How to find best fund for house-hunters
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.
Q I have been contributing 8per cent tomy Kiwi Saver account so that I can buy my first home. I amina 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 off erona house but I don’ t know how much I will get out of my Kiwi Saver. I realise Imust leave $1000 in my account to keep it open.
A If you are actively house hunting then a growth fund is not for you. Goto the Sorted Fund Finder website and answer the questions under “What type of fund is best for me?”.
The first question ask show 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 onhow you answer the other two questions).
Conservative funds have a greater proportion invested infixed 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 conservative fund may go down 5 per cent, a balanced fund10 per cent and a growth fund20 per cent.
Investing is not an exact science and some funds may fare worse than others in their sector.
Aninvestorwith 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 whenmarkets recover seldom works out and those investors oftenmiss out on the best of the recovery.
Ideally you should have switched to a conservative fundtwo or three years ago. However, if youhad you would probably have less than $74,064now— because growth funds have outperformed conservative funds by around 3 per cent per annumover the past few years. You can lookup the returns for individual KiwiSaver funds and entire sectors on the website of independent fund analyst Morningstar.
Switching to a conservative (or defensive) fundnowwill crystallise your loss, but itmaybe the best option for youas you are so close to buying a house.
While it is easy to talk of switching funds, it is not always a simple process. Someproviders allow you to switch online or through an appon your phone while others require a switch formto 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 youmaynot be surehowmuchyou will have until theday it is paid out.
Your provider will need your completed application formand accompanying documents at least 10 working days before settlement date, or the date onwhich funds are required for a deposit. Themoney will be paid out to your solicitor’s trust account not directly to you.
Along with your KiwiSaver balance, another variable is the price youarewilling to pay for a home. Don’t be afraid to walkaway from any deal if it is going to cost you too much.