When we hear and read about market volatility, it is perfectly normal to feel a little nervous. When we consider why there is so much volatility we only need to look towards the USA and the looming threat of global trade wars. The other main concern is that the USA looks to be heading into recession. You have probably heard the adage ‘when America sneezes the world catches a cold’…
However, when it comes to KiwiSaver the key thing is not to panic during times of market volatility and to remember the fundamentals.
Checking your balance annually is totally appropriate but monitoring the ups and downs of your fund on a weekly, monthly or even quarterly basis is not helpful – especially during a market downturn.
Investments can be volatile even on a day-to day basis. Stick to your investment strategy and if possible, ride out the highs & lows and wait for the market to return to growth. Most of the best days in the share markets occur within a week of the worst days.
Growth and aggressive funds tend to be a lot more volatile, but over time they should deliver higher returns.
A great time to review your KiwiSaver is when your provider sends you your annual membership statement. Even in a flat year you will likely see a good increase if you are contributing.
Holding your nerve is critical in a market downturn. If you still have a long investment time frame, doing nothing is probably the right action. For example, if you panic and switch from a Growth fund to a Conservative fund you will be crystallising the loss and missing out when the markets bounce back. This is because you will be changing from approximately 70-80% in shares to 20%.
When markets are down, your contributions go further. Your fund managers will be watching the markets and for pockets of opportunity they can take advantage of. Think of it as buying investments & shares at bargain prices. It is also a great time to consider increasing your contributions. There are many wise and seasoned investors around the world taking advantage of the current volatility by investing more (not less).
The longer you have before you need to draw on your KiwiSaver, the more risk you can take on. More risk typically means a much higher allocation of your fund will be invested in shares. This is predominantly in the Growth and Aggressive fund categories.
Share markets bounce up and down all the time. This is what we expect to happen. If we look at recent history, 2022 was one of the worst years in KiwiSaver history. Most KiwiSaver funds, regardless of provider or fund type, had a negative return that year.
2023 was a positive year and went a long way to make up for 2022. 2024 was another great year. One of our favourite KiwiSaver funds returned 23.8% after fees in 2024, which is more than double the 10-year average return in the Aggressive category.
Right now, it is far too early to pass judgement on 2025. January was an excellent month for returns, but those gains have been wiped out since and it is looking like we could be in for an extremely volatile year. On the bright side, if the war in the Ukraine were to end, don’t be surprised to see markets react positively.
Bear in mind that we have just had 2 excellent calendar years for KiwiSaver back-to-back, so a bad patch was coming sooner or later.
Still worried? If you haven’t reviewed your KiwiSaver fund in the last two years, let’s chat. A quick review could be the key to a more secure retirement. And… if you book a KiwiSaver review this month, you’ll go in the draw to win a month’s mortgage repayments on us (up to the value of $5,000). To book your review, click here.
The content of this article should not be taken as financial advice, or a recommendation of any financial product. These insights are based on current economic commentary, market pricing for interest rates, and our personal opinion. Threefold is not liable or responsible for any information, omissions, or errors present.