Default funds: How much money have you been missing out on?

November 21, 2021

November 21, 2021

By Joe Taylor, founder and CEO at BetterSaver

You know that you really should do something about your KiwiSaver fund, but you never seem to get around to it.

Well, if you realise just what you have been missing out on by not sorting your KiwiSaver fund, it might give you the push you need to take action.

Especially if you’re one of the 381,000 Kiwis in a default fund who will see your money moved to another default fund on December 1.

So let’s get to it. Just what are you missing out on?

A 45-year-old that has been earning the average wage over the last 10 years could have left up to $26,000 on the table by not being in the right KiwiSaver Fund.*

Yep, you might have missed out on $26K. Shocked? Numbers don’t lie.

If you aren’t in the right fund now, that 45-year-old could be your future self. Every day that goes by that you’re still in the wrong fund means you’re missing out on money. Do you really want to be the person that leaves $26,000 behind? (Unless you’re as wealthy as a rapper who drops $24,000 NZD on dinner, we’re guessing not.)

The dirt on default funds

We’ve covered default funds in our last few articles. If you didn’t choose a KiwiSaver fund when you signed up, you were placed in a default fund. Essentially, they are there to get you started investing in KiwiSaver without any hassles. All you have to do is sign up, choose a contribution rate, and off you go. You can get started saving right away while you figure out what fund is the best choice for you.

Some people then don’t give their KiwiSaver a second thought. Or, they feel intimidated by making an investment choice.

Within default funds, there is only a small variation in performance. If our 45-year-old had been placed in the highest performing default fund, they would have gained an additional $2,600 over the last ten years. A nice sum, but it’s not exactly going to make a significant impact on retirement. Plus, default fund members have no control over whether they’re in the best default since they’re placed in them at random.

If we compare default funds to other fund types, like growth funds, it’s a different story.

The average KiwiSaver default fund has $9,500 less than the lowest-performing growth fund, and $26,000 less than the highest-performing growth fund

Here is where we see the real difference. Simply by choosing a growth fund from the start, our 45-year-old would have between 21% and 53% more money in their fund.

Have you been missing out on money because you’re in a default fund?

Default funds are changing

As of December 1, default funds are switching from conservative funds to balanced funds. If you are in a default fund, your money will be moved to a new balanced fund.

Balanced funds are higher risk so people invested in a default fund will likely see higher returns coming in. The government says that this change will mean that someone who joins KiwiSaver at age 18 and leaves their money in a default fund could be $150,000 better off at retirement age.

Overall it is a positive change, but you (and the NZ economy) could be even better off if you actively choose the best fund for you.

Having more Kiwis with a secure financial future benefits the country as a whole, as it means more money circulating which benefits the economy. Right now there is over $80 billion invested in KiwiSaver. This is projected to grow to $250 billion by 2030. It’s a significant amount of money that can help NZ’s infrastructure.

But it relies on people choosing a fund, especially the 10% of KiwiSaver members still sitting in a default fund.

The easiest way to choose a fund

There are over 180 KiwiSaver funds to choose from. It would take ages to research each one and choose the best fund for you. Many people put it in the too-hard basket.

That’s why the team at BetterSaver have come together. We are passionate in our belief that investing wisely in KiwiSaver should be easy for everyone. It’s the simplest way to get Kiwis to start saving money to benefit both their family’s and New Zealand’s future.

We assess KiwiSaver funds based on returns, fees, volatility, and ethics. We dig into the data to find out what is really happening in KiwiSaver funds. Then, we get to know you - your goals and timeline, lifestyle, and values - to match you up to the best fund.

The best part is it only takes about 5 minutes to take the Fund Finder Quiz and our algorithm will match you with a fund. Then we take it from there. We’ll set up your new KiwiSaver account and transfer your funds. And there are real humans here you can talk to at any time if you have any questions or concerns. Our team of financial advisers is here to help.

It really is that easy. In five minutes you could be on the path to earning more with your KiwiSaver fund.

Don’t leave money on the table. Make a choice to make a better future.

*Data based on a comparative analysis of the returns for the highest-performing growth fund and average default fund from 2011-2021, for a hypothetical person with the average New Zealand salary for their age.

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