Thu, 01 Jul 2010
At TOWER we think it’s important to do all we can to help you, as a valued member of the TOWER KiwiSaver Scheme, to choose a KiwiSaver fund that best fits your needs.
We understand that everyone’s different and has different goals, so choosing the right fund for you is an important decision. Not making a decision could mean you end up in a fund that is not the best fit for what you want to achieve.
In the worst case scenario, you could end up missing your personal investment target.
The risk of missing your investment target
One of the risks of not choosing a fund that best fits your personal needs is that your investment may not grow enough over time to reach the amount you require for retirement income or a first home deposit. In other words, you miss the target amount of money you were aiming for.
This risk can arise in one of two ways:
1. If your TOWER KiwiSaver Scheme Fund is too aggressive for your investment timeframe
The fund could be too aggressive for your purposes because your investment timeframe for reaching your target sum is relatively short.
In this case, you could have invested in a fund that is too volatile for the length of time you have allowed for. By “too volatile” it is meant that the fund can have big swings up and down in value, depending on the state of investment markets, but there isn’t enough time available for the fund to generate sufficient positive performance before you need to withdraw the money.
A relatively short timeframe for investment would be five years or less, which suits a person nearing age 65 or someone saving for a first home deposit. The last thing you want is for the value of your investment to go down significantly just before you planned to take it out.
Solution: Choose a fund option that is less aggressive (i.e. one that invests predominantly in more conservative assets such as cash and fixed interest)
2. If your TOWER KiwiSaver Scheme Fund is too conservative for your investment timeframe
The fund could be too conservative for your purposes because your investment timeframe is longer term, possibly running out to decades in length.
You could have invested in an option that is not aggressive enough for the target amount you are seeking. A fund that is not aggressive enough may not have big swings in value, but it may also not produce the expected returns needed to meet your investment target over a long period of time.
As a general rule, members of KiwiSaver schemes who have many years ahead of them to invest for their retirement and belong to a KiwiSaver default fund run the risk of not maximising their investment potential. This is because KiwiSaver default funds are deliberately designed to be relatively conservative under KiwiSaver scheme rules.
Of course, if you do choose an aggressive fund, then later on as you get closer to retirement you can switch into a more conservative fund to reduce the likelihood of your investment falling significantly in value before you plan to take it out.
Solution: Choose a fund that is more aggressive (i.e. one that invests in predominantly growth assets such as shares)
What can you do now?
Fortunately TOWER provides a quick, simple and effective online self-assessment tool you can use to check whether your current TOWER KiwiSaver Scheme fund best matches your personal needs and objectives.
You can perform this check to confirm whether your current fund option is best suited for you or whether you should consider switching to another TOWER KiwiSaver Scheme fund that is closer to what you actually need to achieve your investment goals.
Best of all, you can switch between TOWER KiwiSaver Scheme funds at no cost online.
It is recommended that you repeat this check periodically – say, annually – to confirm whether your own attitudes to risk and return remain the same or have since changed. The results of these reviews will identify whether you should consider switching into another TOWER KiwiSaver Scheme fund from time to time.
Yes! I want to check my current TOWER KiwiSaver Scheme fund is the right choice for me
You may also wish to seek advice from a professional financial adviser. Call TOWER on 0800 379 372 to find out the TOWER adviser in your area or visit Find an Adviser Now.
For a copy of the TOWER KiwiSaver Scheme Investment Statement, click here.