A highly regarded study led by mathematical psychologist Amos Tversky and Nobel Prize winner Daniel Kahneman found that investors feel the pain of a loss twice as much as the joy of an equivalent gain.

They call this ‘Loss Aversion’, and it means that investors hate losing money far more than they enjoy gaining money.

Loss Aversion may be one of the reasons why a majority of KiwiSaver money is invested in conservative assets.

KiwiSaver has been a tremendous success, with 2.4 million members. This far exceeds the original Treasury forecast, which predicted only 680,000 members to be enrolled by June 2014. For many people KiwiSaver is their first endeavour into the financial markets. So, naturally it will take time for them to become comfortable investing.

When you look overseas, to Australia and the US for example, retirement savings schemes have been around much longer. Over time investors in these countries have been through the ups and downs of the markets, fought their fear of losses and seen the benefits of investing in growth assets for the long term.

Using findings from a February 2014 Mercer report on global pension asset allocation, you can see that both countries have a bigger appetite for growth assets than New Zealanders.



Growth   Assets

Conservative   Assets










*US defined contribution plans only

**Morningstar KiwiSaver Survey, June Quarter 2014


Australian compulsory superannuation, which has been running for more than two decades, has an average account balance of $60,400. KiwiSaver, which has only been running for 7 years, has an average balance of $8,500. Granted, we are contributing at a lower rate than Australia (6% vs. 9.5%), but if we want to catch up investing in growth assets is key.

Over time, Australians and Americans have clearly become more comfortable investing in shares. This is because they realise shares should outperform bonds and cash over the long term. Hopefully this will be the natural progression for New Zealanders as well, and maybe we will learn to love gains as much as we hate losses.


Sean Donovan

KiwiSaver Associate