Funding your Future
By Fisher Funds
15 August, 2018
One of the most important decisions you can make about your KiwiSaver account is how your money is invested.
See KiwiSaver is not a savings account, it’s an investment. That means your money can be held in a range of different investments such as cash, fixed interest, property, and shares. You might see these investment categories called asset classes or sectors. No matter what you call them, the blend of assets your money is invested in, will have a direct influence on the how much money you will have for your retirement.
Investments (aka assets) generally fall into one of two categories;
- Growth Assets; property, infrastructure and shares
- Income Assets; cash and fixed interest investments
Choosing the right fund
It’s not surprising you might not be in the most appropriate fund for you - especially if it’s your first investment, as choosing a fund can be daunting.
To put it simply, the mix of investments (or assets) you choose for your KiwiSaver, should align with;
- Your investing timeframe
- Your risk appetite
- Your goals
If your KiwiSaver account is invested too conservatively you could potentially be missing out on thousands of dollars in retirement.
The idea of risk versus return is a commonly referred to principle of investing. The more risk you take, the higher your potential returns may be in the long term. This can also mean there is an increased chance of suffering an investment loss in the short-term. The longer your investment timeframe, the more risk you may be comfortable taking. This could mean an investment strategy that consists of more growth assets, such as shares. We think growth assets are important, as most KiwiSaver members have a long time to save for their retirement. Historically, investing in growth assets has produced better long-term returns than investing in other asset classes.
Another reason that being invested too conservatively could mean you are missing out on thousands of dollars, is compounding interest. This is where you not only earn money on what you have saved but also on your investment earnings along the way. Even a small increase in the average annual return on your savings makes a significant difference to the value of those savings when
When being invested conservatively can be the right option
A more conservative investment approach can be the right choice in certain situations. Because income assets such as cash and fixed interest typically produce more stable returns in the short term. It could be the right choice if you;
- are nearing retirement
- saving for a first home
- using KiwiSaver post-retirement.
Need to review your KiwiSaver choice?
If you are not sure if your KiwiSaver account is invested the right way for you, get in touch and one of our team can talk you through this with you.