'The most dangerous thing you can do is get off the rollercoaster halfway through the ride' - KiwiSaver expert Tom Hartmann
New Zealand's biggest investment administrator, Trustees Executors, recorded a massive increase in KiwiSaver fund switches last month as savers fled to conservative funds.
Chief executive Ryan Bessemer said as Covid-19 fears grew and the sharemarket reacted negatively between the start and end of March, switches supervised by Trustees Executors shotup daily by more than 2000 per cent.
Trustees Executors does the administration for about 20-25 per cent of all KiwiSaver funds, Bessemer said.
"Generally we have something like 200 switches over the course of a day for 20 to 25 per cent of the market, on March 17 we saw that go to 5160 switches, mostly moving into conservative funds."
While emphasising he was not a financial advisor, Bessemer said he was concerned about the "massive change" to conservative funds. KiwiSaver is a long-term investment and market volatility is for a short time, he said.
"I'm always a strong advocate for getting financial advice. Most of the people will stay where they are (in conservative funds) from what history shows us."
He said for example someone with $100,000 in a KiwiSaver growth fund who stayed in this fund despite its value dropping by 12 per cent in value over March - the average fall in growth funds over that month - would probably end up in 12 months' time 98-99 per cent close to where they had been before March.
"But if you decided to move into a conservative fund and stay in that and lock in those losses, and your losses were generally in line with the market returns you would turn inside a conservative fund, you would probably end up locking in a substantial loss over time.
"My concern is a lot of people who are going to stay in that conservative fund are not seeking advice."
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KiwiSaver was probably the second biggest investment many people would make in their lives so it was very important to understand what could happen with that investment "in good times and bad times".
Bessemer said Trustees Executors was also anticipating a spike in KiwiSaver hardship claims due to Covid-19-driven job losses.
Award-winning KiwiSaver fund manager Milford Asset Management also saw a major investor flight to a conservative fund last month - but some investment-savvy members also switched up, to a growth strategy.
Head of KiwiSaver Murray Harris said at the peak of investment jitters in March, just under 5 per cent of Milford's 37,000 members switched to a conservative fund.
"But about 3 per cent of our membership moved from balanced to growth or aggressive (funds).
"That's really positive. Whilst people get nervous and want to react with a more conservative strategy I think it's a positive development that people are beginning to understand KiwiSaver is a long-term investment, and at times of market uncertainty there is actually opportunity and they've taken that opportunity to move into more growth exposure."
Harris said many of the switchers to a conservative strategy appeared to have taken the initiative themselves, though it was possible some had taken external financial advice.
More than three quarters of the switches had been done online through Milford's customer portal or its new smartphone app.
Despite its small size compared with larger KiwiSaver providers such as banks, Milford has won several industry awards in recent years.
Tom Hartmann, editor of the government's money guidance website Sorted, said the volume of switches to conservative funds represented millions of dollars being wiped off KiwiSaver members' retirement savings.
"Rather than reacting to sharemarket drops, we need the right strategy in place so we can set and forget. The question we need to ask ourselves is 'How soon do we need the money?'," said Hartmann.
"If you don't need your KiwiSaver funds for a house deposit or retirement income within three to five years it's better to sit tight and ride out the current ups and downs."
He also had a word of caution for those planning on switching back to growth or aggressive funds when the market climbed again.
"Picking the market is notoriously hard to do, and market rebounds happen so suddenly that KiwiSaver members can't react quickly enough to benefit. It's better to be in for the long haul and gather the wins as they come."
