Why You Shouldn’t Change Your KiwiSaver

Read More

 

KiwiSaver investors are panicking and changing their funds from Balanced or Growth funds to Conservative. Their motivation is to reduce losses. However, the outcome will likely be the opposite. What these people fail to understand is that there is a big difference between a loss and a drop in value.

KiwiSaver funds are made up of units. The value of the fund is the number of units multiplied by the price per unit. Underlying each unit is a set of investments in each of the four asset classes – cash, fixed interest, property and shares. Units in Balanced and Growth funds have a much higher weighting towards property and shares than units in a Conservative fund. When a KiwiSaver investment is switched from a Balanced or Growth fund to a Conservative fund, there is in effect a sale of property and share investments and a purchase of fixed interest investments.

When a Balanced or Growth unit that has fallen in price is sold, a drop in value becomes a loss. If the money is withdrawn, then the loss is permanent.  If the money is used to buy Conservative units, then the investor is purchasing units that are more stable in value. This means that when the share market starts to rise again, the investor will miss out on gains. The investor loses twice. There is a loss on the sale of units and a loss of future gains.

Putting all this in simple terms, whatever happens to the value of a fund, the number of units held is not affected. Investors should not sell their units when prices are low. It will only be a matter of time until prices rise again. If you were in the right fund before COVID-19, this fund should still be the right one for you.

Related Articles

Economy
Liz Koh

Budget Winners and Losers

The latest Government budget had something for everyone but while most households will be a few dollars a week better off, there are some clear winners and losers. In the winners’ corner are businesses, those on high incomes, and savers. The biggest losers are property investors who have built large portfolios financed partly by tax rebates.

Read More »

Top Up or Miss Out

The end of June is an important date for KiwiSaver members. The financial year for KiwiSaver runs from 1 July 2009 to 30 June 2010 and if you have contributed at least $1,040 to KiwiSaver during that time, you will be eligible for the full amount of Government tax credit to be paid into your KiwiSaver account in July.

Read More »

Responsible Investing

There is a worldwide trend for investors to want to make a positive contribution to the world by investing in companies that are socially and environmentally responsible. If you are passionate about the effects of climate change, the scarcity of food and water, and social or environmental policies in general, then you will no doubt wish to ensure that the companies in which you invest are going about their business in a manner that is consistent with your views.

Read More »

Helping You Live your retirement To the Max

Keep in touch

Fill in your details and we’ll get back to you in no time.