Ki­wiSaver and doom-mon­gers

The Tribune (NZ) - - GARDENING - ROB STOCK rob.stock@fair­fax­me­dia.co.nz

The chance of a US re­ces­sion by 2022 is about 70 per cent.

With it would come falls in share and bond prices, which would make quite a dent in all our Ki­wiSaver funds.

The doom-laden pre­dic­tion is not mine.

It’s re­spected US fund man­ager PIMCO, and it’s been breath­lessly re­ported around the world.

One of the rea­sons for all the re­port­ing (af­ter all fund man­agers are no­to­ri­ous for get­ting things wrong) is that jour­nal­ists the world over are pretty be­mused about two things.

The first is that the world got it­self out of a debt-fu­elled fi­nan­cial cri­sis by gov­ern­ments bor­row­ing a lot more money, and en­cour­ag­ing house­holds to do the same.

In 2008 when the global fi­nan­cial cri­sis be­gan, com­bined global gov­ern­ment debt was US$35 tril­lion, The Econ­o­mist‘ s gov­ern­ment debt clock shows. At the end of 2015, it had in­creased by a third.

The sec­ond thing is that share and bond mar­kets seem in­sanely cheer­ful in a dis­turbingly risky­look­ing world (Trump, Brexit, and that debt moun­tain).

It’s enough to make any­one con­sider do­ing what PIMCO sug­gests, namely hold­ing a lot more of their in­vest­ments in cash, and be­ing ready to in­vest it when mar­kets fall.

Should Ki­wiSavers take a cue from PIMCO? Sadly, as is of­ten the way, there’s a long an­swer to that short ques­tion.

The an­swer begins by say­ing that Ki­wiSaver is a tool, and you must de­cide how you are go­ing to use it.

The premise be­hind Ki­wiSaver is this: You drip-feed money into the mar­kets over 20 to 40 years.

Some­times share­mar­kets will be go­ing up, and some­times they will be go­ing down.

The faith of the Ki­wiSaver is that over time share­mar­kets will rise more than they fall, so you get richer.

As long as the ad­mit­tedly bumpy trend of the last 30-odd years con­tin­ues, Ki­wiSavers can ig­nore the ‘‘noise’’ of the op­ti­mists and the pes­simists.

Some won’t buy that. They back them­selves to work out when to be in cash, and when to be in shares. That’s fine. It’s their money. In­stead of set­ting and for­get­ting, they have to make a series of de­ci­sions on when to buy shares and when to sell out and move into cash and bonds.

Ki­wiSavers could do that by switch­ing back and forth be­tween share-heavy growth funds, and cash- and bond-heavy con­ser­va­tive funds, or even su­per­se­cure cash funds.

I’ve seen so many re­ally clever peo­ple – fund man­agers in­cluded – get their pre­dic­tions wrong, or right for the wrong rea­sons, or right at the wrong time, that I don’t back my­self to get pre­dic­tions right.

So I see Ki­wiSaver as a longterm game, and adopt (with reser­va­tions), the faith of the Ki­wiSaver. But as I ama wor­rier by na­ture (both a strength and a weak­ness), I am­not blind to the things wor­ry­ing PIMCO.

While it’s not led me to be a cau­tious Ki­wiSaver, it has led me to keep my spend­ing down, save more, and get rid of all debt.

I can’t pre­dict mar­kets, or if (when) re­ces­sion will strike, but I can build my fam­ily’s re­silience to it.

‘‘I've seen so many re­ally clever peo­ple, fund man­agers in­cluded, get their pre­dic­tions wrong.’’

The world is a scary place, but hid­ing is not an op­tion when you are grown up.

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