Are you in a default KiwiSaver fund? If so, you could be missing out on the opportunity for higher returns on your retirement savings.
If you or your employer did not nominate a specific KiwiSaver fund upon enrolling in KiwiSaver, you would have been automatically enrolled in a default fund. As default funds are conservative in nature, you may not have your KiwiSaver savings invested in line with your investor risk profile and may be missing out on higher long term returns.
Conservative funds are generally suited to investors who are looking to protect their capital and do not have a long time frame to weather ups and downs in the market e.g. those nearing retirement or looking to withdraw funds to purchase their first home. By comparison, growth funds usually suit investors who have a long term investment time frame and can handle exposure to riskier asset classes such as shares.
In terms of returns, the latest MorningStar KiwiSaver survey showed an average five year return of 5.9% for default KiwiSaver funds. When compared to growth funds over the same period, an average of 9.5% highlights the return some investors forfeited by not actively managing their KiwiSaver investment.
To illustrate the true impact of returns to a default investor versus a growth investor, consider a 25 year old who is earning $50,000 per annum and contributing 3% to his KiwiSaver account along with his employer also contributing 3%. Based on a conservative fund, the final balance at age 65 is estimated to be $177,084. By comparison, if the same person had selected a growth fund, they would have approximately $281,129 at age 65.*
As the above example highlights, it is especially important that young people consider actively managing their KiwiSaver investment as the difference in savings can be significant in the long term.
If you would like to speak with an adviser about your KiwiSaver investment, please send an email to firstname.lastname@example.org or call us on 0800 500 510.
*Based on the assumption that the investor will receive an income increase of 2% per annum and achieving a conservative real rate of return of 3.7% and a growth real rate of return of 5.7%. These figures have also been adjusted for inflation.