Choosing a KiwiSaver fund that’s right for you
When you join a KiwiSaver scheme, you need to choose what type of investment fund you’d like your savings to be invested into.
Most KiwiSaver scheme providers offer a choice of funds, each of which can invest your money slightly differently. If you are automatically enrolled in KiwiSaver when you start a new job, and don’t choose an investment fund, your savings will be invested in your provider’s default fund option, which may or may not be right for you.
Along with the amount that you contribute to your KiwiSaver account, your choice of investment fund can be one of the most important factors that will have a bearing on whether or not you achieve your savings goals. You should also be aware that the returns of KiwiSaver funds can vary over time and in some cases, could be negative. Understanding how KiwiSaver funds behave and why, can help you choose a fund that’s right for you.
Funds have different characteristics
Most KiwiSaver scheme providers offer a range of funds with different characteristics. The characteristics of each fund are determined by the mix of investments. As with many investments, the most important thing to understand is risk and return.
Generally, ‘growth’ investments such as company shares, listed property securities and commodities, can generate higher returns over the long term. However, they also come with additional risk. These investments tend to experience greater fluctuations in value, or increased volatility, and you’re more likely to receive low or negative returns during periods of market stress.
On the other hand, ‘income’ investments such as cash and fixed interest (or bonds) generate lower returns over the long term. They are less risky than growth investments and tend to experience less volatility, thereby reducing the likelihood of negative returns.
The all-important risk and return trade-off
If your goal is to achieve higher investment returns over the long term, and you’re willing and able to accept a higher level of risk to achieve this, you should consider a fund that invests more of your money in growth investments. If you want lower risk and you’re happy to accept a modest long-term investment return, then you may prefer a fund that will invest more of your money in income investments.
How much risk to take
Have a think about how long you have until you’ll need to use your KiwiSaver savings. If you have more time on your side, you can generally afford to take more investment risk. With time comes the ability to recoup any short-term setbacks which investment markets can go through now and again. But if you are close to making a withdrawal for retirement or buying your first home, and so you don’t have time on your side, you’ll probably want to take less risk with your investments.
A closer look at KiwiSaver fees
KiwiSaver schemes generally charge a management fee, and some can charge a member fee as well. Management fees can vary between funds depending on the complexity of each fund. While the member fee is a fixed amount that is charged per month or per year, a management fee is calculated as a percentage of your savings. The management fee is deducted from your investment returns.
Typically, funds that have a greater allocation to growth investments (such as shares) will have higher management fees than funds with a greater allocation to income investments (such as bonds). This is because shares are generally more expensive to manage than bonds.
Despite the higher fees associated with funds that have greater allocations to growth investments, these funds could be worth investing in as their net returns (after fees) are expected to be higher over the longer term. These funds do however tend to go up and down in value more than funds with a greater allocation to income investments.
Help when you need it
There’s plenty of information to help you make informed decisions about your choice of KiwiSaver fund. Most KiwiSaver scheme providers have access to tools that consider your responses to many factors, before recommending a fund that may be right for you.
Along with the amount that you contribute to your KiwiSaver account, your choice of investment fund can be one of the most important factors that will have a bearing on whether or not you achieve your savings goals. You should also be aware that the returns of KiwiSaver funds can vary over time and in some cases, could be negative. Understanding how KiwiSaver funds behave and why, can help you choose a fund that’s right for you.
Funds have different characteristics
Most KiwiSaver scheme providers offer a range of funds with different characteristics. The characteristics of each fund are determined by the mix of investments. As with many investments, the most important thing to understand is risk and return.
Generally, ‘growth’ investments such as company shares, listed property securities and commodities, can generate higher returns over the long term. However, they also come with additional risk. These investments tend to experience greater fluctuations in value, or increased volatility, and you’re more likely to receive low or negative returns during periods of market stress.
On the other hand, ‘income’ investments such as cash and fixed interest (or bonds) generate lower returns over the long term. They are less risky than growth investments and tend to experience less volatility, thereby reducing the likelihood of negative returns.
The all-important risk and return trade-off
If your goal is to achieve higher investment returns over the long term, and you’re willing and able to accept a higher level of risk to achieve this, you should consider a fund that invests more of your money in growth investments. If you want lower risk and you’re happy to accept a modest long-term investment return, then you may prefer a fund that will invest more of your money in income investments.
How much risk to take
Have a think about how long you have until you’ll need to use your KiwiSaver savings. If you have more time on your side, you can generally afford to take more investment risk. With time comes the ability to recoup any short-term setbacks which investment markets can go through now and again. But if you are close to making a withdrawal for retirement or buying your first home, and so you don’t have time on your side, you’ll probably want to take less risk with your investments.
A closer look at KiwiSaver fees
KiwiSaver schemes generally charge a management fee, and some can charge a member fee as well. Management fees can vary between funds depending on the complexity of each fund. While the member fee is a fixed amount that is charged per month or per year, a management fee is calculated as a percentage of your savings. The management fee is deducted from your investment returns.
Typically, funds that have a greater allocation to growth investments (such as shares) will have higher management fees than funds with a greater allocation to income investments (such as bonds). This is because shares are generally more expensive to manage than bonds.
Despite the higher fees associated with funds that have greater allocations to growth investments, these funds could be worth investing in as their net returns (after fees) are expected to be higher over the longer term. These funds do however tend to go up and down in value more than funds with a greater allocation to income investments.
Help when you need it
There’s plenty of information to help you make informed decisions about your choice of KiwiSaver fund. Most KiwiSaver scheme providers have access to tools that consider your responses to many factors, before recommending a fund that may be right for you.
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