OPINION: With New Zealanders squatting at home, our savings rate is skyrocketing. Despite the economic turmoil and concern, it is a proven Covid phenomenon.
For those lacking in evening entertainment, reviewing your investments can be dry and boring, but it’s a satisfying box to tick.
Investing in different funds and with different managers – in addition to your KiwiSaver payments – poses a lot of questions. The most common is “why do I have to do this?” “, Followed closely by” who should I give my money to? “.
For many people, thinking beyond KiwiSaver is something they never considered.
Why might you need to think more broadly?
The easiest way to answer this question is to be honest about KiwiSaver. The only problem is that honesty doesn’t sell well.
Read KiwiSaver’s non-marketing guide and you’ll soon understand why expanding your horizons will be important:
I would like to retire earlier.
Sorry, you can’t. You will need to invest in funds outside of KiwiSaver to have this choice.
I’m worried about my health and maybe I should work less.
You can only access your savings if your state of health puts you in dire financial straits. Semi-retirement before age 65 is impossible.
I have saved well and can afford to help a member of my family.
Absolutely not until you turn 65.
I have all my money with one KiwiSaver manager and I am worried about the risk.
KiwiSaver is well regulated, like all retail funds. Your fund is the lifeblood of your life as an investor, so don’t worry about the risk of KiwiSaver itself.
But despite all the choices, you can only choose one manager. It comes down to choice without choice. This is the way the system was set up, but it is not academically sound.
Your building blocks need a certain depth and breadth to control volatility, avoid manager bias, style bias, and gain access to specialists in international markets and bonds. Diversification between funds, house style and active versus passive funds are important tools in any retirement plan.
I thought KiwiSaver was a one stop shop and that was all I needed to retire.
For some people, this will be the case (mainly low paid and part-time workers). Almost everyone should think of it as a great building block to add to other funds from different managers.
I’m saving for my first home and need my KiwiSaver money fast due to an auction.
Don’t buy at auction then.
I get a tax benefit from using KiwiSaver, right?
No. Other funds are taxed in the same way.
It’s tax free when I retire, isn’t it?
No, it’s taxable. There is nothing free. The wages you invest are taxed, just like your returns, like any investment.
All investments are blocked, right?
No, only KiwiSaver is locked. Other funds take about five days to arrive in your bank account and you can withdraw them at any time for any reason.
When I invest 3 percent of my salary, my employer doubles it. The government also gives me an annual bonus of $ 521.
Are there any additional benefits of investing more? No
So why would I invest more with my KiwiSaver manager?
No idea, but your KiwiSaver manager will be happy to accept all payments.
But aren’t the KiwiSaver fees cheaper?
Indeed, they can be, but not always. If you are currently investing with an active KiwiSaver manager (they sift through and research every stock or bond they buy), you can start a new investment with an index fund manager for diversification (they track a whole bunch of stocks in a clue).
Index funds are of great value. It’s good to have a mix of the two types and it’s a great first step in your building blocks.
As you can see, the crux of this “why?” Comes down to two things: lock-up and diversification. The market to choose from is wide, but by limiting yourself to KiwiSaver, you are choosing a home and sitting and looking out the windows for up to 65 years.
It sounds safe and secure, but living at level 4, you probably already have enough ideas about how this limits your freedoms and opportunities. Life changes, things happen, and it’s important to have a flexible investment pool, with your KiwiSaver account at the center.
It’s a shame that fund managers don’t think of marketing this idea as a Kiwi-flexi account to take additional voluntary contributions. Although it is perfectly possible to create it without their help, its promotion would attract many new investors.
Who should I give my money to?
Let’s be clear, I’m talking about investing with other fund managers who probably also run KiwiSaver but have regulated retail funds that invest in large holdings of stocks and bonds.
What I’m not talking about are alternative investments like cryptocurrency, unregulated investments advertised for wholesale investors with “expected” rates of return, real estate syndicates, finance companies, angel investments , crowdfunding or participation in individual actions with a Sharesies account.
here are a few tips
Step 1: Look for another well-known KiwiSaver manager and find the funds they offer without the KiwiSaver wrapper (so no restrictions).
Step 2: If you currently have an active fund, check out an index fund and vice versa. It’s as easy as a monthly direct loan.
Step 3: Once you have invested regularly in active and passive funds, consider adding an international fund or specific domestic funds like Australian, American, Asian or European funds.
Step 4: If you are taking step three, consider taking financial advice.
– Janine Starks is the author of www.moneytips.nz and can be contacted at [email protected] She is a financial commentator with expertise in banking, personal finance and fund management. Opinions are a personal point of view and general in nature. They do not constitute a recommendation for an individual to buy or sell a financial product. Readers should always seek specific independent financial advice tailored to their own circumstances.