Investment – The Budget Diary

Hey Guys,

KiwiSaver seems to be the go to retirement fund in NZ mainly because the NZ Government has pretty much forced anyone who doesn’t opt out of the forced savings for retirement within the 8 week time frame to be simply locked in until retirement (65).

I joined my KiwiSaver back when it first came into existence. I joined with Westpac and had a conservative scheme with them, the scheme returned a fairly little amount. I changed my scheme to a half an half with one half being balanced and the other being growth. Changing my scheme to half balanced and half growth dramatically increased the returns and I recommend looking into splitting your risk to provide diversification if your not completely sold on putting all your investment with a scheme that’s above your risk level.

So what is KiwiSaver? Maybe a silly question because it’s pretty commonly used but if you don’t know it is a scheme set up to supplement your income when you retire. Although the NZ Government provides the pension, the pension more than likely won’t cover ongoing costs like food, dining, travel, rates, home repairs, fuel, and these are just to name a few of the many many costs that one could have.

Why bother with KiwiSaver? My retirement is forever away!!! While this is true, you will get to some stage in your life and you’ll realise “Hey, i’m nearing retirement”, you’ll freak out, and you’ll be forced to work hard and come up with some way to provide a means to some extra cash when you get there.

Kiwisaver is made up of contributions plus investment gains, minus fees, withdrawals and taxes on any investment gains.

Your contributions are set at either 3%, 4%, or 8% of your income. Government contributions consist of a tax rebate of up to $521.43, this will be paid at $0.50 per $1.00 that you invest up to $1042.86. If I made that unclear, to get the whole $521.43 in tax credits you must contribute at least $1042.86. Employer contributions are mandatory for employers and are set at 3% of your income (Minus employer superannuation contribution tax).

Because KiwiSaver is an investment you will get a positive or negative return on your investment. Ideally you will get a positive return.

Fees each month may be charged. Taxes on any investment gains will be applied.

Well done, you have some savings!!! Cheers KiwiSaver for those colourful pictures!!!

You are able to withdraw part or all of your savings (So long as $1000 remains – so really not all of your savings at all) and put this towards a first home. On top of being able to withdraw a possibly handsome sum towards a first home, you also have the ability to apply for a first home grant!

Let me tell you a little about this KiwiSaver first home grant… There are two grants available, to be accepted there are a few rules like income brackets and balances in your savings, however this is more just to point out that there is an awesome grant scheme setup to subsidise first home buyers. These grants are given out by Housing NZ, paid to your solicitor, and are as follows:

$3000 to $5000 for an existing home based on $1000 per year of contributing.
$2000 to $10000 for a new home, or purchasing land for a new home to be built.

These grants effectively double in amount if you are purchasing with another person ie. Partner. That’s up to $10000 for an existing home, or up to $20000 for a new home to be purchased!

That’s pretty much the bulk of what having a KiwiSaver account is all about? But there is so much more to know about when it comes to selecting the correct fund!

Currently there are 25 scheme providers, as follows direct from the KiwiSaver website…

Provider	URL	Phone Number
AmanahNZ KiwiSaver Limited	www.amanahnz.com	0508 262 624
AMP*	www.amp.co.nz	0800 808 267
ANZ Investments*	http://www.anz.co.nz/personal/	0800 736 034
Aon New Zealand Ltd	www.aonkiwisaver.co.nz	0800 266 463
ASB Group Investments Ltd*	www.asb.co.nz	0800 ASB RETIRE (0800 272 738)
BNZ*	www.bnz.co.nz	0800 269 5494
Civic Assurance	www.supereasy.co.nz	04 978 1250
Craigs Investment Partners Limited	www.craigsip.com	0800 878 278
Fisher Funds Management Ltd	www.kiwisaver.fisherfunds.co.nz	0800 FF KIWI (0800 335 494)
Fisher Funds Management Limited*	www.ff2kiwisaver.co.nz	0800 20 40 60
Forsyth Barr	www.forsythbarr.co.nz	0800 367 227
Generate Investment Management Limited	www.generatekiwisaver.co.nz	0800 855 322
Grosvenor Financial Services*	www.grosvenorkiwisaver.co.nz	0800 336 338
Kiwi Wealth Limited*	www.kiwiwealth.co.nz	0800 427 384
Medical Assurance Society NZ Limited	www.mas.co.nz	0800 800 MAS (0800 800 627)
Mercer (NZ) Limited*	www.mercerkiwisaverscheme.co.nz	0508 542 578
Milford Funds Limited	www.milfordkiwisaver.co.nz	0800 662 345
New Zealand Funds Management Limited	www.nzfunds.co.nz	0800 NZF KIWI
NZ Anglican Church Pension Board	www.koinonia.org.nz	0508 RETIRE (0508 738 473)
SBS Bank	www.lifestages.co.nz/kiwisaver/	0800 502 442
Smartshares Limited	www.smartshares.co.nz	0800 808 780
Staples Rodway	www.staplesrodway.co.nz	0800 446 499
SuperLife Ltd	www.superlifekiwisaver.co.nz	0800 278 737
Taupo Moana Iwisaver Limited	www.iwiinvestor.co.nz	0800 IWI 123 (0800 494 123)
Westpac*	www.westpac.co.nz	0508 WPAC KIWI (0508 972 254)

If you do not select a KiwiSaver scheme provider when you join or are automatically opted in, you will be provided with one of nine from a default list (* after provider name in the table above).

Each provider has their own schemes, the default scheme titles seem to be something like the ones BNZ have (We’ll use BNZ as an example of selecting the correct scheme shortly).

So what’s the best way to decide what scheme is for you?

In my opinion just like if one was to go looking for a mortgage, it’s probably best to do a wee bit of shopping around on the internet.

We’ll start by having a look at BNZ’s list of schemes on offer.

So here’s what to do when trying to find the best scheme!!!

Decide what scheme is best for me! I’ve had a look on BNZ’s website provided on the table above and their are six schemes to chose from:
I doubt this means a heck of a lot to someone who’s only looking into KiwiSaver for the first time but this image above from BNZ’s website shows what each of the six schemes or funds invest in (There is further information on what investments each scheme invests in if you look at the disclosure statement of the fund). Fortunately for us there is another picture that explains who the funds best suit and how long they are best suited to be investing in that fund for?
Take into account the data for each fund (Disclosure statement)! The provider is required to provide information generally in chart form of the funds performance, this is a key indicator on how the selected fund has performed in recent years. Although this does not guarantee a similar return as the past year, it gives an idea into how the fund has performed and an average overview of where it may potentially be returning? Again this information is available on the providers website.
Be aware of the risks your taking with funds, there may be some sketchy funds in the list of 25 providers, it’s your job to be sure you don’t get sucked in! Check out the data for previous years and be sure that your happy with what the fund is investing in and where it is performing?
Since joining KiwiSaver I have actually moved my funds over to BNZ and invest in the Growth Fund as I am planning on having KiwiSaver until retirement (Obviously) and because of this I am willing to ride out the bumps and reap the rewards when they pay off. BNZ’s Growth Fund for the last 3 years has had an average return on 7%, however last year returned 0.86%, scary I know! I guess what I am trying to point out is that there may be ups and downs but that’s to be expected with any investment (Just to different extents depending on the risk).

If anyone is wondering why I moved from Westpac to BNZ? I didn’t really like the lack of access with my funds (In general). I signed up to YouMoney. You money gives you access to a drag and drop GUI (Graphical user interface) making it really easy for budgeting (Access to 10 or more accounts). With YouMoney also came the ability to add an account that was directly linked to KiwiSaver and let me see the real time balance.

If you do want to move schemes or look into a little more about KiwiSaver, there is a huge wealth of knowledge on KiwiSaver’s website.

In my opinion saving up using the KiwiSaver scheme doesn’t actually save up that much in the grand scheme of things. If you take my income being $48k, that’s $151000 saved (48000*0.04*(65-20)) before interest and fees etc (my contribution plus my employers contribution, and that’s not taking into consideration that i’ll be withdrawing for a first home). If you add on the $19000 (On the low side) being the pension, it’s looking fairly do able with a budget in place but i’d definitely like a little more than $30000 P.A (If I were expecting to live to 80) when I retire (I’d expect some other form of supplementary income like a few rental properties). Hey its definitely a start but just food for thought there guys!

If you have any questions or comments feel free to comment below.

Thanks for reading.

Hey guys,

I’m looking to invest short term however before beginning to write this post I wasn’t too sure what the best way to go about investing was the best for my risk and return expectations?

After doing a little research there were a few different types of investment that I could potentially see myself looking into.

I’ll talk about these and a few other options out there that I think are not the best in terms of investing.

Five in total
Term deposits.
Bonds
Shares
Pie funds
Peer to peer lending.

Term deposits

Term deposits are when you give the bank a lump sum of money to hold on to and for a locked in time frame. The time frame is usually between 3 months and 5 years. Term deposits give a better return than simply keeping your money in a standard everyday bank account. Banks are able to give a bigger return because they invest your money and make a profit for themselves. If you would like access to your money the bank requires you to pay penalty fees because your money is still invested and they cannot simply give your money back. In my opinion term deposits are very low risk and are a guaranteed return on your money. The best term deposit rates can be found at http://www.canstar.co.nz/

Bonds

Bonds are essentially an IOU with an interest rate attached on the term of the loan. The entity you are lending to is known as the issuer. Bonds are issued to raise money for a government, company, corporation or other entity. The issuer promises to pay the interest rate set out and also promises to repay the face value of the bond when it reaches maturity. The interest on bonds are generally paid semi annually. http://tradingeconomics.com shows the bond returns from NZ govt bonds from 1986 when they returned 19.2% to May 2016 where they are returning 2.6%.

Bonds could be seen as medium risk due to the potential that if interest rates rise then the face value of your bond will fall therefore payout at maturity will be less than you paid. There are also a few more risks that you can look at on the website
http://www.investopedia.com/ask/answers/05/bondrisks.asp

When a company needs to raise money it creates shares through an initial public offering (ipo) on the stock market. The company keeps the money to invest and the purchasers of the shares can sell or hold these shares. The shares will go up if the company is doing well or when the market prices rise (Stock analysts follow market trends to buy and sell at the right time). The shares will go down in worth if the company is selling less product, receives bad publicity in the news, or when the market prices go down. When shares are bought or sold this can push the share price up or down if there is enough volume. With some larger comanies dividends can also be a part of the package. A dividend is essentially returning a portion of the companies profit to its investors. In my opinion shares are very risky as the market is easily affected and this was evident in Febuary when the Chinese market crashed vastly affecting global shares. This blog talks about the Chinese market crash and how the market is still suffering doom and gloom. http://theeconomiccollapseblog.com/archives/tag/china

Pie funds.

Pie funds are a group of investments that work together to provide protection from fluctuations in whatever market is being invested in (Diversification). PIE or portfolio investment entity is a portfolio of investments. You may already be using PIE funds in the form of a superannuation plan ie. Kiwisaver.
In my opinion PIE funds provide a steady return over a long period but not necessarily a short period. This article gives an insight to how bumpy the ride can be when investing in pie funds and how it can be very successful on the other hand. http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11472827

Peer to peer lending.

Peer to peer lending is essentially that! Loaning money to your peers.
Peer to peer lending seemed very appealing when I read up on their returns however the minimum investment term with a peer to peer lending platform that I liked the sound of was three years, a little longer than I’m prepared to invest in at this stage. https://www.squirrelmoney.co.nz/investment/ sounded like a good investment with a return up to 8% and the extra bonus that if your peer defaults on their loan repayments whilst loan shield (A fund in which a portion of repayments are deposited) has funds, it will be used as an insurance like feature to somewhat protect your investment. There were no loans available to lend in the 2 year bracket so in terms of short term this is not feasible. Another peer to peer that has taken off recently is https://www.harmoney.co.nz/

In conclusion I’ve decided that the best in terms of security for me right now is the short term deposit with some paying in between a 3-4% return. If I had more time to invest (not so short investment) I think that peer to peer lending could be a fairly low risk investment because you have the ability to like pie funds diversify your investment by splitting your lending up between multiple borrowers thus reducing your chance of having a borrower default.

Thanks for reading and be sure to check in for more great reads,

Braeden.