Common investor behaviour and how not to fall victim to it
You can be your own worst enemy when it comes to investments.
KiwiSaver does a pretty good job at keeping you invested in the market, given you can only exit the scheme if you are putting a deposit down for your first-home or upon retirement at age 65*. However, members can still fall victim to investor behaviour, ‘buying high and selling low’.
A member who switches their fund from one heavily invested in growth assets (aggressive or growth funds), to one heavily invested in income assets (conservative or cash funds) when markets are declining is essentially selling when the markets are declining. Conversely a member who switches their fund from one heavily invested in income assets, to one heavily invested in growth assets (conservative or cash funds) when markets are increasing is essentially buying when the markets are increasing. See the blog post linked for more understanding on the asset allocation of KiwiSaver funds.
This is not a theoretical trend, rather proven countless times throughout history. This screenshot from news distributor ‘Stuff’, shows this behaviour occurring as a result of the March 2020 market dip, stemming from COVID-19.
$1.4 billion of KiwiSaver funds switched from those funds with a high allocation towards growth assets to conservative or cash, which resulted in huge losses. These investors essentially ‘crystallised’ their positions by switching their funds when markets were down and therefore didn’t take advantage of the subsequent market recovery in the following months. This isn’t the first time this phenomenon has occurred, and it certainly won’t be the last!
To ensure you don’t fall victim to investor behaviour, make an informed up-front decision on what KiwiSaver fund best suits your situation (financial adviser’s are able to assist) and then stick to the plan. Markets are subject to fluctuations, however if you’re fund is appropriate for your risk profile and investment horizon, you will surf the swings while taking advantage of dollar cost averaging to reach your KiwiSaver goals!
How to get an adviser to assist with your KiwiSaver decisions…
If you want an adviser to assist you with your KiwiSaver decision making from the onset, and throughout your KiwiSaver journey, to ensure you’re KiwiSaver fund is both being maximised for returns and suitable for your personal situation, follow the link below to our online fact find. The fact find only takes 5 minutes to complete, and once you have finished we will provide you with a free no-obligation KiwiSaver recommendation.
*there are some other circumstances in which you can liquidate your KiwiSaver investment such as financial hardship, terminal illness etc. however these are uncommon.