KiwiSaver is the most significant investment many Kiwis will ever make. It’s often the defining factor in whether a deposit for a first home is possible or whether you can retire in comfort. Given KiwiSaver’s importance to your quality of life, it’s worth getting expert financial advice to ensure you’re getting the most out of the investment.
If you’re worrying about what the advice may cost – there’s good news! In New Zealand, there’s no additional cost to you when you engage a Financial Adviser; it’s covered under the fees charged by the KiwiSaver provider.
A Financial Adviser will help you make the three key KiwiSaver decisions:
- Choosing a KiwiSaver Provider and fund
- How much and how regularly you will contribute to your KiwiSaver
- When and how to review your KiwiSaver
Choosing the right KiwiSaver provider
While at a glance the providers may all look alike, there are some key differences. Some are a “fund of funds”, where they invest in other funds who then invest in the market. Others are direct investment funds, where they actively trade in the market. The first has less fees, the latter has more control over the fund’s investments.
Some providers have ethical funds, which avoid investing in industries such as weaponry, tobacco, and fossil fuels. Some funds go further, with a focus on investing in companies and industries that have a positive impact on people and the planet.
Then of course, there is the performance of each provider. While previous returns are not an accurate predictor of future returns, you do want to make sure the fund has a history of performing in line with the market. Remember, KiwiSaver is a long-term investment, so how a fund performs in the short term is not important. Instead, it’s about whether a fund has a proven performance over time and a ‘downside mitigation strategy’ for when the market is down.
A good Financial Adviser will talk you through all the above, then set you up with a provider that is right for you. Be aware, every time you switch providers there is an opportunity risk that the market could increase in value while your funds are in transit between providers.
Choosing the right KiwiSaver Funds
For the main part there are three types of funds: growth, conservative and balanced. Some providers like to confuse you by giving their funds different names!! Your Financial Adviser can translate for you. Generally, growth funds make more money over time but are volatile in the short term as the market fluctuates, with big returns and big drops. Conservative funds make less money over a long period but also have less risk. Balanced funds are a mixture of both growth and conservative investment.
Which fund, or combination of fund is right for you depends on your age and risk tolerance. If you are young and have many years of KiwiSaver ahead of you, you would likely benefit most from a growth fund. As you get older, your investment should become more conservative.
A Financial Adviser will talk to you about both your life stage and your risk tolerance. They will then help you identify the fund or funds that best suit you.
Navigating changes to your KiwiSaver
As indicated above, your KiwiSaver structure isn’t a static thing. Your fund choices should change a couple of times throughout your working life, or as your circumstances change. It’s important to get financial advice each time to ensure you are on the right track.
Your Financial Adviser will also help you navigate the process of getting access to the funds for your first home deposit; from helping you access any forms, to ensuring you change to a conservative fund when you have a letter of offer.
If you have young children, you may want to consider setting them up with KiwiSaver before their working life has even started. The idea of a retirement fund for a toddler sounds crazy but stay with us! Putting a bit of money aside for them in a fund now can teach them the benefits of compounding interest and the importance of saving, while giving them a head start in saving for that first home deposit. A Financial Adviser can help you get them set up; it’s up to you whether you want to pay regular contributions that will get them the government contribution each year, or if you want to contribute on an ad hoc basis.
We’re here to help you get the most out of your KiwiSaver
There are clear benefits to having a Financial Adviser spanning your KiwiSaver investment; from getting set up with a provider, through to retirement.
At Building on Basics, we focus on providing ongoing financial advice and support to our clients throughout their lifetime. If you would like advice on getting KiwiSaver for yourself or your child, or you would like a review of your current KiwiSaver, we’re here to help. Get in touch for expert financial advice that is specific to your circumstances.