What is ‘investment risk’?

What is ‘investment risk’?

For many investors “risk” is a scary word when it refers to their investments. A couple of sayings in the investment world are “no investment is without risk” and “investors who take on more risk expect to receive a higher level of return over time”. But what is risk in terms of your investments?

Investment risk is perhaps better called investment uncertainty. Put another way, risk is the chance that an investment’s actual outcome will differ from an expected outcome. The more likely it is that we can predict the future value of the investment, the lower the investment uncertainty (or the lower the risk).

Investments in income assets, like term deposits and bonds, are typically lower risk. We have a pretty good idea what the value will be when the investment matures.

In comparison, investments in growth assets, like shares in companies and property, are higher risk due to the uncertainty of knowing what the future value will be. The several funds within a KiwiSaver Scheme will usually consist of a mixture of these income and/or growth assets.

Here at Christian KiwiSaver Scheme, we have 3 funds for you to choose from: Income Fund, Balanced Fund and Growth Fund. The difference between these funds is the different mix of these investment assets e.g. The Income Fund is made up of only income assets, whereas the Growth Fund is made up of mostly growth assets.

You can choose which Fund – or which mix of funds – is right for you depending on what level your tolerance for risk is. For instance, you may decide to choose a fund that has smaller highs and lows, or you may decide you want a fund with potentially big highs and lows which you can tolerate over a longer time period.

Over the next few newsletters we will be covering more content such as this. We have received many great questions from our members trying to get to know their KiwiSaver better. We hope we can support your financial wellbeing by helping you understand more about your investment.

Your annual KiwiSaver check up

Your annual KiwiSaver check up

Like almost anything of value we own, your KiwiSaver account needs a little love and attention now and then. Let’s call it a health check. It won’t take long, and your KiwiSaver account will love you for it.

Look at it as a “do-it-yourself Warrant of Fitness”. We suggest it be done annually; perhaps at the beginning of each year or when you receive your annual member statement.

  1. Is your investment profile suitable for your current situation?

This is about where your funds are invested. Is your choice of investment funds too conservative, too aggressive or just right?

The Sorted website has a useful tool to help you called Investor Kickstarter at www.sorted.org.nz/tools/investor-kickstarter. You answer a few questions and it provides a guide to what type of investor you are, a typical investment mix for your type and what sorts of returns you could expect.

  1. Are you contributing enough?

If you can afford it, should you increase your contribution rate or make extra voluntary contributions?

If you have suspended making contributions, is it time to recommence contributing?

The Sorted website has another useful tool to help you with these questions, the KiwiSaver Savings Calculator www.sorted.org.nz/tools/kiwisaver-savings-calculator. You answer a few questions and it provides a guide on how big your balance could be at age 65 and how much you could get per week in retirement. Try different contribution rates to see the impact on your future savings.

  1. Is your Personal Investor Rate (PIR) correct?

You don’t want to have too much tax taken from your KiwiSaver earnings or too little and face a tax bill by having the wrong PIR rate. Your PIR is based on your income. If that changes, so might your PIR. We have a handy guide to help you with calculating your PIR on the scheme’s website www.christiankiwisaver.nz/documents.

If these three items are in good order, your KiwiSaver account should be running well.

Our staff are happy to help you with any questions you have on this.

 

Different KiwiSaver scenarios for different life stages

Different KiwiSaver scenarios for different life stages

We have put together a couple of scenarios based on different life stages. First, we look at how a younger investor may view their KiwiSaver investment, followed by someone who is looking at retiring sometime in the next couple of years.

 

Scenario 1: I am in my mid-30s and am in a ‘growth’ fund.

At Christian KiwiSaver Scheme we have three funds members can choose from, and you can select one fund or a combination of all three depending on your risk appetite and goals. For example, if retirement is still some years away, you may consider leaning towards a growth fund.

However, this choice may also be affected by your approach to life. If you tend to grow nervous every time the market changes, your attitude towards ‘risk’ might not suit a growth fund. Growth funds can be described as higher risk but with the potential for higher returns.

You should also factor in your own personal circumstances. A lot of people choose to be in a growth fund to maximise the time their investment has to perform before they retire. However if you think you may need to make a first home withdrawal in the next couple of years, it may pay to look at a mix of funds that give you a more conservative investment profile to minimise the impact of any significant market movements in the short term.

It is important to be aware that if you switch funds while the markets are down, you will likely lock in any losses you’ve already seen. What does this mean in simple terms? If the market bounces back, you may not see the benefit from that bounce back to the same extent you would if you had not switched funds.

Prior to COVID-19, a lot of KiwiSaver providers had seen a sustained period of good returns. While you may have seen a drop in returns at the start of the COVID-19 pandemic, we have since seen the market rebound strongly from the lows that were seen. History tells us that markets tend to recover, though they may undergo change and not look the same as they once did.

We recommend that you take a look at the ‘Investor Kickstater’ calculator on sorted.org.nz, which will help you better determine what fund you might want to be in. It will ask a couple of simple questions around what life stage you are in, your income, your debt and your security etc.

Remember that there is no one answer for everyone, but if you are able to understand your risk appetite better, you are more likely to be able to find the right fund to suit you.

Scenario 2: I am nearing retirement and my KiwiSaver is currently split into different funds

A different view would be given for someone who is approaching retirement compared with someone in their mid-30s; however, it’s still important to review your appetite for risk. If you are in a growth fund and you will think you will need the money within the next few years there may be insufficient time for your investment to recover from a market decline.

If you do not need access to your KiwiSaver balance immediately at age 65, and you have a higher appetite towards investment risk, you may want at least some of your money invested in more risky assets classes such as shares.

Note that you can choose to have regular payments from your KiwiSaver account paid to you after age 65 at regular intervals. This means that the money you don’t need access to immediately can continue to benefit from being invested. If this is something you would like to look into, you can contact our team for further information on how this can work for you.

There isn’t one scenario for everyone. Therefore we recommend that you take a look at the ‘Retirement Planning’ tool on sorted.org.nz to work through how much you want to aim to have to live on throughout your retirement years. This will help give you an idea of your projected balance based on your circumstances.

If you are currently approaching the age at which you wish to retire, you may want to seek advice from a financial advisor if you have access to one. Your KiwiSaver balance could be one piece of your retirement equation, and you will want to make sure that all parts align for a happy retirement.

Not already a member of Christian KiwiSaver Scheme? Join other like-minded Kiwi Christians growing their savings ethically today!

Membership of the Christian KiwiSaver Scheme is offered only to:

  • employees of organisations whose primary activities are in our opinion Christian mission or ministry. This includes employees of charitable entities associated with or operating in the Christian Church, or employees of entities which we approve as having a Christian special character; and
  • persons who express a Christian faith and have a commitment to Christian community involvement when applying (and their immediate family members and dependants).

Christian KiwiSaver Scheme is managed and issued by The New Zealand Anglican Church Pension Board (trading as Anglican Financial Care). The Product Disclosure Statement and Fund Updates are available under Documents.

Investing in your child’s future

Investing in your child’s future

For many of us, lockdown gave us a chance to pause and reassess what’s important and what we value in our lives – such as family time or financial security.

You often will hear financial experts recommending putting away enough money to cover at least three months’ worth of expenses for a ‘rainy day’. This can be a big ask for many of us, but the pandemic has shown to us how important it is to have a buffer set aside if we do encounter tough times.

We often say, it’s never too late to start saving – not just for ourselves, but for our children and grandchildren too.

Day-to-day, we often find ourselves running around chasing a busy schedule under the pressures of everyday life. Before you know it, your children will be almost grown-up. As adults, we know that this brings with it more responsibility, including more significant expenses.

You might find yourself wanting to help them out as they navigate the challenges of adulthood such as buying a car, becoming a parent, getting an education or getting into their first home. The recent financial shock to the economy may have caused you to think about how you can help set up good saving habits for your children.

Suppose you have found yourself with some additional savings after spending less than usual during lockdown. Now might be the time to start thinking about how you can give your children’s savings a kick start. One of the options could be a KiwiSaver account.

 

How may KiwiSaver be able to help children?

A first step in setting good long term saving habits is to set your children up with a KiwiSaver account. This may be one part of the plan as you look to set your child up for the road ahead. They may not see the value of it now but, however in the future, it will likely benefit them. At Christian KiwiSaver Scheme we don’t charge any fees for under 18s.

According to IRD, as of June 2019, around 300,000 children under 18 were enrolled in KiwiSaver.

KiwiSaver can be a great start for children when they look at buying a first home. They can use some of their KiwiSaver balance towards a deposit. We have seen in the media over recent years how some First Home Buyers have found it difficult to get on the property ladder. Starting to save early could help alleviate some of the pressure down the track.

Opening a KiwiSaver account in most cases is more accessible to parents than looking at other types of managed funds. With no fees for under 18s at Christian KiwiSaver Scheme and no minimum regular contributions needed for your children’s accounts (unless the child has chosen to contribute if they are employed), you or your child can contribute as much or as little to the account as you want – it’s on your terms.

Joining KiwiSaver young ensures your child will have a head start in saving for their long term future.

If you want to enrol a child with Christian KiwiSaver Scheme, you can do this by filling out an application form at the back of our Product Disclosure Statement and sending it to PO Box 12-287, Thorndon, Wellington 6144.

 

Not already a member of Christian KiwiSaver Scheme? Join other like-minded Kiwi Christians growing their savings ethically today!

Membership of the Christian KiwiSaver Scheme is offered only to:

  • employees of organisations whose primary activities are in our opinion Christian mission or ministry. This includes employees of charitable entities associated with or operating in the Christian Church, or employees of entities which we approve as having a Christian special character; and
  • persons who express a Christian faith and have a commitment to Christian community involvement when applying (and their immediate family members and dependants).

Christian KiwiSaver Scheme is managed and issued by The New Zealand Anglican Church Pension Board (trading as Anglican Financial Care). The Product Disclosure Statement and Fund Updates are available under Documents.

Some more KiwiSaver jargon

Some more KiwiSaver jargon

This is the third article on KiwiSaver related jargon used by the media and others. We try to use plain English but every now and again a bit of jargon is inevitable in our communications with you. Over the coming months, you are also going to be receiving a range of annual documents and this explanation covers this range of documents.

Confirmation Information: This is an annual statement setting out your balance, contributions and fees. This year there will also be some new information on retirement savings and income projections. We usually send this to you during June.

Annual Report: This is a report sent or notified to you by us as your KiwiSaver scheme provider. It sets out information about the Christian KiwiSaver Scheme. It includes the number of members and whether there have been any material changes to the Scheme during the year. We usually send this to you during August. A copy will also be put onto the Christian KiwiSaver Scheme website.

Fund Update:  The Christian KiwiSaver Scheme is a restricted KiwiSaver scheme (see October 2019 Newsletter) and provides an annual update about how the funds have performed. There is a separate Fund Update for the Income Fund, Balanced Fund and Growth Fund. These will be made available towards the end of June. Copies will be available on the Christian KiwiSaver Scheme website.

Please tell us if there is something you’d like us to explain.

There is a KiwiSaver Glossary on the website under Documents/Guides & Policies that explains most of the KiwiSaver related jargon.

Choosing pizzas can be like choosing a KiwiSaver scheme

Choosing a KiwiSaver scheme can be like choosing a pizza

When it comes to ordering a pizza, there are so many different outlets we can use, and, even then, there are so many different flavours to suit our tastes – from meaty, seafood, vegetarian to vegan pizza.  There’s even a range of crusts we can choose between, from thin to crusty to pan fried.  For the more health conscious among us there’s now available four-star nutritional pizzas.

You know, choosing the right KiwiSaver provider and scheme for you can be like choosing the type of pizza we want.  There are so many providers out there, and even when we may have found a provider we like there’s a range of funds between conservative, balanced, growth or aggressive and it can be confusing.

Now, like choosing that nutritious pizza, there’s a range of ethical – or socially responsible – KiwiSaver schemes and providers in the market.  This can make it difficult to choose something that matches what we’re looking for.  While in selecting a pizza it will depend on what flavour or taste we’re looking for, in choosing a KiwiSaver scheme that’s right for us it’s down to our individual values and beliefs.

Values are very abstract concepts aren’t they? But basically they’re our preferences and priorities.  We only really know that values are in our lives when we’re living in line with them.  Unlike that pizza in the picture, values are so intangible; we can’t touch them.  It could be said that our values are ideas that enable us to prioritise all our experiences.

Our beliefs influence and create our values.  The Christian KiwiSaver Scheme is based on universally accepted Christian values, and our investment team apply those values to where funds are invested.

Just like in choosing the type of pizza you eat – whether you want a vegetarian or even vegan pizza the key to avoiding any value conflicts is to be really clear about your priorities and align these with all aspects of your life – from your choice of pizza to including in your KiwiSaver provider or fund the type of companies you would want to invest in.

When next you order a pizza think about how you choose the toppings and base, see if it lines up with your values.  If you would like to talk with us about our ethical investment options check us out at Anglican Financial Care’s Christian KiwiSaver Scheme website. Or, if you prefer, give us a call on (0508) 738 473.