C'mon Conservative KiwiSavers! Think about what you are doing

Investing

The small Conservative KiwiSaver category is growing fast and David Chaston can't work out why investors have directed $2.7 bln that way

24th Jul 18, 12:04pm by David Chaston

By David Chaston

In the year to March 2018, the amount of funds invested in Conservative and Cash KiwiSaver accounts grew by +15.1%. And that is a faster pace than they grew in the year to December (+13.6% pa). (June 2018 data is not available yet.)

That compares to funds under management in Default schemes which grew just +7.8% and a slowing rate.

It seems that some investors are shifting out of Default schemes into Conservative schemes.

It certainly isn't because they are chasing better returns. This comparative clearly shows the choice puts these 'investors' in a worse-returning investment environment.

In fact, Conservative Fund returns average just +2.07% pa after-all-fees, and after-all-taxes. The biggest fund in this Category - Kiwi Wealth Conservative - has seen growth of +20% pa in funds under management taking them to $611 million invested. Even more spectacular, the Kiwi Wealth Cash fund grew almost +30% in the same period. Together, three Kiwi Wealth funds hold just less than a third of all conservative KiwiSaver investment (32.1%). The other main banks hold just a bit less than half (48.8%). That leaves the other less than 20% held in 22 other conservative funds.

On the same basis, term deposits return 2.79% on an after tax basis for a one year term, and 3.32% for a long-term 5 year duration.

Perhaps the Kiwi Wealth Conservative fund still makes sense with its 2.9% result after-all-taxes, after-all-fees. But few others do.

But I wonder if people in this fund realise they have a 70% exposure to fixed income bonds? It is this exposure that has pumped up the result, and largely because in the past, falling yields have driven rising bond fund values. Hopefully members understand this, and understand what could happen if yields start rising on their bond portfolio. See the fund allocations below - the variety might surprise you.

The other two Kiwi Wealth conservative funds, which have $252 million invested between them, and mainly in cash, only returned about +2.0% over the past three years - and that is despite one of them being called "Kiwi Wealth Cash Plus".

I am not trying to pick on Kiwi Wealth but they do have fastest growing funds in this category, and returns are decidedly average. "Decidedly average" returns characterise the whole category.

I just can't work out the attraction for investors. If you are going to shift your investment out of a Default scheme, Conservative is hardly a "good reason".

For banks, I can see it - these cash funds enable them to clip fees which means they deliver really low returns - and makes their term deposit offers look good by comparison.

I don't have any evidence, but as a watcher of the Australian Royal Commission into Financial Services, I can't shake the suspicion that banker 'advice' to customers may be behind the rising flow of funds into Conservative KiwiSaver options. In other words, customers might be being taken advantage of.

I have said this before, but KiwiSaver investors need to up-skill on risk, what it is, what it means, and why you need to have an 'adult' view of accepting some.

Here are how these Conservative KiwiSaver funds have performed since inception, and over the last three years, and up to June 2018:

Conservative Funds				Cumulative$ contributions (EE,ER,Govt)	=+Cum net gains after all tax,fees	Effective* cum return	=Ending Value in your account	Effective last 3yr return%p.a.
Since April 2008	X	Y	Z		=+Cum net gains after all tax,fees	Effective* cum return	=Ending Value in your account
to June 2018					$	%p.a.	$

Kiwi Wealth Conservative	C	C	C	31,926	6,859	3.9	38,784	2.9
Lifestages Capital Stable	C	C	C	31,926	5,859	3.4	37,784	3.2
ANZ OneAnswer New Zealand Fixed Interest	C	C	FI	31,926	5,554	3.2	37,480	2.8
ANZ OneAnswer International Fixed Interest	C	C	FI	31,926	4,671	2.8	36,596	1.7
Fisher Funds Two Preservation	C	D	Ca	31,926	3,149	1.9	35,075	1.7
Mercer Cash	C	D	Ca	31,926	3,026	1.8	34,952	1.6
ANZ Default Cash	C	D	Ca	31,926	2,997	1.8	34,923	1.6
Westpac Cash	C	D	Ca	31,926	2,943	1.8	34,869	1.6
Aon Nikko AM NZ Cash	C	D	Ca	31,926	2,918	1.8	34,843	1.5
Booster Enhanced Income	C	D	C	31,926	2,906	1.8	34,832	1.4
ANZ OneAnswer Cash	C	D	Ca	31,926	2,894	1.8	34,820	1.6
ASB NZ Cash	C	D	Ca	31,926	2,867	1.8	34,792	1.6
AMP Cash	C	D	Ca	31,926	2,563	1.6	34,488	1.3
Aon ANZ Default Cash	C	D	Ca	31,926	2,386	1.5	34,312	1.3

ANZ Cash	C	D	Ca	31,057	2,830	1.8	33,888	1.7
Quaystreet Fixed Interest	C	D	Ca	27,723	3,150	2.6	30,874	2.9
Milford Conservative	C	C	C	20,153	3,688	5.7	23,842	4.2
Kiwi Wealth Cash Plus Fund	C	D	Ca	20,883	1,330	2.0	22,213	2.0
Kiwi Wealth Cash Fund	C	D	Ca	20,350	1,144	1.9	21,493	1.9
BNZ Cash	C	D	Ca	19,368	919	1.7	20,286	1.7
Booster KiwiSaver AC Conservative	C	B	M	14,624	1,100	3.5	15,724	3.3
Booster KiwiSaver Capital Guaranteed	C	D	Mi	14,624	478	1.6	15,102	1.6
Quaystreet Income	C	C		12,386	534	2.4	12,920	2.5

---------------
Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition
C = Conservative, D = Defensive, Ca = Cash, FI = Fixed Income, M = Moderate, Mi = Miscellaneous Booster was previously known as Grosvenor

You have to conclude that most of these are not very good if you use the "bank term deposit" benchmark.

And the main reason is that fees are paid on any managed fund, whereas they are not charged for a straight bank deposit. Paying someone to 'manage' a cash fund that returns anything less than that is hard to fathom - and that applies to all but a small handful of the funds listed above.

Further, you might also want to know where these fund managers have invested your KiwiSaver monies. These details are set out in each of our fund pages, and here is a summary:

Conservative Funds	------ how allocated, approx. ------
at June 2018	Cash	NZ fixed income	Intl fixed income	Equities	Property	Other
	%	%	%	%	%	%
Kiwi Wealth Conservative	12.6	24.0	47.6	14.1	0.4	1.1
Lifestages Capital Stable	58.5		14.5	27.0
ANZ OneAnswer New Zealand Fixed Interest		100
ANZ OneAnswer International Fixed Interest			100
Fisher Funds Two Preservation	46.6	53.4
Mercer Cash	100
ANZ Default Cash	100
Westpac Cash	100
Aon Nikko AM NZ Cash	100
Booster Enhanced Income	3.7	96.3
ANZ OneAnswer Cash	100
ASB NZ Cash	100
AMP Cash	100
Aon ANZ Default Cash	100

ANZ Cash	100
Quaystreet Fixed Interest	12.8	62.1	25.1
Milford Conservative	13.9	29.2	42.6	9.4	4.5	0.5
Kiwi Wealth Cash Plus Fund	65.8	12.7	21.4
Kiwi Wealth Cash Fund	100
BNZ Cash	100
Booster KiwiSaver AC Conservative	1.7		65.0	28.3	5.0
Booster KiwiSaver Capital Guaranteed	60.4	30.1	1.2	8.4
Quaystreet Income	14.7	45.2	29.7	3.6	7.0

That list shows why you need to do some homework on them. Just relying on their 'name' or their risk class may not reveal where the manager has the fund allocated. There is a surprisingly wide variety.

I accept that the 10-year track record of any fund is not a certain basis for forecasting what it will be in the future. But a track record is not something that should be ignored either.

For explanations about how we calculate our 'regular savings returns' and how we classify funds, see here and here.

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 you life stage.

You should move only with appropriate advice and for a substantial reason.

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85 Comments

by Stuart | 24th Jul 18, 12:21pm 1532391690

I think the conservative fund numbers probably reflect sentiment formed by the wider economic environment.

People of my generation (millenials) feel like we are having to be more and more austere. Irvine Welsh reflected on this the other day, lamenting the fact millenials aren't going to the pub as much and wrecking themselves in their 20s.

I'm staying in a conservative fund because I don't have much income. I can't afford to lose returns, even for one year. This probably enrages financiers who manage funds with their income keyed to fund performance, but I don't care.

by Grendel | 24th Jul 18, 12:32pm 1532392326

Can you please explain why you don't think you can "afford" to have lower returns for a year or two over the course of at least a 30 year period?

Your comment is concerning and highlights some serious problems with the financial literacy in New Zealand.

by Brutus Iscariot | 24th Jul 18, 12:42pm 1532392977

Ding ding - there we are, top of the market.

Perhaps the flow to Conservative Funds is the "smart money" and the growth sheeple are about to get smoked for 50% of their capital?

by Grendel | 24th Jul 18, 12:58pm 1532393913

So you are saying market timing is a good idea,

Well now I'm more cornered about NZ financial literacy.

by Boatman | 24th Jul 18, 3:58pm 1532404718

@grendel ......... you are right about NZ lack of financial literacy , but most Kiwis ( in my view ) are actually quite careful with their hard -earned money , so I can only assume thats why they dont trust what they regards as risky investments like shares

by Grendel | 24th Jul 18, 4:28pm 1532406511

Hi Boatman,

If people have invested conservatively because they have done the research, understand the consequences and found they don't have the risk appetite (constitution) or risk capacity (years of left in investment horizon) for more risk. Then good for them!

My concern is when people have not considered the impact of inflation on their capital and are happy to go backward in real terms without realising that is what they are doing.

To be honest I want everyone in conservative funds because the money game is relative and I would be better off if everyone let inflation eat up there saving so I would have more buying power...

...I just realised, shares are bad. Really really bad. Definitely overpriced and its all big Ponzi.

by Stuart | 25th Jul 18, 9:56pm 1532512564

Hi Grendel late reply sorry.

My risk appetite is on the whole low. Although have begun some arbitrage and crypto mining, to complement the low risk thing with some riskier punts.

All I know is that I can be wrong. I am much less financially literate than many here, but I do some research and am trying to improve my financial literacy. Happy to receive the criticism, in the interest of learning. (was that a pun?)

by Grendel | 26th Jul 18, 3:47pm 1532576836

Hey Stuart,

As a fellow millennial, I think its awesome you for trying to learn. Its tough since there is a lot of information out there but its all wrapped in jargon and worse its American jargon for the most part so you end up reading crap about Roth IRAs which is useless to us.

If you wanted something to focus on I would stay try and understand the traditional Asset Classes and understand the benefit of different Asset Mixes.

Keep hodling bro

by nymad | 24th Jul 18, 12:45pm 1532393115

Yea. This is a concerning comment and exactly what the article is hinting at.
People don't understand that volatility risk is relative to the term of the investment.

Opting for a low risk/sigma investment over 30 years is indicative of a poor level of financial literacy.

by pin3cone | 24th Jul 18, 12:52pm 1532393542

You guys talk like millenials aren't in kiwisaver for a first home deposit... what's this 30 year risk profile you mention for? What's retirement?

by Grendel | 24th Jul 18, 1:02pm 1532394141

Actually that is why I asked WHY he thought he couldn't afford it. I wanted to clarify that he was doing it for the right reason and not because he was afraid, which is how the comment read to me.

Actually anecdotally there have been more and increasing situations where I have seen concerning behaviour and misinformation from people and there personal finance.

by nymad | 24th Jul 18, 1:06pm 1532394398

What?
I'm a millennial and I'm not in KiwiSaver for a house deposit.
That epitomises the notion of poor financial planning.

It's a travesty that we incentivise people in their 20s to plan for their retirement and then 5-10 years later allow them to pillage their only retirement capital base to purchase a home.

by steven | 24th Jul 18, 12:50pm 1532393404

he did, and its really really simple let me repeat. While the risk of loss is high you play a waiting game as a viable option. In terms of 30 years I had a pension going for 30 years it lost 22%+ in 2008 just one year and had never 8 years later.

Given some fundamentals which is a) peak oil, b) corruption of the financial markets on an un-precidented scale. Hugely infalted prices v returns, massive company share buy back plans which have loaded them with debt and no new income and the icing on the cake, the high likelyhood Trump will cause a recession all by himself and when you throw in the other factors even a Depression. hence why I am now in a conservative fund.

No it doesnt show issues with financial literacy as you imply it in fact I consider you incompetent by the looks of it.. ie It shows some indeed many of the financial types are wedlocked to a grow for ever financial and economic model that is a huge corrupt mess on a finite planet. In the meantime you accuse people of being illiterate when just maybe they are more balanced and rational in their outlook than you are.

by kiwimm | 24th Jul 18, 1:08pm 1532394539

Your conservative fund won't save you from peak oil/depleting resources - these factors will hit debt (bonds) harder than equity

by Grendel | 24th Jul 18, 1:10pm 1532394629

Your comment has made my point about financial literacy. You are suggesting Timing the Market without even realising it, which is really scary.

by pacifica | 24th Jul 18, 9:34pm 1532424878

No one times the market, they can avoid risk but there is no timing attached. When your only option is to play the game even when you know many are cheating in fights & going to get you all kicked off the pitch sometime, regardless of when, the best thing to do is avoid the risk of injury to yourself while you are playing. When you stop playing you are generally dead or suffering financial deprivation.

by Noncents | 24th Jul 18, 12:57pm 1532393832

"Can you please explain why you don't think you can "afford" to have lower returns for a year or two over the course of at least a 30 year period?"

So what you are saying is shares always go up?

Last I checked Lower returns, are better than no returns, and both are better than losing capital.

by Grendel | 24th Jul 18, 1:15pm 1532394927

Growth funds are diversified so have a Mix of Asset classes.

Conservative funds have returns so low that you will basically assure inflation will lower your capital in real terms.

Thanks for proving my point about financial literacy.

by Noncents | 24th Jul 18, 1:57pm 1532397426

If you want people to be financially literate, don't treat them like idiots - teach them something.

There are literally thousands of reasons why conservative makes sense (according to people far more expert than yourself.)

I would say anyone believing that a Growth fund is "Diversified" and is what everyone should be doing is financially illiterate. They clearly don't understand diversity, or understand risk.

If only you had a super fund we could all invest in, we could all get unlimited returns for eternity.

by Lloydleft | 24th Jul 18, 2:17pm 1532398631

They never said "everyone should be in growth".

Also you sound pretty bitter that he owned you on that one.

by imhenry | 25th Jul 18, 8:07am 1532462821

There is nothing wrong with our Financial literacy. It is called TRUST. The Financial Industry needs to get its ACT together and stop trying to BULLY people into taking risks with their money.. It is all about making more money for the financial Industry not the people saving their money.

by Grendel | 25th Jul 18, 9:00am 1532466007

Thanks for proving the point about financial literacy.

by Pragmatist | 17th Dec 19, 11:08pm 1576577301

by Muter | 24th Jul 18, 12:50pm 1532393454

I don't know the OP, but I will adamently say that of course he is. It's hard enough to get into a house by using kiwisaver, let alone without it.

As another millenial if I could take out more from my kiwisaver a year after my house purchase and put it towards the mortgage to lower interest payments, I absolutely would. Instead I've moved myself out of conservative and into growth after pulling funds for a first house deposit.

MANY younger people will be looking at their kiwisaver as a significant portion of their deposit and wouldn't want to risk that decreasing as they have been watching the housing goal posts shift further and further away.

by BuyLowSellHigh | 24th Jul 18, 12:30pm 1532392203

David, you need look no further than your website's comment section, which has sadly become infested with pessimists. There are plenty of paranoid doom and groomers out there convinced that economic armageddon is just around the corner. They want their savings in the safest possible scheme.

You can give them all the evidence you want about the long-term performance of growth funds to no avail. They will likely call you a spruiker of some sort.

They lack long term vision and instead choose to focus on the fact that we are in the downward phase of the current economic cycle.

by kiwimm | 24th Jul 18, 12:46pm 1532393193

Some of us are able to hold different views of long and short term expectations. I won't be leveraging into property right now but will keep drip-feeding my aggressive Kiwisaver with a 30+ year time horizon.

by steven | 24th Jul 18, 12:54pm 1532393660

The long term vision you go on about is actually one of looking in the rear view mirror.

So lets look at your last sentence, "we are in a downward trend of the current economic cycle". So with your view stay in high risk and accept losses, ok if you want. My view is try and sit on the sidelines until the market has finished settling and then move out into the upturn. (now whether there will be an upturn is a different matter).

by kiwimm | 24th Jul 18, 12:56pm 1532393812

Caveat emptor - picking the bottom is even harder than picking the top

by Grendel | 24th Jul 18, 1:24pm 1532395481

It is actually insane how much market timing is getting branded and as "being cautious" in these threads.

Also everyone seems to misunderstand that even Growth funds have a mix of asset classes and its not all just rolling into shares.

by Noncents | 24th Jul 18, 2:47pm 1532400433

"Also everyone seems to misunderstand that even Growth funds have a mix of asset classes and its not all just rolling into shares."

Really? By their very nature a growth portfolio chases higher than average returns, and so is unlikely to be as diversified as other funds. We know this because in theory a more diversified portfolio will show a more balanced growth profile.

Conveniently https://fundfinder.sorted.org.nz/funds/growth/returns/ break's up every fund into 5 asset classes.
- Cash
- Bonds
- Property
- Shares
- Other

So lets look at the % held in shares for some growth funds.
Top 3 (based on 5 year returns)
1. 78%
2. 69%
3. 70%

Bottom 3 (based on 5 year returns)
1. 67%
2. 78%
3. 82%

Random 3 (no 5 year data yet)
1. 69%
2. 84%
3. 77%

Now I am no expert. but to me that's a fundamental reliance on shares to drive returns, with a token investment in other classes to ~~fool simpletons into thinking it is diversified~~ offer a minor buffer against a negative market.

We can do a very brief check over all fund types and we see that on average
Aggressive = >95% Shares
Growth = 75% shares
Balanced = 50% shares
Conservative = 25% shares
Defensive = 10% Shares

by Grendel | 24th Jul 18, 3:52pm 1532404360

Growth = 75% shares

75% 100%

Thanks for proving my point.

by Lloydleft | 24th Jul 18, 3:56pm 1532404570

Hahaha!!

by powerdownkiwi | 24th Jul 18, 1:36pm 1532396191

That comment is typical of the nonsense we need to move past. As I mentioned somewhere else hereabouts a few hours ago, the denial starts with using words like doom and gloom, then rubbishing the message by the assumed put-down, thus dissing the message. It's a very common, very predictable thing.

This isn't about pessimism. Or optimism. This is about facts - something slightly lacking in 'economics', I'm afraid. The economist and systems analyst Kenneth Boulding, opined long ago that only a madman or an economist would believe that you can have emdless growth on a finite planet.

Those of us who realise you cqn't, probably don't trust in the longevity of any bet on the future - I certainly don't. Raced to be mortgage-free, set up to be energy self-sufficient and mostly same in food. If I had funds to 'invest', it would be in garden tools, seeds, propagation and water-storage. This 'economic cycle' is how many % over how many annums bigger than the last? Cycle suggests a linearity - what we are doing is anything but linear.

by Lloydleft | 24th Jul 18, 1:47pm 1532396839

Why did you bother to be debt free? If everything collapses no one will be after your debt they will be after your crops. I'm thinking you should get a loan so you can buy concert and stock pile some ammo now. They will be at a premium later.

by powerdownkiwi | 24th Jul 18, 2:21pm 1532398917

Though about that - as you would if you came out of oncology with a six-month prognosis!

But there is a more than even chance that the banks will be bailed out with debt (as Obama did in '08 - socialising a debt that cannot be repaid, you gotta smile...) and will squash the little mortgage-holders as per the Grapes of Wrath, before collapse. I didn't want to take that chance - and we had a rentier/banker PM at the time - more reason to be less vulnerable.

Ammo? No, I'm not a prepper - nuclear fallout shelters were silly for the same reason; you cannot innure yourself individually. This the elite get wrong, currently. The future will be much more local, and eyeball trust will be needed - letters of credit might make fire-starters, but trust in them will evaporate. So I prefer to build friendships with people who I can co-operate with in that future. There will be good localitie and bad ones - but the ones I feel sorry for are those who believed that their 'savings' would/could be there in the future. All those hours of their lives given...... I'd be annoyed!

by Lloydleft | 24th Jul 18, 4:00pm 1532404835

Fair enough. Just wanted to check your reasoning was congruent with your advice. Not saying I agree mind you. But logically I can see how you arrived to your conclusion.

by JimmyJames | 24th Jul 18, 3:27pm 1532402879

Ironic given your name. If you are permanently optimistic why would you sell high. The fact that you can define a high suggests that you can be pessimistic about the future.

by MortgageBelt | 24th Jul 18, 12:40pm 1532392844

Cash only.
More likelihood of the ‘return’.

by Hardly | 24th Jul 18, 12:41pm 1532392911

So just to test this idea, say I know for a fact the stock market will drop 20% over the next two years, what type of fund should I put my money in?

by Brutus Iscariot | 24th Jul 18, 12:44pm 1532393094

I assume this is a rhetorical question. If you're an FHB, going into a conservative fund is a logical move. Should share markets tank, this is likely to coincide with a soft property market, where you might actually have a chance to get in. So you want to maximise your purchasing power at that point.

by nymad | 24th Jul 18, 12:49pm 1532393364

That's only half of the scenario.
A long term investor doesn't care about short term volatility.
If of course you are retiring in 3 years, then you would invest in a less volatile instrument.

by kiwimm | 24th Jul 18, 12:54pm 1532393659

Even after retirement, you may be spending that money for 30 years. In this scenario, the bigger risk is not investing aggressively enough. Keep a portion in safer assets to cover the short to medium term (or use Super as your backstop), the rest should be seeking the best possible return.

by Noncents | 24th Jul 18, 4:05pm 1532405110

My personal experience is below, I am more risk adverse than most and obviously this doesn't happen to everyone. But, I find it is a very effective way to illustrate the market volatility.

I had just started work in Aussie in late 2006. Got enrolled into Compulsory Super and had about $8k when I left Aussie end of 2007 (12 months of contributions), I haven't contributed since Nov 2007.

Balances since 2007 (July financial year)
2007 = $6,500
2008 = $7,500
2009 = $2,500
2010 = $2,300
2011 = $2,400
2012 = $2,300
2013 = $2,400
2014 = $3,000
2015 = $3,000
2016 = $3,700
2017 = $3,700
2018 = $3,800

So here we are 10 years later and I am still not where I was when I started. The same funds in a conservative fund would be sitting around $6,000 today. Still less than what I started with but streets ahead of what I have.

So, regarding:

"A long term investor doesn't care about short term volatility."

Every investor should care - Short term volatility can erode not just the returns but the capital itself.

As Aesop illustrated - Sometimes slow and steady wins races too.

by Grendel | 24th Jul 18, 5:15pm 1532409349

Hey Noncents,

Honestly I think you have a law suite opportunity here. That trend does not show volatility that show negligence.

What were you invested in?

by Noncents | 24th Jul 18, 7:08pm 1532416097

No more negligent that anywhere else. They had two bad years. Since then (barring fees - as outlined below) it has performed well.

A lot of people I know in Aus/Ireland/UK/USA/Canada lost mid 6 figure amounts.

A lot of Kiwi's don't appreciate just how sheltered NZ was from the GFC. I don't think we will be as lucky in the next one.

by Pragmatist | 17th Dec 19, 11:09pm 1576577355

by Noncents | 24th Jul 18, 7:00pm 1532415600

Bingo - High fees.

It was the default fund of my employer, and at the time was doing very well. Barring the catastrophic 2008/09 years it has still actually been making reasonable returns.

Fees are excessive, initially they were around $12 per month fixed. Now about $8 a month. When you have to make 5% just to break even it can be a challenge to show an increase, so sine 2009 they have actually done quite well (relatively speaking).

Most of the issues I have are due to the fact I don't actively contribute, and have such a low balance (A person working minimum wage in Aus would be putting in more each year than I have in total.)

It's quite the hassle to swap it (low balance, not contributing, living outside of Aus) so I'll just leave it until I am back over there.

by printer8 | 24th Jul 18, 10:59pm 1532429993

"Fees are excessive " and "you have to make 5% (management fees?) to break even".

Wow!
Most KiiwSaver total management fees for default funds are effectively well less than 1%.

Bit then, that is Australia - land of the bank and finance/insurance company rorts.

by kiwimm | 24th Jul 18, 12:50pm 1532393430

A growth fund. These will keep buying shares at the reduced prices. Switching out will likely cause you to switch back in too late and miss the real value.

by bilbo | 24th Jul 18, 12:51pm 1532393499

It's quite simple. If someone is smart enough to figure out a good retirement fund then they're also smart enough to figure out that living in NZ is not a good financial decision.

Love the picture but the guy blowing the trumpet has long since fled to Australia.

by pacifica | 24th Jul 18, 9:51pm 1532425866

Aus is nice but the heat, forest fires, snakes and spiders can give many more pause for thought. However that balances nicely with good food, medical, housing (still cheaper than Auckland for same levels of transport requirements), accessibility in cities & public experiences and all round better for those with mobility concerns. All which are things that become more important in retirement. Australia even has recognition of carers and transport accessibility for the disabled. Something which is shockingly absent in NZ where those not able to access ACC live at extreme levels of deprivation that suicides become a higher risk in NZ. The retired are often somewhere in between the disabled poverty deprivation, and the injured recovery support. Quite striking but when gaming your future running the probabilities on your medical outlook can be hard but also quite easy with today's tech & existing data. Not to mention the environmental hazard probabilities for certain areas, (where NZ is more at risk). Oh hello ozone hole, I thought we lost you there.

by Groen_mamba | 24th Jul 18, 12:51pm 1532393495

I suspect a lot FHB's are waiting for the house market to correct. Therefore trying to keep their deposit as safe as possible. I moved all my kiwisaver into a cash fund.

by Noncents | 24th Jul 18, 12:58pm 1532393914

My guess is that a lot of it could be boomers. Enrolled with a few years to go before retirement just to get all the Govt kickbacks. Then knowing they are about to get it all back, go conservative.

It's what I would do if I was 20 years older.

by Grendel | 24th Jul 18, 1:28pm 1532395704

"My guess"

Yup that's about right.

by Noncents | 24th Jul 18, 2:10pm 1532398243

So you have a definitive answer then. Or are you assuming/guessing is well.

Or is it a case that your guess is just better than mine. Cos, you know...

Thought so - now wheres Beowulf when you need him.

by Grendel | 24th Jul 18, 2:27pm 1532399254

"your guess is just better than mine."

Bingo

by BadRobot | 24th Jul 18, 2:06pm 1532398007

In answer to DC's question about why

“Five percent of the people think;
ten percent of the people think they think;
and the other eighty-five percent would rather die than think.”

Thomas Edison

by middleman1 | 24th Jul 18, 2:16pm 1532398592

Noncents. Have another look at the article which points out that 'conservative' funds actually have an inherent risk factor of bond devaluation and consider if that is really where you'd want to be if you were a boomer. Having seen a few of your posts I suspect that you are using the term 'conservative' to distinguish from aggressive, rather than literally. I sound pedantic but suggest the distinction is important.

David C makes a valid and timely point. Many people don't understand bonds and I suspect are under the illusion that 'conservative' means they are not exposed to significant drops in value.

by Noncents | 24th Jul 18, 4:20pm 1532406028

You make a valid point. All investments have a risk. Easiest way to mitigate risk is to diversify.

Out of the 5 main fund types
- Agressive
- Growth
- Balanced
- Conservative
- Defensive

The top two are mostly shares, the bottom two are mostly cash bonds. Balanced is really the only diversified fund. So on that basis Conservative funds are no better than a growth fund in terms of diversity (i.e. inherent risk).

So yes you and David make perfect sense. I am not disagreeing on that point.

However, I have found that unlike the other asset classes shares are a one way correlation.
If property/bonds/cash crash then shares tend to crash as well.
If Shares crash, the rest can and often do continue functioning just fine.

So yes, Bonds have risk, but swapping bonds for shares if a crash is coming makes zero sense to me.

by pacifica | 24th Jul 18, 9:52pm 1532425947

Even many conservative funds do not place a high proportion in bonds and comparing risk in bonds to risk in equities still has some difference. Some default funds are even worse than including just a higher percentage of more conservative investments. One even went into straight cash investments, (not even bonds) with the low returns that follows yet customers were prevented from changing fund types over a period around a quarter of the year which was discouraging to say the least.

by Bozeman | 24th Jul 18, 2:34pm 1532399657

Hmm... Was aggressively invested in KS since it's inception. That was until the beginning of this year. Pulled back to conservative for one reason: Trump. Just couldn't sleep nights knowing that he was out there and was capable of suddenly knocking the world on it's ear. Market timing? Sure. Sticks and stones and all that. At least I can sleep. Is it possible that we'll miss a few bucks along the way? Sure. At least I can sleep.

by Grendel | 24th Jul 18, 2:53pm 1532400785

Market timing isn't a cuss word, it just doesn't work. But if you know and understand that and your risk appetite doesn't allow to sleep then fair enough.

The big problem with KS is that the default is conservative so thousands of people are in it and have never taken the time to understand if they should be.

by middleman1 | 24th Jul 18, 3:18pm 1532402308

Market timing worked extremely for me in 2007/08 when I liquidated all my holdings and then dived back into the market in March 2009.

It has also worked repeatedly since by following Buffets simple mantra of identifying quality, hold, accumulate cash and use it to add to holdings during market pullbacks.

by Grendel | 24th Jul 18, 4:11pm 1532405471

Hey middleman, I'm glad it worked for you.

But when I said market time doesn't work, I was actually paraphrasing Warren Buffet. So its a bit weird you saying that you were following his advice

"Warren Buffett believes trying to time the market is a waste of time and hazardous to investment success."

https://www.cnbc.com/2018/05/08/warren-buffett-says-he-never-tries-to-t…

by middleman1 | 24th Jul 18, 5:50pm 1532411418

Yep, trying to time in the sense of selling and buying is usually a mistake, as Buffet says. I nearly always follow the great mans advice about buying quality and holding for the long term. I've owned many of my key stocks for 10 years. My 'timing' is about accumulating cash as I wait for pullbacks to add to holdings.

2008/09 was a rare departure from this strategy. I was travelling in the UK at the time and saw the crowds lined up outside Northern Rock Bank which prompted me to do some hard thinking and research and then to bail completely. Exceptional times though - I cite that experience just to challenge the view that an exit strategy is never the right one. Occasionally it is.

by Noncents | 24th Jul 18, 7:11pm 1532416275

Ironically investing in Aggressive while young, then tapering down as you age. Is a version of timing the market.

You are hoping the statistical averages will apply to you.

by Grendel | 25th Jul 18, 7:17am 1532459874

Its more risk management than market timing because you are not selling assets just aquireing them when they are cheap as you balance your portfolio.

Also "You are hoping the statistical averages will apply to you." as much as you think you are a special little snowflake you are not.

by Stuart | 25th Jul 18, 10:27pm 1532514460

Can you elaborate on how market timing is not 'a thing'?

My only real-world experience with financial markets, if you can call it real-world, has been Bitcoin. By combining some high-school-level graph functions and timing, I came out ahead to the order of 10^4.

PS Thanks to anyone who bought my BTC in August.

by Grendel | 26th Jul 18, 4:14pm 1532578460

Hey Stuart,

its not that you can't do it, its just that there have been a lot of studies that show trying to time the market (also know as day trading) doesn't work well on average.

One of the problem with market timing is that you are competing against huge organisation with thousands of analysts all competing against you, plus algo/bot traders which are making micro second trades. With all this going one, arbitrage is almost completely removed.

The other problem as a small investor (less than a few million dollars) is that trading attracts transition fees e.g.$20 dollars a trade minimum. So every time you trade you make it harder for yourself to make a profit.

Google Warren Buffet on the topic, he much better on explaining it than anyone else.

by Squishy | 24th Jul 18, 2:41pm 1532400106

I've always enjoyed being a bit of a contrarian, after 10 years in growth all this advice about investing in pro-cyclical asset classes is making me think about moving towards a less cyclical investment strategy.

by Grendel | 24th Jul 18, 3:49pm 1532404160

You have piqued my interest there squishy. Would you be so kind as to give an example?

by Boatman | 24th Jul 18, 3:55pm 1532404500

by Grendel | 24th Jul 18, 3:48pm 1532404138

Changed now, thanks Boatman

by Boatman | 24th Jul 18, 3:54pm 1532404442

I think am reasonably financially literate , ( I should be more onto it after many years of study) ............ and here's the kicker :- I am in a conservative fund with Craigs Investment Partners .

Here are my reasons :-

1) I am at an age that if I saw a 30% erosion of capital , I could not recover before I retire
2) I am suspicious of the asset price bubble that has expanded asset prices since the US started QE and the EU , Japan and China all followed suit with variants of the same theme
3) I have absolutely not time for new-fangled investments or new-technology nonsense , I invest only in Companies with really strong balance sheets and assets that I can see and touch
4) Or companies that produce manufacture or process things humans need like food , water , etc
5) I dont want to even consider a Company with a massive "goodwill " or IP or Brand on its Balance sheet as an asset, unless that asset is a food brand like Unilever , Nestle , Mars , McDonalds , Coca Cola , or Heinz (, look at Kodak to see how much a brand is really worth in the non-food sector )

So there you have it , my share and investment portfolio is safe and secure (ish) , 30% cash , 30% Bonds including Fonterra bonds , and 30% shares in property and food companies both onshore and overseas .

I sold all resource stocks like BHP and Rio Tinto about 4 years ago

My Kiwisaver is in the conservative fund , mostly cash and bonds , and its doing just fine

by Grendel | 24th Jul 18, 4:41pm 1532407298

Hey boatman,

You have hit on a problem here which is terminology isn't that consistent. because I wouldn't call 30% equities a conservative mix. At least not by average Kiwisaver standards.

In fact looking at Morning Star Kiwisaver Survey 30% Growth assets would put you in Moderate.

by Noncents | 24th Jul 18, 7:23pm 1532416980

Nice post.

I would say your financial literacy is spot in.

For me, financial literacy, is not knowing the ins and outs of advanced terminology, strategies, and calculations. It is simply knowing what works best for you.

by Grendel | 25th Jul 18, 7:22am 1532460129

Nothing in this comment forum or even the article is "advanced terminology, strategies, and calculations" the fact that you don't know that is the problem.

by Grendel | 25th Jul 18, 7:21am 1532460088

by pacifica | 24th Jul 18, 10:23pm 1532427780

The GFC was only a decade ago and people ask why the increasingly ageing population have a significant amount choosing conservative funds with lower risk. Not really on top of generational trends there. At best those at the millennial end and younger would be lucky to not have been as affected as the other generations, (where financial investment companies were dropping like flies even in NZ), and they will be more likely to engage in growth and aggressive funds (as their age, and often their financial position, also allows them to take time to recover in case of downturns). Not many can and the deeper question is why are so many taking contributions holidays: is it extremely poor financial income to afford basic living costs, is it housing cost stress or is it that they are using other investment options instead etc. If Kiwisaver is to be the crux of retirement saving identifying those that cannot or do not participate would be crucial. Far more so than why some people choose to stay in conservatively risk graded funds. Seriously less than a decade out from the GFC and people are asking why conservative or other investment options in KS?

Think on it KS is but one part of retirement investment options, with many families struggling to hold their heads above water as it is. Regular cancer checks would be a better investment for some people, if only to survive to retirement. A few acquaintances even got hit hard by autoimmune diseases that knocked them out of work, with no ACC or even WINZ income assistance. They could not even afford necessary medical treatment. Not everyone has a clear run up to 65, or even a good run after it. One family member died from MS at 38, 38! Due to poverty in transport access to hospital causing an accident they never could recover consciousness from, (they could not even access their KS even at that level of hardship which as it turns out killed them). Another friend died from post polio issues which were entirely treatable. Another couple died before retirement with no known cause, undiagnosed medical condition that meant one day they did not wake up, (GPs & public specialists were especially lackadaisical & under resourced). Even the foster brother in law who died from a treatable cancer if acted on soon after diagnosis than left to grow, was in his 40s. When considering est financial risks there are far many more important things to consider risk from for retirement; hazards & medical are good ones to consider. NZ's health system is woeful, you would literally be better to invest in staying away from sub par medical access & care. When you have more friends who died before 65 than those after (excluding those who died from suicides or accidental overdoses), and in most of those the health system in NZ contributed heavily with wildly poorer care to that overseas then folks your retirement ship is taking on water.

by Kirsty | 25th Jul 18, 8:19am 1532463554

For us, we just simply could not afford to be in Kiwisaver. Before jumping down my throat on "you've missed out on", you have to realise that we have a mortgage that we are 7 years in and have halved it. We should be mortgage free in another 5 years...it would have been about now but we had to redraw funds to pay to go private for my husband's surgery a few years ago - our health sector is a joke, and if we'd waited on it, well he'd be dead now. Overall, the amount of interest we have saved is huge. We couldn't have done that if we had both been losing money to Kiwisaver.

Second, if we had been in it from the beginning then we would be in the most conservative "get our money back one day" fund that we could find....we want a return of our $, not a return on our $. I don't trust the sharemarket/banks to not f**k up in the future. My parents lost their businesses due to the 87 sharemarket crash hitting the retail sector hard - people stopped spending because their shares had crashed. This will happen again.

Third, both of us have been raised to work until death (neither of my parents made 67, and they worked until they died). The word retirement has many different meanings to different people. To me is just a different mode of work, it's not sitting on my arse flying around the world having a ball like many seem to think. Even my husband won't stop doing what he does.....he just won't bother getting dressed up in a monkey suit and going into an office. Instead, he'll use technology and work from home when he wants.

Fourth, we have no kids so we have no one but ourselves to look out for in the future. It also means we live very very cheaply currently. We can sell our property and live very comfortably on the proceeds - but only if we kill the mortgage in a short space of time.

So before you go asking why people are in conservative funds (or not in Kiwisaver at all), maybe you should ask about their personal circumstances and try to understand that not everyone wants to play your Russian roulette sharemarket.

by printer8 | 25th Jul 18, 2:56pm 1532487404

Kirsty
You have decided what you are comfortable with and what is best for you, so go for it.
On the positive, you have decided to be a conservative investor with a preference in paying down the mortgage/ It would seem that once you have paid off your mortgage you would be looking at a conservative KS fund or other investment. That is you, that is what is what you have decided for you, so no one can argue with that.
However just one suggestion; as with most things in life, when investing one tends to do a little better when they are analytical and try to keep emotion out of it as much as possible. Emotion can cloud sound decision making.
There are plenty of people who will invest on a horse because of their favourite colour and that of the jockey's strip.However; that horse with the favoured colour could well be a draught horse.
If you disagree with this suggestion; that is fine because investing is about making your own decisions and having no regrets whatever the outcome.

by Kirsty | 25th Jul 18, 4:48pm 1532494092

Interesting analogy - we don't gamble though.

Yes, I understand what you mean about emotion, and assessing everything logically. It's why, for us, paying down our mortgage superfast and technically 'saving' all that interest that would otherwise go to a bank and offshore, was our option. I love spreadsheets, and before we signed the mortgage papers I had worked out exactly what the property was going to cost us every year until paid off. The Kiwisaver promises/returns were not concrete enough for us to be comfortable gambling with it.

I suppose it comes back to control....paying off the mortgage superfast is our real-time control, it's tangible returns to us. We'll then keep saving at the same rate after its gone - we'll be sitting pretty irrespective of what age the govt decides to pay out the benefit to over 65s - and then keep working afterwards drawing down both a wage and an old fart benefit. As we only need roughly $15,000 (excluding mortgage) to live each year we're sitting pretty irrespective of what happens in the property market or share market. We might buy a new gas guzzling ute/SUV for the pure satisfaction of wasting money on something new for once in our lives.....but I suppose that depends on the price of fuel at the time.....I'll spreadsheet it all out if we ever bother, LOL.

by printer8 | 25th Jul 18, 7:51pm 1532505077

Kirsty
Clearly you have done an analysis and that is what is the most important. It does sound if you have things together.
Best of wishes with your futures and a have great retirement.

P.S. As one who is retired and looked at my father's experience, and confirmed by my friends' experiences, the five most important things that can help make a great retirement are:
1. Your health and fitness - without these forget everything else,
2. A good relationship - it is always better sharing things and two people are far stronger than two individuals,
3. True interests that you are passionate about - finding things to do in retirement is just looking at ways to fill in time,
4. A true circle of loyal friends - makes life far more interesting, and
5. Some money.

Of the five, from observing my friends, the least important is some money. Whatever you have you will fit the cloth to fit. Being wealthy without the other four, your retirement is not going to be that great. Within my circle there is one couple who essentially live just on superannuation and are really enjoying life.

Numbers 2 and 4 are very important. We hear of the issues of loneliness amongst the aged; in retirement, you lose your interaction with workmates, so at least one – but preferably both - of these two things become more important.

Oh, and one other thing; make sure you enjoy the journey to retirement - just keep an appropriate balance between spending and saving; so although you are saving, don't hesitate to buy that SUV if that's what you want to do and will get enjoyment from.

by Kirsty | 26th Jul 18, 8:33am 1532550799

printer8 - lol, to everything you've mentioned. I suppose from just reading what I've posted you'd think we were cheapscate buggers who never spent a penny. That is so far from the truth. We have 5.3ha of pure bliss, 10 sheep that are more our kids than a kid could ever be and as long as we have somewhere to shoot we're fine. Getting a dog would top things off for me - but the hubby still needs convincing! We'll walk around our native bush and just say to each other 'what a good life we have' and wonder about the poor schmucks in town who worry about bills all the time.

We both have siblings that are just never happy with their lot in life, always chasing the $ and being miserable whilst doing so. Even if they won lotto/powerball I get the impression it wouldn't be enough. These are siblings that also tend to live paycheck to paycheck, and no matter how much is earned they seem to fritter it through their fingers each week. It's scary how much they waste and they just can't seem to articulate as to where it went. Personality wise, they all tend to have a sense of entitlement and just can't delay a purchase, even though doing so means they get it cheaper for instance.

Yes, we have a 'normal' income compared to the whole country, will we be wealthy in terms of $, I don't think so and we don't care as we have more than enough for our needs. I suppose that is the major difference, we're happy with our lives and what we do and that will continue irrespective as to what age we end up being. If the govt want to give us a benefit each week if/when we reach a particular age then so be it - we don't hold with the common belief that having paid taxes all our lives means we are somehow deserving of being given money at a certain age.

by printer8 | 26th Jul 18, 11:53am 1532562803

Good on you. Never thought that you were cheapskates.
You have obviously got it altogether; just don't forget to keep smelling the flowers - or in your case the native bush - every day.