This article was published on 24 December 2016. Some information may be out of date.


  • When you can take diversification too far
  • Where to invest in passive or index funds
  • Book is older than I thought
  • 2 letters from immigrants express their appreciation
  • 15 years later, advice has proved helpful

QI’ve been reading your Q&As on index/passive vs actively managed funds. What are your thoughts on having both, to not only diversify what shares you own but to diversify investment strategies?

For example, I put half my retirement savings in an actively managed growth fund and then half in a passive Smartshares account. I guess it would be interesting to see which fund comes out on top in 30 to 40 years!

AWhat you’re really asking is: how important is diversification in investing, and should we diversify to the point of including inferior investments?

Views on diversification are — how can I put this? — diversified.

“Diversification is something that stock brokers came up with to protect themselves, so they wouldn’t get sued for making bad investment choices for clients,” says American businessman and financial writer Jim Rogers. “Henry Ford never diversified, Bill Gates didn’t diversify. The way to get rich is to put your eggs in one basket, but watch that basket very carefully. And make sure you have the right basket.”

However, many people who have failed in their careers or investments also didn’t diversify. We hear only about the winners. Furthermore, most of us wouldn’t know how to watch our investment basket carefully, let alone know whether we’ve picked the right basket.

I prefer a quote from another American, Jeff Yass, founder of a global investment firm: “If you invest and don’t diversify, you’re literally throwing out money. People don’t realize that diversification is beneficial even if it reduces your return. Why? Because it reduces your risk even more. “

Or, as US economist and Nobel laureate Merton Miller put it, “Diversification is your buddy”.

I think it’s wise to spread your money around many different types of assets: cash, bonds, shares, commercial property, residential property — and perhaps also a bit of gold, forestry and so on.

And generally it’s wise to hold more than one investment of each type. For example, research suggests you should own many different shares in a range of industries, countries and so on, or invest in a share fund that diversifies for you.

But we can take diversification too far. Many of us are content to stick with just one bank.

In your case, perhaps you’re hedging your bets because I haven’t yet convinced you that index or passive investing — in a low-fee fund that simply invests in all the shares in a sharemarket index — beats active investing. That’s up to you.

But if I were betting on which of your two strategies will work better over several decades, I would unhesitatingly go with your passive investment — assuming of course that the two investments are at the same risk level. If the active fund holds more, or riskier, shares and/or property, it might win solely because over the long term those assets tend to perform better.

If you wanted to keep the active v passive race running, just out of interest, you could put perhaps 90 per cent of your savings in Smartshares and 10 per cent in the active fund. Then see if your Smartshares account is more than nine times as big down the track.

Get back to me around 2050 and let me know!

QYou have been recommending for some time investing in index/passive funds. We would very much like to do this but we do not know how to get going.

Where can we buy into these funds? And having done so, how do we monitor how they are doing, and eventually how do we sell?

ALet’s start with KiwiSaver funds. The following providers have told the Commission for Financial Capability that they offer passive KiwiSaver funds. Note that you can invest in some of the ASB funds via ASB or AMP.

  • AMP: AMP Passive International Shares Fund, ASB Moderate Fund, ASB Balanced Fund, ASB Growth Fund
  • ASB: Conservative Fund, Moderate Fund, Balanced Fund, Growth Fund
  • Booster (formerly Grosvenor): Asset Class Convervative Fund, Asset Class Growth Fund
  • Funds Administration of NZ: The following Lifestages funds: Australasian Equity Portfolio, Corporate Bond Portfolio, Income Portfolio, World Equity Portfolio, World Bond Portfolio, KiwiSaver Growth Portfolio, KiwiSaver Scheme Portfolio, KiwiSaver Income Fund, KiwiSaver High Growth Fund
  • Simplicity: Conservative Fund, Balanced Fund, Growth Fund
  • SuperLife: Overseas non-government bonds, property, NZ shares, Australian shares, overseas shares currency hedged, overseas shares (unhedged), SuperLife Income, SuperLife 30, SuperLife 60, SuperLife 80, SuperLife 100, all ETFs except Cash, NZ bonds and Global bonds, Ethica

Some other KiwiSaver funds are partly passive. For instance, they might actively manage NZ shares but also invest in a passive international share fund.

For more information on KiwiSaver funds, go to the KiwiSaver Fund Finder on the sorted website and click on Check Your Current Fund on the left side. Note the fees, which will generally be lower than average for passive funds.

For non-KiwiSaver investing, check out what the same providers offer on their websites. Also consider Smartshares, the main New Zealand provider of passive exchange traded funds.

On monitoring the funds and selling, the KiwiSaver providers must report to members quarterly, and sell according to KiwiSaver rules. For non-KiwiSaver, ask the provider before investing. If they don’t answer clearly, move elsewhere. A good provider communicates well with investors.

QIn your column two weeks ago, discussing passive vs active, you made reference to the book “Where are the Customer’s yachts?” and gave the date of writing as 2006.

This book is an excellent old classic which was first published in 1940! It was reissued in 2006, and I hope it never goes out of print.

AYou’re quite right, it turns out to be a much older book — and is said to be “one of the funniest books ever written about Wall Street”.

The following is an email I saved from earlier in the year, when many readers were complaining — some with justification — about how overseas pensions can reduce NZ Super payments. It seems a good letter to run at Christmas time.

QI quite understand the Canadian man’s grievance, but when I came to New Zealand I accepted that I had to live according to the ways and means of this country. Even 50 years on there are things that irk and irritate me about the country, its Government and its people, but I know in my heart it would be exactly the same if I lived back in England; perhaps even more so. On balance I made the right choice to come here.

From the financial and health point of view I have everything to be grateful for in our public hospital services. Both my son and I have had cancer, which were effectively treated in modern hospitals. After a deadly road accident my daughter’s life was saved by the skill of a New Zealand surgeon.

All our treatments cost thousands, but we were not billed for a single cent. The money has to come from somewhere, and I don’t think we can reasonably expect as elderly people that we should not contribute our modest share. The national health bill increases exponentially each year.

I wish the Canuck well and that he manages to sort out his pension problems satisfactorily. But with respect, New Zealand is a wee country with a small, and not over wealthy population. Canada is an immense country with huge industries and vast natural resources. I think they are probably more able than New Zealand to have a financially adequate pension system for the elderly.

AI’m not sure about the comparison, but I like your attitude. And you’re not the only grateful immigrant. Read on.

QBit of my background: I am an immigrant moved to NZ nearly 16 years ago. Early years in my adventure were simply survival and getting established, as I see myself and my family settling for long long time in the future to come.

I worked in different places in the beginning. However due to my dedication the working hard no matter what the job is, gave me good returns. Currently I am with very well known construction company at a mid management level. Wife is also enjoying NZ life and has her own business. While only one kid is growing nicely as expected.

Now the point: Few years back one of my close friend introduced me to investment especially in share market. I held his advises worthy to listen and follow. However his investments are more related to Asian market rather than Australasian market.

Your column which is compulsory reading for me is well researched and makes lot of sense. I have followed your advice and have started investing in KiwiSaver for family and also started to look for local share market investment. However I find due to high fees around buying and selling shares locally it’s bit limitative. However I am not disheartened about that yet.

I would like to thank you for your ongoing help through your columns and books. Please continue doing so as long as you can. I would be the first in the line for lobbying knighthood for your efforts in financial world.

ALet’s not get carried away here! But thanks so much for a heart-warming letter.

QThought I’d travel down memory lane with you. Back around 2001 you provided advice to myself and my then husband as we negotiated the dual pathways of co-parenting and tertiary education (with a great cartoon that I loved!).

Thanks to your advice we adults attained many of our education goals, and the children (who are now nearing the end of high school) each have about $1300 in a KiwiSaver account. My oldest (17) has just started part-time work and is contributing 8 per cent of weekly pay to the account.

I’m thrilled to have my children so focused on saving early in their work life, and that this will set them up well for the future. So thank you Mary for being there!

AAnd thanks to you for writing — and confirming what I suspect about children. Getting them into a savings habit when young is a great idea.

Thanks, too, to everyone else who has written this year, including a growing number whose letters don’t make it into the column. Sorry. And I do appreciate the many kind comments, even though I usually edit them out. The less-than-kind comments are welcome too. I nearly always run critical letters. Nothing like a good debate.

I’m particularly grateful to readers who add further ideas or perspectives on a topic, which I can run in the following week or two. The collective wisdom out there is wonderful.

One of my favourite emails this year came from a man whose published letter had expressed his anger about a situation. In a follow-up note he said, “Cheers. I feel way better now, and I don’t even know you.”

That’s what I’m here for.

Have a great break everyone, with just the right mix of fun and relaxation. See you back here on January 28th.

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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding 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.