By BNZ General Manager Wealth, Peter Forster
Many KiwiSaver investors may have seen their balances take a dip recently on the back of some sharp ups and downs (with more downs than ups) across global markets. But really, this type of market movement is what we expect to see. KiwiSaver is a long-term savings option which means weathering difficult periods is part of the design rather than a flaw. What’s important is for members to keep their goals and objectives in mind and to choose an appropriate fund to suit.
For KiwiSaver account holders who have been investing for less than ten years it has been unusual to see balances reducing. This is because the past decade has been one of relatively consistent positive returns in the investment markets that your KiwiSaver contributions are invested into. Over longer time periods though, the impact of a full economic cycle will be felt and this means that there are likely to be periods of positive and negative returns. The key thing is that, over this longer time period, there should be more ups than downs!
Thinking about risk and return
It’s important to remember that KiwiSaver is primarily a retirement savings initiative. This means that for most New Zealanders the investments made are longer-term in nature. What the history of investing tells us is that more growth-focussed investment approaches, that are exposed to asset classes like shares and listed property, provide higher returns but also come with more ups and downs along the way. Conservative or defensive approaches, that are mostly invested in bank deposits and bonds, have provided lower returns but come with fewer rocky periods along the way.
You need to make sure that your choice of KiwiSaver fund matches your appetite for risk. If you are close to retirement or looking to buy your first home then you’ll be more likely to choose a conservative fund to ensure a down period doesn’t come along right when you need to access your money. But if you have a long time before you need the money then you could decide to take a higher-risk approach, meaning you’ll likely have a larger balance when it comes time to retire.
Should you be concerned about the current situation in the markets?
It’s accepted wisdom that time in the market is more important than timing the market. What that means is that even the best investors struggle to know when the market has peaked or hit a low. What has worked in the long term is continuing to invest through both ups and downs.
One of the great aspects of KiwiSaver is that for most account holders it is a regular saving scheme. That means that you are constantly contributing, and your fund is buying more investments as they go up and down in value. So, if the market has a dip, as we’ve seen in recent weeks, then you are buying at a discount. As you continue contributing through the ups and downs you’ll sometimes get a bargain and sometimes you’ll pay a bit more. But this process of making regular contributions ensures your costs average out. Long-term investors can ride out short-term losses to target a higher balance at retirement. You just need to make sure you are comfortable with staying the course during a rockier ride along the way.
We have developed a short quiz to help you make an informed decision about the right fund for you. It only takes a couple of minutes to complete.
BNZ Investment Services Limited, a wholly owned subsidiary of BNZ, is the Issuer and Manager of the BNZ KiwiSaver Scheme. Download a copy of the BNZ KiwiSaver Scheme Product Disclosure Statement, or pick up a copy from a BNZ store.
Investments in BNZ KiwiSaver are not bank deposits or other liabilities of Bank of New Zealand (BNZ) or any other member of the National Australia Bank Limited group. They are subject to investment risk, possible delays in repayment, loss of income, and principal invested. No person (including the New Zealand Government) guarantees (either fully or in part) the performance or returns of BNZ KiwiSaver or the repayment of capital. National Australia Bank Limited, the ultimate owner of BNZ, is not a registered bank in New Zealand but a licensed bank in Australia and subject to the supervision of the Australian Prudential Regulation Authority.
This blog is solely for information purposes. None of the matters in this blog are personalised financial advice. We recommend that you seek financial advice specific to your personal situation and goals from an Authorised Financial Adviser. No representation or warranty is made as to the accuracy, reliability or completeness of any statement made in this blog. Neither BNZ nor any person involved in the preparation of this blog accepts any liability for any loss or damage arising out of the use of, or reliance on, all or any part of this blog. The information and recommendations are the personal views of the author and do not necessarily reflect the views of BNZ.