The FMA has warned young KiwiSavers to prepare for ‘investment storms’ by making sure they are in the correct type of fund, and is encouraging them not to stop contributing to funds in the event of a downturn.
The regulator has developed a KiwiSaver risk knowledge quiz as part of its ‘Weathering the Storm’ programme for Sorted Money Week, and is focusing on helping younger KiwiSaver members prepare for a time when investment markets might fall in value.
According to acting director of external communications and investor capability Simone Robbers, being in the right fund is the most effective way to prepare for any potential downturn. Many savers also aren’t aware that switching funds in a crisis could result in losses being ‘locked in,’ and the quiz hopes to give them to tools to manage their funds effectively.
“Our investor confidence survey published earlier this year found that investors whose only investment is a KiwiSaver account were the least knowledgeable and least confident of all the investors we surveyed,” Robbers told NZ Adviser.
“Our work around KiwiSaver statements also showed that some don’t understand that it’s an investment product, rather than a savings account.
“Responses to the quiz have shown that people understand that they should keep contributing through a downturn,” she continued. “But where people have tended to slip up a little is understanding that funds with shares and property will be more volatile than funds invested in cash – one in five people didn’t get this question right. KiwiSaver members should understand that while growth funds move up and down in value more, they will tend to deliver better returns over the long-term.”
According to Robbers, some of the people surveyed also thought that low risk equalled no risk, which isn’t the case. Being in a conservative fund doesn’t mean the value can’t or won’t fall, and there’s also a hidden, long-term risk – the money you have in retirement will be much lower than someone who invested in growth assets.
“KiwiSaver members should prepare for a downturn by choosing the right fund,” Robbers stated. “Lower-risk funds for short-term such as if you’re saving for a deposit, high-risk, growth orientated funds, if you won’t need the money for decades when you retire. And keep contributing through any turbulence.”