KiwiSaver: the solution to a more balanced investment portfolio.
“Regularly reviewing the balance of your KiwiSaver account, and whether you have lost or gained money since you last checked may not the best way to determine if your particular scheme is working in your favour” writes Steve Doyle. “But, managed properly, it’s one of the best investments around.”
In New Zealand, now more than 50 per cent of the population is in KiwiSaver, with more than $33 billion invested. That compares to around $16 billion at the beginning of 2013, this has to be good for all of New Zealand.
New Zealanders have taken a few good steps down the path to self reliance through the introduction of KiwiSaver in 2007 and its subsequent uptake.
Recent reports point to around 2.6 million New Zealanders investing in a KiwiSaver scheme whether it be through a workplace introduction, a default provider or a financial adviser.
Unfortunately some members do not have a plan or goal for their future and scheme. Taking the time to understand and evaluate your future needs goes a long way towards making the right decisions. These may be as simple as working out what your target retirement income is; how will your KiwiSaver plan form part of this; what fund is right for your time frame and what is the risk of falling short of this goal.
Not having a plan may lead to uncertainty which could then turn into making a bad financial decision, such as switching funds at the wrong time. An example of this is an event like the British exit from the European Union which sent international markets into turmoil only to recover a few days later. Sometimes it is simply best just to stay calm and do nothing- let your fund manager do their job.
Also we should not be too discouraged by comparing our funds with those of a work colleague or partner as they most likely have a different goal than you- different funds will perform differently at different times. This is particularly important with a long term investment, which is what KiwiSaver is for many.
Unease may also be caused with online access to your KiwiSaver account balance. This is being encouraged by most scheme providers. The latest trends includes Apps being developed for Smartphones etc. . It concerns me that the visual cue can lead to unnecessary concern and scheme changes where they are generally not needed.
By choosing a more aggressive growth fund, young Kiwis can potentially make hundreds of thousands of dollars more over a working lifetime than those who choose or are placed into a conservative fund. Again it is about having a plan.
Australia makes an interesting comparison as they have had employer backed superannuation savings since the early 1990s. In 2016, despite some historic fluctuations in the local and global economy, the “Lucky Country” has still managed to save trillions in superannuation assets.
Back in New Zealand, now more than 50 per cent of the population is in KiwiSaver, with more than $33 billion invested. That compares to around $16 billion at the beginning of 2013, this has to be good for all of New Zealand.
It is also worth putting a bit of thought into the nuts and bolts surrounding your KiwiSaver account.
Make some simple checks, perhaps yearly, to ensure the correct KiwiSaver boxes are ticked and other parts of your investment strategy align with your superannuation efforts.
At Lifetime our advisers are also on hand for advice that goes beyond our clients keeping their necessary paperwork up to date.
We often notice that even a simple matter of choosing a correct tax bracket to suit your income is an area that is ignored or not updated. If you are in the wrong category, it may cause issues at a later date. For example, if you have changed jobs and your salary has slipped under $48,000 per annum you may be left on a higher tax rate than need be. Likewise if your salary has grown you need to make sure you are taxed at the correct rate. You should notify your scheme provider of any change or if unsure seek advice from a tax expert.
KiwiSaver members who are eligible don’t always realise that for each year they contribute at least $1,040 to the scheme, they will get a Government contribution of $520 – a Member Tax Credit. This is important for those over 18 years old, self-employed, or those who are perhaps working part-time.
At the start of KiwiSaver even the very young joining a scheme were given a $1,000 kick-start which helped provide a base value to build onto. Unfortunately that was removed with immediate effect at Budget 2015. There is now some debate around children joining as the fees may out way any returns received if only a small regular contribution is made. To offset this I now know of grandparents who have encouraged their grandchildren’s guardians to enrol them and then provided a kick start contribution which is a great way of helping out. Of course this does not have to be used for just retirement, but maybe helpful to use towards a home deposit at a future date
For those who continue to save, as we grow older the schemes we choose should be continually reviewed in line with our plan. It makes sense to protect what we have accumulated as we get closer to needing it. Therefore moving into less riskier assets, such as less equities and more fixed income, over time should be considered. Many scheme providers offer this process automatically which takes away a lot of the anxiety.
This is one of the best investments that can be made in a young New Zealander’s future.
Steve Doyle is a Financial Adviser and a Certified Financial Planner. His disclosure statement is available on request and is free of charge. The information in this article is general and is not personalised financial advice.
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