The sudden change in the share market over the last few weeks triggered by Coronavirus fears has caught many inexperienced KiwiSaver investors by surprise. It is clear that many people still don’t understand how KiwiSaver works, nor do they understand investment risk.
KiwiSaver funds are locked in until retirement age unless you purchase a first home, leave the country permanently or suffer financial hardship. If you are planning to buy a first home, your funds will not be released until the settlement date for the property.
At times of volatility it is extremely important to select the right investment option for your funds. Most KiwiSaver providers have a range of investment options including Conservative, Balanced and Growth funds. A KiwiSaver fund is generally a combination of other funds, each of which is invested in a specific type of investment asset such as bonds, property or shares. Growth funds have the highest weighting to shares and will therefore be more strongly affected by a drop in the share market, while Conservative funds are more heavily invested in bonds and therefore more stable. KiwiSaver funds are highly diversified to reduced investment risk. This means if the value drops, it will recover over time. However, the more the value drops, the longer it will take to recover. Your investment time frame is therefore very important in choosing your fund.
If you intend to withdraw your KiwiSaver funds in the short term (less than five years from now) to buy a home you should consider being in a fund which is less exposed to shares. If you are near retirement, remember that your investment time frame doesn’t end when you retire, it ends when you decide to withdraw and spend your money.
Now is the time to get advice on your KiwiSaver investment option.