When it comes to retirement, or ‘transitionment’ if you prefer, KiwiSaver can be a core ingredient, but many of us treat it as the bit on the side. It’s important to consider the most common pitfalls that can undermine your efforts and leave you short at your retirement . In a new world now more expensive than what you originally though, you need to get this one right.
Don’t make these mistakes…
1. Chasing Past Performance
One of the biggest mistakes investors make is choosing a KiwiSaver provider based on recent performance. The allure of high returns is strong, but data from the past 15 years shows that switching providers based on recent top performance doesn’t guarantee future success. In fact, chasing past performance often leads to similar or worse returns compared to staying put or choosing at random. The key takeaway? Focus on your long-term strategies and what you’re trying to build, not the latest and greatest fund with the run on the board. Also, remember you’re investing and not ‘saving’. When your money is ‘working’ for you, volatility means that your returns come with up’s and down’s in price along the way. Because volatility and returns are correlated (they go together), a fund with a recent high return, is likely due to for a bad return at some stage.
2. Ignoring Fees
Another critical error is overlooking the impact of fees on your returns. the more money you don’t have to pay in fees (at the product layer), the more money is at work on your behalf. High-cost providers often market their returns and imply that’s what to expect with them – but the reality is that lower fees can significantly boost your retirement savings over time. Studies have shown that investors who consistently choose lower-cost KiwiSaver schemes end up with higher balances than those who opt for higher-cost options. Remember, with KiwiSaver, paying for advice will improve your results, but paying for better performance, is a false promise.
3. Mismanaging Asset Allocation
The third mistake is not paying enough attention to ‘asset allocation’ (or the percentage of what you invest in different things). The balance between shares, bonds, and cash in your KiwiSaver fund can greatly influence your returns over time. Data indicates that funds with a higher allocation to shares tend to perform better over the long term compared to those with a cautious or moderate allocation. However, this doesn’t mean you should take unnecessary risks. It’s about finding the right balance that aligns with your risk tolerance and retirement timeline. Want us to be your KiwiSaver adviser? Make a time to chat here
Summary
Avoiding these KiwiSaver mistakes can make a substantial difference in your retirement savings. Don’t chase past performance—focus on long-term stability. Prioritise low fees to keep more of your returns. And ensure your asset allocation is suited to your financial goals. Using a financial adviser will help you to get on track, and stay on track with the retirement goals that you’ve set.
Ben Brinkerhoff is the Head of Advice at Consilium, where he works in partner services and business development. With over 20 years of experience in financial services, Ben works with financial advisory practices, like mine, to help drive efficient systems and increase investor education. Ben is a speaker, and he’s also known for his book “A Little Book of Financial Wisdom” which was published during the COVID-19 crisis.
