Markets were down and a lot of people would be seeing significant drops in their KiwiSaver funds for the first time in possibly 10 years, Tom Hartmann said. Photo / 123rf
Markets were down and a lot of people would be seeing significant drops in their KiwiSaver funds for the first time in possibly 10 years, Tom Hartmann said. Photo / 123rf
People should avoid panicking if they have noticed large drops in their KiwiSaver accounts and stay the course, a leading personal finance expert says.
Two budget advisors in the Whanganui region say they've noticed a lack of knowledge among locals around how their KiwiSaver funds work.
Sorted's personal finance leadTom Hartmann said the organisation had been thinking a lot recently about the people who might be panicking right now after seeing big drops in their KiwiSaver fund.
"Recently we've had a situation in the markets that's a little bit unusual," he said.
"Typically stocks and bonds balance each other out, and [in] the markets we've seen both come down ... both in the share market and in the bond market."
That meant many KiwiSaver members would be seeing their balances fall.
"It's an experience many of us are going through and some of us may be noticing that for the first time, because for most of our KiwiSaver experience it's been what we call a 'bull market', which means shares and bonds have been climbing for many, many years, over a decade."
There was a slight dip after the outbreak of Covid around the first quarter of 2020, Hartmann said, but that quickly recovered.
Hartmann said while it doesn't feel good to see less money in a KiwiSaver account, it was important to note they were not the same as a savings account.
"When you're putting money into KiwiSaver you have a professional fund manager buying assets (shares and bonds) for you by units, and the value on those go up and down.
"Imagine if you owned a segment of an orange at the supermarket. The price of oranges go up and down. The segment that's yours would be worth more or less on a given day."
Whereas in a savings account - money put in grows, depending on interest rates and how much the owner puts in, he said.
Tom Hartmann said he and others at Sorted had been thinking about people who might be panicking about KiwiSaver funds taking a hit. Photo / NZME
When KiwiSaver funds go down it feels like losing money, but that's not what is truly happening, Hartmann said.
"In that moment if you sold them all (units), that's how much you would get."
He described the drops in KiwiSaver as theoretical, 'paper losses', that only become true if the owner chooses to sell them at that price.
His advice is to stay the course, as long as people are in the type of fund that is right for them.
For those wanting to access their fund to buy a house or retire soon, as in, the next three years or so, they should be in what is called a 'defensive fund', where there is less risk, Hartmann said.
Those with longer-term plans for their fund, such as retiring in 15 or 20 years, can keep their funds in higher-risk investments, he said.
"When you pick a fund with the right level of risk for you it's like getting on a bit of a roller coaster ... but once you get on, you want to get on and enjoy the ride, and not try to get off halfway.
"That's where you can do some damage."
Once people move their KiwiSaver from a higher risk fund towards something more conservative after it has dropped, they are "crystallising" losses, Hartmann said.
Marton & Districts Budget Service co-ordinator Christina Marcroft said a recent downturn in clients coming to the office showed Covid-19 had had a big effect on the town.
"[We've] had a downturn of clients because Covid was quite severe.
"We had a couple of months where a lot of our regular clients weren't coming in and we weren't getting new clients because I am assuming everyone was sick."
But she said a lot of the people who come through the service had limited understanding of their KiwiSaver funds.
Whanganui Budget Advisory Service manager Sandy Fage said she had seen an increase in people trying to access their KiwiSaver fund on a hardship basis. Photo / Bevan Conley
She said that was particularly noticeable after markets were down around the time Covid-19 first arrived in the country in 2020.
"We did have people thinking their KiwiSaver money had been stolen because their balance had gone down."
A lot of people also knew nothing of their KiwiSaver investment fund and which provider it was with, she said.
"They've just gone with the default option their employer offered them.
"Most people we would work with wouldn't investigate it any further."
Marcroft said people should go to an independent financial adviser if they need advice on KiwiSaver and investing.
People who do not choose a fund for their KiwiSaver are enrolled in one of the Government's default fund providers.
They are a low-cost and balanced fund.
Whanganui Budget Advisory Service manager Sandy Fage said while she would not give financial advice, it was clear many people didn't understand the nature of KiwiSaver investment funds and why they went up and down.
She said she had seen a recent increase in people wanting to withdraw their KiwiSaver funds because of hardship.
"... but we worry about the impact it has on their long-term savings plan/goal."
Some KiwiSaver providers require people to use a budget advisor to help with hardship applications.
Marcroft said she hadn't seen any kind of increase in hardship applications in Marton recently.
Hartmann said data he could see up to April this year showed fewer hardship withdrawal attempts than last year.
But he said it would not be a surprise to see those applications increase as higher winter costs, such as increased power bills, started to bite.
Hardship withdrawals were for when someone couldn't meet their everyday expenses and couldn't pay regular bills or keep food on the table, he said.
"They can't be used for repaying debt, fines or anything like that."
