Shifts in KiwiSaver funds reveals panic

KiwiSaver investors switched funds as the market melted down in March. Photo: supplied
KiwiSaver investors switched funds as the market melted down in March. Photo: supplied
KiwiSavers moved $1.4 billion into cash and conservative funds in March - a move one provider says shows how people panicked during the peak of the markets crashing as Covid-19 spread around the world.

Funds under management in KiwiSaver fell from $63.6 billion as of the end of December to $59.1 billion at the end of March, as Covid-19 wiped $4.5 billion off the value of the funds.

Murray Harris, head of Kiwi-Saver at Milford Asset Management, said data showed about 2% of that money flowed into cash and conservative funds.

‘‘$1.4 billion is a lot more than we would normally get.’’

While some of that would be new members signing up to Kiwi-Saver cash and conservative funds, Mr Harris believed the ‘‘vast majority’’ would be people switching money from higher risk balanced and growth funds as they panicked at the sight of their balances falling.

‘‘It is only around 2% which is small in the scheme of things. But we know from experience, many wait until the market rebounds before switching back or they never switch back.’’

Waiting meant those investors were selling their investments at a low point and buying in at a higher point which goes against investment common sense.

‘‘They typically wait for the market to recover and then get back in.’’

Mr Harris said a case study he did for a presentation on Kiwi-Saver behaviour in the wake of the market falls revealed a 35-year-old on an average income of $55,000 with a balance of $20,000 would potentially have $32,530 less in their account if they switched from a growth fund to a conservative fund and then waited two years to switch back.

The financial hit was even bigger for those who stayed in a conservative fund until age 65.

Modelling of the same 35-year-old showed the person could have $370,940 less in retirement savings at 65 if they stayed in a conservative fund.

‘‘The financial impact is significant over a long period of time. That is why it is so important to get advice. These are one thousand-dollar decisions.’’

Six percent of Milford’s members moved into cash and conservative funds during March but it had a higher percentage of members in its growth and aggressive funds than other providers, Mr Harris said.

But 2.5% moved into higher risk balanced and growth funds as they took advantage of lower asset prices.

‘‘They are seeing it as a buying opportunity.’’

Sharesies co-founder and co-chief executive Leighton Roberts said it had seen significant membership growth over the last eight weeks from about 100,000 members to 150,000.

The present situation had been the catalyst for many to join, he said.

When volatility in the market got high it began to see a material increase in sign-ups and then again as the market began to recover and people worried they would miss out on the sharemarket returns.

One of the things driving the behaviour was the view that there was nothing else to invest in with bank rates down and the official cash rate cut to a record low of 0.25%, Mr Roberts said.



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