KiwiSaver: Avoid a costly mistake
Panic in a downturn is expensive in the long run when it comes to your retirement nest-egg, writes Susan Edmunds.
Many people who move from growth KiwiSaver funds to conservative options as markets fall are making an expensive mistake.
KiwiSaver providers say that since the impact of coronavirus hit share markets around the world, they have been fielding inquiries from members who are worried at seeing their balances drop.
Some want to move to more conservative options to stem the fall – but that usually just means they lock in the loss, and then miss out on the recovery when it happens.
‘‘People in their 30s and 40s are switching because they want to stop seeing their balances dropping. But if you’ve got more than five years then you should be sticking with the growth strategy,’’ Murray Harris, head of KiwiSaver and distribution at Milford Asset Management, said.
Those who needed the money soon – such as first-home buyers – should already be in conservative options, he said.
‘‘When people panic, they make decisions that aren’t logical. People want to take the risk out . . . but if they switch out, when do they switch back? They tend to wait for markets to recover, until they’re up 10 per cent or 15 per cent, then they decide it’s safe to go back in. They cost themselves that 15 per cent return. They might catch the last 5 per cent.’’
He said that with a mass-market product such as KiwiSaver, misinformation could easily spread as people talked to friends and colleagues.
‘‘When prices are 25 per cent off at Farmers people queue at the door to get stuff. When it’s the sharemarket people want to sell, not buy. The key message is that KiwiSaver is a long-term investment. If you have anything more than five years until you access your KiwiSaver you shouldn’t be worried. The market will recover.’’
More and more managers had made it easy for members to regularly check their balances, in a way that was not usually required for long-term investments, Chris Douglas, a principal at MyFiduciary said.
‘‘I don’t like to look at my balance on a regular basis. I know it’s down, I don’t need to know the quantum of it.’’
He said people who came out of periods of volatility in a better position were those who had stuck to their plans.
‘‘It’s part of what happens. This has been a sharp decline, which is unsettling. But the beauty of KiwiSaver and what we saw in the global financial crisis was that you’re constantly rebalancing your portfolio, constantly reinvesting through your salary going out and this is a great time to be buying.’’
Switching to a more conservative fund would only lock in losses, he said.
According to Morningstar, aggressive funds were down 11 per cent in the first half of this month, growth funds down 10.3 per cent, moderate funds down 4.9 per cent and conservative down 2.8 per cent.
For the year to date, aggressive funds are down 13.4 per cent, growth down 12.4 per cent, balanced down 8.5 per cent, moderate down 5 per cent and conservative down 1.9 per cent.
Commerce Minister Kris Faafoi said he had not checked his KiwiSaver balance.
‘‘They are long-term investments for people’s retirements. Yes, they’ve taken a haircut but the general message is for calm in every respect.’’
Harris said Milford had seen ‘‘quite a large uptick in switching. When the dust settles we will go back and have a look at what age these people are.’’
In a statement, ASB said: ‘‘We have seen an increase in customers requesting to change funds, as well as inquiries around the recent market volatility. While we
Milford Asset Management understand these periods can be unsettling, we would like to remind our customers that KiwiSaver is a long-term investment, and if you are already in the right fund for your goal and investment timeframe, then short-term events should not change your investment strategy.’’
BNZ said it too had also had an increased volume of calls and emails from people wanting advice, and more fund switches.
At ANZ, Mark Davies, general manager of funds said there had been a 50 per cent increase in calls for KiwiSaver members, to about 200 a day. But ANZ has a total of about 740,000 members.
‘‘We have been reminding members that KiwiSaver is a longterm investment. Although fluctuations in the value of their investment funds can be unsettling, these are a normal and inevitable part of investing. Members across all providers will be impacted by this volatility. It is important that people understand their tolerance for risk.’’
‘‘When prices are 25 per cent off at Farmers people queue at the door to get stuff. When it’s the sharemarket people want to sell, not buy.’’