GOLDEN RULES:
OPINION: It’s a scientific fact that living with uncertainty is a nerve-racking business.
A few years ago, researchers overseas wired people up to measure their stress levels when they played a computer game.
The game involved turning over rocks, under which there might, or might not be a snake.
If players turned over a rock with a snake under it, they got a small, but painful electric shock.
The experimenters could control the level of predictability of the snake versus no snake outcome.
This let the experimenters make it easier or harder for players to learn the patterns the computer snakes’ behaviour, which of course they strove to do to reduce their chances of getting zapped.
You would have thought that the higher the chance of being shocked, the worse a person’s stress would be.
But what the experimenters found was that people’s stress reach its highest intensity at the point of highest unpredictability, that is a 50/50 chance of finding
■ Work out your best KiwiSaver contribution rate
■ Set a long-term KiwiSaver strategy that gives you the best chance of a decent retirement
■ Revisit your strategy from time to time to check it is still appropriate
a snake under the rock.
This experiment provides insights into why investing, even through a government, and employer-subsidised investment scheme like KiwiSaver, can be nerve-racking.
The KiwiSaver mantra everyone has been taught is to choose a fund likely to give you good long-term returns, and then keep saving through the ups and downs, and don’t spend your life watching your balance.
Sure, revisit your strategy each year to check you are on track, and to check you are taking an appropriate level of risk, but don’t fret the ups and downs.
But being human beings, we do, and at different times, perceive greater or lesser degrees of uncertainty about whether the sharemarkets our KiwiSaver funds rely on are going to go up, or are going to go down.
Up is good, as our KiwiSaver fund balances rise. Down is bad, as our KiwiSaver funds lose money, and experimenters have also found that we dislike losing a dollar more than we like gaining one.
We’re in a period of what fund managers call heightened ‘‘volatility’’, when markets bounce about more than usual.
This is not pleasant. Shortterm uncertainty has risen, even though the long-term KiwiSaver game remains the same.
Back in the early part of 2020, a KiwiSaver panic set in. Many KiwiSavers switched into lowergrowth funds after their growth funds fell as global sharemarkets fell in the uncertainty around the emerging Covid-19 pandemic.
Their reaction to uncertainty was to lessen it, by switching into low-growth, high cash funds.
They then watched from the sidelines as markets recovered, and then continued to rise boosted by governments and central banks around the world stimulating economies.
While these people reacted in a very human way, they acted in away that reduced the likelihood of their getting the best long-term outcome from KiwiSaver.
KiwiSaver was designed for people to gradually amass a diversified portfolio by dripfeeding money into a fund week in, week out, and trusting the long-term outcome will be fine.
Savers would set their contribution rate (3, 4, 6, 8 or 10 per cent of their gross pay) at an amount most likely to get them the wealth they need for a comfortable retirement, and then get to live aworry-free life.
But using KiwiSaver requires savers to learn to live with uncertainty, overcoming, if you like, the natural tendency revealed in the ‘‘snake, no snake’’ game.
Most people picked their KiwiSaver funds, and set their strategies, either with advice from a professional, or from a mate or family member, or after doing their own research.
The ones with advisers have someone to hold their hands, and stiffen their nerves, in uncertain times.
The rest have to educate themselves, and develop the habits and intestinal fortitude most likely to get the best out of KiwiSaver.
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