KiwiSaver members are being urged not to panic with the New Zealand share market down more than 10 per cent since it reached a record high just over a year ago.
The S&P/NZX50 fell to 12,080 points in early trading on Monday morning - an 11.5 per cent decline from its January 8, 2021, record high of 13,643.78 although it made up some ground in the afternoon.
The drop is considered to be a technical correction and comes as US markets have also had a wobbly start to the year driven by inflation concerns. The S&P500 is down 7.73 per cent year to date although it is up 14.49 per cent over the last year.
Katrina Shanks, chief executive of Financial Advice New Zealand, said KiwiSaver members needed to remember that shares and managed funds (like KiwiSaver) were cyclical.
"When you invest in KiwiSaver it is not short term it is long term and with long term views and cycles they go up and down.
"The most important thing is people don't panic and they don't sell and lock in their losses. And if they are concerned that they should go and seek some financial advice."
Shanks said part of that was understanding their risk tolerance which changed with a person's age and stage of life as well and whether they were looking at accessing their KiwiSaver money for retirement or to buy a house.
"At different stages of your life you view your KiwiSaver differently so it is important to understand that. But the most important thing is not to panic."
Shanks said KiwiSaver funds were still delivering results that were relatively impressive and every managed fund was different and was configured differently.
"That is why it is important you understand what type of fund you are in; whether it is conservative, growth or balanced. It is really important that you manage your KiwiSaver."
She said a lot of Kiwis went into the scheme and once they had selected their KiwiSaver scheme or in many instances gone into the default scheme they did not think about it again.
"It is a fund you should be thinking about - it is one of your biggest assets that you are going to have, especially if you are young, for a long period of time and it is important that you manage your assets and understand you are in the right KiwiSaver for you."
Shanks said it was also important to understand that different funds go up and down at different times and outperform each other over different periods depending on the selection of investments in the fund.
"There is never going to be a perfect fund. The most important thing is to understand your risk tolerance. That has got to be the most important part and whether you are in the right type of fund is key."
She said markets were dropping all over the world.
"It is not just New Zealand, it is a global cycle that we are seeing occur at the moment."
Apart from a six-week sharp drop in the share markets during February and March 2020 there had been a strong bull run in the global share markets for a long time.
Shanks said there was a whole young generation coming through that had never seen anything but it going up.
"For them it can be quite shocking and disturbing, especially now because people can review it and they do and watch it quite closely on their phones and on their apps. Seeing it go up and down can be alarming for those people that haven't seen drops before in the marketplace."
But she said it was par for the course of the share market.
"That is why you also see the fund managers manage their portfolios quite closely and change them accordingly."
Murray Harris, head of distribution at KiwiSaver provider Milford Asset Management, said
drops in markets could be concerning for anybody of any period.
"But KiwiSaver members shouldn't be concerned and one of the reasons is the beauty of KiwiSaver is it is a long term investment for most people."
He said the average age of members was around 45 years so the average member had 20 years left in it so they could handle the ups and downs of markets.
"If you are older and closer to 65 and accessing your money then you may be more concerned about falls in markets because you have less time to recover."
But he said most KiwiSaver funds were well-diversified so a fall in one market like New Zealand shouldn't be a concern because a diversified fund could balance out a fall in one market with a rise in another.
"Right now all markets have fallen. There has been a correction going on towards the inflation genie out of the bottle and higher interest rates. But KiwiSaver members should have a long-term view and be well-diversified."
In 2020 there were a number of KiwiSaver members who switched out of growth funds and into conservative funds when the market dropped sharply.
Harris said people who switched missed out on the bounce-back in returns as they either never switched back or were too slow and missed out on the initial rise which could often be the strongest.
"Inevitably they are switching after the fact because the market has already dropped, so they are crystallising the loss and nobody can predict the future or has the crystal ball to say when is the right time to switch back so you are better off to ride it out if you are in the right fund with the right risk profile for your goals and your appetite then you have got nothing to be concerned about."
He said the advice was typically if your circumstances hadn't changed then stick with the plan, stick with the game long-term.
Tim Murphy, director manager selection APAC for Morningstar, said KiwiSaver for the majority of people should be thought of as a long-term investment and so any short term bad performance, if you have the right plan in place, should not be a big cause for concern.
He said New Zealand was one of the worst-performing share markets in the world last year and was an outlier.
But other markets like the US were up 20 to 30 per cent.
"The good news for KiwiSaver members is that most funds have fairly low exposure to NZ shares."
He said data from its September 30 report showed only 11.3 per cent of KiwiSaver assets were in NZ shares.
He said looking at the performance to December 30 all bar one of the diversified funds had made a positive return.
Only one had lost money in 2021 and that was down 0.58 per cent.
Category average returns were 8.2 per cent for balanced, 11 per cent for growth and 17 per cent for aggressive for 2021.
He said a lot of the money in KiwiSaver was in balanced funds. "Over 8 per cent over any time period in a balanced fund is pretty good."
Murphy said for most people the best thing would be to do nothing assuming they had made a considered decision about which fund to be in based on their risk profile.
But still he expected some to switch.
He said those concerned about the drop in the sharemarket should ask themselves what was the purpose of their KiwiSaver investment?
"If it is to save for your retirement and you have got years, decades for that to play out."
Those wanting to buy a home soon should have their money invested in a conservative fund that had lower exposure to shares, he said.