What does the invasion of Ukraine mean for your KiwiSaver?

Hi all!

Andrew Wilkinson here, Adelphi’s KiwiSaver Specialist.

I thought it was worthwhile commenting on the Ukraine situation, given that it is (obviously) breaking news and is generating concern within peoples’ investments, and their KiwiSaver accounts.

I’ll try and keep it brief as well, because the situation is still ongoing, things can change quickly – and this article may become quickly outdated and less relevant as things evolve.

At the moment, and from a KiwiSaver perspective, we can consider this as just another geopolitical crisis. We’ve had plenty of them before, we’ll have plenty more in the future. These events affect markets, and therefore your KiwiSaver – to a higher degree with High-Growth funds, and a lesser degree with Conservative funds. That is – because High-Growth funds are much more exposed to share markets, and the events in Ukraine have naturally had a (generally) negative effect on share markets globally.

Remember that KiwiSaver is (usually) a long-term strategy, and that these market ups and downs are expected to occur – but obviously they are concerning and hard to ignore while they are happening in real time. To enjoy market growth the majority of the time, you need to have the occasional drop (often referred to market ‘correction’) as well.

Think back just two years ago to when COVID first hit, and when markets got obliterated in March 2020. High-Growth funds tanked about 20% in that month alone. But do you remember what happened afterwards? That volatility downwards in March was offset by an immense amount of growth in markets after the fact – despite COVID still running rampant all throughout that growth period. Markets usually grow slowly and steadily – you can think of it as people slowly investing as if they are getting into a cold pool, easing into the water nice and gently. However, when they see a shark in the water, they pull out immediately and all at once. This is reflected in markets, and if you panic and make the wrong move at the wrong time – like a lot of people did in March 2020 – you stand to cop all of the loss, and then be in the wrong place to enjoy the gains/recovery afterwards.

It should also be noted that KiwiSaver providers are actively re-allocating investments so that they no longer rely on Russian companies, or relate to the wellbeing of the Russian economy in general – such as the value of the Ruble. This is to further protect your funds against actions taken by Russia on the companies within their sphere of influence.

However - all of the above implies that you have already been advised and are on the best type of fund for your own financial goals. For example – if you have 2-years until you are going to purchase your first home with KiwiSaver, I would likely encourage you to be on a very safe/conservative strategy so that even if markets do crash, you do not stand to lose any (or only very little) of your KiwiSaver funds. Conversely, if you have just bought a first home, and now have 20-30 years to sit and wait and grow your KiwiSaver to retirement – I wholeheartedly encourage you to be (and importantly, STAY) in a High-Growth strategy for the long term.

If you feel you have not given enough thought to this, or want to discuss any of your fund options and benefits within KiwiSaver – don’t hesitate to reach out for a free advice chat.