spinofflive
CSA IMAGES VIA GETTY
CSA IMAGES VIA GETTY

MoneyJanuary 27, 2020

Understanding KiwiSaver, part two: The fund

CSA IMAGES VIA GETTY
CSA IMAGES VIA GETTY

How to stop procrastinating and actually (finally) get on top of KiwiSaver. Because there’s a good chance that if you’re reading this, you don’t know a single thing about it. 

Read the full series here.

In a lot of ways, KiwiSaver is a bit of a misnomer. Sure you’re saving for your future retirement, but it isn’t a savings account – it’s an investment. And I don’t mean investment like “your education is an investment” or “that $500 pair of sneakers you can’t really afford is an investment”. It’s an investment in the sense that our money is being put into assets that earn income or grow in value, like shares, bonds or commercial property. 

“The difference between a savings and investment account is that a savings account is where you take your money, put it into a bank, and the bank gives you some interest for doing that,” Sorted’s managing editor Tom Hartmann explains. “It’s usually not a lot [of interest], but as long as you keep putting money into it and you don’t take anything out, your savings account is always going to increase.

“With an investment account, it’s completely different. When you put money into it, it’s actually going to buy things called investments that will bring money back to you, which is why it’s called a return… and if that money’s left in there, those returns have the potential to earn more returns like a wealth snowball.” 

So who decides how that money gets invested? That depends on your provider which is the entity that actually holds your KiwiSaver account. These are usually banks or investment companies (not the government) who offer you a number of different ways of investing your money. Broadly speaking, most providers will offer to invest your KiwiSaver in a defensive, conservative, balanced, growth or aggressive fund. Each one invests in different things that have varying levels of volatility, so the right fund for you will mostly depend on your appetite for risk. 

“With KiwiSaver, those things you’re buying into – shares, bonds, property, cash – will go up and down in value like an escalator, [determining] how fast you grow and how much of a rollercoaster it’s going to be,” says Hartmann. “Shares and commercial property (growth assets) are more volatile which means there are going to be more ups and downs. Cash and bonds (income assets) won’t go up and down as much, but they also have less potential for growth.” 

The five types of funds (Source: fundfinder.sorted.org.nz)

The easiest way to figure out the type of fund you want is to use an online tool like the KiwiSaver Fund Finder which asks: a) when you expect to start spending your KiwiSaver money, b) what’s most important to you while you’re saving, and c) the range of gains vs. losses you’d be comfortable with over a single year. For example, my answers show that I should be looking at growth funds which are designed for those looking for “fairly high growth over the long term” and are “intending to leave [their] money in KiwiSaver for at least 10 years”. 

Finding the right type of fund

After you know what type of fund you should be looking for, you then need to select the fund from among the dozens on offer by various providers. It’s important you spend a bit of time comparing what’s out there because not all funds are made equal. Within the same type of fund, different providers will offer varying fees, services and returns, regardless of what your existing provider might insist. 

“A lot of the providers will say, ‘oh all balanced funds or all conservative funds are the same, just pick mine’. But they’re not. Not all of them get the same results and not all of them have the same costs or services,” says Hartmann, who goes onto explain that another way to think about your KiwiSaver is to think of it like your smartphone. Just as there are different smartphone makers (eg: Apple, Samsung, Huawei) there are different KiwiSaver providers, and just as there are different smartphones (eg: iPhone 11, Samsung Galaxy Note 10, Huawei P30 etc.) there are also different KiwiSaver funds. 

Growth funds sorted according to lowest fees

With KiwiSaver Fund Finder you can use the compare funds tool to find the fund that has the lowest fees, the most services and the highest historic returns. Take growth funds, for example, of which there are more than 60 on offer. If I wanted the lowest fees possible, the tool shows that I should opt for Simplicity’s Growth Fund (0.48%), for the most services I should opt for one of several on offer by NZ Funds, and if I wanted the highest returns (based on historic data since future returns aren’t guaranteed) I should opt for QuayStreet’s Equity Fund (14.25%) instead.

But fees, returns and services aren’t the only things we should consider when choosing a fund. We should also be looking to invest our KiwiSaver ethically, which will all be explained in part three.

Read the full series here.

Keep going!
piles of money with plants in the backgound
(Image: Pixabay)

MoneyJanuary 16, 2020

‘Don’t lose the bloody stuff’: The simple philosophy that helped build Kiwi Wealth

piles of money with plants in the backgound
(Image: Pixabay)

From early beginnings as a boutique wealth management firm to being a major player in KiwiSaver, the journey of Kiwi Wealth has seen some things change and others stay the same. Alex Braae charts their history.

A very simple sign once hung at Kiwi Wealth, the wealth management firm that emerged out of Gareth Morgan Investments. It referred to the money managed by the organisation, and summed up the plain-speaking ethos of founder Gareth Morgan. 

“Don’t lose the bloody stuff.” 

“We had a big banner up in the office, and that’s what Gareth would point to and say this is what it’s all about,” said Karena Goodall, who has worked at Kiwi Wealth for 12 years and manages the customer research and insights function. “You can’t go back and undo it if you lose all their money.” 

It was a popular sign to have up in front of customers, because in the early days the firm largely managed the money of Morgan himself, and people he knew directly. Morgan had accumulated a fair bit after 15 years of running economics forecasting firm Infometrics. He was also one of the early investors in his son Sam Morgan’s start-up – a little company called Trade Me – and made millions when it was sold. Other early investors and ground floor employees also cashed in, and needed a way of keeping their new wealth safe. Morgan had skin in the game. 

But why start a whole new firm, in a market where so many others already existed? While he wasn’t particularly impressed by them, the one big problem Morgan found with the alternative was that the tools available to simply do it himself weren’t satisfactory. 

“Over the many years of being a consulting economist when the most common question I got asked by corporate executives was “what should I do with my money” – the penny dropped,” he said. “I had by default built a new business – what I was doing for myself I could offer to others.”

That simple sign also reflected something that can be quite surprising for a firm that once bore maverick Gareth Morgan’s name – the investment strategy was actually relatively conservative, and fundamentally about protecting the assets of their customers, rather than risking it on big bets. Since being acquired by Kiwibank in 2012 and becoming Kiwi Wealth, the philosophy of stewardship over speculative gambles continues. 

Part of the reason for this approach in the early days was the relationship between the two leading figures of the firm – Morgan, and his former Infometrics business partner Andrew Gawith. They brought very different personalities to the table, and managed to find a way to make them complementary. 

“I’m impulsive and spontaneous, Andrew is more deliberate and an outstanding tidy-finisher. We both are pretty focussed on doing the best job we can, but just come at a problem from different directions,” said Morgan about their partnership. 

When asked to explain Morgan’s character, Kiwi Wealth’s head of retail, Joe Bishop, chose his words carefully. He eventually settled on describing him as having a “kind of pirate spirit about him. He wants to do interesting and important things. Gareth has always had a bit of a flair,” said Bishop. 

One of those unique parts of Gareth Morgan Investment’s approach, recalls Bishop, was the decision to look at the whole world for potential investments, rather than keeping money tied up solely in New Zealand or even Australasia. 

“Gareth’s philosophy was really that investors have a high concentration risk to New Zealand. For most people here, you’ve got your life here, your job, probably your other savings. So as a Kiwi, you’re very much exposed to the risk around New Zealand’s economy. 

“And New Zealand’s such a small part of the global economy, and so Gareth and Andrew really believed in that global investment approach, recognising that there was more opportunity overseas, and the ability to diversify significantly.” 

In plain terms, a diversified portfolio basically means that the “bloody stuff” is much safer – a few losses can be worn, because they only make up a small proportion of the total pile. 

Gareth Morgan, founder of the firm that became Kiwi Wealth. Image: Hagen Hopkins/Getty Images

For GMI, the turning point in the firm’s scale was the introduction of a KiwiSaver product in 2007. It allowed for a massive growth in the customer base, because all of a sudden the barrier to entry of wealth management was much lower. Previously they had basically operated purely as a boutique wealth management firm, with a buy-in of at least $50,000. 

“Obviously, KiwiSaver was more popular than anyone expected it to be, and particularly from GMI. We quickly grew, needing a lot more resources, and it forced the business to sort of grow up a bit,” said Goodall. That included bringing in a lot of previously external services – like risk and compliance, and legal advice, in-house. 

Neither Morgan nor Gawith are directly involved with running Kiwi Wealth any more. But their creation has now grown to more than 150 staff, and manages more than five billion dollars worth of assets. 

Despite the conservative underpinnings of the investment strategy, the firm was quite radical in how it went about treating customers. They were utterly transparent about where investments were being made, exactly what they were charging customers for, and why. 

“Every KiwiSaver member should be able to log in online, and see every single holding that has been invested in on your behalf. So you can see any company, or any fund that you’ve been invested into,” says Bishop. 

While the public has come to expect that of all firms, “but back in 2007 it was ahead of its time, and it really demonstrated how important it was to have an open and honest relationship.” 

Part of the changing expectations on firms has now been enshrined in regulation, particularly around what information needs to be on annual KiwiSaver statements. From last year, those statements will have to include information on what fees have been paid, in dollar terms, and from this year projections will also need to be included. Bishop says that’s a crucial distinction, and one that they’ve always been ahead of the game on.

“When GMI set up its KiwiSaver scheme, the monthly reports showed you what fees you paid in dollar terms – and that’s every month since 2007.” He says inside the industry, people tend to talk in percentages, but they’re often fairly meaningless to the average KiwiSaver member. “That was something that Gareth and Andrew made an absolute standard from the word go.” 

Morgan always has a bit of give and take in his comments, but it’s clear in how he talks about them that he feels warmly towards his former firm. In particular, he is proud that they’ve held onto the value of transparency. 

“It has been marvellous that Kiwi Wealth has stuck by those principles – at least insofar as doing the best they can within the institutional straitjacket that envelops them. I’m pretty happy with what’s evolved with them and can honestly say that I keep a significant portion of my wealth in their care – in an individualised portfolio of course.” 

And while Morgan says as he’s got older his tolerance for risk in investment has gone up, he’s very happy with one of his former firm’s achievements – they haven’t lost the bloody stuff yet.

This content was created in paid partnership with Kiwi Wealth. Learn more about our partnerships here