Understanding market volatility

Market ups and downs can feel like a rollercoaster, but when it comes to your superannuation, knowing how to navigate market volatility is the key to staying on track for a comfortable retirement.

What is market volatility?

Market volatility describes the ups and downs in the value of investment assets. The value of any asset – whether it’s shares, property or bonds – can fluctuate over the short-term, sometimes significantly.

The causes of market volatility are many and varied. Economic or geopolitical factors, such as interest rate changes, inflation, trade disagreements, natural disasters and conflicts can all influence market stability.

Volatility and your investment

As a member of the Teachers Retirement Savings Scheme, your account balance is typically invested across a diverse range of asset classes and financial markets – and some degree of volatility is unavoidable. As a result, it is common for balances to rise and fall from time to time.

Unless you’re nearing retirement or are planning to withdraw your money in the near future, your funds are generally invested for the long-term. Short-term fluctuations are normal but it’s important to focus on your overall goals over years and decades, rather than immediate market changes.

Market cycles: bulls, bears, and the power of time

Markets tend to move in cycles, from lows to highs and back again. A full market cycle often includes both a “bull market” and a “bear market”, with peaks and troughs in between.

A bull market is an extended period of consistently rising prices, high investor confidence and often (but not always) economic growth.

A bear market is a period of falling prices, lower investor confidence and economic downturns, such as recessions.

Time in the market vs timing the market

Market cycles are unpredictable, and usually only become clear after they have happened. Trying to guess the best time to buy or sell investments is risky, even for seasoned investors.

Most KiwiSaver and super members plan to stay invested for decades, and therefore “time in the market” has been shown to be a much safer strategy than “timing the market”.

It is important to consider your investment goals and objectives, risk appetite and personal circumstances. That’s because time often negates the effects of short-term market fluctuations – history shows market values tend to increase over longer periods, despite the ups and downs.

Staying invested allows the benefits of ‘compounding returns’ to work over many years.

Perhaps the biggest advantage of taking the longer-term view, is that it helps investors resist hasty decisions and instead rely on the market to deliver sustainable returns over the long-term. 

Global and local investment expertise

The Scheme offers four investment fund options, and our experts actively manage portfolios to capture opportunities when markets are rising and help cushion member account balances from the worst when markets are falling.

Stay on track with your investment strategy

It can be tempting to switch investments when markets get rocky, but reacting to short-term volatility can hurt your retirement savings. 

Check out the videos on the Scheme website to learn more about market cycles, asset class fluctuations, risk management strategies and factors influencing investment decisions during market cycles: https://www.teachersretire.org.nz/latest-news/investments/market-volatility.html.

Tools like Sorted’s investor profiler can help you understand your risk appetite and find the right investment mix. 

There is also a wealth of resources available to you on the ‘Financial Advice’ page, available on the Scheme’s website.

Check before you switch

Switching investment options in response to market volatility can have a significant impact on your account balance when you retire. We recommend seeking independent financial advice by speaking to a financial adviser before deciding.

As always, we are here to support your retirement goals, contact our Helpline on 0508 4 TEACH (0508 4 83224). Staying informed and patient is your best strategy for riding the waves of market volatility with confidence.