WAR & YOUR WALLET: The Truth About Investing in Chaos

A timely, dramatic episode

Daniel: Welcome back to the Blueprint Podcast, a place where everyday Kiwis come to learn more about their finances. This is a very timely, dramatic — controversial, if you will — episode. The tensions of war have met a crescendo, and it affects everything in the world. The hot topic is energy, people's safety is a concern, and the general uncertainty floods into the economy. Sitting here at the bottom of the Pacific, you'd think it's nothing to do with us — but it's incredibly related.

Rory: We're a bit of a safe haven from the physical effects of war, and today we talk about the economics and the macro. But we're certainly not desensitised to the people going through it on the front line. There's nothing good about war — our sympathies go out.

Daniel: We're grateful to have a friend of the show and a top KiwiSaver adviser here at Blueprint, Jono Smith, back on.

Jono: Thank you for having me.

Daniel: Rory and I are talking to our existing clients a lot about their investments and KiwiSaver, because it's a big concern right now. So we thought we'd answer these questions in one window with Jono. Mate, let's kick it off. We're sitting here refreshing our KiwiSavers — you shouldn't look every day, but we've had a significant correction. What's going on, and what can we expect?

Jono: You've got the wars, the uncertainty, oil prices spiking — and that uncertainty alone causes volatility. Just keep in mind that volatility is normal. There's short-term volatility, but it always ends up going to the upside. As long as you look at the long term, it's not a 30-day plan, it's a 30-year plan with KiwiSaver.

Why oil matters so much

Daniel: Talk to us about the disruption in energy supply and how that's affecting markets.

Jono: Everything relies on oil — it's almost as good as the US dollar; everything's priced in it. It starts with transport, but it's an input cost that flows into everything — food, daily items. When there's disruption, it slows supply chains, so everything takes longer, and that leads to increased cost that businesses factor in. It's a form of tax, really, and it flows through to the personal side too. We've been through oil crises before — oil can be a leading indicator of recessions, so I can see why people are concerned, especially if it drags out.

Daniel: The Strait of Hormuz is impacted — 20% of the world's oil and gas, a fifth, flows through it. Why does a channel predominantly flowing to Asia affect global prices?

Jono: 20% is significant. If it's flowing to China, they'll just keep stockpiling. It's not fully closed, there are just restrictions. Here in New Zealand we only have 40 to 50 days' worth of oil — we don't produce our own, we're heavily reliant globally, so we feel it a lot more than other countries that stockpile or source elsewhere. We're already seeing it at the pump — I was factoring $2.50 at the start of the year, now it's over three bucks. That's eating into transport costs straight away.

Daniel: We've put together a flow chart of the cause and effect. War happens, oil supply risk rises — mobilising militaries costs a lot of oil, and supply lines get shut down, like the Strait of Hormuz. Energy prices rise on supply and demand. Freight, aviation and logistics costs increase, so we get inflation. And every Kiwi knows what happens next: inflation rises, interest-rate cuts get delayed or rates get hiked, global share markets become volatile, KiwiSaver balances drop — and Blueprint clients are not happy.

Jono: Some things happen very fast — markets react the next day, the price of oil reacts quickly. You're talking $60-odd a barrel, now we're plus a hundred. But some effects, like interest rates, we might not see if things stabilise in a timely fashion.

Rory: For context on the mortgage side: we had an OCR hold at the last review, and now all the banks have increased their residential rates. The biggest indicator of that is the swap rates, which we keep an eye on — they've been increasing quite heavily, understandable with global uncertainty. So rates have gone up even without a move in the OCR.

Zoom out: it's not all bad

Jono: I'll zoom out, because it's actually not all bad. Over the last five to six years we had COVID — which could be seen as biochemical warfare — then tariffs, which are financial warfare, then Russia invading Ukraine, with sanctions. We're always in this battle. If we look at the S&P 500 — the top 500 companies in America, more than half the global market — during COVID in 2020, markets dropped 30% in a month. These sharp declines tend to be an overreaction, which creates mispricing and a lot of opportunities for the active managers we work with. They'll seek growth in the downturn but also protect you — they can move to cash, lock in profits, then recycle and buy assets at lower prices.

Jono: In the last five to six years we've had three bear markets — a bear market is just a 20% decline. COVID, markets fell 30% but took six months to recover. In 2022 Russia invaded Ukraine — energy, oil and wheat disruptions, another decline over 20%. In April 2025, Donald Trump came out with tariffs — another 20% decline. Three bear markets. But if you zoom out from the very bottom of March 2020 to March 2026, the S&P 500 is up 180%. It shows you can't time the market — you have to be in it and ride it out. One thing I battle with clients during these periods is they don't want to make a decision; they want to see how it plays out. But if you wait for peace, you'll end up paying the price, because markets are forward-looking and price it all in.

Jono: To put numbers on it — the probability of markets being positive in one day is 52 to 54%. Zoom out 10 years and it's 90 to 95% that your average annualised return is positive. Zoom out 20 years and it's almost 100%. The probability of a positive outcome increases the longer your timeframe. That's why it's a 30-year plan, not a 30-day plan. If you make changes based on short-term volatility, you'll lock in losses, guaranteed.

Daniel: So no one lost money over a two-decade period?

Jono: If you look at the bottom of the Great Depression, the dot-com crash, the GFC — run it 20 years and the S&P 500 has a positive annualised return. You can't really say that for bonds, usually one of the safest asset classes. It's interesting — people mix up risk and volatility. And here's a question for you: those were just geopolitical tensions, but what about the big wars — the World Wars, the Gulf War, the Korean War? From the start of the war to the end, what do you think the average annualised return has been?

Rory: Based on your clues, I'd say positive — but my gut said negative.

Jono: Every single big war, the average annualised return has been positive — roughly seven to 10% per annum. Bad news can sometimes be good news for markets. There's still short-term volatility and a lot of scare, but over time markets recover. Most wars last two, three, four years — and there's a lot of spending that goes into them.

Daniel: The printer gets turned on. And I say this to give people peace of mind, because people think the sky's falling. The reality is KiwiSaver is very diversified — different asset classes, cash, bonds, property, shares, alternatives, then diversification within each, across sectors, and geographically across the US, Europe, Asia, New Zealand, Australia. So if any one sector or country doesn't perform, it doesn't have a huge impact.

Jono: Last year Europe and Asia outperformed the US, so a lot of the active managers tactically moved funds into different markets and went more defensive. Different economies enter the interest-rate cut or hike cycle at different times — here in New Zealand we've come from a cutting cycle and we're near the bottom, whereas the US is only starting to cut. That de-sync creates opportunities elsewhere.

Inflation, interest rates and the central bank's dilemma

Daniel: Give us the macro on inflation, interest rates and how central banks try to control everything.

Jono: Especially back in COVID times when inflation took off — the tool the central bank uses is monetary policy. They hike interest rates, which disincentivises borrowing and spending because things get more expensive, and your mortgage repayments go up so you have less discretionary income. That reduces the money spent in the economy, so goods and services have to come down to meet that level of pricing. But now the Fed, and the Reserve Bank here, are trying to control two things at once: price stability — keeping inflation from skyrocketing — and keeping unemployment low. You can't do both at the same time, which is where we are today. Here in New Zealand unemployment is at a decade high. And we've had potential interest-rate hikes pulled forward — they were scheduled for 2027 and have been pulled forward to this year — so we could see a hike. But what does that do to unemployment?

Daniel: We've been in one of the longest recessions in a hundred years for New Zealand — it's gone on since 2020. We've felt it deeply compared to Australia, which boomed through it, real estate growing, their economy doing well. Now they're experiencing a similar level of inflation we had in 2022 and 2023. As the neighbouring country still not at the point of recovery, with record-high unemployment, it's a "what do you do" situation.

Rory: We always say the investment market and your KiwiSaver are a great place to store your money and a horrible place to make it. We're constantly dealing with fluctuations, so the tagline for this episode is: steady the ship. Please don't make any dramatic changes, especially if you're in an aggressive or growth fund. Have a chat to Jono for personalised advice — maybe you're already in the wrong fund — but you really want to stay away from crystallising that correction. Ride the storm out.

Jono: Volatility is normal. The way I explain it — what's the probability of the sun coming up tomorrow? 100%, based on the evidence. And I rock up to work and there's volatility every day; it's either going up or down. People are just looking for a new excuse, and this time it's the Iran conflict.

Rory's confession

Rory: I've got a question and a confession. When you talk about crystallising losses in KiwiSaver, it's about changing funds, right — going from aggressive to balanced or conservative — so when the recovery comes, you miss the bounce?

Jono: Correct.

Rory: I answered my own question. I made some changes to my KiwiSaver yesterday. I've got a lot of tech exposure and felt a bit exposed. I started thinking about what I think is really important — energy was one — so I moved into energy, and some silver and gold. I already had some Bitcoin exposure. Essentially I've just acted as an active manager.

Jono: That's a change of strategy, but not crystallising losses.

Daniel: You've probably crystallised some losses there, mate — but go on, Jono.

Rory: I've been a bit scared. Wars are so different now — there's the nuclear threat, and the targeting of infrastructure. Iran's oil production has been targeted, and they're saying they'll do the same — energy infrastructure in the Middle East, and data centres, because a lot of big tech has data infrastructure and cloud there. That's not going to be good for my high-tech exposure, so I need some hard assets, a bit of a hedge.

Jono: I'll link it back to KiwiSaver. What Rory's doing is being a DIY investor — you can customise your own KiwiSaver and have control over where your money's invested. I'd only suggest that for people who totally understand what they're doing. What Rory's doing is tactical asset allocation — seeing what's happening and tactically moving his money where he thinks it'll do well. Whereas a lot of managers out there are active managers, professionally managing it on your behalf — more hands-off for everyday Kiwis — with a portfolio manager and a big investment team analysing markets day and night. And they've got the track record.

Jono: What a lot of active managers are doing during periods like this, to reduce risk, is moving into more defensive assets — cash, taking some profits, currency hedging — and into defensive, income-producing sectors like energy and healthcare, because regardless of the economy, you still turn the light on. So they go defensive and underweight risky assets.

Steady the ship

Daniel: Quick disclaimer for the folks at home: Rory is our rogue investor, and this is not financial advice. We suggest you talk to the professionals like Jono, and we always suggest the balanced approach. So for everybody else — if you've already got a strategy, stick to the script. And if you're concerned, or never had a strategy, just like COVID, reach out and educate yourself. Let's quickly touch on passive too. If you're with a default KiwiSaver provider you'll be in a passive fund — they buy a diversified portfolio and set and forget. When corrections come, passives can take bigger hits because there are no safety measures or quick actions to put a backstop in.

Jono: Passive is a buy-and-hold strategy investing in the broader market, and over time markets tend to go up more than down. There are fees and taxes, so you slightly underperform the market — a bit of tracking error. When you look at the studies, most say passive tends to outperform because it's hard to beat the market consistently. But it doesn't mean there aren't active managers who can — look at Berkshire Hathaway, Warren Buffett. And here in New Zealand, the statistics show active managers have outperformed, mainly because the world is becoming more dynamic — more recessions, corrections, and new asset classes like DeFi coming in. There's no issue with passive — I use passive managers too, and we tend to use both, going multi-style and multi-manager to diversify and spread risk. If it's about fees, you go passive — it's low cost. If you want performance and to manage risk, active managers are doing a better job right now. Both approaches can get you to your goal.

Daniel: Do ethical funds get outperformed by non-ethical funds — say, in wartime?

Jono: Because KiwiSaver is a government product, there's oversight, so all providers are investing ethically to a degree. It's hard to find purely ethical investing. There's a site called Mindful Money I run clients through, which shows the percentages that could fall into things like human rights or weapons — sometimes indirectly, like a company that makes a part used in a gun but also in other things. On performance, if oil is taking off and there's more drilling, that could impact the more renewable, ethical options. But zoom out long term and there are periods where ethical providers outperform. It comes down to your personal preference and values. I'll show clients exactly where their money's invested — and once they realise, they often don't want to make a change straight away. If you want to know where your money's invested, how it's performing and what the fees are, get in touch — most portfolios have at least 200 different securities, often many more.

Risk capacity and the right strategy

Jono: I had a chat with one of your clients yesterday — 95% invested in equities, 30-plus years to run, not relying on KiwiSaver at all. Quite aggressive, but they could retire today; they had the assets. So it was, let's go pure 100% equity, maybe even use leverage like we do in property and go 1.2, 1.5 times. He was on board, because over a 30-year period the expected returns from equities, or through leveraging, take the risk — he has the risk capacity for it. When you go 100%, you're still diversified within that asset, but you don't have cash, property or bonds. Shares are also more tax-efficient. In KiwiSaver, fees and taxes affect your performance, and how much growth-versus-income assets you own — getting that strategic allocation right impacts overall performance. But it depends on the goal: sometimes you don't want to take that much risk if you don't need to.

Daniel: Can we talk specifically about New Zealand markets — global equities versus domestic?

Jono: A typical growth fund is about an 80/20 portfolio — 80% in growth assets (shares and property), 20% income. Of that 80%, typically 50 to 60% is invested internationally — so if you've got $10, $8 is in growth assets, and of that $8, four or five dollars is invested internationally in companies like Facebook, Google, Amazon, plus Europe, Asia, and emerging markets like Brazil and India. About 20 to 30% is allocated to Australasia. People ask, why invest in New Zealand when the economy's not moving? One of the pure advantages is there's no capital gains tax applied to investment returns here, and the same applies to a lot of Australian equities. The tax can eat into your overall outcome, so there are benefits from a tax point of view.

Jono: And if you zoom out over the last hundred years, the New Zealand-Australian market's average annualised return has been very close to the US — really close. The last 10 years haven't been comparable, the NZX 50 has underperformed the S&P 500, but that's why you want to be in different markets at different times. Zoom out and we're in pretty good stead, and there's a lot of opportunity here too. That diversification is why, in bad downturns where it might dip 20 or 30%, it's buffered — there are companies within a diversified portfolio that outperform in down markets.

Jono: I'll explain diversification simply — spreading your eggs into different baskets. It doesn't eliminate risk, but it reduces risk relative to the return. You could almost halve your risk and still get about 80% of the upside. If you do a Rory approach and put everything into one sector and it doesn't do well, you won't be very happy the next day.

What the numbers say since the conflict

Daniel: Some headlines on price since the conflict kicked off in late February: the S&P is down 3.6%, the Dow 4.8%, South Korea down 11%, and some commodities are having a correction. But Bitcoin's gone up.

Rory: Bitcoin's up since late February, but if you zoom back a little it's had a bit of a hiding. The first bomb in Iran was dropped last year, and markets reacted then too. In the recent month or so, the dips have been relatively low.

Jono: Three or four percent for the US, New Zealand and Australia isn't that bad — it's largely priced in. Bitcoin is still a speculative asset, and if you're investing in it, expect 40, 70, 80% declines — that's normal in that asset class, so I'm not worried.

Daniel: When prices go up we're a bigger export country, so there could be positive effects for New Zealand exporters — costs go up, but we might make a bit more revenue. We're also seeing Americans buying up real estate here. There's that rule where a non-resident has to bring $10 million into the country, investing into businesses and real estate, to essentially get residency. So $10 million can buy you a ticket. There's a lot of talk of high-net-worth clients trying to find a safe haven — recessions, wars — and we're the backup. We're so isolated and far away, which creates opportunity for us long term. Since the war kicked off, we're ranked as one of the safest countries — so security, real estate, the family home, insurance, become commodities we can export.

The cost of missing the best days

Daniel: Anything we haven't touched on?

Jono: I'll give you some numbers that help with what Rory's been doing. One provider put out a 125-year timeframe — longer than a human life. The average annualised return on the S&P 500 was 10.6%. But if you try to time the market and miss the 10 best days, your return drops to 6.37%. Miss the 20 best days, it drops to 3.97%. Miss the 30 best days, it's 1.53% — you'd be better off putting your money in the bank. So just keep investing, dollar-cost averaging, regardless of whether the market's up, down or sideways. And 74% of years are positive, 26% negative. Over a rolling 20- or 30-year period, don't let fear change your decision. Seven of the 10 best days occur within 15 days of the 10 worst days. So when you sell on the way down to preserve, you miss the bounce.

Rory: When things go down, they eventually have to go up.

Daniel: Tell the anecdote about your client at your previous firm — invested 15 years but made two poor decisions.

Jono: This client was invested for 15, maybe 20 years, and got to the point where they became quite elderly. The daughter called me — he'd invested a couple of hundred thousand dollars, which was a lot back then, and the balance was lower than the initial lump sum. She said, how is this possible, with markets going up over time? The only way that happens is if they sold at the dip and locked in losses, or made withdrawals. I looked into it, and I couldn't believe it — there was a European oil crisis, the market dropped, and they sold right at the bottom, moving everything from equities into income, which is a way of selling. Then things improved, and they thought, I'm going to miss the rebound. Generally markets take three to five years to fully recover, but these recoveries can happen very quickly. Then the same thing happened again — the GFC kicked in, mortgage-backed securities hit the portfolio, and they sold at the very bottom a second time. Tens of thousands of dollars of losses, booked, switching from higher-risk growth into income, based on emotion. And when I looked at the notes, the adviser was saying hold the course — and they ignored the advice. Lots of people did that during COVID too.

Daniel: It's a cautionary tale — horrible for the family, but important. The question for our KiwiSaver clients isn't "do markets move during wars and pandemics and financial crises" — they do — but "do you stay invested through them?"

Jono: Exactly. Every major war, positive annualised return. In the last five years, a 180% return — you'd have doubled your money doing nothing. From 50 to a hundred grand, if you just sit there and keep contributing. With employer, employee and government contributions, much higher. Stop selling and locking in losses.

More contributions, more compounding

Daniel: Another prospect coming up — increasing contributions, an idea from the government for next year. You're a big fan.

Jono: It's three and a half percent from the first of April — locked in, rolling in next month, employer and employee. From 2028 it goes to four and four, and they're already talking about six and six by 2032. When we run the numbers, you need closer to a 10% contribution to achieve a fully funded retirement and meet your ongoing expenses, because NZ Super isn't enough — there's a shortfall, and you bridge it through KiwiSaver or other investments. So I take clients through retirement planning to see what the gap is — not just what provider or fund type is suitable, but how much income you'd like in retirement, and whether we need to take more risk or contribute more now, because you want time on your side.

Jono: Depending on your age, it doesn't have to be 10% — because of compounding. A 10% return doubles your money in about seven years. Over a 30- or 40-year period you have five or six doubles: a hundred goes to 200, 400, 800, to 1.6 million. Most of my clients end up with more than a million dollars, sometimes a couple of million. Some have got more than half a million extra just by making small tweaks. People go, "My KiwiSaver is only $30,000, how does it get that big?" It's the snowball effect — the compounding, interest on interest. The key is keeping the contributions up consistently — some people take KiwiSaver holidays and forget about it.

Daniel: The sooner we can get you in a home, the sooner we can sort out your retirement. It's great to see clients who emptied it for the first home, and then Jono follows up — okay, what's the strategy now? We can get out of cash and back onto a growth strategy, because you've got a 20- or 30-year horizon. Mate, this has been so good.

Jono: Stay the course, and let's hope for a ceasefire. I do hope this was informative — people are stressing enough. Honestly, use your adviser. The statistics show using an adviser leads to a better financial outcome — in the KiwiSaver space, one to 3% additional return, which could be tens or hundreds of thousands. Leave it to the experts. Most of what we do is free.

Daniel: Brilliant, Jono. We really appreciate having you on — you take such good care of our customers. We're lucky to have you, mate. We'll see you on the next one. Cheers.