In­vest­ing for the good life

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

North & South - - Future Living Promotion -

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 fi­nan­cialplan­ning 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.

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.

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.

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. +

You are never too young, or too old, to have an in­vest­ment plan.

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