KEY POINTS:
Headlines generated by commentators suggesting that KiwiSaver portfolios are taking a beating and that investors would be better keeping their money under the mattress and out of growth assets like shares are financially naive and simply wrong.
Many commentators fail to appreciate that KiwiSaver is a "drip-feed" plan
and that people are currently buying investments through their schemes, not selling them.
In the meantime, it's great news that shares are on sale, and may it stay that way long enough for some of the contributions to build up. In an ideal world a KiwiSaver investor would want markets to be as low as possible now and as high as possible when cashing out (for many investors that is in 20 to 30 years' time).
The negative headlines on markets falling make as much sense for KiwiSaver investors as a supermarket shopper being disappointed to find that all the groceries he wants to purchase are on sale that week.
The fact that many share prices have declined is irrelevant to today's KiwiSavers because they are yet to put in most of their contributions.
For instance, those aged 30 who joined KiwiSaver three months ago will have put in a tiny part of the total contributions that they, their employer and the Government will be putting in over their working lives.
Next quarter they will contribute some more and a bit more after that. If they are lucky enough to get a pay rise then the contributions in future years may well be higher than this year. So in fact, the longer share prices remain depressed the better.
The quality of the commentary is also disappointing as three months is an absurdly short time period on which to evaluate a long-term retirement savings plan. Investments in growing assets are vital to a retirement plan and these investments will indeed fluctuate in price. The fact that equity markets go through corrections is not new information that people didn't know three months ago and shouldn't cause a change in their KiwiSaver investment decision.
Any analysis should include the benefits that investors get from Government contributions and from employer contributions (which if they don't receive already, they will from 1 April this year).
The return from the decision to join KiwiSaver is a combination of many inputs including, but not confined to, the return that markets and the fund manager generate. But this doesn't diminish the importance of having confidence in your fund manager.
Those who have been assigned a default provider should take their time to understand its investment strategy.
Eventually, investors will cash in their KiwiSaver nest-eggs and a correction in the market will then be something to protect against. Switching to more conservative options in a KiwiSaver scheme will be worth considering at that stage.
* Mark Brighouse is managing director of Brook Asset Management.
