What does this mean for your KiwiSaver investment?
While market ups and downs are a normal part of investing, sudden share market falls can feel unsettling. These corrections as we call them, are the reason why we talk about risk and return - a market downturn is the risk that can happen after sustained periods of good returns.
Aurora's Chief Investment Officer Sean Henaghan highlights that steep market falls are not necessarily bad news for investors, especially for those who aren't accessing their funds for 20 years or so.
"We would actually go as far as saying these big market falls are good news, and what we mean by this can be best explained through what we call the 'buying cheaper bricks' analogy" he says.
What do we mean by buying cheaper bricks?
Sean explains, "I was very fortunate to spend six weeks backpacking through Guatemala four years ago. We spent a lot of time in the mountains inhabited mostly by the indigenous people. I noticed a lot of half/quarter built houses everywhere so I asked our guide what was going on. He said that the indigenous people did not have access to banks so whenever they got some savings, they would buy some bricks and add to their house".
"As a KiwiSaver investor, you are effectively buying bricks (units) to build your retirement house (savings). What really matters to you is the price of bricks. The value of houses is not really relevant as you can't sell your house for 20 years. If the price of bricks halves, you can now buy twice the number of bricks for your house and arguably build your house quicker - or even build a bigger house" he says.
When share markets fall, your monthly contributions can now purchase a lot more shares in companies and when the market recovers, so will your retirement savings.
Take advantage of advice
The brick analogy only applies to those investors with time horizons of 10 years or longer. If your money is needed before then, such as to use for purchasing your first home, your exposure to shares should be carefully managed. This is the benefit of advice and why you need to be in the right KiwiSaver fund type to match your life stage and goals.
At Aurora we believe advice is key to financial security, that's why we imbed advice as part of our service. If you want to check whether you're in the right fund type for your circumstances, or you're feeling worried about market volatility, our KiwiSaver advisers are here to help.
DISCLAIMER
This information is provided in a general nature only and should not be construed as or relied on as financial advice. This is not a recommendation to invest in a particular financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any investment decisions.
Past performance is not a reliable indicator of future performance. The value of your investment may go up and down.