No point in switching horses after the markets fall

What’s the worst Kiwisaver fund? The answer is that everyone has different needs and objectives when it comes to their Kiwisaver.

So it’s impossible to say X, Y or Z provider’s conservative/balanced/ growth fund is simply the worst, although there are duds out there.

Firstly, nearly the “worst” Kiwisaver fund is the one you don’t ever contribute to. You get no longterm growth at all on that with no money going in.

Even if you’re dead set against the idea of Kiwisaver, it’s unlikely you’re going to get a better return on your first $1042 because the government pays you a guaranteed 50 per cent return at the end of each year by way of its $521 contribution. The last time I looked, you couldn’t get a guaranteed 50 per cent return on any other investment.

In the past couple of years, I’ve heard investors talking about the returns they were getting on their crypto and Sharesies investments. I doubt that a single one who started in the past two to three years is in profit currently. If they’re diversified and invested for the long term, their portfolios will bounce back eventually.

But this volatility is all the more reason to put a measly 3 per cent of earnings into Kiwisaver for some more diversification. Kiwisaver will at least provide a tidy chunk in retirement, which they can supplement with trading.

I said “nearly” the worst Kiwisaver above, because even worse is the Kiwisaver fund you switch down from growth or balanced to conservative AFTER the markets have fallen as they have now. We all should know that’s locking in the losses. Yet I see panicked investors discussing just this on the investing and money-saving groups I follow.

Switching down then stopping contributions when the market is low is even worse. Keeping contributions going means buying at a discounted price, and getting greater returns once the markets start growing again, as they have inevitably after every major crash for the past 100-plus years.

Confusion abounds

On the subject of switching, confusion abounds about what that even means. Above I’m talking about switching from growth down, regardless of provider.

All too often the group posts I see are from people whose Kiwisaver has fallen (as happens periodically) and they think that switching to another provider will suddenly mean their balance will revive. The reality is they’re moving from one equivalent fund to another with a different provider.

Taking another tack, the worst Kiwisaver fund for you might also be any conservative fund, if you should be in growth at your age, and stage. And vice versa with balanced and growth funds.

When comparing one conservative fund with another or growth v growth, there are better and worse performing funds of course. But it’s only ever worth comparing them over an average of at least five years, or 10 if possible. Beware that while I’m a great believer in low fees, the best or worst funds can’t be judged on their fees. It’s better to compare returns after fees.

A Kiwisaver comparison tool such as the Financial Markets Authority’s (FMA) Kiwisaver Tracker tool can highlight the lowest and highest growth funds within the same category.

So here it is. In terms of average returns over five years after fees, the worst performing conservative Kiwisaver fund after fees for the past five years according to the FMA search was BNZ First Home Buyer Kiwisaver, which returned 3.46 per cent per year compared with 5.79 per cent for Generate Conservative.

For balanced funds, the bottom of the table was AMP Global Multi-asset Kiwisaver at 3.91 per cent, compared to 10.08 per cent for Milford Balanced.

And for growth, Quaystreet Australian Equity Kiwisaver took bottom place at 6.39 per cent compared to the same provider’s Quaystreet NZ Equity at 12.98 per cent.

I used the FMA tool simply because the visuals work for my brain. Other places to compare Kiwisaver include Sorted.org.nz, Mindfulmoney.co.nz, Canstar.co.nz, and Bettersaver.co.nz.