Money talks

There’s one persistent money story that just won’t go away.

It’s the one about the legions of people in the wrong KiwiSaver fund.

Experts continue to scratch their head about all the people in conservative (including) ‘‘default’’ KiwiSaver funds.

Not all KiwiSaver funds are the same.

There are really four kinds (with some subtle variations): Cash, conservative, balanced and growth.

You can think of them as four kinds of car for your savings journey.

There are many miles to travel, and a comfortable retirement is the destination.

The further you have travelled by age 65, the fatter your nest egg.

The cash fund is the safe and steady car.

It doesn’t cost a lot to run, but it goes slowly. Each year it is easy to predict how far you will travel, but because the car is slow, it won’t go that far.

That’s because conservative funds run entirely on a fuel called cash deposits. You don’t expect to lose money, but the return is low.

The next model up is the conservative fund car.

It goes a little faster because the fuel it runs on is different.

Roughly three-quarters of a conservative fund is in a mix of cash and bonds. The bonds give it a bit more go.

In addition, roughly a quarter of the fuel is ‘‘growth’’ investments like shares and property.

Think of these as rocket fuel that makes the fund go faster.

Fuelled on this, your car should travel further by age 65.

Balanced funds go even faster because they use more rocket fuel.

Their fuel-mix is roughly 60 per cent rocket fuel and 40 per cent the dull, slow-andsteady stuff.

Then there are the growth funds. These are the sports cars running on roughly 80 per cent rocket fuel. They go like the clappers. They should travel a lot faster, and go further, but . . . and this is important . . . they have a much higher chance of a spin-out or two along the way.

Hopefully, the spin-out will only land your car in a field surrounded by surprised cows.

It may take a bit of time to get back onto the road, but then you get on motoring again, once more travelling at a good speed.

The temptation after a spin-out is to immediately trade down into a slow-and-steady car until your nerves have settled enough to move into the fast lane again.

A lot of miles are likely to be lost if you do this.

Working out which car is suitable for you isn’t hard.

Use your KiwiSaver scheme’s online risk profiler, or ring them and ask for help.

Or, get a KiwiSaver scheme to choose the car for you.

Many offer ‘‘lifestages’’ options. These are a hybrid kind of car that is able to take any mix of fuel.

When you are young, and have nerves of steel, the manager will put in lots of rocket fuel.

As you near to retirement, they ease off the rocket fuel reducing the chance of spin-outs.