Earlier this year, markets went through a period of heightened volatility due to the Middle East conflict. In late February, a sharp rise in uncertainty triggered a broad market decline. Share markets fell as investors reacted to fast-moving headlines and tried to assess the potential impact on growth, inflation and interest rates. Since then, markets have fully recovered. 

While market swings can feel uncomfortable, the recent rebound is a reminder that volatility is normal. Historically, staying the course has rewarded patient investors as markets recover. 

Looking past the headline noise

Market volatility can feel unsettling. One day your KiwiSaver savings balance is up, the next it’s down, often with little warning. When headlines amplify every market move, it can be tempting to assume something has gone wrong. In reality, volatility is a normal - and expected - part of how investment markets work.

Volatility is a normal part of investing

When you invest in growth assets like shares, you don’t receive smooth, predictable returns. Instead, returns arrive unevenly, with periods of strong performance interrupted by pullbacks along the way. These ups and downs are to be expected, and they are an everyday part of investing.

Why volatility feels so uncomfortable

Human negativity bias can often make volatility feel very uncomfortable. Losses tend to stand out more sharply than gains, even when gains may have outweighed losses over time. When you’re watching markets every day, even a small setback can feel permanent - despite usually being temporary.

Short-term moves vs long-term outcomes

While markets may fluctuate daily, long-term investment outcomes are shaped over years and decades. Over time, markets have historically worked through recessions, geopolitical events, inflation shocks and policy changes. When conditions or the outlook stabilise, markets have often bounced back.  Bumps along the way are expected. They don’t necessarily affect the long-term outcome. 

How portfolios are designed

The BNZ KiwiSaver Scheme and YouWealth funds are designed with volatility in mind. They are diversified across different asset types, regions and sectors so that some parts of the portfolio may hold up better when other parts come under pressure. During periods of turbulence, some investments may fall, while others provide more stability. You can read more about how diversification helps smooth out the bumps here.

Staying the course through volatility

Periods of market stress often feel like moments that require action. But reacting in the moment could do more harm than the market fall itself. When decisions are driven by fear or discomfort, you might end up locking in short-term losses that don’t match your long-term goals.

A more helpful response could be to pause and revisit the basics. Here are three things to keep in mind during volatility:

Markets tend to recover over time: During uncertain times, it’s easy to focus on short-term volatility rather than long-term investment performance. If you zoom out the lens, you’ll see that markets have shown a tendency to recover over time. Keep in mind that ups and downs are all part of investing.

Be comfortable with your investment fund choice: If market downturns make you uneasy, your investment fund might not match your risk tolerance. When selecting a fund, consider your goals, investment timeline, and ability to handle market fluctuations.

Mis-timing the market recovery: When markets fall, it can be tempting to switch to a more conservative fund and then switch back when things improve. But getting the timing right is very hard. Markets can recover quickly, and some of the biggest gains can happen in just a few days. If you miss those days, it can hurt your long-term returns.

The bottom line

Volatility will likely always feel uncomfortable - but it isn’t unexpected, unusual, or a sign that investing has gone wrong. It’s a reminder that markets move in cycles, and that long-term investing requires patience as well as perspective.  If you are in the correct fund for your risk tolerance and investment timeline, learning to ride out the bumps could have a positive impact on your investment account balance over the long term.