Apr 8, 2016 12:41:26 PM

Investing in KiwiSaver when interest rates are low

Topics: Finance, Kiwisaver 0

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 With interest rates the lowest they’ve ever been in New Zealand, it’s a good time to take a closer look at how your KiwiSaver fund is performing. And to help you do just that, here’s how one savings expert is using Kiwi music to spice up his KiwiSaver seminars and make a huge difference to New Zealanders' financial wellbeing.

A more aggressive fund

There’s an extraordinary amount of money in low risk conservative and default KiwiSaver funds, according to investment adviser Jeff Matthews from Forsyth Barr. A default fund will yield around 20 per cent growth and 80 per cent in income assets.

$8.6 billion is in low-risk cash and bond-heavy default and conservative funds, mostly invested in cash and bonds, with 34.5 per cent invested in New Zealand cash and bonds, and 19.5 per cent in overseas interest-bearing investments.

With the official cash rate (OCR) at 2.25 per cent, these funds will deliver a period of lower returns than they have in recent years, while funds that are more heavily invested in strong dividend-paying companies and other growth investments, offer a much higher return over the longer term.

 

Choose your scheme provider

There are a number of KiwiSaver providers and some perform better than others. Investors in KiwiSaver should review their KiwiSaver regularly to ensure the fund they’ve chosen still meets expectations.

Consider moving providers or fund managers for a better return on investment; low interest rates and volatile share markets can uncover the differences in the skill of fund managers in a way that is often hidden in boom times.

 

A passion for music

David Boyle is a savings expert with the Commission for Financial Capability whose lessons and tips for workforces around the country are set to songs by Kiwi bands in order to get his message across.

Part of the commission’s “Fighting Fit” seminars, Boyle’s talks are designed to help people gain control of their finances through short presentations. The lessons are also available on the organisation’s “Sorted” website.

"It's all about using music as an analogy to get the key messages of KiwiSaver and investment principles across to people," Boyle says.

"Saving for your future is not a topic people wake up thinking about. It isn't particularly sexy, or exciting," he says.

Adopting the key messages will make a huge difference to New Zealanders’ financial wellbeing, says Boyle. Here are his KiwiSaver top five:

#1: Supergroove's Can't Get Enough

Each year in KiwiSaver the government contributes $521 in member tax credits so increase your contribution to ensure you don’t miss out. Who can’t get enough free money?

#2: Right First Time by Th' Dudes

Check you’re in the right fund as early as possible. Long-term investing growth funds may be riskier, but they’re likely to provide the best returns and build the largest nest eggs.

#3:  Maybe tomorrow by Golden Horse

Don’t put off getting down to some real saving, says Boyle. "Just because you join KiwiSaver, it doesn't mean you will get to where you need to go." Look at increasing your contribution rate now, rather than “maybe tomorrow”.

#4: One Black Friday by The Mockers

It’s not easy seeing your balance go down when things are not going as well as they should. Learn not to let black days on the share markets get you down, and remind yourself that you’re not retiring today so need to stick to your long-term plan.

#5: Wandering Eye by Fat Freddy's Drop

It’s easy to let your eye get caught by last year’s KiwiSaver returns and switch to the fund that did best back then. But Boyle warns it’s important not to chase last year’s returns as there are not an indication of future outcomes.

Choosing a fund

If you’re not sure what KiwiSaver fund is right for you, get in touch with me and let’s go over your options to ensure your fund is performing as it should while interest rates are low.