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Staying the course during times of uncertainty

22 October 2020

 

It’s no secret that 2020 has been a challenging year for KiwiSaver and other investments. And when we’re bombarded with bad news about the economy and uncertainty about what will happen in the future, it can be unsettling. It’s also tempting at times like these to think about switching to ‘safer’ investment options. But if we look back for a minute, it’s clear that patience and diversification (i.e. not putting all your eggs in one basket) remain effective strategies in these unsettling times.

Here we visit some key themes that 2020 has taught us.

Stock market vs. the economy

In normal times, it is often said that the stock market is a reflection of the economy. However, by almost every measure, 2020 has been anything but ‘normal’. A global pandemic (which is still unfolding) has claimed over one million lives and led to the first recession in more than a decade for a number of countries.

Since the end of the first quarter, we’ve seen a recovery in global stock markets with many indices around the world, including the NZX 50, making record highs. All this despite some bad economic news.

For example, in September, Statistics New Zealand confirmed New Zealand went into a recession in the second quarter of the year. However, the news didn’t stop the stock market’s upward trend – a good example that bad economic news doesn’t always translate to bad performance in the stock market.

This is where the value of active management comes in. Our team of specialists follow the ups and downs and the underlying events that often precede these movements and are able to position our portfolios to try and withstand downturns.

Stay diversified and stay the course

During times of heightened market volatility, it can be unsettling to see KiwiSaver and investment balances decline. However, it’s important to remember that KiwiSaver is a long-term savings scheme, not a short-term investment or trading account. This is especially important in the current environment, where news – good or bad – doesn’t necessarily translate to movement in the stock market.

Our range of diversified portfolios (portfolios that have investments spread over a range of assets) are designed to help provide a degree of protection through times of uncertainty. And just as important, when the market recovers – as it did in the middle part of this year – these diversified portfolios are able to capitalise on these moves.

This was evident in the performance of our diversified funds. After a tough first quarter, all of our diversified funds (Growth, Balanced Growth, Balanced, Conservative Balanced and Conservative Funds) are, as at 30 September, in positive territory for the year, after fund charges.

Check you’re in the right fund for you

While it’s important not to treat KiwiSaver like a short-term trading account, or to over-react in the moment to short-term events, we recommend that you regularly check to make sure you’re invested in the right fund. Everyone’s situation is different and things change over time. Your fund choice should be based on your personal circumstances, including your investment goals, how much time you have to invest and how much risk you’re willing to take.

We recommend you regularly review your fund choice to make sure it’s still the best choice for you – use our Risk Profile Tool to help or talk to your financial adviser. If you do decide to switch to a different fund, you can do so online via ANZ Internet Banking or by completing our online change form.

This article has been prepared by ANZ New Zealand Investments Limited for information purposes only and it should not be treated as financial advice. It is recommended that you seek advice from an authorised financial adviser which takes into account your individual circumstances before you acquire a financial product.