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How do we invest inheritance cash?
 
Q.        I have inherited some money from my parents. I am 63 and my wife is 62. After taking the opportunity to do up the bathroom and kitchen we will be okay for any big discretionary purchases like cars or travel. We have enough cash and feel I should invest in other asset types. 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 KiwiSaver fund which would perhaps generate a bigger lump sum for our two sons and grandchildren in the future.   Another option is to forget KiwiSaver and look at unit trusts instead, but the higher tax rate puts me off.
 
A.         KiwiSaver is actually a type of unit trust, known as a PIE (or Portfolio Investment Entity). Most if not all unit trusts in New Zealand are now PIE investments. The PIE regime commenced on 1 October 2007. Previously investors’ earnings in unit trusts were taxed at the company tax rate of 33%. The PIE regime brought about a more equitable taxation method. The income of the PIE is allocated to investors based on their share and taxed at each investor’s prescribed investor rate, either 10.5%, 17.5% or 28%.
 
For your purposes, two of the main differences between KiwiSaver and other unit trusts is that KiwiSaver is locked in to age 65, and does not allow for joint ownership. It sounds like neither of these factors is an issue for you. Most KiwiSaver funds have been growing at the expense of other unit trusts, and are starting to enjoy economies of scale which will benefit investors. KiwiSaver is also well regulated, so investors should expect reasonable communication, service, fees and performance from their fund manager.
 
You are considering putting some of your inheritance into your and your wife’s KiwiSaver accounts. You may be aware that any inheritance is separate property (not Relationship Property) as long as it is kept separate. Once it is introduced to the family accounts (commingled) it becomes Relationship Property in the event of a separation (generally after 3 years, sometimes less if there are children). More information is available from the website of the Citizens Advice Bureau, or from a lawyer. This may not be an issue for you, but I mention it for other readers.
 
KiwiSaver is certainly an easy way to diversify into other asset classes such as bonds, shares, listed property and currency. Most KiwiSaver funds (apart from Cash Funds) will invest in some or all of these asset classes. There is no limit to how much money you can contribute to your fund and you can switch to a more aggressive fund if you choose. Most fund managers offer a range of funds from defensive to aggressive, with ‘no advice’ switching a straightforward process. But don’t just pile money into your KiwiSaver and walk away. 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.
 
If you seek personalised advice, an Authorised Financial Adviser will look at the big picture, working out how you will fund a (say) 30 year retirement and when those KiwiSaver funds will be used, either by you or the next generation. This process would clarify the situation for you.
 
 
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide personalised advice. Send your KiwiSaver questions to shelley.hanna@peak.net.nz