Don't panic over your KiwiSaver balance as world markets plummet. Unless you've never had financial advice.
That's the view of Joe Taylor, CEO of digital KiwiSaver advice firm BetterSaver, who says the best tip he can give people is to take advice – especially in the current situation where pretty much everyone is seeing a fall in their investments.
"There have been countless articles in recent weeks about why Kiwis shouldn't panic due to the recent sharemarket volatility," he says. "However, we disagree; maybe you should panic a bit.
"We're certainly not advocating that people make knee-jerk decisions to pull out all of their investments. However, those who have never had financial advice are right to be nervous – there is a huge body of evidence to show that those who do not get any suffer in comparison to those who do."
The 2020 Financial Services Council survey makes the point as strongly as anyone. Its findings included:
- New Zealanders who get financial advice have, on average, 50 per cent more in their KiwiSaver fund than those who do not take advice - $52,500 against $34,500.
- The advised save nearly four per cent more of their income than the unadvised.
- Additionally, Their investment income tops that of those who do not have financial advice by an average four per cent a year.
"The importance of financial advice has been proven in all areas of finance and investing – and as far as KiwiSaver is concerned, this kind of advice can sort people out so they are in the right fund for their situation – and so they can experience only minimal effects of the kind of downturn we are seeing now."
Taylor says more Kiwis have been focused on their KiwiSaver outcomes since December when the government mandated a change to default KiwiSaver funds. More than 380,000 New Zealanders were in default funds, making no active decisions about how to use their accrued savings.
The change saw all default funds (which sat in the most conservative investment setting) shift to a balanced fund (exposing them to greater risk but higher returns over time) unless the KiwiSaver members involved made a decision to do otherwise.
It's not clear yet how many took charge of their financial futures at that point but Taylor says influences like Covid-19, Omicron and the Ukraine war have seen markets around the world fall – and made getting financial advice the next, pressing step for people to take.
"We've had a few people call us and say: 'Hey, what's going on? My KiwiSaver was changed and I've lost money", says Taylor.
While the change will suit those who will not access their funds for some time, those who need to withdraw soon to retire or purchase their first home will have less ability to bounce back from sharemarket volatility.
For example, Simplicity's Balanced Default fund has seen a 6.7 per cent loss since December 1, nearly double that of its conservative fund (-3.77 per cent), Taylor says. Over time, that situation will change and the balanced fund will accrue more – but not everyone has that wisdom or experience to ride things out.
"If you've never had financial advice, there's a fair chance you're in the wrong KiwiSaver fund," he says. "You might be in a higher-risk fund type than you or your withdrawal timeframe can tolerate, causing you to lose money you were planning on using in the short term. Conversely, if you can handle a bit of risk if it means greater gains, you could be missing out on bigger long-term returns that will help you reach your goals."
While the December change was unlucky timing for some, Taylor says the long-term answer has always been in people's own hands – and that Kiwis' lack of financial know-how has been a negative factor.
As well as the 380,000 previously languishing in default funds, a further 100,000 have opted out of KiwiSaver altogether for reasons other than financial hardship: "We simply don't know at this stage why those people have opted out but, from experience, it's likely that some have looked at their budgets and decided to put that money towards their mortgage. Coupled with a skyrocketing cost of living, it's no surprise.
"It's also just as likely that some just see KiwiSaver as another form of tax and decided that they'd like to pocket that 3 per cent rather than see it come out of their paycheck."
Taylor says inflation is predicted to hit 6 per cent soon, so holding income in a bank account "will see your money withering away, even if you do manage to save".
Young people, he says, have often found financial advice hard to come by as many financial consultants (who work on commission) have tended to look for high-income, large balance clients.
But BetterSaver has easy-to-understand digital advice, plus access to financial advisors if a direct consultation is required: "Financial advice can help Kiwis get a plan tailored to them and their goals. There's so much white noise about what people should or shouldn't be doing in the madness that is the global share market in 2022. The fact of the matter is, filtering through that chaos, then trying to adapt what we're reading and hearing to our own situations is near impossible.
"It's really helpful to have an expert third-party take a look at your finances and goals and come up with a strategy just for you. Everyone can benefit."