Last October wasn’t a great month for investors, with international sharemarkets taking a bit of a hammering. In November, one of my clients forwarded me the monthly newsletter from his KiwiSaver provider. The client had put one word in the subject line: “OUCH!”
At the time, there was a lot of publicity in the media around the effect on KiwiSaver balances. Markets have recovered and my own KiwiSaver balance, which was down 6% for the December quarter, is now higher than at the end of September. Yet there has been no commentary in the media about the recovery, nor has my client sent me an email with the subject line: “YAY!”
What do you do when your retirement fund takes a hit? The short answer is “nothing”. Any action you take after the event is too late.
If your house drops in value by 10%, will you sell it? Of course not. Yet a common reaction to market volatility is for people to move to a more conservative fund. If you do this, what you are effectively doing is turning a paper loss into an actual loss. You are also reacting to events on an emotional level. If you are invested in the sharemarket, your fund is going to go up and down. Don’t get excited about the ups and don’t let the downs affect you either.
I’m not saying you should totally ignore your KiwiSaver. Review the fund you are in on a regular basis, say every 3 to 5 years, or if you have a major change in your finances. Any decision you make about changing investment funds should reflect changes to your own circumstances, not what is written in the newspaper.