Don't panic, ups and downs in KiwiSaver are normal

Up and downs in KiwiSaver are normal

Have you noticed that your KiwiSaver balance goes up as well as down? This can be unsettling but is in fact normal as global events and government policies impact on financial markets, company profits, and property values. Staying the course and not panicking is generally the best approach for most KiwiSaver investors to achieve higher average returns over the medium to long term.

KiwiSaver is primarily a long term investment scheme that helps people save for a first home deposit and/or provides funds for retirement. Having a well diversified mix of shares and property investments in your KiwiSaver typically provides higher average returns over the medium to long term. However, these types of investments also have more price volatility and the media sometimes use this to create fear and sell advertising.

Choosing and sticking to the right fund type

It is important to choose the investment fund type that best fits your KiwiSaver goal, investment timeframe, and money personality. Professional financial advice and tools like investor profilers can be very helpful for choosing the right fund type for you.

If your KiwiSaver investment goal or timeframe change, then this is a trigger to review your fund type. However, it is not appropriate to change fund types in response to alarming media stories, or friends telling you that now is the time to change.

The last 18 months and the next 18 months

The last 18 months since the 1st global outbreak of Covid-19 have defied many economic predictions by delivering strong average investment returns. This has been mainly driven by Government stimulus spending around the world and low interest rates that have flooded markets with “cheap money”.

However, one of the side effects of lots of money washing around is inflation or price rises. Left unchecked, periods of high inflation can cause big problems for economies so governments typically respond by raising interest rates and/or spending less. In economies like the US and NZ this scenario is playing out, and the expected impact is that some ‘heat’ will come out of financial markets and reduce investment returns (you can read more about this here).

Trying to pick the timing and size of these market cycles is something that even economists rarely do accurately, and can cost you a lot if you get it wrong. We saw this in March 2020 when some investors switched to conservative funds, locked in losses and also missed out on major market gains.

So for most investors the best strategy is don’t panic if there are falls in the value of your KiwiSaver. Instead, stay the course, ride out any unsettling waves, and wait for the financial market tide to rise again and carry you closer to your financial goals.

Need more reassurance?

The Government’s Retirement Commission has a great article that goes into more detail on this topic and you can read it here. Generate KiwiSaver also published an article on this subject here.

You will see that the advice is consistent with this blog post, “don’t panic, ups and downs in KiwiSaver are normal”.