Asset allocation

Thanks for your question. Everyone likes to think they're right but the fact you are questioning your asset allocation reaffirms that old adage that with age comes wisdom. Getting that balance right now could spare you some grief later on down the road. I took your question to a couple of investment consultants so you could get the benefit of an expert opinion on this issue. The answer may not be as specific as you would have liked but you'll understand that once you read their submissions.

This first reply comes directly from Ryan Cutts with Forsyth Barr's Christchurch office.

One thing you should consider when looking at any individual investment or a component of your investments, say KiwiSaver, is to look at your overall portfolio composition. You should never consider an investment in isolation, but in terms of the big picture.  

Breaking things down at present you have $40,000 worth of Australasian equities, $40,000 of international equities and $40,000 worth of listed property trusts. As a result you have $120,000 invested in growth assets.

Do you consider your freehold property as an investment? If so, what is its current valuation? You also mentioned that you have “other investments”, what types of investments are they? Cash? Term deposits? Listed bonds? Gold? Artwork? And what is the value of these?
 
Based on your age and assuming you have no debt, you should be looking at an asset allocation which is balanced between income and growth assets. Meaning approximately 50% of your assets in cash, term deposits or listed bonds and the other 50% in shares, both domestic and international, and listed property trusts.

This type of investment strategy could be defined as having moderate risk and you accept that you may lose value for variable time periods, in the interest of seeking a “real” (inflation adjusted value) increase in the value of your entire portfolio.  

Your KiwiSaver mix (in isolation) would be considered to be moderate to high risk in that two thirds are in volatile growth assets.  Whilst not necessarily inappropriate you are at an age where losses are harder to recover than for those in younger age brackets.

The make-up and value of your other investments will therefore define whether you have your mix right or you should be more conservative or aggressive.

(Ryan Cutts is an NZX Advisor for Forsyth Barr in Christchurch. For investment advice contact him on 03 363 1413 or ryan.cutts@forbar.co.nz or by email: ryan.cutts@forbar.co.nz)

A second opinion

This one comes from David Wallace, Manager of AMP Corporate Superannuation

Answer #2: First of all, congratulations on embracing KiwiSaver for your retirement savings. There are several things you need to take into account when considering whether you have the right mix of investments for your current situation (and financial goals).

The first is to determine the type of investor you are, which can be done by completing a risk profile questionnaire. These are available on most financial websites (e.g. amp.co.nz) including that of the Retirement Commissioner - sorted.org.nz. This helps investors to determine things like: their investment time frame,  the level of volatility they are comfortable with, their willingness to take financial risks and their investment experience.

Knowing your risk profile or your tolerance for risk is an important factor to consider before investing. Once you have decided on the timeframe you would like to invest for, you need to find the balance between risk and potential returns that is right for you.

For example, our minimum recommended time frame for an aggressive investor is at least 7 years.

You seem to be heavily invested in growth assets - property and shares - not only in your KiwiSaver fund choice, but also with your freehold property investment.  

Although growth assets have the potential to provide greater returns over the long run, they can be very volatile. You do not mention what your other investments are. We hope that you do hold some income assets - bonds and fixed interest. These will help to diversify your overall portfolio - an important aspect of investing.

You have provided the asset allocation for your KiwiSaver, but as you haven't provided detailed information about your other investments, it is difficult to know your overall position and whether your current investment mix is suitable.

We recommend that you meet with a qualified investment adviser, who can review your total situation and provide appropriate recommendations

David Wallace is Manager of AMP Corporate Superannuation. He can be reached at 09 337 7644 or by email at david_wallace@amp.co.nz