What to do with your KiwiSaver in a market downturn
Remember when financial commentators kept warning that the good times couldn’t last forever?
In the investing world, that’s called ‘volatility’ and is simply part of the ride. The reality is, no one knows when markets will turn, just that sooner or later they will. It’s a bit like looking out the window on a sunny day and predicting when it will rain again, one day or another.
Well, that rainy day has ultimately come. And at the moment, it feels like a perfect storm. So, if you’re wondering what to do with your KiwiSaver, now is a good time to press pause and have a read. Here are some great practical tips on what to do (and not to do) while markets are wobbly.
1. Don’t panic
There’s a general rule of thumb in investing: making long-term decisions based on short-term emotions is not a good idea - the markets will have their ups and downs so unless you’re looking at using your KiwiSaver savings for a first-home deposit, you’re in it for the long haul.
The point here is, it’s really difficult (if not impossible) to time the markets, and more often than not if you try to pick the bottom and reinvest when things start growing again, it’ll end badly - even if you try to follow trends. This is because market movements are simply too unpredictable. So rather than hitting the panic button and making impulsive decisions, treat market downturns as a good opportunity to press pause and look more closely at your KiwiSaver.
2. Is your KiwiSaver set up properly?
Now can be a good time to give your KiwiSaver a check-up. For example:
Are you in the right type of fund?
Rather than worrying about short-term market movements, use this time to check in on your KiwiSaver account, making sure the fund type you’re in still aligns with your risk appetite and investment timeline.
These things will depend on how you feel about volatility (and potential money losses AKA your risk appetite), and more than anything else, on when you’ll need to use your KiwiSaver savings by (this is your investment timeline). For example, if you’re invested in a growth or aggressive fund, and you’re planning to use KiwiSaver for your first home in the next few years, you will want to think about switching to a lower-risk conservative fund, swapping out some of those higher-risk growth assets (I.e. shares/stocks) for some lower risk assets (I.e. cash, bonds, and term deposits) . But if your end goal is retirement and it’s far away, a growth or aggressive fund is probably appropriate for you.
Are your fees too high?
When it comes to building wealth, every dollar counts. Fees play an important role in this – as you will continue to pay fees regardless of how the fund performs or how much you have contributed to your KiwiSaver each year.
It's important to make sure you review and understand all components of the fees. Higher fees don’t necessarily equate to higher returns just as low fees don’t necessarily mean good value. But if you’d like to minimise fees, you need to take a closer look at your KiwiSaver provider's fees and decide whether it’s a good fit for your goals or whether you might need to shop around.
As an example, kōura fees are almost half the industry average at 0.63%. For the average KiwiSaver member (earning $80,000 growing with inflation and invested from age 30 to 65), that means you could pay about $50,000 less in fees over your KiwiSaver lifetime. You can see how much you are currently paying in fees by trying out our quick online check-up tool.
Do you get the help and support you want and need from your KiwiSaver provider?
Lastly, are you getting the sort of service that you expect and deserve? Good performance is obviously important but getting support from your KiwiSaver provider is crucial too. Proactive communication, ease of use, and excellent customer service – are just some of the key things you should look for. As we like to say, good retirements don’t just happen, they’re planned for and invested in. And its nice to know there is always that little extra help if you need it along the way. That’s why we believe in our digital advice tools: it makes accessing quality, personalised advice more easily accessible.
3. Don’t be afraid to switch KiwiSaver provider
There’s a lot of commentary around leaving your KiwiSaver alone during market downturns, which people usually interpret as a blunt warning not to change or touch anything. While it’s true that it’s best not to panic and go conservative in the spur of the moment, you can still have a look around and see if another fund is more appropriate for you.
Now is as good a time as any to find a KiwiSaver provider that will look after you all the way through to your retirement. Changing scheme providers costs nothing, and if you change to a similar fund (e.g., from a growth fund to another growth fund, if that aligns with your risk profile), you are unlikely to miss out on any gains when the market rebounds. Once you’ve moved, you can still change things (like your risk level) at a later date, with added confidence in your KiwiSaver provider.
4. Keep contributing
Lastly, contributions are really important, especially during a market downturn. If for example, you were in a growth fund (that is largely made up of growth assets such as stocks) – it means that essentially every time you invest money I.e., contribute to your KiwiSaver account, you’re buying a small piece of a company or lots of different companies. So, if markets drop by 20 per cent, you’re effectively buying pieces of that company at a 20% discount compared to where it was a few weeks ago.
By continuing to contribute the whole way through, when markets eventually rebound (which they will), you’ll be in the front seat of the recovery. And the contributions that you’ve made through this period will likely be worth a whole lot more. As counterintuitive as it may sound, you might even consider increasing your contributions if you can afford to so you can get as much as you can while it is on sale.
Here is the bottom line
As human beings, when something goes sideways, we’re wired to think that we need to do something to fix it. But that’s not the case with a market downturn. In fact, it’s one of those things that’s already happened: you just have to ride it through.
So, once you keep emotions at bay, you probably don’t need to do much with your KiwiSaver at all. Just check that you’re in the right fund type for your risk profile, and with the most appropriate scheme provider for your needs and goals. Then, you can put your KiwiSaver worries aside for the next little while (at least three to six months) – there’s no need to check it anymore.
Feel like you need to take a closer look at your KiwiSaver plan and strategy? You can try using kōura’s digital advice tools to help you see how things could look. Advice for KiwiSaver is available to everyone (check out our article on the value of advice), if you want help with your KiwiSaver come and talk to us at kōura or reach out to your scheme or adviser.