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11/02/2018  In InsightsKiwiSaver

What does market volatility mean for my KiwiSaver?

It’s important to note that it’s normal for markets to fluctuate. Whilst it’s concerning for KiwiSaver members when markets decline, it’s all part of the natural cycle that markets go through.

This cycle is driven by a lot of factors, including economic data, politics and company performance. Investor emotion – namely fear and greed – can also be a big driver of markets in the short-term. Investors often react to negative headlines, and panic, selling their investments and causing prices and markets to fall. Once prices drop low enough, investors become greedy again, start buying and markets become more buoyant.

The fear KiwiSaver members might have around losing money on their investment is normal and the urge to do something to combat that fear – like switching investment funds – is also normal.

Can my account balance go down?

How much market volatility affects your account depends on which of our investment funds you are invested in. While all investments have some degree of risk, they typically sit along a risk and return spectrum – generally, the greater the risk, the higher your potential return.

So, if your money is in a conservative investment fund, which usually invests in lower-risk investments such as cash and bonds, with a smaller allocation to shares, chances are you won’t be affected as much when markets go down. However, if your money is invested in a growth investment fund, which has a greater exposure to markets and, therefore, sits at the higher end of the risk and return spectrum, your KiwiSaver balance stands more chance of being impacted when share markets fluctuate.

A useful rule of thumb is that riskier assets such as shares will fall by up to a third every five to seven years and take five to seven years to regain their value. This means that shares can deliver no returns at all for significant periods of time, and investors should be prepared for this at any point. However, to compensate you for taking on all this risk, you can generally expect to be paid significantly higher returns over the long terms.

So, should you change which fund your money is invested in simply because of a downturn in the market? Well, as with any investment, that depends on several factors, including your investment timeframe, your tolerance for risk, and your general financial situation.

Investment timeframe

Generally, the more time you have, the more risk you can think about taking. Time gives you the space to make back your losses and benefit from compounding returns. A 20-year-old can generally take more investment risk than a 50-year-old, so if you have a long time to go until retirement you might want to consider an investment fund that has a higher exposure to shares.

While there are exceptions to this – such as for people who are looking to withdraw money to buy a first home (if you are eligible) – once you’ve determined how long you have left until you need to access the money in your KiwiSaver account, you will know your investment timeframe.

Risk tolerance

Your risk tolerance is how comfortable you are watching market volatility potentially affect the money in your account. With market upswings, you could see your account grow, but, as with the recent market downturns, you could also watch the money in your KiwiSaver account shrink.

If you have a longer investment timeframe, then it may allow you to take on a higher level of risk, because you have time to ride out the ups and downs that come with high-risk assets such as shares.

Financial position

Another factor to consider is what your entire financial situation looks like. What other assets will you have at retirement? To what extent are you relying on KiwiSaver to fund your retirement? If you will be relying heavily on your KiwiSaver account to fund your retirement, then it makes sense to take less risk – but again, you need to consider your investment timeframe and risk tolerance before you make this decision.

Changing your investment direction

If you find yourself wanting to change your investment fund when markets fall, you should bear in mind that moving to a lower risk investment fund – say switching from Growth to Conservative – will likely lock in any losses you’ve already experienced because you’ll be selling out of shares when prices are lower. It could also mean that you might miss when the markets take an upturn again.

The important thing is to make sure you are comfortable with the level of risk you are taking, in the time you have available. If the market volatility is keeping you awake at night, then perhaps it’s time to rethink which of the investment funds you choose to invest in.

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This article contains general information and does not take into account your individual needs.

We have an online questionnaire you can use to help you understand which KiwiSaver Scheme investment fund might suit you best. It only takes a minute or two and makes suggestions based on a combination of your appetite for risk and your investment timeframe.

Our Advice Process:


Asses your goals and needs


Prepare a plan


Present and discuss personalised options


Put your plan into place


Reassess your situation regularly


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