The type of fund you choose to put your retirement hopes in is just as important as the provider you choose to invest with.
That’s according to Generate KiwiSaver Adviser Ken Knight, who says picking the right fund for your personal situation is key.
“Kiwi’s need to be more engaged when deciding which type of KiwiSaver fund to invest in, as we all know circumstances can change. Research shows that being active with your KiwiSaver account set up and getting sound KiwiSaver advice, helps you get better returns at retirement” says Knight.
Generate has six KiwiSaver fund choices, and offers investors the ability to invest either entirely in one or spread their investment across multiple funds.
“Generally speaking, the longer you have until you plan to make a withdrawal the more risky or focused on growth you can afford to be with your fund choice, as you’ve got time to ride out any market dips.
"But it’s really a personal decision, and if you’re not comfortable with market volatility, something we’ve seen quite a bit of recently, then a more conservative fund might suit you better!” says Knight.
Generate offers six KiwiSaver options with different levels of risk and potential returns. These include Defensive, Conservative, Moderate, Balanced, Growth and Focused Growth fund options.
The level of risk for each fund is largely determined by the ‘asset allocation’ of that fund, i.e. what that fund is invested in, either income assets or growth assets.
“For example, defensive funds have a higher percentage of investments in income assets, because these are less risky. While the returns for these funds may be lower, the primary goal here is to protect the investment from short-term market volatility.
"On the other end of the scale, growth funds have a higher percentage of investments in growth assets. These are long-term investments and while they may be more sensitive to short-term market fluctuations, they have the potential to earn more through capital growth over the long-term,” says Knight.
Generate encourages all their members to be actively engaged in their fund choice, which is why they offer no-obligation advice meetings to help Kiwis understand all their options, before making a decision.
Generate KiwiSaver Adviser Diz De Silva says the wide range of investment options makes it easier to find a fund that matches your personal situation and future goals. Generate members don’t have to make these decisions alone, and investments should be reviewed as part of a financial wellness check, ideally every two to three years – or sooner if your circumstances change.
“For example, after you’ve bought your first home is a good time to think about setting yourself up for your next big withdrawal, retirement – if this is likely to be 20 or 30 years away, you can generally afford to choose a more aggressive fund.
"Whereas if you’re nearing retirement, then you probably want to be more conservative and perhaps choose a defensive fund as it will be a lot more stable in the short-term.” says De Silva.
But De Silva warns not to be too active and interested in your fund performance especially those in a more active growth fund, as KiwiSaver is an investment, not a bank account, so checking on your balance too often especially during times of global instability can be scary.
“The most important thing you can do during global economic uncertainty is stay calm and stick to the plan you had before the volatile period. You probably wouldn’t want to switch from a growth fund to a conservative fund when the markets are down as you could lock in those losses, so it does pay just to get some professional advice before making any big moves.
"You can check in with your provider at any time to change your fund type, and if you’re a Generate customer you can do it yourself in your online account,” he says.
To talk with a Generate adviser about your KiwiSaver account, contact us on 0800 855 322, or send us an email.