My Account
As another financial year ticks over it may be time to take a look at your KiwiSaver returns, or lack thereof, and make some improvements.
Studies still show that approximately 80 percent of us don’t know what’s going on with our KiwiSaver and have never asked for advice on it. I’m going to share with you four important tips for improving the overall performance and satisfaction of your fund. As always, I would recommend using a professional but if you’re set on being a DIY Kiwi, then here are a few things you ought to know.
Choose a provider with proper motivation to achieve great results for you. KiwiSaver specialists do a better job with your money and your custom often means more to them as an organisation. Ask yourself – if you had important heart problems would you see the GP or the cardiologist? Choose your provider wisely.
Diversify your money widely. This is especially true if KiwiSaver is your main or only vehicle for retirement. We all want high returns but keeping the money safe is at least as important so choose a fund with wide spread diversification if you can. International diversification is my personal preference.
Choose an appropriate fund type for your timeframes and risk tolerance. According to Morningstar’s independent reporting on KiwiSaver funds, in the 2017 calendar year the highest return recorded by a default fund was 7.3 percent, after fees and before tax. Compare that to the 23.9 percent recorded by Generate’s focused growth fund and you may be a little disappointed with your returns. For clarification, Generates focused growth fund is suitable for investment timeframes of 10 years or more but if that’s you, then it could be worth considering. Either way, select a fund that is suited to your situation and your returns could be much higher than they are now.
Don’t forget the taxes. Just like the cost of fuel (argh!), KiwiSaver returns are subject to taxes and there are a few ways to minimise them. Use the lowest assessable income in either of the last two financial years to set this year’s Prescribed Investor Rate (PIR). This is the base tax rate you’ll pay on any KiwiSaver returns. Currently set at 10.5 percent, 17.5 percent and 28 percent, the saving can be huge if you find yourself eligible for one of the lower rates.
Some investments are also structured to further reduce taxes by taking advantage of a capital gains exemption within Portfolio Investment Entities, which most KiwiSaver funds are. It’s not the easiest evaluation to make, but investments with shares and property holdings are likely to cost you less in tax than a fixed interest bond or term deposit. My own fund estimates an effective tax rate of 5 percent down from 28 percent, so it’s gold in my opinion.
Well that’s my two cents for this month. Drop me an email if you have any questions and keep an eye out for your KiwiSaver statements in your inbox this month.
The opinions and information expressed above are not a financial recommendation. Contact a financial adviser for written recommendations that are suited to your personal situation.
