What to do with your KiwiSaver in a market downturn?



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It's been a tough time for financial markets of late, and we know many KiwiSaver investors are wondering why and what they should do.

Inflation in New Zealand is the worst we’ve experienced in a long time, and global events and geo-political tensions continue to drive uncertainty and, therefore, market volatility.

If you’re wondering if there is something you should be doing to protect your KiwiSaver investment, read on, as Generate Wealth Adviser, Nick Zwi, provides some options of what KiwiSaver members can do in a market downturn.

1. Remember it’s normal for markets to go up and down

“This year has been an uncomfortable reminder that markets do not always go up in value, and downturns are a completely normal part of investing.” Says Zwi.

Remember that your KiwiSaver account is an investment – not a savings account, and so it will be influenced by global and local markets (this is how it grows!).

While we are currently in a ‘bear market’ (market down by 20%), the good news is that history shows that the markets will recover and over the long-term they’ll continue to trend upwards. Over the last 30 years, the S&P 500 increased by 1,703%, (or 10% per year) despite many market dips and blips including the Global Financial Crisis in 2008 – where the market went down some 40%!

We believe this time will be no different. The markets will recover – we just don’t know exactly when.

2. ‘Staying the course’ and sticking to your plan is usually the best thing you can do

“As human beings, we don’t like seeing our hard-earned savings going backwards, and you may feel the need to ’do something’ with your KiwiSaver, but knee-jerk reactions can be very financially damaging in the long run.” says Zwi.

“Making the deliberate decision to stick to your plan and avoid knee-jerk reactions, such as de-risking (e.g., changing from a growth fund to a conservative fund) or taking your money out of the market in response to a downturn is crucial. If you don't have a plan, or unsure if it's fit for purpose, then reach out to your adviser."

One of the worse things you can do is switch from a Growth to a Conservative fund when the market is down – by doing this you are effectively locking in your losses, and you may miss out on the opportunity to take advantage of rapid gains when the market bounces back.

We saw this at the start of the Covid-19 pandemic in 2020 when markets went down, many Kiwis switched out of their growth fund to a conservative fund – and more than $1b of KiwiSaver funds missed out on the rebounding market in the following months!

That’s why we recommend sticking to the longer-term plan you had before the volatile period.

If you were in a Growth Fund before the markets shifted, it’s likely this is still a good option for you; likewise, if you were in a Conservative Fund before the markets shifted, staying in a Conservative Fund, is probably the right thing for you.

“Instead of making any quick decisions, ask yourself if the reason why you invested in the first place has changed? Has there been a significant change in your circumstances? Or has your investment timeframe for your goal changed? If you've answered no to these three questions, then taking a long-term view and sticking to your plan will generally yield better results over the long term” says Zwi.

While no one likes seeing their investments going down, we urge Generate members to hold tight.

As Warren Buffet said, “Successful investing takes time, discipline and patience” – and we think this is true especially in times of market volatility.

“If you’re concerned about your KiwiSaver investment or reaching retirement and plan on withdrawing your funds soon, speak to an expert before making any big changes to your account, so that you can make an informed decision. It never hurts to get expert advice before pulling the trigger on such an important financial decision.” finished Zwi.