Bolster Risk Management – Simplifying financial risk, insurance and investments for you.

Markets go up, markets go down…

Markets go up, markets go down…


Markets go up, markets go down. This is the nature of economic and market cycles. This can be worrying when investing for the short-term. However, KiwiSaver is a long-term investment. Unfortunately, the media like to jump on stories to make headlines. Highlighting how much people are ‘losing’ helps feed the fear that people are somehow ‘doing it wrong’. In broad-brush terms, someone in the thirties can expect to have another 3-5 ‘down markets’ or even recessions before they are 65 years old. These market swings tend to happen every 7-10 years. What we know from the long-term data, is that the trendline is generally on the up, given enough time.

To help visualise these market gyrations, take a look at the following four graphs on US data (these go back a long way). The first shows the volatility of bond yields, which go all the way back to 1714.

For the second, we can also look to the long-term US interest rates and see how these move over long periods of time.

We can look at the rolling one-year swings for the US S&P 500 back to 1927.

I fully appreciate that someone in their sixties will not take any comfort from the losses endured over the last little while. Approaching retirement and watching the value of your retirement nest-egg diminishing would be disheartening for anyone. That said, it pays to keep KiwiSaver in perspective. It is meant to be a supplement to our retirement plan, it is not meant to be the whole plan. It is meant to be a long-term investment. That is part of its power. That time period, in the ‘time value-of-money’ equation, allows the principal and interest to compound, thereby giving far greater returns, than if you stuck your money under the mattress.

This final chat highlights my comment in the first paragraph. Generally, given enough time, the returns improve

This article helps explain how just viewing different charts can give us the wrong perspective. If you are interested in a deeper dive, I recommend you take a look. When we hear of ‘massive losses’ or the horror word “recession”, along with all the blame that goes with it (Political Party ‘A’ did this while Political Party ‘B’ didn’t do that), everything gets lost in the noise.

Step back from the noise. Markets go up, markets go down.

Now to the KiwiSaver providers themselves. Here we go on a separate roller-coaster ride. As the article from Rob Stock last week pointed out, not all providers are created equally. Some are managing their inevitable losses better than others.

An interesting point to make, is that some of the largest or most popular funds in NZ are not actually NZ-managed funds. They are being managed by the mega-corporations such as Vanguard and Blackstone. Part of the fees being changed to New Zealanders are for the NZ logo to go on a non-NZ fund.

Fees, are the next hotbed of debate. The article made mention of the wholesale nature of some of these funds not passing along those savings to consumers. Many of these funds are ‘passive’ and therefore do not need a large, highly trained team of portfolio managers. Being passive, these funds track the indices of the markets in which they play. And here we come to the last part about KiwiSaver, the interaction of performance and market volatility.

Active fund managers, so we are told, like to think that they have skill in making investments outside of the index tracking that their ‘passive’ cousins like to make. This is really only part of the story. Some ‘active’ funds have been found to charge as ‘active’ but in reality, to be more closely ‘passive’ actors. Many funds in New Zealand are only mandated to invest in stock and bonds (& cash). This limits their opportunities to trying to ‘time’ the markets. Many market commentators will lambast how silly it is to even try such a strategy. Fair enough too. One comment from the recent FMA report in May said “performance data shows skill is present among some (not all) fund managers in the pilot study”.

So, what then? What if the above-mentioned investing mandate were different? Well, one basic investing strategy is to use diversification. There are many other ways to invest, not just with stocks and bonds. Commodities, futures and other vehicles can add not just depth but breadth to the investors’ portfolio. Good fund managers will have strategies ready prior to the inevitable down-turns, and will not be content to go with the flow of the index. Good fund managers will actively deploy various down-side mitigation tactics so that while their clients may have losses, those losses won’t be as extreme as they might have been, if the overseas mega corporations’ funds were blindly followed.

For New Zealand, long-term saving and investing is relatively new for most people. KiwiSaver is only 15 years old. As the fund balances start to increase, above the $23,000-odd level that it is today, we will see more and more discussion about KiwiSaver. This is a good thing. More people need to be actively involved in their own saving and retirement decisions. We have a vibrant KiwiSaver market, active with many choices and participants. This is a good thing. While it is worthwhile to check your provider every now and then, be wary of flipping your fund on every downcast article that you read. Remember that the power of KiwiSaver is time. Time and the ability to compound the returns to exaggerate the amount you hope to see in retirement.

Dominic and Bolster Risk Management are resellers of NZ Funds KiwiSaver products.
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Dominic started Bolster Risk Management to help people along their personal finance journey.

He believes that personal insurance is the bedrock to financial security and wealth creation. You have to protect your greatest asset, your ability to earn an income. 

Underpinning this is a philosophy that says Your Money Matters.