Shifting your KiwiSaver funds from one place to another comes with risks. Photo: RNZ
KiwiSaver members spooked by market movements have been shifting to more conservative funds, but not at the levels seen when Covid hit in 2020, providers say.
ANZ Investments managing director Fiona Mackenzie said there a couple of hundred ANZ KiwiSaver members had got in touch wanting to shift to more conservative funds in recent days.
But she said that was a fraction of the Covid times.
"This may in part be because we have been providing regular reminders - via our website and emails/letters to customers - about how to deal with short-term market volatility," she said.
"We understand people may be anxious or have questions. So, it is important to remember that financial markets do go up and down. When markets fell in 2020 on the back of Covid-19 concerns, we saw a lot of investors switch out of growth-oriented funds into more conservative ones. It meant that many missed out on the rebound in markets that followed."
She said it was not wise for people to try to time the markets.
"Instead, we believe it's important to stay focused on your long-term goals. If you can, you should continue making regular contributions into your KiwiSaver account.
"People should check that they're invested in the right fund for their age, life goals and tolerance for risk. Markets will always fluctuate but the longer your investment timeframe the less affected you are by short-term volatility."
Pie Funds chief executive Ana-Marie Lockyer said investors had seen a lot of volatility over the past five years.
"I am not sure they stay the course, but they are getting better at it," she said.
"Sometimes these periods are the best way to learn and there have been plenty of opportunities for this in recent times."
She said the absolute number of switches was dropping as people had more experience with market events, but the number of KiwiSaver members switching to conservative funds had lifted 100 percent during recent periods of market turbulence.
She said investors in all products should resist the urge to react emotionally and instead focus on long-term investment principles that had proven successful over time.
"While it may feel like a safe move in the moment, such decisions often lead to worse long-term outcomes, locking in losses and missing the recovery.
"While the instinct to protect savings is understandable, history and global evidence show that such moves often lead to worse long-term outcomes.
"We try and touch base with a number of investors who have switched to ensure that they are supported in their decision making and able to make informed, rather than rash decisions."
She said during the Covid disruption, about 70 percent of people in Australia who switched to conservative funds ended up worse off than they would have if they stayed where they were.
"Many of these investors crystallised their losses, moving into low-risk funds just before markets rebounded, missing the recovery that followed. For instance, individuals who switched in March 2020 when markets were at their lowest points locked in declines of 20 percent or 30 percent only to see markets bounce back within months.
"By the end of the year, most growth-oriented funds had fully recovered and even posted gains. Those who remained invested not only regained their losses but also benefited from the strong rally, while switchers struggled to recoup their funds."
Lockyer said market downturns would trigger fear which then led to irrational decision making.
"Behavioural finance studies have shown that investors tend to feel the pain of losses more acutely than the pleasure of gains, making them more likely to react defensively during downturns. However, history consistently shows that markets recover over time.
"The best course of action for most investors is to stay invested and trust in their long-term strategy rather than reacting impulsively to short-term market movements."
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