. What? What's driving that? It just feels really uncertain. It feels too quick. You're just sort of a little bit too worried, and that's completely normal because there is so many of those changes. Especially, you know the last couple of years, there have been times of great volatility. You look at the likes of start of COVID-19 all of a sudden everyone went well. I thought that everything in the economy was worth this much and then all of a sudden COVID came through the markets quite rightly, generally go ohh, there's something bad coming. I'm just gonna sort of hedge my bets. I'm gonna wait and worry a little bit more. Share prices generally come down. It's that volatility where sometimes it can go down a lot and then recover a bit.

Brad Olsen

And you just I think the main challenge with that level of volatility is the uncertainty that comes from it. You're not quite as sure if it's gonna go up, if it's gonna go down where it's gonna move next. And probably most importantly, why sometimes you look at some of these movements and the market volatility and you can understand that you know something bad has happened for a company and now it's worthless. But sometimes something bad or weird has happened in the economy in general. No one knows what's coming next and everything just flips around like nobody's business. It feels like a roller coaster.

Jess
That’s interesting because for some reason I just assumed it just meant it was dropping, but it means both that it's the change.

Brad Olsen

Technically, but look, let's be real, I mean no one really cares, right when it goes up, everyone feels quite comfortable until it falls. And that's the other thing I mean, even the last couple of years and I often talk to friends about this, you know, they bought something, say at $100, it became worth $200. That's their new reference point. They only think of the 200 comes down to 190. They've still made 90 bucks.

Jess

Exactly. But when it's down.

Brad Olsen

They've think they have lost.

Jess

I get you. Yeah.

Brad Olsen

So I mean, volatility is technically on both sides. It's just that most of the time people worry about a lot more on the downside cause. It means that they either feel like or sometimes they have lost some sort of value.

Jess

And how is it typically measured?

Brad Olsen

It's a great question. I mean in simple terms.

Jess

I'm terrible at like math's and stuff, so...

Brad Olsen

I think probably the easiest way. Well one of the common measures is that they use sort of formally on the stock market is the VIX which is sort of a volatility index.

Jess

Ohh yes, I have heard of this.

Brad Olsen

And basically, what that does is they try and measure out or look out for the next 30 days or so. What are the market traders, the people with all their phones? What do they think the volatility is going to be like and sort of how worried they are? It's sort of the think of the volatility risk a little bit like the worry matrix you know that's the sort of thing that people are going - how worried how cautious should I be? Could it move bigly in either direction or is it gonna sort of just gently move a bit more if there are big changes, if it's up, then down, then up, then down, you don't know where sort of left or right is. If it's just making little movements, you feel a little bit more comfortable. And so generally what the VIX does is it looks at where are people thinking.

Jess

Yeah, right.

Brad Olsen

They think what will prices be in the future and just how variable does that look? And so, I think probably for a lot of people, when they're concerned about volatility, it's how much are your investments changing day by day or week by week? If it's changing just a constant amount, if it's always going up just a little bit over time or even if it's going down a little bit over time, at least you generally know what path or direction it's taking. If it's moving hugely every day, you know, if you see something up 10% one day and then 12% down the next, you're going ohh. I don't know which direction this is gonna go next. So, it's the magnitude I think of the change and the fact that it's going from one direction to another. That's where that volatility comes in the most.

Jess

Yeah. And how can that impact someone's investments? Because from what I know from what I've learned so far that is, looking at it every day is not a great thing, right? So how does market volatility impact people's investments?

Brad Olsen

Often what happens when we see periods of market volatility a lot of investors, especially retail investors, they get worried because all of a sudden it looks like generally, they've lost money like that's the fear factor, right? As you go, I've put my money in and now it's worth less and I think one of the instant reactions that people have is I don't want it to get even worse. So, I'll take it all out now. I wanna get rid of that risk and I'll sort of pull it out. And often when we've seen this over time, it depends a lot on what you're wanting your money to do for you. But there is a risk that if you take it out all at once, you may well just lock in what was previously just a paper risk to give you an example, we had, you know, let's say that you had a share or something worth 100 bucks, a bit of volatility over sort of the course of three days, it goes from 100 to 200 to 150 down to 90. Now you're going well, this has sort of moved hugely the last couple of days. I'm worried I'm gonna take it out. So, you take it out at. 90 you've lost 10 bucks. Let's say the next day it goes up to 400. Then all of a sudden, you're going I just you know, I lost the opportunity to make 310. What's going on there? And so that sort of level of there, there's this sort of risk element where people are I think often go. I need to cut my losses and sort of move it out and it depends on your investing strategy and most importantly your risk factor. 
 
Now personally I'm not going to retire for a good 40 years plus, I don't need my investments to be usable tomorrow. I don't need that money right here, right now. So personally, my risk factor, I go just let it be. I'm happy to sort of let it go because we know that time in the market how long that investment spends there is generally going to make me better returns than me trying to be a real smart picker and go and this is the right time to buy or sell. That generally doesn't work out all that well. The difference, I think, is that if I was someone who is coming close to retirement age, I need my money quite soon or I'm wanting to use it for a home deposit. I don't want to have, say, $5000 worth of money. And my investments. And then all of a sudden, you know, I say to the bank, hey, look, I'm ready to give you 5K. I'm ready for that home deposit. And then they come and say cool. Yep. You're ready to buy. And I'm going, oh, geez, my investments only worth 4K now. And they're saying, well, you can't buy the house. So I don't want it to be too volatile. Often, if I'm going to use it soon. And so that's often where you see the different types of funds come through if you wanted on a high growth fund, then you're sort of willing to take the risk. In my case that I am, it could go up or it could go down quite a lot. But I'm happy to sort of take that through or at that lower risk end. It might be sort of more of a cash fund or somewhere it's not gonna grow as much, but it's not going to fluctuate as much either as the probability there. And so it really depends on what you want your money to do for you. What that risk factor is and how keen are you to sort of almost not risk it all, but be willing to have a bit more risk than before.

Jess

I feel like you've kind of already answered this, but it sounds like it impacts short term and long term investing differently based on your strategy so. Should people who are short term investing, is it something they should be worried about?

Brad Olsen

I think probably for short term investors, they are looking or going to be looking a lot more at that volatility because they're a little bit more worried about sort of how quickly could things turn around, do they need to cut their losses or not. You know, in, in terms of are these fluctuations being driven by something that's generally fluctuating lower, generally fluctuating higher? You know do they need to get out or change their position? For longer term investors, it's a whole different ball game for a lot of people, it's probably not for many worth doing all that much about it, and I think again, you look at the likes at the start of the GFC, sorry at the start of COVID-19. I had a lot of friends that were messaging me at the time, like stock markets down. Everything looks awful. There's a lot of reading. What do I do? 

Jess

Oh man, I feel for you. That would have be a hard time everyone wants your advice on it.

Brad Olsen

It was so tough, and I remember thinking, I don't know what's happening and I'm sorry. The best minds in the world don't have any clue at the moment.

But I remember saying to them I was like, look, if you hadn't have looked at it, you probably wouldn't have figured it out for a couple of months now. There were some people who again, they changed their funds, they changed whatever their investment style was and they probably lost a fair bit of money. Now you look at where the markets were probably about three months on the recovered, all that space. So I don't need the money then I don't need the money in three months time. I just sort of let it work through I think it's more that if you're in that short term investing stage and you are sort of looking at needing the money in in a quicker sort of period of time, that's where you wanna already I think even before you don't wanna wait for volatility to hit, you wanna be making that decision earlier on. And if you are cautious, you are nervous about sort of investing. I wouldn't jump to the straight to the high risk option. You wanna sort of start easy, have a play and that's what I often sort of see friends do. They're not sort of putting their entire life savings into the investment market they're putting 50 bucks.

Just have a play around and I think the best advice my grandfather always gave me around investing is  - Don't sort of invest anything that you're not willing to lose, like I'm not putting my daily rent into there. I'm putting the sort of future savings I'm willing to let it fluctuate a bit. I'm comfortable with that risk, but as I get closer to retirement as I got closer, if I was gonna buy a house or something, I wouldn't leave it in that big high risk option. I wouldn't be willing to sort of trade off the path. I'd be going back and saying, look. I don't want it to move much. I'm happy to take a maybe a smaller amount of money, lower growth, but I'm also keen for it to sort of stay here rather than sawing between the big and the littles.

Jess

Yeah, that that makes it really understandable for me. Like, I just like how you explained that like, yeah, very different. And you can change your risk level depending on when you need that money.

Brad Olsen

And that's the big one, right? Like you don't have to sort of lock in one investment strategy and that's the only thing you'll ever do in life. It's like a job. It's like a house you will change depending on your circumstances. You wouldn't do the same things. If you were renting, as you would if you had a partner and kids in a house, you know if you were a, I don't know, a worker in a grocery store, you wouldn't sort of do and spend the same way as you might be if you were a farmer. You know the needs and wants. What you've gotta do with it is completely different. But I often find that people come and they, they do. I mean, I've got randoms on the street that come up and say - what do I do with my money. And my question, I always go back to them is what do you want your money to do for you? Because that matters a lot. If you wanna sort of go hard and risk it all and you want lots of money all of a sudden, then you're gonna have to sort of take quite a lot of risk. It could pay off, but it could all fall apart. If you're going hey, I'd like quite a comfortable lifestyle in the future, and I'm willing to start quite early to get there. Then that sort of also sets some in motion for a certain type of investing or just sort of figuring out where they want their money to go because they feel like too many people try and look at what everyone else is doing and saying I'm going to do that because that's what Joey is doing. Don't do that. Joe's got a different lifestyle.

Jess

Yeah.

Brad Olsen

You take your own path.

Jess

That's why that research and just like and it's not that you have to know everything because otherwise you might never start. Like that's me. Sometimes I feel like I need to know everything before I do anything. But it's like just doing a little bit of research to understand that because yeah, initially I was like oh, it's not for me because I'm not mega rich and yet now I'm learning. Hey, I can put $10. If i do a bit of a budget and if you've got a spare $10.00 a week you can put that towards investing.

Brad Olsen

Differently, I also feel like you feel a little bit more connected to what's going on there, but you know, you do have a bit more of a vested stake in how the economy is running, how those businesses are going. Sometimes we've seen that the last you know, couple of weeks you can't change as much of it yourself. You don't have as much direct control, but that's also where that sort of investment strategy comes. And you know you're investing in specific companies, in which case do you know about that? Very specific company. Or are you better to sort of think a little bit wide? Depends again on your risk tolerance and what sort of information you have. And for a lot of people, you're right, you don't need to know everything. And to be blunt, anyone who tells you that they do know everything is just all talk. It’s always changing, right?

We’ve got no idea what's happening next. We've got a pretty good idea of some of the fundamentals and where they think they're going in the future, but that can all change in an instant. And that's where again, that risk profile comes through if you're willing to have a bit more risk. Sometimes you can get a greater reward, but there's equally that chance that it might fluctuate a bit. If I'm willing to sort it, or if I'm not keen to sort of see that same level of risk, I'm happy to take maybe not as big of a return, but be a bit more stable then that's also completely fine, and oftentimes people will move between them depending on their life stage.

Jess

And I like what you said earlier about, you know, don't do what Joey's doing. Like, I feel like a lot of the time when we panic, we do just feel like we just gotta follow the crowd. So do you have any tips for investors on what they can keep in mind when the market is coming down before they react emotionally? What can they keep in mind?

Brad Olsen

First one, take a breath like it's happened. You cannot change what happened in the past. If you, you know if you're looking at the markets and you're going, all that money has already changed. Hoping that it won't be there in this in the morning is probably not really a good strategy, it's it's already happened. So you've sort of got to be a little bit blunt with yourself. Look, it's changed, but also take that breath because what you'd hate to do is make a rash change because you were worried because you were super emotional about it, which is a very normal, very human response. But if you jump into that, then you'd hate to be in the same position the next day where you go. Why did I do that? I I I didn't really. I didn't think it through. Yeah. So I think the biggest thing is take a breath, take a pause. Figure out again. Go through that sort of checklist of, well, what do I want my money to do for me? Am I happy enough with the risk that I'm currently in? Or and if I'm not, let's go and talk to someone about it, because I probably need someone to bounce off firstly. You know, there's very much like professional advisors and I think it's always a very, very smart move for people to make when they've got money that they need to move around.

Jess

Yeah, that's a good point.

Brad Olsen

But also have a chat to a few other trusted people. Don't take what they say as gospel, but just bounce ideas you want to be knowing. Am I right? Sort of asking the right questions? Have I thought about that particular point? Is it relevant to me? And? And I think at the end of the day when you go through all of those, you'll just feel a lot more comfortable that when you make a decision, there's always uncertainty in the world, at least you've gone into that decision. Eyes wide open, rather than having to blind react, make a change and then maybe regret it. The next day.

Jess

Hmm, good point to chat to someone because that'll help ease some of that stress as well.

Brad Olsen

A problem shared is a problem halved.

Jess

Yeah. And there's people that are well educated about this type of thing. So they're the people to go to. And this might seem like a silly question, but I just sort of as you're talking thought about it. Does market volatility impact all types of investment, or does it impact them differently?

Brad Olsen

I think it it does impact everything, but it impacts it differently depending on what we're talking about. I mean, we'd be talking about the housing market, housing market volatility, the last couple of years for New Zealand. Yeah, I mean, house prices shot up 30%.

Jess

Very different.

Brad Olsen

Over sort of 2022, then they've come back like 17. So yeah, that's been a volatile market, I think different though when you look at the in terms of time period, when you look at the likes of you know investments in the share market and similar and again different between different areas, the New Zealand share market versus the US share market versus the Australian all have slightly different movements. It depends on interest rates, depends on a whole bunch of other topics, and then you've got, you know, other things. You've got commodities, you've got, you know, if I was buying, I don't know, gold. Heck, at the moment, if I could buy, you know, olive oil futures or chocolate futures, you know, those prices have massive change. You know, crypto all those sorts of things. It depends. There's so many different drivers that can often mean that if one thing's moving, something else might also be moving. But it might be in a different way. It might be led by different things. So, there's always a bit of volatility.

Jess

Ohh my goodness yeah. Oil is like gold.

Brad Olsen

Exactly. I think there's almost 2 stages of it. One is just normal, let's call it day-to-day volatility. There's always a bit of up and down, but I think it's when you start to get those very big movements, that's when people really start to worry because the numbers look bad. You know your investments lost 10% or it's made 10% and you're just starting to spin out and go - I feel like I'm on the really sort of topsy turvy bit of the roller coaster. I'm not sure what way is up or down, it just makes everyone feel nervous because there's so much out of control when things are sort of moving just a little bit here and there, people feel a little bit more in control.

Jess

So, is it important to be well informed when there's market volatility or? Because often for me I feel like if I looked into it, like reading all the stuff at the moment that makes me more nervous. Yeah. So, would you say it's good to be well informed or is it better to kind of, as you say, depending on your strategy? Leave it put. Don't read too much into it. 

Brad Olsen

Probably depends both on your strategy and also your personality. Look, I mean I'm a news junkie. I love to read all the stuff, even though it might not personally affect my investments at all or what I'm going to do with my money, I like to feel in the know equally. Some people are going to be very happy with putting their heads in the sand and going La, La La don't tell me anything. I don't want to know, again if you're a sort of a short-term trader and putting your hands over your eyes and hoping that you can't see anything, probably a bit of a challenge. If you're that longer term investor and you're not worried about the sort of short-term fluctuations, then that's maybe a viable strategy. I generally think as an economist that it's always good to have a bit of information about it. But if you're reading absolutely every single thing that's coming through on the live tracker or whatever, then you're probably a little bit maybe going a bit over the top but having a little bit of knowledge about what's driving it. I think that can start to help you just understand what is driving that shift and then also going into that assessment of hey, do I need to change? Oftentimes the answer that might be no, but it's not a bad thing to just have a healthy check every now and then and go hey, markets have done these things and I'm cool with that. Am I feeling too nervous that I really need to change or am I going - Yep, I'm nervous, but actually I'm happy enough to stay the course. Having a bit of information about what's driving those changes, I think will again just make you comfortable enough that you're making the right decision. But equally like I say, going too deep into it and sort of spending every night sort of scrolling all the overseas news sites, it doesn't do anyone any favors.

Jess

And what is the best way to manage market volatility in a portfolio.

Brad Olsen

I think probably the biggest one is a bit of diversity, you know and that's classic in in life. If you've got everything in sort of you know 1 camp if something happens anything happens to that camp, it's gonna look pretty bad pretty quickly or it could whereas if you've got things spread across a bunch of different areas then you sort of protect yourself from any one thing being hit and importantly it means that, if there is a big event overall that hits everything, you're in the same boat as everyone else. It's not like anyone else is in a particularly smarter position, so if you've got that sort of spread, you make sure that you're not sort of exposed to any one particular specific hit or threat or challenge or volatility. If you've got a bit more spread and I think also that's where we often find that people are looking at, you know, often letting the market do its business a bit more. You find people that are keen for index trackers or similar because they don't have to do that hard work of you know, having a massive spreadsheet and going, I'm going to buy 10 of this twenty of those thirty of those ten of those. Just it's a lot of admin and admin is something I don't have time for, and most people don't write. I mean, you'd be the same. You don't have time to go and choose all the markets so

Jess

Yea, it's just so confusing. I'm like, how do you choose?

Brad Olsen

Exactly. And I think that's the risk, is that also you then get into this sort of? Level of well, I don't know how to choose. I don't know the right information. Oh, it's too hard. I just won't do it. And that's also in a sense, you know, not the best option.

Whereas if you can find a bit more of a middle ground and sort of work through it and let you know you look at some different options, that's important. But I think that's why as well we often see that people try and have that diversity not only in terms of you know their share portfolios and similar. But also, other investment classes, you know, anywhere from you might want to have some money in the term deposits. You might think about buying housing. You might think about commercial property. You might think about gold like there's a whole lot of options out there. But I think also part of that comes through once again, going back to what you want your money to do for you, but also two, how do you need that money to be working like, for some people, they'll want to have a little bit of emergency money in the bank. They can draw on immediately because if your car blew up tomorrow, then you're probably going to need it.

Jess

Good point.

Brad Olsen

Like quick, you might have a little bit more money in your emergency sort of rainy day fund might be in sort of a term deposit. Pretty safe in general, but also the sort of thing that you can't get at immediately but It's quick enough to get it, if you need it. And then there's other things that you know might be really hard to convert into cash if you needed them. And those are often your longer-term assets. So, variety is sort of the important one here. I think in terms of having that diverse spread.

Jess

Yeah. And I feel like with the situation at the moment, I feel like we have to sort of talk about. The US a little bit. I keep hearing the term tariffs. Is that how you say it? I don't really understand what that means, but all the headlines are talking about tariffs. So this is kind of a kind of a double part question cause I wanna kind of know what tariffs means. And then again this part might sound dumb. We can say that KiwiSaver is New Zealand specific right, so why is the situation in America impacting our KiwiSavers, because that makes no sense to me. I'm like why it's not happening here.

Brad Olsen

Yep, both great questions. And honestly, if you're asking heaps of other people are either wanting to or actually asking it as well, let's deal with tariffs first, tariffs are an import tax. Basically, if I'm buying something, let's say that I'm a U.S. consumer. I live in California; I'm buying something off Temu from over in China.

It's 5 bucks now that item, if you put, say, 100% tariff on it, it means I have to pay 100% of that value of whatever item I'm buying in to the government. So my $5 for the pen that I'm buying now I have to pay 5 bucks also to the government. So overall, my pen has now become 10 bucks split in half. Between that and the tariff. And So what we've seen in the US is that President Trump has levied a bunch of tariffs across the world. They're always changing at the moment. So, we won't say exactly what they are, because it will change in an instant, but that level of tariffs that comes through means that you're seeing a lot of businesses, particularly in the US, they're going oh gosh, a bunch of consumers. If I'm going to buy in stuff from overseas, then I'm going to have to pay a tariff on it. So if, for example, I'm a US car manufacturer, I'm going. Crickey, that sort of wheel that I'm going to buy and to put on the car, it's now going to cost, I don't know, 10-20% more now if it's 10-20% more, there's either of two options that I can do as a U.S. company. Either I can push that price onto the consumer, so if you're gonna buy my car, it's gonna cost 10 to 20% more. Or as a business, I can say, look, I'll sell the car to you for the same price and I'll absorb that within my margin. The reason that then affects markets is because markets are looking at the at the value of these companies right and going well. If the motor car company over here previously it sold $1,000,000 worth of stock. If it's gonna sell or if it's only gonna make $900,000 worth, probably it's worth less to me. I'm not gonna give it as much money. I'm not gonna sort of value that share of that company at the same price. Which is why you're seeing a bunch of companies, particularly in the US, that have lost a lot of money. We know as well there are some specifics there where some of the supply chains for big U.S. companies, they source a lot of their stuff from overseas. So all of a sudden buying all of that is going to become a bunch more expensive. Now, I said just at the start of that question that tariffs are an import tax, that's important because it means that the consumer pays it, not the person who's sending it.

Jess

Yeah.

Brad Olsen

So again, it's the US consumer at the end of the day who will pay for it rather than if I'm shipping some clothes or something from Vietnam. The shipper doesn't pay it. It's the person when it lands in the US. And again, that sort of comes through because it means that the US is being hit first and foremost in the US economy. What's becoming a bit truer is 2 things. One, it looks like businesses won't be making quite as much profit because those tariffs are soaking up a bit of money at the same time. If those tariffs do lead to higher prices, then the US is going to see some more inflation. And we've seen the last couple of years that the Federal Reserve and the US very much similar to New Zealand's Reserve Bank when they see high inflation, they get worried. Inflation is generally a bad thing to have at a higher rate. And if that happens then generally speaking you would see interest rates set by the Federal Reserve and the US, The Reserve Bank and New Zealand would push higher or maybe not drop down as much. And so all of that's leading into a position. Where everyone in the US markets is going well, hang on. I don't think that business is worth as much as it was the day before now, how does that affect New Zealand KiwiSaver? You're right that we're not directly in the line of fire, but most New Zealanders and their KiwiSaver's do have investments going through the US or based on some U.S. companies.

Jess

Yeah.

Brad Olsen

And that's because we know that the likes of the New Zealand economy, the businesses that we've got here at home, they're not necessarily big enough to sort of look after everyone's money. They're sort of not as many investment opportunities. We don't have an apple in New Zealand to buy into. So, if I want that sort of exposure, then I will get my KiwiSaver fund or I'll do it myself, I'll buy into something like that. And so, it's that exposure that we've all got going into the US. Now, the US is the sort of financial hub for the world. It's where a lot of those big investments go. It's where a lot of the money eventually tracks back to. We transact a lot in the US dollar. So, like the US economy is pretty big in the financial field and so at the moment with so many people, you know, institutional investors like the big guys, the big banks, the big funds, but also retail investors, you know, you and me and everyone else, we're putting our money often. People have got a fair amount somehow either directly or indirectly linked to a U.S. company. And so, as those U.S. companies, they start to be worth less. That means that our investments also start to be worth less.

Jess

Cause KiwiSaver's kind of set up for you. And yeah, I would have had no idea that in the background it's linked to U.S. companies. I totally understand if you're buying shares in a company in the US and I can see how that would impact you. But yeah, with KiwiSaver I just don't see the connection?

Brad Olsen

It depends as well on what sort of KiwiSaver you run, and you can sort of choose that right as you go around. Often the last couple of years you see that a lot of the growth in markets has been coming out of the likes of tech stock. You know all the technology; all the services are similar. Again, New Zealand doesn't have huge numbers of those. Most of those are headquartered in the US so if you're an investor or if you're KiwiSaver manager wants to have a bit more exposure to that cause you've said, Yep, I'm keen on that sort of growth stuff, then you need to somehow buy it. You can't buy it in New Zealand. You can't list to buy it in the US and Australia rather. So, you go over to the United States. Get it from there, although at the same time you might well have some KiwiSaver managers or some different funds that you know they're a bit more conservative. They're not looking for much growth they might be buying other stuff they might be buying properties, or they might be buying just cash assets or bonds from governments. So, depends on exactly where your money is. Basically, it's what you generally see with a lot of KiwiSaver's is that they've generally got some sort of exposure to everything we talked about. You know having a diverse portfolio before it depends on how big that sort of US share is. But even then, if you look at the likes of New Zealand Investments, they've also come down a bit. And that's because everyone is going well. If the US, the world's biggest economy, isn't doing quite as well, then they're probably not going to be able to spend quite as much on New Zealand companies and New Zealand exports. So, if that happens, you see the likes of our farmers that are able to send less stuff over because the Americans won't bite quite as much at some point, than lower level of spending on exports.

Jess

OK.

Brad Olsen

That means that you know your farmer. They won't be able to buy. I don't know as many cars as many fences. They'll then hit a New Zealand farm company who provides the fencing or the car or whatever. And so, there's an implication of sort of flow and effect that. It's not immediate and direct, but it does come.

Jess

And so while we are on the topic of KiwiSaver, I feel like I've seen this a lot lately that people are changing their KiwiSaver fund because of what's going on at the moment. So when markets are volatile, should people be changing their contributions with their KiwiSaver or is it similar to how we spoke earlier about depending what your strategy is?

Brad Olsen

I think it does depend on what your strategy is and you know some people again when they're pretty game and gung-ho and they're happy enough to take a bit of risk, they might do both. They might look at changing their current settings and their risk they might up their contributions and put a bit more money in there if they want to try it. But I think a lot of people, probably that they should be sort of setting their KiwiSaver up generally for either the longer term if that's their own client or if they're looking shorter term, they probably should already be thinking earlier on before the markets start to move in a volatile direction over what they want their sort of money to do. We do often see this reaction though every time there is a market downturn. Every time there's more volatility, people worry, quite understandably, and they go ohh. It looks down. I wanna cut my losses before it gets any worse. And they change it again. I think that comes back to the take a breath idea. If you're already needing it to be a little bit more solid and stable. If you're buying a house, if you're looking to retire soon, you probably don't want it in something that's gonna move heaps. And so I think we, we do see this all the time. The general rule is, well, one of the general rules that you often see people say is you don't want to move Immediately.

Jess

Yeah.

Brad Olsen

 Because in a sense you already should have moved before it changed, or you don't necessarily want to lock in the loss. Equally, there might well be a point where you go look I can't stomach this anymore. It's continued to get so bad that I do need to change in that case. Again, I think it's much better of an idea that you go and talk to some people and probably an advisor or something to go through. Make sure that you're doing the best move for you rather than making a knee jerk reaction.

Jess

Yeah, really good point. And I feel like that applies to, not just when markets are volatile, right, because I was gonna say, I don't think I've ever looked my contribution. So I don't know if that's good or a bad thing.

Brad Olsen

And that's quite natural though. I mean the number of people that I know, particularly around our age group that, that they don't, you know it's a bit of a set and forget sometimes that can be a good thing. Sometimes it means that when there's an event in the global economy, you wake up and go. Crikey.

Jess

Yeah.

Brad Olsen

Maybe I should look.

Jess

Yeah, maybe I should have looked.

Brad Olsen

And I mean the the best advice that I have, the best time to make a change with your finances was yesterday the second-best time is today. So, sort of the sooner you get into it the better. Be that starting up your KiwiSaver or your investment journey or figuring out where you want the settings to be. And I think again that's often one where you. And that it happens when there's market volatility. It also might be when there are changes in your life

Jess

Yes I was gonna say life events.

Brad Olsen

Yeah, huge one. If you're changing jobs, if you're changing house, if you're changing areas, if you're getting into a new relationship, you've just ended a relationship. You're thinking about children, all those sort of things. You will want your money to move in different ways. You'll have a different risk tolerance. You know, when I'm completely by myself, I'm probably super keen for it to move all the places.

Jess

Want to look it up?

Brad Olsen

If I was starting to get serious with a new partner or similar and she was like, hey, we're gonna settle down soon, I'd probably be like, OK, I need to change my business, right?

Jess

If you're combining, you're combining your finance.

Brad Olsen

And that's also why you find that, you know, particularly couples. You might have two very different investment styles. Sometimes that might work well, sometimes it might not. Communication is key here both generally, I feel like in a relationship,  but especially when it comes to investments.

Jess

Yeah, man, I feel like money conversations are really important.

Brad Olsen

Very tough, I mean.

Jess

Hard to for sure.

Brad Olsen

 I don't know if the rest of the world is like this, but certainly New Zealanders we feel like it's a bit of a taboo subject. We don't listen, touch it, but we've got to and I think that's the big thing is that as challenging as it might be, having that conversation after something's gone wrong and after something's changed, it's a whole lot harder to have that conversation than doing it upfront.

Jess

It really is. Yeah.  And I'm really curious for what new investors like myself. I'm in KiwiSaver, but I'm starting to. I'm learning as I go through these episodes and I am keen to start investing in other things and I haven't yet. If they're like me and they haven't quite made that leap but they're like 1 foot off the ground, they're about to when markets are volatile. Moments like this would your advice be don't start investing in something new right now? It doesn't seem like a smart idea. Well, again, does it? Does it depend?

Brad Olsen

It does depend.

Jess

So part of me. And I was like, no, just wait.

Brad Olsen

Well, there's an interesting bit here. I think it depends a little bit on on the your time scale. Like if you're looking again that you need some money in like the next 5 minutes, then yeah, I mean now is a pretty tough one to make some money in this environment. You could also make the argument though, and some are at the moment that when stock prices have come down.

Jess

Yeah.

Brad Olsen

Quite a bit. You're almost. Getting a bit of a bargain. You know you're buying a low point.

Jess

Right. Yeah, yeah, Mark a good time.

Brad Olsen

So. Other people again would say, well, it could go lower also true, but I think it's more around that sort of time frame into the future. I think the biggest thing is if I was someone who is starting out investing today, particularly in the volatile market that we have and it is. Would I throw all of my money right today at, you know, 4:29 PM? Absolutely not.

Jess

I wouldn't do that anyway, would you?

Brad Olsen

Well, no. But some people, some people do. Some people are keen to sort of, they're keen to jump feet first and I'm always way more of a fan and I talk to a lot of friends about this, that when they start to get to this point of going, hey, I wanna make some investments, take a little bit of money and I'm not gonna say play around in terms of be silly but put it in a few areas. Just so you start to understand the market a bit in a low risk way. 

Jess

Yeah.

Brad Olsen

But I often have friends that you know, you might put some into the likes of exchange traded funds or somewhere because that takes a lot of hassle out of it. But you might also choose three or four companies that you think you know a bit about that you think you understand why they might move just so that you can understand those fluctuations. There might not be much, might be 5 bucks for each one just so you feel like you've got a little bit of I should keep an eye on XYZ company. I've got 5 bucks on it. I just want to figure out how it's moving. Does it normally move big? Does it move down? What are the things that are coming through? You know, you might buy, I don't know, into, say, an apparel company that sells clothes. You might go. OK, well, if people, if I'm hearing, you know, market economists talk about how New Zealanders are buying fewer clothes. It's probably not good for my investment. You just start to make those connections between what's happening around the economy and what it might mean for your investment at the time, but I wouldn't go sort of straight in what we often also see and I know that others talk about this a lot. Is that again, that idea of time in the market is more important than trying to time the market. And so you've often got the idea of the likes of dollar cost averaging if you're putting.

Let's say 50 bucks a week and all the time, every week, generally is gonna do you better off than you sort of tracking the lines and going. I'm gonna put a whole bunch in now and then do nothing for four months and then I'll try and pick the market. Just it's a lot of effort. It's a lot of time to go on the computer every day and sort of track the squiggly lines, it's better to just be constant.

Jess

So I just don't have that time.

Brad Olsen

No, no, I don't have the time. I mean, I always find it funny. I think that people think there are a lot of finance professionals out there who do you know that they're mad traders. Most of us are not. Most of us are looking at other bits of data or other things in the economy. And it is often way better that you just have something sort of regular to go through it sort of like eating breakfast. You know, it just happens every morning. If you were to wait until you got hungry, you'd never know what sort of food you'd need. You're just sort of better to have it go every now and then. You build up a bit of a routine. 

Jess

Hmm. I feel like it makes me feel so much better. Cause I was kinda like ohh now is not a great time to start my investing journey at the moment. I'm like also though, if you get yourself into the point of saying it's never a good time, it will never be. I am always coming up with a reason not to. And it's like sometimes it's just  starting.

Brad Olsen

And you can argue it both ways, right? When the market's down, you can say, oh, it's not a good time because it could could go lower if you invest, it's going up. You're like, geez, pretty expensive time.

Jess

Yeah. Yes, exactly.

Brad Olsen

You know you can argue it both ways, I think. Put it this way, if you're already thinking about starting to invest, then when things are a little bit cheaper than otherwise, as long as you've got long lead time. It's probably not the worst idea to again have a little bit ease yourself into it. I'd never suggest jumping feet first into anything like that, but you can start to sort of build. It up over time.

Jess

I knew you'd put a positive spin on it. I feel like we're gonna start calling you 'good news Brad'.

Brad Olsen

I've changed that. This is very exciting. I feel so much better about myself as well now.

Jess

And for people that are really, really panicking right now, I think you've already touched on some great tips. But for people that are really stressed about it, do you have some good advice to kind of just talk them down?

Brad Olsen

Ohh look it is tough; I think first thing is recognising that it's tough. You know, a lot of times economists, other market commentators, we talk about this stuff like it's sort of not personal and it's not emotional like the this is big biccies for some people this is their money on the line so just recognising that, Yep, this is a tough time, but again I think the biggest part is you'd hate to make a rash decision and then regret 2 decisions. One, the fact of getting to invest and then the fact of changing it. So, the first thing is just around sort of taking that breath, having a look out as well at taking a bit of a step back. You might well have seen that your investments you know have fallen over the last couple of weeks.

Jess

Yeah.

Brad Olsen

They might still be up on where they were a year ago or two years back or somewhere, so do take that long term view because we do know that often there are cycles within the economy. There's some periods of volatility, but often we've seen a lot of growth as well, the last couple of years. But it would be that sort of taking stock. What I'd probably do the first and foremost is sit down with whoever is in my trusted circle and talk about it. You know, maybe that's mum and Dad, maybe that's some friends. That's the flat mates, the partner. Heck, your children sometimes, like, bounce these ideas off because I think talking about it makes it a little bit less scary. Makes you feel a little bit more in control. Probably write some stuff down, do some numbers. I don't know if you know you might be an Excel spreadsheet person. You might be sort of scribble it down on a notepad sort of person. There's a few different options, but again, doing that you start to try and make those connections around. OK, is this sort of, you know, big, big change, is it not quite as big as I first thought? And I was just looking at all of the red ink and all.

The numbers that are pushed through, because let's be clear, the media at the moment is talking a lot about these challenges and sometimes it feels very overwhelming. You might find that your investments actually doing maybe not super well, but not as bad as it seemed to be from all of that reporting. So again, what does it mean for your current situation? What are you currently seeing in the numbers? And then going look, if I did change?

Jess

Yeah, right. So that is daunting.

Brad Olsen

If that was what I sort of thought about, Why would I be doing that? What am I changing it to? Am I going from super high risk to no risk at all? And I'll be sort of be questioning myself and going why was I super OK with it yesterday but not today? What's my actual level of risk? Like, am I quite a cautious person, in which case I was super keen when it was going really, really well.

Jess

Yeah. And then it goes bad.

Brad Olsen

But when it goes bad, I immediately decide that's not the case.

Jess

That's often people's approach, right?

Brad Olsen

Ohh everyone's super keen on this when it does well but I think yeah it's people going through that sort of motion.

Brad Olsen

And going OK, let's just get this a little bit more sequence. Let's get a bit more of a process in place because there is so much emotion in this that if you can take a little bit out, if you can sort of just take a few breaths and take that emotion out, I think generally you'll make a slightly better decision. So talk to some people, write it down so you feel a bit more in control, figure out what options are there. I mean you might sort of go. Look, I want to have it in a more low risk option. Does my KiwiSaver provider or whoever it might be, do they actually provide that? What have they got on the books? You know, what's the menu that I can choose from? Do I need to think about changing to another provider? How long? Is that gonna be because the markets might be moving a lot at the time, but you know, if my KiwiSaver is going to change it might take two weeks to go through.

Jess

Yeah. Then it could change by the time those two weeks come round.

Brad Olsen

Then you might still want to do that, but at least you've got that information in your head to go look. This is a decision I need to make, and if I make that decision, here are all the other things that are gonna change with it. I feel like sort of, you know, the more information you have, the better in control you will feel and probably the better outcome that will go through, even if it's a challenge at the end of it, the more information you have. The better you will make that decision.

Jess

Yeah, do a bit of research before just making that quick emotional reaction.

Brad Olsen

Often, I mean, no matter what it is, jumping feet first in can be a risky move and I feel like for most people when there's volatility, when there's big changes doing that it just it feels very uncomfortable to almost everyone. I know some people love it, some people love the thrill, but equally they've got to be willing to sort of take the challenge out at the other end.

Jess

Yeah.

Brad Olsen

And I think for the general person it's a little bit easier to be a little bit more reserved, take that time, then make a good well informed decision that you're not gonna feel like you've got as much regret on.

Jess

Thank you so much for your time today. I found that really insightful. If people are listening and they just found everything you said quite like easy to understand, how can they learn more? Were can they listen to you if they want more information?

Brad Olsen

Great question. We do a lot of media interviews and of metrics sort of across the board. You know, be it sort of across the mainstream media, print, radio. Otherwise I love appearing on the Fletch, Vaughn and Hayley show and with the ZM crew. But hey, I'm equally across ZB and any other combination of things that you want when it comes to radio. I probably don't do as much as I should on my own social media, but I am on there, Brad Olsen, NZL I think it is. I post anything from my travel, quizzes across the country through to sometimes some economic advice and sometimes through to the last thing I ate for brunch so you know a whole variety in there.

Trying as well to make this sort of stuff relatable, because let's be clear, this economics, the finance gig, it's often seen as way too complex, way too hard for people to get into it. It is just another part of people's lives, and if we can sort of break those barriers down, and I try to do that when I have these sort of conversations and talk with other people. I feel like we'll all be in a much better place.

Jess

Yeah, I love that cause that's a lot of why people don't invest as well. It's just too hard people can't understand it.

Brad Olsen

We put up big barriers. It is scary, but I feel like if we can get through some of the, particularly if we cut out the jargon, cut out all the big words, get it down to absolute basics. You know when we're buying stuff, it's buying part of a company. Then shares and derivatives and options and Oh my God, I mean I get sort of bored and lost and I feel like I should be trained in this stuff.

Jess

You shouldn't get bored.

Brad Olsen

No. If we can take this down to the absolute basics and that's the biggest thing that people understand it a bit more, they'll make better decisions.

Jess

And don't panic about market volatility. That's the takeaway. Good news, Brad.

Brad Olsen

Look at it, you might worry about it but take a breath.

Jess

Nice. Love it. Thank you so much. 

The content of this podcast is of a general nature and is not financial advice. The thoughts and opinions of guest speakers are not those of the FMA. The FMA recommends that our audience seek advice and respect to investing from a regulated financial advisor. The FMA does not accept any responsibility for loss that any person may suffer from following it.