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KiwiSavers shouldn't sweat the sharemarket slide; equities are a necessity in a long-term low interest rate environment, says Tower

KiwiSavers shouldn't sweat the sharemarket slide; equities are a necessity in a long-term low interest rate environment, says Tower

By Amanda Morrall

As U.S. debt-driven panic continues to hammer sharemarkets worldwide, including New Zealand where the benchmark NZX50 has dropped 10% in the last week, KiwiSavers will have no other choice but to wait out the storm, says one fund manager.

Despite the pessimism and fear sweeping through the markets,  Tower Investment CEO Sam Stubbs sees reason for calm and optimism.  That's because when the sell-off slows, Stubbs believes there will be good buying opportunities in the equities markets where underlying corporate balance sheets show a much cheerier picture.

"We actually see this as an opportunity. We'll be net buyers of shares over the next couple of weeks in this environment,'' said Stubbs.

As a default provider of KiwiSaver funds, Stubbs said Tower is more conservative than most, so its funds will come through relatively unscathed as a result of recent events. Those with higher exposure to equities will take it harder, he admits which is decidedly bad news for older investors in growth funds, particularly if they are anywhere close to their 65 birthday.

"If you were heavily weighted in equities, and needed to get your money out, it's probably too late,'' to change or modify the fund to minimise real damage to savings.

Mind the gap (to gauge your exposure to equities and other higher volatile assets check out our KiwiSaver section showing a Growth Asset Percentage ratio

While global economic uncertainty and recent sharemarket volality may have some KiwiSavers looking for safety in the form of conservative funds -- comprised of cash and bonds -- Stubbs says equities are necessity for anyone who wants to make real returns, above inflation.

"Right now in the U.S. you're getting paid .25% if you invest in two years government bonds. People can't live on that. They will be looking for higher yielding securities, companies that have strong balance sheets and have the ability to pay good dividends. So that's where we think ultimately money will flow.''

Like many others in the financial sector, Stubbs does not see interest rates rising for a long time. (See also Bernard Hickey's opinion piece on The Great Repression).

Stubbs suggested that the sharemarket sell-off was primarly driven by spooked retail investors, following the herd. He said institutional investors and other large holders of equities are holding the course through the mayhem.

"It's far from being the end of the world.''

Fisher upbeat

Fisher Funds Manager Carmel Fisher was similar upbeat, particulary with respect to KiwiSaver.

Speaking at the New  Zealand Shareholders' Association annual general meeting in Tauranga this past weekend, Fisher told investors KiwiSaver was a good reason for optimism. She said 30% of her clients were first-time investors that admitted they would not have saved, were it not for KiwiSaver.

Another benefit of KiwiSaver, which has more than 1.7 million members with more than $8 billion in funds now, is the regular savings design, she noted.

Regardless of what markets were doing, investors are channeling money on monthly basis into retirement savings. The locked-in aspect, however disagreeable to investors who want flexibility, protected savers from exactly the kind of thing that is happening now.

John Body, managing director of ANZ Wealth, said while current conditions were cause for concern, increased vigilance and careful management, "fundamental portfolio composition" among the provider's funds remain unchanged.

Body also emphasised the long-term nature of KiwiSaver and the fact that one size in KiwiSaver does not fit all.

"Investors need to make their fund choices based on their own individual circumstances. For this, they need to seek the appropriate professional advice. During the course of a twenty or thirty year lifespan in KiwiSaver,  investors are likely to experience periods of market volatility.''

Body said fund managers were tasked were delivering "consistent returns over a variety of market cycles.''

(Updates with comments from ANZ Wealth's managing director John Body)

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23 Comments

I agree with that sentiment, but only to a point. It's just too bad if you are turning 65 today and get your kiwisaver funds paid out on today's sharemarket values. And who's to say what condition the market will be in when any of us turn 65.

Somehow I would like to see a kiwisaver fund that regularly banks its gains so that some of that increased value is locked in long term and is not lost when market's tank. 

A pertinent point indeed , DB ! ...... Hence the advice to diversify ones portfolio . And not as many retirees did , into a range of finance companies , instead of just the one .......

...... but to get a mix of property , shares , cash equivalents ..... and KiwiSaver . Such a balance that the individual sleeps easy at night .

Even then , there's no quarantee of getting it 100 % right for the day of your retirement .......

..... but then ,  that is what makes life so rich and exciting , no iron-clad guarantees !

[ ... taken from " Gummie's Book of Help " , gratuities gratefully accepted ... tah ! ..]

' KiwiSavers will have no other choice but to wait out the storm, says one fund manager.'

 

Of course they have no choice - they are stuck in the scheme till they are 65, and will watch as successive market crashes over the next however many years destroy their savings (government incentives included). Long term pension plans based on this model are going to get wasted.

The fund managers make me laugh - of course they have no need to worry, they get paid regardless, out of the management fees. How many of these berks have exposure to gold in their funds?

Take the long view they say, drip feed your dollars in. That is yesterdays model I am afraid and it doesnt work any more. Go ask the Japs and study the Nikkei - an inexorable  decline from nearly 40,000 to less than 10,000 in 30 years - wonder how well drip feeding Yen worked for them?

not strictly true, you can move your account to a cash and govn bond bias fund with little or no shares?......and consider taking a holiday.

regards

 Amanda, good on you - even on bad days you always have a positive overwhelming drive.

http://www.youtube.com/watch?v=cPjjM26YQCU

Counterweights are useful but I'm too skinny. I need some heft, like that fellow on the slide.Ouch!

 

Yes that guy did have some padding luckily. I wasn't so lucky 7 or 8 years ago when I fell off my roof. It was half round but it was still 4 m and l had a black and blue butt cheek for a week after. Ouch.

Yeah - you are right Andrew - the big guy in the video - look where and how he landed - hmmm - it hurts.

Some dos and don'ts for nerve wracked investors....some good tips here, in my humble opinion.

http://www.theglobeandmail.com/globe-investor/personal-finance/rob-carri...

He doesnt get peak oil.....or the mountain of debt......

 

regards

In my gumble opinion too , those are excellent points , Amanda . Thanks for that link . ...

..Good commonsense stuff  and , ahhhhhhhh ....... so soooooooooothing to the shell-shocked nerves ........

One Gummster trick , is to keep a cumulative running tally of his shares' dividend payments / cashflows / and gross revenues .... these metrics are less whip-sawed than the stocks' market prices are ........

...... does bloody wonders for the sense of financial security to see the dividends rising so steadily , year by year ........ bugger the actual share prices . The income is the objective .

Good tip! Start writing that Gummy Bear guide to the financial universe...I'll buy one. The problem with most of these money books is they're dull, didactic, and full of ego. Humility and humour go a long way in this life...in my humble opinion. 

Amanda - yes, I see the error of my thinking. Clearly, you only need money to make more money, and you only need more money, to make even more money. Just like that. Magically, without doing anything, we can all get rich.

http://www.youtube.com/watch?v=qT4HCfDPOnY

you wanted humour....

 

NZX50 down about 14% from its recent high on May 20 2011 and 29% down on its 2007 peak!

So over the 4 year term, an average -8.3% return, so negative double digits in real terms!!

Is that the type of long term performance that we should aspire to??

If you're over 55 you should have your money in cash funds only, there's just far too much volatility (unless your shares have very high earnings and pay good dividends).

Correct. Most major indices are now starting to exhibit the classic head and shoulder pattern (with the 2007 head). All the rivers of QE money thrown at the markets post 2009 STILL could not lift them above the 2007 peak, and now they are falling again.

The cult of equities is dead. Many, many people (though not fund managers) are going to lose vast sums because they dont yet undestand this. Sure there will be rallies, but long term this bird aint going to fly.

All this points to property being a pretty solid choice. The end of the day, property has fallen back but is getting back towards 2007 peaks.

I'm kind of taking the piss here, but kind of not.

the latest slump in shares perhaps demonstrates why property still is the favoured choice for many   

And with interest rates likely to remain low for some time., property is likely to stay relatively stable

With these kinds of factors its no wonder that prices are holding up reasonably well 

 

No it does not, sell.....

The housing market is like the share market ,built on confidence and once this share mayhem filters through to housing the drops are going to be noticable.  There is only one place to be right now IMHO, thats zero debt and cash.  Trouble is of course it takes time to sell a house and most wont until it dawns on that most that they must sell.....into a market where most will know that waiting makes things cheaper....blood on the floor from share losses sure, but ankle deep when housing goes....

So the only Q is how fast per year and for how long.....10%+ per year, 2 to 5 years, so 50%+ seems a good starting point, that 3 to 1 thing will bite....

Interest rates will I expect stay low 1 to 4%, the problem is servicing debt with a shrinking pay packet....so the debt in real terms goes up.....

Holding up well, this is only starting, its been less than a week, are you seriously suggesting that so far this shows resiliance in the housing market?

regards

That's the opinion of this Aussie chap:

www.businessspectator.com.au/bs.nsf/Article/Australian-property-interest...

You may need to register to read it.

Comments give you a bunch of arguments against property

Ah so the economists and fund managers think its business as usual just a small glitch....shares are a long term investment.....that was history.

Now lets look into the future....Share value and dividends indeed most businesses in their entirety are based on cheap and plentiful energy. Also when 70%+ of your economy is consumerism, much business is selling in that segment.....when the segment contracts for ever what are these companies going to be worth? and their earnings? and their cost base?   Simple their present value does not add up in a world with a shortage of oil.......so they are bankrupt, or worth a fraction of their value.

regards

“It’s not the end of the world” – but almost.

Change of power  - in Roman times - the gladiators had to fight for their life’s now in modern times spectators do and our gladiators make m(b)illions.

 

I've kissed my Kiwisaver money goodbye. 

I have zero faith it will be there in 30 years time. 

Wise move Bleep...equities/stocks/shares whatever could just as well bounce along the bottom of the lake for many many years...not that the fund parasites will care..they get their cut either way.

Those with little to save would do better to invest in reducing their COL...insulation..chooks..garden..predator..rifle..stock up on dunny rolls and other needed stuff when the sales hit town..bugger banking it.