What can first home buyers do to protect KiwiSaver account balances?

What can first home buyers do to protect KiwiSaver account balances?

Joseph Darby

First home buyers have two options before they make a first home withdrawal

It’s quite normal for the prices of shares and other investments to go up and down – especially when there’s uncertainty due to oil price fluctuations and coronavirus (Covid-19). The recent volatility has reinforced the importance of being in a suitable fund choice – or mix of investments – to match a range of matters including the overall purpose of an investment, how long someone will be invested for, and how much volatility a person is willing to accept.

Some first home buyers might be unnerved to see KiwiSaver balances drop as share values in their funds have fallen. In that case, they might be wondering what to do.

What if someone plans on making a lump sum withdrawal sometime soon?

If someone is planning on making a full withdrawal soon – such as for a first home – and has been ‘caught out’ by recent volatility, they only have two choices. They can either:

  1. Switch to a fund profile with low risk and low return*. The downside is this will “lock in” recent losses, but it will also give more certainty about the total sum available for a home deposit to help secure a first home, or
  2. If the investor understands all the risks and is willing to accept them, a person can remain in a fund choice with a healthy allocation to investments such as shares and hope the value bounces back a little. This is not usually recommended, as there’s every chance the value could drop further over the short term, even if over longer time periods values will rebound!

* Most KiwiSaver providers offer Cash/Defensive or Conservative fund choices.

Naturally, it’s best that people pre-empt this sort of situation by having a chat with us every year or so to ensure their investment approach is appropriate for their needs.

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What about investors who don’t have any large withdrawals planned?

Keep in mind that investment markets move in cycles – they have ups and downs. Anyone with longer-term plans, including those who don’t plan on withdrawing KiwiSaver savings anytime soon, might suit a more growth-oriented fund, as this should help to grow the balance over time. As the old saying goes, “It’s time in the market, not timing the market” that really counts.

What next?

It’d be our pleasure to expand on anything explained above, or anything else. Just get in touch.

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