1. SHORT TERM SAVINGS (1-2 years)
For short term time-frames you should use a bank account or a Cash Management Unit Trust Fund.
You don’t want any volatility in your investment returns with such a short term time frame.
2. MEDIUM TERM SAVINGS (3-15 years)
For longer term time-frames you should use a ‘Unit Trust’ investment savings account.
This is because the interest you will earn will be linked to the performance of the funds assets. Unit tusts give you access to local and international shares plus property and international fixed interest investments.
This is a unit-linked (see below for explanation) investment that allows you save as little as $100pm into professionally managed investment funds to build up lumps sums for those special goals in Life.
There are generally about ten investment options, ranging from an ultra conservative Capital Guaranteed fund through to an Aggressive fund.
You can mix and match a combination of these funds to create your own personalised investment strategy.
Unit Linked – this means the money you invest into the fund buys “units” which are rather like Shares in how they make you money. That is, the value of the units rise and fall, just like shares do, and the price of the unit x the number of units you have = your total investment value.
Whereas Shares represent ownership in only one entity or company a ‘unit’ represents your part of the total fund that is made up of many different shares or investment types.
It is the rises and falls of the unit price that create a higher average rate of return than a bank account due to ‘Dollar Cost Averaging’.
Dollar Cost Averaging – this is a well known investment principle that takes advantage of the rises and falls in unit prices. This principle only works when you are making regular contributions to an investment fund.
When the unit price rises we are happy because our fund value is rising.
When the unit price is falling some people believe they are losing money. But in fact so long as they continue with their monthly deposits they will be buying the units at a cheaper and cheaper price.
Meaning they will be buying more units each month. The longer the unit price falls or stays low, the greater the number of units you will have purchased during that period. When the unit price goes back up again you will have made even more money because you purchased more units at their ‘discounted price’ – make sense?
NB: it’s okay to let Dollar Cost Averaging make you money from a falling investment market, but be careful not to leave your money in these ‘volatile’ funds when you are nearing the age when you intend to cash-in the investment. You need to seek expert investment advice to ensure you make the correct decision for your age, time frame and risk profile.
3. RETIREMENT SAVINGS
Enrol in KiwiSaver – it’s a licence to print money!
(click link to go to KiwiSaver page)
Start a Personal Super – a personal super can be ‘locked-in’ to age 55. Meaning the money is available after that age, giving you the opportunity to retire when you want to by funding the years until you receive the Govt pension and/or your KiwiSaver money.
4. LUMP SUM INVESTMENTS
If you have a lump sum of as little as $2,000 you can invest in Unit Trusts and managed funds without the need for regular monthly deposits.
The lump sum investment works the same as the regular monthly deposit unit trust in that performance is unit-linked and gives you to access professional fund managers to maximise your investment returns while you get on with life.
5. PIE FUND TAX REGIME
Until recently, all investments paid tax on your behalf at the 30% tax rate. This meant that lower income earners were paying more tax than they should.
The PIE tax regime was introduced to fix this anomaly and now when you invest in a PIE compliant investment fund you will be asked for your gross annual income to determine the correct PIE tax rate for you.
Currently the PIE tax rates are:
10.5% for earnings under $14,000pa
17.5% for earnings $14,001pa – $48,000pa
28% for earnings above $48,001
DISCLAIMER; These explanations and comments are general in nature only. You must seek expert advice and refer to the appropriate Investment Statements for full and complete understanding.
“My partner and I have used Acorn Insurance for the last four years. We have both found the service we receive to be second to none and we feel we receive comprehensive advice and full disclosure.”
– Nadine Huston