So, you’re on board with the idea you should invest your money.
You’ve diligently saved up some money, carefully tracked your expenses, and now you want to invest your hard earned cash.
However, you want to know: where should I invest it? KiwiSaver, or somewhere else?
Well, there’s good news for you, because this blog post will be covering exactly this question and what you need to know when deciding where to invest your money.
One thing about this question is that this can sometimes be tricky to answer. Infact...
There is no one single answer to this question
This is because each person’s financial situation is different so it is not possible to give one clear answer.
While we can give some general advice, most accurately answering this question requires detailed analysis of your financial situation. This way, one can take into account factors like how much money you’d like to save for retirement and when you’d like to retire.
By taking into account your personal circumstances, one can come up with a plan to best allocate your savings. And one way to come up with such a plan is through our KiwiSaver HealthCheck.
Our KiwiSaver HealthCheck is a free way to get financial advice from us over the phone. Simply fill it out, and set up an appointment with one of our financial advisors.
We can give some general pointers
Let’s come back to the question - “Should I invest more in KiwiSaver, or spread my investments out?”
We may have said that we can’t give one simple answer to this question. However, as mentioned earlier, we can give some general advice.
Below are three things you can consider when deciding where to invest your money.
1. You should only put money into KiwiSaver that you won't need for a while
Besides some limited exceptions like buying a first home, KiwiSaver investors can’t withdraw their money until 65.
As a result, one should not put money away in their KiwiSaver fund if they need it in the short term. This is because once you put money into your KiwiSaver account, it is sometimes difficult to get it back out.
Everyone should have an emergency fund they can use if something goes wrong. For example, you might lose your job or you might get into an accident and be unable to work. Having an emergency fund will allow you to put food on the table and keep the lights on when you don’t have any income.
Before the Covid-19 pandemic hit our shores, a Finder survey found that one third of people were living paycheque to paycheque.
This would most certainly have contributed to the research results found by the Commission for Financial Capability (CFFC) during the last two weeks of Level 4 Lockdown. During this period of time, 34% of New Zealand households said they were in financial difficulty, and 40% of households said they were at risk of tipping into hardship.
An emergency fund would have significantly reduced the financial burden of many people during this time.
Many financial experts say you should have an emergency fund of three to six months worth of expenses. That way you’ll be protected from most of what life will throw at you.
2. If you plan to retire before 65, you should make sure you have enough money to cover the “bridge period”
What is the “bridge period” you may ask?
The “bridge period” is the period between when you retire and when you can access your KiwiSaver funds.
As mentioned earlier, besides a limited number of exceptions, you cannot access your KiwiSaver funds until you are 65.
However, not everyone retires at 65. Some people may want to retire at 60, 50 or even earlier!
Therefore, if you wish to retire before 65, it is important that you save enough outside KiwiSaver for your expenses until the day you reach 65.
You can still invest your money in the same types of funds that you do in your KiwiSaver account. For example, as of the time of writing, INVESTNOW offered 140 managed funds that you could invest into outside of their KiwiSaver scheme.
3. You should look to take advantage of any employer contributions and government contributions you are offered
Why should you take advantage of any employer contributions and government contributions you are offered?
Employer contributions and government contributions are basically “free” money you can get for contributing towards your KiwiSaver account. For example, for most individuals that put $1,042.86 into their KiwiSaver account in a KiwiSaver year (July 1-June 30), they can receive $521.43 free from the government.
And who doesn’t like getting something for free?
To learn more about the “free” money that you can get for putting money into your KiwiSaver account, click here.
In order to receive these contributions, you need to be putting money into your KiwiSaver account. So, if you don’t put any money into your account, you would be missing out on this “free” money.
Assuming you are eligible for these contributions, it’s like your employer (or the Government) is rewarding you for contributing to your KiwiSaver account.
Taking full advantage of these contributions can make a great difference for your retirement.
For example, imagine you got an extra $521.43 from the Annual Government Contribution for 30 years. By investing this money in a growth fund that returns 7% per year, you could have an extra $49,254.69 for retirement.
It’s also important to make sure you are investing your money in the right types of investments
Whether you are investing your money in KiwiSaver or outside of KiwiSaver, it’s important that you invest your money in the right types of assets. By not doing so, one can miss out potentially on tens of thousands of dollars for their retirement.
This is where our KiwiSaver HealthCheck can help.
Our KiwiSaver HealthCheck is a simple way for you to find out which KiwiSaver provider and fund is best for you. This makes sure you are investing your KiwiSaver money in the right places.
After filling out a simple form, you can receive this advice over the phone for free.
You do not have to pay anything for our advice, which makes getting some help with your KiwiSaver account simple and accessible.
It does not matter how much money you have in your KiwiSaver account. Even if you have just $500, we are still happy to help you out. After all, every dollar counts.
So take some time to fill out our KiwiSaver HealthCheck and get some free financial advice. Your future self will thank you.