QUESTION: I have always believed that, as a moderately risk-averse investor, it is best to invest in a “balanced” investment as such funds tend to perform well in the long term, so when I joined KiwiSaver at its inception I opted for a balanced portfolio. My KiwiSaver provider - Gareth Morgan KiwiSaver (GMK ) -provides detailed performance analyses and I note that conservative funds have fared much better than balanced funds. As I am 62, there’s not all that long now for my balanced fund to start performing better, would it be better to transfer to the conservative fund?
ANSWER: You say ‘in the long term’ and you are right, you can expect a balanced fund with more growth assets to perform better than a conservative fund over the long term. But how do we define ‘long term’? The benchmark used to be 5 years, but lately we have been seeing ‘10 years or more’ from some managers. Let’s look at the fund you are in.
When you joined KiwiSaver you were 58 and still had 7 years to go to age 65. According to the GMK website, their Balanced KiwiSaver “suits savers with 3 to 10 years to retirement. The portfolio holds no more than 70% in yield and growth shares, with the balance in cash, deposits, and fixed interest investments.”
With only 3 years to go, this is a good time to review your goals. Do you plan to cash up your KiwiSaver when you turn 65 - or continue with it? Fund managers expect many investors will continue with their schemes (no longer locked in) beyond age 65, withdrawing funds to meet their retirement needs. So your timeframe may be longer than 3 years.
Did you complete a thorough risk assessment before you chose the Balanced fund? You describe yourself as ‘moderately risk averse’ and yet you are in a fund which can hold up to 70% in shares.
I have a problem with the terms commonly used to describe diversified portfolios: conservative/ balanced/ aggressive. It sounds more like a mental health checklist than accurate descriptions of risk categories. If I had my way I would change them to ‘low risk/ medium risk/ high risk’. I may be wrong in your case but I suspect many people choose ‘balanced’ simply because they prefer the name, without completing a risk assessment questionnaire.
It is worth knowing that there are four KiwiSaver providers that give investors an alternative based on their age and timeframe – the so-called ‘life stages’ KiwiSaver funds. These schemes reduce the weightings to growth assets like shares as the investor ages, so they don’t need to make the adjustment themselves. You can find the names of the providers on the www.interest.co.nz website.
All Kiwisaver investors should be in an appropriate fund to match their risk profile and achieve their goals. Investing is as much art as science and it may be helpful to get professional advice. It is important not to chop and change between funds depending on the mood of financial markets and the performance of your fund. Investor behaviour like this can have a greater negative impact on long term performance than anything else. You should undertake a thorough review of your investment goals before making any changes.
As published in the Hawkes Bay Today 22 November 2011
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 8703838. The information contained in this article is of a general nature and is not intended to provide specific or personalised advice. If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.
