The week started with a bang. In the investment markets anyway.
My overly simplified spin:
Japanese monetary policy and its attempts to resurrect interest rates and the yen from the dead, all of a sudden had a catastrophic effect on its stock market which fell like a climber from the summit of Everest right to basecamp.
It triggered a subsequent avalanche in Asian stocks, and the contagion spread world-wide quickly after, almost as fast as Covid!
Global equities were riding a deliciously frothy rally for more than a year, so a correction was long in the cards but the sudden and dramatic nature of it all, left investors stunned and billionaires with billions less on the asset sheet.
But a lot can change in a week and as we close it out, low and below American indices are pole vaulting back to the podium, with the S&P500 and Dow Jones putting in their best performance since 2022.
Investing is a rollercoaster to put it mildly.
Those who don’t follow business news or check their portfolios’ll be none the wiser although it will take some time to get back to the deja-vu Black Monday moment.
By and large, for investors in KiwiSaver, it will have been uneventful. A handful of first-home buyers who were unlucky to have their accounts priced out at the lowest point may be out by a whack. Long-term investors, who are most people in KiwiSavers, will slowly see their balances move back up the graph.
Lower-than-expected job loss claims in the U.S., a stronger conviction in the US economy, and lower interest rates have served to prop markets back up.
Investing is not for the faint of heart, which is why you are repeatedly warned to check your fund type and make sure it’s in line with your risk profile. Most KiwiSaver providers will have a tool to do that on their websites or member apps. If not, Sorted.org.nz provides one, which you can access here.
The questions that shape what kind of fund it directs you to are your age, appetite for risk, and reason for investing in KS (first home or retirement).
I mentioned in my blog last week how my son was hoodwinked into switching KiwiSaver providers. Well, after seeing that the bank’s KiwiSaver scheme didn’t offer any compelling reason to stay, he moved back. He never intended to switch in the first place.
As I was helping him with the process, he wanted to know the difference between all the fund types. He was in a growth fund and had been since day 2007, but when he was switched out by a bank, he was transferred into a Balance fund, which is the new(ish) default setting for KiwiSaver. What that means is if you don’t choose a fund type consciously, your provider will stick you in a Balance fund.
In NZ, that used to be a Conservative fund. But a few years ago, regulators decided to change it to a Balance fund, as in Australia. The difference over a lifetime of working and saving is significant; hence the eventual policy reset by the Government.
My son was curious about the high-growth/aggressive fund options.
Son:
“Which one is going to make me more money?”
I gave him a quick and dirty explainer, and he landed on High Growth. I suspect this will be the case with most guys his age. They are risk-seeking creatures and just go for the most money or whatever option they think will deliver that.
Of course, fund selection is a more nuanced conversation, but a half-listening 20-year-old is thinking about buying a box of beer on a Friday, not about turning 65 and buying the finest Scotch with his first redemption.
Some days, I feel like I am banging my head against a wall trying to get my kids interested in and educated about money beyond its value at the liquor store or clubs.
I don’t think they’re atypical in this sense. You tend not to worry about these things until you are forced to.
There are not many kids who will be naturally curious about car insurance policies until they are driving and need it or get in an accident in which they are on the hook because they didn’t have insurance. Similarly, you don’t think about paying bonds or saving for one until you’re faced with having to pay for one when. you get your first flat.
Personal finance is very much a life-stage journey. Unfortunately, it can come with very expensive lessons if you’re sleep-walking your way through it all.
Don’t be that person and if you have kids, teach ’em young. Maybe one or two important lessons will stick.
Resources.
Fund check-in. If not your provider use Sorted.org.nz Investor Profiler tool
How much will I save? Sorted.org.nz KiwiSaver Calculator
Performance comparison: Morningstar
