When the stock market reacts to global events

05 February 2020

The stock market isn’t immune to global concerns over the spread of the coronavirus outbreak. The key thing to do is not panic and jump into any rash decisions.

Instead, take the opportunity to review your investment fund choice to make sure you're still in the right fund for you.

Over the last few years, investors have seen their shares go mainly one way – up. Investors, media and the public have become used to seeing the value of shares grow very strongly, with very little downward movement.

But in the short term, markets go up, markets go down – sometimes both on the same day. Back in 2018, the markets reacted to a trade war threat with China, which was hyped up by the media. This time, it’s a similar situation with the media reports of the coronavirus outbreak.

How does it affect me?

The day-to-day value of your KiwiSaver account will be affected because it’s probably partly invested in shares. KiwiSaver is designed to help New Zealanders save for their retirement over the long term.

To make your money work harder, most KiwiSaver accounts are invested – at least partly – in stocks and shares. This is where the best long-term returns will come from. Investing over the long term is a good way to make the most of your money. When you’re ready to retire, your KiwiSaver account will probably be worth more than if you’d just tucked the cash away in a normal savings account that only earns interest.

As shares go up and down in the short-term, so too does the value of your KiwiSaver account. Global share markets have gone up, with some normal ups and downs on the way, since the early 20th century. So, in the long term, your KiwiSaver account is likely to rise in value.

Your KiwiSaver account is invested in many things and across a lot of different markets around the world. Depending on the KiwiSaver fund or funds you’ve chosen to invest in, you probably have a diversified portfolio. This means that your KiwiSaver money might also be partly in investments such as fixed interest and property that can smooth some of the short-term bumps from share markets.

Should I change my investment fund?

The key thing to do is avoid panicking into any rash decision and suddenly change which investment fund you are currently in, just because the value has dropped a little. However, we know this can be easier said than done!

It might be a good time to do Booster’s risk profile questionnaire and double-check that the fund you are in is still the right one for you, based on your time horizon and risk appetite. Make sure you have chosen your fund based on this and not because of the one with the best returns over the last few years!

If you’re still unsure, you could have a chat with your financial adviser. They can help you with the risk profile results and talk through anything else that might be on your mind.

Stay the course

Market movements like we've seen recently are a bit unsettling and unpredictable in the short term, but they are not unusual. What is more predictable though, is the superior performance of markets over the long term.

So, if you are a long-term investor in KiwiSaver, staying with markets through thick and thin has always been the best thing to do.

David Beattie

By David Beattie

Principal - Booster