If you check your KiwiSaver or NZRT accounts regularly, you may have noticed your balances going up… or down. Seeing your hard-earned savings heading south might make you consider changes to your investments, but that’s not always the best idea. Here’s how you can stay on track with your KiwiSaver and NZRT money.
Unlike a bank savings account where you set money aside, in KiwiSaver and NZRT you buy things that have value, like shares in a company.
When markets drop, it means asset prices have fallen. With KiwiSaver/NZRT, most people are putting in the same amount regularly, so they end up buying more fund units during a drop (when they cost less). Once the market recovers, those units are worth more (because the assets increase in value) – and your KiwiSaver/NZRT grows faster.
If you are thinking about changing funds, the first question you should ask yourself is: “When am I going to need my money?” For most of us KiwiSaver/NZRT is a long game. It's not time to make a hasty decision. The secret to growing your KiwiSaver/NZRT savings is to be in the fund or funds that suits your lifestyle needs and to make regular contributions.
A ‘unit price’ reflects the value of a fund. A fund’s unit price may move up or down as the value of its investments change. For example, a fund might be invested in shares in a company, and when the value of those shares drops, this is reflected in a lower unit price.
When you contribute money to your KiwiSaver/NZRT account, that money is used to purchase units in a fund or funds. When markets drop, the value of the units your fund is invested in decreases as well, and this has an impact on your savings.
The good news is, if you’re regularly contributing to KiwiSaver or NZRT, you’re able to benefit from market movements by continuing to buy units at discount prices. When markets recover, these units will be worth more, and your account balance can grow faster.
If you are thinking about changing funds, it’s important to understand that the process involves selling all your units in your current fund and buying units in another fund. The process can take several days, and the price you pay is what the units are valued at by the end of this period. If markets move while you are changing funds, this can have an impact on your balance, so it’s important to avoid making a hasty decision and stick to your long-term savings plan.
KiwiSaver and NZRT members choose which type of fund or funds they put their money into. Some are considered higher risk, but often deliver higher returns over the long term. Others are considered lower risk, but usually deliver more consistent returns.
For example, if you were 45 years of age, and invested $20,000 in a KiwiSaver Scheme plus 3% employer / 3% personal contribution of a $50,000 salary, by age 65 your projected balance would be $96,000 in a conservative fund, $108,000 in a balanced fund and $121,000 in a growth fund.¹
During a market drop, it can be tempting to change to a lower risk KiwiSaver/NZRT fund, but this isn’t always the best idea. No matter what is happening in the market, it’s important to be in a fund which suits your needs.
If you are experiencing or are likely to experience significant financial hardship, you may be eligible to withdraw some of your savings from your KiwiSaver account. For NZRT members, please check your Member Booklet for the withdrawal conditions that your employer is offering you under its plan.
If you are 65 years or older, you may be eligible to access the money in your KiwiSaver/NZRT account. NZRT members – please check your member booklet or contact your workplace adviser as withdrawal restrictions may vary for your employer plan.
Market movements have an impact on your savings. When markets dip, you might think it’s a good time to withdraw your savings or change to a more conservative fund. However, this may not be in your best interests – it could be better to wait until markets recover.
Download our guide on what to do when investment markets fall.
1 These figures are calculated using the AMP KiwiSaver Calculator. The example above is a projection for a KiwiSaver member with a current balance of $20,000, a starting age of 45, a retirement age of 65, a salary of $50,000, a 3% personal contribution and a 3% employer contribution. The AMP KiwiSaver Calculator uses a number of assumptions. For full details about these assumptions, click here. These projection figures do not reflect actual returns and are not predictions of future returns. All forms of investment involve risk. None of AMP, The New Zealand Guardian Trust Company Limited or any other person or entity guarantees the performance of or any investment in the AMP KiwiSaver Scheme and New Zealand Retirement Trust (including the returns on the investment). Past performance is not indicative of future performance. Returns over different periods may differ.
While care has been taken to ensure the information in this communication is accurate, no entity or person gives any warranty of reliability or accuracy, or accepts any responsibility arising in any way, including from any error or omission.
The information included in this communication is of a general nature and does not constitute financial or other professional advice. Before taking any action, you should always seek financial advice or other professional advice relevant to your circumstances. For financial advice, we recommend you contact your Adviser. If you don’t have an Adviser, contact us on 0800 267 005.
AMP Wealth Management New Zealand Limited is the issuer and manager of the AMP KiwiSaver Scheme and New Zealand Retirement Trust.
For a copy of the AMP KiwiSaver Scheme and New Zealand Retirement Trust Product Disclosure Statement and Fund Update Booklet, please visit amp.co.nz or contact Customer Services on 0800 267 005.