Share market volatility: what you need to knowShare market volatility: what you need to know

You may have noticed your share portfolio or your KiwiSaver balance has taken a dip. And if you haven’t seen that before, you might find it a bit scary. But there’s no need to panic—there's a long history of the share market falling and rebounding over the decades.

Right now, share markets are responding to the announcement of worldwide tariffs from the current US administration. The S&P 500—an index tracking 500 of the largest companies listed on US stock exchanges, and a benchmark for the state of the US share market—has just sharply declined and has been rocky since the start of the year. 

It’s important to remember that these drops are fairly common within share markets. Since the 1980s, there have been corrections or drawdowns (drops of more than 5% from a market’s most recent peak) almost every year in the S&P 500. Despite these regular dips, the average annual return since the index was started in 1928 through to 2024 is a little over 10%.

Although past performance isn’t an indicator of future success, it’s important to keep the bigger picture in mind. 

Why it’s happening

The main driver is the Trump administration’s announcement of new tariffs on many US trading partners. This has created widespread concerns about increased inflation for US consumers—with prices expected to rise as the cost of importing goods goes up. There’s also predictions about the potential for a global “trade war” as nations that export heavily to the US market are hit and look to retaliate with their own tariffs. All this means economic anxiety, and that tends to drive the share market down.

The effect can be varied across sectors, but tends to be more pronounced for companies with higher growth prospects—which is why tech stocks in particular have been impacted.

What it means for your portfolio

Remember that it’s entirely normal for share prices to go up and down. While you might be worried to see your portfolio go down in value, it’s important that you don’t panic. 

Instead, take the opportunity to review your share portfolio, and check if it’s set up for what might be a bumpy ride.

What about KiwiSaver balances?

You might feel especially anxious seeing the impact on your KiwiSaver balance. It’s important to remember that KiwiSaver is an investment fund, and dips are an expected part of investing. While Growth and Aggressive funds in particular offer higher potential returns, they also come with greater volatility. 

It’s also easy to feel powerless and feel like you need to intervene when you’re watching one of your most important assets take a hit. Just bear in mind that KiwiSaver investments are long-term by nature (unless you’re about to retire or buy your first home). Try to remain focused on your big-picture goals, and resist the urge to panic sell or switch funds in response to market dips.

How diversified are you?

Diversification means spreading your money across lots of different types of investments to spread your risk—not just a mix of companies and funds, but investments with different levels of risk in different sectors and countries.

Shares in tech companies have been hit especially hard lately, so consider whether your portfolio should include a wider variety of investments from other sectors to provide some balance.

What’s your time horizon?

Your time horizon is the amount of time you plan to leave your money invested for. 

If you’re investing for the long term, you have more time to ride out the ups and downs of the share market, and potentially nab some shares at a lower price.

If you’re thinking about selling sooner rather than later, ask yourself a couple of questions first:

• Have you met your investment goals?

• Do you need the money now?

Be clear about why you’re selling, and what you’ll use the money for if you do.

What’s your strategy?

There are heaps of different investing strategies out there. If your strategy was working for you in the good times, make sure to stick with it in the tough times too. 

If you continue to dollar-cost average while the market is down, you might be able to buy shares at a lower price, decreasing the average cost per share over the long term. 

Take a long-term view

While no one can predict how long it might take for the market to rebound, taking a long-term view means you can ride out the ups and downs of the share market over time.