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