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It’s obviously difficult to predict, but historical returns showed KiwiSaver funds invested solely in ethical companies were on par, if not outperforming, other funds (aka. sin stocks) amidst market volatility. And it is volatile. There are many factors that affect the markets that our Kiwisaver provider fund managers are investing our units in.
Luckily, we have a choice as to what we choose to support. Many KiwiSaver providers offer high-performing funds that focus on sustainable, socially responsible, and ethical investing.
These funds avoid investing in industries that are harmful to society or the environment (think human rights violations, weapons, tobacco, etc - otherwise known as "sin stocks") and predominately invest in companies that have a positive social or environmental impact.
Ethical Investing is always a key area that I would suggest looking at when reviewing your KiwiSaver. With the KiwiSaver calendar year approaching (June 30th) now is the perfect time to have a peak behind the curtain and confirm you're happy with where your money is invested.
Mindful Money has an awesome tool where you can see what your fund is invested in. Be brave and if you need to, make the change to a more ethical fund!
Keep in mind, even though it might be easy to have your KiwiSaver provider as your bank and they may offer lower fees, you may not be getting the best results, or the best service for your investment.
There are options outside your Bank when it comes to KiwiSaver providers with potentially better performance and a focus on global investment opportunities.
A 2023 Morningstar report found that EFS KiwiSaver providers have consistently surpassed the performance of all major bank KiwiSaver providers, and have done for some time.
It's clear from looking at the three fund options—conservative, balanced, and growth—that, on average, the EFS KiwiSaver providers have done better than their bank counterparts over short, medium, and long-term periods.
If you want to compare funds to give you some options, check out this useful comparison tool on Sorted, or get in touch. We work with the best performing non-bank providers (Milford, Generate, Booster etc) and will happily talk you through options to suit you.
If you are thinking of using your KiwiSaver for your first home deposit but are worried about how that will affect your retirement balance, then keep reading. You can make up for the withdrawal in some ways, depending on the timeframe and some other factors.
To give a (very rough) example, a 30-year-old who has $50k in a KiwiSaver Growth fund, takes out $49k for a first home purchase, stays in Growth and raises the contribution to 4%, will end up with a similar (KiwiSaver) amount at retirement as if they had kept the money in the fund *
Now, if you went a few steps further and changed the fund to Aggressive (if that suited your timeframe) and opted for a higher contribution rate and lump sums, you can close that gap even faster.
You can use this KiwiSaver calculator to test your settings or again, come in for a chat about making a strategy.
*Of course, it must be pointed out that past returns are no guarantee of future returns.
Ah Compound Interest, supposedly the 8th Wonder of the World – and for good reason! The compound interest in your KiwiSaver is a powerful force in your long-term wealth accumulation.
Compound interest is the interest that is paid on both the original amount and the interest that has been added to it. Unlike simple interest, where interest is only based on the original amount, compound interest lets investors and savers increase their money over time, resulting in large profits on their investments.
This video is a great explainer of how compounding interest works, (and why investing can grow your wealth faster than saving cash too.)
So, if you’re currently contributing 3% of your income but have some capacity, perhaps consider bumping it up to 4% (or more) and enjoy the magic of compounding interest. The additional contributions will compound over the years, boosting your retirement savings. Making that slight adjustment and keeping it, will have a remarkable effect on your balance.
Oh, and Have fun playing with this calculator to see what compounding interest can do.
The Government offers a Member Tax Credit to those in KiwiSaver, which basically means they will give you $521.43 of free money provided you have contributed at least $1042.86 between July 1st and June 30th.
Good to know: Even if you can't get to the full $1042, you'll still get 50 cents on the dollar up to $521. So put in $500, you'll still get $250.
You still have some time to sort this, however if you are a last-minute kind of person, you can make a lump sum contribution to your KiwiSaver account on June 28th and still qualify for the member tax credits. Just ensure that your contribution is processed and credited to your KiwiSaver account by June 30th to count for that year’s member tax credit.
The IRD has more info about who qualifies for the free money in the fine print on their website.
The right Prescribed Investor Rate (PIR) tax rate for your income is important because it determines how much tax you pay on your KiwiSaver investment earnings. You need to get this right to avoid paying too much or too little taxes.
Not sure what PIR you should be on? Check your PIR here). You can update your PIR through your KiwiSaver provider or via the Inland Revenue website.
Let me touch on fees. We sometimes say that you get what you pay for.
As mentioned above, banks can usually offer lower fees for their KiwiSaver funds. However, as we have already seen, banks don’t always offer the greatest returns over time. While a low-fee fund might seem attractive at first, it’s more important to look at the net returns (after deducting all fees and tax).
Non-bank providers generally have higher fees, but these fees are linked to paying for active fund managers who are there with the goal of growing your wealth. Active funds involve a more hands-on approach with professionals constantly tweaking the investment mix in an attempt to surpass market index returns. This active management can come at a premium but historically provides higher returns.
It’s pretty clear that actively managed funds (i.e. funds managed by people not software) have performed consistently better, with the premium fees basically paying themselves in those higher returns.
Check out this report from Canstar about Low KiwiSaver Fees Versus High Returns
Not convinced? The important thing is to compare fees across different providers and think about the long-term effect on your savings. And remember to compare apples with apples – i.e. look at the net returns after fees.
Remember, KiwiSaver is a long-term commitment. Regularly review your settings, stay informed about your provider’s offerings, and adjust as needed. Your future self will thank you for taking these steps toward financial security.
And if you need a hand navigating through it, give us a call.
Simon.
About Simon
Hi, I’m Simon a Financial Advisor here at Velocity Financial. I enjoy working with my clients to help demystify all the Mortgage, Insurance and KiwiSaver fine print, and help get them to where they want to be. I am dedicated, thorough and offer professional advice that works for you. I like to help people on their journey and be a trusted person to guide them through really important events in their lives such as the home buying process. I help my clients collaborate with valuers, builders, lawyers and real estate agents to ensure a seamless experience. That satisfaction of reaching the goal with the least amount of stress for my clients is hugely rewarding. I navigate unique scenarios and tailor lending solutions for individual circumstances to save money and time. As a proud father of two and avid supporter of all my children’s endeavours, I know just how precious that time is. On the weekends you’ll also find me mountain biking, surfing, or checking out NZ’s great walks.
Disclaimer: O’Neill (FSP534466) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Simon’s disclosure statement on our website.
Always get professional advice
The information shared in this post is meant to be general guide to support you on your journey. When making important decisions about your finances, we encourage you to seek independent financial advice first, tailored to your unique situation. As well as talking with a financial adviser, make sure you talk to your lawyer and accountant too – together they'll help you find the best solution for your specific situation. Our knowledgeable financial advisers are here to help. Check out our website for the details about our financial advisory services in our disclosures https://www.velocityfinancial.co.nz/disclosure-statement.