KiwiSaver is a long term investment, designed to grow retirement savings. But what’s often overlooked is the majority (55%) of the $34 billion[1] in KiwiSaver money is unfortunately being invested in income assets, not growth assets. And this figure has not changed in the past 2 years.
This is a result of having so many members selecting Conservative or Moderate Funds and not switching out of the conservative Default Funds they were assigned to when joining.
This is especially alarming because 79% of KiwiSaver members over age 18 have 10+ years until retirement and 59% have 20+ years.
KiwiSaver is an investment, not a savings account and when investing it’s important to consider your investment time horizon. We consider anything over 10 years as a long time horizon and anything less than 3 years as a short time horizon.
Historically, over the long term, growth assets such as shares and property, have outperformed income assets such as bonds and cash. This is including occasional periods of substantial negative performance from growth assets.
| Gross returns 1996-2016 | 20 years p.a. | 20 Years Cumulative Return |
| NZ Shares
(S&P/NZX All Index Gross) |
9.4% | 503% |
| NZ Bonds
(S&P/NZX NZ Govt. Bond Index) |
7.1% | 292% |
| NZ Cash
(S&P/NZX 90 Day Bank Bill Index) |
5.6% | 194% |
Source: Bloomberg data over time period stated.
As the table above shows, even slightly better annual returns make a big difference over long time periods. Investors that stayed the course and weathered the ups and downs of the share market the past 20 years have been rewarded handsomely compared to investors in bonds and cash.
Unfortunately it seems many investors are not making the most of their KiwiSaver account just yet. We would argue that having only 45% of KiwiSaver money invested in growth assets is far too little for a long term investment vehicle.
Hopefully over time, through industry education, investor confidence and word-of-mouth, investors with long time horizons will take an active interest in their choice of fund and recognise the importance of getting better returns.
Sean Donovan
KiwiSaver Associate
Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.
[1] Reserve Bank of New Zealand. March 2016.