Now, more than ever, it is time to make sure your KiwiSaver investment strategy is matched to your investment time frame. KiwiSaver was introduced ten years ago and since that time we have seen strong growth in the share market. KiwiSaver members have not yet experienced a period of high volatility. The share market is overdue for a correction, and with all the uncertainties in the world at the moment the next few years could be quite volatile.
A good proportion of people know with reasonable certainty who their KiwiSaver provider is, but there are fewer people who remember which investment option they have chosen. Yet this is probably the most important decision to make about your KiwiSaver investment.
KiwiSaver members who join a default scheme are randomly allocated to a provider. From there, their money is invested in a default fund; usually a conservative fund made up largely of cash and bonds. KiwiSaver members who join a scheme of their choice will select an investment strategy from a range of options such as conservative, moderate, balanced, growth or aggressive. The difference between these is the relative weighting between income assets (cash and bonds) and growth assets (property and shares). The higher the weighting to growth assets, the higher the return will be in the long term, but with increased short term volatility. As we go into a more volatile period in the share market there is the potential for losses to be made – firstly, by long term growth investors who panic and switch to a more conservative fund and secondly, by investors with a short investment time frame who are too highly exposed to volatile growth assets. Matching your investment strategy to your investment time frame and sticking to it will help you avoid costly mistakes in volatile times.