Future proofing your KiwiSaver investment
Investment markets around the world have had a dream run for a good part of the last decade – that was till earlier this year. Why does it matter to you, you may ask? Well, if you are in KiwiSaver you definitely want know how it’s going to affect your wealth in retirement. More importantly, what’s around the corner can mean a difference of hundreds of thousands of dollars to you.
Investment markets are always on the move, sometimes up, sometimes down or even flat-line for a number of years. So if you have money invested, then expect losses at some stage. History reveals that markets don’t keep going only in one direction for long periods of time. Meaning, it’s always good to take a stock-take when you have had long runs in the same direction – now would be a good time.
In the context of KiwiSaver, how much of an impact investment markets will have on your retirement savings, will depend on the type of fund you are invested in and where your money is invested. You can quickly find out where your Fund is invested by clicking on the more details tab on our KiwiSaver fund comparison page after finding a list of suitable funds.
But before any alarm bells start ringing, remember, recent negative events in global share markets are in some ways healthy for your regular KiwiSaver savings plan.
Benefits of regular savings
This assumes that your contributions get paid to the Provider regularly, in line with your salary payment, or as per a regular schedule that you have set up.
- Each contribution you make, buys you a certain number of units in your Fund.
- The number of units you receive depends on the price of a unit on that day (typically, all funds value their units daily).
- So, while your contributions may be a fixed amount, the number of units you receive each time will fluctuate as per the unit price. The lower the unit price, the more the units you receive, and vice versa.
- The price of a unit in your Fund depends on the value of assets it invests in. When those assets fall in value, so do the units. So, when your Fund falls in value, in line with the assets it holds, you get more units.
- Over a period of time, this protects you, to an extent, from the vagaries of investment markets.
This concept is called dollar cost averaging, and works wonders for your long-term retirement prospects.
Regardless, any loss is painful – but also remember that the loss is only on paper. You don’t crystallize any losses till you redeem your units in the Fund. Hence why it’s important you are invested in Funds that are appropriate for your investment time frame.
So, if you are invested in, say, a growth Fund and intend to redeem your savings in another 20 years, then the recent losses wouldn’t matter as much. But, if you are invested in the same Fund with a timeframe of 12 months or less, your prospects may be significantly dampened.