Market volatility is part of any long-term investment cycle, KiwiSaver providers say

High inflation, rising interest rates and war in Ukraine have caused financial market volatility this year, but KiwiSaver providers say investors should maintain a long-term perspective.
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Local KiwiSaver providers are reminding investors to keep a cool head amid the latest wave of financial market turmoil.

Capital markets have been under pressure for most of this year as they have been hit by a combination of high inflation, rising interest rates and the war in Ukraine.

But some more fuel was added to the fire last week, following the announcement of the UK government’s mini budget.

The plan to cut taxes but increase government borrowing surprised investors, who aggressively sold government bonds and the pound, plunging the latter to an all-time low against the US dollar. .

The turmoil prompted the Bank of England to step in to try and put out the flames – announcing it would go against its anti-inflation policies and spend £65billion ($123billion NZ) to buy government debt to support bond prices.

The development brought some respite to global stock markets, which had been hammered last week.

Kernel Wealth managing director Dean Anderson said KiwiSaver members should refrain from any sudden adjustments to their portfolios in light of news from the UK.

His advice to investors was simple – turn off the news.

“Reality is for investors with a long-term mindset [they] shouldn’t make any adjustments to how they invest, how they plan to invest,” Anderson said.

“The market noise we’re seeing right now is unusual, there are a lot of factors at play, but in fact it’s a standard part of any long-term investor’s life cycle.”

Anderson said the volatility would be harder to bear for KiwiSaver members who were nearing retirement or planning to use their balances to help with their first home.

Conservative funds also didn’t offer much hiding space for investors, he said.

These lower risk funds tend to have greater exposure to bonds.

Anderson said conservative members of the fund could expect to see bigger moves in their balances following the aggressive selling of UK government debt, which caused yields to surge and prices to fall.

But Pathfinder Asset Management’s chief investment officer, Paul Brownsey, said the consequences for local investors would be limited.

“I don’t think there would be any KiwiSaver funds in New Zealand that would have massive exposure to UK bonds because that’s a relatively small part of the global market.”

Falling UK bond prices were a serious problem for UK pension schemes, which had borrowed against those assets to invest in stock markets, he said.

Brownsey said investors should contact a financial adviser or their KiwiSaver provider if they have any concerns.

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