investment

KiwiSaver: Have the Conversation

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Is your KiwiSaver working as hard as it could for you? Is it time to tweak the dials to maximise your investment or make things more conservative?

 

KiwiSaver is a voluntary savings scheme set up by the government to help New Zealanders save for their retirement. You can choose to contribute 3, 4 or 8 per cent of your gross (before tax) wage or salary to your KiwiSaver account. Your employer must contribute as well—at least 3 per cent of your gross salary.

 

There are a few instances when you can use your KiwiSaver before retirement—these are known as “time horizons”.

 

It could be for:

·      your first home (where you can withdraw all but the $1000 kick start),

·      perhaps you’ll be emigrating (there are some timeframes around when you can take that money out),

·      severe hardship (let’s hope it doesn’t come to that), or

·      when you reach 65 years of age.

 

The key here is to ensure that your KiwiSaver is on track to maximise your return in the time between today and when you’re going to withdraw the money (time horizon).

 

There are several different funds you can invest your KiwiSaver in. These are generally classified as either conservative, balanced and growth or variations of these. You do need to have all of your sum in one classification. You can choose to split a percentage of “units” across a number of different funds (i.e. from a low-risk to a more aggressive fund). For example, you might put half of your savings in balanced and the half in growth. And it’s not a set-and-forget scenario—you can move these percentages around to suit your goals and life circumstances.

 

The investment statements must be provided to you prior to you signing up to KiwiSaver. You can of course do some of your own research. This could be looking at the Sorted website to compare some funds (see who has the best returns, lowest fees, and who invests in socially responsible sectors and so on).

 

The government’s KiwiSaver website provides forms and tools to get things set up, to keep track of your contributions or to help get your money out.

 

There are a number of different levels of advice that you can receive, from “information only” to “class advice” where the representative will outline what is suitable for people in your group or “class”. For example, “we recommend people aged 30 to 45 choose ABC fund” through to personalised advice where the investment structure is tailored to your personal situation.

 

The advice piece is crucial.

 

So many Kiwis are not close to their next time horizon where funds will be withdrawn, and they are sitting in a default fund—where their KiwiSaver is just ticking away and the potential for a larger KiwiSaver balance is not being realised.

 

When’s your next KiwiSaver time horizon? Is it time to have a chat about getting the most from your KiwiSaver?

 

Simon O’Neill is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

Reserve Bank to ease LVR restrictions

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You may well have heard that the Reserve Bank announced some changes to their LVR (Loan-to-Value Ratio). 

They have announced that as of the 1st January, the amount of funds banks can lend with less than 20% deposit is increasing from 10% to 15%. Banks are also able to lend to investors with a 35% deposit compared to the current 40%. 
So what does this mean? 
If you are a first home buyer, it's going to be slightly easier for you to purchase if you haven't got a 20% deposit. (Note, however that the banks will still decide how generous to be with these applications). 

For investors, we predict that the banks will loosen up their policies in line with the reserve banks rules of needing a 35% deposit compared to 40%. This will make some difference particularly to new investors. We don't think these changes are going to be dramatic, but it will have a small effect. 

If you think this will impact you, free to get in touch with your friendly Velocity Financial broker. We are always happy to help.

Until next time.. 

The team at Velocity Financial

 

 

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

Put Money on the Mortgage or into KiwiSaver?

It’s a common question that we get asked. You’ve got a mortgage and you want to pay it down, but you’d also like to save for the future through KiwiSaver. O, what to do? Rupert provides some insight.

 

Note that the following is very much generic advice. For more personalised advice you would need to see a wealth adviser.

 

In general, there are two groups of people that we can divide our answer into: self-employed and employed.

 

For the self-employed, the answer is fairly simple. There are currently no real benefits for putting your money into KiwiSaver except the ~$521 per year Tax Refund that you receive from the government (50c from the government for every $1 you put in up to a maximum from you of $1042 per year). 

 

So, in my opinion, every self-employed person who can afford it should have an automatic payment of $20 per week (or $40 per fortnight etc.) that is put into your KiwiSaver. Why? Because that $1042 would earn you ~$44 per year in interest and you receive a further $521 from the government. That’s a return of more than 50 per cent each year. It’s a no-brainer.

 

For employed people, you need to know the maximum percentage your employer is willing to match on your KiwiSaver deposits. For most employers, if you put in 3 per cent, they will put in 3 per cent (you lose tax on this, but it’s still a good deal). The best I’ve ever seen is if you put 9 per cent in, the employer will put in 13.5 per cent (so after tax, you get 9 per cent from them too). You would be absolutely mad to not put in that 9 per cent into your KiwiSaver. You are literally doubling your money.

 

Once you’ve sorted out the decision above, the question of how much money to put into KiwiSaver gets significantly more difficult. It involves weighing up post-tax profit in KiwiSaver versus non-taxable and taxable interest in your mortgage.  It’s hard. Certainly too hard to summarise in a blog.

 

But you can get those low-hanging fruit. Firstly, get joined up to KiwiSaver. If you’re self-employed and can afford it, get that automatic payment set up. If you are employed, find out how much your employer will match if you put money in and, again, if you can afford it, begin putting that money into your account.

 

Rupert Gough is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.