How to Manage KiwiSaver During a Downturn

Has the coronavirus affected your KiwiSaver funds?

We have seen a lot of media coverage and discussion around KiwiSaver in the last couple of months during the coronavirus outbreak, with people starting to question their investment as they see a drop in their balance due to the economic situation.

KiwiSaver is not like a ‘savings’ account, it is an investment account where your money buys things like bonds and shares. Because these things fluctuate with the share market, your KiwiSaver balance reflects what’s happening at that level. Due to Covid-19, the sharemarket has fallen somewhat and kiwis are experiencing drops in their KiwiSaver accounts as a result.

What to Do When Your KiwiSaver Balance Drops

The main thing to note at the moment is that no-one knows what is going to happen to the market. While it may be volatile at the moment, the market always comes back, and the economy is a lot stronger now than what it was in, for example the recessions of 1987 and 2008 so recovery should be a lot quicker than what we’ve seen in the past. With years dealing in finance and investments, our golden advice is to stay put where you are and ride it out – because the market always comes back.

If you are losing sleep over it, an option may be for you to shift to low-risk, low-return investments if you don’t have the stomach for the recent fluctuations. In doing this however, you should consider that you are also moving away from potential windfalls and if you’ve lost KiwiSaver money – you’ll be losing out on any eventual recovery from it. It’s crucial to make a choice that you’re comfortable with that allows you to reach your financial goals, without over-stressing in the meantime.

Key Considerations Before Changing Your KiwiSaver Plan

Before switching or withdrawing from your KiwiSaver plan, it’s important to consider several factors:

1. Timeline for Access: If you plan to purchase a home soon or need access to funds in the short to medium term, consider staying where you are. Alternatively, switching to a more conservative, defensive fund like cash-based funds can protect your balance, though it may limit growth.
2. Pausing Contributions: You can pause contributions for up to a year, which could ease financial stress. However, remember that this also stops employer contributions, potentially impacting your long-term savings growth.
3. Consult Your Provider: If you’re uncertain, talk to your KiwiSaver provider to understand how they are managing risks and what other options might be available.

For personalized support, contact a financial adviser or service provider like Alternate Finance to discuss your situation and get tailored advice.

By thoroughly evaluating these factors, you can better protect your savings and avoid making impulsive decisions that might hinder your long-term financial goals.

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