Here's why KiwiSaver isn't everything

With New Zealanders hunkering down at home, our rate of savings skyrockets. Despite the economic turmoil and worry, it’s a proven Covid phenomenon.

For those who are short of some evening entertainment, reviewing your investments might be dry and dull, but it’s a satisfying box to tick.

Investing in different funds and with different managers – on top of your KiwiSaver payments – comes with many questions. The most common one is “why do I need to?”, closely followed by “who would I give my money to?”.

For many people, thinking beyond KiwiSaver is something they’ve never considered.

Why might you need to think more widely?

The easiest way to answer that one is to be honest about KiwiSaver. The only problem is honesty doesn’t sell well.

Have a read of the non-marketing guide to KiwiSaver and you’ll soon see why it’s going to be important to widen your horizons:

I’d like to retire early.

Sorry, you can’t. You’ll need to invest in funds outside KiwiSaver to have that choice.

I’m worried about my health and might have to work less.

You can’t have access to your savings unless your health puts you in extreme financial difficulty. Semi-retirement before age 65 is impossible.

I’ve saved well and can afford to help a family member.

Absolutely no way before you are 65.

I’ve got all my money with one KiwiSaver manager and I’m worried about risk.

KiwiSaver is well regulated, like all retail funds. Your fund is the cornerstone of your investing life, so don’t worry about the risk of KiwiSaver itself.

But despite all the choice, you can only pick one manager. It boils down to choice with no choice. It’s the way the system was set up, but it’s not academically sound.

Your building blocks need some depth and breadth to control volatility, avoid manager bias, style bias and to have access to specialists in international markets and bonds. Diversification across funds, house style and active versus passive funds are important tools in any retirement plan.

I thought KiwiSaver was a one-stop shop and it was all I needed to retire.

For some people it will be (low earners and part-timers primarily). Nearly everyone else should consider it a great cornerstone that gets added to with other funds from different managers.

I’m saving for my first home and need my KiwiSaver money quickly because of an auction.

Don’t buy at an auction then.

I’m getting a tax advantage by using KiwiSaver, aren’t I?

No. Other funds are taxed the same way.

It’s tax-free when I retire isn’t it?

No, it’s tax-paid. There is nothing free going on. The wages you invest are taxed and so are your returns, just like every investment.

All investments are locked up, aren’t they?

No, only KiwiSaver is locked up. Other funds take about five days to arrive in your bank account, and you can withdraw at any time for any reason.

When I invest 3 per cent of my salary, my employer matches it. The Government also gives me an annual bonus of $521.

Are there any additional benefits when investing more? No

So why would I invest more with my KiwiSaver manager?

No idea, but your KiwiSaver manager will be delighted to accept all payments.

But aren’t KiwiSaver fees cheaper?

Indeed, they can be, but not always. If you currently invest with an active KiwiSaver manager (they sift and research each share or bond they buy), you could start a new investment with an index fund manager for diversification (they replicate a whole group of shares in an index).

Index funds are great value. It’s good to have a mix of the two types and this is a great first step in your building blocks.

As you can see, the crux to this question of “why?” comes down to two things: the lock-up and diversification. There’s wide market choice, but by restricting yourself to KiwiSaver you’re picking one house and will sit and stare out the windows until you’re 65.

It sounds safe and secure, but living in level 4, you’ve probably already got enough of an idea of how that limits your freedoms and opportunity. Life changes, stuff happens, and it’s important to have a flexible group of investments, with your KiwiSaver account at the centre.

It’s a shame fund managers don’t think of marketing this idea as a Kiwi-flexi account to take additional voluntary contributions. While it’s perfectly possible to create this without their help, promoting it would attract many new investors.

Who do I give my money to?

Let’s be clear, I’m talking about investing with other fund managers who probably also run KiwiSaver but have regulated retail funds that invest in wide holdings of shares and bonds.

What I’m not talking about are alternative investments, like cryptocurrency, unregulated investments advertised for wholesale investors with ‘forecast’ rates of return, property syndicates, finance companies, angel investing, crowdfunding, or dabbling in individual shares with a Sharesies account.

Here are a few tips

Step 1: Look for another well-known KiwiSaver manager and search for the funds they offer without the KiwiSaver wrapper (therefore no restrictions).

Step 2: If you currently have an active fund, check out an index fund, and vice-versa. It’s as simple as a monthly direct credit.

Step 3: Once you’ve got regular savings going into both active and passive funds, look at adding in an international fund, or specific country funds like Australian, US, Asian or European funds.

Step 4: If you are moving to Step three, consider taking financial advice.

Janine Starks is the author of www.moneytips.nz and can be contacted at moneytips.nz@gmail.com. She is a financial commentator with expertise in banking, personal finance and funds management. Opinions are a personal view and general in nature. They are not a recommendation for any individual to buy or sell a financial product. Readers should always seek specific independent financial advice appropriate to their own circumstances.