What to do if you are worried about your KiwiSaver balance

By Susan Edmunds RNZ

US President Donald Trump has set global financial markets wobbling… again.

The NZX opened lower on Tuesday, and many KiwiSaver investors checking their balances might have had an unpleasant surprise.

Here are five things to do if you’re worried about market volatility.

Every investor has a risk profile. This refers to how much risk you can afford to take, given your individual circumstances — particularly your investment timeframe.

Growth and aggressive funds tend to be a lot more volatile, but over time, they should deliver higher returns.

Morningstar data shows that over the past 10 years, they’ve delivered about twice the returns a year of the most conservative options.

The longer your investment timeframe, the more risky you can be, because you have time to ride out market movements. It won’t matter if your balance falls one year, because it has time to pick back up again before you need it.

The other aspect that might go into your risk profile is your personality. If you know you’re the type of person who would not be able to cope with seeing a balance drop, and could react negatively, you might choose to take less risk (Although it’s worth noting you can sometimes overcome this with a good adviser).

When you know your risk profile, you can check that you’re in the right sort of fund for it. If you’ve got 30 years until you’re able to access your KiwiSaver and you’re in a high-growth fund, that’s probably a suitable fit.

But if you’re buying a house in a few years’ time and you’re in a conservative fund, that might be okay, too.

Your first step in these circumstances should be to check that your profile lines up with your fund.

From there, you can usually sit tight. Moving your KiwiSaver investment when the markets have dropped is almost always a bad idea because you just lock in your losses.

We saw this in 2020, when the pandemic disrupted sharemarkets around the world. There was a surge in switching from growth funds to conservative funds.

Westpac said it processed 18,140 requests to switch in that time, but the decision to go conservative could have cost investors a lot.

It projected that someone with $25,000 in KiwiSaver who switched from a growth fund to a conservative fund on March 20, 2020, would end up with $387,938 in 2054.

But if they had left their money in a growth fund, they would have $615,423. If they had shifted in March 2020 and then moved back a year later, they would have $588,955 in 2054.

On some relatively rare occasions, you might have to move.

If you’re in a growth fund but plan to buy a house next month, you might now have realised you’re not in the right fund.

To ensure you know what you have available for your deposit, you might choose to move to cash, even if it means locking in losses.

In these cases, it might make sense to seek financial advice.

Provided your settings are right, the best course of action is usually to do nothing.

Stop looking at your balance, stop worrying about whether it’s moving around, and let your contributions continue as normal. Look back again in a few months, when everything will probably look a lot better again.

It might seem counterintuitive, but if markets are really having a tough time, you could choose to put more money into your investments.

Think about it like a sale at the supermarket — if you knew you were going to want to buy a bag of cat food every week for the next year, and this week the bag is on sale, you might take the opportunity to buy more.

Sharemarkets must be one of the few places where a sale is seen as a bad thing.

If you’re really worried, or wondering whether you need to adjust your approach to your investments, it may be sensible to seek advice. You can contact your provider in the first instance or seek advice from a KiwiSaver adviser.

Research has shown people who work with advisers tend to have better outcomes and also can often cope with periods of volatility more comfortably.

When you’re investing, market movements are all part of the process, but knowing what to expect and how your KiwiSaver should respond can make a big difference.

- RNZ