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Saving for a home? Why you need to consider your KiwiSaver set-up.
Putting money away in a bank account is one thing, but gearing up your KiwiSaver so that it’s optimised for a house deposit withdrawal is another.
Assuming you’re planning on putting your KiwiSaver money towards your house deposit, you might have a rough idea of how much money you’ll be wanting to take out of your KiwiSaver.
But are you prepared if the markets fall and you lose a chunk of your investment right before you go to buy the house?
What fund are you in?
Most KiwiSaver members are in a balanced or growth fund, which are generally longer-term investments because they have a significant proportion of growth assets (i.e. shares and property), making them proportionately at risk of market volatility.
Balanced funds hold around 35% to 63% in growth assets and Growth funds hold approx. 63% to 90% in growth assets.
What's your appetite for risk?
In our annual KiwiSaver reviews we often ask clients this – if you had your KiwiSaver money in your hot little hand, would you be willing to place 100% of it on the share and property markets in the hopes of a high return, or would you prefer to keep some (or all) of it in a less risky fund that is likely to yield lower returns?
Everyone’s answer is different, and this helps you start to determine your appetite for risk. The general nature of investments is that higher risk funds traditionally have lots of volatility – soaring highs and deep lows - but over the long run (say 10-15 years) yield higher returns. Under ‘normal’ circumstances KiwiSaver is a long-term investment for your retirement, so taking a hit in the short-term to get a better return later is usually no big deal.
However, once you put that in the context of a house deposit withdrawal where you are going to want the funds much sooner, it can be wise to reconsider your strategy. For instance, you might consider moving to a lower-risk ‘defensive’ or ‘conservative’ fund in the short term, to insulate your KiwiSaver money from market volatility until you gather your deposit.
Always seek personalised KiwiSaver advice
When making this decision it is always wise to seek advice from an Authorised Financial Adviser (or your KiwiSaver Adviser) to explore your risk appetite and individual needs fully. Your decision should also factor in how soon you are likely to want to access the money – i.e. next year or in two years’ time? Details like this will all have an impact.
Have you thought about whether the fund you’re in is right for your situation and goals?
If you’d like advice on this, we’re happy to have a chat. Email our KiwiSaver advisers or phone 06 870 7050 and you can chat with us in confidence.
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KiwiSaver data Source: sorted.org.nz 29/03/2017