KEY POINTS:
Watching the world's share markets lose billions in a day as they responded to the recent US subprime debt crisis may not seem like the best way to introduce thousands of New Zealand KiwiSaver investors to the world of equities.
But NZ's financial commentators are counselling calm -
and say this cloud may have a silver lining.
Peter Hall, head of business ventures at ASB, one of the KiwiSaver default providers, cautions investors to take a long-term view.
"Markets will go up and will come down, there are few things that are more certain than that," he says.
The Government says 92,000 people are now part of KiwiSaver, five weeks after it was officially launched. Of these, 33,000 have actively chosen a provider and gone directly to a scheme to enrol. Another 47,000 have been enrolled via their employer and 12,000 have not made any decision, so have been automatically enrolled in either a default scheme or their employer's preferred scheme.
Mark Weldon, CEO of the NZX, is promoting the relatively stable Kiwi exchange as a haven for worried new KiwiSaver investors.
"The New Zealand market tends to be a lot more stable than the rest of the world," says Weldon.
NZ companies don't tend be as exposed to international events because they don't go as far afield as Australian companies, such as Westfield and Macquarie Bank, he says.
Macquarie lost one-fifth, or A$5.2 billion (NZ$5.84b) of its market value last week after nervous investors sold their shares, worried about its exposure to the US property problems.
While the ASX has been hit in the past two months by a volatile market, sending shares down 16 per cent, the NZX has fallen 8 per cent.
Weldon also points out shares on the NZX have risen more than 100 per cent over the past five years.
The timing of this market volatility may have been unnerving for new KiwiSaver members, but it is a good opportunity for them to start following the movements of international markets, says Weldon.
Australian superannuation savers are "very literate and investment savvy", he says.
"I would love New Zealanders to be more like that. For a long time we've had an education system which undervalues financial education.
"This is a real opportunity to start to understand these things which are very important."
That way Kiwis could learn about making the most of their income and maximising their lifetime wealth.
Every KiwiSaver scheme participant will be asked to choose between a conservative, medium-risk or high-growth fund - depending on how close they are to retirement and their chosen risk profile.
Before choosing their KiwiSaver fund manager, people should check out their customer service, he says.
Fund managers, meanwhile, are looking on the bright side of the past week's stock exchange dramas. By the time they transfer the KiwiSaver money from the IRD in October, shares could well be sitting at a more reasonable price.
"This could be an ideal start for anybody in their KiwiSaver scheme. Members will be buying assets at [prices] that are less then they were," says Fisher Funds managing director, Carmel Fisher.
"Shares are not a lot different from going shopping," says Weldon. "There's a reason why more people go into Trelise Cooper when there's a 'sale' sign in the window."
Shares in some companies will be cheaper than they have been for two or three years, so it is not such a bad time to buy.
KiwiSaver fund managers last week were sanguine about the recent ups and downs of global equity markets.
"In the past eight years we have had one month a year where our funds have fallen in value by 5 per cent or more," says Fisher, but despite this, Fisher Funds investors have had an average 20 per cent annual return.
"In every one of these cases, they' have rebounded and have gone up beyond the amount they have fallen," she says. "Share markets sometimes go up by the stairs and down by the escalators."
Philip Houghton-Brown, chief investment officer at ING NZ, which manages one of New Zealand's largest existing superannuation schemes Superannuation Investments, says: "Volatility is an inescapable fact of life but you have to have that long-term horizon." From mid-July, global markets have fallen by about 7 per cent, but "...the important thing is to put that into context. Since early 2003, the markets have risen by more than 100 per cent".
Houghton-Brown thinks returns on KiwiSaver will range between 5 and 10 per cent as a conservative estimate.
The investment culture of New Zealand is already improving, says Houghton-Brown. KiwiSaver had already become dinner party conversation. "It's already changing... People talk about KiwiSaver [now], not just the property market," he says.
And chances are volatile global equities markets are another topic of conversation.
Leo Krippner, head of investment strategy at AMP Capital Investors, another KiwiSaver default provider, says short-term volatility should not steer people away from equities.
"Shares by their nature, are one of the riskier asset classes," he says. "You expect a lot more ups and downs versus property or bonds, but you will get rewarded for that."
The best vehicle he recommends for those not immediately approaching retirement is AMP's moderate risk diversification fund, which puts its money into a number of asset classes, including international and NZ equities as well as NZ property and international bonds.
Krippner says people saving for the long term should probably look at a high-risk diversified portfolio. "The important thing is to get into Kiwi-Saver right from the start," he says.
Michael Littlewood, co-director of the Retirement Policy & Research Centre, at the University of Auckland Business School, says whatever their decision, KiwiSaver members should be able to sleep at night. His advice is to splash out on some independent financial advice.
"If you can find someone and are prepared to pay $400 for two hours of their time, at the end of which you will make your decision on your strategy, then that's money well spent."
