How to find best fund for house-hunters
QI have been contributing 8 per cent to my KiwiSaver account so that I can buy my first home. I am in a growth fund and by the end of March I had $77,042 saved. The balance took a dive in April and has somewhat recovered recently to $74,064. What should I do? I would like to put in an offer on a house but I don’t know how much I will get out of my KiwiSaver. I realise I must leave $1000 in my account to keep it open.
AIf you are actively house hunting then a growth fund is not for you. Go to the Sorted FundFinder website and answer the questions under “What type of fund is best for me?”.
The first question asks how soon you plan to access your KiwiSaver. If you select “0-3 years” you will be directed either into a conservative or a defensive fund (depending on how you answer the other two questions).
Conservative funds have a greater proportion invested in fixed interest and less in shares.
You may still experience a drop in value, but not to the same extent as a balanced or growth fund.
A defensive fund is usually cash or fixed interest with no shares.
As a rule of thumb, in a bad year a conservative fund may go down 5 per cent, a balanced fund 10 per cent and a growth fund 20 per cent.
Investing is not an exact science and some funds may fare worse than others in their sector.
An investor with a long-term outlook should ride out the storms and avoid watching their balance too closely. Switching to a lower risk fund with the intention of switching back when markets recover seldom works out and those investors often miss out on the best of the recovery.
Ideally you should have switched to a conservative fund two or three years ago. However, if you had you would probably have less than $74,064 now — because growth funds have outperformed conservative funds by around 3 per cent per annum over the past few years. You can look up the returns for individual KiwiSaver funds and entire sectors on the website of independent fund analyst Morningstar.
Switching to a conservative (or defensive) fund now will crystallise your loss, but it may be the best option for you as you are so close to buying a house.
While it is easy to talk of switching funds, it is not always a simple process. Some providers allow you to switch online or through an app on your phone while others require a switch form to be filled out, signed and scanned or posted to them.
Your provider won’t release any funds until your agreement for sale and purchase is unconditional — so you may not be sure how much you will have until the day it is paid out.
Your provider will need your completed application form and accompanying documents at least 10 working days before settlement date, or the date on which funds are required for a deposit. The money will be paid out to your solicitor’s trust account not directly to you.
Along with your KiwiSaver balance, another variable is the price you are willing to pay for a home. Don’t be afraid to walk away from any deal if it is going to cost you too much.
Shelley Hanna is the communications manager with Peak Portfolio Management Ltd, which is a financial advice provider licensed by the Financial Markets Authority. Disclosure information is available at www.peak.net.nz or call 06 870 3838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product. Send your KiwiSaver questions to shelley. hanna@peak.net.nz
As a rule of thumb, in a bad year a conservative fund may go down 5 per cent, a balanced fund 10 per cent and a growth fund 20 per cent.