• There are no gains without risk

    “I’ve lost $8k in the market this year.”

    So says an acquaintance of mine, who’s been in the police force for a couple of years and benefited from their wicked super scheme. Something along the lines of 7.5%, matched by the employer. It’s okay, though – he still has a hefty amount left, enough for a new car, at least, and more than I’ve ever known anyone my age to have invested.

    We don’t see each other often, but the conversation always turns to work and money. I don’t know if it’s because we’re the odd ones out in our crowd, working fulltime, or perhaps he likes to compare where he’s at relative to me (and it’s pretty much always going to beat me, guaranteed!).

    Then another guest at the party chimed in with disbelief that people would put their money into something that could potentially LOSE what they put in. Imagine! Madness!

    I tried to explain to him that if you’re going to be investing anyway, why wouldn’t you join Kiwisaver? If you’re going to be investing your money, why the hell wouldn’t you want to accept free money from your company and from the state while you’re at it? It’s about freaking time we got some sort of organised retirement scheme in place, and yet, so many are wary of it.

    But there is no other way to get ahead. Keeping your money in the bank won’t keep you ahead of inflation. Property, as much as Kiwis love brick and mortar, can drop in value just like the markets can. THERE ARE NO GUARANTEES. Except the fact that NOT investing will guarantee that you won’t beat inflation in the long run. And that’s why we put our money into managed funds, or invest directly into the market, because over the long run we’re likely to make bigger returns.

    Personally, I think joining KS is a no-brainer. But I understand that a lot of people don’t know about investing. Maybe their parents didn’t invest, or even save, and they go their whole lives repeating that pattern. All you can really say to them is, do you want to rely on the government in your old age? Do you trust them to look after you, and do you think superannuation is going to let you live a comfortable life?

  • Blog awards and second thoughts

    Hey, guess what? I’ve been nominated for best personal finance international blog in the Plutus Awards – talk about a nice surprise to come back to after a weekend away (blog post on that coming soon)!

    I have no doubt that Man vs Debt will take it out (he kicks some blogging ass) but I’m honoured to have been mentioned at all.

    Fittingly, I’m actually talking finances today. To be specific, I’m rethinking my choice of Kiwisaver fund. If you’re in NZ, no doubt you’ve seen stories about how Peter Huljich put some of his own money into the fund, apparently to compensate for what he felt were some poor investment decisions.

    I don’t pretend to understand what it all means, but it seems to me that their reported returns were boosted by the cash injections. There’s a disclaimer in the latest Morningstar report, discounting their figures, as a result of this. (Oh, and last year there was also news about pushy Huljich salespeople going door to door, which is illegal. Nothing to do with the fund’s performance, but it’s a personal thing – I don’t like people pushing things in my face, and I disagree with that tactic.)

    The reason I originally chose Huljich, despite their higher fees, was their performance to date. Right now, I’m not sure whether it’s best to wait and see (although I believe T’s account is already with them, mine is still with the IRD and won’t be transferred to Huljich for a couple of months yet) or switch now to another fund – probably sticking with one of the bigger names this time. Ugh…not looking forward to combing through all the prospectuses (prospectii?) again!

    (I’m not a financial professional nor certified to give advice; I’m just a twentysomething trying to navigate through the grownup world.)

  • Here’s to NOT eating cat food when I’m 65

    Exciting (if dorky) news – I finally joined Kiwisaver!

    I haven’t had my first deductions yet so I don’t know how much exactly it will be, but given that I’m contributing 4% and should make $1320 in an average fortnight, I should be putting in $52.80 per paycheck. After tax this would be $1056, leaving me $1003 take home.

    So in 6 months I should have… $2788, excluding fees, gains and taxes.

    Of this, less than half would have come from my contributions, thanks to the generous initial incentives.

    $792 – me
    $396 – employer
    $1000 – government kickstart
    $600 – tax credits

    Even if my fulltime hours don’t last beyond the next few months, at least I’ll have contributed a decent amount in that time!

    (I would do the math for a year’s worth, but I really, really don’t want to jinx it).

    After a lot of tossing back and forth, I decided to go with Huljich in their growth investment fund.

    Seeing as Kiwisaver is only a couple of years old, none of the funds have much of a track record. But Huljich has performed well, in all of their schemes. I based this off information on fundsource.co.nz and this Morningstar survey.

    I also switched T over to Huljich, moving him from one of the six default government schemes (AMP). Huljich’s high fees worry me a bit, given he’s not actively contributing, but even if returns don’t continue as they have been at least he still got a free thousand dollars in there.

    KIWISAVER 101

    There’s a wealth of Kiwisaver info out there, so I’ve just done a quick roundup here. A quick Google search should tell you anything more you need to know, or Sense to Dollars has done a nice series on joining up and picking a provider.

    Kiwisaver is made up of:

    1. your contributions
    2. your employer contributions
    3. the government kickstart
    4. the government tax credit

    You can contribute 2%, 4% or 8%. Your KiwiSaver contributions are calculated on your before-tax pay, but deducted from your after-tax pay. (Yeah…still scratching my head a bit on that one).

    You also still pay tax on the full amount that you earn. Let’s say you earn $500 a week. You contribute 4% ($20), but will be taxed on the full $500.

    (I definitely recommend the Sorted calculator for playing around with contribution levels and future projections!)

    Your company will make contributions of 2%, and the government will stump up a tax-free $1000 three months after you join, plus up to $1,042.86 a year in what they like to call member tax credits. This is untaxed and will be claimed on your behalf by your fund provider in July each year. If you join KiwiSaver part-way through a membership year (1 July to 30 June), you get a tax credit for the portion of the year that you’ve been a member.

    GETTING YOUR HANDS ON IT

    Withdrawals are tax free. You’re eligible to withdraw funds at age 65. Alternatively, you can withdraw your funds if you are:

    buying your first house (you can take out your contributions and your company contributions, but not any the government contributions. you could also get a subsidy of up to $5000)

    suffering significant financial hardship (you can take out your contributions and your company contributions, but not the government contributions)

    seriously ill or disabled (you can withdraw all of the funds in your account)

    moving overseas permanently (you can withdraw your contributions, your company contributions and the government $1000 kickstart, but not the government tax credits)

    SIGNING UP

    To sign up, ask your employer for a KiwiSaver employee information pack (KS3) and fill it out. Your details go off to the IRD and you’ll be temporarily allocated to your employer’s chosen scheme, if they have one, or one of the six default KiwiSaver schemes. The IRD will hold your contributions and your employer contributions, and pay interest on them. Within 3 months of your first contribution you get the option to choose your own scheme (this is about the time you get the $1000 kickstart) and will then be enrolled with them.

    OR, you can join directly through your provider of choice, which is what I did. Again, the IRD will hold your contributions for three months with interest, throw in the kickstart after 3 months, and then hand it over to the provider.

    You’ll be automatically enrolled if you start a new job. You can opt out if you do so between 2-8 weeks. This is the ONLY time you can opt out of the scheme.

    If you’re self-employed or not working, you can sign up and make payments directly to your provider. Some have minimum contribution requirements, so do your research if you’re going down this path.

    MAKING A COMMITMENT

    Once you’re in, you’re in life, basically. You can apply for a contributions holiday to the IRD of three months or more. Your employer will stop contributing as well, although you can continue to make voluntary ones.

    There’s no limit to the number of times you can take a contributions holiday and you can renew it at any time. Generally, you do have to wait a year from the time you first join to apply for a holiday, unless you get into dire financial straits.

    Phew! There’s quite a bit to wrap your head around at first, but it’s really not too complicated. I’m going with the set it and forget it route. Given that not only you and your employer contribute, but the government does too, it’s a pretty sweet deal.

  • Kiwisaver – Need advice!

    Calling on all you PF/math/Kiwisaver experts to throw your thoughts in the ring.

    Here’s how it is: One Kiwisaver account. Current balance is just over 1000, thanks to the govt. kickstart. No foreseeable future employer contributions. We will try to contribute (probably irregularly, and in minimal amounts, but really can’t promise anything). Main goal is probably just not to lose too much money. I’ve done a quick comparison of rates and fees from various providers – some from default funds and some from balanced funds, as below. Given the small account balance, I’m thinking it’s better to go with the lower annual rate and the higher percentage fees.

    Flat $50p/a
    $30p/a, plus 0.37% in fees
    $36p/a, plus 0.55% in fees
    $34.20p/a, plus 0.75% in fees
    $24p/a, plus plus 0.965% in fees

    Untitled

    (I did include some other providers, Fidelity, Tower and Grosvenor to name a few. But in the narrowing down process I eliminated them from the chart.)

    Recommendations?

  • Kiwisaver

    Got a letter today from IRD, a rather unexpected one.

    Seems BF was automatically enrolled in Kiwisaver for the job he was at briefly, earlier in the year.

    I assume it’s too late by now to opt out, and honestly the horror stories I’ve heard make it seem not worth the hassle of even trying.

    Longterm, it was in the plan for him to join Kiwisaver anyway. And seeing as he’s not earning, it doesn’t make much difference, and at least he’ll get the $1000 kickstart. Hopefully that alone will encourage him and show him it really is worth it! You can’t complain about free money.

    Only thing I’m worried about is whether he’ll have to contribute from his unemployment. It’ll be only be about $4 per week, so I guess that’s a moot point anyway. More importantly, I’m looking through the booklet we were sent; he’s in one of the default schemes with AMP and I don’t like the look of their charges. If he’s not going to be working and therefore not putting money in, I don’t want fees eating away at his account! I’m going to get out that Mary Holm book on Kiwisaver, but in the meantime if anyone can recommend a scheme that doesn’t charge big fees and doesn’t have large minimum contribution requirements, please chime in!