Concerned about Sharemarket Volatility and your KiwiSaver Savings?

Concerned about Sharemarket Volatility and your KiwiSaver Savings?

Photo by Tierra Mallorca on Unsplash

There has been a lot of talk in the past few weeks about the impact of the Coronavirus (Covid-19) on global sharemarkets and understandably some nervous investors. It can be hard to figure out what it all means and how it could affect your KiwiSaver savings.

Initially published on 04 March 2020  and updated on 12 March 2020 on asb.co.nz
Credit ASB https://www.asb.co.nz/blog/2020/03/coronavirus-markets-and-kiwisaver.html

So what has happened?

Sharemarkets here and overseas have come down from highs experienced earlier in the year, with markets being volatile (up and down) over the past couple of weeks. This is due to the economic impacts of Covid-19 being unclear and potentially greater than first realised. At the time of writing the New Zealand sharemarket is down around 8% and world sharemarkets down around 20%, both from the all-time highs set earlier in February.

In addition to concerns around the economic impact of the coronavirus, on 9 March markets saw another large sell-off in response to a big drop in global oil prices. Global oil prices have fallen as a result of Russia and Saudi Arabia failing to agree to oil production cuts. The coronavirus has also reduced travel activity and manufacturing, contributing to lower demand and pricing of oil. On 9 and 10 March we saw large price movements down and up in global sharemarkets, commodities, currencies, and bonds, all in response to these events.

What’s important to remember is that this sort of movement in the sharemarkets is not totally surprising, and sharemarket dips do happen from time to time, especially in response to major global events.

Your savings in KiwiSaver are invested in funds. These funds are generally invested in a combination of shares, property, bonds and cash meaning your savings will be influenced by movements in global sharemarkets. Different KiwiSaver funds will have a different allocation between shares, property, bonds and cash – and this is why some funds are impacted more by movements in sharemarkets than others. 

While volatility can make investors a bit uncomfortable, we need to consider the long-term sharemarket performance.  In other words, it’simportant to factor in the large gains over the past year when considering the recent declines. What was surprising in some ways was that despite the volatility experienced in markets over 2019, it was still the best year for KiwiSaver returns. 

As these events continue to unfold, we can’t rule out further declines for sharemarkets. For investors, it’s also important to remember that markets don’t wait for all the clouds to clear, and send out signals that all is well before recovering. A degree of uncertainty, risk, and associated volatility is a normal feature of financial markets.

We expect market dips to happen from time to time and it’s important to remind yourself that KiwiSaver is a long-term investment. Rather than focusing on the day-to-day movements, we recommend making sure you’re in the right fund for your savings goal.

What you need to think about

Now is as good a time as any to take stock of why you’re in KiwiSaver. Will you use it to buy a house a year from now or will it fund your retirement in a few decades? The right KiwiSaver fund for you will depend on the timeframe of your goal.

Don’t panic – check you are in the right fund

Although market dips are unpleasant, we do expect them to happen from time to time, so we factor such adjustments into our investment decision making process to deliver the best investment outcomes for you. 

We recommend funds based off your investment timeframe so unless this has changed, you should stay in your fund. If you’d like help checking that you’re in the right ASB KiwiSaver Scheme fund for your savings goal and investment timeframe, you can use our online Help Me Choose tool. It’s a simple way to guide you to the right fund.

Here are the answers to some frequently asked questions:

Why is my balance going down?

Apart from cash funds, part of your KiwiSaver savings is invested in the global sharemarkets. When the value of the sharemarket changes, this is reflected in your KiwiSaver balance. The number of units you own has not changed, just their value. This is to be expected, and dips happen from time to time. Ups and downs in the sharemarket are all part of the cycles the market goes through.

What can I do about it?

KiwiSaver is a long-term investment. These short-term events should not change your long term investment strategy, namely your choice of fund. If you’re in the correct KiwiSaver fund for your goal and investment timeframe, you don’t need to do anything.

Am I in the wrong fund?

The appropriate KiwiSaver fund for you is dependent on your investment goals and timeframe. To check whether the fund you’re currently in is right for you, check out our Help me Choose tool here, visit your local branch or call us on 0800 272 738.

If you’d like to know more, our economists do write more detailed updates explaining what’s happening in the financial markets and you can subscribe to further updates.

This document does not have regard to the financial situation or needs of any reader. As individual circumstances differ, you should seek appropriate professional advice. Returns are a reflection of past performance and are not a guarantee or indication of future performance because returns fluctuate (move up and down). Returns can be negative and you may receive back less than the total amount of your contributions. 

Interests in the ASB KiwiSaver Scheme (Scheme) are issued by ASB Group Investments Limited, a wholly owned subsidiary of ASB Bank Limited (ASB). ASB provides Scheme administration and distribution services. No person guarantees interests in the Scheme. Interests in the Scheme are not deposits or other liabilities of ASB. They are subject to investment risk, including possible loss of income and principal invested. For more information see the ASB KiwiSaver Scheme Product Disclosure Statement available from ASB’s website and the register of offers of financial products at www.business.govt.nz/disclose (search for ASB KiwiSaver Scheme).

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