Q I am in a KiwiSaver Growth fund. Over the past two months the value has been going down, down, down. I am 52 so this is still a long-term investment for me. I realise the fall in value is partly due to the war in Ukraine, and the rising cost of living. My question is, I have heard about "buying the dip" when markets fall. Should I do this by increasing my KiwiSaver contributions at this time?
A You are in a Growth fund, which means you have more shares than a Balanced or a Conservative investor. S
hares deliver better returns in the long run, but there will be sharper rises and falls along the way, as you are seeing now.
It is good that you are not considering bailing out on your Growth fund. Some investors choose a Growth strategy when markets are doing well, but get cold feet when markets fall and move to a lower risk fund, with the intention of moving back when markets recover. Not only do they lock in losses, but they are highly likely to miss the rebound when it occurs.
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Should you "buy the dip"? This means adding to your investment when the price has dropped, in the expectation that it will bounce back in time. Investors who buy individual stocks may be tempted to buy more at a time like this, but they need to ask themselves why their stocks are down, and how long it may take them to recover? In the case of KiwiSaver, your money will be spread across a basket of investments, and your regular contributions will be going into your account every month.
At times like this, it is very important to stick to your strategy. I asked Mark Riggall, Portfolio Manager for Milford Asset Management for his thoughts and he replied: "The current environment has inflation running well above global central bank targets.
"This means that they have to raise interest rates aggressively to reduce demand (growth) and bring inflation under control. Compounding the problem is the fact that many asset markets (shares and physical assets such as property) appreciated to unsustainable valuation levels. So now we are going through an adjustment process where asset prices are revaluing lower. For long term (KiwiSaver) investors, the outlook is improving because lower valuations now mean better future returns (we want to buy when prices are cheap and sell when they are expensive).
"Timing the market is very difficult. This adjustment process could complete in the next month, or the next six months — it is hard to know. A KiwiSaver investor should take the long view and see regular contributions as a way to 'dollar cost average' — the same dollars invested each month are buying more units in a particular fund as prices fall. This is the best way to deliver a good outcome at retirement (hopefully by which time the current volatility will be a distant memory!) Consider using an active manager who will be positioning their fund to take advantage of particular market conditions, so the end investor doesn't have to think about it."
In your situation, you are still 13 years away from getting access to your KiwiSaver. Do you have savings outside of KiwiSaver? If you have surplus money to invest, look for a fund that is not locked in, rather than increasing your KiwiSaver contributions.
Your KiwiSaver provider can probably help you — or talk to a financial adviser. With interest rates and the cost of living rising, having a "rainy day" fund will give you peace of mind.
- •Shelley Hanna is the communications manager with Peak Portfolio Management Ltd which is a Financial Advice Provider licensed by the Financial Markets Authority. Disclosure information is available at www.peak.net.nz or call 06 8703838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product. Send your KiwiSaver questions to email@example.com