KiwiSaver choices often poorly informed
In 2007, then Labour finance minister Sir Michael Cullen rolled out KiwiSaver, to drive a savings culture among New Zealanders. Three million Kiwis have built a combined nest egg of $57 billion, managed by 30 providers. Brent Melville investigates.
EINSTEIN reportedly referred to compound interest as the ‘‘eighth wonder of the world’’.
‘‘He who understands it, earns it. He who doesn’t, pays it.’’
The problem is that New Zealand investors are a timid lot.
Most of our investments and savings are in defensive assets, for example cash and fixed income and we tend to put a lot of stock into property, says Bradley Nuttall Otago financial adviser John
Alexander.
In line with this ‘‘tread softly’’ approach to investing, comes a common misunderstanding of how KiwiSaver actually works, he says.
‘‘KiwiSaver is really our only mass market investment option and most people just wallow through it.
‘‘Most people have left their money in lowrisk portfolios which tells me it just hasn’t been properly promoted, and people are largely disengaged from their funds.’’
‘‘If they don’t see it they don’t worry about it. People have worked out how to live on what is left of their salary after tax, KiwiSaver and other salary deductions.
‘‘But when there is a decision to be consciously made, for example when someone moves over to being selfemployed, a lot of the time putting money away for retirement goes by the wayside.’’
Most New Zealanders should have more global and equity exposure, and less cash and fixed interest, he said.
‘‘People need to better educate themselves as to the importance of KiwiSaver to any investment mix.
‘‘We would certainly try to work KiwiSaver into an individual’s overall portfolio, and in many cases after discussion with clients, they realise they want to shift into a different profile fund.
At high level, investors have a choice of investing in growth, balanced or conservative funds. ‘‘Which option you take should be based on a few variables, for example your life stage or level of risk you are willing to take.’’
Polson Higgs director and senior adviser Rhodes Donald said a general growth fund weighting, for example, might be an 80/20 mix of growth/ defensive investments.
This might equate to about 60% in international and emerging markets, 20% in the Australian and New Zealand share market and 20% in defensive instruments — fixed interest and cash.
But, he said, if you adopted an active approach to KiwiSaver, it was not necessarily prudent to shift into different funds simply because of ‘‘perceived performance’’.
‘‘It is an old adage, but investors need to remember that past performance is no guarantee of future performance, so it is really better to get some solid advice first and understand where you want to be.’’