Don't panic - your KiwiSaver will outlive Trump's presidency
KiwiSaver investors are being urged not to panic in the face of wild swings on world financial markets, following Donald Trump's victory in the US presidential election.
Wall Street gained ground this morning, after yesterday's selloff on the New Zealand, Australian and Asian markets. But the experts say the volatility is likely to last for months.
The Commission for Financial Capability says investors should not lose sight of their long-term savings goals.
General manager of investor education David Boyle says investors need to remember that KiwiSaver, and other retirement funds, are a long-term investment. A person in their 20s could be in KiwiSaver for 40 or more years. A child might be in KiwiSaver for more than 60 years.
Mr Boyle says it can prove a big mistake to make a long-term decision based on a knee-jerk reaction, and people should continue to make regular contributions to their KiwiSaver fund.
They should also think carefully before switching from one fund to another, or from one KiwiSaver provider to another.
Mr Boyle says if you have concerns you should talk to your provider to make sure you are in the right fund for your age and risk appetite. Many people will be tempted to move from a growth fund to a conservative fund, because the conservative funds have less exposure to global shares - but they risk getting their timing wrong.
They have to think about whether they will be locking in losses and then missing out on potential gains if the markets rally.
Before yesterday's selloff the New Zealand market had already lost more than 10 percent in recent weeks.
The markets could well go down from here, but if an investor makes regular contributions they are dollar-cost averaging.
Dollar-cost averaging means that people put a fixed amount into their retirement fund on a regular basis (for example 3 percent of their salary each month). It means they can forget about the stress of trying to time the markets.
If they put a fixed amount of money into their fund each month, they will be buying more shares (or units in the fund) when prices dip and fewer shares when prices move higher. But regardless of the day-to-day moves in the markets, their total investment will compound over time.
It is impossible to say with any real accuracy where the markets will go in the short-term.
Mr Trump will not be sworn in as President until January 20. He has promised to be an inclusive President, and in his speech on Wednesday (NZ time) spoke about rebuilding the United States' aging infrastructure.
The Trans-Pacific Partnership looks doomed, but it is not clear how many of his other policies will be implemented.
Nor is it clear who he will appoint to his Cabinet. Those people will have a big influence on the presidency.
Although the Republicans control both wings of Congress, the Senate and the House of Representatives, that does not mean Mr Trump will be able to push through all his policies. He differs on some issues with some members of his own party, including free trade.
The US political system was designed to have checks and balances, with power split between the three branches of government: the executive (the White House), the legislative branch( the Congress) and the judiciary (the courts).
It is Congress which makes the laws. The President can veto those laws, and the courts can rule the laws unconstitutional.
The President can issue executive orders, which carry the force of law. But those can also be declared unconstitutional by the courts.
The Supreme Court is split 4-4 between liberal and conservative justices. There is a vacancy which will be filled by a judge picked by the next President.
Mr Trump will appoint a judge he hopes will carry out his wishes. But history shows that the justices often do not act in the way people expect they will.
The US system was designed this way to make sure that no one part of the government has too much power. Yes, it can lead to gridlock, but it is also intended to stop any single part of the Government from running amok.