Ki­wiSavers urged to ride out storm

Bumpy patches ‘will pay off in the end and make a big dif­fer­ence to re­tire­ment fund’

The Northern Advocate - - Business -

Ki­wiSaver mem­bers are be­ing urged to sit tight and ride out the tur­moil in fi­nan­cial mar­kets which looks set to con­tinue.

New Zealand’s bench­mark S&P/ NZX50 in­dex fell close to 1 per cent in early trad­ing yes­ter­day be­fore bounc­ing back into the pos­i­tive af­ter an­other down day of trad­ing in the United States.

It comes af­ter mar­kets around the world plunged on Thurs­day in the wake of big drops in the S&P500 and Dow Jones In­dus­trial Aver­age.

The lo­cal bourse fell 3.64 per cent on Thurs­day and had fallen for nine days since the end of Septem­ber.

But Diane Maxwell, New Zealand’s re­tire­ment com­mis­sioner and the head of the Gov­ern­ment’s money ed­u­ca­tion arm the Com­mis­sion for Fi­nan­cial Ca­pa­bil­ity, said the share­mar­ket drops should not be a rea­son for peo­ple to mess with their Ki­wiSaver.

“Ki­wiSaver mem­bers may see a drop in the bal­ances over the next week as the ef­fects of the share­mar­ket fall rip­ple through to re­turns, but they shouldn’t panic,” Maxwell said.

“Like all long-term in­vest­ments, your Ki­wiSaver bal­ance will go up and down as the mar­ket fluc­tu­ates, but hang in there and you will gain in the long run.”

Maxwell said the best thing peo­ple could do was sit tight and ride out the low patches know­ing that when the mar­ket rose again so would Ki­wiSaver bal­ances.

“We all get ex­cited by our Ki­wiSaver bal­ance when we see it in our bank­ing apps. The down­side is that we may be watch­ing it too closely.

“Ki­wiSaver is a long game that will have bumpy patches, but will pay off in the end and make a huge dif­fer­ence to your re­tire­ment.”

Mike Tay­lor, manag­ing di­rec­tor of in­vest­ment man­ager Pie Funds, said Ki­wiSaver mem­bers were hear­ing many com­pet­ing views about what is hap­pen­ing to the mar­ket and what is go­ing to hap­pen.

“The sky is fall­ing next Tues­day. Or in 18 months. Or maybe it’s fall­ing now.

“With so much spec­u­la­tion about the health of the mar­kets, whether this down­turn is just a jolt or some­thing more last­ing, what should a Ki­wiSaver mem­ber do?”

Tay­lor said Ki­wiSaver mem­bers should use this as an op­por­tu­nity ask their provider if they were in the right fund.

“Your Ki­wiSaver provider may ad­vise you against switch­ing out of your fund to a less risky op­tion.

“They’ll have said some­thing about in­vest­ing for the long-term and if mar­kets fall, don’t crys­tallise your losses at the bot­tom. They may also have said: ‘what­ever you do, don’t check out of Ki­wiSaver al­to­gether by sus­pend­ing or stop­ping your con­tri­bu­tions’.”

Tay­lor said all that ad­vice made sense, pro­vided the mem­ber was in the right fund for their goals and cir­cum­stances.

“It’s true you shouldn’t panic. But while it’s on your mind, and even with the mar­ket wob­bling in the back­ground, why not take the op­por­tu­nity to look care­fully at your fund and make sure it sits well with you, who you are and where you’re headed?”

Tay­lor said mem­bers should check out the mix of growth and in­come as­sets in their Ki­wiSaver fund.

“Growth comes with more risk but can also achieve greater gains. Ask your­self, does that trade-off feel okay to you?

“Do you feel com­fort­able tak­ing on more risk to achieve your re­tire­ment goals? Are you suited to the swells and dips (how are you feel­ing now — a bit queasy but okay? Or is your con­cern a bit deeper)?”

Tay­lor said some mem­bers may pre­fer more cer­tainty.

“If that’s you, con­sider a less growth-heavy mix, such as a well­struc­tured bal­anced fund. Here, your money is at least partly shielded in crises, by your fund com­pris­ing in­come-pro­duc­ing as­sets which typ­i­cally do bet­ter in down­turns.

“And if you are still a long way from re­tire­ment, the por­tion of your in­vest­ment in growth (which typ­i­cally does well in the pe­riod af­ter a down­turn) has more time to re­cover from mar­ket shocks, if they come.”

Tay­lor said it was also a good time to ques­tion whether you are with the right fund man­ager by ask­ing your provider about what they are do­ing about the mar­kets and how they coped with the down­turn dur­ing the global fi­nan­cial cri­sis or the more re­cent down-turn in the mar­kets in Fe­bru­ary this year.

“We don’t know if what’s hap­pen­ing now is a proper hur­ri­cane or a squall.

“And we don’t know when the next bad weather might sweep through mar­kets.

“But ei­ther way, your Ki­wiSaver provider should be your bea­con in the storm — not the al­ba­tross around your neck.”

"Like all long-term in­vest­ments, your Ki­wiSaver bal­ance will go up and down as the mar­ket fluc­tu­ates, but hang in there and you will gain in the long run." Diane Maxwell

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