Coronavirus and its impact on your KiwiSaver balance

I am aware that many of you will be concerned about the impact the coronavirus, COVID-19, is having on share markets and in turn, your investments. We understand this can cause you a lot of worry, so I have tried to answer some of your questions below. As always, please contact me for anything further.

I’ve never seen my investment balance drop like this before, what’s happening?

KiwiSaver is an investment, not a bank account. Your money is invested in a range of different areas we call “asset classes”. This includes higher-risk or growth assets like shares and property and lower-risk or more conservative assets like bonds, fixed interest, and even some cash.

It is completely normal for the value of these assets to go up and down causing the value of your investment to change also. The coronavirus outbreak has had a significant impact on the markets in NZ and globally and caused several different asset classes to fluctuate in value more than is typically normal.

Why is my balance going down so quickly when it has been going up steadily for so long?

It is typical for markets to fluctuate. Share prices of companies around the globe have declined due to the coronavirus negatively impacting their future earnings. When share and bond prices go down this then flows through to a decline in your investment balance. Markets have had less volatility than usual over the last decade, so this is the first notable market drop for many KiwiSaver investors.

Should I be worried about the drop in my KiwiSaver balance?

No one likes to see the value of their investments drop. KiwiSaver is a long-term investment and most people are a long way from needing to withdraw from their KiwiSaver. If you are planning on using it sooner e.g. within 3-5 years, you may wish to consider your risk profile. Please see below a risk profile tool which can help you with this https://sorted.org.nz/tools/investor-kickstarter.

Technology means we also have greater visibility of our investments than ever before. If you have an online account that shows your balance, you’ll be more aware of any fluctuations than you would have previously. The downside of this is the temptation to check your investments too regularly and react to changes in value – remember for a majority of people KiwiSaver is a long-term investment.

Should I withdraw the majority of my funds because of what’s going on?

I encourage clients to stick to their original investment plan and intended timeframe and not to make hasty decisions, the risk profile tool above can help guide you on which fund may be suitable for your situation. For KiwiSaver clients, your funds are locked in until you reach the qualifying superannuation age or are wanting to withdraw for special circumstances such as a first home withdrawal.

Should I be worried about the effects of the coronavirus on my investments?

The coronavirus is having a significant impact on parts of the economy and its effects will be far-reaching. If your goals and investment time frames remain the same, you shouldn’t need to do anything; but if you need help or you are worried then get in touch.

How long do you expect this volatility to last?

Unfortunately, we cannot predict how long this will go on for, however, it is highly likely it will take some time to get the economy back to full strength. Please see the chart below which illustrates market downturns and how long they can take to recover:

What is the best fund to be in to weather this storm?

The answer is a personal one and will depend on your goals, investment timeframe and your attitude to risk. Get in touch if you would like to talk about which fund is best suited for your circumstances.

Take care out there and if you have any questions please feel free to email me at adam@compoundwealth.co.nz or phone 027 3313 127.