Tag Archives | Kiwisaver

Playing safe might hurt in the future

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Tom Hartmann, resident blogger at sorted.org.nz , recently posted about comparative risks in investment decisions. Specifically he looked at the classic ‘now risk’ vs ‘later risk’, or how “taking greater risks now means reducing them later, and vice versa: taking too small a risk now means it will loom larger down the line.”

With KiwiSaver, fund managers present these risks in different investment profiles from which the investor can choose to suit his or her preference. So growth assets like shares and property typically have greater returns in the long run but tend to have more volatility along the way than income assets like bonds or cash.

But for many investors the greater ‘now risk’ in the short term is outweighed by the ‘later risk’ of not having enough to reach their investment goals.

As Hartmann concludes: “Most of us have an allergy to risk – we naturally tend to put it off for the future. Somehow we need to overcome that.”

A discussion with us about your investment goals and our recommendations on how best to achieve them is a good place to start.

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Check your Kiwisaver Fees

When it comes to KiwiSaver management fees, as with most things in life,
it pays to check the small print.

A recent report by global research firm, Morningstar has revealed a “huge variance” in what providers are charging to manage the retirement savings of millions of New Zealanders. Moreover, the report shows that higher costs do not always translate into better returns.

New quarterly reporting rules were introduced earlier this year forcing providers to report their costs in a comparable way.

Morningstar found costs for conservative funds averaged 0.72 per cent of funds under management, and ranged from 0.38 per cent to 1.05 per cent.

In comparison, costs for balanced funds averaged 0.97 per cent but funds ranged from 0.61 to 1.29 per cent, while the average for funds in the growth category was 1.12 per cent ranging from 0.66 per cent to 1.99 per cent.

Figures are calculated by adding together the management fees and additional expenses such as trading fees, legal fees, auditor fees and other operational expenses and dividing it by the total amount of money managed in the fund. The annual member fee is not included in these costs.

Are you paying too much? Read the full report here.

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Do you know what type of Kiwisaver you are in?

CaptureEvery New Zealander under retirement age should be a part of this scheme and now over 2.1 million Kiwis are. There are a number of great benefits to being involved in Kiwisaver that mean it makes sense for most people. Both employers and the government contribute or provide tax breaks in addition to your own money saved. It gives New Zealanders exposure to productive asset classes outside of term deposits and residential property which generally make up a disproportionate slice of their net wealth.

So it was disturbing to read that, according to a survey done by ANZ Bank, a third of Kiwisavers do not know what type of fund they are invested in. This means that they do not know whether they are invested in a conservative, balanced or growth fund. So a retiree could be riding the waves of a growth portfolio whilst a recent graduate could have all their saving in fixed interest and cash. In addition to this the default funds are generally very conservative and so investors, and the country in general, will be missing out on long term retirement investment return which could make a huge difference to the standard of living of retirees in the future. A much better approach would be to have the default approach being based on the age of the investor (younger = aggressive, older = conservative) so that the risk and the returns will be more appropriate rather than all conservative. This approach was unfortunately recently rejected in a review of Kiwisaver so we are back to default being very conservative. This means investors need to be proactive about ensuring they are in an appropriate type of kiwisaver for their situation.

If this raises any questions for you regarding Kiwisaver or the scheme you are in then please get in touch via  our contact page as we can provide some advice in this area if need be.


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