Understanding market volatility 

With the evolving unrest in the Middle East, investment markets may experience some volatility. Learn more about what the heightened tensions in the Middle East mean for markets here.

This article provides information about market volatility and the impact it can have on retirement savings.

What is market volatility?

Market volatility describes the ups and downs in the value of investment assets. The value of any asset – whether it’s shares, property or bonds – can fluctuate over the short-term, sometimes significantly.

The causes of market volatility are many and varied. Economic or geopolitical factors, such as interest rate changes, inflation, trade disagreements, natural disasters and conflicts can all influence market stability.

Market cycles: bulls, bears, and the power of time

Markets tend to move in cycles, from lows to highs and back again. A full market cycle often includes both a ‘bull market’ and a ‘bear market’, with peaks and troughs in between.

A bull market is an extended period of consistently rising prices, high investor confidence and often (but not always) economic growth.

A bear market is a period of falling prices, lower investor confidence and economic downturns, such as recessions.

Time in the market vs timing the market

Market cycles are unpredictable, and usually only become clear after they have happened. Trying to guess the best time to buy or sell investments is risky, even for seasoned investors.

Most KiwiSaver and superannuation scheme members plan to stay invested for decades, and therefore “time in the market” has been shown to be a much safer strategy than “timing the market”.

It is important to consider your investment goals and objectives, risk appetite and personal circumstances. That’s because time often negates the effects of short-term market fluctuations, and history shows market values tend to increase over longer periods, despite the ups and downs.

Staying invested also allows the benefits of ‘compounding returns’ to work over many years.

Perhaps the biggest advantage of taking the longer-term view, is that it helps investors resist hasty decisions and instead rely on the market to deliver sustainable returns over the long-term. 

Volatility and your investment

As a member of In-Tandem, your account balance is typically invested across a diverse range of asset classes and financial markets – and some degree of volatility is unavoidable. As a result, it is common for balances to rise and fall from time to time.

Short-term fluctuations are normal but it’s important to focus on your overall goals over years and decades, rather than immediate market changes.

Stay on track with your investment strategy

It can be tempting to switch investments when markets get rocky, but reacting to short-term volatility can hurt your retirement savings. To achieve higher expected long-term returns from the share market, investors must accept a certain level of volatility, especially when compared to the lower returns of traditional savings accounts.

We caution against making impulsive decisions based on media headlines. If you are concerned about the current market fluctuations, we recommend talking to a financial adviser before making decisions that may impact the long-term potential of your retirement savings. In-Tandem offers members free access to Westpac’s Financial Advice team. You can phone them on 0800 942 822 for a confidential and obligation-free consultation.

Check out the videos on the Scheme website to learn more about market cycles, asset class fluctuations, risk management strategies and factors influencing investment decisions during market cycles: https://www.westpacnzstaffsuper.co.nz/latest-news/videos.html.

Tools like Sorted’s investor profiler can help you understand your risk appetite and find the right investment mix. 

There is also a wealth of resources available to you on the ‘Financial Advice’ page, available on the Scheme’s website.

Check before you switch

Switching investment options in response to market volatility can have a significant impact on your account balance when you retire. We recommend seeking independent financial advice by speaking to a financial adviser before making any decisions. Review the Investment Fund Switch Fact Sheet, available on the Scheme website, for more information.

As always, we are here to support your retirement goals, contact our Helpline on 0508 IN TANDEM (0508 468 263). Staying informed and patient is your best strategy for riding the waves of market volatility with confidence.