It's been a tough time for KiwiSaver members in recent months with the bear markets hitting balances hard.
The amount of money invested in KiwiSaver fell $1.536 billion to $87.3b in the March quarter as markets around the world plunged in response to the war in Ukraine and fears of rising interest rates.
And markets have continued to plunge, with the US Federal Reserve moving to hike its cash rate by 75 basis points, and many central banks around the world - including the Reserve Bank of New Zealand - lifting the official cash rate in a bid to tackle raging inflation.
Last week KiwiSaver expert Eachann Bruce, a financial adviser with Milford Asset Management, answered a range of questions from our premium subscribers.
Here's a selection of the questions and answers.
Q. Since February when the Russians invaded Ukraine my KiwiSaver balance has dropped from around 96K to roughly 82K, and I'm worried it will keep falling. Should I be worried? Or not be spooked and stay with my current scheme, realising that I am in for the long-haul and don't need to worry too much? (I'm a 34-year-old with my entire fund in the growth / high-risk scheme).
A. Markets have been incredibly volatile, and it's never nice seeing your KiwiSaver balance fall. You have such a long investment time horizon, that you're likely to experience a number of periods of volatility between now, and retirement.
Once you've considered your risk profile, KiwiSaver goal and investment time horizon to pick a fund that best suits you, then it's important to stick the course, and not check your balance too often.
Checking your balance annually is frequent enough when you have such a long investment time horizon on your side.
Q. My conservative KiwiSaver fund has dropped considerably. I am over 70 and have just retired but am wanting to keep my savings in the KiwiSaver account. Within the next six months I will need to top up the cash balance in my savings account but now reluctant to transfer funds from the conservative fund to a cash fund at this time. As I cannot afford to lose too much on a transfer, do I dig in and wait for a rise or do the move now in case it falls further?
A. Most conservative funds will have a minimum investment time horizon of three years recommended. This acknowledges the timeframe that may be needed to allow the investment to bounce back if there has been a fall in value.
If you're in need of funds to live on, you may wish to consider withdrawing the amount you need to live on for the next one to two years, and therefore leaving a portion invested that can remain there for the minimum recommended timeframe of the fund.
Q. Is now a good time to increase my contributions into KiwiSaver?
If I move my KiwiSaver from my current bank that I have my mortgage with to another provider, will it negatively impact me getting approval if I need to top up my mortgage or get a loan from my current bank in the future?
A. If you're able to increase your contributions, then you'll be thankful in the future for the additional funds to live on in retirement. The best level of contributions is dependent on each KiwiSaver member, and the amount they can afford to contribute.
When choosing your contribution amount, keep in mind the amount your employer is matching (if employed), and the amount you need to contribute to maximise the Government contribution ($1042.86) if you're eligible to receive it.
As for your second question, there are 31 KiwiSaver providers, and all members have the freedom to choose which provider they'd like to manage their KiwiSaver.
If you're concerned about any benefit they may be offering getting removed (if any), then best you get in contact with them for clarification.
Q. My wife and I have different risk profiles. She wants to move our investments, which have taken a big hit, into balanced or conservative funds, but I think we need to ride out the downturn in our growth funds and we will eventually recoup our losses. We are aged in our early 40s. Given the losses to date, what strategy do you think gives us the best chance of long-term returns?
A. When in the midst of market volatility it is incredibly difficult to see the longer-term picture.
Historically, a higher-risk fund such as a growth fund have provided better returns over the long term than lower-risk funds such as balanced or conservative funds. To be rewarded with the long-term returns of a growth fund you are likely to have to endure volatility, such as the fall in March 2020 when Covid initially broke out, and the share market fell.
Before making a decision on which fund is best for you, consider your time horizon - how long do you have? - your risk tolerance (How many ups and downs in value you can tolerate?), and the goal you're trying to achieve with your KiwiSaver.
Keep in mind, KiwiSaver is an individual investment, so your wife may be more comfortable having a lower risk fund than you.
Q. I'm retired and have a modest sum in a balanced KiwiSaver fund. I do not need this money just now but in the future ( maybe five years) may start withdrawing a fixed amount each month. I'm wondering if I should take this opportunity of low unit prices to change to a high-risk fund with the thought that the possible future accelerated value in a high-risk fund might outweigh the security of my balanced fund?
A. One of the key considerations when deciding on your fund choice is your time horizon. How long do you have to weather the volatility before needing to access the funds?
As you are retired, taking on more risk may not be the right thing to do should your circumstances change, and your need to access the funds earlier than you'd previously anticipated.
If you're looking to change funds, check the minimum recommended time horizon of the fund you're thinking about in the provider's product disclosure statement, and ensure this aligns with the choice you're looking to make.
If in doubt, have a discussion with your provider.