KiwiSaver members are being urged to sit tight and ride out the turmoil in financial markets which looks set to continue.

New Zealand's benchmark S&P/NZX50 index fell close to 1 per cent in early trading this morning before bouncing back to end the day up 1.4 per cent, despite another down day of trading in the United States.

It comes after markets around the world plunged yesterday in the wake of big drops in the S&P500 and Dow Jones Industrial Average.

The local bourse fell 3.64 per cent yesterday and has fallen for nine days since the end of September.

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But Diane Maxwell, New Zealand's retirement commissioner and the head of the government's money education arm the Commission for Financial Capability, said the sharemarket drops should not be a reason for people to mess with their KiwiSaver.

"KiwiSaver members may see a drop in the balances over the next week as the effects of the sharemarket fall ripple through to returns, but they shouldn't panic," Maxwell said.

"Like all long-term investments, your KiwiSaver balance will go up and down as the market fluctuates, but hang in there and you will gain in the long run."

Diane Maxwell said the sharemarket drops should not be a reason for people to mess with their KiwiSaver. Photo / George Novak
Diane Maxwell said the sharemarket drops should not be a reason for people to mess with their KiwiSaver. Photo / George Novak

Maxwell said the best thing people could do was sit tight and ride out the low patches knowing that when the market rose again so would KiwiSaver balances.

"We all get excited by our KiwiSaver balance when we see it in our banking apps; the downside is that we may be watching it too closely.

"KiwiSaver is a long game that will have bumpy patches, but will pay off in the end and make a huge difference to your retirement."

Mike Taylor, managing director of investment manager Pie Funds, said KiwiSaver members were hearing many competing views about what is happening to the market and what is going to happen.

"The sky is falling next Tuesday. Or in 18 months. Or maybe it's falling now.

"With so much speculation about the health of the markets, whether this downturn is just a jolt or something more lasting, what should a KiwiSaver member do?"

Taylor said KiwiSaver members should use this as an opportunity to ask their provider if they were in the right fund.

"Your KiwiSaver provider may advise you against switching out of your fund to a less risky option.

"They'll have said something about investing for the long-term and if markets fall, don't crystallise your losses at the bottom. They may also have said: whatever you do, don't check out of KiwiSaver altogether by suspending or stopping your contributions."

Taylor said all that advice made sense, provided the member was in the right fund for their goals and circumstances.

"It's true you shouldn't panic. But while it's on your mind, and even with the market wobbling in the background, why not take the opportunity to look carefully at your fund and make sure it sits well with you, who you are and where you're headed?"

Taylor said members should check out the mix of growth and income assets in their KiwiSaver fund.

"Growth comes with more risk but can also achieve greater gains. Ask yourself, does that trade-off feel ok to you?

"Do you feel comfortable taking on more risk to achieve your retirement goals? Are you suited to the swells and dips (how are you feeling now – a bit queasy but OK? Or is your concern a bit deeper)?"

Taylor said some members may prefer more certainty.

"If that's you, consider a less growth-heavy mix, such as a well-structured balanced fund. Here, your money is at least partly shielded in crises, by your fund comprising income-producing assets which typically do better in downturns.

"And if you are still a long way from retirement, the portion of your investment in growth (which typically does well in the period after a downturn) has more time to recover from market shocks, if they come."

Taylor said it was also a good time to question whether you are with the right fund manager by asking your provider about what they are doing about the markets and how they coped with the down-turn during the global financial crisis or the more recent down-turn in the markets in February this year.

"We don't know if what's happening now is a proper hurricane or a squall. And we don't know when the next bad weather might sweep through markets.

"But either way, your KiwiSaver provider should be your beacon in the storm – not the albatross around your neck."