KiwiSaver is great - especially if you can add icing on the cake.
By Murray Harris, Milford Head of KiwiSaver & Distribution
KiwiSaver is the best thing to have happened to Kiwis and our finances – turning more than three million of us into investors.
With over $100 billion currently invested, and forecasts which suggest that figure will rise to $200bn by 2030, KiwiSaver is an incredibly important tool – helping relieve the strain on government-provided superannuation payments as the population ages.
Indeed, for many New Zealanders, it’s their single most important savings tool as they chase financial security and the retirement of their dreams.
Of course, access to those hard-earned savings is a long way off for many of us. What if you need money before that?
Unless you’re using your KiwiSaver funds to buy your first home, or you meet strict requirements under certain early withdrawal provisions, your funds are locked away until you turn 65. That’s not necessarily a bad thing – KiwiSaver is intended to help fund your retirement and how many of us are 100 per cent sure we could resist the temptation of dipping into our funds if we were able to?
But it does mean you have limited flexibility should you need to access money sooner. Fortunately, it is possible to have your cake (long-term peace of mind) and eat it too (short-term convenience of accessible funds). The key lies in placing some of your savings in Investment Funds which can sit alongside your KiwiSaver account.
Investment Funds, also called managed funds or unit trusts, generally have the same features as KiwiSaver funds, with the notable difference that your investment isn’t locked in until you turn 65. As with a KiwiSaver fund, an Investment Fund will commonly incorporate a mix of shares, bonds and cash across local and overseas markets, and will be managed by a professional fund manager.
In some cases, the exact same fund you’re investing in for your KiwiSaver account, may also be offered by your KiwiSaver provider as an Investment Fund.
By placing some of your lump sum savings (or making regular contributions) into an Investment Fund, you benefit from the fund’s diversification, the skill and track record of the investment team and the power of compounding investment returns – just as you do with KiwiSaver funds.
But, unlike KiwiSaver, when you need to access your Investment Fund, you can. Bear in mind, however, that most Investment Funds will have a minimum recommended investment timeframe you should commit to in order to give yourself the best chance of achieving your goals.
Whether you want to have some funds available for a rainy day, or you have a specific savings goal (such as tertiary education for the kids, a family holiday or a new car), Investment Funds provide the flexibility to save, grow and access your money.
More and more investors are partnering Investment Funds with KiwiSaver funds to achieve their savings goals. A 2021 survey by the Financial Services Council (KiwiSaver at a Crossroads) revealed that 65 per cent of respondents had a KiwiSaver account and 18 per cent held managed funds.
At Milford, we offer a range of Investment Funds from a low-risk Cash Fund to our higher risk Aggressive Fund. Depending on your savings goal, time horizon and appetite for risk, we have a fund to suit.
If you aren’t sure which fund to choose, we have an online Digital Advice Tool that can help. You can easily keep track of your Investment Funds using the Milford mobile app and portal, where you can also conduct transactions on your account whenever you like.
As KiwiSaver members, we have become familiar with the benefits of saving a little and often, of diversification, spreading our risk, professional investment management and the power of compounding investment returns over time.
By applying these same benefits to your other savings via Investment Funds, you can enjoy the fruits of your saving and investments before retirement And, by utilising both KiwiSaver funds and Investment Funds, you really can have your cake, and eat it too!
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Disclaimer: This article is intended to provide you with general information only. It does not take into account your objectives, financial situation or needs. Milford Funds Limited is the issuer of the Milford KiwiSaver Plan and Milford Investment Funds. Please read the relevant Milford Product Disclosure Statement at milfordasset.com. Before investing you may wish to seek financial advice. For more information about Milford’s financial advice services, visit milfordasset.com/getting-advice. Financial Advice Disclosure Statements for all Milford Financial Advisers are available on request free of charge. Past performance is not a reliable indicator of future performance.
