KiwiSaver Questions, Investing Concepts

My KiwiSaver has lost money, should I change to a lower volatility fund?

Written by Ollie Semmens
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It can be daunting and downright worrying when you see your investments such as KiwiSaver drop in value. Naturally, we think to ourselves “Should I withdraw my funds before it drops even further?” or “Do I change to a lower volatility fund?”. We suggest that you shouldn’t and here is why.


When global markets drop, many people react emotionally and think it is a time to sell out of fear of  large losses, as we saw at the start of 2020 due to COVID-19. When the panic of the pandemic began, people around the country started changing to a lower volatility fund out of panic. This resulted in those Kiwis collectively losing a staggering $3.5 billion which is clearly an enormous amount of money that could’ve been put towards first homes or retirement. 


Markets that have gone through heavy decreases and price drops in the past have almost always bounced back, and by changing to a lower volatility fund, you risk receiving smaller gains to make up for the loss when the market recovers. 


Below is a graph that shows how each KiwiSaver fund-type within the ANZ KiwiSaver Scheme has been progressing since April of 2010. This can be used as an example to show how each of the fund-types reacted to the pandemic at the beginning of 2020. 

We can clearly see that there is a massive drop around April of 2020 when all of the fund types reacted in a downward direction. But they recovered 8 months later and carried on in their usual upward direction. Essentially, the funds took a hit but kept fighting.


If we further focus on the Growth fund type, we can see that it took a massive loss due to its high volatility. But skyrocketed shortly after and increased to a level  of growth that it hadn’t seen before. As stated earlier, markets in the past have almost always recovered because the value of what is being held is still there at the end of the day. It will continue to increase and carry on where it left off.


The people who withdrew out of panic and changed fund-type would have missed out on those unbelievably large gains in such a short amount of time. They would have only reaped a fraction of the rewards through a lower volatility fund type than that would have been entitled to.


People who change to less volatile funds out of fear, usually miss out on large rebounds after a crash, which can leave them in a worse situation than they would have hoped to be in. This further shows that even in the worst scenarios, markets will continue to bounce back and recover as they always have.


This drop in value should actually be seen as an opportunity to sit tight and potentially push more money into your KiwiSaver if you are able to. In stock investing terms, this is essentially buying the dip, where you purchase or invest at a low point in the market in order to increase your potential for higher returns in the future. 


This leads you to essentially buy more for less, or in other words, invest in KiwiSaver at a discount. Therefore you are essentially making the best out of a bad situation.


Anita was in her mid-late 20’s when Covid was beginning to hit our shores. She was invested in a Growth Fund that she had been contributing to for 8 years. She saw the potential that was held within the high volatility of the Growth fund.


When Covid hit, her KiwiSaver investment dropped 30-40%. Without seeking financial advice, she decided that it was in her best interest to change from her Growth Fund to a Balanced Fund to hopefully avoid losing more.


As seen in the graph further above the market started to recover shortly after and carried on its normal trajectory upwards, but Anita was still invested in her Balanced Fund. 


This meant that she didn’t make as much gains as she would have if she stayed in the Growth fund. Therefore missing out on larger returns and coming out with less than she should have. This could’ve been easily avoided if Anita sought advice from financial advisors like the team at National Capital.


Essentially, Anita faced the high volatility loss of a Growth fund-type but only received the mid volatility gains that the balanced fund-type offered. Meaning that she lost half of the gains that would have come if she had sought professional advice and waited out the decrease.


How do I know what Volatility Fund is best for me?

This is the next big question as people sometimes don’t know what volatility they are comfortable with. Obviously, it is best that you stick with a fund that matches your tolerance for volatility.


But you may wonder to yourself what different levels of Volatility among fund-types there are? Well, the 5 different types of funds you can choose from are Conservative, Moderate, Balanced, Growth, and HighGrowth. Different providers will have different names for the different types of volatility that can be offered as seen in the ANZ graph earlier. 


Now that you know the volatility fund options, you might already have a good idea of what one you feel most comfortable. Or maybe you are still unsure. To find out what volatility fund might suit you best, but to also find out what your Volatility Tolerance is. Check out our KiwiSaver Healthcheck and let National capital take the wheel and guide you to become financially secure. This will give you the chance to get in contact with one of our KiwiSaver financial advisor’s and they can help identify what's best for you in every aspect of KiwiSaver



Want to get in Contact?

Send us a question on our website. Or feel free to use any of the contact information below. We look forward to hearing from you soon to help find the KiwiSaver Fund that is right for you!

National Capital Limited

Suite 4, Shed 24

Princes Wharf

Auckland 1010

p: +64 21 0499 703

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Choosing the right type of KiwiSaver fund will make a big difference to your KiwiSaver payout.

Spending 10 minutes to complete our KiwiSaver HealthCheck form may be the most important thing you can do for your KiwiSaver account right now.


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