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Out Of The Frying Pan, Into The Mire According To ASB KiwiSaver Research

Sharemarket volatility has tested the nerve of ASB KiwiSaver customers this year, with six percent switching to lower risk cash and conservative funds in March as Covid-19 saw sharemarkets plunge.

Commenting on ASB’s KiwiSaver data, Senior Economist Chris Tennent-Brown says many of those investors unfortunately missed the recovery that occurred from April onwards. “The experience may have convinced some customers that higher risk funds are not for them, but many others have not made a decision about what to do, and are still on the side lines in the cash or conservative funds.”

“2020 has been a reminder of the perils of trying to time the markets. For many KiwiSaver members, this was their first real experience of severe market volatility. Given ASB’s diversified KiwiSaver funds recorded the best calendar year returns ever in 2019, it’s understandable many were unsettled by watching their fund balances drop significantly in March. However this also demonstrates the importance of customers being clear about their investment goals and timeframes, and sticking to them.”

Mr Tennent-Brown says some people switched out of their funds, others stopped saving or held back on making investment decisions, and might now be confused about what to do.

Compared with previous major financial crises such as the 2008 Global Financial Crisis, the recent volatility abated quickly. Sharemarkets dropped 30 percent or more over February and March, but recovered rapidly and even reached new highs in recent months.

“During the Global Financial Crisis KiwiSaver was relatively new, balances were significantly smaller and customers’ own contributions made the biggest difference to their investment value. Now the market movements tend to be a bigger influence on many customers’ balances, and KiwiSavers notice this.”

Mr Tennent-Brown says regardless of market movements it’s important to keep contributing through volatility as it’s the combination of regular contributions as well as being in the right fund for the customers’ goals and timeframe that will ultimately determine how much they have in their KiwiSaver fund for retirement.”

Voluntary lump sum contributions to ASB’s KiwiSaver Scheme dropped significantly during March and haven’t yet returned to pre-Covid levels. The value of lump sum contributions dropped by two thirds initially, and is still down by a third on the value prior to the market volatility.

“It’s understandable if people stop saving to manage cashflow in times like this, but for those that can afford it, it’s useful to think about getting more for your money when prices are low.

Keeping regular KiwiSaver contributions going means customers benefit even more when markets recover.”

Despite the challenges of the year, ASB KiwiSaver research showed a record 27 percent of respondents ranked their knowledge and understanding of KiwiSaver as high, up from 22 percent a year ago. This lift coincided with an increase in the number of times people were checking their KiwiSaver, with 38 percent of respondents saying they checked their balance fortnightly or more, compared with 35 percent last quarter and 31 percent in the first quarter of the year.

“The improvement is pleasing, but there is still a long way to go. A significant number of people still describe their knowledge of KiwiSaver as poor, and as we saw around March, a significant number of people aren’t sure what to do when markets get volatile. But if nothing else, the volatility this year seems to have lifted engagement. What’s most pleasing to see over recent months has been the recovery in balances for people that stuck with their strategies and kept on making their regular contributions.”

@ASBBank @ASBMarkets

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