New Zealanders lost $3.5 billion switching funds during Covid
(Image from IRD Website)
The KiwiSaver market is becoming more competitive, and that is good news for us. With more schemes emerging into the market, the fees we are charged are expected to get lower and lower.
Most KiwiSaver funds charge a fixed annual fee which can go up to $60, with an average of $32, along with a variable fee which is calculated as a percentage of the amount invested.
These fees might appear low at first but can add up over time, especially on longer-term investments such as KiwiSaver. In fact, these fees can end up eating a considerable chunk of your investment gains over the years.
No administration fees
Launched in 2017, InvestNow offers investment into at least 140 managed funds from over 20 fund managers. This fast-growing investment platform has recently launched a new KiwiSaver scheme that is slightly different from most other KiwiSaver schemes. With their no-advice direct investment model, they are offering no administration fees or transaction fees for members.
The percentage of fees charged will be determined by which fund, or combination of funds in which we choose to invest. With more flexibility, this new option might be more appealing to us Indian savers as we like to have greater control over our money.
Traditionally, most KiwiSaver providers only allow members to choose from one fund manager.
This is simple and may actually be better for beginner investors with limited access to financial advice.
However, it does not offer flexibility to investors who would like to further diversify or personalise their KiwiSaver investment portfolio.
Aside from the lower fees, this platform makes it possible for us to spread our investments between 28 different managed funds from nine fund managers with a ‘build-your-own’ KiwiSaver scheme.
There are many benefits to this, including having more control, choice, and flexibility over our KiwiSaver investments, but ‘Do It Yourself’ (DIY) investing also comes with its disadvantages or risks.
Disadvantages for everyday investors
Retirement savings and investments are too important to leave to guess and chance. This is why everyday investors building their own KiwiSaver portfolio will need professional advice.
Using InvestNow DIY KiwiSaver scheme means that savers need to make some complex investment decisions on both asset allocation and from which managers can choose. This is something that is done by professionals for them in other KiwiSaver schemes.
While DIY helps reduce fees, making wrong decisions there could result in much lower KiwiSaver balances.
In addition, having confidence in any investment decision that you have made is very crucial.
This confidence can be brought about by in-depth research or professional advice.
During periods of market volatility, people mistakenly move their investments.
We saw throughout 2020 that around 50,000 Kiwis panicked and switched their KiwiSaver funds to more conservative ones, causing them to miss out on significant returns, which were collectively estimated to be around $3.5 billion.
If you decide to DIY your KiwiSaver investment, make sure to not only do comprehensive research on the various funds that are offered, but also regularly monitor these funds to have more confidence in your investment choices.
Investing for your future is not something we should take lightly.
Clive Fernandes is an Authorised Financial Adviser and the director of National Capital, a financial advisory firm that provides personalised investment advice, with a primary focus on KiwiSaver.
Disclaimer: The above article is not intended to be personalised advice. It is general in nature and may not be relevant to an individual’s circumstances. Before making any investment, insurance or other financial decisions, you should consult a professional financial adviser. A copy of Clive Fernandes’ disclosure statement is available on request and free of charge.
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