There has been a lot of discussion this week regarding global sharemarkets. The US saw its biggest one-day decline for US shares in more than 6 years on Monday, and other global sharemarkets have weakened this week. The New Zealand market was closed for Waitangi day, but played catch up and dipped when it opened Wednesday. The market declines have resulted in plenty of press coverage, and understandably some nervous investors. But amongst all the headlines and numbers, it can be hard to figure out what it all means, and how it could affect you and your KiwiSaver investment.
What’s important to remember is this sort of movement in the sharemarkets is not totally surprising, and sharemarket dips do happen from time to time. In fact, what has been somewhat surprising has been the lack of volatility in the sharemarkets over the past year or so. Until the current dip, the US sharemarket had been enjoying a stellar run, with the S&P 500 index of US shares up 5.6% in January alone. That January gain was the 15th straight monthly gain, which is an incredible run of consistent monthly gains.
Other sharemarkets, including our own have also had a very positive run over 2017. These gains are reflected in our recent ASB KiwiSaver Scheme returns to investors, which you can read here.
Whilst the recent sharemarket headlines may make people uncomfortable, they need to be put in the context of long-term sharemarket performance. In other words, it’s important to factor in the large gains over the past year when considering the February declines.
We can’t rule out further movements in the sharemarket, but at this stage these movements are consistent with dips we have seen over the past decade.
Whenever the headlines are worrying, it’s important to take stock of why you’re in KiwiSaver. Will you use it to buy a house a year from now or will it fund your retirement in a few decades? The right KiwiSaver fund for you will depend on the timeline of your goals and your own feelings towards the risks of investing. KiwiSaver savings are generally invested in a combination of shares, property, bonds and cash and the way your KiwiSaver savings are allocated between those depends on your fund. Because of this, most KiwiSaver funds will be influenced by movements in financial markets including global sharemarkets.
Growth assets such as shares that make up a growth fund should yield higher returns in the long run, but are more volatile in the short term. These growth-focused funds are better suited to people with longer timeframes who can ride out these market cycles. Meanwhile a conservative fund, with a smaller exposure to shares and a greater exposure to cash and bonds might offer more stability in the short term but lower potential returns in the future. Everyone’s risk tolerance is different, and we’re not all working towards the same goals, so it’s a decision only you can make.
At ASB, we make investment decisions based on medium to longer term expectations because that’s the approach we believe will deliver the best investment outcomes for you. Although market dips are unpleasant, we do expect them to happen from time to time, and factor such adjustments into our investment decision making process. If you’d like to check that you’re in the right ASB KiwiSaver Scheme fund for your goal and investment timeframe, you can speak to a KiwiSaver specialist on 0800 272 738 or discuss your options at your local branch here.
Updated February 9, 2018: With global sharemarkets remaining volatile this week, we've received enquiries from customers concerned by the changing value of their KiwiSaver accounts. Here are the answers to some frequently asked questions:
Why is my balance going down?
Apart from cash funds, part of your KiwiSaver savings is invested in the global sharemarkets. When the value of the sharemarkets change, this is reflected in your KiwiSaver balance. The number of units you own has not changed, just their value. This is to be expected, and dips happen from time to time. Ups and downs in the sharemarket are all part of the cycles the market goes through.
What can I do about it?
KiwiSaver is a long term investment. These short term events should not change your long term investment strategy, namely your choice of fund. If you’re in the correct KiwiSaver fund for your goal and investment timeframe, you don’t need to do anything.
Am I in the wrong fund?
The appropriate KiwiSaver fund for you is dependent on your investment goals and timeframe. To check whether the fund you’re currently in is right for you, check out our help me choose tool here, visit your local branch or call us on 0800 272 738.
If you’d like to know more, our economists have written a more detailed update explaining what’s happening in the financial markets here. You can subscribe to further updates from them by following this link.
This document does not have regard to the financial situation or needs of any reader. As individual circumstances differ, you should seek appropriate professional advice.
Returns are a reflection of past performance and are not a guarantee or indication of future performance because returns fluctuate (move up and down). Returns can be negative and you may receive back less than the total amount of your contributions.
Interests in the ASB KiwiSaver Scheme (Scheme) are issued by ASB Group Investments Limited, a wholly owned subsidiary of ASB Bank Limited (ASB). ASB provides Scheme administration and distribution services. No person guarantees interests in the Scheme. Interests in the Scheme are not deposits or other liabilities of ASB. They are subject to investment risk, including possible loss of income and principal invested. For more information see the ASB KiwiSaver Scheme Product Disclosure Statement available from ASB’s website and the register of offers of financial products at www.business.govt.nz/disclose (search for ASB KiwiSaver Scheme).