Are you too con­ser­va­tive with your Ki­wiSaver?

Auckland City Harbour News - - NEWS -

Look­ing at the funds Ki­wiSavers have their money in would give you the im­pres­sion that New Zealan­ders were the most lil­lyliv­ered, risk-averse bunch of peo­ple on the planet.

At the end of June, a third of the money in Ki­wiSaver was in con­ser­va­tive funds which are mostly in­vested in cash and bonds, th­ese be­ing the ‘‘safest’’ as­set classes, far less risky than shares.

A fur­ther 4.2 per cent of the money was in cash funds – the ‘‘safest’’ kind of fund of all.

And a fur­ther 15.3 per cent was in ‘‘mod­er­ate’’ funds, more than half of which are in­vested in cash and bonds.

That’s just over half of all Ki­wiSaver money be­ing placed in lowrisk funds.

That’s the kind of as­set al­lo­ca­tion a 65-year-old in mod­er­ately poor health might choose, not a na­tion that likes to think of it­self as ad­ven­tur­ous and risk-tak­ing.

Iron­i­cally, all this avoid­ing of risk may well turn out to be ex­tremely risky in it­self.

I was with Fisher Funds in its Taka­puna head­quar­ters last week, look­ing out at the stun­ning view of Ran­gi­toto and talk­ing ‘‘life-stages’’ in­vest­ing.

Fisher Funds has just in­tro­duced a pro­gramme – called Glide­path – into one of its two Ki­wiSaver schemes.

The idea is that as most peo­ple don’t want to spend their lives think­ing about in­vest­ment, what was needed was a lifetime ‘‘se­tand-for­get’’ Ki­wiSaver op­tion.

This op­tion would be in­vested in a mix of cash, bonds and riskier as­sets like shares and that mix would change over time to match their age and stage of life.

In­vest­ment wis­dom says that when you are younger, you can take more risk.

That means more money in higher-risk, (hope­fully) high­er­re­turn as­sets like shares.

And as you get closer to re­tire­ment, the pro­por­tion in shares should re­duce and the amount in safer cash and bonds in­crease.

It’s a sim­ple idea and not an orig­i­nal one.

In fact, there’s an old ‘‘rule of thumb’’ that says: ‘‘ The ap­pro­pri­ate per­cent­age of a port­fo­lio to hold in eq­ui­ties is 100 mi­nus your age’’.

And some schemes pro­grammes.

AMP has LifeSteps. ANZ has Life­times. Grosvenor has LifePhases. Su­perLife and AonSaver also have pro­grammes.

They all vary, which does make you won­der about the in­vest­ment ‘‘sci­ence’’ be­hind some of them.

Fisher Funds’ ver­sion is based of ri­val Ki­wiSaver have sim­i­lar on de­tailed mod­el­ling which in­di­cated that rule of thumb was a pretty poor one. It would re­sult in a fairly high chance that many mid­dle-in­come earn­ers would end up with nest-eggs in­suf­fi­ciently large to see them through un­til age 85, as­sum­ing they were aim­ing to with­draw the equiv­a­lent of a third of their pre­re­tire­ment salary.

That chance be­comes an almost cer­tainty if they do their Ki­wiSav­ing into a con­ser­va­tive de­fault fund which many peo­ple are in hav­ing failed to choose a scheme and fund for them­selves.

That led Fisher Funds to de­sign its Glide­path to have higher amounts of shares in its mix dur­ing most of a Ki­wiSavers’ work­ing life than the rule of thumb would dic­tate.

In other words, Ki­wiSavers in Glide­path take on more risk for longer in or­der to re­duce the ‘‘real’’ risk of Ki­wiSaver, which is fail­ing to save enough to fund a de­cent re­tire­ment.

It’s a point the lilly-liv­ered Ki­wiSavers in cash, con­ser­va­tive and de­fault funds should con­sider care­fully.

They should look care­fully at the set-and-for­get Ki­wiSaver op­tions.

It might be the sav­ing of your re­tire­ment.

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