NZ Herald Q&A Column

New share fund doesn’t need the hype. Naughty, naughty, NZX Funds Management! As a subsidiary of the stock exchange, you must know that it’s misleading to quote 12-month returns when selling a share fund. That’s way to short a period to judge any share investment. It’s not surprising, though, that NZX chose to advertise in large letters that an index on which its new FONZ fund is based had a dividend yield of 6.4 per cent in the year ending September, plus share price growth of 18.4 per cent.

One-year wonder not so wonderful. The figures seem to argue against all the conventional wisdom on investing in shares or share funds. If you invest in New Zealand shares for just one year, you have a 30 per cent chance of getting a handsome return of more than 20 per cent. But if you invest for three years, the chance of getting such a high annual return falls to 11 per cent. Over five years, it’s a mere 2 per cent, and at ten years, it’s practically zero. Might as well go with just a one-year investment then, right? Wrong.