KiwiSaver and doom-mongers
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.