There are almost 3 million Kiwis in KiwiSaver who have saved around $58 billion to help fund the retirement lifestyle they dream of. 80%1 of KiwiSaver members have 10 years or more until they can access their KiwiSaver funds at age 65. 1.8 million, or 63% of members, have 20 years or more until age 65.
Investing ‘101’ guidelines recommend if you have an investment timeframe of 10 years or more, you should consider investing in growth investments, as you have time on your side to ride out the ups and downs of share markets.
Why then, is only 31% of all KiwiSaver money invested in growth funds?2 And if we add the aggressive fund category to that we only get to 36% of KiwiSaver money.
This would suggest KiwiSaver members are short-changing their retirement. They are not optimising the timeframe they have for investment with the potential to grow their savings over time.
The latest Morningstar KiwiSaver Survey to 30 June 20192 shows the average growth fund has returned 10.6% per annum for the past 10 years and the average aggressive fund 9.3% p.a. This compares to the average default fund return of 6% p.a. and conservative fund return of 6.4% p.a. over the same time period.
The impact of just one or two percent more return over a long time period can be significant on the balance of your KiwiSaver account. The chart below shows the difference for a 35-year-old KiwiSaver member earning $50,000 p.a., who has a current KiwiSaver balance of $20,000 and contributing just 3% to their KiwiSaver.
A conservative fund return of 6% p.a. for that member will result in a balance at age 65 of $433,000 in today’s dollars. If the same member could get 2% more return in a growth fund then their balance at age 65 will be $651,000 and with a 10% p.a. return a balance of $995,000. When adjusted for inflation these returns become $239,000, $359,000 and $549,000 respectively.
The most important decision a KiwiSaver member can make is choosing the right fund. If they are not using their KiwiSaver funds to contribute towards their first home, and they have greater than 10 years until turning 65, they should consider being in a growth or aggressive fund.
The lifestyle difference between an after-inflation retirement nest egg of $239,000 and $549,000 is significant. How many trips, holidays, meals out, hobbies or medical bills could the extra $310,000 buy you?
Milford has two KiwiSaver fund options in the growth and aggressive categories. The Milford KiwiSaver Active Growth Fund has consistently been the top performing fund in the Morningstar growth category. It has returned 13.2% p.a. for the past 10 years to 30 June 2019.2 You can find out more about the Fund here.
On the 1st of August we also launched the Milford KiwiSaver Aggressive Fund. The Aggressive Fund invests primarily in global shares with a moderate allocation to Australasian shares and a small allocation to cash. The typical allocation will be 70% global shares, 25% Australasian shares and 5% cash.
This Fund suits KiwiSaver members with a long-term investment horizon and who want to maximise the potential for growth of their KiwiSaver over many years. As the Fund invests almost entirely in shares, it can take more risk in order to generate higher returns over time. The recommended investment timeframe for the Aggressive Fund is 15 or more years. For more information about the KiwiSaver Aggressive Fund you can read the Fund Introduction here.
And if you can’t decide which fund is right for you, check out our Risk Profile tool which can help you make your selection. Just be sure not to leave yourself short-changed on your retirement savings. It’s too late when you get to age 65 to wish you had done more!
Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser. Please note past performance is not a guarantee of future performance. Please read the Milford KiwiSaver Plan Product Disclosure Statement (found here) before investing.