Widespread stock market falls due to coronavirus and the US-Europe travel ban have rattled investors worldwide, including people invested in KiwiSaver.
Following widespread drops in local and international share prices, KiwiSaver balances aren't immune. For people worried about how the turbulence is affecting their KiwiSaver balance, experts told Newshub that their best advice is not to panic.
Amanda Morrall, head of communications at Simplicity said that funds invested in international shares will be most affected by falling indices and company valuations - but lower-risk funds are also struggling.
"While those in cash and conservative funds may be spared some of the recent carnage, they're challenged by our low-interest-rate environment," Morrall said.
Tom Hartmann, Sorted editor at the Commission for Financial Capability (CFFC), said that as KiwiSaver funds contain a mix of shares and other investments, current balances are likely to reflect plummeting share prices.
"Markets around the world are riding a rollercoaster of ups and downs in reaction to economic fallout as the virus makes its way around the globe," Hartmann confirmed.
Although it's tempting to 'sell-out' of everything risky, people with KiwiSaver funds invested in shares are advised not to make any knee-jerk reactions.
"As soon as you do that, you're stepping away from any recovery," Hartmann said.
A 'growth' fund which typically holds 63 percent to 89.9 percent of money in assets such as shares and property provides bigger swings in volatility: bigger losses now, but benefits from an eventual bounce-back.
"As soon as you pull into 'conservative', you crystalise those losses," Hartmann said.
As no one can accurately predict whether markets have hit the bottom, will fall further or are due to recover, it's risky to change an investment fund purely on what markets are doing.
"You want a strategy in-place so you don't have to react to everything that happens: that strategy is based on how soon you need the money," Hartmann said.
If people are looking at buying their first home within the next three years, they should consider moving to a 'defensive' position, such as a 'cash' fund.
"You don't get alot of growth, but at least you know the money is going to be there," Hartmann said.
If KiwiSaver money is needed soon, a 'cash' fund is likely to provide the most stability, or a 'conservative' fund might be suitable if there's more leeway.
"A conservative fund might hold a portion of shares as high as 30 percent," Hartmann said.
Values of shares in companies exposed to travel and exports may be dropping now, but this could also be a good time to stay invested in them.
"Set your strategy so you don't have to react," Hartmann said.
"The market goes up and down like an escalator: we're in that elevator fall.
"It's about riding it out, sticking to your strategy and making sure you have the right allocations in the right fund for you," Hartmann advised.
People trying to grow their KiwiSaver balance for a first-home who don't have a time-based goal and aren't gearing up to retire are advised to stay the course.
"As soon as you make a decision, you need to protect that," Hartmann said.
For KiwiSaver investors, Morrall shares her three top tips:
- Don't panic: younger members will have time to see this latest downturn recover. If you live to your late '80s or 90s, and you keep your funds invested, they too will eventually recover.
- Respond, don't react: switching from a growth-oriented fund to a conservative one can be a costly mistake because losses are crystallised. "These investors buy back into the market when they feel it's safe to do so, but pay a much higher re-entry price to return to the fund they abandoned," Morrall said.
- Rest and reset: review your KiwiSaver provider and fund type, including fees and the amount you contribute.
"[Check] what you're paying in administration and investment fees: many KiwiSaver members still think they're only paying $30 per year to have their fund managed," Morrall said.
"[Also] check long-term projections to see if you're on track to have what you feel you'll need at retirement."
Whether savings are invested a defensive, conservative, balanced, growth or aggressive fund, once goals are set and reviewed, during this period of market turmoil, 'stay the course' seems the most reliable.