Let’s get right to the point: ignoring what your KiwiSaver fund is doing can mean you miss out on hundreds of thousands of dollars.
That’s right. We’re talking potentially six figures. That could make a pretty massive impact on your lifestyle.
If you’re under 40, you have the most to gain from your KiwiSaver account. You have time on your side – years of earning that can multiply your investment, and you hardly have to do anything (except contribute – we’ll get into that another time). For now, let’s look at how your choice of KiwiSaver scheme impacts your earnings.
First, what is a Kiwisaver scheme?
There are 30 KiwiSaver scheme providers – banks and investment companies – who invest your savings for you by pooling it with other KiwiSaver members’ money. Nine of these are “default” providers, with a conservative investment approach - if you didn’t actively select a provider when you started your account, the government chose one of these for you. Each of these providers offers multiple funds, so overall you have a minimum of 250 schemes to choose from.
How do you know which one to choose? Time to get down to the details. You’ve got money to make.
4 Things to Know to Get the Best KiwiSaver Scheme
Consider these four things when choosing your KiwiSaver scheme to make sure you get the right one for you.
1. Your goals
It’s about what’s important to you. It doesn’t matter if you are someone who plans every detail possible, fastidiously checking off to-do list, or if you just have a vague idea of where you want to be. Do you want a deposit for your first home? A cushy sum for retirement? You can even make the minimum contributions and see what happens - it’s your choice. But not having some sort of goal and a plan to get there will mean you miss out on major money while opportunity passes you by.
At BetterSaver we’ll help you identify your goals and show you what it is possible to achieve with a little foresight and planning.
2. Your acceptable risk levels
Your friend texts that they have an extra ticket. They won’t say for what. They just promise that you will have the time of your life if you go with them, right now. Do you leap at the chance to throw caution to the wind and gamble with adventure? Or do you decline because you’re not sure you’re guaranteed to get to work in the morning? Maybe you just need a little more information first….
There is no wrong answer – how much risk you take depends on what you’re comfortable with and what your end goal is. Likewise, the level of risk in your KiwiSaver fund. KiwiSaver funds are rated defensive, conservative, balanced, growth or aggressive. As you can probably guess by the wording, they go from low risk to high risk with a range of options somewhere in the middle. There’s no avoiding risk - that’s the nature of investing - but your acceptable risk level in combination with your goals have a lot of influence over which fund you should be in. You may find that over time you get more comfortable with the process and your acceptable level of risk changes.
It’s up to you what you can tolerate and what will ensure you meet your goals. That’s why it’s important to make sure you have guidance that takes into account your specific situation and puts your best interests first. We’ll save you time doing all the research and educate you on which funds best match your needs.
No one likes the word yet it’s an inevitable part of life. And they vary. It’s only in the last few years that KiwiSaver providers have been required to be open about their fees (seems like it should have been a pretty forthright requirement, but someone missed the call on that one).
It’s important to be aware of fees, mainly because they are deducted every year no matter how much money you contribute (or don’t) and how your funds perform (or underperform). So, if you open an account, and then don’t put money in… they’re still going to take the fees from you. Harsh reality so just be aware.
What are these fees for? There’s usually an administrative fee, which ranges from $0 to $50. Then there’s a management fee which usually ranges anywhere from 1.1% to 2% of your funds. And finally, there may be a performance fee where if your fund performs above the expected threshold, the manager gets paid a little extra.
Your returns after fees should make the fees insubstantial in the long run - you’ll want to know they are fair and reasonable, but they are not the most important factor. Just ask us, and we’ll make sure you have all of the information you need.
4. Your ethics
This is where it really gets personal - but don’t sweat, we’ll make it as easy as possible.
On top of financial matters, the right fund for you is a matter of ethics. What is your money supporting? Each one of us has our own moral compass and it’s up to you what you’re comfortable with. But you definitely need to be informed, because of what happened a few years ago and still occurs today.
In 2016, the NZ Herald revealed that KiwiSaver providers were investing millions of dollars in some pretty unsavoury assets. Munitions. Landmines. Nuclear weapons and tobacco. After exposing these dirty deeds, most providers moved away from those types of funds – but not all. Millions of dollars are still invested in animal testing, funding fossil fuel use, and human rights/environmental violations.
In 2019, the amount invested in companies involved in fossil fuel extraction and production was $1.15 billion.
So while you’re fastidiously avoiding plastic straws and experimenting with veganism, your KiwiSaver dollars could be supporting some sketchy stuff. We can make sure you know exactly what your money is going towards so you can rest easy knowing it’s in line with your ethics.
Start today to save better
Hopefully by now you’re convinced that it really matters which KiwiSaver scheme you are in. How much money you need, where it’s invested, and what it costs you overall are important matters.
Factoring in everything you need to know about KiwiSaver can seem daunting, but we do all the hard work for you. We want you to know where your money is going, and feel confident that you’ll meet your goals. At BetterSaver, we are here to guide you to the right fund for you – we’re free, independent, and want to see you save better.