While some people might feel that their money is better under the mattress than invested in markets, you can’t stash your KiwiSaver balance under the bed. However, that doesn’t stop some people from treating it in the same way – out of sight, out of mind, but it really doesn’t pay to treat your KiwiSaver account like a stash of cash that can be tucked away and forgotten about.
Taking the name at face value, many people think of KiwiSaver like a savings account with a minimal rate of return. In reality, KiwiSaver is an investment – and as with any investment, your KiwiSaver fund balance can go up over time, but there’s also a risk that it can drop too, it all depends on the type of fund your KiwiSaver account is invested in, and what’s happening in investment markets.
So, if you’re a complete newbie to the concept of investing, and all this talk of ‘rates of return’ and ‘funds’ is like a foreign language to you, now is a good time to head on over to our free guide: Getting your KiwiSaver account sussed in 5 easy steps. In section 3, we explain the fundamentals of investing for KiwiSaver members, so you brush up on the basics really easily.
How much your KiwiSaver account is likely to rise or fall varies depending on the type of fund it’s invested in, so it’s really important to know what fund type you’ve chosen (or were defaulted to when you first signed up).
Recent research from Horizon1 indicates that more than one in four people (27%) don’t know what type of fund they are invested in. And interestingly, many are more conservatively invested than they think. This may be fine if a conservative approach is right for you, but this does mean that some investors are not tapping into the full growth potential of their KiwiSaver money.
And it’s easy to fall victim to ‘setting and forgetting’ your KiwiSaver account. As an investment, and not a savings account, it’s important to review your fund type at least once a year, to ensure your investment is still in sync with your goals and life stage.
So which fund is right for you?
Well, it depends on your tolerance for risk and how long you’ve got before you need to access your KiwiSaver money.
KiwiSaver funds are categorised by risk level, so understanding your risk tolerance will help you select an investment fund that you are comfortable investing your KiwiSaver money in for your intended timeframe.
For example, funds with lower levels of risk contain investments with greater stability, such as cash and short-term bonds. Your balance might not grow fast, but it’s less likely to shrink as well. The goal of this type of fund is stability and consistency of returns.
The higher risk funds include more shares. The goal is greater growth over the long-term, but the trade-off is volatility: your balance can fluctuate sharply up or down. Can you stomach those roller coaster bumps while keeping the long goal in mind? Or will you jump off at the worst possible time?
If you don’t need your KiwiSaver money for many years, you may choose the higher-risk fund types, riding with the ups and downs and potentially earning higher returns over time. But if you need to withdraw your KiwiSaver money soon, then more stable, lower risk funds may be more appropriate, so you reduce the risk of reducing your KiwiSaver balance before you need it.
We know life gets busy, but it only takes a few minutes to check your KiwiSaver account. Grab a statement from your KiwiSaver provider (or go online if they offer this option) and look at the type of fund you’re in. Then consider if it’s still right for you. If not, it should be easy to switch to a more appropriate fund. If it’s not easy to make a simple change like this with your current provider, then perhaps it’s time to switch to a KiwiSaver provider who does make it easy?
Download our free, easy-to-read guide to get to grips with the basics of KiwiSaver investing so you can make more informed decisions about your KiwiSaver investment.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any investment decisions.
No one guarantees the return of your KiwiSaver contributions or earnings on those contributions.
Kiwi Wealth Limited is the issuer and manager of the Kiwi Wealth KiwiSaver Scheme.
Horizon Research (2016). KiwiSaver. Kingsland, Auckland: Horizon Research Limited.