How to take your KiwiSaver savings to the next level

How to take your KiwiSaver savings to the next level
Photo credit: Getty

If you’re already a KiwiSaver member and making regular contributions, you’re off to a great start. But if you’re keen to really take your savings to the next level, then read on. The good news is you don’t have to be an investment guru to get your money working harder.

Milford KiwiSaver Adviser Ashley Brown says many people think of their KiwiSaver account as a savings fund. "That’s true, but it’s equally an investment fund."

Milford KiwiSaver Adviser Ashley Brown
Milford KiwiSaver Adviser Ashley Brown Photo credit: Milford Asset Management

“What may surprise you is that over your working life the investment returns your KiwiSaver provider delivers will likely become the biggest chunk of your balance at retirement,” she says.

In fact, your investment returns will generally add up to more than all the contributions you, your employer and the Government combined will make.

Investment returns will likely make up the bulk of your KiwiSaver balance.

This graph shows a hypothetical investment and is meant for illustrative purposes only. Past performance is not a guarantee of future performance. See graph assumptions below.
This graph shows a hypothetical investment and is meant for illustrative purposes only. Past performance is not a guarantee of future performance. See graph assumptions below. Photo credit: Milford Asset Management

“Another key thing to understand with investment returns is how even a small increase can significantly impact your account growth over time,” Brown says. “A little extra return, can go a long way.”

Believe it or not, earning just 1 percent more annually over a long period of time can add tens of thousands of dollars or more to your KiwiSaver savings at retirement.

“This is the power of compounding interest – when you earn investment returns on top of your previous investment returns.”

Brown suggests what you need to ask yourself is - are you in the right type of fund –conservative, balanced, or growth? And is your provider delivering good returns?

“Being in the right type of fund is crucial to your KiwiSaver success because different types of funds are designed to deliver different returns and risk,” she says. “For example, a growth fund sets out to generate better returns over the long term than a conservative fund. It does this by investing more of the fund in riskier assets like shares and property, and less of the fund in lower risk assets like cash and bonds.”

“If it’s a while before your retirement, say 10 years or more, if you’re not planning a first home withdrawal and you understand investments can go up and down, then it’s worth considering a growth-oriented fund. If you’re unsure which type of fund is right for you, most KiwiSaver providers have a risk profile tool on their website which can help you work this out,” she says.

“Once you’re in the right type of fund, it pays to compare the different KiwiSaver providers that are out there,” Brown says. “Some have delivered better returns than others.”

According to Morningstar’s March 2020 quarterly KiwiSaver Survey, Milford’s KiwiSaver Active Growth Fund has delivered the best returns in the growth fund category over the last ten years. Milford’s fund delivered 10.7% per annum compared to the growth fund category average of 8.0% per annum.

Brown says “Milford’s investment team is one of the largest and most globally-experienced in New Zealand. They carefully select companies to invest in while actively managing risk. Having this expertise applied to your savings could give you an edge toward reaching your financial goals.”

This article was created for Milford Asset Management

This is intended to provide general information only. It is not intended to be viewed as investment or financial advice. Before investing you may wish to seek independent financial advice. Past performance is not a guarantee of future performance. The disclosure statements of all Milford Financial Advisers contain more information and are available on request free of charge. Graph assumes 6% p.a. net investment return for a 35-year-old investor with a starting salary of $50,000, $0 starting KiwiSaver balance, 3% employer and employee contributions, no withdrawals, 2.5% p.a. salary growth.

 

 

 

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