How to Manage KiwiSaver During a Downturn

how-to-manage-kiwisaver-during-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.

My KiwiSaver has fallen – what should I do?

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.

Considerations before changing your KiwiSaver

Before you go ahead and switch (or even withdraw) your KiwiSaver, here are some things you should consider:

  • How soon do you need your KiwiSaver money?
    If you are looking at buying your first home in the short to medium period, you may want to stay put where you are. You may want to switch to ‘defensive’ KiwiSaver funds that are held in cash that never go down in value (though you will be trading possible gains in the meantime).
  • What about temporarily pausing KiwiSaver contributions to save outgoing in the meantime? You are able to temporarily pause your KiwiSaver contributions for up to a year at a time, which may be a good way to relieve financial stress during a downturn. However, you are also pausing any employer contributions you would also earn during this time, so make sure you weigh this up against your long-term goals.

If you are concerned about your KiwiSaver investment, we urge you to talk to your provider to see what they are doing to mitigate your risk and what options are available to you (and at what cost). If you are financially struggling during this time, please get in contact with us to see how we can help you through.

Tom