The best way to protect your KiwiSaver
KiwiSaver balances have been here, there, and everywhere lately, and it’s no surprise people are nervous. For many, their house and KiwiSaver will be their two biggest assets.
So if you’ve checked your KiwiSaver balance recently and suffered heart palpitations, I don’t blame you.
Almost all of the funds have some amount in shares. This is great for growing your retirement nest egg in the long term, but it does mean it can go sharply up and down in the short term.
So when the US-China trade war escalated in August, you probably saw your KiwiSaver take a tumble. The sharemarket wasn’t happy.
Or in early September, the New Zealand market was giving with one hand and taking with the other. Dividend stocks did well, while traditional growth stocks didn’t.
Add talk about whether a recession is looming and you might be considering to take your KiwiSaver conservative. Why not just avoid all of this heartache in the first place?
Well, there’s a reason people put up with the ups and downs — over the long-term — it’s how you make more money.
On the latest Cooking the Books podcast I talked to Paul Gregory, head of investments for Pie Funds and JUNO KiwiSaver.
He says people forget the benefit of when the market goes down: keep feeding money into KiwiSaver and you end up buying shares in good companies for a steal. When the market recovers, your KiwiSaver will likely be worth far more.
Gregory says they tell their customers to ‘zoom out’, and look long-term. “You take a look at any market in the last year and it’s zigzaggy, it looks random, it looks upsetting, it looks stressful.
“But you zoom out, increase the time period to five years, 10 years, 15 years. The pattern becomes more reassuring, smoother. Over time, that’s where markets go. They increase.”
Conservative still might be a good option for your money, but not for reasons like the US-China trade war. If you want to use that money within the next 5-10 years, you probably don’t want to put it through market ups and downs. It might be down just when you want to cash in.
But if you have 30 years to retirement, those ups and downs are the ingredients for having more money in your pocket.
The worst thing is to panic. Take time to find a fund that works for your goals, then leave your money alone. Maybe just don’t look at it when it gets rough out there.
- Frances Cook is the host of the personal finance podcast Cooking the Books. She is not a financial advisor, and all information is general in nature. For individual advice, see a financial advisor. Listen to her podcast on OneRoof.co.nz