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Am I in the Right KiwiSaver Fund?

This is a commonly asked question of financial advisers especially when KiwiSaver investors are in a group default scheme. It is always a bit difficult to answer at the time, given that the first thing an adviser is supposed to do is provide the person with a disclosure statement, before even attempting to answer the question. It is all a bit unusual given that journalists, teachers, and members of parliament can legally answer the question yet the clear majority of them have no qualifications or expertise to do so.

In a column, such as this, we are not providing personal advice, instead it is referred to as a class advice. The essential difference is that this will be general and does not specifically apply to your individual situation.

Choosing the right KiwiSaver fund to invest in, is not as straight forward as to choosing what bank to use, where the services, interest rates etc. are invariably similar. What is the “right KiwiSaver Fund” for you may not be the right one for your friend. KiwiSaver for most KiwiSaver members is a long-term investment that you cannot access until you reach the age of sixty-five.

It is a different situation if you are wanting to use the proceeds towards the purchase of your first home. As this would generally be a relatively short term investment while accumulating your deposit for a home, a low risk investment strategy would probably be appropriate. The choice then would be which conservative fund to invest in. Given that investment returns would probably be low given the type of investments used, funds with low total fees should be considered.

One of the unusual aspects with KiwiSaver is that default funds are conservative, yet most investors have a long-term investment horizon. Around 40% of members are in conservative funds. Possibly as much as 80% of these investors are in funds that are too conservative for their investment needs.

For investors with a risk profile of Balanced or greater, the choice of funds to invest in is very important. Some investors prefer a passive investment approach using index funds. These should be low cost. They can only achieve below market returns on an after fees basis. If you are happy with being in this situation, then keep your investments with them. But remember this could be a costly mistake.

This then leaves our favoured situation. Our general advice is to invest in an actively managed KiwiSaver fund, using a fund that has a range of very good underlying managers across the various asset classes. This narrows the choice of which fund to invest in considerably.

And for a few words of warning. The FMA (Financial Markets Authority) has received numerous complaints about investors switching KiwiSaver provider. Most of this relates to over-zealous cross selling, by people who are on sales incentives from their employer, or some advisers who are being incentivised to have their clients switch provider.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Whakatane based Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.