Know what you want

Central Leader - - NEWS -

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 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.

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