It's not easy seeing your KiwiSaver balance fall in value. Award-winning KiwiSaver provider Milford spoke with Newshub about what's causing markets to move lower and what it means for KiwiSaver investors.
KiwiSaver is a fantastic way to grow your savings over the long term. Between the contributions from you, your employer and the Government, plus the investment returns your KiwiSaver provider can deliver, your savings can grow substantially over time. However, because your money is invested in share markets and bond markets, you can expect periods where your investment falls in value. Although this is a natural part of investing, it's not easy to see your balance fall.
Here are a few answers to common KiwiSaver questions that may be on your mind right now.
Why are markets going down?
Interest rates are the foundation of financial markets. Record low interest rates have helped stimulate the global economy and drive share markets higher in recent years. But now the opposite is happening. Interest rates are going up to try and slow down surging inflation, and this change is negatively impacting the outlook for economic growth and company profits. This less positive outlook is now being felt by investors around the world – including KiwiSaver investors.
My KiwiSaver balance is going down, should I continue contributing?
In the short-term, share markets go up and down in value but over the long term they tend to go up. The legendary investor Warren Buffett is known for saying the share market is one of the few places that when there is a sale on, nobody wants to buy. The challenge is that when markets are falling, it's very hard to see past the pain and continue adding money to your account. But for long-term KiwiSaver investors, continuing to contribute to your account when markets are 'on sale' is typically a good opportunity to grow your savings. Think of it like buying a product on Boxing Day instead of on Christmas Eve.
What sort of fund should I be in right now?
Before choosing your fund, it's important to make sure you've actively chosen your KiwiSaver provider. Once you're happy with your provider, you'll want to make sure you're in the right type of fund for you. Consider these three things:
Your investment goals. There are a range of goals KiwiSaver investors might have. For example, are you saving for a first home? Are you saving for retirement? Or perhaps you're already in retirement and using your KiwiSaver to draw an income to help fund your lifestyle.
Your investment timeframe. Your goals will impact your timeframe. If you're saving for a home in the next couple of years, you have a short investing timeframe. However, if you have many years until retirement, then you have a long investing timeframe.
Your risk tolerance. This is how comfortable you are with the trade-off between risk and return. Higher-returning funds are also higher-risk. Are you happy to accept more falls in value if you're more likely to get higher returns in the long term? Everyone's risk tolerance is different – if you're curious about your own, there are tools online to help.
In summary, conservative funds are designed for investors with shorter-term goals and/or investors with a lower tolerance for risk. While growth funds are designed for investors with longer-term goals and a higher tolerance for risk.
Switching funds to try and avoid market volatility can mean you lock in losses and then miss the recovery, which can really hurt your long-term investment results. In a volatile market like we're in right now, it's especially important to make sure you're in the right fund for you and to stay the course. If you're not sure if you're in the right fund, don't worry, you don't have to go at it alone. There are a range of financial advice options available.
Where can I get financial advice?
There are many sources of advice, but we'd suggest you choose a professional to help. Whether that's a Milford Adviser, a financial adviser in your community, or one of the online digital advice tools available. Professional advice can help you get on track toward achieving your goals.
In fact, research by the Financial Services Council in 2020 showed that New Zealanders who get advice save more, invest more, travel more and overall have improved wellbeing. It also showed that those who seek advice have greater peace of mind and confidence in making financial decisions.
If you're keen to get started, then you can check out Milford's Digital Advice Tools for some expert guidance.
Disclaimer: This article is intended to provide you with general information only. It does not take into account your objectives, financial situation or needs. Please read the Milford KiwiSaver Plan Product Disclosure Statement as issued by Milford Funds Limited at milfordasset.com. Before investing you may wish to seek financial advice. For more information about Milford’s financial advice services visit milfordasset.com/getting-advice. Past performance is not a reliable indicator of future performance.
This article was created for Milford.