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The ups and downs of KiwiSaver

04 March 2016 / Published in Your Money
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ASB’s Senior Investments Manager Gareth Stratton explains market volatility and the impact it has on KiwiSaver account balances.

The recent downturns in international share markets have affected some KiwiSaver account balances. That’s because your savings may be invested in shares, both in New Zealand and overseas.

As a result your KiwiSaver account balance might be lower than it was a few months ago. That can be upsetting, but don’t panic. Fluctuations in your account balance are to be expected.

How KiwiSaver works

The value of your KiwiSaver account may go up and down as markets fluctuate. So there may be times when it looks like you’ve made a loss.

Funds offered by KiwiSaver schemes generally invest in a mix of assets such as shares, property, bonds and cash. This is called diversification, which is really just a fancy way to say “don’t put all your eggs in one basket”. Diversification can help to limit the effects of a downturn in the market

What is market volatility?

World markets have times where they move up and down more than usual. This can be caused by significant financial, environmental, social or geopolitical events (for example a recession, natural disaster, an act of war or an unexpected law change). These market movements can affect your KiwiSaver savings.

3 things to remember about your KiwiSaver savings

1. KiwiSaver is a long-term investment

KiwiSaver is designed to help you save for your retirement. It is a long-term investment, and is very different to a savings account or term deposit.

When you first enrolled in a KiwiSaver scheme, you might have chosen a particular investment fund. Each fund has a particular investment style. Some funds are more aggressive in their approach to growth, while others aim to avoid too much risk.

You need to decide how you feel about the balance between investment risk (how much an investment may move up and down in value) and the potential returns you might expect. If your investment going up and down in value is likely to keep you awake at night, you should consider investing in a lower risk fund.

2. The market will pick up again

Markets are cyclical and we expect them to move up and down over time. Prior to the recent market volatility, world markets have experienced growth in recent years. It is impossible to predict when these cycles will start and finish. Investors who try to avoid volatile periods in share markets risk missing out on gains that can follow.

The nature of investments mean they go up and down over the long-term. But we understand it’s also human nature to worry about a shrinking balance. You’re better off not being too focused on the day-to-day changes in your KiwiSaver account balance, and instead looking at the longer-term trend.

3. You’re now buying lower

Every contribution you make to your KiwiSaver account buys new units in your KiwiSaver account. When the market is low, you’re actually buying those units at a lower price.

The units you’re buying now will help your KiwiSaver account grow over time as markets improve.

If you’re unsure about your fund selection, you can complete the online investor profile questionnaire to find out what type of investor you are and which fund might suit you.

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