The perils of constantly checking your KiwiSaver balance
Banks’ tendency to put their customers’ KiwiSaver balance on their online statements could be bad news for investors in the long term, according to financial author and KiwiSaver expert Mary Holm.
She warns that savers who have become used to regularly watching their KiwiSaver accounts track gradually upwards during good times might panic and move to a worse-performing fund when the market turns down - as it inevitably will.
For someone in their 20s or 30s who decided to move from a higher-risk fund to a lower-risk one, this could mean losing out on hundreds of thousands of dollars in retirement, Holm told BusinessDesk.
“With most bank KiwiSaver funds you can see your balance when you log into online banking. A lot of people think that’s a good thing, because they say they like to see how their KiwiSaver is growing.
“That’s a real worry because once the market starts to get volatile, people could be watching their KiwiSaver account going down, maybe on a daily basis. And then they are more likely to switch to lower risk fund. That could be bad news.”
An example in Holm’s upcoming book takes someone whose total monthly KiwiSaver contributions are $400, increasing by 2 percent a year. If they invest in a conservative fund, Holms estimates after 40 years they could end up with a $400,000 nest egg. But in a higher-risk fund that sum would be around $1 million - a massive $600,000 difference.
Holm worries that people who are spooked by a downturn and pull their money out of a higher-risk fund could end up with far less retirement savings than if they had simply put their money into KiwiSaver and left it alone.
“If you are in a higher risk fund you have to stick with it through the ups and downs. We don’t know when there will be a downturn, but we know there will be one,” Holm said.
Warren Buffett, possibly the world’s most successful investor, once joked that his holding period for a stock is “forever”.
Anecdotal evidence suggests that for KiwiSaver customers (or potential customers), the ability to see their balance every time they go to their online banking page is a selling point for bank funds. This means banks are unlikely to remove the balances.
“But I would rather they did,” Holm says. “In an ideal world, people would be well enough informed to understand their balance will go down sometimes and that they shouldn’t react by moving to a lower risk fund. But realistically it’s going to be a long time before all New Zealanders understand that.
“In the meantime I’d love the banks to take on responsibility to get the message to their KiwiSaver members that it’s not a good idea to watch your balance too closely.”
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