How well do you know your KiwiSaver risk profile?

When it comes to getting the most out of your retirement savings and investments, it’s a vital piece of the equation.

Here’s why it matters, and what you need to know.

What’s a risk profile, anyway?

A risk profile refers to an investors’ appetite for risk. This can vary a lot, from one individual to the next.

Someone who needs their money in a few months’ time, to buy a first home perhaps, would have very little appetite for risk because they need to know exactly how much money is likely to be available to them when they come to withdraw it.

 However, someone who still has decades until they will access their money may well have much more appetite for risk, because they have a longer time to ride out any volatility in the markets.

A risk profile is usually determined by an investors’ investing horizon – how long they will be investing for before they will need to access their investment funds, and their personal attitude to risk.

Why does it matter?

Over the long term, riskier investment assets tend to deliver higher returns.

If you invest in less risky assets than you can afford to, you could see lower overall growth over time due to the more conservative returns.

On the other hand, if you invest in assets that are too risky for your profile, the value of your portfolio may fluctuate more significantly. This can be problematic if you need to withdraw funds during a downturn, as it might mean selling investments at a lower point in the cycle.

Aligning your risk profile with your investments is essential to help ensure that you can ride out those fluctuations and avoid needing to withdraw at an unfavourable time.

When it comes to your personal attitude to risk, some people are naturally more risk averse.

In some cases, this can be addressed with expert advice, helping you understand that market fluctuations are expected. However, if you are someone who finds it difficult to tolerate seeing your investments decline in value, it may be worth considering a more conservative approach. This is something we’d be happy to discuss with you as your advisers.

It won’t stay the same

Your risk tolerance when you’re 30 and have just bought a house with years until retirement, will be quite different from your risk tolerance when you’re 70 and possibly needing to use your investments to help with your living and lifestyle costs.

As you get older, it may make sense to dial back your exposure to riskier assets – but it can also often be sensible to retain some, even at retirement age. At 65, you still have many years ahead of you and some exposure to these assets can help your investments to grow and remain ahead of inflation.

It is a good idea to regularly review both your investments, and the assumptions made about your risk profile, to ensure they remain appropriate.

Stay on track

We are here to help with many aspects of your KiwiSaver investments and planning. We can help you work out your risk profile and check whether your investments align. Regular reviews will help you get the most from the investment scheme and set you up for success over your investing lifetime.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.