KEY POINTS:
" Buy when there's blood on the streets" goes the saying. It's exactly the sort of thing a fat-cat millionaire banker like a Rothschild - the purported author of the quote - would say.
But to the newbie investor just starting their modest KiwiSaver account, such advice is not that helpful. Share markets the world over have plummeted, recovered, then slumped again. Buying when there's blood on the streets might be more akin to asking a child to catch a falling knife.
KiwiSaver account holders will start getting a 1 per cent employer contribution to their savings on April 1, but will turbulent world share markets scare off newcomers?
Marc Leiberman, chief executive officer of ING New Zealand, one of the six default providers, thinks the new employer contributions will "create almost a new wave of people relooking at it".
Based on numbers published by the Government, Lieberman says that ING appears to have about 20 per cent KiwiSaver market share.
There is little doubt that people are concerned about whether now is a good time to start investing, he says.
"I think if you look at some of the write-ins to the financial columns from consumers, they all have questions like, 'Gee, is this a good time? The markets are choppy, my investments are down'. But I believe, from a fundamental, standpoint it's probably the best thing that can happen when you're starting a programme like this," says Lieberman.
"Do you want prices to be going down when you're buying, or do you want them to be going up when you're buying? You want prices to be going down when you're buying and going up when you're taking your money out.
"Five years from now, 10 years from now, 20 years from now, people are going to be looking back and saying 'what an outstanding opportunity to start Kiwi-Saver'."
Sam Stubbs, the chief executive of KiwiSaver provider Tower, says sinking equity markets do not change some of the "basic numbers" that make the scheme attractive.
The $1000 Government kickstart means anyone delaying joining Kiwi-Saver for a year is forgoing $500-$600 over the life of their investment. "Every year you delay, it is $500 or $600 you've missed out on," he says.
Delaying also means missing out on the employer contributions - between $1000 and $3000 a year - as well as missing out on the compounding interest in your own contributions.
"I think the power of compounding interest and the fact that a dollar saved today means an awful lot in the future means that people should be doing it regardless of the market.
"Certainly with employer contributions and the Government, that is as close to free money as you'll get in the world these days."
Another reason KiwiSaver is still a good idea in declining markets is the concept of "dollar cost averaging".
Saving regular amounts over time means the scheme buys more shares when they are cheap, fewer when prices are high.
"A lot of investment theory says dollar cost averaging is one of the most powerful things you can have working on your side," says Stubbs.
"But what that requires you to do is take a long-term perspective on things. The beauty is that you will, in hindsight, be seen to have been buying things cheaply over this period.
"Buying when there's 'blood on the streets', you have to suspend short-term fear and let your long-term greed take over. So right now, while it seems to be a very scary world, we may look back at this period and see it was an awesome opportunity to buy very sound companies at relatively very cheap prices.
"We have a more sanguine view on this and actually see this - it's starting to become a pretty interesting time, looking at acquiring things at much cheaper prices. They have to be solid and sound investments anyway.
"It's exactly the same investment rationale we had six months ago - if you're buying a power company, for instance, you're doing it because it runs itself very well.
"Is it really worth 40 per cent less than it was six months ago? Well the market is telling you that, but if you're a long-term investor it may be a great time to buy."
"KiwiSaver is the biggest no brainer investment product I've ever seen in my life."
Stubbs says Tower research suggests that once KiwiSaver accounts start to get to balances of $30,000 to $40,000, members will start paying a lot more attention to them.
It will also be around this time, when KiwiSaver accounts become a person's second-most valuable asset, that more exotic types of investment will start being offered.
"Certainly they will be asking more sophisticated questions, the advice will be more sophisticated, ultimately people will end up making more money as a consequence, but right now the advantage of KiwiSaver is that it's a very conservative product, it's easy to understand and there are other people putting money into it as well as you."
