Eating healthier, exercising more and saving more money are the most common New Year’s resolutions.
There’s not too much Kiwi Wealth can help you with on the first two, but helping you to keep to the third is right up their alley.
Joe Bishop, a Kiwi Wealth manager, says the start of 2019 is the perfect time for all KiwiSaver members to assess what is one of their biggest and most important assets, and to take positive action.
“KiwiSaver is an investment and, like any investment, people need to take a look at how it’s progressing and what changes they can make to get maximum value.
“Fortunately, some of the most important things KiwiSaver members can do don’t require a lot of time or effort, rather all it takes is a little bit of understanding.”
Here are Kiwi Wealth’s top five resolutions for KiwiSaver members:
1. Make sure you’re in the right fund for you
“This is a biggie and one of the most important choices members need to understand,” says Mr Bishop. “Being in the right fund for your age and stage in life means you are much more likely to achieve your retirement income goal.”
Default funds are definitely not where you want to be long term.
“These are simple, low-risk funds that act as a holding position while members assess a fund that’s right for them, be it conservative, balanced or growth. Given they are low risk, returns are – generally – commensurately lower than most other funds. Over time, that can equate to a lot of money an investor might miss out on having come retirement.
“As a general rule, younger KiwiSaver members should opt for growth funds, while those closer to retirement age might look to manage risk or volatility with more conservative options.”
2. Check your contribution rate
You may have had a pay rise, or the kids might have left home. You’ve got a little extra money in your pocket. Lifting your contribution rate is a good way to make sure you’re investing extra money for retirement.
Contribution rates currently are set at 3%, 4% or 8% of gross salary, with 6% and 10% options likely coming in April next year.
“Lifting how much you’re regularly investing can have a compounding effect,” says Mr Bishop. “If you’re able to lift contributions without causing hardship, it’s an effective way to reach a goal faster.”
3. Keep an eye on performance, and remember it’s a long game
As an investment, KiwiSaver can be subject to market trends – both up and down. For all the experts that say the financial sky is falling, there are those who say everything’s just fine. So who to believe?
“What’s most important is to not panic or make rash decisions. Investment managers are always looking to balance risk and maximise returns given the conditions.
“Ups and downs in the market can represent opportunities, so staying the course may deliver rewards in the long term.”
It’s a similar situation with fees. Research by superannuation industry specialist SuperRatings showed schemes that provided the highest net benefit outcomes for members were not necessarily those that charge the lowest fees.
“The key figure is your net return, how much your balance changed versus the fees paid,” says Mr Bishop. “In our view, cheaper doesn’t necessarily mean better, nor does an expensive fund mean you’ll necessarily get greater returns. Either way, expect your provider to make fees and returns clear and easy to understand.”
4. Have a retirement income goal in mind
“We all have an idea of what our retirement looks like – perhaps regular overseas trips, a move to the seaside, making sure all the bills are paid,” says Mr Bishop. “But many people don’t have an idea of what they need to do to achieve those goals and how to stay on track to get there.”
Goal-setting is the primary purpose of Kiwi Wealth’s Future You® tool, an intuitive tool for members to manage their KiwiSaver investment.
“Future You allows people to set a retirement income goal based on their total financial situation. It shows how decisions made today might affect things further down the track.
5. Don’t put all your eggs in one basket
Most Kiwis are unaware they are already well invested in the New Zealand market.
“Your house, your job, your bank deposits – these are already tied up in New Zealand-based investments, so considering where your KiwiSaver account is invested is important. Having it invested in international shares can provide some protection against major shocks to the domestic economy.
“This means you’re able to reduce risk by limiting investment exposure to a single market, as well as taking advantage of the opportunities available in massive global markets. For example, the New Zealand sharemarket represents just 0.2% of total OECD capitalisation.
Take a look at where your KiwiSaver scheme provider invests its funds, and understand the benefits of different investment approaches.
“There’s a whole world of opportunities out there and that’s what investors should want their KiwiSaver scheme provider looking out for, as well as those closer to home.”
* This is a re-post of an article sourced from Kiwi Wealth, one of dozens of KiwiSaver schemes. You can check the performance and assetg allocation of all KiwiSaver funds here.