Advice matters
KiwiSaver has dropped? Here’s what you can do

If you’ve checked your KiwiSaver in recent months, you’ve probably noticed that your balance has dipped and might be wondering what to do next. So, we asked our financial advisers to share their practical tips on how to behave during a market correction – and here’s what they suggested.

Understanding market volatility

To get started, it’s important to note that every type of investment, including KiwiSaver, entails a certain level of risk. Markets can be more or less volatile depending on a number of factors, and their trajectory is very difficult – if not impossible – to predict. So you’re likely to have periods of significant market volatility every now and then.

At the moment, there are many factors in play, like Covid-related supply chain disruptions and interest rate rises. Interestingly, tech shares seem to have experienced the biggest slump in the past few months, leading to a broad decline. And more recently, the conflict in the Ukraine has seen global markets fall sharply while commodity prices (like oil) increased.

Overall, it’s a very uncertain environment and investment markets are responding accordingly. So, what does it all mean for your KiwiSaver, and is there something you can do?

How KiwiSaver has been affected

Each KiwiSaver fund is made up of different assets with different allocations. Being invested in both overseas and domestic markets, they constantly react to environmental changes – and that’s why you may have seen a noticeable drop in your KiwiSaver value lately.

Now, while it’s certainly important not to ‘set and forget’ your KiwiSaver until retirement, it’s also crucial not to make impulsive decisions. You might remember that in 2020 many KiwiSaver members saw their balance drop and suddenly switched from growth to conservative funds, essentially crystallising their losses. They couldn’t know – as no one could – that markets would bounce back shortly after, and as a result they missed out on that recovery. Now, as we face another turbulence, the advice remains the same

Stay calm (and don’t look at your balance daily)

It might be easier said than done, but keeping emotions at bay is a key skill for any investor. KiwiSaver is a long-term investment vehicle, and while sometimes external events can affect financial markets in the short term, it’s crucial to keep focusing on your long-term strategy.

In other words, unless you’re planning to use KiwiSaver for your first home, staying put is probably the most appropriate course of action. Rather than making impulsive investment decisions, which may be detrimental to your goals, consider taking this opportunity to review your KiwiSaver settings. Which brings us to the next point…

Is your KiwiSaver fund aligned with your risk profile?

If you’re not quite sure, now could be a good time for a review with your SHARE financial adviser.

When it comes to KiwiSaver, it’s important to make an active choice of fund based on your risk profile, which depends on how you feel about market volatility and how much risk you can withstand, based on your goals and time horizon. There are generally five risk levels available: defensive (the lowest-risk option), conservative, balanced, growth, and aggressive (the highest-risk option).

Generally speaking, if your attitude to risk allows it, the longer your investment horizon, the higher the risk you might be able to take. For example, if retirement is 20 years away, you may take a higher level of risk than if retirement was around the corner. But if you’re planning to use KiwiSaver for your first-home deposit, you might want to select a lower-risk fund until your purchase.

By choosing a fund that aligns with your risk profile, you can make the most of growth opportunities while also protecting your savings from unnecessary, avoidable losses. Need any help with this? Please don’t hesitate to contact us.

Sometimes the best move is no move

If you’re confident that you’re invested in the most appropriate KiwiSaver fund for your risk profile, then you may not need to do anything at all – just stay put and let this turbulence pass.

While there’s no crystal ball here, we know that in the past markets have usually recovered fairly quickly. So, rather than switching funds when markets are low, you may be better off waiting for them to regain their value.

Consider increasing your contributions

It may sound counter-intuitive, but market downturns can also be an opportunity for investors. If you don’t switch and keep investing the same amount in the same KiwiSaver fund, you’re purchasing more and more units when they cost less. And this means that, when they pick up again, you’ll be there to reap the rewards.

So, depending on your investment goals, increasing your contributions is worth considering. Even small additions could make a big impact on your KiwiSaver savings in the long run, and if you prefer not to commit to a higher contribution rate, you can still make lump-sum payments. However, keep in mind that you won’t be able to access your savings until you reach age 65, so if you need investment funds before retirement, KiwiSaver is not the most appropriate option.

Looking at buying your first home?

If you’re relying on KiwiSaver to help you with your first-home deposit, a sudden drop is less than ideal. That’s why we recommend talking to a SHARE adviser. We can help you understand your risk profile and make adjustments as needed. Remember, it’s about protecting both your short-term and long-term financial goals.

Like to learn more?

As always, our SHARE financial advisers are just a phone call away. We can talk through your options and help you understand your risk profile, as well as what strategy may be most effective. Click here to find an adviser near you.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.