Comment: Check your KiwiSaver fund to boost your first-home buyer chances

The same money can behave very differently in different KiwiSaver funds. Photo / Getty Images

COMMENT:

Imagine if you could save the exact same money, but have a much bigger house deposit at the end of it.

Yes, you could do that, and no, you don't need to rub a lamp and hope a genie pops out. You just need to check your KiwiSaver settings.

KiwiSaver is crucial for saving money both for our long-term future with retirement, and for the nearer future with first home deposits.

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In fact, new research from Canstar shows about half of 18-29-year-olds are saving into KiwiSaver purely for their first home.

Figures from the IRD show this year, in July alone, $125 million was pulled out of KiwiSaver accounts for first homes. It's a major factor in people being able to get on the housing ladder.

It's worrying, then, that the same Canstar research shows there's confusion about the different funds, and how to use them for you.

Nearly a quarter of those 18-29-year-olds said the choice between KiwiSaver fund types was "too confusing".

At first blush, it is quite confusing. Not only are there all the different providers offering to look after your money, but then there's also the conservative, balanced, and growth funds to choose from.

That leaves you with hundreds of different choices. But it is still important to sit down and choose because five minutes at your computer could mean the exact same money does something very different for you.

Happily, there are some simple rules of thumb to help you work it out, with the biggest one being how much time is up your sleeve.

If you're close to using your KiwiSaver

If you're thinking about buying a house within the next five years, or if you're close to retiring, a conservative fund could be a good idea.

Think about what happened back in March; almost overnight, the sharemarket crashed, and the value of your nest egg went with it.

There was no predicting it. By the time most of us realised what was happening, it had already happened.

A conservative fund is meant to protect you from the worst of that. More of the money is kept in cash, such as in term deposits, and less is in growth investments like shares.

A conservative fund is steadier. You won't earn as much money, but you also won't get the unpredictable downward swings.

So if you're close to buying a home, putting your KiwiSaver into conservative means you're not suddenly short on the deposit you're relying on if something unexpected happens.

If you have a longer wait ahead of you

If you have 5-10 years before you think you can buy a house, or before you retire, then you might be feeling discouraged.

But don't, because there's a silver lining here.

You now have the option to put your KiwiSaver into a growth fund. That means your money will be working harder for you, and your deposit will get bigger even though you're putting in the exact same amount of money.

More money goes into shares, and property. Your money is earning something, meaning it helps you grow that deposit, rather than you having to do all of the heavy lifting by yourself.

Here's why it's important that you have a long timeframe before you do this.

The market will still go up and down. That's what markets do; it's a feature, not a bug.

So when you put your money into growth, the trick is that you need to leave it there, even when the market does scary things like what happened in March.

That terrifying downward slide was also followed by one of the biggest recoveries in history. If you had panicked and switched to conservative during the slump, you would have been left with less money, and none of the benefits of the recovery.

This is why it's recommended to only do this with money you don't need for several years. You have time to wait for the recovery and make bank when it happens.

When the market goes down, you are buying shares cheaply, as long as you stick it out until things bounce back. So make sure you have the stomach for the growth account rollercoaster so that you can get the benefit of it.

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