Timeframe key to investment option decision

Joining KiwiSaver is a no-brainer and there are now around 2.6 million members.

There are three key decisions to be made when joining; the contribution rate, the investment option and the provider. It's best to make the decisions in that order.

Your contribution rate should be set at the rate that gets you closest to an annual contribution of $1042 which will then give you the maximum annual tax credit of $521.

If you want to save more, save into a diversified fund which is not locked in.

The key determinant of your investment option is your investment time frame.

The range of options is usually something like Defensive, Conservative, Balanced, Growth and Aggressive.

The longer your time frame, the more you should invest in growth assets (property and shares).

Aggressive funds have the highest exposure to growth assets and Defensive funds have the lowest.

While growth assets are more volatile in the short term, they will give a higher return than income assets (cash and fixed interest) over the long term.

Note that your investment time frame doesn't finish on the day you retire; it finishes when you decide to spend your money.

Many retirees are choosing to leave their KiwiSaver invested as a reserve fund for later in retirement.

This means that even at age 65, they might still have a long investment time frame.

Once you have decided on the best mix of growth and income assets, you can compare providers to see which ones have the best performance, after the deduction of fees, for that kind of fund.

Don't be hung up on fees alone; there is nothing wrong with paying more in fees if the provider produces a better performance net of fees.

- Liz Koh is an authorised financial adviser. The advice given is general and does not constitute specific advice. A disclosure statement is free. Call 0800 273 847. For free e-books, see moneymax.co.nz and moneymaxcoach.com.