Seeking ‘your’ KiwiSaver fund
There are six questions all KiwiSavers should be able to answer, writes Rob Stock.
When Wellingtonian Tomasz Zukowski became a New Zealand resident, he turned his mind to picking a KiwiSaver fund.
‘‘We fell in love with the country, and have become residents. This is a lovely place to live, and in turn to retire.’’
So he went shopping for a KiwiSaver fund, and was determined to make the best choice he could.
The IT specialist was familiar with investing, though he didn’t feel educated enough in finances to make a decision, so he set to work educating himself.
‘‘I read a hell of a lot of investment books and blogs, and effectively, the thing that came out was that an index fund was one of the best ways to invest for the regular people.’’
He’d identified his preferred way to invest: low cost funds that mirror the market.
These kinds of funds are gathering a growing following, and are the polar opposite of ‘‘active’’ funds, run by expert fund managers, who are paid to try to beat the market.
Once he had worked out his preferred kind of fund manager, his next job was to find one with a KiwiSaver scheme.
The New Zealand KiwiSaver market is split between three, broad kinds of fund management.
There are the highly active schemes like Milford, Fisher Funds and Generate.
Then there are the giant bank and insurer schemes which sometimes get referred to as ‘‘quasi active’’ because they stick relatively close to the market, but are not trackers.
And there are the passive, index managers like Simplicity, ASB and SuperLife.
Zukowski opted for Simplicity for its lower fees, and because he liked that it was operated by a New Zealand manager, and was not-for-profit, but those were secondary to his key aim, which was the find the fund most likely to get him the biggest retirement nest egg he could.
Once he found Simplicity, he researched his risk profile, and decided he should be in a growth fund, to maximise his chance of high returns.
Tomasz had set out to answer the key questions people need to answer when seeking the right fund, and on track to save enough for a decent retirement:
Should I be in a conservative, balanced or growth fund?
Do I want an active or passive fund?
Which fund of my chosen type charges reasonable fees?
How much do I need to save for retirement?
Am I putting enough in each week to get there?
Which KiwiSaver scheme suits me best? Stubbs says Simplicity’s first customer survey in May got 994 responses, about one in five members completed it.
Low fees was the number one drawcard, though that’s hard to separate from its passive management.
‘‘Members clearly want their KiwiSaver to make them richer and feel that fees are a really important part of that. What Kiwis pay for food, power and fuel matters. It does with KiwiSaver fees too.’’
‘‘S&P studies show the chances of active managers beating the market over a long period of time as extremely low. At best you’ll find a sprinter who wins one or two races, but KiwiSaver is a savings marathon. We’d rather be the tortoise than the hare, because we all know who wins.’’
Without expensive active fund managers to pay, passive fees are low.
‘‘Remember, that the average KiwiSaver fee is now over 20 per cent of the returns a member gets, every year,’’ Stubbs said.
If, after boning up on the subject, or getting advice (which often comes from friends or family) a KiwiSaver chooses active management, they have to pick a manager to go with.
Some of the large KiwiSaver schemes run by the banks are rudely dubbed ‘‘quasi-active’’ by really active fund managers, because they tend to stick close to the market so as to reduce the chance of underperforming big rivals and losing members.
AMP, for example, moved closer to the market after poor performance left its funds languishing near the bottom of the long-term Morningstar fund returns tables, in which all KiwiSavers can see how their funds are doing compared to others on the market.
Many investors choose their schemes based on other factors. High performance, the backing of financial advisers, and a charter of seven investor ‘‘rights’’ helped Milford build an $800million KiwiSaver following.
That’s especially impressive, as big brand bank and insurer KiwiSaver schemes have a natural advantage. People trust big names to look after their money.
Great communicators like Carmel Fisher and Gareth Morgan were also big assets to their schemes, talking their active stories, and in Morgan’s cases, transparency and global investment focus.
Independent KiwiSaver expert Binu Paul, said KiwiSavers should be seeking consistent performance from their managers.
He said people considering switching from one KiwiSaver fund to another - and around 175,000 do it each year - should ask themselves: ‘‘Why was I in that fund, and have the reasons changed?’’
‘‘If you were in the fund for no reason, you have a problem on your hands.’’
Fees might as well be called taxes, they're that high. Sam Stubbs, Simplicity