Market Volatility and Your KiwiSaver in NZ (2026): How to Handle the Swings

Sharp market swings are normal for a KiwiSaver fund. Here is what volatility really means, how to read the FMA risk indicator, and the calm response that protects long-term returns.

This article is general information only and is not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Before acting, consider whether it's right for you and seek advice tailored to your circumstances.

A KiwiSaver balance that falls a few thousand dollars in a week can be unsettling, especially if you check it often. But for most fund types, a swing like that is not a sign something has gone wrong. It is the normal, expected behaviour of a fund that holds shares. Understanding why the swings happen, and the difference between a swing and a permanent loss, is what stops a bad week turning into a costly decision.

This article explains what counts as normal volatility, how often markets actually fall, why a growth fund moves more than a balanced one, and what tends to help (and hurt) on a frightening market day.

TL;DR: Market swings are normal. Since WWII, US shares have had a correction of 10% or more on average about every 2.2 years, ³ yet diversified funds have trended upward over time. The expensive mistake is reacting: in the 2020 crash, 70.5% of KiwiSaver members who switched moved to a lower-risk fund, and 90.9% of them had not switched back before the rebound, locking in losses. ⁶

What is normal volatility for a KiwiSaver fund?

Volatility is simply how much a fund's value moves up and down over time. It is not a measure of how risky the underlying investments are in the sense of "likely to fail"; it is a measure of how bumpy the ride is along the way.

Every KiwiSaver and managed fund in New Zealand has to display a standardised risk indicator on a scale of 1 to 7, where 1 is the lowest and 7 is the highest. ¹ That number is built from past volatility, specifically the annualised standard deviation of the fund's weekly returns over the previous five years, which lets you compare the expected bumpiness of two funds on Sorted's Smart Investor. ¹ A higher number does not mean a "worse" fund; it means a fund whose value has moved around more, usually because it holds more shares.

It helps to know what is normal for your fund type rather than reacting to a single figure. A growth fund losing several per cent in a volatile month is behaving exactly as designed. A fund sitting at risk indicator 1 barely moving is also behaving as designed. The mistake is expecting share-based growth without share-based swings, because the two come together.

How do I read the FMA risk indicator scale?

The Financial Markets Authority sets the volatility bands behind the scale, so the same number means the same thing across every provider. ² A category 1 fund has had under 0.5% annualised volatility; category 4 sits between 5% and under 10% (medium-high); category 5 is 10% to under 15% (high); category 6 is 15% to under 25% (very high); and category 7 is 25% or more (extremely high). ²

One quirk worth knowing: because the indicator looks back five years, the sharp volatility of the 2020 COVID crash kept many funds' measured risk numbers elevated until around mid-2025, even as conditions calmed. ² So a fund's risk indicator reflects the recent past, not a forecast.

Here is roughly how the bands map to the fund types you will see from NZ providers.

Source: FMA risk indicator methodology and volatility bands; ¹² fund-type mapping is indicative. Where a particular fund sits varies by provider and date, check the fund's risk indicator on Sorted's Smart Investor and its Product Disclosure Statement.

How often do markets fall, and by how much?

Falls are far more common than most people expect, which is part of why they feel alarming when they arrive. Since WWII, US share markets have had roughly 37 corrections of 10% or more, occurring on average about every 2.2 years, with deeper bear markets of 20% or more arriving about every 5.6 years. ³ Despite all of those, diversified funds have trended upward over the long run. ³

Looked at year by year, the picture is similar. Historically about 64% of years see a drawdown of 10% or worse at some point, and 94% of years see at least a 5% drop, yet only about 26% of years end up in a full bear market of 20% or more. ⁴ In other words, a double-digit dip within a year is closer to the rule than the exception, and most of those dips do not turn into something deeper.

These are international and historical figures, and past patterns are not a promise about the future. Returns are not guaranteed. The value of investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future performance. But they do put a single scary week in context: dips are a routine feature of the kind of fund that produces long-term growth, not a malfunction.

Why does my growth fund swing more than a balanced one?

The difference comes down to the mix of assets. Growth funds hold a larger share of growth assets, mainly shares, which move around more in the short term but have historically delivered higher returns over long periods. Balanced funds hold a more even split between shares and steadier income assets such as bonds and cash, so they move less in both directions.

That is the trade-off the risk indicator is trying to show you. A higher number signals more expected swing, which is the price of aiming for more growth over time, not a fault. A growth fund and a balanced fund will behave very differently in the same bad month, and both can be entirely appropriate depending on how long the money has to recover before you need it.

This is why matching fund risk to your time horizon matters more than reacting to any single year. People with decades before they will touch the money can usually sit through bigger swings, because they have time for the recovery; people who need the money soon generally cannot. We cover how this changes across a working life in matching your KiwiSaver fund to your life stage, and the building blocks themselves in KiwiSaver fund types explained.

What is the difference between volatility and permanent loss?

This is the distinction that matters most, and it is where a lot of damage gets done. Volatility is a fall in value that you have not realised. On paper your balance is lower, but you still hold the same units in the same fund, and if the market recovers, so does your balance. A permanent loss is when you sell, turning a paper fall into a realised one, or when an investment is genuinely impaired and never comes back.

A diversified KiwiSaver fund spreads your money across hundreds or thousands of companies and assets, so the whole fund going to zero is not the practical risk; the practical risk is reacting to a temporary fall as though it were permanent. The historical record makes the point: about 64% of years see a 10%-plus drawdown, ⁴ yet diversified portfolios have still trended up over the long run. ³ Most drawdowns are volatility, not permanent loss.

Switching to a lower-risk fund after a fall is the most common way members convert one into the other. You sell your growth-fund units at the low point, lock in the drop, and then sit in a safer fund through the recovery, so you take the loss but miss the rebound. Sorted (the FMA's free guidance service) puts it plainly: switching to a lower-risk fund during a downturn locks in losses by selling low and missing the recovery. ⁸

Why do market shocks feel worse than they are?

Part of it is how losses register. People tend to feel a loss more sharply than an equivalent gain, so a balance falling reads to the brain as a threat that demands action, even when doing nothing would serve you better. Part of it is how often you look: the more frequently you check a volatile balance, the more red days you will see, and the more often you will be tempted to react to noise.

The headlines do not help. Falls get covered loudly and recoveries quietly, so the downside feels larger and more permanent than the long-run record supports. None of this means the feeling is wrong, falls are real and the money really has dropped on the day, but the feeling is a poor guide to the decision.

The New Zealand evidence shows how strong the pull to act can be. During the February to April 2020 COVID crash, KiwiSaver members made 88,112 fund switches, 3.4 times the same period in 2019, peaking in March 2020 at 6.4 times the March 2019 volume. ⁵ Across the full year to 31 March 2020, the FMA recorded 256,393 switches, up 54% on the prior year, with about $1.5 billion flowing out of balanced and growth funds into conservative and cash investments during the volatility. ⁷ That is a lot of people reacting to the same scary moment at once.

What should I do, and not do, on a scary market day?

The hardest part is that the urge to act peaks exactly when acting tends to cost the most. The 2020 figures show why this matters: of the members who switched, 70.5% (41,148 people) moved into a lower-risk fund, and only 9.1% of those had switched back to a higher-risk fund by August 2020, meaning 90.9% effectively locked in their losses before the rapid rebound. ⁶

That is the central lesson. Here is a simple way to separate the trigger from the decision.

Source: Smiths Financial, drawing on FMA member-behaviour findings and Sorted's stay-the-course guidance. ⁵⁶⁸ General information, not a recommendation for your situation.

A change can be the right call when your circumstances have genuinely shifted, for example your time horizon has shortened because you are nearing a first-home withdrawal or retirement. That is a planned decision based on your timeframe, not a reaction to a headline. Switching purely because the market fell is the move the evidence warns against. We go deeper into this in why timing the market fails for KiwiSaver and what happens to KiwiSaver in a recession.

How to volatility-proof your KiwiSaver plan

You cannot remove volatility from a fund that holds shares, and trying to dodge it by jumping in and out tends to backfire. What you can do is build a plan that lets you sit through the swings without being forced to sell at the wrong time.

A few principles tend to hold up. Match your fund's risk level to how long until you will use the money, so the swings you sign up for are ones your timeframe can absorb. Keep contributing through downturns, because buying while prices are lower can work in your favour over time. Check your balance less often when markets are choppy, since frequent checking mostly adds stress, not information. And decide your response to a fall in advance, while you are calm, rather than in the moment. Sorted's core guidance is the same: match fund risk to your time horizon and stay the course rather than reacting to short-term drops. ⁸

None of this guarantees a particular outcome, and a sensible plan still means living through real falls along the way. Returns are not guaranteed and can go down as well as up. But it removes the largest self-inflicted risk, which is not the market itself but the decision to sell into it.

Frequently asked questions

Is it normal for my KiwiSaver to drop in value? Yes, for most fund types it is normal and expected. Funds that hold shares move up and down in the short term. Since WWII, US share markets have had a correction of 10% or more on average about every 2.2 years, ³ and about 64% of years see a drawdown of 10% or worse at some point. ⁴ A dip is usually volatility, not a sign something is broken.

What does the risk indicator number on my KiwiSaver fund mean? It is a standardised 1-to-7 scale, set by the FMA, that measures how much the fund's value has swung over the past five years, with 1 the lowest and 7 the highest. ¹² A higher number means bigger expected swings, usually because the fund holds more shares, not that the fund is lower quality. Compare funds on Sorted's Smart Investor and read each fund's Product Disclosure Statement.

Should I switch to a safer fund when the market falls? Not as a reaction to the fall itself. In the 2020 downturn, 70.5% of members who switched moved to a lower-risk fund, and 90.9% of those had not switched back before the rebound, locking in losses. ⁶ Switching can make sense if your time horizon has genuinely changed, for example you are nearing a first-home withdrawal or retirement. This is general information, not advice for your situation.

What is the difference between volatility and losing money? Volatility is a fall in value while you still hold the fund; if the market recovers, so can your balance. A loss becomes permanent when you sell at the low and realise it. Most drawdowns are temporary: about 64% of years see a 10%-plus dip, ⁴ yet diversified funds have trended up over the long run. ³

Why does my growth fund move more than my friend's balanced fund? Because it holds a larger share of growth assets, mainly shares, which swing more in the short term but have historically delivered higher long-run returns. A balanced fund holds a steadier mix, so it moves less in both directions. Neither is inherently better; the right one depends on your timeframe and how much swing you can sit through.

How often should I check my KiwiSaver balance during volatile markets? There is no rule, but checking less often during turbulent periods tends to reduce stress and the temptation to react to short-term noise. KiwiSaver is a long-term scheme, and the day-to-day figure matters far less than the trend over years.

This article is general information only and is not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Before acting, consider whether it's right for you and seek advice tailored to your circumstances. KiwiSaver is a long-term savings scheme and KiwiSaver and managed funds are investments: the value can go down as well as up, returns are not guaranteed, and past performance is not a reliable indicator of future performance. Government contributions, contribution rates, withdrawal rules and tax (PIR) settings are set by the Government and can change; figures are correct as at 25 May 2026, and you can check current rules at ird.govt.nz, kiwisaver.govt.nz and sorted.org.nz. Smiths Financial is a trading name of Craig Smith Business Services Ltd (FSP712931), which holds a Class 2 financial advice provider licence issued by the Financial Markets Authority to provide financial advice on personal risk insurance, health insurance, general insurance, KiwiSaver and managed funds. Our advisers, Henry Smith (Financial Adviser) and Craig Smith (Principal Adviser), are bound by the Code of Professional Conduct for Financial Advice Services and the duty to give priority to clients' interests. Craig Smith Business Services Ltd is a member of the Financial Dispute Resolution Service (FDRS), a free and independent dispute resolution scheme. We're generally paid by commission from the insurer or provider when you take out a product through us; this doesn't change the price you pay, and we manage conflicts in line with our duty to prioritise your interests. Our publicly available disclosure information is available free of charge on request and on the FMA Financial Service Providers Register at fsp-register.companiesoffice.govt.nz. Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. Last reviewed 25 May 2026.