When even penguins are getting walloped with tariffs, it becomes a little difficult for financial journalists such as myself to make predictions.
The old rules are out the window, as US President Donald Trump applies harsh new trading demands to friend, foe, and penguins on uninhabited islands alike.
Cue the market meltdown. Most New Zealanders have spotted it in their KiwiSaver, a sea of red as values suddenly dipped. You might also have seen it in your shares investments, if you invest outside of KiwiSaver, too.
We’ll also likely notice it trickling through in higher prices if the tariffs stick. It could even affect jobs as businesses become more cautious and uncertain about their future plans. Many will hit pause on hiring while they hunker down to figure out what’s next.
Then yesterday’s reversal. Or at least a pause. It might all be brought back in another few days. The only thing we know for sure is that the old rules seem to be out the window.
So what’s going on and how much should you panic?
Probably only a little. Even at times like these there are ways you can protect yourself from the storm.
Why your KiwiSaver is down
First is figuring out what’s going on. Once you understand what’s happening and why, it’s easier to avoid the panic (even if you’re still unhappy about the situation).
KiwiSaver is a great scheme with a terrible name. Because it’s not at all like a savings account. It’s an investment account. Even conservative accounts usually have a little bit of shares in them, and a growth account has a lot.
The sharemarket is simply a way to buy pieces of a business. Established companies such as Apple let you buy a piece of ownership and in return you get a bit of the profits when times are good.
There are two ways you make money from shares. Just like property, a company can go up in value. If you were to sell your shares, you’d then make a profit. Sometimes the company does well, makes a profit and shares it with investors in the form of a dividend. If we’re still comparing it to property, that’s more like making money from rent.
But this also means that when times are bad and the business world is suffering, shares’ investments can go down.
Business values can go down because the economy is rough. Or profits go down because customers simply don’t have as much money to spend.
That’s where we’re at right now.
Do I think the whole economy is about to implode? No. Businesses can and do recover from tough situations all the time.
Do I think it’s going to be a bit lean for a while? Probably.
Okay, then why is the market tanking?
Right now? Tariffs. Now paused, except for China.
Overall? Killer uncertainty.
Uncertainty is the worst. If the stock market had a personality, it would be that one friend who gets deeply uncomfortable when you say, “We need to talk.”
It’s not just bad news that causes problems, it’s uncertainty.
Nobody is sure that the old rules of the game hold and that makes it impossible to plan for what’s next.
By the time this column gets through being edited, produced and on to your screen, the tariff situation might be better, worse or continuing just the same.
There could be a new geopolitical tension.
Interest rates might have been lowered again or raised.
All of the smart economists I’ve been talking to can’t agree on how reserve banks around the world will respond to the new tariff situation. Some think it will cause a recession, others expect it to increase inflation, others think both, which will really leave our Reserve Bank in a sticky situation.
Uncertainty can be worse than bad news for the markets. Think of the market like a GPS. If it knows the road ahead, it can plan the best route, even if there’s traffic, construction or the occasional speed bump.
But if the GPS suddenly loses signal and has no idea where it’s going, it starts to panic, rerouting every few seconds, sometimes even suggesting a wildly inefficient path.
When uncertainty hits the markets, investors scramble to reposition, guessing at worst-case scenarios, and prices swing about wildly.
The financial survival plan
The first move at these moments is to sort out your financial foundations.
Ensure your income is secure
Now is not the time to slack off at work as some industries could face layoffs. Look for projects and skills that your company is putting a high value on. Then make sure you’re contributing to those.
Don’t just hope that your boss will notice but draw their attention to it. They’re busy people, too, and it’s easy to miss these things.
It’s worth considering a side hustle. Not only can this be useful for bringing in extra cash for savings, it’s a fall-back plan.
Boost your savings as much as you can
I know, we all feel broke these days, but this is the time to do whatever you can, even if it’s small.
If you can start an autopayment of $5 a week into your savings it’s worth it. More is better, but some is better than nothing.
You could also sell things you’re not using anymore if you really want to boost up the savings account.
Whatever way works for you, get some cash savings. If you need it, you’ll be so grateful to yourself.
Just don’t look
Don’t look at your retirement fund, investments or KiwiSaver. Not for a while, anyway.
It’s already down, it’s too late, and ideas like moving it to cash to “stop losing more money” is one of the worst things you can do right now.
If you’re really feeling the fear, then it’s time to call your KiwiSaver provider and ask them for advice.
You pay them fees, and part of the deal is that they’re supposed to help with these types of situations. So it’s not only a free service – you’ve actually pre-paid. Use it.
Knowledge is power
Take the time to learn more about money, as that will help you feel empowered rather than panicked.
These situations aren’t as scary when you understand why things are happening. Might I recommend the Making Cents podcast, where we get insights from top experts every single week.
Beyond survival: Where the smart money is looking for 2025
Now, before you stuff all your cash under the mattress and call it a day, let’s talk about the opportunities. Despite the screaming headlines, it’s not all bad news. Yes, some people can make money at a time like this.
If you have the main financial foundations sorted and holding you steady, you can consider investing more to get rewards in the future.
While sharemarket values are down, you can put in more money and get more bang for your buck. You have more assets and when the economy swings back into life, you’re ready to cash in and get the rewards.
The trick is that it’s a long-term strategy and you definitely want your other financial foundations sorted first.
If that’s you, here’s a safer strategy that could work. As always, these are general rules of thumb, and if you want individual advice it’s best to talk to a financial adviser.
Get those eggs out of that one basket
At a time like this, individual companies can indeed collapse. Some might.
But we only have to look back at history to know that the economy overall keeps going, keeps employing people, keeps making money, even if it’s tougher for a few years.
So what does that mean for any investments you might want to make?
It means it’s incredibly risky to put all of your money into just one company that could be hit by an unexpected bit of bad luck that nobody saw coming.
It’s not so risky to put your money into a fund which invests into hundreds of companies at once.
This could be something like an index fund, which invests into the top 50 companies in New Zealand, the top 200 in Australia, or even a global fund that invests in some of the biggest companies around the world.
It could also be your KiwiSaver, which uses a fund structure to invest in hundreds of companies on your behalf, if you’re in a growth or aggressive fund.
The trick here is that you want diversification – not one company, hundreds. Not just one country either, spread it around Europe, Asia, Australia.
And not just one industry, but technology, tourism, medicine.
The sharemarket makes it easy to spread your money around and therefore reduce the risk that something happens to, say, hurt the entire tech industry, because there’s some new tech-focused tariff.
Take advantage of that and diversify. This approach isn’t about avoiding risk, it’s about managing it. Because while market downturns are unavoidable, how you experience them depends on how well you’ve built your portfolio.
Take off the time pressure
Time is one of the big keys to being successful with money. The more time you have, the easier it is to make money, with less effort.
Thinking long term is also key for protecting your money at uncertain times like this.
A good rule of thumb is that you should only put money into shares if you can afford to leave it there for 5-10 years.
History doesn’t repeat, but it does rhyme. We’ve been in similar situations before and come through. Want some data to back it up?
The impressively named Dalbar’s Quantitative Analysis of Investor Behavior found the biggest reason individual investors underperform the market isn’t bad stock picking; it’s bad timing. Panic selling during downturns and jumping back in too late costs investors significantly over time.
Playing possum, holding tight and waiting for the ride to end is a proven strategy that works.
Respect the power of staying in the game
Thinking long-term also lets you build up some of the biggest benefits of investing. The longer you stay invested, the more chance you have of hitting those really good days, the ones that come out of the blue, and make a whole heap of money.
Missing just a few of the market’s best-performing days can mean you have dramatically less overall.
There’s also a pattern in the stock market that the best performing days come shortly after some of the worst.
Over the past 20 years, 24 of 25 of the best days in the market came within one month of the 25 worst days. So, that means there was only one occasion when it hasn’t bounced back to new highs within a month.
That doesn’t mean it’ll happen that way this time, but it gives us a good idea of how fast these things can happen.
Those bounce ups can happen too fast to quickly buy in – by the time you see it, you’ve already missed it.
This is why short-term money shouldn’t be used for investing in the first place. If you think you’ll need it in the next five years, term deposits or bonds can be a better bet.
Your personal timeline is more important than what’s happening right now
The right move for your money is more dependent on your own situation than what’s happening in the rest of the world.
How long until you need the money? How dependable is your job? Do you have cash savings to keep you otherwise secure?
If you’re close to retirement and looking to cash out, then it’s probably a good idea to check in with your KiwiSaver provider or a financial adviser.
If you’re not close to using your investments, then in most situations you’re best to sit tight and ride it out.
The best investors aren’t the ones who try to predict the market’s every move. They’re the ones who decide on the strategy that’s best for their personal situation and then stick to it, rain, hail, or tariffs.
And hey, maybe we all take a cue from the penguins that have also been slapped with tariffs. When the weather gets nasty, they huddle together, and take turns on the outer edge, so that they all get some protection from the storm.
If it’s really stressing you out, put a 24-hour ban on the news, meet up with a friend for coffee, and remind yourself that this too shall pass.
It always has before.
