Got the market wobbles?
Although the recent share market drop might be worrying - don't panic. These things happen from time to time.
You might have seen some media reports about the global share markets falling sharply in the last week or two.
No doubt you’re wondering what this means, and how this might affect you.
Good news! – you don’t need to worry.
Markets do this from time to time. In fact, back in February 2018, there was a sharp market drop when Donald Trump first threatened trade wars with China. But the markets recovered quickly once they realised that economic growth and profitability would not be significantly affected. It’s pretty much the same today.
Why all the fuss?
Over the last few years, investors have seen their shares go mainly one way – up. Investors, media and the public have become used to seeing the value of shares grow very strongly, with very little downward movement.
But in the short term, markets go up, markets go down - sometimes both on the same day. This time, as back in February, the fall in value has been quite fast, and the media were quick to make it sound like an impending disaster.
How does it affect me?
The day-to-day value of your KiwiSaver account will be affected because it’s probably partly invested in shares. KiwiSaver is designed to help New Zealanders save for their retirement over the long term.
To make your money work harder, most KiwiSaver accounts are invested - at least partly - in stocks and shares. This is where the best long-term returns will come from. Investing over the long term is a good way to make the most of your money. When you’re ready to retire, your KiwiSaver account will probably be worth more than if you’d just tucked the cash away in a normal savings account that earns interest.
So as shares go up and down in the short-term, so too does the value of your KiwiSaver account. Global share markets have gone up – with some normal ups and downs on the way – since the early 20th century. So, in the long term, your KiwiSaver account is likely to rise in value.
Your KiwiSaver account is invested in many things, not just US shares. Depending on the KiwiSaver fund or funds you’ve chosen to invest in, you probably have a diversified portfolio. This means that your KiwiSaver money might also be partly in investments such as fixed interest and property that can smooth the short-term bumps from share markets.
Should I change my investment fund?
The key thing to do is avoid panicking into any rash decision and suddenly change what investment fund you are currently in, just because the value has dropped a little. However, we know this can be easier said than done.
It might be a good time to do Booster’s risk profile questionnaire and double check that the fund you are in is still the right one for you, based on your time horizon and risk appetite.
If you’re still unsure, you could have a chat with your financial adviser – they can help you with the risk profile results and talk through anything else that might be on your mind.
Stay the course
Market movements like we've seen recently are a bit unsettling and unpredictable in the short term, but they are not unusual. What is more predictable though, is the superior performance of markets over the long term.
So, if you are a long-term investor in KiwiSaver, staying with markets through thick and thin has always been the best thing to do.