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Risk: the four letter word that could be holding your investments back

March 30, 2021

It’s well known that by global standards, New Zealanders aren’t especially good savers.

older man at beach on nice day holding plant

Even if you are one of the few Kiwi with a good savings habit, or if you’re lucky enough to have money in the bank from a property sale or inheritance, that might not be enough for your retirement.

Once upon a time, keeping your savings in a savings account at the bank made sense. The risk was low and the returns were okay. Many New Zealanders can remember getting double digit returns from their savings accounts or term deposits.

These days, while the risk has remained low, the returns have taken a dive down there to join it. One year term deposit rates are hovering around one percent, and if you have money in an on-call bank account you’re probably earning next to nothing!

So why are so many people leaving money in the bank?

For many, the alternatives seem too risky – even if the returns over time are historically much better than what bank accounts offer. There’s some truth to that. Investing directly in the stock market requires existing knowledge or taking the time yourself to do the research, so isn’t for everyone.

How managed funds can help manage risk

One approach to manage risk and open the door to greater returns over time is a managed fund. In a nutshell, it means investing your money alongside others in a range of investments like company shares and government bonds. An experienced, professional team actively selects and manages hundreds of investments the fund invests in. So your risk and return opportunity is spread (or diversified) across many investments.

It’s like your KiwiSaver - except you don’t need to wait until you retire to access it.

You choose the risk you’re comfortable with

One fund doesn’t fit all. So when choosing one, you’ll need to assess the level of risk and return you’re looking for.

Generally speaking, the greater a fund’s allocation to shares, the greater the chance of your balance seeing some ups and downs, particularly in the short term. However, this also generally means greater long-term returns.

If you want an option that has less volatility and are happy with a potentially lower return over time, then a conservative fund may suit. And if you’re somewhere in the middle, consider a balanced fund.

Whichever fund you choose, your funds aren’t locked away – unlike a bank term deposit. Keep in mind, that a Managed Fund is an investment over the longer term, so if you withdraw at a time when your investment has dropped in value, then you’ve “locked in” any loss you might have made.

So I don’t have to worry about risk, right?

Wrong, sorry… any investment carries an element of risk. We’ve all seen share prices rise and fall. Rather than having all your eggs in one basket, using a managed fund to spread your investment across lots of different investments helps reduce that risk, though, especially in the long term.

Like any important financial decision, it pays to choose a provider you trust. At Kiwi Wealth we’re the largest New Zealand owned and operated KiwiSaver provider, with over 200,000 customers trusting us with their retirement savings and we manage over $7 billion worth of investments. We’re here for the long haul and are ultimately owned by NZ Post, ACC and the New Zealand Superannuation Fund – the same people who own Kiwibank.

Want to learn more?

Find out how you can wake up your money with a Kiwi Wealth Managed Fund or subscribe to our five part email series where we bust some of the myths around investing.

Tags: Investment Basics, Managed Funds

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