Why is my KiwiSaver Investment Balance Dropping?
You may check your KiwiSaver fund sometimes and think… whoa, what happened to my balance?
It’s disheartening to see your funds decrease in value, especially when you've been diligently contributing. Several factors can contribute to a drop in your KiwiSaver balance, and understanding these can provide clarity and help you plan for the future.
First thing’s first, your KiwiSaver is an investment fund which means it is invested in a range of assets like businesses (stocks), property, and bonds (debt). This is not cash like a typical savings account and will fluctuate overtime. These fluctuations can seem stressful at times but are beneficial for your investment in the long run. There are multiple factors that can influence a change in your KiwiSaver balance. These include:
Changes in Global Markets: International stock markets can impact your KiwiSaver balance. Events like political conflicts, trade disputes, or economic slowdowns can cause the value of global investments to drop. If your fund includes international shares, their value might decrease during these times.
Interest Rate Changes: Recent shifts in interest rates can significantly affect businesses and consumers. Changes in interest rates can impact your KiwiSaver fund both positively and negatively, as they influence the broader financial environment.
Fund Manager Performance: Fund managers vary in their ability to handle market volatility. Some are highly skilled, while others may not perform as well. If you believe your fund manager isn’t meeting expectations compared to others, it could be worth reviewing their performance.
Make a plan
If you notice a significant drop in your KiwiSaver balance right before you’re about to buy your first home or retire, it can be incredibly frustrating. That’s why it’s crucial to regularly review your KiwiSaver fund throughout your life to help manage these risks. If a client approached us with plans to retire or buy a first home in the near future, we would typically recommend moving their investments to a low-risk fund. This strategy helps protect their savings from sharp declines, ensuring their money is more stable for when they need it.
Seize the moment
If you’re investing for a medium to long time period, market fluctuations can actually be a chance for significant growth. Here’s how it works:
Each time you contribute to your KiwiSaver, that money buys a variety of assets. When markets are strong, you pay a higher price for these assets. However, when markets are down, you can acquire the same assets at a lower cost. This means when the market recovers, your assets have the potential to grow significantly in value.
Consider the recent property market in New Zealand as an example. At its peak, the average house price was $1,064,000, but now it is $916,000*. If you planned to hold onto a property for 20 years, buying when prices are lower would be the smart move right? The same principle applies to investing in assets through your KiwiSaver. Buying during market dips can set you up for greater returns when the market rebounds.
*Source qv.co.nz/price-index
