Introduction
Over the past few months, KiwiSaver investors have been pleasantly surprised to see their balances unexpectedly increase. This has been a welcome change after a period of uncertainty and volatility. But what exactly has caused this sudden boost? Let’s delve into the reasons behind this unexpected increase and what it means for KiwiSaver investors.
Strong Market Performance
One of the primary reasons for the increase in KiwiSaver balances is the strong performance of the global markets. After a tumultuous 2020, markets have rebounded significantly, with many reaching new all-time highs. This has been driven by a combination of factors, including the rollout of COVID-19 vaccines, fiscal stimulus measures, and improving economic indicators. As a result, the value of the investments held within KiwiSaver funds has increased, leading to higher balances for investors.
Increased Contributions
Another factor contributing to the rise in KiwiSaver balances is an increase in contributions. Many New Zealanders have been using the lockdown period to reassess their finances and increase their savings. This has led to higher contributions to KiwiSaver accounts, which in turn has boosted balances. Additionally, the government’s annual contribution, also known as the member tax credit, has also added to KiwiSaver balances.
Positive Fund Performance
The performance of the individual funds within KiwiSaver has also played a role in the increase in balances. Many funds have posted strong returns over the past year, particularly those with a higher allocation to equities. For example, growth funds, which typically have a higher exposure to shares, have benefited from the strong performance of the stock market. This has resulted in higher returns for investors and an increase in KiwiSaver balances.
Impact of Currency Fluctuations
For those invested in international assets through their KiwiSaver, currency fluctuations can also impact balances. The New Zealand dollar has been relatively volatile over the past year, and this can affect the value of overseas investments when they are converted back into NZD. If the NZD weakens against other currencies, the value of these investments can increase, boosting KiwiSaver balances.
Summary
The unexpected increase in KiwiSaver balances is a result of a combination of factors, including strong market performance, increased contributions, positive fund performance, and currency fluctuations. This is good news for KiwiSaver investors, as it means their retirement savings are growing. However, it’s important to remember that investment values can go down as well as up, and past performance is not a guarantee of future returns. Investors should continue to monitor their KiwiSaver accounts and ensure their fund is aligned with their risk tolerance and retirement goals.
Looking ahead, investors should keep an eye on the ongoing economic recovery and any potential changes to government policy that could impact KiwiSaver. Additionally, with the NZX continuing to perform well, there may be further opportunities for growth within KiwiSaver funds. As always, it’s important to take a long-term view when it comes to retirement savings and to seek professional advice if needed.