Economic volatility has seen many KiwiSaver balances go down more than upwards recently, but financial experts are reminding people that KiwiSaver is largely a long-term investment, and to not freak out over bumpy balances.

"It can be disheartening if you’re contributing to your KiwiSaver account every month, and you’re not seeing big monthly account returns. But it’s important to remember that if you change your fund type, or withdraw your funds at this time, then you have very little chance of ever seeing those potential account gains," said Generate Adviser Bevan Kinraid.

"That’s because, technically while your balance may be down, you still have the same number of shares as before, it’s just that the value of those shares is down at the moment. Selling your shares or cashing out now, would mean locking in that lower price.

"Instead, if you hold onto those shares with a long-term strategy in mind, it’s likely they will return to, and exceed their previous value over time – giving you that long-awaited gain!"

Key drivers of the current market volatility include inflation, geo-political tensions and the price and supply of energy. And while central banks are trying to curb inflation by raising the cost of money, it’s anyone’s guess as to how long the economic volatility will last.

"You’d need a pretty good crystal ball to predict when this will be over, it’s very dependent on how quickly central banks can get inflation back down to more sustainable levels, and how much monetary tightening – interest hikes - will be needed to do this.

"We expect to see less spending and tighter household budgets, but not mass job losses. Confidence will get shaken with increased costs and house prices going down, and it could take a few quarters at least until we start to see that confidence return," says Generate Portfolio Manager, Ayrton Oliver.

Tips for not worrying about your KiwiSaver balance include not checking it regularly unless you’re about to retire or buy your first home, and remembering to take a long-term approach to your investment.

"We can look to history for confidence… Trust in the learnings from the past. We have had a 'business cycle' every 7-10 years, over time, share market gains will nearly without exception outweigh the losses," Kinraid said.

If you have time to reap the rewards of long-term investing, Oliver said moving from a conservative to growth type fund in uncertain times can be beneficial, as you’ll be purchasing shares and other investments at a lower value price and are able to take advantage of the recovery when it happens. Just make sure your appetite to risk is suited to a growth fund and you are comfortable with watching your balance fluctuate.

"Investing is a game of time. Long-term investing will likely produce returns; stay the course, by continuing to invest even when markets are going down, as you will be buying assets at cheaper prices which should generate healthy returns over the long run," said Oliver.

"In general, with your KiwiSaver investment, focus less on the day-to-day share price/unit price movements - let the Generate team do that for you."

What to do when the financial markets are down.

Over the past few months, volatile oil prices and interest rates, and international conflicts like the crisis in Gaza have collectively contributed to share market weakness. Many KiwiSaver investors have felt the impact, with some balances reflecting the turbulence. However, just like other financial experts we’re advising our members against panicking over these fluctuating balances – and to stay the course.

If you’ve seen some movement in your KiwiSaver account balance, and you’re wondering what you should be doing, consider these two key points:

1. Focus on the Long-Term

It's essential to keep in mind that investments experience short-term ups and downs all the time. Thankfully, over the long term, diversified growth investments show an upward trend. 

For example, looking at the major events of the last hundred years you could count numerous wars, political tensions, and stock market slumps – while each had devastating effects, the financial markets always recovered in time and trended upwards. 

Warren Buffett probably said it best with this missive: “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Therefore, we recommend avoiding making hasty decisions, like changing your KiwiSaver fund, during times of volatility. Stay focused on your long-term financial goals.

Markets don’t like uncertainty, and while it is difficult to predict how current events will end or when the markets will recover, we have a long-term investing strategy, which means that when they do, we’ll be in a good position to take advantage of this. 

This strategy has worked well for us to date, as demonstrated in our most recent 10-year results; as of 30 September 2023, the Generate Focused Growth Fund ranked 1st in the NZ Multi Sector Aggressive Category for 10-year returns with 9% p.a. (compared to the market average of 8% p.a.), while the Generate Moderate Fund ranked 1st in the NZ Multi Sector Moderate Category with 5.2% p.a. (compared to the average of 4.3% p.a) ¹.

2. View your KiwiSaver account as an investment – not a bank account. 

This is a good thing – it means your investment has the potential to grow over time!

However, it's equally important to acknowledge that all investments carry some level of risk. Depending on the type of KiwiSaver fund you've chosen (Conservative, Growth, Aggressive, etc.), your fund may be considered riskier or more conservative, especially during periods of market volatility.

For example, Growth and Aggressive funds (like the Generate Focused Growth Fund) have a higher exposure to sharemarkets than funds like our Conservative or Defensive Fund. While this makes them more susceptible to fluctuations, the flipside is that when the markets are performing well, these funds also have the potential to perform well and generate a higher return than Conservative and Defensive Funds.

For this reason, we recommend trying to view market downturns as a natural part of investing. Don't expect your investments to only go up. Accept that volatility is part of the process. Stay patient and maintain a long-term perspective.

Staying informed about the reasons and underlying causes behind market movements may also help provide perspective as to why your balance is moving. We try to keep our members informed on these underlying causes in our regular newsletters and website articles. See more here>

Talk to the experts.

Market volatility can test even the most confident investors. But it's important to stay calm and avoid panicking to prevent locking in losses.

If you are feeling unsure about your KiwiSaver investment or find market volatility too stressful, we encourage you to speak to an adviser. Our team can be reached during business hours on 0800 855 322 or at info@generatekiwisaver.co.nz

We’re here to help.

The Generate Team