KiwiSaver’s First Rule: Don’t Panic
Mark Rosevear is Senior Director, Investor Services at Milford
OPINION: Barring a short, sharp drop at the start of the Covid pandemic, global stock markets have generally been a good place for investors over the past decade. Currently, however, these markets have lost some of their luster.
Part of the reason for this is rising inflation and interest rates and the expectation of slower or even slower economic growth and lower corporate profits as a result.
While we all know markets go up and down, we especially feel the lows. It’s human nature – and it even has an official title: loss aversion.
* How to invest your money in times of inflation
* Why you shouldn’t panic if your KiwiSaver dives
* Do you need to switch your KiwiSaver from growth to conservative?
Loss aversion, along with the tendency of most people to value recent events more than historical ones, is why people find it hard to watch their investments lose value.
The harsh truth is that markets operate in cycles: periods of strong growth are followed by periods of stagnation or even falling prices. But over the long term, they tend to increase.
Successful investing involves tailoring your investment decisions to your time horizons, risk appetite, and future intentions.
With that in mind, here’s how we’re answering some of the questions our KiwiSaver and Investment Fund clients are asking us right now.
My KiwiSaver balance is decreasing, should I continue to contribute?
Legendary investor Warren Buffett says the stock market is one of the few places where, when there’s a sell-off, no one wants to buy.
When markets fall, it is very difficult to see past the short-term pain and uncertainty. But for long-term KiwiSaver investors, contributing to your account when the markets are “on sale” is usually a good opportunity to grow your investment.
Think of it as buying a product on Boxing Day rather than Christmas Eve.
What type of fund should I be in right now?
Before choosing your fund, consider these three things:
Your investment goals. For example, are you saving for a first home? Are you saving for your retirement? Or maybe you’re already retired and using your investment to earn income that will help fund your lifestyle.
Your investment calendar. Your goals will impact your timeline.
If you are saving for a home within the next two years, you have a short investment time frame and less ability to weather short-term fluctuations in the value of your investment. However, if you have many years before retirement, you have a long investment window.
Your risk tolerance. It’s how comfortable you are with the trade-off between risk and return. Higher yielding funds also have higher risk. Are you happy to accept short-term fluctuations in value if you are more likely to earn higher returns over the long term? Everyone’s risk tolerance is different – various KiwiSaver providers have online tools that can help you gauge the level of risk you’re comfortable with.
In general, conservative funds are designed for investors with short-term goals and/or investors with a low tolerance for risk, while growth funds are designed for investors with longer-term goals and a higher risk tolerance. high risk tolerance.
With the markets falling, should I get out before they fall further?
Moving your money into a low-risk cash fund to try and avoid further market declines can reduce your losses if the market falls further. But it can also mean that you miss a market rally, which can really hurt your long-term investment results. Consider your goals, timeline, and risk tolerance and if they haven’t changed, your best decision might be to sit back and try to weather the storm.
What about changing KiwiSaver provider?
If you change KiwiSaver provider and stay in the same type of fund (e.g. balanced fund to balanced fund), that’s probably fine.
But before you switch fund types, for example from a growth fund with one provider to a conservative fund with another provider, pause and think about your goals, timeframe and risk attitude before you start. ‘to act.
Where can I get financial advice?
Get help from a professional. Whether it comes from your KiwiSaver provider, a financial advisor in your community, or one of the online digital advisory tools available, good advice is an essential ingredient for a successful investment.
Disclaimer: This article is intended to provide you with general information only. Before investing, you may wish to seek financial advice.