As well as checking the news for updates on events in the Middle East, many New Zealanders are also nervously checking their KiwiSaver balances.<\/p>\n
What they see is more than a snapshot of their own savings, it\u2019s a window onto world events \u2013 in particular the rough ride stock markets are having as the price of oil spikes because of the US-Israeli attack on Iran.<\/p>\n
Oil, for better or worse, is the lifeblood of the global economy, a crucial ingredient in many products and the fuel that moves goods around the planet.<\/p>\n
A reduction in supply \u2013 or even the expectation of reduction \u2013 pushes oil prices up. Since the Iran crisis, it has risen from around US$60 per barrel to more than $100<\/a>, with some analysts saying it could reach $150<\/a>.<\/p>\n When transport costs rise, prices rise with them and inflation and interest rates follow. Households spend less, businesses sell fewer goods and services, and potentially cut jobs.<\/p>\n Lower economic activity means lower company profits. Higher interest rates reduce future growth. When geopolitical crises erupt, investors become nervous and demand a higher return for taking risk.<\/p>\n Put those forces together and the result is usually the same: falling share prices. Because KiwiSaver funds are heavily invested<\/a> in local and global share markets, many New Zealanders are likely seeing their balances fall as well.<\/p>\n Take the long view<\/p>\n So what should KiwiSaver investors do? Nothing \u2013 seriously. If watching your balance drop is causing anxiety, the best response might simply be to stop looking. But it\u2019s also important to remember stock markets are resilient beasts. <\/p>\n This is not the first time markets have faced an oil shock. The 1973\u201374 OPEC oil crisis led to fuel rationing, soaring inflation and economic disruption not seen since the 1920s. <\/p>\n Stock markets around the world \u2013 including in New Zealand \u2013 felt that pain, with the Dow Jones<\/a> and the NZ share market<\/a> both falling by roughly 40%.<\/p>\n But markets recovered. Returns remained weak for much of the 1970s, but over the following decades global share markets went from strength to strength.<\/p>\n The first Gulf War in 1990 had a similar, though smaller, effect: rising oil prices, higher inflation and falling share prices. Once again, markets eventually recovered.<\/p>\n For most of us, KiwiSaver is a long-term investment. Even if you are approaching retirement, most people will live several decades beyond it. Unless you need the money today, what happens in markets this month matters far less than what happens over the next ten or 20 years.<\/p>\n On that timescale, the current crisis will likely be a blip that barely registers. Even the pain of the 1970s barely stands out when you look at a 100-year chart of the S&P 500 index against its long upward climb<\/a>.<\/p>\n Volatility \u2013 like we are seeing now \u2013 is the price investors pay for higher expected returns in the long run. It is felt most by investors in \u201cgrowth\u201d and \u201caggressive\u201d KiwiSaver funds, which are heavily invested in shares.<\/p>\n But those higher-risk funds have historically produced higher returns. Since KiwiSaver was introduced in 2007, investors have lived through the global financial crisis, COVID, trade wars and a period of very high inflation. Each caused markets to fall and created uncertainty for investors.<\/p>\n