Navigating Market Turbulence: Tariffs, Volatility, and Staying the Course

The US announcement of sweeping global tariffs sent markets into a correction last week, as economic uncertainty and questions about whether these tariffs are merely a negotiating tactic caused market fear to spike dramatically.

You might have noticed your Invest and KiwiSaver balances drop recently which can be unsettling. This isn’t a new phenomenon – anyone remember COVID? This short read will provide some context to this latest market volatility as well as some helpful tips to navigate it.

• The fear gauge and the current share market sentiment

• What the current environment can mean for investors

• 4 key long-term investing principles & how to apply them

• Practical KiwiSaver Tips

The VIX index - Wall Street's "fear gauge" - jumped to levels not seen since the COVID-19 pandemic shutdown in March 2020.

Looking back over the past five years, we've weathered numerous financial storms: the COVID collapse, inflation rates not seen in a generation, geopolitical tensions, and then the near-miraculous "soft landing" as inflation eased, interest rates fell, and unemployment remained surprisingly low.

While "survive to '25" was last year's mantra, the continuation of the soft landing and recovery has been rattled by the latest US policy direction. Uncertainty remains, and no economic forecast can accurately predict where we'll be in 12 months.

If the full tariffs remain in place as announced, concerns are that it will boost US inflation, potentially forcing the Fed to hold interest rates higher for longer. This would be a direct hit to US consumers.

The key unknowns include whether US tax cuts will pass later this year and offset this effect, how retaliatory the key global trade partners of the US will be (so far, China appears to be the only major player taking this path), and the net effect on global trade. The US is after all only 25% of the world’s economy.

For New Zealand, we remain in a relatively stable position. The tariff impact on us at 10% is lower compared to many global peers. We've started seeing green shoots throughout our economy as mortgages continue to roll off and reset at lower rates, creating more economic spending power.

Of course, when we feel uneasy, we tend to delay spending, meaning New Zealand's recovery will likely be slow over the coming year.

Perhaps the new mantra should be "Things will be fixed in '26"?

Falling markets and higher volatility can certainly be unsettling. Yet, for investors with long-term goals who are invested in shares, this is simply a reminder that volatility is the price we pay for higher expected returns.

There's no free lunch - while shares are historically the best-performing major asset class over the long term, the ups and downs are the cost of admission for these higher returns.

These market shocks aren't new. Typically and in most years, we see large swings in returns and associated concerning news headlines.

The chart below shows the annual returns of the S&P 500, represented by the blue and orange bars, compared with the turquoise diamonds being the largest drawdowns (period of negative performance) within the year.

While the S&P 500's annual return by year-end remains uncertain, history shows that, in some cases, even drops of 20% or more within a year have rebounded to deliver positive results by year-end.

While the short term future is uncertain what remains true are the key principles that have guided long-term wealth builders.

Being spread across a broad basket of assets, across the globe and across industries, lowers your long-term risk by preventing exposure to a single event. This can be achieved within the Kernel range of funds and many of our core funds achieve this on their own.

And here’s something many investors don’t realise: you can achieve broad diversification all within one platform - there’s no need to spread your investments across multiple providers.

Generally, the longer your investment horizon, the higher proportion of your investments should be in "growth assets" like shares.

If your goal is near-term, such as buying a house in the next couple of years, your investments should already be more heavily weighted toward "income" assets like cash to ensure stability when you need to access the funds.

KiwiSaver exemplifies this approach, where you're regularly investing regardless of market conditions. If you're building wealth, setting up an automatic investment plan can be an effective "set and forget" strategy, letting time and compounding work their magic.

For larger lump sums intended for long-term investment, adding to the market in a few chunks can provide comfort and avoid "buyer's remorse" if the market dips shortly after investing.

When surrounded by negative headlines or social media doom-scrolling, emotions can easily hijack decision-making - often leading to poor outcomes. Trying to time the market by switching from growth investments to cash is a dangerous game that very few get right.

You might miss the bottom, but there is a high chance you miss the recovery. If you have a plan in place and have followed the principles above, take a moment to zoom out and focus on what you can control: fees, diversification, and alignment with your investment horizon.

Auto-invest allows you to set regular contributions from your bank account into your chosen funds. This helps you maintain discipline through market ups and downs, taking emotion out of the equation while building your wealth steadily over time.

You can choose from a broad range of diversified options to help you invest toward your goals. If you prefer not to self-select, we have pre-made diversified funds such as our High Growth, Balanced, and Cash Plus funds that provide instant diversification across multiple asset classes.

Whether you're investing or saving for the short or long term, you can mix and match to suit your needs.

For short-term needs, lower-risk investments like the Kernel Cash Plus Fund or our Smart Saver provide stability, while long-term investors can access a range of core and diversified funds for growth potential.

KiwiSaver is designed as a long-term retirement savings scheme, with additional access provisions for first home deposits or financial hardship. For many Kiwis, KiwiSaver will become our second-largest asset after the family home—a crucial investment that will provide future financial flexibility.

One benefit of KiwiSaver is its restricted accessibility, regular contributions, and diversification—ticking all the boxes mentioned earlier. During periods of market volatility, your approach should depend on your time horizon.

If you're not planning to access your KiwiSaver for 10, 20, or 30+ years, a higher-growth investment option primarily comprised of shares makes sense, and short-term volatility shouldn't be concerning.

If you're planning to use the funds soon (like for a home deposit), you should be more heavily invested in lower-risk options such as cash.

There's often an assumption that as you approach 65, your KiwiSaver should be in increasingly conservative investments. However, you likely won't withdraw and spend your entire balance in the first year of retirement.

Instead, these funds should continue working for you to help fund your needs over potentially 30+ years of retirement—meaning at least part of your KiwiSaver balance should remain invested in growth assets for the long term.

If you’re not planning to use your KiwiSaver for a first home, and your retirement is still 10 to 30 years away, it’s best to avoid checking your balance too often.

Market ups and downs are normal, and reacting to short-term volatility can do more harm than good. The investment strategy you chose was based on your long-term goals - and that strategy still holds, even when the market gets a bit rocky.

Changing risk profiles (e.g. moving from High Growth to Cash) should be driven by changes in your circumstances, not in response to, or attempts to time, the market.

During COVID-19, many KiwiSaver investors switched to cash after markets had already fallen, subsequently missing the recovery and crystallising their losses.

Moving from one KiwiSaver provider to another can take up to 10 business days. Your old provider will sell your investments, transfer the funds via IRD to your new provider, who will then reinvest according to your selections.

This means you may be out of the market for several days during this period.

Sorted has excellent resources on when to switch and what to consider, including tools to compare KiwiSaver fees. Before making any switch, visit Sorted's KiwiSaver guidance.

Remember, market volatility is normal, even if uncomfortable. By focusing on your long-term plan and avoiding emotional decisions, you'll be better positioned to weather market storms and achieve your financial goals.