INSIGHTS BLOG

SMALL CHANGE COULD GIVE BIG RETURNS

Craigs Investment Partners, 4 April 2019

With KiwiSaver now offering more contribution options, it’s a good time to review your investment. We look at two simple ways to increase your investment, and the significant difference it could make later on.

1. Increase your KiwiSaver contribution

Where KiwiSaver previously offered contribution rates of 3%, 4% or 8%, the government has recently added 6% and even 10%. By increasing your contribution to KiwiSaver by just a small amount, the difference by retirement can be huge^. With only 37%^^ of Kiwis confident they’ll have enough for retirement, this is a way to help prepare.

Here’s how a small contribution increase can stack up by retirement

KiwiSaver bar graph

Investing the minimum of 3% in KiwiSaver is a no-brainer for most people – your employer generally matches your contributions, and along with the annual member tax credit for those eligible, that’s all ‘free money’.

If you can afford to invest a little more by upping your contribution rate, you should be rewarded with a much healthier investment by the time you reach retirement^. It will mean however, that a great amount of your savings will not be accessed ahead of retirement (safe for those who are tempted to spend it early). If you can afford to have your money locked away like this, it’s a great way to force savings and let compounding interest take flight.

If you prefer to have more control over what you’re investing in, there’s the option to create your own KiwiSaver investment. You can complement your KiwiSaver investment with individual shares of your choosing. Say you’re interested in the infrastructure and tech industries, or want to support local, ethical companies. You can tailor your investment to include specifics like these, which still line up with the level of risk you’re comfortable with. The difference is you have the freedom to choose exactly where it’s invested.

Craigs Investment Partners offers a self-select service, where you have the choice to hand-pick your KiwiSaver investments. Craigs is the only KiwiSaver provider to offer this option. Head of Client Services, Stephen Jonas says “we want to offer Kiwis a more personalised approach to their investments – and as KiwiSaver matures and people’s balances grow, it makes sense for them to have more control over what they’re investing in.”

Example of a self-selected KiwiSaver portfolio

KS conts pie chart

2. Set up a separate investment, for a more accessible option

Whether you increase your investment in KiwiSaver or elsewhere comes down to how accessible you need that extra money to be. Either way, an extra few percent now can make a huge difference to your investment when you hit retirement^. Consider Ravi:

KiwiSaver Ravi

Ravi wants to continue to build his wealth, but with kids and a mortgage, he has other commitments to spend money on. Any savings after those expenses need to be accessible in case of an emergency, before retirement.

To do this, Ravi sets up a separate investment to his KiwiSaver scheme and puts away 5% of his income. On $130,000 a year, that’s $105 a week. He picks investments for his portfolio that offer more balanced risk than his KiwiSaver growth fund, and is easily accessed. Compared to if he stores that money in a savings account, historical returns say he’d be better off investing**. As a bonus, by investing, he’s also protecting his money from inflation.

No matter which route you take when it comes to investing more of your money, it’s taking the step sooner rather than later that’s important. With 59%^^ of us wishing we had started investing at a younger age, it seems we find getting started a big hurdle. But younger years are the best time to get started, when investing could have the most impact.

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