Make the most of your KiwiSaver
When you join KiwiSaver, you need to choose what type of investment fund you’d like your savings to be invested into. Most KiwiSaver providers offer a choice of funds, each of which invests your money slightly differently. If you don’t choose an investment fund, your savings will likely be invested in your provider’s conservative fund option, which may or may not be right for you.
Along with the amount that you contribute to your KiwiSaver account, your choice of investment fund can be one of the most important factors that will have a bearing on whether or not you achieve your savings goals. You should also be aware that the returns of KiwiSaver funds can vary over time and in some cases, could be negative. Understanding how KiwiSaver funds behave and why, can help you choose a fund that’s right for you.
Funds have different characteristics
Most KiwiSaver scheme providers offer a range of funds with different characteristics. The characteristics of each fund are determined by the mix of investments which the fund invests in. As with most investments, the most important thing to understand is risk and return.
Generally, ‘growth’ investments such as company shares, listed property securities, and commodities can generate higher returns over the long term. However, they also come with additional risk. These investments tend to experience greater fluctuations in value, or increased volatility and you’re more likely to receive low or negative returns during periods of market stress.
On the other hand, ‘income’ investments such as cash and fixed interest (or bonds) generate lower returns over the long term. They are less risky than growth investments and tend to experience less volatility, thereby reducing the likelihood of negative returns.
The all-important risk and return trade-off
If your goal is to achieve higher investment returns over the long term and you’re willing and able to accept a higher level of risk to achieve this, you should consider a fund that invests more of your money in growth investments. If you want lower risk and you’re happy to accept a modest long-term investment return, then you may prefer a fund that will invest more of your money in income investments.
How much risk are you able to take?
Have a think about how long you have until you’ll need to use your KiwiSaver savings. If you have more time on your side, you can generally afford to take some investment risk. With time comes the ability to recoup any short-term setbacks which investment markets can go through now and again. But if you are close to making a withdrawal for retirement or, to buying your first home, and so you don’t have time on your side, you’ll probably want to take less risk with your investments.
A closer look at KiwiSaver fees
KiwiSaver schemes generally charge a member fee as well as management fees, the latter varying per fund depending on the complexity of that fund. While the member fee is a fixed amount that is charged per month or per year, a management fee is calculated as a percentage of your savings. This fee is deducted from your investment returns.
Typically, funds that have a greater allocation to growth assets (such as shares) will have higher fees than funds with a greater allocation to income assets (such as bonds). This is because shares are generally more expensive to manage than bonds.
Despite the higher fees associated with funds that have greater allocations to growth assets, these funds could be worth investing in as their net returns (after fees) are expected to be higher over the long term. These funds do however tend to go up and down in value more than funds with a greater allocation to income assets.
Don’t worry - help is at hand
There’s plenty of information to help you make informed decisions about your choice of KiwiSaver fund. If you’re not a BNZ KiwiSaver Scheme member, talk to your scheme provider, as most of them will give you access to tools which will consider your responses to many of the factors above before recommending a fund that may be appropriate for you.
Most providers should also be able to refer you to an Authorised Financial Adviser, who’ll be able to offer you personalised advice, specific to your situation. Either way, don’t be afraid to ask questions of your provider – they’re there to help.
Invest in a better future
Join the BNZ KiwiSaver Scheme and start building your retirement nest egg or saving for your first home. Plus, enjoy great benefits when you become a member.
BNZ Investment Services Limited, a wholly owned subsidiary of Bank of New Zealand (‘BNZ’), is the issuer and manager of the BNZ KiwiSaver Scheme. A copy of the BNZ KiwiSaver Scheme Product Disclosure Statement is available on bnz.co.nz. Investments made in the BNZ KiwiSaver Scheme do not represent deposits or other liabilities of BNZ or any other member of the National Australia Bank Limited group, and are subject to investment risk, including possible delays in repayment and loss of income and principal invested. None of BNZ or any other member of the National Australia Bank Limited group, the Supervisor, and any other director of any of them, the Crown or any other person guarantees (either fully or in part) the performance or returns of BNZ KiwiSaver Scheme or the repayment of capital.
This publication is solely for information purposes and is only for BNZ KiwiSaver Scheme members who are New Zealand residents. None of the matters in this publication are personalised financial advice. We recommend that you seek financial advice specific to your personal situation and goals from an Authorised Financial Adviser. No representation or warranty is made as to the accuracy, reliability or completeness of any statement made in this publication. Neither BNZ nor any person involved in the preparation of this publication accepts any liability for any loss or damage arising out of the use of, or reliance on, all or any part of this publication. The information and recommendations are the personal views of the author and do not necessarily reflect the views of BNZ.