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3 Things you need to know about KiwiSaver Comparison Tools

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Picking which KiwiSaver you’ll invest your hard-earned money in by using just comparison tools, is like choosing where to buy a house by picking the region which has had the most growth in house prices. We all see the figures published about which suburbs of our city have seen the most growth. Sometimes it’s one area; another time it’s a completely different area that tops the table. Just because an area has experienced fantastic growth during one period, does not mean that the same will happen in the next period. It also doesn’t reflect anything about the houses in that area. How well built are the houses, how large are the section, does the area meet all of your other requirements?

Whilst we find house price tables interesting (and are particularly happy when our suburb is at the top of the table), we would not pick where we would want to live simply based on performance tables.

We should bear this in mind when looking at comparison tools for KiwiSaver.

Don’t get me wrong, the tools have a lot of great information in them, and the more information we have, the better the decision we can make. It is also great to be able to hold KiwiSaver providers to account and have more transparency with how our money is invested.

There are some things you need to watch out for though, and I have listed these below.

 
Balanced” and “Balanced” can mean very different things

 When it comes to KiwiSaver, our money is invested in a certain way. The amount of risk we take with our money is broken down into a few categories for KiwiSaver: Defensive, Conservative, Balanced, Growth and Aggressive. Within the comparison tools, we can compare all KiwiSaver funds within one category and see how they’ve performed.

However, within the Balanced KiwiSaver category, we have the ANZ Conservative Balanced KiwiSaver fund, which targets 35% growth assets (higher risk) and 65% income assets (lower risk). We also have a Generate Stepping Stones fund which targets 55.8% growth assets (higher risk) and 44.2% income assets (lower risk). That’s a massive 20.8% difference in the amount of the fund which is weighted towards risky assets, and yet they are both considered in the “Balanced” category. (This is just one example, but there are may across all of the risk categories).

When the sharemarkets have done really well, the funds with a greater allocation to growth assets will be at the top of the performance tables, and the funds with a smaller allocation to the growth assets will be at the bottom of the performance tables. This will completely reverse when the share markets are doing badly. The difference in performance may have nothing to do with a better KiwiSaver manager versus a worse one, but everything to do with the amount of risk being taken within the fund.

LESSON – don’t assume that just because they are within the same category, that they are taking the same level of risk. There can be big variations, and this will affect the performance. Lower performance doesn’t always mean a worse fund.

 
Low fees don’t necessarily mean good value

 Likewise, high fees don’t necessarily mean overpriced.  Whilst you can compare by fees, it is not a good idea just to pick the lowest fee option without understanding why the fees are low. What is more important is the performance of the fund AFTER the fees have been deducted, and the service you are getting for the fee.

Fees may be lower as the style of investment is cheaper (for example tracker or index funds which just follow a market), or they may be cheaper as you are not being offered much of a service.

Service can include access to someone to talk to when you need to, a good online system, a comprehensive app, education and advice.

Some KiwiSavers have higher than average fee levels because those fees also cover the cost of  advice. You are essentially paying to have a financial adviser on retainer. Not many KiwiSaver providers offer advice as part of the service, it’s more a “self-select” offering.

LESSON – check what the fee you are paying covers in terms of service and advice and look at the performance AFTER fees.

 

There is usually a reason for unusually good performance

If there is a “star” in the comparison tables, there is usually a reason for it. One of the KiwiSaver providers who has being doing very well in the performance tables of late holds only 7 stocks in its New Zealand share part of the KiwiSaver. Just 7 shares, out of the whole New Zealand market; that’s a punchy bet that they’ve picked the right ones! More surprisingly, just one of those 7 companies makes up HALF of the investment.

There is absolutely nothing wrong with this strategy, don’t get me wrong. This is their investment philosophy and I’m sure they have the research to back it all up. My point is that a strategy like this does VERY well when it’s doing well. When you bet a lot on one pick and it does well, then compared to all other KiwiSavers, it’s going to be a shining star. What happen though, when the pick is wrong; Something happens to tip the scales the other way? This same fund, which has been a star, and has attracted people by being the top of its class, becomes the bottom of the pile very quickly.

A lack of diversification increases your risk. This will be right for some people, but not for others.

LESSON – understand WHY performance has been good, and what level of risk you are really taking with your KiwiSaver.

 

I understand that KiwiSaver can be a minefield. There are so many choices to make and it’s really hard to know where to start, particularly if you don’t have any experience in investing.

If you’re struggling to understand the comparison tools, or to decide how best to invest your money, then get advice from someone qualified or ask for more information. Comparison tools are a great place to start, but they should not be the only thing you look at.

Some KiwiSaver Comparison tools:

https://public.tableau.com/profile/fmaadmin#!/vizhome/FMAKiwiSaverTracker/Story1

https://fundfinder.sorted.org.nz/

To learn more about KiwiSaver, take a look at our handy guide here.

 

Disclaimer

This article should not be considered to be personalised advice and is our opinion only. A disclosure statement is available free of charge and on request. Seek advice from a qualified professional to discuss your personal circumstances.

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