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Summer KiwiSaver's Martin Hawes fears too many KiwiSaver investors are paying an expensive price for getting their fundamental investing approach wrong, overlooking longstanding principles

Summer KiwiSaver's Martin Hawes fears too many KiwiSaver investors are paying an expensive price for getting their fundamental investing approach wrong, overlooking longstanding principles

By Martin Hawes*

It is only when the tide goes out that we find who is swimming naked, according to Warren Buffett. Buffett is the master investor, but he is also a master of short, zippy sayings that cut straight to the heart of the most important ideas in investment.

The current economic crisis is a major ebb tide and, exactly to Buffett’s point, there are plenty of people swimming naked – in fact, a voyeur’s paradise. There are plenty of KiwiSavers in the wrong funds and suffering the distress of the slump.

When KiwiSaver was launched in 2007 there were many of us who hoped that the retirement savings scheme would help financial literacy. At the time I thought that KiwiSaver would see the democratisation of investment, that with millions of people now investors with real money at stake, there would be many people who gave their KiwiSavers funds the time and focus that they deserve.

In particular, people would have spent a little (a few minutes) to make sure that they were in the right fund. After all, account balances had grown to significant amounts.

However, not enough effort has gone in. Two groups especially seem to have no swimming togs: first there are many people who are using KiwiSaver to save for the first home deposit and who are in funds that are too aggressively invested. These people have taken major losses and those losses have made home ownership significantly more difficult for them.

That is a terrible shame because property markets in New Zealand are widely tipped to fall and this should have been the opportunity of a lifetime for these first home buyers. These people find themselves wanting to buy (and to buy cheap) but without the amount that they thought in their KiwiSaver accounts.

There is a basic rule that if you are likely to require funds from your investments in the short term (say, less than three years) you should be conservatively invested. People close to retirement and likely to cash in their KiwiSaver accounts, and those saving for their first home are in this category.

To aggressively invest money that you will need soon is to break a fundamental rule.

The second group consists of people who have not been able to tolerate their feelings as they lose money. Again, these people were invested in high growth funds but, when the market turned, they found that they were much more sensitive to risk than they thought when they first signed up. And so, they have sold up.

My experience is that when people sign up to an investment they are focussed solely on the returns. Little of no thought is given to the risk side of the equation and, when an adverse event happens, these people are rattled out of the market. In fact, all investment means looking at risk first.

To be fair, many people who signed up to KiwiSaver had no experience of investment slumps. They have that experience now, they should have learned and will not over-extend themselves in the future – but, this time, many have already sold out and so their learnings will come at a high cost.

While we describe funds as “growth” or “conservative” these descriptions are really just shorthand for the asset allocation that a fund has. Asset allocation is simply the amount of each major asset class (shares, listed property, fixed interest and cash) that a fund has. A growth fund will have lots of shares and property while a conservative fund has only a small amount.

Asset allocation balances risk and return, setting the right strategy for the amount of risk that can be tolerated. It is usually the most important determinant of fund performance.

Quite simply a fund with a lot of shares and property will give high returns but a crisis will leave you exposed to high volatility.

There are many questionnaires and calculators that will tell you what kind of fund you ought to be in after you have answered a few questions.  While these are not perfect (and people’s answers may not always be honest) they are well worth doing. In particular, these questionnaires will ask about how long before you will want to cash up your investment and your attitude to risk.

This latter factor (attitude to risk) is difficult to explore in a questionnaire and people with no experience of a major market slump may find the questions difficult to answer. The questions on this point are hypothetical and people often have no self-knowledge of their likely behaviour in a slump.  Nevertheless, personalised financial advice is not always available for KiwiSaver and I think a questionnaire is often going to be the best substitute.

Martin Hawes is currently presenting free webinars . This week’s ones will be on Tuesday 7 April and Thursday 9 April and will be on the topic of Investing in Retirement. You can register at:

*Martin Hawes is the Chair of the Summer Investment Committee. The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd and a Product Disclosure statement is available on request. Martin is an Authorised Financial Adviser and a Disclosure Statements is available on request and free of charge at This article is general in nature and not personalised advice. Summer competes with banks and other KiwiSaver providers.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Yes, risk.
I could never accept the risk of not having full control over your own money for decades.

But if someone can't be bothered looking after and growing their savings, then kiwisaver is a reasonable option.

You have a great deal of control. You can choose your own portfolio or get somebody else to do it for you in many different asset classes. You can change managers at a whim, control how much goes in and stop payments. What you cannot do is easily take it out before retirement so that you can buy a car, horse or feed a gambling habit.

You are quite right. But the government is basically in control of your access to the fund. A lot can happen in the decades.....who can't envisage a cash strapped government of the future increasing the age of retirement, or including kiwisaver in means testing of super, or mandating conversion of your balance to an annuity upon retirement?
You can't rule it out and with current events it is even more likely than I previously thought.

I wonder if one of the first things government will do, is not provide the approx $500 tax credit , as a result of all this additional debt they have to take on. Maybe means testing super in the future, but that can take years to bring in, otherwise it can cause hardship if people don't have time to plan.

The main thing saving us from means testing is that Kiwisaver is not compulsory and that annuities are not compulsory. Politicians would love it to be compulsory in these ways because then, they could means test all sorts of stuff without people being able to respond.

That's true. So anybody in kiwisaver should resist any attempt to make it compulsory for that very good reason.

But we often hear calls from some expert for it to be compulsory, and there is a reasonable chance that it will happen one day.

Hi Martin. I have slight issue with this idea that the individual kiwisavers are responsible. Most, if not all of them, are in kiwisaver as a matter of compulsion. They did not choose to become an investor. Add to this the fact that govt was pushing the retirement savings idea, led most of them to believe that they were being looked after by investment experts.
The property market, and the share market were positively viewed by real investors, who were just all to happy to have a huge influx of public money into the ma

Hi there,

KiwiSavers became investors when they joined up (and they chose to join). KiwiSavers are being looked after by experts but no expert can get rid of volatility - investors (which include KiwiSavers) only get a return if they take a risk.

My big point in the article is that KiwiSavers like all investors have to choose the amount of risk they can tolerate and not enough KiwiSavers have done that properly. KiwiSavers are invested in the property market (commercial property) and in the share market and, like any investor, have to acknowledge the risk of doing that

To carry on, these amateur investors, through no choice of their own, were thrust into something they simply had to believe was good for them. Why has the accent not been placed on the fund managers themselves? They have made a huge amount of money through handling such large collective funds. And there is no denying that. For managers that have profited so healthily from there customers funds, where is their accountability? How come they didn't do more to get to know their clients, advise them thoroughly?
Any attempt to blame this on those swimming without togs should be turned to blame the vouyers on the beach, ie, the fund managers. Wouldn't you agree?
Perhaps with the correct amount of time spent by these managers actually working their clients, would have brought about the great democratising of investment that you were so optimistic about? Would like to know your thoughts on this.

Yes, I agree that Managers should help their members and encourage them to get into the right fund. I have spent the last three years doing just that via articles, seminars, media etc while I have been involved in KiwiSaver and 25+ years before that.

However, although I can encourage people, I cannot move them into the right fund - only they can do that. I can tell them that they should do it, tell them why they should do it and tell them how to do it. But ultimately they have the password to their accounts (I do not) and they have to make the switch if that is necessary. I do believe that our financial literacy is improving thanks to KiwiSaver but it can still get better.

Well, thanks for that Martin. In honesty I wasn't necessarily referring to yourself as a fund manager. As I understood kiwisaver, I thought it was voluntary way back when it was first established, and later became compulsory. My apologies if I got that wrong. My own sense of frustration has more to with the comparison between the govt superannuation fund, and kiwisaver funds. Comparing the performance of both, it would seem evidently clear that the private fund managers have made a huge profit, from such a privileged position, and they should shoulder their portion of the blame for this lack of financial literacy.
I certainly appreciate your own efforts to this end, and in no way would want you to think I am aiming such criticism at you personally. Family members are big fans of yours, and I know that through your books etc, they have recieved your lessons gratefully. Thanks for taking the time to reply.

I guess its difficult as fund managers can't get rid of systematic risk - and even the likes of Ray Dalio and Buffett have lost money on their holdings.

Yes, Martin's book "20 good summers" is very good.

the NZ Super fund have done well but they have taken on a fair bit of risk to do it - it is invested about 90% in equities and only about 10% in fixed interest. If that was a private investor, I would describe the portfolio as an aggressive portfolio. It also has a fair bit of private equity investments which give better returns. Yes, I agree that some fund managers have done extremely well out of Kiwi saver. Sometimes the fee is justified by performance and sometimes not.

I'm 15 years away from getting my grubby little mitts on my k/s.

I'd had it fully in commercial property via the Superlife fund which lets you chose how/where/what you allocate your funds to.

When I checked 2 weeks ago it'd dropped 24% so I pulled it and put it into bonds, the thinking being I'll let this shitstorm blow past before reassessing matters.

Going on 'how it should be done' that's totally wrong and I'm quite aware of that, but I still don't see the upside of leaving it 'as is' while (in my mind) this bunfight is just beginning.

So - why would I leave it in a falling fund?

The problem is picking the time to come back in - that is fiendishly difficult and you can end up stranded in bonds when the market shoots back up.

I think in all of your advice you have an innate built-in bias that growth funds will consistently increase over the long term. And in this case they will bounce back.
Sure, that has happened in the past.
Why exactly should it continue like that in the future?
Why not, for example for stocks and bonds to stay completely flat for 20 yrs?

I'm thinking about putting some into commercial property. It was overvalued, but now looks OK. Bonds are the last place I'd be, but then we are all different.

Yes I've been thinking the same - some REIT's on ASX and NYSE have fallen quite a long way. Kiwi Property has fallen a long way recently. I still think PFI and GMT might have further to fall yet but dollar cost averaging into them might be the way to go over the next 6-12 months.

Think you're right; mostly.

Rents are going to take a hammering, and the 25% reductions that tenants have been asking for during the lockdown could be permanent; well at least for a period of years until vacancies are taken up. In short, most contract rents are likely to be above the market, and when it comes to renewal time there'll be another landlord and his real estate agent after your tenant. Inducements will be a plenty. Commercial property and the stupid yields of 4 and 5% the relatively new entrances and syndicates have been paying are going to take a bath.

This is going to take a while to play out, but a value reduction of 24% looks very conservative.

Can commercial property owners afford to offer 25% reductions in rents, even short term, when their costs are not likely to change substantially?

Hi Martin - I've perhaps been guilty of this myself. I have no need for my funds i.e. they're locked up until I'm 65 (decades away...!). But follow the markets closely and things appeared to be getting a bit high across almost all asset classes the last few years. As such I moved from growth to balanced last year to reduce risk - I guess I consider my kiwisaver as part of my 'portfolio' - is that valid thinking?

I invest internationally (Europe/US/Japan) with brokers and an trade on NZX/ASX with DirectBroking (shares/bonds/LPT's).

Given there are fee's involved in personal trades I've reduced risk with my kiwisaver as opposed to selling some of my riskier assets with the brokers that would incur higher fee's. Again, is this valid thinking or am I selling myself short with kiwisaver? (i.e. is the cost of changing funds higher than the fee's from paying brokers to sell my individual holdings?) Should I assume kiwisaver managers are better than me to manage a portfolio of risky assets I guess could be the crux of my question - as well as the fees involved.

Brokers have fees and so do KiwiSaver accounts. I think the real trick is to ensure that you are getting value for money (which, I admit, is not always easy to judge). A full time professional should manage a portfolio better than an amateur. An amateur could be better provided fees are less but they have to commit to the task and put the time in. It is hard to beat the pro if the pro is sitting watch a screen all day...

Lawdy lawdy lawdy, sure as 'ell is some roundabout talkin herabouts.

All the time Martin has been advisin', the planet has been getting chawed. Mightily chawed, to the pint where there be only dregs left in that thar ground.

Yet all these wide-eyed betters went bettin'. Cos they wus advised, you unnerstand. Wouldn'a dunnit if'n they'd not been advised.

Yessiree, there's a tree with a good lower branch, over yonder.

Am I right in summarizing "its not the value that you put in that counts....its the value you get out" ?

Martin, thank-you for your article. Two things.

1. Aren't we paying an adviser fee as part of our KiwiSaver fees. Whether this be to the banks or to individual advisers or advice companies? Where are the advisers in these scenarios?

2. Are conservative funds really that conservative? With interest rates at all time lows, some bonds yielding negative returns, how conservative are these funds looking if we start to see interest rate rises wiping out the capital value of the bonds? I suppose the bonds could be held to maturity and conservative investors get wiped out via inflation eroding away their purchasing power. Either way, that scenario doesn't sound too conservative to me, it sounds very risky.

It seems to me, all investors are stuck between a rock and a hard place. Would be interested in your thoughts.

This post hits nail on the head. This reckless central bank stimulunacy has turned even the ‘safe’ assets toxic. No one even buys bonds and treasuries for the paltry yield anymore, only for the up and down risk trade. Apart from my home and an unlisted commercial property fund I went into - unwisely as it turns out, but I wasn’t thinking pandemic, I was just desperate for a yield to beat tax and inflation- I’m 20% bonds and the rest cash or near to (term deposits). I was 40% bonds but halved exposure as off near zero rates, there seemed only downside. So I’m sitting on cash earning nothing - I’ve money in an actual cash fund that has been losing money for 3 weeks, hilarious :) - and am getting ready to get out of the balance of bonds as I see big losses coming as soon as RBNZ takes itself back out of the bond market, and only treading water in the meantime. And then looking at the idiot share rally in Asia yesterday, Europe last night and those lunatics in the US right now, we’re no where even close to the bottom of this bear market, I won’t touch shares -time in the market is rubbish, frankly - so, it’s all crazy and impossible to navigate for those of us who are prudent, just want tp preserve what we have saved, because it was enough, and don’t want to take on the huge risks of all asset types ... anyway, next step, credit defaults.

Fees cover the investment management not advice. In a few limited cases the investment managers share some of their fees with advisers to give advice. If the adviser gets these fees the average Kiwisaver balance would pay an adviser about 2 hours a year at minimum wage with no contribution to the costs of running a business. Legislation means that the adviser needs to comply with Anti Money Laundering (even for a locked in Kiwisaver), the Financial Advisers Act and all of the new hoops that bureaucrats dream up. Most serious untied financial advisers have avoided it as much as possible as the stick is much bigger than the carrot. One AFA (Authorised Financial Adviser) I spoke to estimated that the compliance cost was about $500 per Kiwisaver client. Banks and such the like collect the whole management fee and have economies of scale so should be able to reduce that to be viable using roboadvisers, templates and a very limited scope of service.

But surely stock markets have had extremely high returns over the last 10 or so years so investors in growth funds should have done very well, in general. Won't such investors be better off than similar investors in conservative funds, even though there has been a significant drop in markets and their KiwiSaver balances. I’m not sure if that will be the same going forward, though.

I agree, my impression is that if a first home buyer (as Martin suggests) was in a conservative fund three years ago, they would have less in Kiwisaver now even after this recent drop?

Does anyone in NZ provide expected prospective returns for each asset class for say the next 7 years like GMO?

I would rate financial literacy just as, if not, more important than gaining your drivers licence or being old enough to vote. In my humble opinion, aside from institutional racism, its the single biggest factor holding this country back.

Financial literacy is probably more important now than previously given the move of retirement income responsibility to move the onus from the government to the individual (and as companies move from defined benefit schemes to defined contribution schemes)

The largest asset for most households is the house (over 60% of households own their own home). So most households have their largest asset allocation in residential real estate.

Many property investors have further invested in real estate in order to provide an income in retirement (such as the long term rental market and the short term rental market like Airbnb). This has resulted in increased buying competition for houses (as well as from property traders, & small time property developers). This increased house prices in recent years to levels where the property price risk is now elevated in many parts of the country (such as Queenstown & Auckland). Any large price fall in property prices would seriously impair an individual's potential retirement fund. Look at US post 2008 GFC.

Lessons from the US GFC 2008 / 2009

Cause of the housing and credit bubble in US

From the May 2010 FCIC interview with Warren Buffett, a reknowned investor and Chairman and CEO of Berkshire Hathaway

MR. BONDI: As I mentioned at the outset, we’re investigating the causes of the financial crisis. And I would like to get your opinion as to whether credit ratings and their apparent failure to predict accurately credit quality of structured finance products, like residential mortgage-backed securities and collateralized debt obligations, did that failure, or apparent failure, cause or contribute to the financial crisis?

MR. BUFFETT: It didn’t cause it, but there were a vast number of things that contributed to it. The basic cause, you know, embedded in psychology –- partly in psychology and partly in reality in a growing and finally pervasive belief that house prices couldn’t go down and everyone succumbed –- virtually everybody succumbed to that. But that’s –- the only way you get a bubble is when basically a very high percentage of the population buys into some originally sound premise and –- it’s quite interesting how that develops –- originally sound premise that becomes distorted as time passes and people forget the original sound premise and start focusing solely on the price action.

So every -– the media, investors, the mortgage bankers, the American public, me, my neighbor, rating agencies, Congress –- you name it -– people overwhelmingly came to believe that house prices could not fall significantly. And since it was biggest asset class in the country and it was the easiest class to borrow against, it created probably the biggest bubble in our history.

From the video below:
"Asset [price] appreciation, draws in people that really don't know anything about the asset. They start being interested in something, because it is going up, not because they understand it or anything else. The guy next door, who they know is dumber than they are, is getting rich, and they aren't. And their spouse is saying "can't you figure it out too?" It is so contagious. That's a permanent part of the system."

I think its fair to say property is a cornerstone to any economy whether you want to grow a feild of chick peas in north africa or have an air bnb in queenstown, you need the land. Even tech companies need somewhere to rack all their servers....speaking of property...hows that queenstown property market gonna look post lockdown?

Assuming 70% LVR financing for a property investor, and the property is substantially unchanged, this owner is highly likely to go into negative equity. They could lose about 166% of their initial deposit if they are unable to hold on for the property price recovery (about $850,000 possible loss), assuming the property is substantially unchanged.

.. Liked that last paragraph, it can be prevented by 'rules/governance' as we did to our kids with regard to Marijuana, Alcohol, Driving etc. - BUT vested interest in NZ stopping the govt./central bank from doing this, we don't want to be a nanny state, most adult should know better etc. - .. with this lock-down, the neighbour started to plant plenty of Tulips.. C'mon honestly they look prettier when blooming, added to those big colourful sun flower... the price will go to the roof! do it, do it, do it, do it...

I agree that many people have been drawn to invest in ETF in recent years where the market has been very positive and providing good returns year after year. That has given the illusion that while you should have a long term approach - kiwisaver scheme allow that by default - people can invest in aggressive funds with the idea I can get out with a profit even after a few months. Wrong.
If you are invested in a shares fund now is the time to stay put, and if you can, actually invest more in it.

There’s a fundamental problem with the very serious, well-informed and well-intentioned advice about KiwiSaver dispensed by the likes of Martin Hawes and Mary Holm. That is, it’s based on experience- which would usually be a good thing - but it’s the experience of just one generation. It underestimates risk because it’s based on the experience of the most economically and politically benign - yes, including 87 and the GFC - investment environment in history. It really looks like we’re headed for many years of zero interest rates and massive zombie funds propped up by central banks, aka Japanification, (at best). Is investing as if it’s 1995 or 2005 really a good idea?

They tell you to pay off debt before investing. What we have is a system where people are forced to invest while holding mortgage or student debt. The financial racketeers keep you in debt serfdom as long as they can. With your investment funds they skim massive fees and line their pockets. You are just the bottom layer of the ponzi scheme.

Howdee Doggog on ! these "financial racketeers" aim is get you "completely entangled" in their world of debt serfdom, for their own greedy aims - whether it's Kiwisaver and the fees they charge, which are ultimately paid by the Government (read taxpayer and the holder themselves) so that's why the banks etc just love them, while the banks love high house prices, as if the higher the price of the house, the more interest you will pay on that mortgage - that's why they can gleefully go to the public "look, look, look" we have reduced interest rates ! ....knowing full well that the returns are much the same or better ! ie a $350,000 mortgage interest only @ 5% is $1,458 per month while @ 3.25% for a $750,000 mortgage for the same house (because of way higher house prices !) is $2,031 per month !!! ...they are laughing all the way to the 'bank' !

What I try to do is limit or eliminate EVERY F.I.R.E. (Finance, Insurance & Real Estate) expense - so for finance, reduce or eliminate your mortgage(s), small loans and credit card debt etc. While for insurance, shop around for ALL insurances and eliminate some where I could cover myself, with"rainy day" money .....and of course REAL ESTATE, which includes rents, rates and insurances and again mortgages !! ...while being a nasty combination of all the F.I.R.E. elements.

I can not wait to see the day, when medium to large companies/councils stop ripping off the little guy ...a classic example which happened to a friend of mine with quotes for some drainage work - A. medium size company $13,500 vs. B. a small 1 man band company $4,000 for exactly the same work !

I am watching to see what will happen after the COVID-19 conditions are lifted, as I think it's NOT going to be back to BAU - as per my friend's quote above !

They never let a crisis go to waste. BAU to continue with the hastened removal of physical cash. We can’t possibly allow such a vector of the virus to remain in circulation. Look out savers with cash in the bank, here comes the move to negative interest rates and money printing that will wipe you out. You make the choice, hard assets vs fiat money (Intrinsically valueless money used as money because of government decree).

A excellent post Martin with quality content.
The unfortunate fall out in my view for those who experience a drop in their Kiwisaver accounts,many will blame the sharemarket, kiwisaver and such when in fact it is them that have made such poor choices or ignored professional advice.

The outcome going forward for many that have been affected negatively through their own fault in many instances will bad mouth Kiwisaver, super funds, share investment much to the detriment of securing their financial future.

Early withdrawal of KiwiSaver funds under COVID-19

KiwiSaver is a voluntary, work-based savings scheme, designed to help people prepare for their retirement. The primary legislative objectives of KiwiSaver are to:

• encourage a long-term savings habit and asset accumulation by individuals,
• increase individuals’ well-being and financial independence, particularly in retirement.

The policy drivers for the implementation of KiwiSaver were the perceived low levels of private saving for retirement and a concern that middle-income New Zealanders, in particular, were at risk of experiencing a substantial drop in their living standards during retirement.

However, an IRD study into KiwiSaver, found evidence to suggest that KiwiSaver has not been successful in improving the accumulation of net wealth for its members and that KiwiSaver members actually accumulated less wealth compared to non-KiwiSaver members.

The IRD cost and benefit analysis also showed that each taxpayer dollar the Government spent on KiwiSaver, only resulted in additional savings ranging from 20-38 cents for the target membership.

The study also showed that the primary incentive for people joining KiwiSaver was for the employer contributions.

For those made redundant under Covid-19 and facing long term unemployment, KiwiSaver has become a luxury that is neither consistent with their reason for joining, nor their changing priorities.

This raises an important question as to whether KiwiSaver members should have early access to their funds outside of the current withdrawal criteria which are; (a) reaching the age of entitlement for government superannuation (age 65 but likely to keep increasing), (b) first home buyers, (c) financial hardship, (d) moving overseas permanently (excluding emigration to Australia) and (e) serious illness/permanent disability.

Individual’s best interests can only be served if they get the best possible return on investment applicable to any given world economic scenario. The KiwiSaver rules are currently forcing people to remain exposed to a risky share market producing negative returns or to remain with cash tied up in a fund that isn’t working for them.

KiwiSaver funds have suffered huge losses recently and those losses are unlikely to be recovered in the share market within a long term economic recession.

In the current situation, the cost of debt far exceeds investment returns, so reducing or offsetting debt is a prudent alternative to continued exposure to the volatile share market.

Other alternatives to consider are; diverting KiwiSaver funds into businesses or other investments which are safer or afford more control and liquidity. Some have been forced to retire early and they should not be forced to wait for their retirement funds. Others might wish to invest their funds to re-train or up-skill for new careers.

In summary, my belief is that for many, KiwiSaver is no longer fit for purpose in the post Covid-19 recession. The IRD study showed that even in boom times KiwiSaver was out-performed by alternative investments and that for taxpayers, the costs of KiwiSaver out-weighed the benefits. There is no incentive for those no longer enjoying employer contributions. There are many ways in which KiwiSaver funds can now be put to much better use in order to achieve the original objectives of asset accumulation, individual well-being and financial independence.

If you are interested in pursuing early withdrawal of your KiwiSaver funds outside of the current rules, then please sign my government petition at: