The $200,000 mistake thousands of KiwiSavers made
Thousands of KiwiSaver members who switched their investments into less risky funds when Covid-19 first hit still haven't switched back - and it could cost them hundreds of thousands of dollars.
There was a surge in switching from growth funds to conservative funds in March 2020, when sharemarkets around the world wobbled.
Westpac said it processed 18,140 requests to switch in that time.
Markets soon recovered, but 27%of those KiwiSaver members never switched back to more growth-focused assets, Westpac said.
Another 17% took more than a year to switch back and 12% switched back in between six to 12 months.
If an investor is investing for a long time - such as for retirement - growth funds often deliver better outcomes because they tend to have higher returns, although they are more volatile. Shifting from a growth fund when markets are weak can mean locking in losses.
Morningstar research shows that, as a group, conservative KiwiSaver funds have returned an average 4.1% a year over 10 years, compared to 8.2% for growth funds and 9.1% for aggressive.
Westpac projected that someone with $25,000 in KiwiSaver who switched from a growth fund to a conservative fund on March 20, 2020, would end up with $387,938 in 2054.
But if they had left their money in a growth fund, they would have $615,423 - boosting their final outcome by more than $225,000.
If they had shifted in March 2020 and then moved back a year later, they would have $588,955 in 2054.
Even over a shorter term, the impact can be seen. Someone who shifted on March 20, 2020 and left their money in a conservative fund would have $120,880 in 2034. If they shifted back after a year, they could have $145,693 and if they had not shifted, and stayed in growth, they would have $156,472.
That assumes that person is earning the median wage, getting a 3% pay rise a year, and making 3% KiwiSaver contributions matched by a 3% employer contribution.
Westpac head of KiwiSaver Nigel Jackson said the number of people who had not switched back highlighted the "education gap" for New Zealanders in relation to long-term saving and retirement.
"Being in the right fund is really important and being in the wrong fund will cost you money in the long term."
Westpac has now launched a new high-growth fund that will have 100% growth assets and Jackson said it would be important that investors understood the possibility for volatility, as well as the potential returns available, so that they could stick with it and not switch out at the wrong moment.
"It's one of those challenges, you can tell people it's going to happen but it's still a challenge for them when it does happen. It's critical they understand the possibility is there so they have the context. If they don't have the right information, that's the point of highest risk when they can lock in unrealised losses by transferring to lower-risk funds and experience that loss at retirement."
Westpac NZ general manager of product, sustainability and marketing Sarah Hearn agreed long-term investors who were not in the right fund would probably short-change themselves at retirement.
"The Covid-19 experience and more recent market fluctuations should serve as a reminder to regularly think about your investment goals, whether you're saving for retirement or a first home deposit. That includes checking you're in the right type of fund for you and your stage in life," she said.
"Market volatility is normal and expected. Those of us who aren't nearing retirement will see our balances affected by more economic peaks and troughs before we get there."
The latest Financial Markets Authority annual KiwiSaver report showed growth funds now represent 46% of total funds under management, with $51.4 billion invested, and a total of 1.53 million investors. This is more than double the $24.5b in 2021.
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Poll: Should all neighbours have to contribute to improvements?
An Auckland court has ruled a woman doesn’t have to contribute towards the cost of fixing a driveway she shares with 10 neighbours.
When thinking about fences, driveways or tree felling, for example, do you think all neighbours should have to pay if the improvements directly benefit them?
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82.1% Yes
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15% No
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2.9% Other - I'll share below
Do Your Duty & Be Quiet - Day 6
Apologies for the delay, busy morning. Here is today's one :)
In a small rural town in the heart of New Zealand, there was a local washer named Hemi, who worked hard washing the laundry for the people in the community. He owned a well-behaved dog called Kahu and a sturdy old horse named Tahi.
Every day, Hemi would load Tahi with heavy bundles of dirty laundry and make the long trek down to the river to wash it. The river, known as the Whanganui, was a calm and peaceful place where Hemi could get the washing done while Tahi grazed nearby. After washing the clothes, Hemi would hang them on the riverbank to dry under the sun.
Once the clothes were dry enough, Hemi would load them onto Tahi’s back and head back to his home. There, he would hang the clothes on the lines outside to dry even further before folding them and returning them to the owners in the town.
Kahu, the dog, had a different role. While Hemi worked on the laundry, Kahu would patrol the property and keep an eye out for any would-be thieves or anyone trying to steal the clothes as they dried. Kahu would bark loudly at any suspicious person, ensuring the laundry was safe.
Hemi’s job was to wash the clothes with care and attention to detail, while Tahi’s job was to carry the heavy load to and from the river. Kahu’s task was simply to guard the laundry while it dried. Hemi made sure to feed Tahi and Kahu for their hard work. However, he had a tendency to favour Tahi more because, after all, Tahi was the one doing the heavy lifting. Kahu, on the other hand, only had to bark from time to time, so Hemi fed Kahu a little less than he fed Tahi.
Kahu, feeling neglected and underfed, grew increasingly irritated. One evening, as Hemi was asleep after a long day of work, a thief crept into the yard to steal some of the drying clothes. Kahu saw the thief, but instead of barking as usual, he decided to keep quiet in retaliation for the lack of food and attention. Tahi, on the other hand, saw the thief too, and began to bray loudly, trying to alert Hemi.
But Hemi was sound asleep, and the braying of the horse only annoyed him. In his frustration, Hemi rushed outside and, in the dark, mistook Tahi’s braying for a nuisance. He lashed out at Tahi in anger, thinking the horse was causing trouble. Tragically, in his fury, Hemi struck Tahi so hard that the old horse collapsed and died.
The next morning, Hemi was devastated. He found the clothes had been stolen, and his beloved Tahi was dead. Kahu, still hungry and upset, hadn’t barked as he should have. Hemi now realized the true cost of his actions: by not feeding Kahu properly, he had neglected his duty as a master and created a situation where everyone suffered. The townspeople no longer trusted him, and he had lost the loyalty of his dog, as well as the service of his hardworking horse.
Moral of the Story:
In life, everyone has their role and responsibility. Just as a horse is meant to carry loads and a dog is meant to guard, it’s important to recognize and respect the contributions of others. If you neglect those who help you, or fail to fulfill your own responsibilities, you risk upsetting the balance and causing harm. Do your duty with care, treat others with fairness, and don’t interfere with roles that don’t belong to you. When everyone does their part quietly and without complaint, things will run smoothly, and you’ll avoid unnecessary troubles.
Poll: When should the tree go up? 🎄
From what we've heard, some Christmas trees are already being assembled and decorated.
What are your thoughts on the best time to get your Christmas tree up?
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4.8% Second half of November
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44% 1st December
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17% A week before Christmas
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33% Whenever you wish
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1.2% Other - I'll share below
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