Volatile Market Hits KiwiSaver Again – This Is What You Should Do

Another drop in the stock market in recent weeks has sent KiwiSaver’s balance down again, but experts say now is not the time for a twisted reaction.

Stock markets around the world appeared to be on the rise after the hit
2022 low point in June. However, it fell again after mid-August, and the US S&P 500 stock index hit a new low for the year on September 30th.

The US market is down more than 20% so far this year, and New Zealand’s benchmark S&P/NZX50 is down 15% this year.

Milford Asset Management KiwiSaver Advisor Eachann Bruce said it was a very volatile time.

“Over the past three weeks, the US market has led all the way down, and then has had a fairly positive rebound in the last 48 hours.”

He said the issues dominating the market were mainly concerns about high inflation and rising interest rates.

“It’s really rhetoric coming out of central banks about what inflation looks like and what interest rates look like going forward.

“Overall, the calendar year so far has been a pretty tough one, with almost all of the KiwiSaver funds falling, with the possible exception of some of the cash and ultra-low risk funds. If the stock market continues to fall, that is. I plan to reduce my KiwiSaver balance.”

Bruce said he was responding to calls from customers who were concerned about seeing the market drop.

“The key point I tell my clients is that amidst volatility it is not the time to panic or make irrational decisions.

“You have to think hard about your approach and set your goals properly so you know what you are trying to achieve. How much time do you have and what risks are you exposed to? You can see exactly what is going on.”

Bruce said business cycles occur every seven to 10 years.

“If you’re talking to someone in their mid-30s who has 30 years left before retirement, these moments of instability will occur over a period of 6, 8, or 12 months. It may occur several times.

“So get used to the volatility, have a plan, make sure you have a reliable direction, and then stick to it as long as you can.”

The market crash in March 2020 prompted many KiwiSaver investors to switch from growth funds to conservative funds, thus turning paper losses into real losses, followed by a market recovery within 6 weeks. I missed it when I did

Tammy Payper, manager of investor capacities at the Financial Markets Authority, said she didn’t see anything of that magnitude this time around, but the longer the volatility lasts, the more people will consider switching funds. I am afraid that it will become like this.

“Nobody knows how long the recession or volatility will last. We really don’t know, so we don’t want people to think that these things are going fast.”

“And I don’t want people to be nervous because they don’t see this quick recovery.”

Paper said people need to keep using the right funds when they plan to spend them.

nearing retirement or on the verge of retirement

Figures from the FMA’s annual report released this week show a significant increase in the amount of money withdrawn from KiwiSaver by people aged 65 and over in the year ending March 31st.

Investors in this age group raised $1.95 billion, up from $1.22 billion the year before.

More retirees left KiwiSaver entirely, up 10% to 21,466.

Peyper urged KiwiSaver members nearing retirement not to make rash decisions.

“The closer you are to retirement, the sooner you’ll need that money, so obviously you’ll feel it.”

She said people worried about their balances dwindling should contact their providers to discuss their options.

“It also starts the importance of that retirement plan. When do you really need the money? How do you invest it? If you have an advisor, decide what’s best at that point.”

first home buyer

Peyper said being able to withdraw money from KiwiSaver to buy your first home is unlike many other retirement plans around the world that are only accessible when you retire.

“The same principle applies: the closer you get to spending that money, the more you need to think about which fund you’re in.”

As a rule of thumb, the sooner you need the money, the more conservative your investment approach should be, she said.

Bruce said first-time homebuyers worried about dwindling savings should consider using cash funds.

“The purpose of a cash fund is to remove exposure from the market and provide a place to protect your money. Typically, those looking to invest in these funds will be purchasing real estate within 12 months. .”

Cash funds invest in fixed deposits and other short-term securities, while conservative funds primarily invest in bonds with about 20% equities.

Thanks to rising interest rates, bond prices have fallen sharply this year. This means that, on average, conservative funds have retreated more than balanced and growth funds. This is a very unusual situation.

Are you feeling stressed?

According to Peyper, KiwiSaver’s declining balance was just a paper loss, but it still left people feeling anxious and stressed.

“I live there, so it can be quite stressful at times. It’s perfectly normal.”

She said it evoked the same fight-or-flight feeling that primitive man faced when being chased by a tiger.

“It’s the same part of the brain. It’s so primitive that it throws you off balance and you realize you really need money to survive. to cause.”

But she urged people to stop before doing anything.

“The advantage of KiwiSaver is that you have the luxury of being able to pause. That tiger won’t eat you.”

She said people should talk to KiwiSaver providers, talk to financial advisors, and look at what financial experts have been doing to steer.