Dropping markets - Should I panic?

Apr 29, 2018

Where did all my money go? Let’s try that again... Where did SOME of my money go?

Last week I wrote a blog post about making sure I topped up my voluntary contributions to my KiwiSaver account, otherwise I would miss out on the member tax credit of $521.42 from the government. So I went ahead and did that and now my account is sitting pretty, just waiting for the end of the financial year (June 30) to tick over so that Jacinda Ardern can send some free money my way.

In doing that another blog post idea occurred to me. What’s up with my KiwiSaver balance? It's dropping!? At the end of each month I check my balance so I can update my net worth spreadsheet and usually the balance has increased. Not so over the last few months and here is my proof:

It had climbed consistently for such a good stretch that it is pretty noticeable when the value of my fund starts to drop around January 2018. Just to confirm that I’m not alone in this I logged onto my fund. I’m with Simplicity Growth and here is their pretty graph to confirm what I’m experiencing:

The only thing to do in a scenario like this, when you realise you are losing money, is to PANIC. Nah, just kidding. Because I’m so young (44) I’m not going to get access to my money for another 21 years (or 23, dependent on whether they increase the age of retirement) and if I’m going to panic every time the market drops then I’m going to start to develop a fair few grey hairs prematurely. So what on earth should I do?

Absolutely nothing.

You see, when I signed up to this particular fund I was warned by Simplicity:

Our Growth and Balanced funds are suitable for those who want higher long term returns and are prepared to accept the ups and downs in financial markets.

Well, things are currently upping and downing. It’s called volatility. The price I have paid per unit in this fund has climbed and is now dropping. When trump tweets everyone gets the jitters, the guy is just plain irresponsible. But how long is a United States presidential term again? They have had good and bad presidents over the years so, in years to come he will move on and hopefully we get a more stable president. In the meantime, NZ is ticking along at the bottom of the world, doing what we do best, just getting on with it and our markets have good days followed by some bad ones that slow down our growth.

So, why do international events impact MY retirement fund in this tiny country our ours? It is due to what my fund actually invests in and because of this mix which is deemed ‘growth’ my returns are likely to be higher BUT fluctuate more over a longer term of ten years or more than a balanced or conservative fund.

This is how they have made up the fund:

Simplicity Growth Fund: What does the fund invest in?

And more specifically, this is what is in the fund:

Simplicity Growth Fund: Top 10 investments

Because the majority of the fund is made up of overseas equities each time something happens overseas that the markets don’t like, it is reflected in the performance of my fund. If this was particularly concerning to me then I could pick a more conservative fund that has more of a New Zealand focus for example but my own graph above signals to me a bend in the really long road of my investing journey, not a plummet off a cliff, so I will sit tight.

I’m not concerned. The fund I am in has had a 14.93% return in the past year (after deductions for charges and tax) and in the last couple of months my balance has dropped 3.6%. It is normal for prices to fluctuate up and down, it’s just that in more recent times they have gone up and up, rather than down. In the words of Kath and Kim “it’s different, it’s unusual” but it's not unexpected. Maybe in the coming 12 months they are going to plummet? Maybe not? JL Collins says the test is not the market dropping by 20% or even 40%, it’s watching your funds drop by 80%; would I have the stomach to handle it? I hope I don’t have to find out.

I don’t pretend for a single moment that I understand all the fiscal ins and outs of why it moves up and down but I do understand from everything I listen to and read that it is something to be expected. If you are worried, start listening to the calming words of Mary Holm and just settle in for the ride.

My KiwiSaver is part of my portfolio (which always sounds a bit flash for this married Mum of one living in Central Otago) but it just makes up one component of my life. I have spent years looking at our personal situation: We have a way to go but we are debt free, we have money invested, we’ve got a cash buffer (aka emergency fund), we work in steady jobs, etc etc. I can handle a bit of volatility and not freak out and change funds which would just lock in any losses I’m experiencing now.

It is very important that you understand who your KiwiSaver provider is and where you are invested because it is YOUR money after all and collectively we Kiwi’s apparently have $47 billion squirrelled away into these funds. To put it bluntly, that is a shit load of cash, so perhaps we should each pay a little attention to it! So, take the time to educate yourself, change funds if you are not happy and then just keep a casual eye on it like I do at the end of each month when I’ll log onto my fund, note down the balance in my own spreadsheet and then walk away. I’ve got other things that require my attention, like my dog, who has been waiting very patiently while I type this blog post. I think it’s time for walkies…