Shelley Hanna answers your KiwiSaver questions

Anyone who receives an inheritance should get legal advice. Photo / Getty Images

Q I have inherited some money from my parents. I am 60 and my partner is 62. We've taken the opportunity to do up the bathroom and kitchen. We don't have any big spending plans in the next few years. We have enough cash in the bank and feel we should diversify. We have KiwiSaver accounts and wonder whether we should add a lump sum to those? I am tempted to put it in a more aggressive fund which would perhaps generate a bigger lump sum for my two sons and any grandchildren in the future.

A You are fortunate to receive an inheritance at this stage in your life. This is a good time to sit down and do some serious planning.

Have you considered talking to a financial adviser? They will raise issues and present options that you may not think of yourselves.

You may feel that your life is too busy, but these are important decisions and should not be rushed.

For example, do you know that an inheritance is regarded as separate property in a relationship, unless it is mingled with joint property?
Once it is introduced to the family accounts (commingled) it becomes relationship property in the event of a separation (generally after three years, sometimes less if there are children). You and your partner may have a solid relationship of many years, or it may be a more recent relationship with children on both sides.

Anyone who receives an inheritance should get legal advice. They may be wise to open an account in their sole name to keep the inheritance separate. If you use your inheritance to clear a relationship debt (or make improvements to the family home) you can have it recorded as a loan that can be called up later if the need arises.

You can read more about inheritances and relationship property on the nzlaw website.
If you do not have the time or the inclination to seek professional advice, then adding to your existing KiwiSaver account is one investment option to consider.

KiwiSaver is well regulated, so investors should expect reasonable communication, service, fees, and performance from their provider. It is an easy way to diversify into asset classes such as bonds, shares, listed property, and currency.

Most KiwiSaver funds (apart from cash funds) will invest in some or all these asset classes. There is no limit to how much money you can contribute to your fund and you can switch between funds if you choose.

Most providers offer a range of funds from defensive to aggressive, with 'no advice' switching a straightforward process. Don't select an aggressive fund without doing your homework — that includes completing a risk profile exercise. In theory you may like the idea of higher returns, but they will come with greater volatility.

The bigger your balance, the more often you should review the performance of your fund. Dollar-wise, investment returns have a greater impact on a KiwiSaver account with a $100,000 balance than a $10,000 balance, especially if poor performance continues for several years.

Some fund managers are simply better than others, and it is up to investors to do their homework. The biggest drawback is that KiwiSaver is locked in until age 65. Unless you want to remove the temptation to spend, you should avoid locking your money away. Look at other options — most providers offer managed funds that are not locked in.

• •Shelley Hanna is the communications manager with Peak Portfolio Management Ltd which is a Financial Advice Provider licensed by the Financial Markets Authority. Disclosure information is available at www.peak.net.nz or call 06 8703838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product. Send your KiwiSaver questions to shelley.hanna@peak.net.nz