Saving vs investing
Savings are safe but grow slowly, and tax is taken from the interest. Investments go up and down, sometimes a lot, but over long periods they’ve grown much faster than prices.
Shares, bonds and funds
| What | You own | Typical behaviour |
|---|---|---|
| Shares | A small part of a company | Highest long-run growth, big ups and downs |
| Bonds | A loan to a government or company | Steadier, lower long-run growth |
| Index fund or ETF | A slice of every company in an index | The market’s return, minus a small fee |
Most managed funds and KiwiSaver funds are PIEs: tax on their returns is capped at your prescribed investor rate (PIR) of 10.5%, 17.5% or 28%. Make sure yours is set correctly with your provider.
After 30 years you’d have
$301,355
- You put in$108,000
- Growth$193,355
Start ten years later and you’d have $138,612: $162,742 less, though you’d only put in $36,000 less.
Returns aren’t guaranteed and vary from year to year. This assumes the same return every year, before fees and tax.
Start with KiwiSaver
- Contribute at least enough to get your employer’s full contribution, and enough over the year to get the full government contribution.
- Pick the right fund: if you won’t need the money for 10 years or more, a growth fund usually suits better than a conservative one.
- Check the fees: Sorted’s KiwiSaver fund finder compares funds’ fees and returns.
See KiwiSaver contributions for the current rates.
Investing outside KiwiSaver
KiwiSaver is locked until 65, except for a first home, serious illness or significant financial hardship. For other goals more than five years away:
- Pay off expensive debt, and have an emergency fund.
- Use a low-cost investing platform or managed fund provider.
- Choose a diversified or index fund, rather than a handful of shares.
- Invest a set amount regularly, and leave it alone.
New Zealand doesn’t have a general capital gains tax on shares held for the long term, but if your overseas shares (outside PIE funds) cost more than $50,000 in total, the foreign investment fund (FIF) rules apply instead.
Risk and staying the course
Markets have fallen 20% or more many times and recovered from all of those falls so far, though sometimes over years. The biggest risk is selling, or switching your KiwiSaver to a conservative fund, in a panic.