QI note that you are a keen supporter of KiwiSaver and managed funds. In my working career I have invested in these four times.

As an 18-year-old I signed up for PruPac, a combination life insurance and investment scheme. After five years of dismal statements I cashed in. I had put in $5,000 and got $2,700 back. The loss doesn’t seem much now, but at 23 in 1986 it was a fortune.

In 1995 my wife and I invested a $60,000 inheritance in Royal Sun Alliance “Wise” Investments, spread across four plans. After 24 months the value was down to $50,000. It took ten years to break even.

In 2002, we purchased a rental property. We put $0 in and borrowed the whole amount. The rent has more than covered all costs. We kept buying and owned nine homes in South Auckland. We have always been cash positive, although this has required time and management by us.

In 2010, I signed up to KiwiSaver. If I turned 65 today I would get $121,000, after my employer and I depositing $115,000 and government contributions of $7,000. I have 61 per cent Balanced, 14 per cent Conservative and 24 per cent Growth with Fisher Funds.

In 2019 I started investing on Sharesies, 50 per cent on Top 50 and Top 10 passive funds and the balance on ten “blue chip” companies. The passive funds are all more than 9 per cent down. I am $10,000 down on an $80,000 investment.

All of the managed funds that I have been in have changed ownership every few years. Why is this? Have the fund managers got their money and retired early?

I have zero faith in shares and managed funds. Property investment has been life changing for us and is the single best investment that we have made. Conservative value of our rental portfolio is $4.5 million. Deducting the $0.88 million mortgage, that gives $3.62 million equity gain from $0 up front.

The biggest concern that people my age have is whether they will have enough to have a comfortable retirement.

AI understand why you feel the way you do. There are several reasons for your rotten luck with managed funds:

  • The first two investments were in insurance company-related products back last century that often charged really high fees — with big commissions going to the sales people. I hate hearing about people’s experiences with them. They were often ripoffs.
  • KiwiSaver funds in general are not looking too shiny these days, after an unusual downturn in the values of shares and bonds at the same time. As I said in this column recently, over the last 50 years both have fallen during the same year only twice in New Zealand, in 1994 and 2022. Globally, it has been three times in the last 100 years.

    Also, your provider tends to charge higher than average fees — which you can see on the Smart Investor tool on sorted.org.nz. You might consider switching to funds that charge low fees.

    Still, your numbers are surprising. Could you have calculated them wrongly? In any case, I would be surprised if things don’t look much better if you hang about.

  • Your Sharesies passive fund and share investments are also victims of unfortunate timing. It’s not uncommon for share investments to do badly over a few years. You really need ten years or more. Don’t bail out now.

Meanwhile, you have clearly had a great run with your rental properties although, as you acknowledge, they will have taken much more time and effort than the other investments. And you took a fairly big risk at the start, borrowing the full price. Not everyone thrives doing that — but we don’t tend to hear about the failures.

Looking more broadly than at a sample of just one family, most people who invest in either managed funds or property do just fine. The key thing is to stay invested for the long term.

QYour advice to employees receiving shares in their company, that they should sell them ASAP, was very wise.

My father-in-law worked for Arthur Yates for many years and received shares. When Yates was bought by Equiticorp those shares were substituted, and when Equiticorp went down the drain so did that part of his savings!

AOh dear. If he was still working for the company, that must have been a double blow.

It’s a good example of the importance of diversification. It’s best not to have your job and your savings in the same basket. For another example, read on.

QOne of your fundamental pieces of advice is to spread the risk.

In my capacity as an accountant, clients used to tell me they would love to own the factory they were running their business from. I always used to tell them they would be better off owning their neighbour’s factory.

The reason is obvious. If they own the factory and the business fails then they lose both the income from the business and their income from rent. If they own the neighbour’s factory and the business fails then they will still have the income from the rent.

AWise advice! Of course the investment in the neighbouring factory could also go wrong. But the chances of that happening at the same time as your own business failure are much lower.

QI often hear your referral to the Get Sorted website and the Smart Investor tool. How have you found the accuracy of this data?

I was recently reviewing my KiwiSaver. I am with Kiwi Wealth Growth Fund. The stated five-year return just looks incorrect. As per the Smart Investor tool, the average return over the past five years is showing as 4.27 per cent.

Under “Details” the following returns appear: 10.79 per cent, 4.71 per cent, minus 3.47 per cent, 30.99 per cent, and 5.35 per cent. A quick average of these figures gives 9.7 per cent.

And as at the end of March 2022, from the monthly report from Kiwi Wealth, the return is stated as 9.87 per cent.

Can you please explain the difference between the 4.27 per cent and the Kiwi Wealth figure of 9.87 per cent?

AI haven’t had issues with Smart Investor data. But something does look wrong in your situation, so I asked Tom Hartmann of Te Ara Ahunga Ora, the Retirement Commission, which runs sorted.org.nz

“We periodically get these queries, primarily when people compare their latest statements or a provider’s website with the tool,” he says. “The most important thing to know is that all the fund data is flowing from the same source: the providers themselves. It’s what they are required to report by law each quarter.”

Problems arise when comparing returns for two reasons. It depends on:

  • Whether the numbers are before or after tax and fees.

    Smart Investor shows returns after taxes, at the highest PIR of 28 per cent. “And we show returns after fees, by rolling both the flat dollar fees and the percentage fees together. We feel this is most helpful in comparing what investors truly get in the hand,” says Hartmann.

    “But not all platforms make the same decisions, so by looking at a statement or another website, you will be looking at a different result that is both correct yet varies, simply because they show their results before taxes or without taking flat fees into account.”

  • What period you are looking at.

    In volatile markets, this can make a huge difference. And it’s the explanation for the difference between the 4.27 per cent and the string of numbers that average around 9.7 per cent on Smart Investor.

    On that tool, the big returns number you see — the 4.27 per cent — is the most recent average return over five years, which is updated each quarter. But in the return Details, the annuals results are for the years ending in March — the latest being for March 2022.

“You can’t typically roll up the annual results and recreate the 5-year return,” says Hartmann. “This is due to the way the data is supplied to us (ie, that’s all we get). We included the annual results to show how things can swing wildly and how a fund has consistently (or not) tracked its peers.”

So the difference between 9.7 and 4.27 per cent suggests the Kiwi Wealth Growth Fund has had a bad run since March 2022 — as have most funds. And, indeed, the provider’s website says its growth fund return over the last 12 months was minus 4.41 per cent.

Kiwi Wealth also says its Growth Fund return over the five years to the end of March 2023 was 6.47 per cent — closer to the 4.27 per cent, but again over a different period.

I agree with you that this is all rather confusing. It would help if Smart Investor explained what’s going on in a note of some sort. Says Hartmann, ““We’ve chosen to respond directly to those who contact us with questions, as there are such a wide variety they can never be covered satisfactorily in a note.”

I still think Smart Investor is the best way to compare KiwiSaver funds. You are comparing like with like, over the same periods. That’s what matters most.

Some other points:

  • Says Hartmann. “It’s best to compare data points within the same platform. So if you are using Sorted, stay there, and if you are somewhere else like Morningstar, keep to that context. Because we treat all the data similarly, you can confidently compare.” I quite agree.
  • The extraordinary 30.99 per cent return you list was for the year ending March 2021. That’s fairly close to the average for all KiwiSaver growth funds that year, at 27.92 per cent — as shown on Smart Investor. Those ridiculously high returns were for the 12 months that started right at the bottom of the Covid share market plunge and ended after the rapid recovery. They are far from typical. At the time, the Financial Markets Authority warned people not to read too much into them. Over other periods a bit before and a bit after that particular 12 months, returns were much closer to normal.
  • Good on you for checking how well your KiwiSaver fund is doing. I wish more people did that.
A Reader’s Story

Last week, to mark the 25th anniversary of this column, we ran some readers’ stories of how the column had helped them over the years. Here is another story in that series.

QI moved to Auckland from Wellington in 2010 and started reading your column most weekends thereafter. I had followed the share market when reading the Dominion and the NZ Herald over many years but had not had the confidence to purchase shares.

In 2017 I had sold an investment property and decided to follow your advice in researching a diverse range of companies to buy shares in. I ended up buying shares in a retirement sector company, three infrastructure companies, two tourism companies and a medical development company.

As expected the tourism related companies took a hit due to the Covid outbreak, but are slowly returning to their purchase price, with the loss being 10 per cent at the moment. The other companies’ capital improvement varies from 10 per cent to well over 100 per cent. With dividends factored in, the indicative return over the period from 2017 is 55 per cent for my portfolio.

This is better than my KiwiSaver return to date, and much more rewarding than any other investment I have made previously, as I enjoy hearing how each of the companies is developing. Thank you for your advice over the years and helping me diversify my investments to achieve this.

AGreat to hear. Nobody knows which industry will be hit next, but that’s easy to cope with when you invest in many industries. My only suggestion would be that you might want to diversify still further.

No paywalls or ads — just generous people like you. All Kiwis deserve accurate, unbiased financial guidance. So let’s keep it free. Can you help? Every bit makes a difference.

Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.