How to prepare for a market downturn

 

News of the Coronavirus has dominated media at home and overseas. On top of the human cost is the economic cost and questions around what an event like this means for the share market and investors.

If a significant crash happens due to the virus, where would that leave most Kiwis?

There is one thing all New Zealanders with KiwiSaver investments can do in advance… prepare by checking they are in the right fund.

Joe Bishop, Kiwi Wealth’s general manager of Customer, Product and Innovation, says the coronavirus and its impact will naturally concern some KiwiSaver members.

“There’s been a real dip in the markets and it’s quite prominent on the news. There’s been quite a spike in the number of people wanting to understand what it means for their investment.

“KiwiSaver really is about taking a long-term view to investing and has the potential to make a huge lifestyle difference after 65 if it’s managed well, based on your comfort level of risk.

“The main message is to 1) check that you are in the right fund now and 2) hang in there.”

Four key steps to help prepare for a market downturn

1. Ensure from the start that you are in a fund that suits your investment timeframe and the risk you are willing and able to take given your personal circumstances.

2. Don’t panic and immediately adjust your risk when markets get rocky.

Switching funds as soon as the markets turn could be an instinctive temptation, but it could cost you in the long run.

A 25-year-old earning $70k per year that contributes three percent of salary along with their employer could expect a balance around $730,000 at age 65, in a growth fund. With a conservative fund they are likely to end up with a balance around $495,000 at 65.

That’s a potential loss of $235,000, or 32 percent loss in gains. If you are jittery, get financial advice before doing anything.

3. Don’t be unnerved by a dip in your balance.

KiwiSaver is for the long-haul. Ups and downs are normal for share markets – it’s the price that has been paid for potentially superior returns compared to less variable investments.

4. Don’t do anything else.

Keep on putting money away and continue contributing to your KiwiSaver investment in a fund that matches your investment timeframe and level of risk.

When the market does start falling, your current investments may temporarily have dipped in value, but most things you buy now are cheaper too.

 

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