There's a lot of talk in the media about Coronavirus and it's effect on the stock market. Every time there is an epidemic, tales of doom and gloom start popping up.
So how does the Coronavirus affect your KiwiSaver account?
The best way to approach this is to go back and look at history. Let's see what has happened in the past with similar epidemics. The image below shows the history of world epidemics and their effect on the global stock markets. As you can see, sometimes the stock market went down (Ebola Oct-2018) and at other times it ignored the event and continued on its way up. So essentially, we have no idea what the market or your KiwiSaver fund is going to do in the short term!
However, in the long term the global stock markets have been through multiple epidemics and have kept growing. Why is that?
The stock market is a collection of businesses, and while a few of them might get affected due an epidemic ( such as airline & travel companies), most of them will continue on doing business and growing. This is what takes the stock market up. Since your KiwiSaver account is invested in the global and local stock markets, it should follow these same trends as long as you are in a well managed diversified fund.
A word of warning: Short term volatility caused by an epidemic such as the Coronavirus can hurt your KiwiSaver account and disrupt your retirement plans if you are not in the appropriate type of fund for your needs and financial situation. At National Capital, we ensure our clients are in a KiwiSaver fund which has been selected for them taking into account their volatility tolerance and capacity. So for all you NatCap KiwiSaver client's reading this - you're good. :)
For anyone else, I would advise getting professional KiwiSaver advice to ensure you are in the right fund for your needs. A good first step would be taking the KiwiSaver HealthCheck on our website.
Events such as these remind us of something way more important than our KiwiSaver accounts, and that is the fleetingness of life and the importance of our loved ones. Families in China have lost almost 500 of their loved ones, we at National Capital have them in our thoughts.
Update: We have a follow up post detailing what KiwiSaver providers are doing in response to volatility caused by Coronavirus.