KiwiSaver: stick with it through thick and thin

Q: With the latest plunge in world stockmarkets, we have some concerns about our KiwiSaver accounts. We both have growth funds with about $50,000 each.

It’s difficult to keep an eye on how much they are dropping in value. Mine is down about 4 per cent in the last month alone and my wife can’t tell what’s happening with hers as the bank’s website doesn’t say.

We’re a bit concerned we’ve bitten off more risk than we can chew and should have taken a balanced fund. However, the returns we’ve had over the last few years have been incredible.

We are both very interested in following the sharemarket and our other option is to put less into KiwiSaver and trade some shares ourselves. That way we have the flexibility to move into cash quickly when the markets dive. What is your opinion on this? A: After a quick whip around the websites of half a dozen KiwiSaver managers, I tend to agree with you.

It was difficult not to groan out loud. At times of turmoil or exuberance, it’s useful to have more granular data than the standard quarterly numbers.

Some managers give daily unit prices, but make you alter the dates manually and calculate the returns yourself. Others update monthly or daily with clear returns. One large bank, Westpac, seems to give only quarterly numbers.

It’s possible to find the last few days’ unit prices, but no facility to calculate short-term movements.

No doubt they will give out performance statistics over the phone, but what a hassle.

Take a look at the table of growth funds from the major banks and a couple of other well-known managers. It shows the last couple of months’ woes have sliced the top off all their annual returns.

Annual numbers can mask volatility and in the month of August alone, Fisher Funds and Kiwibank (Kiwi Wealth) both lost 4 per cent.

But them’s the shakes with growth funds. They have a large proportion of holdings in shares and are more volatile. Over time, they tend to deliver greater rewards. Many are still sporting double-digit returns, with the likes of Kiwi Wealth up 16 per cent in the year to August 31.

Only you can decide if it’s time to jump funds or brace and hold.

Age is one way to decide. If retirement is approaching it’s wise to capture the gains of recent years and reduce risk to ensure past returns are more protected.

Emotional response is another marker. If you’re becoming anxious or pre-occupied by a loss, a growth fund is not for you. All growth investors experience stress and are not numb to a crisis, but they often have other assets and savings plans which shelter them and make the experience more bearable.

Remember, your manager will let you hold multiple funds and you can split your savings so that it’s not all in a growth fund.

Finally, don’t forget KiwiSaver is a regular savings plan. At times when markets fall your new investments are benefiting from the dip and you pick up units at a cheaper price. This all helps to even out the swings.

Past plunges in the market rarely worry the long-term investor, as long as they have a diversified portfolio. Look back to 1997, 2000 or 2008: you’ll probably find the bucking bronco of the Asian crisis, the dotcom bubble and the subprime mortgage crisis are no longer bothering you. Time tends to be an investor’s friend.

On the issue of trading shares and reducing your KiwiSaver contributions, I’m not a fan of the plan.

The fact that a 4 per cent loss bothers you tells me you aren’t cut out for it. If you’re dead keen on the idea, engage a stockbroker for advice and use small amounts of money that won’t affect your lifestyle.

Your regular KiwiSaver investments should be the priority.

Traders and investors are two entirely different beings. A trader has to quickly cut their losses and can’t let a bad trade turn into an investment. On the flipside, investors shouldn’t trade in and out of the market. Most people lack the temperament. Rest assured, I’ve seen professional traders smash their keyboards in fits of rage. Give me an investor any day.

Past plunges in the market rarely worry the long-term investor.

Email your questions to starkadvice@gmail.com, with the subject line ‘‘Financial Agony Aunt’’. Anonymity is guaranteed.