QUESTION: How is the market turmoil affecting my KiwiSaver?
ANSWER: Many KiwiSaver Schemes do invest in shares and other growth assets and they will have been affected by the events of the last week or so. However, for most of us KiwiSaver is a long term savings account which will help fund our retirement many years in the future, so we should not worry about fluctuations in value along the way.
Although no one likes to see the value of their investments drop, there is actually a ‘silver lining’ for those who regularly save into their KiwiSaver. If you contribute from your wages (or a regular direct debit) you will receive more units in your KiwiSaver if the unit price is lower. Drip feeding into your savings like this is called “Dollar Cost Averaging”. Dollar Cost Averaging works because when investments are cheap (i.e. they have fallen in value) you get more for your money.
Regular savings also work to remove human emotion from investing – your regular payment goes into the investment regardless of what the markets have done that day, or the latest news headline.
Market downturns are least welcome when you reach 65 or are nearing retirement. This is the time where you should be rubbing your hands together thinking about that large sum of money that’s built up in your KiwiSaver. KiwiSaver was launched 4 years ago so we have another year before the first batch of investors reach this milestone as KiwiSaver is locked in to age 65 AND for 5 years from when you first join the scheme (so if you join at age 63 you have to wait until you are 68). For these people it is important to ensure you have an appropriate exposure to less risky investments such as cash and bonds along with a reduced amount of shares and other growth assets.
For all investors in KiwiSaver, the important thing is that you understand the types of investments you are in and that they are appropriate for your age and stage of life. If you are unsure of this or whether your Scheme is right for you, I encourage you to talk to your authorised financial adviser.
Shelley Hanna is an authorised financial adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 8703838. The information contained in this article is of a general nature and is not intended to provide specific or personalised advice. If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.
As published in the Hawkes Bay Today 16 August 2011
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