Are you too conservative with your KiwiSaver?
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.