KEY POINTS:
I have joined KiwiSaver. I have encouraged my clients and family to join and have signed up my 1-year old grandson as well.
In recent months, I have heard many reasons from people who are refusing to join KiwiSaver. Almost all "reasons" are wrong, and some show a basic misunderstanding of the scheme and how it works.
In my view, there are hardly any valid objections to KiwiSaver - the subsidies on offer are so good you simply have to join if you can. So, let's look at the reasons that people give for not joining and try to bust some myths that I hear.
'The returns are no good'
You could hardly have chosen a worse time to float a savings scheme than last year - investment returns in just about every asset class have been poor ever since. However, there is an old investment saying - buy in gloom, sell in boom.
The money you put into KiwiSaver now (a fairly gloomy time) is likely to do well in the long run. In any event, you will sometimes be investing when the markets are high and sometimes when they are low, which will give you an average price over the years. Ensure you do not stop contributing when the markets are down. If anything, you should increase contributions.
'I can invest my money better elsewhere'
Unlikely - in fact, I'd like to know where you can get better returns because I would sign up. It's not that the investment returns are so good with KiwiSaver funds, it is more the subsidies added to your capital and the investment returns applied to the whole lot.
'There's no Government guarantee - I could lose money'
There is no guarantee, and no tooth fairy either. While the Government has promoted KiwiSaver and provided subsidies, money is invested via private providers.
KiwiSaver will eventually have billions of dollars in it and the Government is not going to provide a guarantee on all that, much of which will be invested in share markets. If you are worried about losing money, choose one of the very conservative funds, even one that is based solely on bank deposits or that has a capital guarantee. But, in the long run, you will be better off in a growth fund if you can tolerate the volatility.
'The fees are too high'
Working out the fees is like looking through a window that has been painted over. The Retirement Commission's website www.sorted.org.nz has a calculator which shows the fees that apply to each fund, as does Consumer, but you have to be a member to look. Both organisations show fees vary greatly, so choose carefully.
There are not many passive KiwiSaver funds yet - funds that do not require the manager to actively manage the investment funds but it instead puts the money into index trackers which get a return that equates to what the index returns. These have much lower fees and often give returns that are just as good.
'A new Government might wind the scheme up'
It might but probably not. It would be a brave new Government which would do that. Even if it did, it wouldn't be brave enough to take your money.
'I can't afford to join'
This is the only valid objection for not joining. Even with this one I ask, "Are you sure?" - remember, you can divert half your payments to the mortgage - and you can take a payments holiday if you have to.
* Each week best-selling financial author Martin Hawes will share his strategies to help you grow your wealth. You can email your burning personal finance questions to mhawes@wealthcoaches.net or andrea.milner@heraldonsunday.co.nz On the web: www.wealthcoaches.net
