By David Chaston
Being in KiwiSaver is still a good deal, especially if you are normally active in the sense that payroll deductions are funding your account.
The good deal is in two parts.
Firstly, your savings are boosted by others. Your employer is probably matching your contributions, and the Government is contributing the Member Tax Credit (about $521 per year if you are a normal participant).
Few people have alternative savings schemes that give you OPM ("other people's money").
The second part is what this review is really about. And that is, after all taxes and after all fees (including the membership fee), the returns from top performing funds are still much better than leaving the money to accumulate in a bank.
If you are so conservative that you have just remained in a default fund, it has kind of worked out for you.
Five of the nine default funds have returned over 4% pa after-tax,-after-all-fees, since inception. And a slightly different set of five have also achieved that on a 'last three years' basis.
KiwiSaver is a long term investment and you should only apply a long term judgement to its performance - even for default funds.
But these funds may not be as conservative as you imagine. Click on the fund names in the table below and you will find their asset allocations.
There are defined 'Conservative' funds, and we will review these separately.
The returns to June 2017 are slightly lower than they were to March 2017, which should not surprise anyone given the market background. It is a trend you should expect to continue.
So you won't be able to grow your KiwiSaver nest egg much above average returns if you stay with a default option. But in theory, the downsides should be limited.
(EE, ER, Govt)
+ Cum net gains
after all tax, fees
= Ending value
in your account
last 3 yr
return % p.a.
|since April 2008||X||Y||Z|
|to June 2017||
|ANZ Default Conservative||C||C||C||28,260||6,296||4.4||34,556||4.2|
|Kiwi Wealth Default||C||C||C||10,958||540||3.0||11,498||...|
|Booster Default Saver||C||C||C||10,958||514||2.9||11,472||...|
|Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition|
|C = Conservative, D = Defensive|
If you are not about to retire in the next five years or so, you should seriously review why you are in a default fund. We will review the track record performance of other classes of KiwiSaver funds over the next week or so, but being in KiwiSaver is a long term commitment and you should be applying long-term strategies to this investment. That may well mean accepting some higher level of risk to gain a higher level of returns. Over a long term, that is usually a sensible strategy. Sure, bumps in the road do come around (like the Global Financial Crisis) and they can knock growth fund returns. But as we have seen post-GFC, the bounce-back can turbo charge your results.
Here is where these managers have your 'default' funds invested.
|NZ fixed income||15||18||32||46||14||11||14||36||23|
|Intl fixed income||28||40||25||29||14||34||28||24||23|
If you want your money allocated differently, you will need to change funds, either with the same manager, or with another. But before you do that, get some proper investment advice from someone who understands your investment goals and tolerance for risk. That involves work on your part. But it not a good excuse to just leave it there because it seems too much effort.
KiwiSaver default funds are only part of a broader range of conservative funds available. Many of the 'traditional' conservative and cash funds are under performing the default funds. We will look at the rest of the conservative funds in another article.
There are wide variances in returns since April 2008, and even in the past three years, and these should cause investors to review their KiwiSaver accounts especially if their funds are in the bottom third of the table.
The right fund type for you will depend on your tolerance for risk and importantly on your life stage.
You should move only with the appropriate advice, and for a substantive reason.