This last year Kiwis with KiwiSaver in more than half of the most popular categories of KiwiSaver have experienced more than 10% volatility (ups or, in this case, downs in the market).
The Morningstar KiwiSaver report that shows the last 12 months to the end of September shows 10% or larger drops in 84 of the 129 funds in the conservative, moderate, balanced, growth and aggressive categories.
During the 12 months after fund managers had taken their fees, the average drop in KiwiSaver funds was 8.1% for Conservative Funds, 9.7% for Moderate Funds, 10.5% for Balanced Funds, and 13.2% for Growth Funds.
Clive Fernandes, the Director of National Capital, said the KiwiSaver fund returns show the market conditions in share, bond and property markets worldwide as economies faced recession and handled the disruption caused by the war in Ukraine.
Despite experiencing this volatility, KiwiSaver members who have been in KiwiSaver over the long term have had positive returns. The average annual return for Balanced Funds was 6.4%, and for Growth Funds was 8% in the last ten years. This shows that even the sizable short-term volatility did not undermine the long-term benefits of KiwiSaver.
A small number of funds have dropped 20% or more. In the balanced fund sector, only the Juno Balanced Fund fell by 20.1%, and in the growth sector, Juno Growth fell by 27.3%. The most staggering was the Nikko AM ARK Fund, which fell in value by 57.8%. The ARK fund invests 100% in company shares, focusing on global companies using technology to disrupt markets.
Despite these drops in KiwiSaver Funds, New Zealander's total amount in their KiwiSaver accounts rose between June and September. In September, KiwiSaver had $741 million more than at the end of June, with $85.5 billion invested. KiwiSaver is a long-term game where short-term volatility doesn’t have a lasting impact. Kiwi’s also stuck to their investments with only a slight panic amongst KiwiSavers, with only a minority switching to lower-risk funds.
Households are finding things more challenging with the high inflation. Some savers might stop making KiwiSaver contributions or temporarily reduce their contributions.
Clive said inflation is on everybody's minds with financial conditions worsening and the rising chance of a recession. “Kiwi's confidence in their KiwiSaver Funds has taken a hit with inflation and the war in Ukraine playing havoc with the world's energy sources and other international supplies".
Fernandes also said that this is only short-term volatility, and KiwiSaver is about playing the long game. To not focus on the 1-year performance and look at the longer-term performances of funds.
What Can You Do?
With Your KiwiSaver dropping significantly over the past year, you can be tempted to stop contributing or temporarily stop contributing to KiwiSaver. However, this is the time to contribute more than ever. With KiwiSaver Funds values decreasing, it will be cheaper to buy the funds units. This means your KiwiSaver contributions will go further, and you are buying more units for the same contributions.
To make the most of your KiwiSaver, you should ensure that you are in the correct KiwiSaver Fund for your goals. The type of Fund and the Fund Provider can heavily influence the volatility or ups and downs of your KiwiSaver because these funds have different asset allocations, some experiencing more volatility than others in exchange for better returns. To find the correct fund for you and receive free KiwiSaver advice from one of our experts, complete a National Capital KiwiSaver HealthCheck today!