So, KiwiSaver and what should we be doing at the moment? First up I’ll tell you what I am doing; Nothing major at the moment.
My KiwiSaver is in a High Growth Fund – 100% shares or close to it. I’m not sure what the current balance is. I haven’t looked. I encourage everyone to follow that practice. I am sure it will be down considerably (probably about 25% I suspect) but I don’t need to torture myself by looking.
Markets will rebound. I am just not sure when or how long it will take. Right now if I change my asset allocation from High growth to Conservative or cash, I will take a paper loss and make it real. Think in terms of your house; if it drops substantially in value would you rush to sell it? Of course not! We would wait for the value to rebound before we would even consider selling – shares are exactly the same.
What am I going to do? Keep contributing. I am 61 and am saving as much money in as possible into KiwiSaver. I hope I have another 20 odd years in me so that is my investment horizon. About 12 months ago I increased my contributions to 10%, the maximum. I am still contributing at this level. The rationale is that I am now buying assets at a 25% discount to what I was buying a month or so ago. So when the recovery starts – and it will – I will make larger gains (It’s called dollar cost averaging if you would like to research the strategy). https://www.investopedia.com/investing/dollar-cost-averaging-pays/
Also, I am considering investing more. I am hoping to do what no one can predict, and get some money in at the bottom. Are we at the bottom? I don’t know. I did listen to a podcast by Hedge Fund manager Erik Townsend. His view is that the USA has no coherent strategy to fight Covid19 so the situation will get worse there over the short term. Therefore the current market ‘recovery’ is not sustainable or a ‘dead cat bounce’ (Even a dead cat will bounce if you drop from high enough!).
So right now I am going to wait a week or so before I take any action. When I do, it will be into managed Funds or an Index Funds focused on shares. (KiwiSaver Funds are all managed/Index funds, Conservative funds have minimal share exposure, High Growth funds have a high exposure). Using this strategy means I get Global share market exposure not just focused on individual shares which are a much higher risk.
So, knowing I can’t pick the bottom of the market I’ll look to invest smaller amounts over time to average in.
At Amicus we have 7 Advisers available to answer any queries about your KiwiSaver and able to give an overview of the current investment climate. Although we are all at home to assist in eradicating Covid19, we are able to assist via email, phone, or video. Feel free to touch base. We also have a bit of spare time right now!
As some background, here are some historical facts on previous crashes and recoveries using data from the USA ; https://www.thebalance.com/u-s-stock-bear-markets-and-their-subsequent-recoveries-2388520
Bear markets are periods when the stock market declines by 20% or more from a recent peak (a 52-week high, for example). Using the S&P 500 Index as a measure, there have been 16 bear markets since 1926, averaging once every six years. They last an average of 22 months, and the market loses an average of 39%.1 Despite bear markets, the stock market has been up more than it’s been down. From 1950 through 2019, the S&P 500 was up 53.7% of days and down 46.3% of days, and the percentage of positive days exceeded negative days in every decade.2
Historic Market Tumbles
The most recent U.S. bear market started amid the new coronavirus outbreak of 2020. The stock market crashed in March, with the Dow Jones Industrial Average and the S&P 500 Index both falling more than 20% from their 52-week highs in February. Other bear markets, as measured by the S&P 500, include:1
- 2007-2009: down 59% over 27 months
- 1973-1974: down 48% over 21 months
- 1929-1932: down 86% over 34 months
For investors who sold at the bottom of these markets, these down times had a detrimental effect. And of course, those who stayed in long enough to experience a subsequent recovery were better off. Remaining focused on the long-term is important when in the middle of a bear market.
Recovering From a Bear Market
Bull markets often follow bear markets. There have been 14 bull markets—defined as an increase of 20% or more in stock prices—since 1930. While bull markets often last for years, a significant portion of the gains typically accrues during the early months of a rally. In the year after the “trough” of the bear markets since 1929, the S&P 500 has gained an average of 47%, according to a March 2020 report from Fidelity Investments. For example, after the S&P 500 bottomed at 777 on Oct. 9, 2002, following a 2 ½-year bear market, the stock index then gained 15% over the following month and a total of 34% over the following year. Investors who flee to cash during bear markets should keep in mind the potential cost of missing the early stages of a market recovery, which historically have provided the largest percentage of returns per time invested.
In 2008, the S&P 500 bottomed at 683 on March 9, 2009, after declining 59%.1 From there it began a remarkable ascent, roughly doubling in the following 48 months.3 Investors who are considering moving entirely out of stocks during bear market declines might want to re-consider such action, since properly timing the beginning of a new bull market can be challenging.
To find out more, contact your local adviser or contact Amicus today.
By Greg Stanley, Amicus Director & Adviser