Balanced fund a better fit
At 40 a balanced or growth fund is better, says
Managers are required to list the top 10 investments in their KiwiSaver fund as well as information on performance and fees.
Ihave been in the default ASB KiwiSaver scheme since I joined nine years ago. I am 40 years old and already own a house, so this is my retirement savings. I have been reading about ‘lazy’ people like me staying in a default fund rather than taking on more risk and moving to a growth fund. Should I change funds and how do I go about it?
The ASB default conservative fund is by far the largest default fund, with nearly $4 billion. It is a passive fund — this means that it comes with lower fees than an active fund. Is this good or bad? Returns are quoted after fees, so make your decision based on returns rather than fees.
Your fund has averaged 4.28 per cent since inception in 2007 (slightly below the average for all conservative funds which is 4.54 per cent). The fund has 80 per cent in lower risk assets such as cash and bonds and around 20 per cent in shares. This could be a suitable fund for a person heading into retirement who is planning to cash up their savings soon, but it will not deliver much growth to you over the next 25 years.
You should also be aware that a rise in interest rates could affect the value of the bonds in your KiwiSaver. Falling interest rates boost the value of bonds while rising interest rates cause bond prices to drop. Your fund achieved an impressive 8.50 per cent back in 2010 at a time when interest rates were falling.
What are bonds? They are an investment based on debt — lending to a company or organisation — rather than equity (buying shares in a company). For example, a company such as Fletcher Building could decide to raise money by issuing a new 5-year bond (also called Capital Notes), paying a 4 per cent coupon to investors. A keen investor may say “That’s better than the bank!” and buy $30,000 worth. A year later our investor wants to buy a new car and looks to raise the money by selling their Fletcher Building notes. But if interest rates have increased our investor may find no buyers willing to pay $30,000 — they will want more than 4 per cent now. Fletcher Building is not going to increase their coupon rate so the seller takes the hit — their 30,000 parcel may only be worth $27,000 now. The investor may decide not to sell, but if that parcel was part of your KiwiSaver portfolio the drop in value would be reflected in the unit price. You can look up the values of New Zealand listed bonds online on the NZX Debt Market (NZDX).
You can find out how much your fund has invested in bonds by searching online for the latest Quarterly Disclosure Statement. Every KiwiSaver provider is required to make this information available to investors. They are not always easy to find online so be specific in your search. Managers are required to list the top 10 investments in their KiwiSaver fund as well as information on performance and fees.
Given your long timeframe you should consider moving to a balanced or growth fund. How confident are you about making investment decisions? If you don’t want to do the legwork yourself, talk to an Authorised Financial Adviser. Ask them if they can give you information on more than one Scheme, and whether they receive commission or charge a fee for their advice. If you would like to learn more about KiwiSaver, it is worth putting some time into researching your fund and others. There are several organisations providing information online, such as Sorted FundFinder, the Financial Markets Authority and Morningstar.
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 06 870 3838 or go to peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz
Managers are required to list the top 10 investments in their KiwiSaver fund as well as information on performance and fees.