Are You In The Right KiwiSaver Fund?

Tue July 25th 2017

How do you know whether you are in the right KiwiSaver scheme for you? In this article we look at the issues and the steps
When it comes to KiwiSaver schemes, most of us simply go with the one offered by our bank or the scheme that was assigned to us by the IRD.

When it comes to KiwiSaver schemes, most of us simply go with the one offered by our bank or the scheme that was assigned to us by the IRD. However, research suggests that nearly 50 percent of KiwiSaver funds are in conservative or moderate-risk funds, even though over 80 percent of KiwiSavers are 10 years or more from retirement and, therefore, one would expect to be more tolerant of higher risk and potentially higher return funds. So how do you know whether you are in the right KiwiSaver scheme for you? In this article we look at the issues and the steps you need to go through.

1. Assess your risk tolerance

The first step is to work out what kind of investor you are and what your level of risk tolerance is. There are plenty of online tools that will help you to identify the right type of fund from five broad categories: Defensive, Moderate, Balanced, Growth and Aggressive. All the fund types offer a mix of mix of cash, fixed interest, listed property and shares. The difference is the proportion in each. The Growth and Aggressive fund types tend to be higher risk, but potentially higher return, growth-oriented funds. A word of caution though. The online tools tend to be somewhat simplistic, often only asking five or six questions, which means that the assessments they make may not be the most accurate; however, they are helpful in giving you an indication of your risk profile.

2. Consider your overall portfolio

For some investors, KiwiSaver is only a small part of their overall wealth and for others it's a significant part. And so those investors that are depending more on their KiwiSaver are usually less inclined to take substantial risks than those that have lots of cash in the bank or other sources of wealth.

3. Take into account your life stage

What stage are you at in life and what do you need the KiwiSaver money for? These are important questions to ask yourself. If, for example, you want the funds to support a first home purchase then you are likely to have a far different risk profile to the investor that is already wealthy and is planning to use the money to enjoy life after retirement.

4. Finding the best fund: Ask the experts

Once you've been through steps one to three, you're in a much better position to identify a fund that suits your situation and tolerance to risk. Be wary though of making decisions purely on past performance as last year's top performing fund may well be this year's dud. It's the long-term trajectory that's important rather than short-term gains and losses.

There are many variables at play and it can be a confusing world for those not familiar with investments. That's why we encourage our clients to contact us. If you want to check whether your KiwiSaver fund is still the right choice for you, or you've done the research and are thinking of switching, maybe you haven't signed up for KiwiSaver and are thinking of doing so – whatever your situation is get in touch with us here at Cave Financial Consulting. We can support you through each of the steps we've outlined with advice and guidance on the best options for you.

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