Type of fund an important issue
QI was talking to a friend the other day about my Kiwisaver. I have been with AMP since I was signed up through my job 10 years ago — I am now 53. My friend asked me what fund I was in. I realised I didn’t know! I get information from them from time to time and I can see my account is growing, but otherwise I don’t think about it. I have about $41,000 now. How do I find out more?
AThis is a very important issue. In some ways the name of your fund is more important than the name of your provider as it will determine how much money you have in retirement. Sadly many people are in your situation. The providers are partly to blame. Their communication often highlights their returns, their environmentallyfriendly investing policies and the prizes they’ve won. Amongst all that information, it may be hard to find the name of your fund. This problem is not unique to AMP — I have seen member statements from other providers which show the name of the fund in very small letters, sometimes on page two.
If you were signed up through your job and were opted into one of the default schemes, then you are probably in AMP’S default conservative fund. Changes are afoot for these members. Up until now, opted-in members have been put into a conservative fund. As many of them may be younger and have a long investing horizon, this is not necessarily the best option for them. The onus has been on the default providers to contact these members and encourage them to make an active choice.
On May 14, 2021 the Government announced changes to the Kiwisaver default provider arrangements. From December 1, 2021, default members will go into a higher risk balanced fund rather than a conservative fund. If you are in a default fund with one of the five (including AMP) who are set to lose their status and you haven’t actively chosen the investment option you invest in by December 1, your Kiwisaver savings will be moved to a different provider and into a balanced investment option.
You are 53 years old which means you have more than 10 years before you can access your money at retirement. How much volatility can you tolerate? Shares go up and down, but over time deliver better returns than lower risk investments such as bonds. If you can accept the ups and downs as part of market behaviour, then you may be better off in a higher risk fund. The Sorted website has a useful tool which lets you compare the difference in returns for conservative, balanced or growth funds. If you continue with a conservative fund you may have around $106,500 at age 65. In a balanced fund you could have $116,000 and a growth fund $126,500. Sorted uses historic averages to calculate these figures.
This does not mean everyone should be in a growth fund — it will depend on your ability to tolerate ups and downs, when you are likely to need the money and what other savings you may have. A risk profile questionnaire will help you find the answers. Try the ‘Investor Kickstarter’ on the Sorted website.
If you would like help on choosing the most appropriate investment option for your circumstances you should contact your provider. This is likely to be a phone discussion. If you prefer a face-to-face meeting, find a financial adviser in your area with Kiwisaver expertise. They will help you choose the right fund for you.
Shelley Hanna is a Financial Adviser with Peak Portfolio Management Ltd which holds a licence FSP702451 issued by the Financial Markets Authority to provide financial advice services. Disclosure information at www.peak.net.nz or call 06 8703838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product. Send your Kiwisaver questions to shelley. hanna@peak.net.nz
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