When KiwiSaver was introduced in 2007, employees and average folks were given the opportunity to strengthen their finances at an early age. KiwiSaver makes it a lot easier to save money securely for emergencies, or milestones such as buying your first house, getting a car, and even for your retirement.
Last year, the Financial Markets Authority or FMA reported that around 690,000 Kiwis were automatically enrolled in one of the default KiwiSaver schemes upon their employment. Most of these accounts are invested in a cash-based conservative fund, which will change to a balanced fund come July 1, 2021. Experts weigh in on the sudden shift saying that this might not end up well for some of the investors.
“People need to take note, engage with their KiwiSaver and check whether that balanced strategy is right for them because they may be better to remain in a conservative fund,” shared Milford Asset Management KiwiSaver Head Murray Harris.
Money in a default KiwiSaver means having limited contact with the default provider. This usually happens when you can’t decide on a provider, and you will be left with whatever choice your employer or the IRD makes. It will be difficult to monitor your account and reach out to an agent in case you want to take out funds or enquire on other concerns relating to your account.
There are five KiwiSaver funds you can choose from — Conservative, Growth, Defensive, Balanced, and Aggressive.
Each fund can help grow your finances one way or another. Depending on your situation, and how well you take changes in the market, one type will work accordingly for you in a span of time.
The recent Morningstar NZ KiwiSaver survey released the top-performing KiwiSaver funds in the last quarter of 2020. This includes:
Milford Conservative - 3.1%
Aon Russell Lifepoints Moderate - 4.9%
CareSaver Balanced - 8.1%
JUNO KiwiSaver Growth - 11.0%
SuperLife High Growth - 12.3%
Judging from the list, it can be inferred that Growth and Balanced funds did better than other KiwiSaver funds — bearing high profit despite the ebb and flow in the market.
This however, can change over time due to market developments and economic conditions, among others.
Selecting a balanced fund is not for everybody, especially if you're seeking immediate returns over a short period of time. This is often seen to be one’s stepping stone into investing. It focuses on stablising your investment, including balancing your risks, rather than increasing your money. A balanced fund would fall in between a conservative and growth fund mainly because it holds a 35% to 62.9% in growth assets like property and shares. It normally takes up to 12 years before you can take out your funds.
A KiwiSaver growth fund typically has 80% invested in stocks and 20% in stocks with up to 89.9% in growth assets such as property and shares (similar to a KiwiSaver balanced fund). This is ideal for holders who want to have higher returns over the long term without plans on switching to a lower-risk fund amid an apparent downturn in the market. If you’re planning towards or switching to a growth fund scheme, expect to withdraw funds for at least 10 years.
For investors who have a much stable income with low appetite for risk, you can opt for a KiwiSaver defensive fund which holds less than 10% in growth assets like cash and government bonds. Here, you can take out funds in only a few years from the date you started investing. By the term itself, it prevents your investment from going down in value.
A conservative fund is an investment strategy that invests your money in lower-risk securities like fixed income and money market securities to protect your investment portfolio. This is perfect for those who are nearing retirement or are currently retired.
If you’re a risk-taker by nature, you can invest in an aggressive fund that holds 90 to 100% in growth assets. It aims to bring you higher returns over the medium to long period through investment in equities, making it a better choice if you intend to keep your money in your account for at least 10 years.
The answer depends on your lifestyle and future plans.
First, you have to consider the amount of money required to achieve your goals. You can’t just start investing without knowing what your objectives are. Whether it’s for buying a new house or starting a business, deciding on the amount you need will help you budget your money.
Next is to set a time frame. Determine how long it will take for you to reach your goals. Give yourself ample time to save while also enjoying your money for needs and leisure. This is important especially for those KiwiSaver investors over 50 years old. If there is urgency in taking out your investment, a conservative fund might be the way to go — offering more stability in case the market goes down.
They say that investing is not for the faint hearted. When you decide to open a KiwiSaver fund or any investment for that matter, you should have the tolerance and capacity for the ups and downs of the market. Your attitude towards these changes can become a challenge for you, particularly if it's only your first time investing. So, it’s smart to know your threshold early on to avoid unnecessary stress while managing your KiwiSaver.
It takes more than resources to select the right KiwiSaver fund. You can rely on peer reviews and financial advisors to help you decide, but it’s always up to you to know which KiwiSaver type best fits your circumstances.
To learn more about the different KiwiSaver funds and providers in NZ, visit glimp and compare KiwiSaver plans according to your needs and preference.
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