OPINION: As the COVID-19 pandemic roiled the world, stocks went on a wild ride. As the pandemic took hold, global share markets slumped before recovering, dropping, and rising again.
In New Zealand, many of those who have invested in KiwiSaver will be questioning, given such volatility, how they should manage their money. Recent research, however, has made one thing abundantly clear: many Kiwis simply aren’t clued up enough to make good decisions.
Canstar surveyed nearly 3,000 Kiwis as COVID-19 took hold. We found 8 percent of Kiwis had changed their fund profile during the pandemic, a figure that was higher among the young.
According to the 2020 FMA annual report on KiwiSaver, $1.5 billion was shifted from balanced and growth funds into conservative and cash investments over the year. While there is a natural urge to run from risk - and indeed, may be appropriate for older generations - volatility is part of investing in the sharemarket.
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The early stock market losses were recovered and those who shifted to less riskier choices like conservative or cash funds would have foregone those gains. In other words, in hindsight it may have been better to sit tight and do nothing.
Canstar’s study identified real confusion around KiwiSaver, particularly among the younger demographics. Nearly a fifth of all respondents said “the whole KiwiSaver fund choice is too confusing”, with that figure rising to 23 percent among 18- to 29-year-olds.
More than two thirds of respondents said they didn’t understand the difference between active and passive funds, with that number rising to nearly 80 percent of young Kiwis. Further, 41 percent worry they don’t have enough for retirement, with the figure rising to 50 percent of those in their 50s.
Despite these concerns, Kiwis have a heavy reliance on KiwiSaver. It is the only savings vehicle for two thirds of us, and a mechanism for half of the younger demographic to get into their first home.
This year has delivered huge volatility in the financial markets, and there is no guarantee 2021 will bring any more stability. Which is why the lack of money savvy is such a concern.
Education is key, and the likes of the Financial Markets Authority and the Commission for Financial Capability are actively working to inform and educate New Zealanders. But there is much more to be done.
Communication is also extremely important. Our research shows providers who deliver regular updates and insights, and who provide simple assessment tools are consistently rated highly by their members. During the pandemic, the FMA worked with providers to ensure members were informed on the pros and cons of switching funds during a time of volatility.
But ultimately, New Zealanders need to start educating themselves, in order to grow their funds and protect their futures. Canstar’s guides for understanding KiwiSaver include comparison tools to compare low and high risk funds, Q&As on key topics, and articles outlining the different types of investments that are on offer.
Tools such as these can be invaluable toward educating Kiwis on how to best grow their retirement savings. And for each step we take, New Zealanders will be better placed to know when to sit tight, and when to run.
- Jose George is New Zealand General Manager of Canstar
