History books might describe 2020 as a time of volatility. It’s been one crazy ride so far, with a global virus pandemic, riots, protests, and natural disasters just to name a few memorable events. But what does that have to do with your KiwiSaver? Should you be worried?

What does volatility even mean?

Volatility refers to how much something fluctuates. The more rapid and unexpected changes that occur, the more volatile it is. Something that stays pretty stable is less volatile.

Here’s an illustration. You’re driving to work, drinking your coffee, when you look at the clock. Your route is a reliable 22 minutes every time. You do the math in your head - you’re definitely late.

There’s a short-cut. It could shave minutes off your time - but the traffic is inconsistent and if you hit it at the wrong time it’ll make you even later. (Maybe you get caught up in school drop-offs or road works that keep changing).

Do you stay on the tried and true? Or do you take a chance on the unpredictable route? Both will get you to work in the end. It’s the ride and how much time it takes that differ.

In this example the reliable route is less volatile because it has consistent traffic and a predictable outcome. The short-cut has inconsistent traffic and requires weighing risk for reward - definitely more volatile.

When we’re talking volatility in financial markets, it’s the price that fluctuates and which type of funds you are invested in dictates the kind of ride you’re in for.

Market volatility is necessary and inevitable

Investing requires some volatility. You would never make any money off of a stock that didn’t fluctuate at all - what would be the point? But seeing the value of your investment go up and down can cause some pretty uncomfortable stress. Understanding market volatility will give you peace of mind when it comes to your KiwiSaver.

What causes the market to become volatile?

Things like:

● Natural disasters

● War

● Oil prices

● New trade regulations

● Virus outbreaks (hello Covid)

● Uncertainty (a bit of that going around lately)

● Donald Trump’s tweets

Needless to say, none of these factors are under anyone’s control, no matter how much we all wish someone would change The Donald’s Twitter password.

On the plus side, that means that volatility is relatively the same for everyone, because it’s dependent on the global financial markets. So investors everywhere need to account for volatility in their investment plans.

When it comes to deciding on a KiwiSaver scheme, your plans, goals, and market volatility all come into play. If you need a hand working out what those are, BetterSaver is here to help.

Volatility and risk

Alright so volatility sounds a lot like risk. Are they the same thing?

Not exactly. Volatility works alongside risk, hand-in-hand in a cosy relationship.

Risk refers to the odds of something bad happening - like getting fired (from being late due to traffic) or losing all your money (from being in risky investments). Volatility refers to how much something fluctuates. The more volatility, the greater the risk.

The risk level you are comfortable with is your tolerance for volatility. If you’re excited by taking a gamble, you have a higher tolerance for risk. If the thought of taking chances is a no-go, you have a lower tolerance for risk.

What does this mean for your KiwiSaver?

KiwiSaver accounts are categorized by risk. From low-risk, conservative funds, to higher-risk aggressive funds, you have an array of options to choose from to get in the fund that works with your risk profile and helps you meet your goals.

Higher risk funds invest in things that fluctuate more, like shares, which means that your balance will move around in response to the market. Lower risk funds invest in things like cash and bonds, which don’t respond as much to changes to the market, so your balance stays relatively stable.

Your risk profile will indicate whether you are in the right fund for you at the current time. It’s a good idea to check if you’re not sure. At BetterSaver, we take all the guesswork out by helping you establish your risk profile and guiding you to the right fund for you depending on your goals and timeframe.

What Do I Do Now?

The best plan right now is to make sure you’re in the right KiwiSaver scheme for you. If you’re not, you’ll need to assess whether or not it’s a good time to move funds, being sure to take into account the volatility of the current market.

One thing is sure - if you switch to a lower risk fund when the market is down, you lock in that low price (i.e. selling low) by not giving it time to recover. It’s like if you own a house and sell when the property value goes down - you’re guaranteeing your loss instead of waiting for the value to come back up and then selling.

If you’re confused by any of this, don’t worry. We are your trusted experts with personal advice to make sure you get it right.

Let BetterSaver Make it Simple

Let’s sum up: volatility refers to how much something fluctuates. Risk refers to your tolerance for volatility. In investing, volatility is unavoidable (you would never ever make money if stock values didn’t go up and down).

When it comes to your KiwiSaver, we can ensure how much volatility you can tolerate - i.e., your risk level - matches your investment. You don’t need to check your balance every day or question if you’re in the right KiwiSaver scheme because we’ll make sure you get it right.

No one makes it easier than us to have real peace of mind when it comes to your KiwiSaver. And we can all use as much peace of mind as we can get these days.

Sign up for our waitlist so when we launch soon you’ll be one of the first to know - and you could win a share of $50,000 to boost your KiwiSaver.