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The 'March meltdown' was the first time many realised the value of their funds could go down as well as up.
The commission received calls from members of the public worried someone had "taken" their money and even asking what the Government had done with their money.
KiwiSaver investors have been on a roller coaster of a ride this year with markets tanking around the world and then bouncing back quickly amid fears stoked by the coronavirus pandemic.
At its worst point of the crash in late March the S&P 500 index was down more than 33 per cent while New Zealand's NZX 50 index was down just shy of 30 per cent at its low point on March 23.
But four months later markets are virtually back to where they were before the crash despite the virus remaining widespread and cases hitting new daily highs.
As well as the health concerns the world economy is expected to head into recession this year with job losses and business closures ramping up for sometime.
That market dive saw a record $4.5 billion was wiped off the value of KiwiSaver funds in the March quarter with the total value of KiwiSaver funds falling from $63.6b as of the end of 2019 to $59.1b on March 31, according to Morningstar's quarterly fund survey.
But since then KiwiSaver total funds under management have more than recovered to around $66 billion at the end of June.
Unfortunately, that was not before some KiwiSaver investors crystallised their losses by selling at the bottom of the market and switching from growth funds to conservative funds with around $1.4b estimated to have been moved.
Tom Hartmann, personal finance editor at the Commission for Financial Capability — the Government's money education arm, says for a lot of people the March meltdown was the first time they were introduced to the idea that the value of their funds could go down as well as up and that KiwiSaver was not a savings account.
The commission received calls from members of the public worried someone had "taken" their money and even asking what the Government had done with their money.
But Hartmann is hopeful that the situation has also helped educate people. "I'm hoping there has been some really good lessons about falls in values and recoveries.
"We have seen, despite the fact that things are contracting, we have seen the market over that time bounce back and recover and I think that has been a powerful lesson for people."
When KiwiSaver was launched in 2007 the markets fell after the global financial crisis hit but balances were small and membership numbers were also low.
On top of that, when people's contributions were combined with their employers' contributions and the Government's subsidy, balances did not take much of a hit.
Since 2009, markets have climbed steadily in one of the longest bull runs in sharemarket history.
Fast forward to 2020 and average KiwiSaver balances are now around $20,000 and membership is much more widespread with around 3 million New Zealanders signed up to the retirement savings scheme.
On top of that, balances have become much more visible with providers offering the ability to see daily changes to member's account online and bank providers in particular heavily promoting the benefits of being able to see all of a person's accounts in one place.
Murray Harris, head of KiwiSaver at Milford Asset Management, says many KiwiSaver members have never really been tested in a prolonged falling market.
"There has been a couple of short periods where there has been market sell offs and of course March was one of those but it recovered fairly quickly just like it did in the October through to December 2018 period.
"But KiwiSaver members haven't really been tested in a prolonged market downturn where it goes for 18 months to two years."
One upside to the focus on the falling markets was a lot more people paying attention to their KiwiSaver accounts, he says. "We definitely saw a big engagement by KiwiSaver members in that March period."
Harris says even though $1.4b was switched at the bottom of the market it was still only a small percentage of the $59b that was invested.
"I think that was really a point of realisation for many who were in the wrong fund because we have had these upwards markets for a long time.
"It was a real test for people's risk tolerance and now some of those people are in the funds they should have been in in the first place."
Hartmann says people's risk tolerances tend to swing with the markets with more people happy to take on risk when markets are rising and fewer when markets are falling.But he says choosing the right KiwiSaver fund should be based on how soon you plan to spend the money and your comfort level with the markets going up and down.
That means if you plan to use KiwiSaver to buy a home or spend in retirement in the next few years a defensive or conservative fund is likely to suit best.
Investors in their 30s and 40s who won't use the money for home ownership are most likely to suit a balanced or growth fund although there will be bigger ups and downs with these funds compared to a conservative or defensive fund.
That's because a higher proportion of these funds are invested in shares and listed commercial real estate.
But the consequence of choosing a lower-risk fund is that returns will also be lower.
Over the 10 years to March 31, growth funds have averaged 8 per cent per annum compared to conservative funds which have average 5.6 per cent.
The sorted website has a fund finder tool that helps rank funds based on their fees, service levels and investment returns as well as a smart investor tell which provides more details of what investments are in a fund.
But Hartmann is also hopeful that over time more tools will be developed to help people work out their actual risk tolerance — rather than what they think it is.
"I think over time we will get better and better at doing this. Not only because of experience but more technology to help people understand risk preferences.
"I hope that in the future we will have more and more of this available here in New Zealand so that we can more accurately asses what people's preferences are because right now we are just asking them what they think they are."
Claire Matthews, a KiwiSaver expert at Massey University, believes advice is key and says there should be a better way for people to get access to advice when market melt-downs happen.
"KiwiSaver needs a cost-effective way of giving low or no cost advice. We do need to have advisers available so when these things happen people have someone they can contact."
Most people in KiwiSaver have got there without any form of professional advice.
People can typically get general advice on KiwiSaver for free from their provider but personalised advice with a full financial assessment from an adviser can run into the thousands of dollars — an amount many aren't prepared to shell out for.
Experience from the Australian market suggests that once balances reach the level of a full year's salary people are much more likely to get advice on it.
Matthews suggests investors should also stop looking at their account balances too frequently.
"You don't want to be looking at it every day."
Once every six months should be enough as well as a review every time there is a major life-changing event.
If one thing is certain it's that markets will go down and up again in the future. Harris says those worried about this need to focus on being in the right fund for them.
"The first thing is to match yourself with the right fund — if you are in the right fund for your risk profile, time horizon, you don't need to do anything — just stay the course.
"Then really you don't have to worry."
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