There's rich picking in among the chaos

The last thing KiwiSaver investors should be doing is concerning themselves with the weekly or monthly movements in their retirement savings accounts.

Opinion

Many great companies arbitrarily sold off in the maelstrom, giving discounts of 10-20 per cent on last month.

I remember being at a client function in 2008, right in the middle of the financial crisis. I was speaking to a very wealthy client, well into his 80s, who had been investing for quite a few decades.

When I asked how he was feeling about these rough markets, he gave me the opposite response to most people at the time. It was something fairly upbeat along the lines of: "It doesn't bother me one bit, it's times like this when I make a lot of money."

Those comments spring to mind when thinking about the impact of the recent turmoil on New Zealanders' KiwiSaver accounts. Assuming they are some way off retirement, the last thing KiwiSaver investors should be doing is concerning themselves with the weekly or monthly movements in their retirement savings accounts.

If they are as touchy as that, they probably belong in a conservative fund that sticks to lower risk assets. However, they'll give up a good proportion long-term growth in exchange for that lower level of volatility. You can't have both, it just doesn't work that way.

KiwiSaver investors a decade or two away from retirement are probably invested in growth funds, as they should be given the time they have up their sleeve. These growth funds will almost certainly have a reasonable allocation to shares, and those shares will be spread across a range of different regions, including many of the places that have seen sharp falls over recent weeks.

But one of the great things about KiwiSaver is that it takes some of the psychology and market timing out of the investment process. Contributions are automatically deducted from our pay and those funds are invested in a range of asset classes, companies and industries.

These regular contributions happen during boom times as well as scary times, such as over these past few weeks. Many of us wouldn't be brave enough to invest any money when things look as precarious as they have lately. In all likelihood, we would sit on the sidelines and wait until things looked safe again before testing the waters, however long that takes. By then, prices could have risen again reflecting the more secure outlook and we would've missed an opportunity.

Instead of being concerned about the impact of recent ructions, KiwiSavers should look forward to snaring some bargains over their next few contributions. In fact, they should be hoping that this weakness lasts a while longer so they can maximise this opportunity.

The high valuations across most share markets this year made it difficult for investors and fund managers to find opportunities, so a bit of a shakeout is actually quite healthy. Many of the world's great companies have been arbitrarily sold off in the maelstrom, and investors can today buy shares in Auckland Airport, ANZ Bank or Disney 10-20 per cent cheaper than last month.

Share prices could certainty fall further from here, and it's impossible to predict when we will see stability return. Markets should be driven primarily by fundamentals, but investor sentiment and confidence also plays a huge role. At the moment, the latter is decidedly negative.

In the short-term, weaker markets and lower share prices won't do wonders for your KiwiSaver account. However, when you look back over your contribution history in years to come, it could well be those times of market turmoil that really benefited your final balance in the end.

Mark Lister is head of private wealth research at Craigs Investment Partners. This column is general in nature and should not be regarded as specific investment advice.