What Happened to My KiwiSaver Balance?

6 things you can do about investment markets taking a dip

Anyone checking their KiwiSaver Scheme account balance recently will probably have noticed a drop in their investment value. This fall has also affected other managed funds and those who directly hold share portfolios, and many other assets and investments too, even Bitcoin!

There is plenty of commentary online about the reasons for investment market turbulence, and this column doesn’t aim to repeat any of that. The fact is it doesn’t matter. Whether the reason is a major natural disaster, war, trade war, pandemic, political crisis, or something else, there will always be a reason for investment markets to continually re-price assets, which is all that is happening at present.

What Can You Do About Fluctuating Investment Markets?

During any time of uncertainty, those among us who focus on what they can practically control are generally rewarded.

Below are six steps you can take at times such as this.

1. Tune Out The Noise

Nowadays any number of notifications, apps, news outlets, commentators, influencers, and politicians – among others – all clamber for our attention. Our eyeballs and ears are continually pulled from one direction to another. We have our attention constantly diverted by ‘shock jock’ media pundits and social media figures, in addition to the routine barrage of messages, emails, and notifications we all receive in any 24 hour period.

The human brain wasn’t designed for all this overstimulation, and it hasn’t evolved fast enough to be able to manage such an onslaught of information.

Add to this, when it comes to the economy and investing, you have probably noticed friends, colleagues, and certainly mainstream news outlets all voicing opinions on current economic and political events – events which are nearly-certainly all outside your personal control.

While engaging with this sort of news flow or conversations based on it with relatives, friends, and colleagues, can be stimulating to a point, for investors, there’s a need to focus on what you can influence.

The Media and Negative News

The media’s basic role is the analysis and dissemination of information. In this respect, the media has importance in financial markets. For markets to operate efficiently, investors need to make informed decisions. However, the way information is shaped and delivered to investors can lead to completely different financial outcomes.

As humans, we tend to have a negativity bias. Negativity bias is the notion that topics of a more negative nature tend to have a greater effect on our psychological state than neutral or positive things. The media have known this for decades, so you might have heard old sayings such as “if it bleeds it leads” which basically means the more shocking, fear-inspiring, or gruesome a story is, the more likely it will be the lead news item at any mainstream media outlet.  

We now live in the information age. Information can now spread after a click of a button, whether it is true, false, speculation or gossip.

So what? Psychology today reports anxiety levels can increase after only 14 minutes of news exposure, most or all of which is negative content. It’s not just television, radio, and news websites either - incidental exposure catches us off-guard on social media, making us more vulnerable to distressing content. In other words, all this negative news is not great for your mental health, and knowing about the latest fearmongering news won’t help you make good investment decisions either, including related to an investment portfolio or KiwiSaver accounts!

What to do instead? Easy interventions like switching off news notifications, and staying off social media, can help to protect our mental health and our investments alike! Remember: what is happening in today’s media is usually irrelevant when considering what will happen in 10 years. So, if you are investing for 10 years or longer, why would you worry about the weekly ups and downs of financial markets or the news stories that cause them?

Match your investments with your life, not the news cycle.

Learn more: The media and financial markets

2. Learn More About Investing

The more educated you are about investments, the better you'll be able to stay in control when the markets drop in value, which means you’ll be better-off over the long haul.

Famous entrepreneur, speaker, and author, Jim Rohn once said that a lack of knowledge about investing and risk was called “the language of the poor”. Rohn even said that all risk is relative, and that the bill you'll end up paying for not investing is a lot riskier than investing in the first place.

Investors who grasp how markets function are more likely to stay in their seats during periods of volatility and reap the potential rewards of compounding. An investor who put $10,000 in the S&P 500 at the beginning of 1970 and simply let it ride would have more than $3 million today despite living through eight recessions, multiple wars, political upheavals, and technological revolutions that transformed entire industries. That is not because they were lucky—it’s because they recognised the question is not whether uncertainty will appear, but how we respond when it does.

Understanding how markets work leads to better decisions.

Remember What the Stock Market Is

When it comes to investing in an area such as the stock market, sometimes we can lose sight of what we’re invested in. All we might see is a number on a screen, a value that represents our KiwiSaver Scheme balance on an app (application) or website login. Then we might get concerned when we see that number lower than when we last checked.  

But really, if you’re an investor in the stock market and your KiwiSaver Scheme is invested in that way, what you own is a lot of shares in individual companies. Those companies are usually great businesses – which is why they’ve reached such a size they can list on a stock exchange – and which is why the professional managers of investment vehicles such as KiwiSaver Schemes invest into them. Companies on the stock exchange have nearly always been around a while. This means they know how to operate against different economic backdrops, with changing tax regulations, changing consumer regulations, evolving technologies (they’re usually the ones at the forefront of all research and development which drives technological advancement), and they also are continually adapting to different consumer preferences. In other words, they’re used to thriving, regardless of any external circumstances. Regardless of whatever news you see, the best businesses in the world usually emerge on top.

Companies are constantly seeking to solve problems and create opportunities. Some ideas may take off, others may not. Investors are rewarded for taking on some of that risk. And because the risk is spread across literally thousands of companies, the stock market has positive expected returns even during stretches when the overall economy slows.

3. Change Nothing, Stay the Course

If you’re already invested, the best thing to do is usually nothing. Let’s explain this point with a famous story.

Several years ago, during an internal performance audit of its customer’s accounts, a major investment manager discovered a group of standout winners. This group of investors consistently beat the averages.

Naturally, the investment manager wanted to learn more – partly so the approach this group took could be passed on to other customers. After digging a little deeper, they rapidly found these investors had one significant thing in common: they were all dead. The dead investors had their asset mixes (blend of investments) frozen while their estates were being worked through. Incredibly, this approach performed better than everyone else, as the investments were protected from any ill-timed adjustments.

The reason for this is because the average stock investor dramatically underperforms the overall stock market. Data from research house DALBAR shows that from 1996 to 2015, the S&P 500 (the most common performance measure of the largest share market in the world) offered an annual return of 9.85% per year, but the average investor’s return was only 5.19%. The reason: investor’s all-too-human behaviour – trying to time the market, which only succeeded in buying when everyone else was buying, then selling when everyone else was impulse-selling.

Avoiding impulsive reactions to things such as variations in investment value, or attention-grabbing news stories, is a key reason why our financial advisers repeatedly tell people to avoid checking their investment values too often.

Learn more: The worst mistakes to avoid in a market downturn

4. Invest More

Like the seasons of the year, markets generally work in cycles. Once you understand this, you can accept that investing more when prices are reduced can pay off handsomely over the long run. In this way, the fears that others may have can work in your favour. This could be comparable to stocking up at the supermarket on an item you commonly use when you notice it on sale.

Depending on your phase of life and the purpose of your investment, you might benefit from a fall in investment values by categorising yourself as one of these groups:

1. If you’re a buyer, it’s a win. Lower prices mean your money buys more shares. This includes if you are a member of a KiwiSaver Scheme and are making regular contributions.
2. If you’re neither buying nor selling, it’s still a win. Assuming you have a diverse portfolio, rebalancing allows you to trade appreciated bonds for undervalued equities.
3. If you’re a seller, which means you’re making regular withdrawals from an investment portfolio, it’s okay too. Your portfolio should include cash and bonds specifically for times like this — now is when they prove their worth. After all, if markets never declined, holding defensive assets such as bonds and cash would have been a mistake.

Keep in mind the words of the famous billionaire investor Warren Buffet:

‍"Look at market fluctuations as your friend rather than your enemy, profit from folly rather than participate in it… be greedy when others are fearful".

Remember March and April 2020

Take a lesson from recent history. The last time markets took a dip like this was early 2020, as Covid first ravaged the world. Then, the pandemic had spread rapidly, and the US stock market, the world’s largest, dropped 34% in just 23 days — faster than ever before. The VIX index, a measure of investor expectations of volatility often called Wall Street’s “fear gauge,” hit a record high.

But, as markets are forward-looking, they didn’t stay low for long.

Within a year, the market had not only recovered but had remarkably risen 78% from its lowest point. People who sold during the panic missed one of the strongest recoveries ever. Each uncertain period brings its own unique challenges, making it more difficult for investors to keep the faith.

Learn more: Investing in a downturn

5. Review Your Asset Allocation (Mix of Investments)

Performing your own ‘top to bottom’ review of your overall mix of investments (asset allocation) is a good idea at least once every year. Depending on your financial situation, this could be as simple as completing an investment profiling questionnaire to confirm if you’re in a suitable KiwiSaver Scheme fund choice (such as Balanced, Growth and so on), or it could be a much more thorough process which assesses your overall portfolio of assorted assets.

Ideally, you wouldn’t do this based on recent investment market moves or news, you’d just set a date to do it routinely each year, perhaps during a review with a financial adviser, such as our team here at Become Wealth.

Once you’ve set up a strong portfolio of investment assets that suits you, you’ll sleep a lot easier.

Before you set up that portfolio, you’ll want to review your aims.

6. Review Your Goals

Investing for a purpose is critical.

Think of a ship steadily ploughing the waves to get to a different port. In contrast, it is nearly unthinkable to imagine a ship leaving a port without a destination in mind. Any minor storm or setback would be enough to throw the ship in a new direction, as it doesn’t know where it’s headed in the first place. The ship could end up anywhere, or right back where it started!

In the same way, your investments should be made with an end-goal of some kind in mind. The thing we’re aiming for could be any one thing, or combination of things. Possibly:

• Retirement
• Early or semi-retirement
• A sustained career break, possibly to travel or raise a family
• To buy a holiday home, boat, or another lifestyle asset
• To partly or wholly fund housing or education for children
• Perhaps even to buy or launch a business
• Something else that appeals to you!

Take the time to review your goals. It will help ensure you’re invested in a way that meets your needs, even if you’re still young and want to stay flexible to new opportunities.

The Bottom Line: When It Comes to Investing, Focus On What You Can Control

The nature of any investment is there are constant market fluctuations – peaks and troughs. This is just when investment values rise or fall as markets decide on new prices for the investment assets themselves, including shares (stocks). This continuous process is called price discovery, and sometimes it might be uncomfortable as values can shift substantially.

Each crisis can feel like the end of the world when it happens, yet the pattern of recovery stays remarkably consistent. The history of investing has shown us all two things:

1. We cannot predict the future, and
2. Despite that uncertainty, markets have eventually bounced back.

So, if you’ve followed the steps outlined above, you’ll find yourself sleeping soundly knowing that you’re robustly invested and able to weather the inevitable little storms along the way to your end investment destination.

If you'd like to explore how your investments can deliver you financial freedom with a trained professional, simply get in touch to book a complimentary initial consultation.