This article was first published in NZ Herald on 18 Jan 2023
Making the leap to investing raises queries – many answered here.
KiwiSaver:
Q: I want my KiwiSaver investment to grow, but I’m not a risk taker – what can I do?
A: When you’re investing, risk and return are linked. In general, growth funds, which invest primarily in riskier assets like shares and property, should produce higher returns over the long term than conservative funds, which invest primarily in less risky assets like cash and bonds. The good news is that most KiwiSaver providers have a wide range of funds available to suit your tolerance for risk. Some have tools on their website to help you identify which fund may be suitable. If you’re unsure which fund is right for you, it’s best to speak with a financial adviser.
Q: Will rising interest rates impact my KiwiSaver fund?
A: KiwiSaver is a long-term investment for most people. Your KiwiSaver fund is invested in financial markets, so that means interest rate movements will have an impact on your fund. However, many other factors impact your fund’s investments too – so it’s best not to stress too much about one factor. The important thing is to choose a KiwiSaver fund that suits your goals, timeframe and attitude to risk. If you’re not feeling confident, it’s best to speak with a financial adviser or try a Digital Advice Tool like the one on our website.
Q: Should I do anything with my KiwiSaver when markets experience volatility?
A: Falling markets can test even the most experienced investors. For most people, KiwiSaver is a long-term investment. Although it can be really hard to see your balance going down, history shows us that sticking with your strategy through the ups and downs should deliver a better result over the long term. If you’re not sure you have the right strategy, it’s best to speak with your KiwiSaver provider and see if they offer advice.
Q: How do I find out what companies my KiwiSaver account is invested in?
A: Your KiwiSaver provider is required to tell you the top 10 holdings in your KiwiSaver fund in their Quarterly Fund Update. Some providers offer more detail. For example, at Milford our mobile app and online portal shows investors the companies in the fund, starting with the largest holdings and working all the way down to some of the smallest. If you’re not sure where to find the information, you can send your KiwiSaver provider an email.
Q: What’s the best way to use KiwiSaver once I’m retired?
A: It depends on your situation and you should seek financial advice. One common misconception is that you need to withdraw your full balance at retirement. In fact, for many people, it can make more sense to leave money invested in KiwiSaver and withdraw small amounts to fund their lifestyle in retirement.
Investing:
Q: I’m new to the share market and I’m nervous. What do I need to know?
A: It’s important to understand investing in share market does come with some risk – and that the value of your investment will go up and down along the way. Investing in a professionally managed investment fund, can help mitigate your risk by diversifying your investments across a number of companies. Understanding the risks and the possible returns is a good first step, and speaking with a financial adviser to help understand the level of risk that may be suitable for your situation and financial goals is recommended.
Q: How are investments in bonds different from shares?
A: Bonds are issued by companies and governments to finance various projects. When you invest in a bond, you are essentially loaning money to the company for a fixed amount of time and at a fixed interest (coupon) rate payable. The coupon rate is determined by factors such as broader interest rates and how risky it is to lend money to the company. Shares are a part ownership in a company and the price fluctuates according to the performance of the company and market conditions. Like shares, bond values can also fluctuate daily depending on market conditions but, unlike shares, bonds have a specific end date and value. Typically, bonds are more conservative investments than shares, so are often used to diversify share investments.
Q: Why is taking enough risk with my investment so important?
A: Any investment involves taking some level of risk in exchange for potential returns. Not having enough exposure to higher risk/higher returning assets, such as shares, may mean your returns are too low to achieve your savings or retirement goals. Conversely, taking too much risk could result in large fluctuations in the value of your investment and push you outside of your comfort zone, leading you to make rash decisions that may negatively impact your goals too. By knowing your financial and emotional capacity to take risk, you can work out the optimal amount of investment risk to reach your goals. Partnering with a financial adviser can be a great way to help understand and achieve the right amount of risk for your situation.
Want more investment insights? Check out Milford’s The Investing Place for exclusive masterclass content, news and opinion pieces.
Disclaimer: This article is intended to provide you with general information only. It does not take into account your objectives, financial situation or needs. Milford Funds Limited is the issuer of the Milford Investment Funds and the Milford KiwiSaver Plan. Please read the relevant Milford Product Disclosure Statement at milfordasset.com. Before investing you may wish to seek financial advice. For more information about our financial advice services and to see our Financial Advice Provider Disclosure Statement, visit milfordasset.com/getting-advice. Past performance is not a reliable indicator of future performance.
