Billions languish in wrong Kiwisaver funds
you didn’t choose a fund or a manager you were allocated to one of the six managers and placed in one of their default funds.
They are conservative and generally have less than 20 per cent of their funds invested in growth investments such as property and shares, and 80 per cent in cash and fixed income.
Five years ago, and just before the global financial crisis, having a conservative approach paid dividends, with 7 per cent to 8 per cent interest rates and a low percentage invested in property and shares. These funds performed well during the downturn.
Five years later the world has changed, so is being in a conservative fund still appropriate?
The table gives a rough guide to the way the funds are sorted into five major categories for a fairer comparison. The right-hand column shows the percentage of growth investments in each of the various types of funds.
Be warned, the name of a fund can be misleading. In the moderate section, four of the funds were called moderate, 10 were named conservative, and confusingly three were called conservative balanced.
In the balanced section, most of the funds were called just that, but there was also a moderate fund, a moderate balanced one, and an active balanced fund.
It gets trickier when you get to the aggressive section. Few managers like to use the word aggressive in describing their funds, so growth and high growth seem the preferred options.
In the June survey the highest return for the past year was 31.4 per cent compared with 0.8 per cent at the lowest end of the scale.
On a five-year basis, the highest returns were 13.5 per cent a year, while the lowest were 0.5 per cent a year. Do you know how your fund performed?
Most fund managers have questionnaires that help point investors in the right direction, but I have a simple guideline (thanks to John Bogle from Vanguard Investments) that says your age should equal the amount you should put in income investments.
In my opinion a 35-year-old investor should be investing in a fund that is roughly 65 per cent growth and 35 per cent income, which means they should be looking at funds in the growth or aggressive section.
For several years AMP has offered its Lifesteps KiwiSaver scheme, which takes the guesswork out of choosing a fund. If you are in your early 30s your funds would be invested in a growth or aggressive fund, and as you get older you are automatically moved to moderate, balanced or conservative funds. But the choice is yours.
My concern is that more than $4.5b of KiwiSaver funds are still