QI read in the Herald this week that more Kiwis are investing in shares than bank deposits. I think that’s fantastic.

But here’s my question: These days you can buy very small parcels of shares, and even invest as little as a dollar in the share market. It seems to me that it would be far better to buy a decent number of shares, say $1,000 worth. That way you get a decent income from the dividend each year.

You can’t get rich buying a dollar’s worth of shares can you? Is it worthwhile for the kids to own such a small amount?

AThey can get rich in knowledge. I would rather see the young ones — and inexperienced investors of any age — putting $1 into a single share than $1,000. If they have $1,000, it would be great if they spent $1 on each of 1,000 shares.

Okay, perhaps that’s a bit exaggerated. But the ability to invest tiny amounts means:

  • The share market is open for those with little money.
  • It’s easy to spread your money over lots of shares.

With many $1 investments, some will turn into $20, others will go down the gurgler, and the majority will jog along — sometimes losing value but more often gaining. The investor will learn so much.

That’s far more useful than feeling discouraged because your single $1,000 share investment became worthless. Or feeling elated and proud of your share-picking ability because your single share grew fast.

Too many people who have beginners’ luck attribute it to their skill, and then put lots of money into one or two more shares they think will be winners.

Sooner or later they will realise that it’s almost impossible for part-time investors to beat the professionals at discovering undervalued shares — the ones that will grow faster than the market as a whole. But it could be an expensive lesson.

QYou commented recently, “Hey — share prices will (recover) too!”

To me, in a humorous fashion, you might be contradicting yourself? Many years ago you published my letter in which I said, “One has to actively play the share market! Buy on the downturns! Sell on the upturns! Be counter-cyclical!” Your reply was: “Buy in, stay in for the long term — ten years. You will come out ahead!”

I still disagree! I think you are now saying what I said: “Hey — share prices will rise too.”

Regardless, shares can be sold the same day, sometimes at a loss, but remaining cash instantly available, by contrast property cannot?

You only want to cash up if you are “caught short!”. In the words of the first sharebroker I dealt with, the smallest in the Yellow Pages category, after questioning us as a young married couple, “Only invest money you are prepared to lose, and can lose!”

AI hate to disappoint you, but I haven’t changed to your way of thinking.

My comment about share prices rising was intended to comfort people worried about the decline in the value of their share portfolio or KiwiSaver fund. If you hang about, the prices of most shares will recover.

But that doesn’t mean it’s clever to trade shares often, trying to time the market. Research shows people who do that on average do considerably worse than the buy and hold brigade.

Your last paragraph says a lot. The broker was correct that if you are playing the market you should invest only what you can afford to lose.

But if you are investing for the long haul, there’s no need for such negative thinking. As long as you are in a KiwiSaver or other managed fund, or you own many different shares, you can be confident your investment will grow over ten years or more.

Getting a Kiwisaver WOF

This article was first published in this column in early 2020 — in another time of rapidly changing share markets. It seems a good time to run it again.

Worried about how market wobbles affect your KiwiSaver investment, and wondering what to do about it?

Or is KiwiSaver the last thing on your mind? Maybe you were auto enrolled and have ignored it since.

Or perhaps you’re somewhere in between?

Whatever your situation, it’s highly likely you’re not getting as much out of KiwiSaver as you can. The sooner you fix that, the more fun you can have in retirement.

So what should you do if:

QYou’re not contributing?

AToo many people are on savings suspensions, or they’re not employed and have simply stopped putting money in.

That’s understandable if you really can’t afford it. But if you earn, say, $40,000, 3 per cent of your pay is just $23 a week. And for non-employees, contributing $1042 a year to get the maximum $521 government contribution amounts to $20 a week. Most people could manage those amounts if they really want to.

Remember that an employee’s contributions are roughly doubled by employer and government contributions. And non-employee’s contributions are multiplied by 1.5 by the government input. That means employees will end up with twice as much in retirement as if they save elsewhere, and others with 1.5 times as much. That’s powerful. Don’t miss out.

QYou don’t know which provider you’re with?

ARing 0800 KIWISAVER. Have your IRD number handy.

QYou don’t know the name of your fund?

A Look at communications your provider has sent you, or phone or email your provider.

QYou don’t know how risky your fund is?

AGo to the Smart Investor tool on sorted.org.nz, and do a search on your fund name. The tool will tell you whether your fund is defensive, conservative, balanced, growth or aggressive.

QYou’re not sure whether that is the right risk level for you?

AGo to the KiwiSaver Fund Finder tool on sorted.org.nz. This will take you to three questions, about how long it will be before you expect to spend your KiwiSaver money, and how well you can cope with market ups and downs.

QYou find — through the Fund Finder’s questions — that your current fund is too risky for you?

AYou may have already realised this, when share markets drop and your KiwiSaver balance falls. It always recovers, but perhaps the whole experience is unnerving. What you should do depends on your plans for the money.

If you are:

  • Not planning to spend your KiwiSaver money for ten years or more, move the lot to a lower-risk fund if you must.

    Remember, though, that over the long run higher-risk funds bring higher average returns. So consider moving only part of your savings to lower risk. Leave a portion where it is, and learn to be brave as it rises and falls over the years.

  • Planning to spend at least some of the money within ten years – in retirement or on a first home – you should reduce your risk.

    If you hope to buy a house or spend most of your savings within, say, three years, it’s wise to move your money to a low-risk fund – or bank term deposits if you’re over 65. Then your balance can’t drop right when you want to use it.

    The money you expect to spend between three and ten years from now is best moved to a bond fund. If your provider doesn’t have one, use a balanced fund. Reduce the risk more as you get to the three-year horizon.

You can lessen the risk of transferring all your money at what turns out to be a particularly bad time by moving, say, a third now, a third a month or two later, and the rest in another month or two.

Footnote for retired people: while you may want to move shorter-term spending money into a low-risk fund, consider leaving the ten-year-plus money in middle or higher-risk to get the better long-term returns.

QYou find — through the Fund Finder’s questions — that your fund is not risky enough?

AThat means you’ve been missing out on really good average returns in the riskier funds. It’s time to climb aboard.

But I suggest you also make your move in, say, three batches – a month or two apart. You want a chance at moving at least some of your money at the best time.

QYou’ve decided to move a portion of your savings to a lower or higher-risk fund — sooner or later — but your KiwiSaver provider won’t let you be in more than one fund?

ASwitch to another provider that will permit that. Most do. Use the Smart Investor tool to find another good fund at the right risk level for you and, of course, check their fund switching policy before moving.

How do you choose a new provider? See the next two items.

QYou may be paying too much in fees?

AThe Smart Investor tool comes to the rescue again! Click “Compare”, “KiwiSaver” and select your risk level.

Scroll down to “Sort by” and click “Fees” (lowest first). You’ll get a list of all the funds of that type, with the lowest-fee funds first. How does your fund compare? If it’s not amongst the cheapest, I strongly suggest you choose one that is.

You can get info about each low-fee fund by clicking on the fund name. and then check the providers’ websites to see if you like the way they operate.

You’ll also notice that the Smart Investor tool lets you compare funds by returns. Don’t take much notice of returns — except to rule out any funds that consistently have low returns.

Why not go for funds that have had high returns? Because time and again we see past high performers doing poorly in future.

Your best bet to get high long-term returns after fees is to go for funds with low fees.

When you decide to move to a new provider, just contact them. They will get in touch with your old provider and arrange the move.

QYou’re concerned about how ethical or environmentally friendly your fund is?

AGo to mindfulmoney.nz, where you can check what’s in your KiwiSaver fund, and find a KiwiSaver fund that fits your values.

QYou find yourself checking your KiwiSaver balance often – perhaps because it is shown every time you bank online?

AThis is bad for your financial and emotional health, especially in times of falling markets. It can lead to rash fund switching that leaves you worse off.

If your provider is a bank, and you see your balance every time you do online banking, turn off that feature.

Checking your balance about once every three months, when you get a statement from the provider, is often enough.

QYou’re not sure if you will have enough for your first home, or in retirement?

AGo to the KiwiSaver Savings Calculator on sorted.org.nz. It will tell you roughly how much you’re likely to have for your home or when you retire, and how much that’s expected to give you per week in retirement.

Important note: The retirement total is adjusted for inflation. That means that if your retirement total is $100,000, that will buy you what $100,000 buys today.

You can switch off the inflation adjustment, and your retirement total will be considerably higher. That’s the dollar amount you’re expected to actually have. But keep in mind that, because of inflation, it will buy less than it does today.

While you’re there, try adjusting your fund type, to see how much more or less you might have if you switched funds. You can also see how contributing more would affect your results. And there’s a link to a retirement calculator.

QDone? Brilliant! You can now drive your KiwiSaver car smoothly into retirement.

ATake a bit of interest in your account every now and then. But you shouldn’t have to change much, except perhaps to increase your contributions when you can, or to reduce your risk level as you approach the time you’ll spend the money.

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Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.