Russia’s invasion of Ukraine is having devastating humanitarian effects in Europe, and has also caused volatility in financial markets around the world.
The S&P/NZX 50 fell sharply on Thursday 24 February to close at 11,733 (-3.3%); the biggest fall it’s had since the first COVID crash in March 2020 before gaining 2% since then (as at the time of writing). In the US, the S&P500 fell 5.2% during the Tuesday and Wednesday sessions but then almost entirely recovered these losses during the following two trading sessions.
This market volatility has affected all KiwiSaver providers and investments.
Seeing your KiwiSaver balance or other investments go down may understandably make you feel nervous; so, it’s important to remember KiwiSaver is a long-term investment.
Markets typically rebound from war and disaster, and they will likely rebound this time too. History shows that sticking with your plan and staying invested through the ups and downs delivers a better outcome at retirement.
Here are a few queries we’ve been asked lately:
Is my KiwiSaver invested in the Russian stock market?
Generate is not invested either directly or indirectly in the Russian stock market.
Is now a good time to switch funds?
We generally don’t recommend this. A volatile market creates both opportunities and risks and switching from a Growth to a Conservative fund when the market is down means you’d be locking in your losses. Sticking with your investment strategy through the lows and riding out the volatility, gives you the opportunity to buy units in your fund at a lower price - think of it like buying an item on sale.
What does this mean for inflation?
Even before Russia’s invasion inflation in New Zealand was at a 31-year high of 5.9%. These events will likely exacerbate near-term inflation with the potential for further disruptions in supply chains and a rising oil price. This could be bad news for term deposits and bank savings as inflation decreases the real purchasing power of money, so for long-term savers investing in markets can help your savings keep pace with inflation.
Only time will tell whether or not central banks look through this additional bout of inflationary pressure. NZ and the US already have several rate hikes baked in so it is not clear yet, as to whether the Ukraine crisis will result in even higher interest rates.