You have likely seen a drop in your KiwiSaver balance. I know I have. Right now we are experiencing a volatile market - when investments experience rapid and sometimes sharp price fluctuations, including your KiwiSaver fund. Given the uncertain world we live in, high rates of inflation, and the war in Ukraine, it’s hardly surprising that the market is responding with turbulence.
It might feel scary and have you in a panic. You’re not alone. But I’ll show you how to keep a cool head and make the best decisions for these circumstances.
You see, volatility is an inevitable part of investing and is a normal thing to happen. History has shown us that the market will tumble, but these drops are generally short-term. Since investing is a long-term game, the key is to ensure you are set up to ride out market fluctuations in the long term.
So, what should you do in a volatile market? Is it the right time to switch your KiwiSaver fund? Should you start investing now or wait? Would your money be safer under your mattress? (No. Just no on that last one.)
We are all in this together
I’m an investment professional with over 30 years of experience in financial markets. At the start of the year, I was quite happy with my KiwiSaver fund as it had been steadily increasing in value. Now, I’m down thousands of dollars despite continuing to contribute. I still pay fees even when it appears my fund isn’t performing well. It doesn’t feel great.
With my experience, you might think I have a juicy investment secret to make back what I have lost. Truth is, I am sailing my KiwiSaver boat in the same stormy waters as you.
While there’s no controlling the waves and weather, my experience has taught me how not to panic but to stay afloat on a steady course. Whether investing in KiwiSaver or any other investment scheme, here are a few simple rules I follow that might help you get through these chaotic times.
5 tips for navigating a volatile market
#1. Define your purpose
Whether you are new to investing or have been putting money away for ages, you have to have a purpose in your sights. If you are saving without a goal, how will you know that you are saving enough or that you are on the right track?
What is your personal reason for investing? For some, it might be to save an income for retirement. For others, they may want to save a deposit to buy their first home. Whatever you want to do with your investment, look at how much you will need and your time frame to achieve it.
For instance, my goal is to have a comfortable retirement and use my KiwiSaver investment to help me achieve that. I plan to have around $70,000 per year from age 65 to 85. At current rates, the NZ Super will provide about $40,000 each year for my partner and me. So how much will I need to save to ensure that I have an income of $70,000 throughout my retirement?
($70,000 - $40,000) x 20 years = $600,000. That is my goal.
What does your goal look like? How much will you need to save to achieve it? Once you know where you’re headed, it’s time to plot the course to get there. For KiwiSaver, this means making sure you are in the ideal fund for you.
#2. Set your course
Your investment strategy depends on your timeline for your goals and your risk tolerance, whether we’re talking about KiwiSaver or any other investment.
Saving $600,000 in my KiwiSaver fund at times seems daunting. I know that to achieve it, I will have to invest in a growth fund. A growth fund carries more risk than other fund types, but as long as I can tolerate the risk and ride out the ups and downs, it gives me the best opportunity for high returns.
In contrast, someone who intends to use their KiwiSaver fund within a short time frame - say for a first home deposit - would likely be better placed in a lower-risk fund. They will be less likely to see a big drop in their balance because the market took a dip.
No matter what the market is doing, it is crucial to be in the right KiwiSaver fund for your particular circumstances.
So should you switch your KiwiSaver fund now? If you are not in the best fund for you, then the answer is yes. Switching your KiwiSaver fund to one that will help you meet your goals is preferable to staying in one that underperforms. (Bear in mind that if you switch from a higher-risk fund to a lower-risk fund because it aligns with your goals, you will be locking in your current losses - more on that below - but it will get you on a better long-term track for achieving your goals.) And if your fund is underperforming, it just makes sense to switch to a better-performing fund.
Taking into account your goals, timeline, risk tolerance, and values is easy when you take our fund finder quiz. We’ll match you to a KiwiSaver fund that gets you on the right course, and we’ll take care of switching your account. If you have any concerns, we are happy to discuss them with you so you can be confident in your KiwiSaver fund choice.
#3. Get expert advice
Discuss your plan with a financial adviser to get an expert opinion. They will check to see that your goals are realistic and that you are on course to achieve them. They can help you identify challenges and plan how you will face them. They will also be a guide that you can check in with at various stages of your journey and help adjust your plan if needed.
Even the most experienced sailors plan their journey and allow for emergencies. Your financial adviser is your personal expert when it comes to investing. I check in with my adviser regularly to stay on track. We make small adjustments as needed to make sure I keep my goal in my sights.
The BetterSaver team offers ongoing KiwiSaver advice to our clients. We check in every year to make sure you are still in the best fund. Plus, you can take the Fund Finder quiz any time, or get in touch with us. We are your constant companion on your KiwiSaver journey.
#4. Stay the course
Investing is for the long term. Once you have set your course, stick to it. Even a highly volatile market will correct itself eventually, like riding out a storm. Keep your eyes on the long-term goal.
You’ve heard the term “buy low, sell high.” Well, if you panic and sell now when prices are low, you lock in your losses. This is what can happen if you switch your KiwiSaver fund to a lower-risk fund just because the recent losses make you uncomfortable. You are selling when prices are low rather than waiting for the market to rebound.
Think of it this way: the money you continue to invest now will purchase more units, putting you in a better position when the market recovers. It’s like buying at a discount, as long as the investment is good for the long-term.
The same applies if you haven’t yet set up a KiwiSaver fund or have been meaning to start investing but just haven’t done it yet. By starting now, you’re basically ‘buying low’ - while making a step toward your goals.
To reach my $600,000 KiwiSaver fund goal I have to stick to my strategy. If I change course it would mean either having to work longer than I planned or accepting a lower standard of living when I retire. I’m keeping my eyes on the end goal and letting the market do its thing for now.
Once you have made your long-term plan, you don’t have to sweat the short-term changes. There is no need to panic. Stop doomscrolling. Don’t check your fund balance every day. You have prepared for this moment.
I have done everything I can to put myself in the best position to achieve my goal, and you can too. I’m aware of the risks and confident in my KiwiSaver fund choice and my adviser. When a storm hits, I keep an eye on the horizon and a steady hand on the tiller. I track my progress and adjust the sails to maintain my course. It really is that easy.
Keep calm and call BetterSaver
A volatile market can be scary, but if you plan for it there is no need to panic. No matter what position you find yourself in at this moment in time, it pays to identify your goals, set your course, get advice, and stick to your long-term plan.
Take our fund finder quiz to find out in five minutes if you are in a KiwiSaver fund that matches your goals, timeline, risk tolerance, and values. Or, if you're not ready to take that step, book a chat with one of our experts. We are here to help Kiwis access trustworthy advice for their long-term financial well-being.