Can you trust KiwiSaver?

Are your investments ‘safe’?

Should I be cautious using a smaller KiwiSaver provider?

Before you can reap the benefits of investing, there are essential steps to take before you can fully embrace its potential. Let’s explore these steps:

1- Earning Money: Work is the foundation. Whether you’re passionate about your job or find yourself stuck in a less-than-ideal situation, hard work is necessary. Even if you love what you do, remember that every hour spent working means foregoing other activities you might prefer.

2- Controlling Spending: Our feelings toward work can influence our spending habits. If we dislike our jobs, we may be more tempted to splurge. Budgeting becomes crucial though, because investing requires a regular and consistent surplus.

3- Continuous Learning: Avoid analysis paralysis and don’t make learning about investing, a cheap proxy for actually investing. Cultivate an open and curious mind and learn while you do. Knowledge empowers you to make informed decisions on your wealth-building journey.

4- Having Faith in Your Investments: Understand the risk-return relationship. Different types of investments carry varying levels of volatility (risk). It’s hard to invest if you think at some stage your money may vanish; it’s merely traveling through the financial system to generate returns.

5- Confidence in the Financial System: Ultimately, your dollars are going to be doing a good job working for you, if you can trust them and not micro-manage them. This requires a bit of learning around the mechanisms in place scattered all across the money-making ecosystem.

Now in order to take that last step, that’s where we need to consider the rest of the iceberg we often ignore.

Icebergs? I’ve never personally seen one, yet like you, I’ve been confronted with a few metaphorical tips in my life.

Often it feels as though we’re too satisfied with the tips. What about what lies beneath? Should we care more about the deeper or more technical aspects of investing? And if we should, why isn’t that something we want to do?

I think it’s because we’re too practiced at the art of mimicry. We’ve memorised the right answer, and we’ve learnt the socially acceptable viewpoint. We’re happy to go along with the crowd, because it’s familiar, and it’s safe. We’re content with the fact that things work- with no regard about how or why things work the way they do.

Even with a rudimentary grasp of financial markets, you’ll notice a rapid transformation underway at the moment though. Mimicry may be a risky investment paradigm. The shifts in laws, regulations, and standards, as well as evolving common practices, are mere glimpses of the extensive changes occurring beneath the surface. A deeper understanding is essential to grasp the full scope of these developments. Perhaps you can get away with it, but ignorance about what lies beneath is a missed opportunity at the very least.

KiwiSaver is a collection of various types of investments (typically cash, bonds, and equities (shares). When our dollars go to work through KiwiSaver, imagine they move though the financial system like a fluid, through valves and holding tanks – checks and balances, policies and procedures keep our dollars ‘safe’, with the help of supervisors, regulators, custodians and trustees. We’ll always have volatility (ups and downs in value), but we should never have concerns with a lack of trust.

Check out the recent conversation I had with David Callanan, General Manager of Corporate Trustee Services at Public Trust.