KiwiSavers who don’t understand markets

Stuff reports that some people in KiwiSaver have no idea what they are doing and they can cause panic as a result of their own ignorance. quote.

Shane Henderson reckons his KiwiSaver account has been “collapsing faster than the Black Caps in the 90s”.

Problem is, he’s trying to use it to buy a house.

The West Auckland man wants to use his KiwiSaver money as part of the deposit.

But in the past month or two, the balance has dropped about $2000. end quote.

Markets have recently dropped around 4% to 6%, depending on your risk profile. The world markets are in freefall at the moment and it is a correction, after the very considerable gains made over the last few years. So, assuming he has been in KiwiSaver for a few years, overall, he will have gained much more than he has lost. But that doesn’t matter, does it?

Also, forgive me, but if the markets have fallen an average of 5%, and his fund has dropped $2000, might I respectfully suggest that it would not have gone far in funding a house deposit anyway? quote.

Henderson’s issue is that he is in a growth fund. It was chosen at a time in his life when he had given up on home ownership. Instead, he figured that the KiwiSaver money was something he’d access at some point in the distant future. end quote.

Anyone can change funds at any time. That is a beautiful feature of KiwiSaver. As an investor, you are wise to revisit the funds you have chosen on a regular basis, just to make sure the fund is right for you. Gee. I sound like an investment advisor now. quote.

People planning a first-home purchase are usually advised to put their money in a less risky fund – usually cash or conservative – so there’s less chance of a share market downturn hitting the balance just as it was needed. end quote.

Alternately, investors could use a few brain cells and make sure their investment strategy is the right one for their needs. quote.

Henderson said he did not realise until it was too late.

“Now I’ve got a partner and a child, life changes.”

He said they would be able to buy anyway, but it was a bit tougher. end quote.

I was going to say that if $2000 makes the difference between being able to buy a house or not, then your finances are way too tight. One thing going wrong could put you straight into mortgagee sale. quote.

Blair Vernon, managing director of KiwiSaver provider AMP, said it was understandably upsetting when funds went up and down with the cyclical movements of the markets.

“That’s why it’s so important that members are invested in the right type of fund to suit their savings goals, and that they change their investment options as their needs change. For example, first-home buyers might choose to invest in a more conservative fund, which are typically less impacted by market downturns and may provide more stable returns in the short or medium term,” he said. end quote.

Not a good idea to change right now, though, as all that will do is to lock in losses. Better to ride it out, if you can.

KiwiSaver was the best thing the Clark government did and it has given savings to literally thousands of people who would not have saved otherwise. The employer contributions and tax incentives make it doubly attractive. The problem, however, that KiwiSaver is not a Post Office savings account. It is an investment in the general markets, and the highs and the lows of world markets affect our KiwiSaver accounts… even those in conservative funds, which will mainly consist of fixed interest type deposits.

Any KiwiSaver investor would be mad not to recognise the risks involved with managed funds of any type. The problem with a lot of KiwiSaver investors is that they have never taken the trouble to even try to understand what exactly it is that they have invested in.

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