Know what you want

The average KiwiSaver is a greying soul with increasingly creaky knees knocking on the door of retirement.

That’s what you would conclude by looking at the kinds of funds KiwiSavers are choosing.

Around $25 in every $100 is invested in low-risk, lower-return cash or conservative funds, with around $32 more in middle-of-theroad balanced funds.

And $20 in every $100 has been saved by people who do not know what kind of fund they are in, so it can be assumed most will have been defaulted into a conservative fund, as KiwiSaver was set up to do for the ignorant and undecided.

Based on traditional investment wisdom those a long way from retirement will get the best returns from funds heavily invested in shares (ie, growth funds), so the KiwiSaver fund choices we are making indicates the average age of KiwiSavers is somewhere in the late 50s-early 60s. The opposite is true. Your average KiwiSaver is a young, spritely character with a full head of hair and perfectly functioning joints – 1.28 million of the 1.96 million KiwiSavers in June last year were 44 or younger, IRD figures show.

OK, that’ll include a bunch of kids with tiny account balances and young folk earning less and making smaller weekly contributions but it still indicates traditional investment wisdom, which this column considered last week, is not guiding many people’s KiwiSaver fund choices. So what is happening? It’s fair to say that people have been left with a less-thanimpressed attitude to shares and fund managers in the past six or so years because of the global financial crisis.

Also KiwiSaver is a largely advice-free zone, so many putting money into it are amateur investors without access to any advice other than from family, friends and online investment risk calculators.

That’s limited exposure to the traditional investment wisdom referred to above.

Heightened perceptions of risk may well have frightened many people to funds heavy in less volatile cash and bonds.

There are indications people are beginning to switch to higher risk/ higher potential return funds.

So how do you know if you should be following suit? That’s an easy question with no simple answer. But the responsibility is yours, and you will have to live with the consequences of your investment choice.

For me, step one is to recognise that no-one plans a journey without knowing where they want to get to.

So work out how much you want to save, and then how much you need to set aside each week/ month/year to get there.

The place to start is the Sorted.org.nz website which provides some easy-to-use calculators, and some basic information including how to pick the type of fund best suited to you.

You can also use Google to research fund types and read widely.

As in everything in life, there are good and bad reasons behind decisions people make.

Decisions made for the wrong reasons (even when they sometimes work out well) are ones made in ignorance, or for noninvestment reasons such as switching to a bank because you think it’ll make it easier to get a home loan.

Decisions made for the right reasons (which sometimes work out badly) are those done by understanding the types of funds available and the relative merits and fees of the KiwiSaver fund managers providing them.

It’s up to you.