Checking your KiwiSaver balance can be a bit addictive, especially when there is movement in the market. But if you’re not close to withdrawing money from KiwiSaver and are making regular contributions, then focusing on the big bold dollar amount in your statement is not the best way to look at your KiwiSaver’s progress.
Start thinking in KiwiSaver units, not dollars
When you put money into your KiwiSaver, you are purchasing units in the fund or funds that your KiwiSaver belongs to. Each fund type (conservative, balanced, growth or aggressive) will have a unit value. Your KiwiSaver provider’s portal dashboard should include the number of units you hold in each fund and the current unit price. The unit value goes up and down depending on the investments’ value. The higher the risk profile, the greater the ups and downs for the unit values.
When your KiwiSaver fund goes down in value, it means that the unit value has gone down. If you put more money into your KiwiSaver when the unit value has dropped, you are effectively buying units at a discount. You will have more units, so your KiwiSaver balance will increase faster when the unit value increases as the market bounces back.
We touched briefly on this in our May 2023 newsletter. A woman in her mid-30s who had been in a mix of growth and balanced funds shared this with us, “I hadn’t thought of my KiwiSaver in terms of buying units at a discount when the market is low. I’d only thought about how I am relatively risk-averse and putting all my money into a growth fund felt risky. But I’m not retiring for 30+ years, and I now see that I don’t need to focus on market fluctuations. I’ve changed my KiwiSaver to be 100% in the growth fund and will focus more on what I can contribute to raise the number of units I can get while the market is down.”
Does this understanding change your KiwiSaver choices?
Looking at your KiwiSaver through the lens of units rather than dollars, you can make more logical and less emotional decisions. There are several decisions you need to make when setting up KiwiSaver. But these choices aren’t static. They should be revisited and reviewed over the years as you progress towards a first home deposit or retirement, or when your circumstances change as they do from time to time.
Common things to consider and review are:
Contribution rate – The default rate is 3% of your gross income, but industry experts are flagging that for most people, this isn’t enough for them to maintain their lifestyle at retirement. If you can, opt to contribute more. If you can’t, keep this top of mind as a priority should you get an increase in regular income (wouldn’t that be nice!). If you’re over 18 and under 65, then at the very least, you should contribute enough to get the government tax credit.
If you’re in KiwiSaver for the medium to long term, market downturns shouldn’t impact the percentage you choose to contribute. Remember, you’ll be buying more units with the same contribution amount when unit prices are low!
KiwiSaver provider – Evaluate the various KiwiSaver providers and their investment options. Different providers offer different investment funds with varying levels of risk and return. Some provide socially responsible fund options, allowing people to invest knowing their money won’t go to certain industries. Fund performance is also something to consider; past performance does not indicate future results, but it can provide insights into the fund’s performance against competitors within the same market.
Fund types – Consider your risk tolerance and investment period when selecting your fund types. As we discussed above, if you’re going to be in KiwiSaver for decades before withdrawing your money, you will likely see multiple peaks and troughs, and there is opportunity in the troughs. For this reason, even a risk-averse person may decide a growth fund is right for them. As you get closer to retirement, review your fund structure regularly.
If you have KiwiSaver questions, just ask!
The correct KiwiSaver setup comes down to your circumstances and needs to reflect your risk profile and protect your investment if you need to use the funds soon. Contact us if you need help understanding your KiwiSaver or want to review your setup. We can help you clarify how KiwiSaver fits into your broader financial plan and give personalised guidance specific to your circumstances and goals.