KiwiSaver is directly affected by global market volatility as about 60 percent of KiwiSaver assets are invested offshore. Photo: 123RF
There's one clear piece of advice for anyone worried about the impact of international sharemarket movements on their KiwiSaver balances: Ignore it. (Provided you've got your settings right.)
Markets around the world were volatile on Friday and to start this week.
The softness in US markets has been largely driven by concerns the central bank might cut rates too late to avoid a downturn.
Intel's share price fell 26 percent on Friday, to the lowest level in a decade.
High-profile investor Warren Buffett was reported to have sold more than US$75 billion in shares in the second quarter, taking Berkshire Hathaway's cash pile to a record level.
Dean Anderson, founder of Kernel Wealth, said all eyes were now on Japan, where the market on Monday had one of the worst single days in index history.
"There is a wider global ripple effect from this, not to the same degree, but which will continue to impact markets over the coming days."
He said because about 60 percent of KiwiSaver assets were invested offshore, the scheme was directly affected by global market volatility.
"And as a little market at the bottom of the world, our local market performance is often impacted by these external global factors as well.
"For KiwiSaver investors, many are likely to only have a very low percentage of their investments in Japan. In a high growth fund, typically the biggest market exposure will be the US, which is down about 4 percent over the past month, and looks like may be down another couple of percent on [Tuesday]. Of course, as investors we hate losses more than we love wins, but in NZD terms, it is an important reminder that the S&P 500 is still up 19 percent in 2024."
He said KiwiSaver investors should expect volatility over the lifetime of their investments.
"I can guarantee that in the future, there will be more large down days, equally there will be large positive days. That is par for the course of being a long-term investor, especially in KiwiSaver where you may be invested for 40, 50, 60-plus years. If you think about everything that has happened over the past 30 years, Covid, GFC, Dot-com, September 11 - the S&P 500 has still average a 10.5 percent annualised return.
"Investing isn't a straight line, there are always bumps in the road. Critical for all KiwiSaver investors is ensuring they are in a fund that matches their risk profile."
He said that would mean that people who were not planning to touch their KiwiSaver for 10 or 15 years would often be best in a high growth fund. This type of fund can be more volatile in the short-term but deliver better returns in the long run.
Anderson said people should also make sure they regularly contributed "and that they don't change risk profiles in response to the noise of the market. Trying to time the market is a futile game that very few in the world win at. On that basis, don't login - leave it to do its thing."
Greg Smith, head of retail at Devon Funds, said New Zealand's stock market was insulated to a degree because there were fewer technology stocks and the market had lagged recently, anyway. "But we are not immune to concerns over a downturn in the world's largest economy."
He said the markets globally had needed a breather after a long, strong run. "They are certainly getting one."