NZ Herald 7 March 2020

AAt least you want to invest more. Many people will be thinking the opposite — that the recent market drop reduced their KiwiSaver balance, so they want out, by moving to a lower-risk fund. And that’s a bad idea, as it makes their loss real. There’s advice for them at the end of this Q&A.

Still, you’re trying to time markets, and that’s not particularly clever. Markets change all the time. You wrote to me on Wednesday, but you won’t see this reply until Saturday. Assuming the market is still down, on Monday you could contribute extra money directly to your provider.

Most providers will turn your cash into units in their fund the same day or within a couple of days. But still, that could be a week after you wrote. By then the markets might be zooming back up, or falling further — in which case you’ll wish you had waited a bit longer!

It’s best to steadily drip feed into a KiwiSaver fund. Employees do that anyway, through pay deductions. Others can set up regular automatic payments from their bank.

You get good buys when the markets are down, and not so good when they’re up. But — and here’s the bonus — you’ll buy more units for the same money in down markets. So the average price of all your units is below the average market price.

This is sometimes called “dollar cost averaging”. It works whenever anyone puts the same amount into a volatile investment regularly — whether or not they understand it.

Footnote: For anyone in KiwiSaver who finds the current volatile share markets worrying:

• Don’t look at your balance! It’s best to check it only a few times a year.
• If you’re losing sleep, your fund is too volatile for you. But try not to move to a lower-risk fund now. Wait until the markets have recovered at least somewhat. It might take days, months or even years, but please try to wait.
• Rest assured that if you can learn to cope with the downturns, and you have at least ten years before you’ll spend your KiwiSaver money, your balance will come back up.

ANo I don’t think this is the thin end of any “government control of KiwiSaver” wedge.

There are those who say all KiwiSaver funds, or at least the default ones, should be run by the NZ Super Fund — the huge chunk of government money, currently $45 billion, that will help cover NZ Super costs in future decades.

That fund has performed really well in recent years. But it’s a very different creature from KiwiSaver. There’s just one account holder, and the fund can go into pretty risky investments because it’s many years before the money will be withdrawn. I can’t see a government picking up the idea of the Super Fund getting into KiwiSaver.

Back in 2006 and 2007, when KiwiSaver was being planned, the thinking was that governments don’t have experience at running funds with thousands of investors. It’s better to let the experts do it, in a competitive environment. To promote competition, the officials made it easy for people to switch providers.

It’s hard to imagine a government wanting to interfere much with that model. It has worked pretty well so far. Having said that, the government does set some rules, as you say. And so they should, given that:

• The savings of about 3 million people need to be regulated.
• About $800 million of taxpayers’ money goes into KiwiSaver each year, in the form of government contributions.

I would be concerned if the government didn’t take a strong interest in the scheme.

Should that extend to telling the new lot of default providers, as of July next year, that they must exclude fossil fuel investments?

Here’s what Commerce and Consumer Affairs Minister Kris Faafoi said about it: “This reflects the Government’s commitment to addressing the impacts of climate change and transitioning to a low-emissions economy.

“It also makes sense for the funds themselves given that there is a risk of investing in stranded assets as the world moves to reduce emissions.”

Faafoi added that the NZ Super Fund adopted a climate change investment strategy in 2017 “without negatively affecting performance. So we know that moving away from investments in fossil fuels doesn’t have to mean lower returns.”

The fossil fuels ban seems a good idea to me. Default funds are what people land up in if they are auto enrolled in KiwiSaver and don’t take enough interest to move to a more suitable fund. So they’re unlikely to notice what their fund invests in. And yet three quarters of New Zealanders don’t want fossil fuels in their KiwiSaver funds, according to a Colmar Brunton survey for the “ethical investing” website mindfulmoney.nz.

The government also announced other changes to default funds, including:

• They will switch from being conservative to middle-risk balanced funds. So your point about default funds not investing in many shares is less valid. In any case, I expect the rule will also apply to bonds issued by fossil fuel companies. And shares and bonds make up the bulk of balanced fund investments.
• Fees will have to be “simple and transparent”, and the government will put pressure on providers to keep their fees at the low end.
• Providers will have to make more effort to engage with investors and help them get into the best fund for them.

I like all those changes. If a default member becomes uncomfortable with the volatility of a balanced fund — or for that matter with the fossil fuel ban — that should prompt her or him to find out what’s best for them and move to it.

And by the way, I have no difficulty commenting on political issues. That’s part of my job!

AYou’ll get no argument from me. The main advantage of KiwiSaver is the added contributions from the government and, for employees, from their boss.

But beyond that, members can do even better by getting into the best fund for them.

Firstly, make sure you’re in the right type of fund, and secondly choose from among the low-fee funds of that type, as explained last week.

You might also want to check out how “ethical” your fund is, by using the tools on mindfulmoney.nz.

AYou’ve done everything right for someone investing in individual shares:

• You hold a wide range of shares.
• They are not all New Zealand shares — although I would rather you had some beyond Australia as well.
• It seems you buy and hold, rather than trying to gain by trading a lot.
• You reinvest dividends when you can — which works well unless, of course, you need the dividends for spending money.

For further thoughts on your question last week — when I suggested you sell a portion of holdings that have got really big — read on.

AYes, but there must also be shares that have fallen lots and then zoomed back up.

My main point last week was that nobody can predict share prices, so it may not make much difference which shares you sell.

Still, your rule of thumb is probably as good as any — along with the strategy you and I agree on, to sell some of your shares in any company that has come to dominate your portfolio.