As KiwiSaver members watch their balances fluctuate due to the effect of the coronavirus outbreak on the sharemarket, they may wonder where it's going to end.

KiwiSaver expert Tom Hartmann, editor of the Sorted website run by the Commission for Financial Capability, answers the tough questions being asked right now.

1) My KiwiSaver balance is falling – why?

Your KiwiSaver account is not like a savings account where you store the money you have. It is an investment account, where the money you put in buys "units" of investments like shares, bonds or commercial property. The value of these units goes up and down on the sharemarket, for example, and so your KiwiSaver balance goes up and down with it.

Imagine you owned a single part of an orange sitting on a shelf in a supermarket, just a segment of it. When oranges sell for more at that market, the value of that bit you own is higher. When the price of oranges falls, your segment is worth less. Depending on when you sell it, someone else will pay more or less for it, and it will be worth a certain amount.

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So your KiwiSaver balance does not show what you "have" (like in a savings account), it shows what your investments are "worth" at a given time. And when the sharemarket falls, your balance can too.

2) Why has the sharemarket been falling?

When you own shares, you own a part of a business – you are a part-owner. When something like coronavirus happens, businesses and the profits they make are typically affected, making them less valuable (people will pay less for those shares you own).

That's essentially what's been happening in the sharemarket. The coronavirus outbreak is affecting many economies by reducing the production of goods, demand from consumers, imports and exports, and travel, among other things. So the businesses you own are facing headwinds, and the shares in those businesses fall in value as a result.

3) Will the market keep falling?

No one can tell the future (although many try). What we do know is that the market is volatile at the moment – a day of falling may be followed by a day of recovery. This is a reflection of the uncertainty surrounding coronavirus and what will happen. Each time something new happens, the market adjusts its future outlook and share prices rise or fall accordingly.

KiwiSaver investors have a choice whether to react to each thing that happens, or instead have a strategy in place to not have to do anything. When your KiwiSaver is set up in line with your goals and the right level of risk for you and your circumstances, these events and market swings are not as important. You can set and forget; you can ride out the ups and downs, even if it is a rollercoaster. Here's how to adjust your KiwiSaver settings.

4) Should I switch my KiwiSaver fund to one that's lower risk?

The moment you switch into a fund with less volatile investments like shares or property, you are choosing to avoid steep falls in value. But you are also stepping away from potential windfalls that generally come from investing in those kinds of investments. And if you've seen your balance lose money, you miss out on any eventual recovery.

Covid19.govt.nz: The Government's official Covid-19 advisory website

It's important to make a choice that helps you reach your goals... and not lose sleep at night, either.

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The key question to ask is, 'How soon do I need to use that money?' If you are investing for the long term (more than 10 years away), you can generally take on more risky investments like shares because you have the time to ride out the ups and downs and take advantage of the potential growth in value. Here are three questions to help you decide on which type of KiwiSaver fund is right for you.

5) What if I want to use my KiwiSaver as a deposit on a first home?

Once you decide to use your KiwiSaver money to buy a first home within the next three years, you don't have time on your side. You need to choose whether to invest in safer investments like cash, which never go down in value, to make sure the money will be there when you need it. KiwiSaver funds that are "defensive" hold mostly cash. Here's a list.

Sorted editor Tom Hartmann recommends looking at the long term when making decisions. Photo / File
Sorted editor Tom Hartmann recommends looking at the long term when making decisions. Photo / File

When you switch to a defensive fund, however, you trade possible gains in the sharemarket over the next few months for the security of avoiding losses. It's important to consider whether this is the right move for you, and it can help to consult your KiwiSaver provider.

6) What should I do if I want or need to retire this year?

The important thing to know with KiwiSaver is that you do not need to take all your money out or close your account – you can stay in for as long as you like. So the key question once again (you can sense a theme here) is, "How soon do I want to use that money?" If your KiwiSaver money is short-term money (i.e. you need to use it as soon as you retire), then you'll need to pull it into an investment mix that is defensive in order to make sure the money's there. But if it's medium-term or longer (4-9 years a decade or more away), your KiwiSaver can be invested in conservative, balanced or even growth funds.

7) I've switched to a conservative fund; if the market goes up again, should I switch back to a balanced or growth fund?

Research shows it's near impossible to time the market. What seems like the bottom may only be a false bottom, and there is more of a drop to occur; or what seems like the very top may only be a small peak in the greater scheme of things.

The goal is to have an investment strategy in place based on your goals so that you don't ever have to react to everyday ups and downs and can just stay the course. Find the right type of fund for you, pick your fund, and stick to it until your circumstances change and you need to adjust your strategy.

8) Can I temporarily stop contributing to KiwiSaver from my salary or wages?

You can suspend your savings for up to a year at a time, and then renew each year thereafter. Keep in mind that when you do, you are walking away from any employer contribution and government contribution you are entitled to, so you could be missing out on money that's rightfully yours and should be coming to you.

9) I'm self-employed - should I continue to make KiwiSaver contributions in this climate?

Setting aside a set percentage of your earnings regularly gets you two things: the government's annual contribution of $521, and the opportunity to buy investments that have fallen in value recently – and therefore are more on sale than they have been. If you are buying into KiwiSaver in the next few years to invest for the long term, you should not be concerned about losing money, you should be focused on the buying opportunity going forward.

10) I'm at risk of losing my job/business. Will I be able to withdraw money from my KiwiSaver if I'm in financial hardship?

Significant hardship is one of the legitimate reasons to withdraw your KiwiSaver money – that has always been an option in KiwiSaver. This is for those who are unable to meet living expenses, mortgage repayments, paying for medical treatment, suffering from serious illness, paying for funeral costs for dependants, and even modifying your home to meet special needs because of disability. The only thing you can't withdraw is any government money that has been added. If you've been a KiwiSaver member for at least three months, contact your KiwiSaver provider directly (employees who have more recently joined need to contact Inland Revenue instead).

So the short of it is that your KiwiSaver money can be used for hardship in the short term, but if you can find alternatives, your long-term wellbeing can stay on track. It's a trade-off about which you want to make an informed decision. Sorted.org.nz and the budgeting advisors at MoneyTalks can help you look at other ways of meeting expenses without accessing your precious KiwiSaver funds.