North and South , 19 October 2016

There’s no time like now to kickstart your savings scheme.

So you think you’re too old to join KiwiSaver? Too young? Maybe you’re one of the 2.6 million New Zealanders who is enrolled in the scheme, but you’ve really not paid much attention to what fund you’re in or who’s looking after your money.

If you’re already contributing to KiwiSaver, you’re on the road to a more comfortable retirement – or a first-home subsidy – and maximising that financial success may be as simple as sitting down with a qualified investment adviser and personalising your portfolio to suit your age, life stage and aspirations.

If you’re among the 500,000 people in the three million-strong New Zealand workforce who haven’t signed up to KiwiSaver, you need that chat with an independent financial adviser more than anyone! It won’t cost you more than an hour of your time and – whether you’re 18 or 58 – the barriers that are keeping you from joining this simple, wealth-building savings scheme will quickly fall away.

Let’s look at that typical 18-year-old. Retirement seems light years away. Even saving for a house deposit or paying off a student loan hovers in a distant future. Saving for travel, a car and consumer goods is longterm thinking for most teenagers.

Matthew Jonas, 18, is a university student with a part-time job, a busy social life – and some financial planning advantage over his mates. With encouragement from his father, Craigs Investment Partners’ Head of Client Services Stephen Jonas, Matthew is enrolled in KiwiSaver and has learnt to budget for the three per cent of income he contributes to the scheme.

Starting young makes dollars and sense

Starting young makes dollars and sense

How best to save for your children’s tertiary education or their first home? Using Craigs Investment Partners’ mySTART service, *Mary has been investing $200 a month for her children, Tom and Charlotte, since Tom turned one. By the time Tom is 21 his investment will be worth over $100,000. If Mary were to delay investing until Tom turned 10, the investment when her son reached 21 would be less than half that amount.

The graph is based on a Craigs Investment Partners Balanced Portfolio, assuming an annual return of 6%. Contributions are $200 per month paid on the last day of each month. Returns are deemed to be before tax and fees. Returns have been rounded to the nearest dollar.

*Mary’s and her children’s names have been changed in order to maintain client privacy.

Stephen has seen other changes in his son since he began getting his KiwiSaver statements. “He’s become interested in investments and how they work.” KiwiSaver is easy to explain, adds Stephen. “I simply say, the more you put in, the better it will be at the end.” And you don’t have to be working in the financial sector to demonstrate to your children the impressive powers of compounding interest.The amount he invests from his wages isn’t much at the moment, but his fund will benefit exponentially from more than four decades of interest. Young savers like Matthew should also be looking at “growth” funds, which carry more risk than “balanced” and “conservative” portfolios, but offer higher potential returns over their long investment life-span. And as long as Matthew makes the annual contribution of $1042, he qualifies for those “free” KiwiSaver member tax credits – up to $521 per year.

Ideally, older generations should be teaching young people about financial literacy, says Jonas. Yet a reluctance to join KiwiSaver filters across all age
groups. In our fast-paced consumer society, sometimes people would rather upgrade the car or TV than invest their disposable income in a savings scheme; others, part-time workers especially, argue they simply can’t afford even the three per cent contribution (you can also nominate to put in four or eight per cent – with your employer required to contribute as well, at a minimum three per cent).

Jonas understands those barriers to joining KiwiSaver, but says they’re often based on misguided perceptions. “It’s true that a lot of people feel they can’t afford to be in an investment scheme, but it’s a false economy – you aren’t going to have a pleasant retirement lifestyle without it.”

Once you start a family and take on a mortgage, your financial priorities change. But this is also a prime time for saving and spreading your investments across different assets.

“Clearly, reducing mortgage debt is important, but it’s also rational to be growing your capital and diversifying your asset base,” says Jonas.

Once mortgages become more manageable, however, people in their 30s and 40s often look to capitalise further by buying cars and other high-value goods or renovating their homes, which further increases their exposure to residential property. And while property looks unassailable as an investment in the current market, it is by no means a risk-free option. “We always recommend investment diversification,” says Jonas.

By their 50s, many New Zealanders assume they’re too old to join KiwiSaver. A recent survey by Bauer Media for Craigs Investment Partners identified age as one of the key reasons older people had chosen not to join the scheme – they felt they were “too late to the party”.

Jonas argues the opposite. “Even if you’re in your 50s, don’t hesitate to join. You want to get every dollar you can before retiring.”

For someone in their 50s enrolling in KiwiSaver, the most important factor is choosing the right style of investment. Many will be defaulted into a conservative fund, says Jonas, but it may be worth taking on a bit of risk in your profile in the form of quality equities (shares). Over 20 years or more, even a small increase in return can make a significant difference. For example, a one per cent increase in an annual return on a $500,000 portfolio will add $5000
per year. Assuming it’s invested for 10 years then compounded, that accounts for more than an additional $52,000.

There’s also no need to withdraw from KiwiSaver when you retire, as schemes allow members to keep contributing or continue holding their funds. With the average life expectancy now in the 80s, Jonas says there’s also an argument for those over 60 to review the level of risk within their portfolios. “This is never more pressing than in periods of low interest rates – returns may not be enough to supplement national super, so a diversified portfolio may be needed.”

Whatever your age or income, to meet and discuss your investment needs and options with a qualified Craigs Investment Partners adviser, is free. They can help you create your own investment portfolio for KiwiSaver, to modify as your circumstances change.

This article was originally published in the November 2016 issue of North & South