kiwisaver, volatility

How Coronavirus could affect your first home dream?

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Jill MacDonald and her fiance were on the cusp of buying their first home. Then the stock markets fell due to fear and uncertainty caused by COVID-19 which mean they lost 12% of their KiwiSaver savings ( approx $10,000) leaving them short on funds for a mortgage deposit. They had to delay their plans for buying a house until their Kiwisaver funds recovered.

Coronavirus’ negative impact is not just being felt in the tourism industry, but also in the NZ housing market - especially by first-home buyers. 

Just like Jill, there are many others who’ve had to put their plans of purchasing a first home on hold due to a drop in their KiwiSaver accounts. Is it just COVID-19 to be blamed for this? No, not really.

In my previous article, I spoke about how epidemics in the past affected the global stock markets causing a fall in the short term. However, the markets eventually not only recovered but kept rising to a new high.

Jill and her fiance lost their opportunity to buy a home not just because of the pandemic affecting New Zealand’s economy but also based on their choice of fund. While a Growth fund is ideal for many kiwis, someone with a shorter-term horizon, such as a first home buyer needs to put additional thought into how they invest their KiwiSaver money. Investing all their money in a Growth KiwiSaver fund could be the wrong decision. 

A Growth fund usually has about 80% of the money invested in stocks, which means in the long term it can get you great returns, but in the short term, there will be ups and downs in the value of the fund. Normally, we advise clients saving towards retirement to just ignore these ups and downs (volatility). However for a first home buyer, this volatility could prove disastrous. Getting good financial advice could have been the difference for many a first home buyer, in buying now and having to delay their dream.

So is it too late for every first home buyer? No. We've had couples approach us on how best to navigate the situation from here onwards, and we've been able to help each of them based on their specific financial situation. 

Yes, the best time to get advice was three months back. But the next best time to get advice is now.

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