Thousands of investors hit hard

The investments of many of the 380,000 people who have joined the KiwiSaver scheme have taken a battering with the dramatic slump in sharemarkets.

New Zealand and world sharemarkets have taken a dive in the past fortnight after falls in the United States.

Fears of a recession there and massive losses in US housing markets by big lenders have triggered waves of Americans bailing out of share investments.

New Zealand shares yesterday suffered their biggest one-day loss of $770 million.

In the past two weeks, about $4.5 billion has been knocked off New Zealand share values. Since October, about $8.5b has been lost from Kiwi shares.

The impact on KiwiSaver investors depends on how much of their money put into a fund of their choice is invested in shares and property, which are taking a hammering, and how much is in safe investments like fixed-interest investments, managers say.

KiwiSaver was launched six months ago, with more than 380,000 people so far having paid $300 million into 162 managed funds.

Financial adviser Chris Lee recommends everyone invest in low-risk KiwiSaver cash funds.

For people with limited time to save - those nearing retirement and young couples intending to use their funds as a deposit on a house - it was critical to stick to cash (short-term fixed-interest investments), he said.

"There is more red ink to come in the (sharemarkets) and if you think you lost 2 per cent in the last six months, start thinking about losing 12 per cent in the next six," he said.

But with tax rebates and employer contributions starting this year, share-based funds could compare favourably with any other investment, Lee said.

Offsetting any losses will be the $1000 kick-start the Government contributes to each person's savings scheme and the $1040 "tax credit" also contributed by the Government.

Philip Houghton-Brown, the chief investment officer of fund manager ING, said more than 100 years of records showed that in the longer term growth investments such as shares and property did a lot better than safe investments like fixed-interest investments.

It was "unlucky" that KiwiSaver had started in October as sharemarkets worldwide started to decline, he said.

- © Fairfax NZ News