Perspective is everything

Whether it’s the prospect of a recession, or the fact that investment markets have had a tough time of late, it’s hard not to read the news – or check your KiwiSaver account balance – and wonder when the declines are going to end.

So how bad are things at the moment? The S&P 500 Index, often seen as the benchmark for global equity markets, is down more than 20% from its recent all-time high, and the tech-heavy NASDAQ 100 Index is off almost 30%.

Seems bad right? But what if we told you that both of these equity markets are higher than where they were in February 2020, just prior to the COVID-19 outbreak. The S&P 500 Index is up more than 10% from that level, and the NASDAQ 100 Index more than 15% higher.

This is equity markets in a microcosm: They go up, and they go down. But, if we step back for a moment and focus on the long term, history tells us that markets recover. Some faster than others, but they do recover.

Recent history has shown us that investment markets regularly have a wobble; whether it was the 2007-09 Global Financial Crisis, Brexit in 2016, the US-China trade wars in 2019 or the COVID-19-induced sell-off in 2020. However, looking at the performance of one of ANZ Investments’ growth funds, below, we can see that markets took these events in their stride—.

79% of ANZ Investments’ KiwiSaver scheme members have 10 or more years to go before they can make retirement withdrawals. While short term falls in markets may still feel uncomfortable, they have the benefit of time to recoup short term losses as markets recover. Of course, it’s important to check you’re invested in the right fund for your circumstances, especially if you’re intending to use your money to purchase a first home or you need it soon.

We understand you may be anxious, have questions, or just want some reassurance at times like this. That’s why we encourage our investors to get in touch if they’re concerned about their investment, or are considering making changes to their choice of fund.

We want to help you make rational decisions when volatility hits. In 2020, during the COVID-19 market sell-off, we saw a lot of investors switch out of growth-oriented funds and into more conservative ones. But a result of this was that many missed out on the sharp rebound in markets that followed.

Research by the Financial Markets Authority (the regulator of all KiwiSaver and managed investment schemes) highlighted the extent of this issue. It showed that only 9.1% of KiwiSaver members who switched to a lower risk fund during the COVID-19 market declines had switched back to a higher risk fund by August 2020 – meaning around 90% missed out on the market’s subsequent rebound—.

We also encourage our members to keep up their contributions through periods of market declines, because investing through a downturn means you can invest at a lower price and benefit from any market recovery. After all, who doesn’t like a good sale? Not only that, but it helps create good investment habits, and sets you up for a better retirement in the long term.

Continuing to invest during a downturn can help investors close the gap between what they will have at retirement versus what they will need. Research by Massey University in 2021 showed that an individual living in a metropolitan area will need $600,000 in savings to fund a comfortable post-work lifestyle – more than twelve times what our KiwiSaver members’ current average balance is on reaching age 65—.

Despite the recent volatility, we would urge investors to remain focused on the long term and avoid making knee-jerk decisions. Of course, if you want advice designed around your individual situation, please contact your financial adviser. If you don't have one, call us on 0800 736 034 and we'll put you in touch with one.

You should also check out our article on managing market volatility, for tips on how to deal with market ups and downs, and to find out some of the other ways ANZ Investments looks out for your investments.