Is now a good time to switch my investments?

The falling markets at the start of the covid-19 pandemic saw a wave of people switching their investments from growth to conservative funds. This caused everyone from financial journalists to your neighbour down the street, to caution against changing your investments. The common message was to “not switch”, “hold tight”, and “whatever you do, don’t lock in losses”.

While the market fall over the last year wasn’t as dramatic as at the start of the pandemic, it has raised many similar questions among our clients including:

• Is now a good time to change from a balanced to a growth fund?
• Is now a good time to switch my KiwiSaver?
• Is now a good time to change from a growth fund to a conservative fund?

The short answer is that market performance shouldn’t dictate your investment decisions. Instead, your investments should be driven by your own personal goals and preferences. Let’s dive into a few examples.

Is now a good time to change from a balanced to a growth fund?

Perhaps you have decided you want to invest for the long term and want to change your investments from a balanced to a growth fund but are worried to do so. If the share market is down, then changing from a balanced to a growth fund can work in your favour. Growth funds will have fallen more than balanced funds so you would actually be buying the growth fund “on sale”.

Is now a good time to switch your KiwiSaver?

Let’s say you are considering switching your KiwiSaver from a Balanced fund at one provider to a Balanced fund at a different provider. Perhaps you want a more ethical option or you don’t like the high fees you’re being charged. However, you aren’t sure if now is a good time to switch investments because your fund is down. Wouldn’t that be locking in losses?

Well good news, if you aren’t changing fund type (i.e. from a Growth to a Conservative Fund), then the two likely would have performed similarly so you wouldn’t be locking in anything. For example, if you are selling an asset that has gone down by 20% but also buying an asset that has also gone down by 20% then you are still in the same position.

Is now a good time to change from a growth fund to a conservative fund?

This is the situation market commentators were cautioning against but that doesn’t necessarily mean you shouldn’t do it. If you plan to use your investments in the short term, to buy your first home or complete house renovations, then investing these funds more conservatively is worthy of consideration. While it would be nice to wait for markets to fully recover before switching your investments, there is no way to predict when that might happen. It could take years before they reach their previous peaks and in the meantime, they might drop further, causing you additional losses just when you need to make that house purchase or pay for those renovations. 

There are many stories of people who stayed in growth funds to try and recoup losses even while actively house hunting. This story ends with them scrambling for money at the last minute because of the unpredictability of markets in the short term.

When should you switch investments?

If something has changed significantly in your life, then it’s time to review your investment fund. Is the fund you are in still appropriate for your goals? Are you still ok with the volatility and target timeframe of your current investments?

Also, while we don’t recommend changing your investments often, it is important to consider what you want from your fund provider. For example, are you happy with their fees, investment philosophy, and ethical strategy?

All of these are factors that are driven by your life, not by markets, and can provide you with clear reasons to change your investments.