KiwiSaver funds still licking their wounds

PocketWise, the online financial product comparison site, is calling on KiwiSavers to review their choice of KiwiSaver fund. Just in the last three months of 2018, about 80% of all KiwiSaver funds suffered losses ranging from as little as 0.1% to some as high as 20%.

Even after a very strong recovery in markets in the first three months of this year, over half of those funds are yet to recover their losses fully.

Funds invested in higher risk assets, such as shares, suffered most of the losses in the previous period. This included both diversified funds, as well as those funds that invested in just one type of asset. After a decade of positive growth, investment markets have been rocked by bigger ups and downs over the past 6 months. This is expected to continue. PocketWise is warning KiwiSavers that their choice of KiwiSaver fund will have an impact of hundreds of thousands in retirement.

KiwiSavers should be aware that there are well over 200 different funds to choose from. Each fund comes with its own flavor, based on what types of assets it invests in. Each fund is designed to deliver on a specific objective, which determines how and where the money is invested. On that basis, it should be expected that some funds see much higher levels of ups and downs, but have the potential to provide higher returns over longer periods.

Binu Paul, PocketWise co-founder, says: “The message here for KiwiSavers is that when you are invested in financial markets you should expect some ups and downs. But, if you are not in the right category of funds, suited to your circumstances, you are not putting your money to the best use. The question is are you taking enough risk to achieve your longer term goal, or not?”

For a lot of people it may be very appropriate to be in a higher risk fund but Paul questions how many KiwiSavers are making an informed decision around choosing appropriate funds. The worst a KiwiSaver could do is to make a decision to switch funds simply because of short-term losses. That simply locks in losses, without the opportunity to recover those losses over time.

Paul adds, “A common mistake people make is to assume that if a fund loses 10% in a period and gains 10% over the next period, it has made up its losses. This is clearly not true. A 10% loss on $100 takes your balance down to $90. A 10% gain on that is only $9, bringing your balance to only $99. Similarly, when a fund loses 15%, it will need to gain about 18% just to make up those losses”.

- 80% of KiwiSaver funds suffer losses in the last quarter of 2018
- Over 50% of those funds are yet to recover losses fully by March 2019
- Review your circumstances and ensure you are in the right KiwiSaver fund

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