What are funds?
An investment fund is a way of investing money collectilvey with other investors capital. Funds can be a great way to diversify your portfolio, incur less fees and reduce your exposure to declining markets.
What are exchange traded funds (ETF's)?
Exchange traded funds are essentially funds that trade on exchanges, generally tracking and aiming to beat a specific market index. Exchange traded funds can potentially lowering your risk and exposure, allow you to incur lower fees, and help you to diversify your portfolio.
An example of a well known ETF in New Zealand is the the Smartshares NZ Top 50 ETF which tracks the return on the S&P/NZX 50 Portfolio which is widely considered preeminent index. This is because the S&p/NZX 50 index is designed to measure the performance of the 50 largest eligible stocks listed on the Main Board (NZSX).
What are index funds
Index funds diversify their investments by following a particular index such as the S&P/NZX 50, by buying and holding the investments that make up the index aiming to match the performance of the index.
What are managed funds?
Managed funds are a type of investment where your money is pooled with other investors' where each each investor owns a portion of the total fund. A fund manager determines which investments should be held in the fund on your behalf.
How to invest in funds in New Zealand
In order to invest in funds in New Zealand you will need to understand which fund aligns with your investing strategy and identify which provides the funds you want to invest in. There are number of providers that offer ETFs, index funds and managed funds so by spending a some time by looking at the what the different providers offer. below are some useful links to understand the performance of KiwiSaver providers and different managed funds:
There are plenty of great websites and youtube channels that compare the different fees and offerings of services in New Zealand much better than I could explain, so make sure to have at the links below.
- Sharesies pricing comparison
- Moneyhub funds platforms comparison
- PassiveincomeNZ investing platforms comparison
Which funds to invest in?
It is important to do your own research and choose a company that offers the best service which aligns with how you want to purcahse shares whether that US shares, NZ shares or just investing in funds. I'm not going to say what investing platform is the best because each company offer different things that might not align with your investing goals.
Introduction to KiwiSaver
KiwiSaver is a voluntary work-based savings scheme that was created by the Government in 2007 to encourage New Zealanders to prepare for retirement or to have the ability to purchase a first home.
KiwiSaver was introduced in response to New Zealands history of inadequate retirement savings and the decline in private-sector superannuation schemes. KiwiSaver is a type of managed fund, where money is pooled with other investors and diversified across different investments with the aim of generating a return based on the fund.
How KiwiSaver works and why it's worth joining?
KiwiSaver is a long-term savings plan which is designed to help investors save for retirement or purchasing a first home.In addition, if you contribute at least $1,042.86 by June 30th every year you will also recieve an annual government contributions of up to $521.43.
When you take out your KiwiSaver money, either for a first home, financial hardship, or to use to live on in retirement, that money is tax-free.Your employer's compulsory contributions must be on top of your regular pay and when contributing this is from your gross pay not your net pay before tax
KiwiSaver contribution rates
Employees who join KiwiSaver and save 3% by payroll deduction normally receive an employer contribution of 3%. It is important to note that your employer must contribute at least 3% of your gross earnings on top of your regular pay.
However, your employer isn't obligated to match your KiwiSaver if you decide to choose a higher rate contribution rate compared to the default rate of 3%. If you're employed, there are five contribution rates to choose from which include, 3%, 4%, 6%, 8% or 10% of your before-tax salary or wages.
How to change KiwiSaver providers?
In order to change KiwiSaver providers, the only thing you need to do is to determine which provider you want to change to and simply apply directly with them most commonly on their website. The new provider you have chosen will then notify your old scheme and the Inland Revenue Department to organise the transfer of your money and contributions to your new scheme.
If you do not know who your KiwiSaver scheme provider is, you can find it on your myIR account (Inland Revenue Department website) under the KiwiSaver section. Most commonly your scheme provider will have their own website which then you can create an account to plan your savings.
KiwiSaver calculator
A great tool that can be used are KiwiSaver calculators which will enable you to get anaccurate forecasting of your future KiwiSaver investment.