What to Do With Your KiwiSaver in a Market Crash: A NZ Action Plan

In the 2020 COVID crash, 88,112 KiwiSaver switches were made in three months — most into lower-risk funds, and 90.9% never switched back. Why switching to cash in a crash is so costly, and the action plan to hold your nerve.

TL;DR: When markets fall, the biggest risk to your KiwiSaver usually isn't the market — it's the urge to switch. In early 2020 New Zealanders made 88,112 fund switches in three months, most into lower-risk funds, and 90.9% never switched back ¹³. For most people with years to go, the action plan is to keep contributing and stay put.

A market crash is uncomfortable to watch, especially when your KiwiSaver balance is the largest pool of savings many New Zealanders have — the scheme now holds over $100 billion ⁶. Seeing a chunk vanish on paper in a few weeks is unsettling, and the instinct to "do something" is strong.

The problem is that the most common "something" — switching to a cash or conservative fund — is also the one most likely to turn a temporary paper loss into a permanent one. This article sets out what actually happens to your KiwiSaver in a crash, what the 2020 episode cost the people who switched, and a calm, practical plan for the next downturn. It is general information, not a recommendation about your own fund.

What happens to your KiwiSaver when the market crashes?

Your KiwiSaver isn't a bank account holding cash. It's a fund that owns assets — mostly shares and bonds, in proportions set by your fund's risk level. When share markets fall, the value of the shares your fund owns falls too, and your balance drops with them.

A few things are worth understanding before you react:

• The loss is on paper until you sell. Your balance falling doesn't mean money has left your account. You still own the same number of units; each unit is just temporarily worth less. You only crystallise (lock in) the loss if you sell — which is exactly what switching to a lower-risk fund does.
• How far it falls depends on your fund. A higher-growth fund holds more shares, so it falls further in a crash; a conservative fund holds more cash and bonds, so it falls less. In the early-2020 COVID fall, the average growth fund dropped about 3.41% across the year to 31 March 2020 — and far more at the worst point mid-crash before recovering ⁴.
• Your contributions keep buying in. While the market is down, every pay cheque and the matching employer and government contributions buy units at lower prices — the quiet upside of a downturn for anyone still working.

So a crash changes your balance on screen. Whether it changes your actual long-term outcome depends almost entirely on what you do next.

Why is switching to a cash or conservative fund during a crash so costly?

Switching to a lower-risk fund mid-crash feels like stopping the bleeding. In practice it usually does the opposite, for two reasons.

First, it converts a paper loss into a real one. When you switch after a fall, you sell your units at their reduced price. The loss that was only on paper is now banked.

Second, it takes you out of the recovery. Markets have historically rebounded, and often sharply. After the COVID fall, the average growth fund went from -3.41% in the year to 31 March 2020 to +28.70% in the year to 31 March 2021 ⁴. Someone who switched to cash near the bottom sold low and then sat out that rebound — missing the part that mattered most.

The chart below illustrates the shape of the problem: two balances going into the same crash, one held in a growth fund through the recovery, the other switched to cash near the bottom and left there.

!Two KiwiSaver balance paths through a crash and recovery — one held in a growth fund, one switched to cash near the bottom and never switched back, showing the held balance recovering and pulling ahead while the cash-switched balance flatlines.

Stay invested vs switch to cash at the bottom: what it costs. Smiths Financial illustrative model, based on Sorted return assumptions. Illustration only, not a prediction; actual results will differ.

The damage is rarely undone, because most people who switch don't switch back in time to catch the recovery — which is the next part.

What did Kiwis who panic-switched in 2020 actually lose out on?

The 2020 episode is the clearest real-world record we have, because the FMA studied it. Between February and April 2020, KiwiSaver members in the FMA's sample made 88,112 fund switches — about 3.4 times the volume of the same period in 2019, with March alone running at 6.4 times the previous March ¹.

Where did the money go? Overwhelmingly to safety, at the worst possible moment:

Source: FMA review of KiwiSaver member behaviour, Feb–Apr 2020 ².

The costly part is what happened next. Of the people who switched to a lower-risk fund, only 9.1% had switched back to a higher-risk fund by August 2020 — meaning 90.9% effectively locked in their losses and were still sitting in the lower-return fund as markets recovered ³. Notably, the 26–35 age group — the people with the longest time to retirement and the most to gain from staying invested — switched the most ³.

This isn't unique to the FMA's sample. Westpac NZ reviewed 18,140 of its own members who switched into more defensive funds during the peak COVID volatility (20 February to 31 March 2020) and found that, years later, 27% had never switched back into growth-focused funds ⁸. A short moment of fear turned into years of lower returns.

How long do KiwiSaver funds typically take to recover?

No one can promise a recovery timeframe — past patterns are not a guarantee, and some downturns last longer than others. But the historical pattern is that diversified funds recover, and the deeper-falling growth funds have tended to recover strongly once markets turn.

The COVID episode was unusually fast: the average growth fund was down only 3.41% across the year to 31 March 2020, then up 28.70% across the following year ⁴. Most crashes don't bounce back that quickly, and you shouldn't assume they will. The point is simpler: recovery happens on the market's timetable, not yours, and you have to be invested when it arrives to benefit from it.

This is also why time horizon matters more than the crash itself. Over the past 10 years, the higher-equity funds have rewarded the people who sat through the dips:

Source: Compound Wealth, aggregating Sorted/FMA industry data, 10 years to mid-2025 ⁵. Returns are after fees and tax. Past performance is not a reliable indicator of future performance.

Those long-run averages already include every crash of the last decade. The growth and aggressive numbers were earned by people who stayed invested through the bad years, not by people who jumped out.

When is it actually sensible to change your fund during a downturn?

Staying put is the right call for most people most of the time, but "never switch" is too blunt. There are situations where reviewing your fund during a downturn is reasonable — the key is that the reason has nothing to do with the crash itself.

Reasons that can justify a change include:

• Your timeframe has genuinely changed. If you now plan to buy a first home or retire within a few years, a lower-risk fund may suit that shorter horizon — but this is about your timeframe, not the market's mood.
• You discover you were in the wrong fund all along. Some people realise during a fall that they can't stomach the volatility of the fund they're in. That's useful information, but the time to dial down risk is calmly, as part of a plan — not by selling at the bottom.
• You were never matched to a fund deliberately. If you've been in a default or randomly chosen fund for years, a review makes sense. Choosing a fund that fits your timeframe and temperament is different from reacting to a headline.

What rarely justifies a switch is the fall itself. "The market is down, so I'll move to cash until it's safe" is the exact behaviour the 2020 data shows backfiring. There's more on the deliberate version of this decision in our guide on when to switch KiwiSaver funds.

What should you do instead of panicking?

Sorted's guidance is that KiwiSaver is a long-term investment, and that members in growth and aggressive funds should expect periodic negative years and ride out market dips, because reacting to short-term falls risks locking in losses and missing the recovery ⁷. A practical version of that looks like this:

1. Keep contributing. While prices are down, your contributions buy more units. Stopping or reducing contributions in a crash gives up that advantage.

2. Check your fund matches your timeframe — calmly. The question is "does this fund suit how long until I need the money?", not "is the market scary right now?". Our guide on conservative vs growth walks through that fit.

3. Stop checking your balance daily. Watching a falling balance is how people talk themselves into selling. The balance will still be there; the urge to act on it is the risk.

4. Decide your downturn rule in advance. Many people find it easier to hold if they've already decided that a fall means they do nothing. Making the decision before the next crash removes the heat-of-the-moment panic.

5. Talk to someone before you switch. A short conversation with an adviser or with Sorted can be the difference between an impulsive switch and a considered one.

The hardest part of investing in a crash is usually doing nothing — but for someone with years to go, nothing is often the most valuable thing they can do.

Does a crash change anything if you are buying a first home or retiring soon?

Yes — and this is the important exception. The "stay invested" message assumes you have time on your side. If you'll need the money within a few years, a crash matters far more, because you may not have time to wait for a recovery.

• Buying a first home soon. Money you plan to withdraw for a deposit in the next one to five years generally shouldn't be exposed to a big short-term fall, regardless of what the market is doing today. The risk of a 20–30% drop the month before settlement is real. The time to reduce that risk is when you set the timeframe — not after a crash has already hit. Our guide on a KiwiSaver for a short timeframe covers this in detail.
• Retiring soon and drawing down. Selling units in a falling market to fund living costs ("sequencing risk") can do lasting damage. Many people approaching retirement hold a mix — some money kept lower-risk for the next few years of spending, the rest left to recover — rather than reacting to a single crash.

In both cases the lesson is the same: match your fund to when you'll spend the money, set up before a downturn rather than during one. If you're close to either milestone, this is worth getting personalised advice on.

How can an adviser help you hold your nerve?

The 2020 numbers suggest the main value an adviser adds in a crash isn't picking the right moment — it's stopping a costly reaction. Of the people who switched to safety in early 2020, the overwhelming majority never switched back and gave up the recovery ³⁸. A lot of that was avoidable.

An adviser can help by checking whether your current fund matches your timeframe and temperament before a crash, so you're not making that call under pressure; by putting a fall in context against your time horizon rather than the headlines; and by being someone to talk to before you switch, when the instinct to sell is strongest. None of that guarantees a return — markets do what they do — but it can keep a temporary fall from becoming a permanent loss.

If you're already in a fund you can't sit through, that's worth sorting out calmly, not in the middle of the next downturn. Our guide on aggressive KiwiSaver funds covers how to match risk to timeframe.

Frequently asked questions

Should I move my KiwiSaver to cash when the market crashes? For most people with years until they need the money, moving to cash during a crash is the change most likely to do lasting harm. It sells your units at a low price and takes you out of the recovery. In 2020, 70.5% of switches went to lower-risk funds and 90.9% of those never switched back, locking in losses ²³. The main exceptions are people who'll spend the money within a few years.

How much did people lose by switching KiwiSaver funds in 2020? The FMA didn't publish a single dollar figure, but the pattern is clear: the average growth fund went from -3.41% in the year to 31 March 2020 to +28.70% the following year ⁴. People who switched to cash near the bottom sold low and missed that rebound, and 90.9% of those who de-risked hadn't switched back by August 2020 ³.

How long does it take a KiwiSaver fund to recover after a crash? There's no guaranteed timeframe, and some downturns last longer than others. The 2020 recovery was unusually quick — the average growth fund rebounded 28.70% in the year to 31 March 2021 ⁴. The reliable point isn't the speed, it's that you have to be invested when the recovery comes to benefit from it.

Should I stop my KiwiSaver contributions in a crash? Stopping contributions in a downturn gives up one of the few advantages of a falling market: your regular contributions buy units at lower prices. For people still working with years to go, continuing to contribute through a crash is generally how the long-run returns get built. Whether it suits your situation is worth checking with an adviser.

I'm close to retirement and the market just dropped — what should I do? This is the situation where a crash matters most, because you have less time to recover. Many people approaching retirement hold a mix — keeping the next few years of spending in lower-risk assets and leaving the rest to recover — rather than reacting to one crash. Because the right balance depends on your circumstances, this is worth getting personalised advice on.

General information, not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Consider whether it's right for you and seek advice tailored to your circumstances before acting. Returns are not guaranteed; the value of investments can go down as well as up and you may get back less than you invested, and past performance is not a reliable indicator of future performance. KiwiSaver is a long-term savings scheme; government contributions, contribution rates, withdrawal rules and tax (PIR) settings are set by the Government and can change — check current rules at ird.govt.nz, kiwisaver.govt.nz and sorted.org.nz. Craig Smith Business Services Ltd (FSP712931), trading as Smiths Financial, holds a Class 2 licence issued by the Financial Markets Authority and is a member of the Financial Dispute Resolution Service (FDRS). Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. Last reviewed 12 December 2025.