QI feel silly asking this with such a tiny amount! Wasn’t in KiwiSaver for very long sadly, but after the last two years my total is a paltry $18,000.

If younger I would just keep adding to it, but wish to withdraw $10,000 when I turn 65 in a few weeks. Should I leave the remainder and keep adding a bit here and there, or am I likely to lose that?

AYour $8,000 may well be more important to you than somebody else’s $8 million, assuming you haven’t got other savings. I welcome your question — and letters from anyone less than wealthy.

An $8,000 KiwiSaver investment basically won’t perform any differently from an $8 million one — although many KiwiSaver providers charge a membership fee of $18 to $36 a year, which will affect a small investment more than a large one.

Because of this, you — and anyone else with a low KiwiSaver balance, including children — might want to move to a provider that charges no membership fee. Dollar-based member fees are listed in Morningstar’s quarterly KiwiSaver reports. You can see the latest one here. Scroll down for the fund listings.

Okay, on to your question. Adding to your account is always a good idea. And no, you’re not likely to lose money in KiwiSaver — as long as you don’t mess with it. While KiwiSaver is not government guaranteed, it is regulated, and it would be extremely unlikely that anyone would lose money from their account because of skulduggery.

What does happen, though, is that account balances fall, as they have done in most cases in the last year or so. That’s because the value of two common types of fund investments has fallen:

  • Bonds — which make up a large proportion of many lower and middle-risk funds — have lost value as interest rates have risen. The older bonds bought by the fund a year or more ago, at what now look like low interest rates, are no longer appealing so their values have dropped.
  • Shares — which feature more in higher-risk funds — have lost value as share markets around the world have slumped.

Both of these trends will change. We never know when a recovery is happening until it’s been running for a while. But in the long run, widely diversified bond and share investments of the type made by most fund managers always report positive returns.

The trouble is that investors worry when they see their balances fall, and some want to move their money into a lower-risk fund, which will be less volatile. Or, if they are over 65, they may want to withdraw their money and put it in a bank. Don’t!

When you invest in KiwiSaver, you hold units in the fund. If the markets have misbehaved, as they have in the last year or so, the value of those units drops. So if you move out of your fund, you are selling your units for a low price.

Let’s say you are thinking of selling something else valuable — maybe a painting or a piece of jewellery or, for that matter, a rental property — but you don’t need the money right away. And let’s say you know the price will probably rise some time in the next year or so. You wouldn’t sell it now. So why would you sell your units at a low price? Wait, and they will recover.

That’s a long answer to your short question. But there’s another issue to consider: how risky is your fund? If you don’t know, phone or email your KiwiSaver provider and ask them.

Then think about when you expect to spend the $8,000. If it’s:

  • Within the next three years or so, it’s best if you are in term deposits or a low-risk KiwiSaver cash fund that invests mainly in term deposits and the like. This means the money won’t be exposed to fluctuating markets. For more on cash funds, see today’s third Q&A.
  • Within about three to ten years, a middle-risk conservative or balanced fund is good. If your provider has a bond fund, that works particularly well.
  • More than ten years away, you can take more risk in a growth or, preferably, an aggressive fund that invests only or largely in shares. This should work well over the long run — as long as you sit tight when markets are down. You’re protected against inflation, and are likely to end up with more money.

For more on this, read on.

QI set up my investment portfolio along the lines that you have recommended, holding three years spending in cash, and a mixture of conservative and growth investment funds (based on different time frames of use).

Since the beginning of this year, I have been drawing down and using the cash funds, given the decline in share and bond values. My investment funds are down between 6 and 15 per cent since the beginning of the year.

By the end of this year, I will have about two years of cash (term deposits etc.) on hand. Should I continue to spend the cash that I have on hand during next year and run it down further, rather than start drawing from the investment funds and realising losses?

I am guessing the reason for holding two to three years of cash is for the economic circumstances that we are in now.

AYou’re right.

The basic idea, if you are retired and gradually spending your savings, is to always draw your spending money from cash or a cash fund, which you replenish every now and then.

And starting with three years in cash gives you a buffer, so you’re not moving money out of a higher-risk fund — in effect selling shares and/or bonds — when the markets are down.

Let’s say you want to spend $1,000 of your cash every year.

In theory, you want to move $1,000 from high risk to medium risk, and $1,000 from medium to low risk, every year.

But when you think about it, it’s silly to move $1,000 into your medium-risk fund while at the same time moving $1,000 out of it. So you might as well just move $1,000 from the share fund directly to cash.

Generally, it’s a good idea to make that move once a year — say every November. But should you do that now, when share values have fallen?

Preferably not. Leave the high-risk fund as it is. How about your middle fund? If it has performed well, move the money from there. But at the moment it, too, is probably down. So leave it alone as well, and just keep taking your spending money from the cash fund.

In November next year, review the situation again. If shares are still down, leave that fund alone. But it’s highly likely your middle-risk fund will have recovered by then, so you can move the $1,000 from there to cash. If not, wait another year.

When the markets do turn back upwards — and your accounts grow — you can move several years’ worth of money to make up for the missing years.

This is why you’ve got money you don’t plan to spend for ten years or more in shares. That gives you a decade in which to recover from a market crash. And no crash has ever lasted that long.


  • One way to improve on this system is to invest in bond and share funds that give you the option of receiving interest (called coupons) and dividends, rather than reinvesting them. You can use that money to help replenish your cash fund without selling any shares or bonds — regardless of how the markets are performing.

    This option is not suitable for under 65s in KiwiSaver, but it’s good for retired people. SuperLife is the only KiwiSaver provider I know of that offers the option, but it’s worth asking others. Or you can use a non-KiwiSaver fund. InvestNow has a list here, although it may be outdated.

  • I suggest you check your funds in the Smart Investor tool on sorted.org.nz to make sure you’re not paying relatively high fees. The tool has separate KiwiSaver and non-KiwiSaver sections.

QI am 72 years of age and have just over $100,000 in KiwiSaver in a balanced account.

There is enough money in my term deposits to top up my superannuation for the next four to five years.

Should I be moving the money or part of it from KiwiSaver to a conservative account or withdrawing it and placing it somewhere else?

AYou sort of fit in with the set-up described above — with short term money in term deposits, classified as “cash”, and medium and longer-term money in a somewhat riskier investment.

I’m assuming you don’t want your ten-year-plus money to be in a share fund because you wouldn’t cope with seeing your balance fall a fair bit sometimes. That’s a pity, because in the long run you would almost certainly do better. But it’s your choice.

Here’s a plan for you: Work out how much you expect to spend each year, once your term deposits run out. About a year from now, transfer that amount to term deposits or a cash fund — unless your KiwiSaver account balance has been falling. If it has, stay put. Repeat the process each year, as explained above.

By the way, don’t use a conservative fund for your spending money. Those funds often hold lots of bonds. You want a fund that holds only cash. If your provider hasn’t got one, look for funds with “cash” in their name amongst the defensive funds in the Smart Investor tool on sorted.org.nz. Make sure to check that all or nearly all of the holdings are cash by clicking on Details under Mix.

Next week we’ll weigh up term deposits and cash funds.

QA cheque in a Christmas card was usually a much appreciated gift.

How can one make a financial gift to a friend or relative without first asking for their bank account number, which rather spoils the surprise?

AGive them cash — it’s prettier than a cheque. Or a book voucher or other voucher. I’ve always liked book vouchers, which oblige me to buy a book to enjoy, rather than depositing a cheque in the bank and — before I know it — it’s been spent on groceries.

QI was at someone’s place for dinner last Saturday and we were talking about internet scams. One guy said that he had heard that Mary Holm had been scammed for $150,000. I thought you should be aware of the rumour.

AThanks. I hadn’t heard that story, and I can assure you there’s no fire at all, despite the smoke.

Sure, my savings — in mainstream government-regulated share funds and the like — have lost value lately in the same way as everyone else’s. But I know they will recover, just as they have after every downturn since I started investing in the 1970s.

I’ve never been a victim of a scam — perhaps partly because I’ve been writing about warning signs for decades!

Gift Book Giveaway

Here’s a chance to win a copy of each of my two latest books, Rich Enough — A laid-back guide for every Kiwi, and A Richer You — How to make the most of your money, to give as Christmas gifts to family or friends, young or old. See here more information about the books.

To enter, write in 30 words or fewer who you would give the books to and why. Be funny, clever or moving. Email your entry to [email protected], with “Herald books” in the subject line, by midnight on Monday, November 21. Please include your mailing address. The five winning entries will be published in next week’s column.

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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.