Short-term market dips are a normal part of investing — but research consistently shows that switching KiwiSaver funds in response to volatility tends to cost more than it saves. Here's what to understand before making a move.
When a newly transferred KiwiSaver balance drops a few hundred dollars within days, the instinct to move it somewhere safer is understandable. But investment experts say short-term volatility is the price of long-term returns — and acting on it almost always costs more than it saves.
The question of whether to switch after a sharp short-term drop comes up regularly in RNZ's regular personal finance Q&A.
The question of whether to switch KiwiSaver providers or funds after a sharp short-term drop comes up regularly. Dean Anderson, founder of Kernel Wealth, recently addressed it directly: "This past week has been choppy for markets globally — down 1 percent, up 1 percent, repeat." Those day-to-day moves can feel alarming when you're watching a balance you've just worked hard to build, but they are a normal feature of investment markets.
Why switching in response to volatility tends to be counterproductive
The core problem is market timing. Research on investor behaviour consistently shows that people who move in and out of funds in response to short-term drops tend to buy back in at higher prices after markets recover — locking in losses rather than riding them out. A fund that falls 5 percent in a week and recovers 5 percent the next week is actually unchanged, but an investor who switched during the dip has crystallised a loss that didn't need to exist.
This applies particularly to KiwiSaver, where switching between providers involves transfer delays that can span several days. By the time a transfer settles, the market may already have moved.
What the data says
Long-term investment data from New Zealand and overseas consistently shows that time in the market beats timing the market. A investor who stayed fully invested in a growth-oriented KiwiSaver fund over the past decade would have experienced sharp drawdowns along the way — including the 2020 pandemic selloff and the 2022 rate-rising cycle — but would also have participated in the recoveries that followed.
The alternative — moving to a conservative or cash fund after a drop — often means locking in the loss and missing the recovery, while also being exposed to the risk that the new fund also falls when markets eventually catch up.
What to consider before switching
The decision to switch KiwiSaver providers or funds should generally be based on whether the original reasoning was sound — whether the fund matches your investment timeframe, risk tolerance, and fee structure — rather than on recent performance. If the reasoning was sound when you chose the fund, a short-term dip is typically a reason to re-examine that reasoning, not abandon it.
For those who transferred to a higher-growth fund specifically to benefit from long-term compounding, staying through a volatile period is usually more consistent with that goal than switching back to a lower-risk option after the fact.
For those who are genuinely uncertain whether their current fund is the right fit, talking through the decision with a licensed financial adviser — rather than reacting to a balance sheet — is likely to produce a more considered outcome.
The same long-term perspective applies to property markets. Cotality chief property economist Kelvin Davidson has noted that people buying at the moment "are probably pretty pleased with flat house prices, or even slightly down in some markets" — a reminder that price dips create different opportunities depending on where you are in your financial lifecycle.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.