Is your KiwiSaver working for you? How do you know?
KiwiSaver is a part of New Zealand life now.  Since it's launch on 1st July 2007 most people know about KiwiSaver, even if some people have not got around to joining KiwiSaver.

At Moneyworks, we believe that KiwiSaver should be a core part of all our clients retirement savings strategy.  As a result of the low fees and good returns on KiwiSaver, a number of our clients who have reached the age of eligibility for NZ Super (age 65), where they can withdraw their funds, have elected to leave their KiwiSaver where it is.

While many people (mainly children and people who choose not to contribute to KiwiSaver) have low balanced of less than $2,000, there are a large number of people with balances of over $30,000.  There are also quite a few people who have been contributing the maximum of 8% of their income into KiwiSaver and/or are high earners who have over $100,000 invested.

As your KiwiSaver savings increase in value it is vital that you make sure that you are invested in the correct place.  A core rule of financial success is that you regularly review your financial plan and your financial arrangements.  Making sure that your KiwiSaver is working for you is vital.  Here are some of the techniques we use to make sure that the KiwiSaver schemes we recommend to our clients are working for them.

Monitoring consistency of returns

Since the launch of KiwiSaver, we have monitored the balanced funds of KiwiSaver providers every quarter.  We use the Morningstar Research information that we subscribe to, and we produce a quarterly analysis of these funds.  We track their ranking against the other funds and compare it to where they ranked previously.  This helps us to see whether the fund manager has returns that are all over the place (ie 1st ranked last time, but 15th this time), or are consistently in the first quartile or consistenly in the bottom quartile.

The reason that we use a 'balanced' fund for the comparison is that this is the middle of the range of risk profiles.  Balanced means that long term, the aim is to half of the investments in 'growth' assets (shares and property) and half of the assets in 'income' investments (cash, fixed interest, debt, credit.)  The two other main risk profiles that people have are 'conservative/moderate' and 'growth/moderately aggressive'.  Unfortunately with these other risk profiles, there is a large difference between how fund managers interpret their brief.  A conservative/moderate fund can have (Based on Morningstar research KiwiSaver Quarterly report) anywhere between 18% and 41% in 'growth assets'.

With a Balanced fund, we can almost compare apples with apples, knowing that the long term aim is usually to have a 1/2 1/2 mix of growth and income assets.  However, see our note below on measure the growth assets.

Other important factors we look at in recommending KiwiSaver providers to our clients

We also look at how much of the balanced fund we are monitoring are in 'growth assets'.  The more in growth assets, the higher you would expect the return to be when growth assets are increasing in value.  Interestingly this is not always the case which is why it is important to continually review the relative relationship.  In the last survey (31/12/2014)  the percentage of 'growth' assets in 'balanced' funds in the Morningstar survey that we monitor ranged from 51.5% to 65.2%.  As growth markets are giving strong returns at present, this will make a big difference in the potential return of the investment if there is a higher allocation.  Interestingly however, the fund with the 65.2% growth allocation was the poorest performer (by a long way).

Other factors that we check are:

1. How big is the fund that is being monitored?  The larger the fund, the more tricky it is to move in and out of investments without having an impact on the value of that investment - particularly if it is a New Zealand listed share. 

2. Has the fund increased or decreased since last quarter?  What is the trend, is money being withdrawn out of the funds.  This is a trend that is more likely from the fund managers that are consistently performing at the bottom of the table. 

3. What are the fees on the fund?  Have these increased or decreased since last quarter?  What is the trend?  Do these funds appear to have any impact on the relative return of the fund?

By monitoring the KiwiSaver funds each quarter, we can keep in touch with how many funds are still available.  There have been a number of amalgamations and name changes including

1. Gareth Morgan KiwiSaver is now KiwiWealth

2. Tower is now part of Fisher and rebranded Fisher

3. Fidelity is now part of the Grosvenor Scheme

4. ASB have closed down their FirstChoice KiwiSaver scheme and merged it with the ASB scheme.

If you would like a review of whether your KiwiSaver savings are working for you or not, contact us by clicking here.  Please note that there may be a fee applicable if you are not already a Moneyworks client.

KiwiSaver Statistics and information

KiwiSaver really is a part of our life in New Zealand.  We thought the following information and statistics were interesting, and decided to share them with you.  Most of this information is from Morningstar Research as at 31/12/2014.

How much was invested?
KiwiSaver total funds invested:  $25,233,000 ($25 billion)
New investments in the quarter to 31/12/2014:  $1,845,000

How many options are there?
Number of KiwiSaver Providers:  16
Number of KiwiSaver funds/products:  141

What were the returns?
Highest Balanced Fund return for the 5 years to 31/12/2014 per annum: 10.10% pa
Lowest Balanced Fund return for the 5 years to 31/12/2014 per annum: 6.10% pa
NOTE - that is 4.00% pa return each year difference between the highest and lowest return.

How much are other people saving?
Almost 2/3rds of people saving into KiwiSaver are saving the minimum contribution - 3% of their income.  28% are saving at 4% and only 6% are saving at 8% of their income.

Where is the money invested?
52.9% of all KiwiSaver savings are invested in Income Assets, leaving 47.1% in Growth assets.
$6,321,000 is invested with ANZ/OneAnswer KiwiSaver and $4,708,000 with ASB KiwiSaver

$7,001,600 is still invested in 'default' KiwiSaver schemes, where it is automatically transferred - where investors have not chosen a KiwiSaver provider.
There are 9 Default providers, four new providers were appointed last year.

How big is KiwiSaver compared to all the money invested by retail investors in New Zealand funds?
KiwiSaver has $25,233,000 invested compared to the total funds invested of $53,301,000.  This means that  KiwiSaver makes up 47.3% of retail investments.  Retail means that this doesn't include the investments of the NZ Super Fund, but it does include all the Cash and Term Deposit PIE investments.
 

Syndicated Property Trust failures - remember core financial planning principles

During the Global Financial Crisis or the 'GFC', we noted a number of Syndicated Property Trust offerings coming to the market.  We were not surprised to see these snapped up by investors who were facing low levels of interest from banks, and who were wary of 'growth' investments.

These Syndicated Property Trusts offered a high return - often over 8%, sometimes over 10% - when banks were only offering 3-5% interest returns.  Many of these were marketed as 'special offers' and 'get in quick' offers. 

We reviewed a couple of these for existing clients (who didn't invest, on our recommendations) and shook our head in wonder at people chasing these returns without applying the core financial planning principles.  There are a number of factors to take into account when making investment decisions and choosing investments and all should be considered.  But, if you are doing this yourself, and don't want to seek professional advice, we strongly recommend that you ask yourself the following five core questions before you make any investment:

1. How am I going to make money out of this investment?
2. How am I going to take money out of this investment?
3. Where is the cashflow coming from in this investment?
4. What diversification is there in this investment?

We have previously recommended some syndicated property trusts to our clients.  The core features of the syndicated property trusts that we recommended were:
1. There were multiple properties in the investment. (Diversification)
2. There were multiple tenancies in these properties (Diversification and Cashflow)
3. Our clients knew that they were making the money out of the rental income only.  They were not counting on capital gain.
4. They knew that the syndicated property trusts would be wound up at a certain date and investments would be distributed.

These were a small handful of syndicated property trusts that looked like this.  Most others that we have seen in the last 18 years had single properties, open ended maturities, single or only a couple of tenants.  The minimum investment in the funds that we recommended were around $10,000.  The offerings since 2007 appear to have had minimum investments of $50,000.

$50,000 is a much bigger chunk to put at risk than $10,000 (obviously this depends on the size of your portfolio, but in absolute dollars anyway it is a far bigger investment).

Sadly, we are starting to see the beginning of trouble for these syndicated property trust.  We hope that this is a one off, but if you have any syndicated property trust investments, please make sure you are monitoring them and that you know what is happening with them. Make sure you can answer the first four questions in this post.

Property syndicate investors suffer $25m losses