Coronavirus and Market Volatility – what to do?

You will likely have noticed that your KiwiSaver or Investment has gone down in the past week due to market fears over the Coronavirus. This, combined with the general panic over the impact of the virus itself (especially now that NZ has had its first diagnosis) has caused some concern and people wondering what to do with their money.

The general theme whenever the market goes down is:

Is this an issue?
Is this time different to every other time?
Should I change my funds to a more conservative fund?
Should I change providers?

And the answers, now and every time it happens in the future are No, No, No and No.

Markets will go up and down, and so your KiwiSaver/Investment will go up and down. This is normal, and to be expected. We are not worried about the market on a day by day basis, (where it’s a coin toss as to whether the market goes up or down), but over the long term, in years, where the market almost always is up.

This time is not different, it’s just the usual cycle. And it will hit all providers, some more than others each time, but no one provider is immune to volatility.

If you’re open to hearing the good news, then consider that the actual value of the companies that make up the major indices are almost certainly not 10% less valuable today, as businesses, than they were last Monday. The recent market drops are a panic attack, pure and simple, and real valuations should eventually reassert themselves. The bad news is that neither we nor anyone else has any idea how long the panic attack is going to last, or exactly what those real values are, and we don’t yet know whether the triggering event—the Coronavirus, more precisely COVID-19—will spread into a pandemic, and if it does, how much damage it will do to the world economy.

So what should you do with your investment?

Basically nothing, ignore the down and understand that your Investments are on sale currently, and will go back up again at some point.

What do I mean by on sale? I mean that the unit price (the actual thing that is important in your KiwiSaver/Investment), has gone down, so when you next put money in, it will be cheaper, and you will get more units for your money.

If you login to your KiwiSaver/Investment with your provider, you should be able to see the unit price, it’s the change in this that causes the ups and downs.

If you scale your KiwiSaver/Investment back to a more conservative fund, you are locking in the loss. What I mean is that if your unit price drops from $1 to $0.96c, and you change funds, you will lose that 4c forever. But if you leave it as it is, it will eventually go back up and much higher.

If you need the money out in a month, then maybe its worth looking at changing funds, in which case get in touch.

What should you do personally?

Even though a lot of attention has been given to the virus’s impact on the markets, the more important issue is the health of you and your family. You—like us—should be closely monitoring the spread of the disease. You should know that simple surgical masks will not prevent wearers from the virus. Medical experts say that we should be conscientious about washing our hands and using hand sanitizer and cleansing wipes.

There doesn’t appear to be a working coronavirus test at the moment, so watch for the symptoms: fever, cough, runny nose, shortness of breath. There is no cure, but experts recommend resting and avoiding overexertion, drinking plenty of water, using a clean humidifier or cool mist vaporizer, and taking aspirin, ibuprofen or naproxen for pain and fever. In 98% of the cases, the disease is not fatal, but it does seem to be more dangerous for older people.

Our wish is that you and your family will stay well, and that the virus will not become the pandemic that many (including market traders) are fearing. And please understand that we (and everyone else) don’t know what the market will do on Monday or next week. The panic might continue, or we might experience a quick recovery. Historically, the best plan when bear markets present themselves is to sit tight, and our goal for you is to follow the best plan we know and wait for the recovery

Resources:

There are a lot of videos and articles out there on volatility and markets, and they all say the same thing, don’t change, it will be fine.

Here are two videos I have done:

https://www.youtube.com/watch?v=gekUKjfiszE

https://www.youtube.com/watch?v=RPMpHCmXtyM (This one was in relation to the Trump election but its still relevant)

Have a look at these and let me know if you have any questions or want some more advice. If you feel you are in the wrong fund for your appetite for investment, we can send you some tools to review this.

So in summary, its not a problem market wise, this drop is not different, you should not change funds or providers. Its normal market volatility and most importantly, take care of yourself and your family

Alan BorthwickMarch 3, 2020

Coronavirus and Market Volatility – what to do?

So what should you do with your investment?

What should you do personally?

Resources:

Here are two videos I have done:

and here is one from Dave Ramsey:

Here is a blog from one of our providers:

Coronavirus Resources: