NZ Herald 22 December 2018

AMy advice: grab a novel and a cuppa or a glass of wine and go find a deckchair or hammock to relax in. You’re not going to lose all your savings, or anything like it.

While you’re there, though, you might want to think about when you plan to spend your savings. If you will use some of the money within the next three to five years, it would be a good idea to transfer that amount into a lower-risk conservative or cash fund.

A balanced fund is a middle-risk one, best suited for money you expect to spend at least several years down the track.

If you look at ASB’s balanced fund in the KiwiSaver Fund Finder on sorted.org.nz, you’ll see that it invests about 40 per cent in bonds or cash, and 60 per cent in local and international shares.

ASB says on the Fund Finder, “The Balanced Fund aims to provide moderate to high total returns, with a negative return expected less than one in every five years.”

And if you click on “Show yearly returns” you’ll see it has reported a loss in only one year, in the global financial crisis of 2008 – 2009, and has in fact performed well above the average balanced fund in every year since then.

For the five years ending November 30, the return has averaged a healthy 6.59 per cent a year after fees and taxes, says an ASB spokeswoman.

Just lately, though, the fund — like most others — has had a bad run. That’s not because of CBL. More on that in a minute. But “sharemarkets both here and abroad have had a very tough time in the most recent quarter. For example October was the worst month for US markets since 2011, and that weakness has continued as we approach the end of the year,” she says.

“As a result the Balanced Fund has declined 4.32 per cent over the three months to 30 November.” That lines up with your loss since June of a bit less than 4 per cent. It’s unfortunate that it happened soon after you moved your money to that fund.

Where will the fund go from here? Nobody knows. The experience of most middle or higher-risk KiwiSaver funds over the last ten years — of a pretty steady rise — is unusual. Looking back, funds like these usually experience more downturns, and that will inevitably happen again.

But history also shows us that the riskier the fund, the higher the long-term return will be. It’s a good idea, therefore, to keep the money you expect to spend in more than five years in at least a balanced fund, if not a higher-risk one.

There’s a big worry here though: can you cope with volatility? Your letter suggests that a downturn — which could see your balance drop by, say, 15 or 20 per cent — might worry you too much. If so, move the whole lot to a lower-risk fund, knowing it won’t grow as much but you’ll get a smoother ride.

Okay, now CBL.

ASB’s balanced fund, like most of its funds except the low-risk cash fund, had a tiny investment in CBL. That’s because CBL was included in the S&P/NZX50 Index, and the funds invest in the companies in that index.

But CBL was removed from the index in June — at about the time you moved your money into the fund. So its downfall had no effect on your investment.

“CBL was placed into voluntary administration back in February and trading of their shares was suspended. The small value of the share in ASB portfolios was gradually written down to zero as information was made available. On January 1, CBL was 0.08 per cent of the Balanced Fund, and by June 1, it was 0 per cent of the fund,” says the spokeswoman.

“If someone had $10,000 in the ASB KiwiSaver Scheme Balanced Fund on 1 January, the impact was approximately $8.”

The same would apply to any other individual company, because funds like the one you are in invest in hundreds of companies.

The Fund Finder tells us that your fund’s biggest investment is in a Westpac deposit that makes up 2.3 per cent of the fund. The second biggest investment is Fisher & Paykel Healthcare, which makes up just 1.7 per cent. Even if that company got into trouble, it wouldn’t have much impact on your investment.

It’s only broader market downturns that are noticeable. And markets always recover if you hang about.

The ASB spokeswoman adds, “We empathise with the concerns expressed by this investor and others who are worried about market volatility and the associated declines in their investments.

“We encourage all customers wanting help with their KiwiSaver account, including fund recommendations and general advice, to call our team on 0800 ASB RETIRE (0800 272 738).”

Use that mattress for your afternoon naps over the holidays, but not for your savings.

AYou can’t withdraw your money until you turn 65. But the situation isn’t as bad as you think.

While in KiwiSaver, your money is earning a return.

Given you’re planning to use the money soon, it’s best if you’re in a low-risk fund, to avoid the risk of the balance dropping right before you withdraw. If you’re not, I suggest you switch.

In such a fund, the returns will probably be lower than the interest you’re paying on your mortgage, but it all helps.

ANever, I hope. It doesn’t work when a government tries to control incomes.

Having said that, readers over the years have complained that real estate agents charge more here than in other countries.

In theory that should lead to more people wanting to be agents, which would give home sellers a wider choice, and force agents to cut their fees to get business.

Perhaps that doesn’t happen to the extent we might hope because the work is, in fact, harder than you think. Certainly the income isn’t steady.

Still, competition does work to some extent. There are agents out there who charge less than the standard rates. I urge readers to shop around, and also to negotiate fees.

AIt’s a real pleasure. And great to read that Work and Income were reasonable in the end.

You wrote to me some time back, but I saved your letter as it’s a lovely positive note to end the year on. I’m off for a break now, back on January 26. Meantime, the Weekend Herald business section will be running some excerpts from my new book, “Rich Enough? A Laid-back Guide for Every Kiwi”.