The average account balance for many KiwiSaver investors is now approaching the equivalent value of a small car yet many investors are still in the same fund as what they originally invested into, or were placed into as part of the ‘default option’.
Common mistakes we see being made by many KiwiSaver investors are:
|Investor persuaded by their bank or some adviser to move to an alternative KiwiSaver provider.||Often, the investor moves to a lower performing higher fee structure investment.|
|Remains in a default fund even when the investment time horizon is medium/long term.||Default funds are low risk but also have low returns and will result in long term under performance.|
|Remains is a conservative or low risk non default fund.||Will achieve long term investment return under performance.|
|Remains in a single asset class fund.||Investment is overly concentrated and susceptible to market volatility. If KiwiSaver is the only retirement saving product, then greater diversification is required.|
|Only invests the minimum 2% even once received a pay increase.||Not taking full advantage of any matching employer contribution or the low cost nature of KiwiSaver funds.|
|A mistaken belief that ‘default providers’ are government guaranteed.||No KiwiSaver funds are government guaranteed and ‘default providers’ are not necessarily safer than other fund managers. Select funds based upon quality research not whether the fund manager is a default provider.|
|Not linking the KiwiSaver investment with other investments.||KiwiSaver should be regarded as being one part of an overall well diversified investment portfolio and the KiwiSaver total should be considered as part of the investor’s overall asset allocation.|
|Opts out of KiwiSaver and doesn’t recommence.||Misses out on the ‘power of compounding interest’ and the matching employer contribution. The investor is basically missing out on ‘free’ money.|
|Investor assumes risk profile is static and markets don’t change.||Markets and risk profiles do change and the investor may be in an inappropriate fund which could result in investment returns not meeting expectations.|
|Never started regular savings and only joined to get the $1000 Government kick start.||Missing out on the ‘power of compounding interest’ and the ability to save for retirement using relatively low cost investments..|
Milestone is not advocating investors watch their KiwiSaver investment every week or month. However, for many, it would be prudent to have a review of their KiwiSaver with their financial adviser especially if any of the common mistakes listed above are relevant or they have been saving for at least three years and their KiwiSaver balance is over $10,000.
For most New Zealanders, KiwiSaver will compound over time to become a major part of their retirement savings and hence it needs to be treated with the same degree of interest as other investments.
Talk with a Milestone adviser regarding whether your KiwiSaver investment is correctly positioned.