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Navigating the Ebbs and Flows of KiwiSaver

How to get the most from your investment (and enjoy the ride!)

KiwiSaver is an easy, affordable way to save and invest for your future self. Over 3.1 million New Zealanders are KiwiSaver members currently, and most of us can benefit from joining if we haven’t already done so. But when we see our balances plummet, like in the first half of 2022, many of us are left wondering what we should do to manage the ups and downs.

The truth is market shifts are part and parcel of KiwiSaver, or any investments for that matter. Seeing your balance drop suddenly can be unnerving, but rest assured there are things you can do (or not do!) to navigate the ebbs and flows and get the most from your investment.

Set your course

Set your course by finding a fund that’s right for you. Finding the right fund for you is as much about your age and stage in life, as it is about your savings goals and tolerance for risk.

If you’re a KiwiSaver member chances are you’ve already set your course. You’ll see your balance go up and down but it’s important to not panic and jump ship, unless there’s a good reason to do so. 

Here are some good reasons for switching funds and resetting your course:

You’re enrolled in a Government appointed default fund, but you want to switch to a more stable fund or a fund that offers more growth potential.

Your situation has changed. For example, you’re nearing retirement and looking for a more stable fund because you’ll be using your KiwiSaver to help with everyday living costs. Or you’re planning to buy your first home within the next few months and looking to move your KiwiSaver balance into a cash fund.

You’ve found another fund with lower fees and the same level of risk.

• You’d like to explore ethical KiwiSaver funds (Socially Responsible Investing).

You’ve found a provider that offers its members better services and communications.

Your provider is making consistently below average returns over the long term.

There are hundreds of KiwiSaver funds available through different providers, and they fit into five main fund types with different levels of risk: Defensive, Conservative, Balanced, Growth and Aggressive. The more risk you take on, the more potential you have for better results, but your balance will have ups and downs along the way. 

There are also socially responsible options through providers that have frameworks in place to filter out investments that might be considered unethical – tobacco and fossil fuels for example. Socially responsible investing (SRI) or ethical investing will mean different things to different people, so consider what ‘ethical’ means to you personally, while bearing in mind that this is just one aspect to consider when choosing your fund. The fund you’re in also needs to be the right level of risk for you, charge appropriate fees, and help you meet your savings goals.

If you’re looking for positive results over the medium to long term, you can ride out the highs and lows as long as you’ve made an active choice in selecting a fund that’s right for you. While there are online platforms that help you find a suitable fund by entering basic information about yourself, it’s best to seek expert advice from a trusted Financial Adviser, like Blue Canoe. Choosing the right fund can be complex. Different tax rates, contribution percentages, fund types and market changes all play a significant part in your balance at retirement. So talking to a qualified Financial Adviser as early as possible will help to ensure your KiwiSaver is working for your unique situation and goals.

Go with the flow

When you’ve found the right fund, you can sit back and go with the flow. Just like houses, KiwiSaver investments increase and decrease in value, depending on what they’re worth on the market at any given time. So if your investment drops, it’s important to remember that you’re not losing actual money. It’s what we call a ‘paper loss’ and your investment is simply worth less at that time. 

If you sell your investments when the market has dropped or is dropping, then you’re locking in those losses. So if you don’t need the money for some time then the best thing to do is to wait for the markets to recover. Short term drops in the markets won’t have as much impact on your overall investment. 

No matter which fund you’re in, the main thing is that you are contributing as much and as regularly as you can.

Up your contributions during downturns

It seems counterintuitive to contribute more to KiwiSaver when your investment drops, but this is a smart time to up your contributions if you can afford to do so. Lower market prices mean assets become cheaper, so you can buy more. Making a one-off top-up or increasing your regular employee contributions at this time will result in a stronger investment when things start picking up again. 

Under the KiwiSaver scheme, you can choose to change your contribution rate every three months, unless your employer has agreed to a shorter time frame. To change your percentage, you need to notify your employer in writing or by completing a KiwiSaver deduction form (KS2) and giving it to your employer.

Don’t miss out on Government contributions

Each year, the New Zealand Government contributes a member tax credit of up to $521.43 for KiwiSaver members aged 18-64 (or older if you’ve been a KiwiSaver member for less than 5 years).

Missing out on KiwiSaver government contributions is like saying “no” to free money that will help your balance grow. So it’s worth contributing at least $20 a week or making an annual voluntary contribution of $1,043 to be eligible for the full credit each year!

Take five to read your KiwiSaver statements

Grab a cuppa and set aside five minutes to read your member statements and any newsletters that come from your fund provider. You’ll gain a better understanding of how your money is being invested and what your estimated balance will be when you’re ready to buy your first home or turn 65. Take note of what fees you’re paying and check you’re on the correct PIR tax rate.

Reading your KiwiSaver statements will equip you with the details you need to make more informed decisions about how to build more funds towards retirement or that first-home deposit.

Get advice from a trusted Financial Adviser

While KiwiSaver is an effective set-and-forget savings and investment method, it’s important to check your fund type and returns from time to time. A trusted Financial Adviser can make the process of finding the right fund for you easier, and will help keep you on track with reaching your money goals.

At Blue Canoe, we’ll help you consider how your KiwiSaver investment fits with your current financial situation, your values and what you want for your future. We offer advice on which investments may be best suited to meet your financial goals given your tolerance for risk and your motivations around ethical investing, and how to get the most from them. Our team has more than 35 years of experience working with clients of all ages and stages, providing expert, personalised financial advice.

We’d love to hear your money goals! Get in touch for a chat or to book a free consultation today.

Find us at Level 14, 22 Willeston Street, Wellington, 6011
Contact Hans: 027 230 1045
Contact Isaac: 027 339 0879
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