NZ Herald 24 August 2019

AWell done for keeping debt low and saving at a great rate. Sure, it’s easier when you’re on good pay, but still $25,000 a year is impressive. And it’s good to see you’re considering using the KiwiSaver withdrawal.

By the way, even if you and your husband had owned a home, you may still have been able to get the KiwiSaver first home benefits as you don’t own a home now.

Too many people don’t know about this. It’s for people whose “realisable” (easy to sell) assets are less than a maximum that varies between $80,000 and $120,000, depending on where you buy.

Some previous homeowners can also get a HomeStart grant of up to $5000 — or $10,000 for a newly built home. For the grant there’s a maximum income of $85,000. There are details on the withdrawal and the grant on the Housing NZ website.

So, should you buy or not? Your last sentence says it all. Nobody knows what will happen to Auckland house prices, so buying now might or might not turn out to be the best move financially. But you want to buy, and at 48 and newly divorced there’s something to be said for doing what you want to do — as long as it’s not stupid, and this isn’t.

ANo. You would be swapping one fund that holds mainly shares for another similar fund. It makes no difference whether all the shares, in both funds, have high or low value at the time.

AYour situation is similar to the previous correspondent’s. Good on both of you for going for lower fees.

The value of the units in a fund changes whenever the prices of its investments — shares and bonds and so on — change. In other words, all the time. So your units will be worth more now than when you started the investment.

It may be easier to forget about units and just think of the money you put into the fund, and the money you get out now.

You won’t lose anything by transferring that money, unless there are exit fees.

AThe performance of KiwiSaver and other managed funds is a very different issue from the performance of employees. Quite often, a fund that has done really well in one period will do badly in another period, and vice versa.

An example: In Morningstar’s KiwiSaver report up to June 30 2019, there are 11 conservative funds that have been around for ten years or more.

The one with the best one-year performance, after fees, came 10th out of 11 over ten years. And the one with the worst one-year performance came second over ten years. How topsy turvy is that!

Amongst the aggressive funds, only four have been running for at least ten years. But if you had chosen the best performer in the last year, you might have been shocked to learn it was the worst performer over ten years.

It’s not always like this. Sometimes a fund will have a good or bad run for quite a while. But you can never be sure when that will change.

Having said that, a lot of AMP KiwiSaver funds have done badly for a worryingly long time. Let’s look at this three ways:

• Ten-year performance. The Morningstar report includes ten AMP funds that have been offered for ten years or more.

  Of these, none has performed in the top 25 per cent of funds of their type over the ten years, and six out of ten have performed in the bottom 25 per cent — with four of those coming dead last.

  Why? Says an AMP spokesman, “The longer-term performance of some of the AMP Capital managed funds reflects a more conservative investment approach post the Global Financial Crisis, which was a decision taken in the interests of clients to help protect against potential market downturns.

  “But as we have seen, this prudent approach has delivered lower returns than some other funds over the past decade.”

• Recent performance. The picture is somewhat better in the last couple of years, during which AMP added ten more funds.

  Most of the newcomers are AMP’s versions of funds run by ANZ, ASB, Mercer and Nikko. This means members have “a wide range of funds, which they can easily switch between, backed by our full-service offering including access to helpful guidance and online tools to help them achieve their goals,” says the spokesman.

  In the year ending June 30, three of the new funds have performed in the top 25 per cent of funds of their type. And one, AMP Income Generator, was the best performing balanced fund. But still, six of the 20 AMP funds were in the bottom 25 per cent, and two came dead last.

  Says AMP, “Given the diverse range of funds we offer through five market-leading fund managers, each with differing investment management approaches, we would always expect a range of performance outcomes, and this is reflected in the latest performance data.”

• Default fund performance. Perhaps the most worrying performance is that of AMP’s default fund, which has more members than any other KiwiSaver default fund. Over the last ten years, it was the worst-performing default fund. And it came eighth out of nine over the last five years, and the same over the last single year.

  AMP’s response: “Given clients in the default fund have usually not made an active investment decision, we continue to take a prudent and conservative investment approach to protect their capital value, which we believe delivers stable returns at a low cost and lower risk.”

It seems that AMP has been more conservative generally — and in its default fund — than many other providers. And that has turned out to be bad luck.

The New Zealand and world share markets have performed unusually well over the last decade. If the markets had been more volatile AMP funds would probably have ranked better. Indeed, when the downturn comes — which it inevitably will at some stage — AMP may come into its own.

But still, the provider’s performance over ten years is poor. I always say largely ignore past performance — because it changes so much — and choose a provider based mainly on fees. But you’re right, I did suggest recently ruling out funds that keep performing badly over a long period.

Members of AMP’s KiwiSaver scheme might want to check their fund’s five-year performance on Smart Investor, and consider switching funds if it’s consistently below average.

Is that near enough for your second request?

On your first request, I don’t have that kind of influence. But you could always propose the removal of AMP from the default providers yourself. The Ministry of Business, Innovation and Employment is currently seeking comments on default providers here. Submissions close on September 18, 2019.

Usually the government doesn’t hear enough from ordinary citizens on these issues. If you submit, I bet they would read what you say with interest.

ANo. You have to contribute each year to get the government money.

If you think you won’t be able to contribute to KiwiSaver in the next few years, other than with this money, it would be best to keep your lump sum in bank term deposits and deposit $1042 into KiwiSaver each year.