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| Fall in share prices no reason to panic |
| Market update from Mercer, the scheme’s investment manager |
| So far, 2022 has seen significant volatility in share markets created by interest rate rises in
response to inflation mixed with the economic impact of the highly contagious COVID-19 variant
Omicron. If you’re invested in a fund with a higher exposure to growth assets, you will have
seen your balance reduce meaningfully over the past couple of weeks. |
| We recognise you may be concerned. However, try not to panic. Accumulating savings for
retirement requires investing with a longer-term horizon. Checking your balance every day
can potentially lead to making poor financial choices based on immediate fears. Moving funds
or withdrawing money at a time when markets fall cements any losses. It would be like selling
your house just because property values had fallen – you wouldn’t sell unless you needed to.
You would miss the opportunity to benefit from the rebound as prices recover. For many people,
not making a change at the moment is the best thing to do. Furthermore, continuing to save
regularly and investing while fund values decline typically pays off over the longer term. |
| Think about when you need to access your money. If you’re saving for the long term, you have
plenty of time to ride out the highs and lows associated with returns from growth investments.
However, if you are thinking of withdrawing your money in the near future for retirement or
a first home, you need to consider that your savings may be reduced if investment markets
weaken further. As you approach a life milestone, you may wish to alter your investment options
to better reflect your risk profile. |
| What’s causing the most recent market volatility? |
| This recent market volatility is simply a reflection of economies returning to a more normal
environment for monetary policy setting. |
| • |
Interest rates: Until recently, interest rates have been held at record lows, which helped
minimise the economic impact of the global pandemic. Low interest rates helped provide
businesses and consumers with a bridge to the other side of the pandemic so that they can
take part in and contribute to a strong recovery. This has fuelled economic growth and helped
drive up the prices of assets, including shares, to record highs. Interest rate rises over 2022
are now widely expected in many countries including the US, Australia and New Zealand.
Interest rate rises are expected to impact the value of bonds negatively as well as causing
volatility in share markets. New Zealand started increasing interest rates last year and faster
than anticipated. It was one of the main reasons New Zealand shares did not perform as well
over 2021 as their global counterparts. |
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| • |
Inflation: On the other hand, inflation has surged globally (this can be seen at the shops
and petrol stations). Inflation readings in the US particularly have been very high, climbing
7% over 2021. Central banks are expected to take action to control this by reducing stimulus
and raising interest rates, and with the US being a major influencer in global markets, this is
driving significant and broad-based global market volatility. While this is not great news for
home owners with mortgages, it is expected to help control inflation, which should be seen as
a positive for long-term returns. |
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| • |
COVID-19: The new COVID-19 variant Omicron has continued to spread at a rapid pace
around the world and has just started moving through some New Zealand communities. This
has created some volatility in our local share market. However, evidence to date globally
has suggested that the Omicron variant is generally less severe in terms of illness than
other variants. Some countries experiencing Omicron have left freedoms largely unchanged,
signalling that we may be on a path where we can live ‘normally’ with the virus as it becomes
endemic. |
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| While it’s been great to see markets rally over the last 18 months (after the initial shock of
2020) fuelled by central banks’ stimulus packages, things are expected to slow down in the first
half of the year with growth expected to rebound later in the year as the world works through
the next steps in managing the Omicron variant. |
| Things to remember in times of market volatility: |
| Diversify: PSS offers five investment options. Four of these – Stable, Balanced, Growth and
High Growth – are diversified funds. This means they invest in a variety of assets such as
shares, property, bonds and cash, although in different proportions in order to create options of
varying risk-return profiles. The other option is Cash Plus. Make sure you know what investment
option you are in and the impact markets may have on returns. You can find out more about the five investment options here. |
| When you sign in to your account, the Retirement Income Calculator available to you in the tools
sections has a ‘stress test’ feature that can help you see how different market scenarios could
impact each investment option. |
| Seek advice: Financial advisers can help you make the right investment decisions. The right
financial adviser can save you time and help you achieve your retirement savings or firsthome
goals. If you are concerned about the markets or considering changing investment
options, investing more money or perhaps withdrawing some of your savings for a first home or
retirement, speak with a financial advice provider. |
| Stay calm – it’s about time, not timing: You can access online tools to help you work out
what investment option you should be in and understand the impact markets may have on your
investments. Take a moment to consider what sort of investor you are by taking our risk quiz. |
| This information has been prepared by Mercer (N.Z.) Limited (Mercer) for general information only. The information
does not take into account your personal objectives, financial situation or needs. Before making any investment
decision, you should take financial advice as to whether your intended action is appropriate in light of your particular
investment needs, objectives and financial circumstances. Neither Mercer nor any related party accepts any
responsibility for any inaccuracy. Past performance is no guarantee or indicator of future performance. |
