A commodity is a tradable good that is the same regardless of who produces it, like milk, oil and corn. But does this also describe KiwiSaver?
When you buy commodities like milk and petrol you tend to base those decisions on price and convenience. Unfortunately, we come across many people that choose their KiwiSaver provider for the exact same reasons. Fortunately, KiwiSaver is not a commodity because there are real differences between providers and their products.
For example:
- Management style – Active? or Passive?
- Fees – How high is their management fee? Is there a performance fee?
- Where do they invest? More in NZ/Australia? More overseas?
- Asset allocation – the split between shares, bonds and cash
- Who makes the investment decisions? Do they outsource to overseas managers?
- Who does the investment research? Do they outsource this too?
- How do they manage currency exposures?
- How transparent are they? What’s their client servicing like?
- How have they performed in good markets? How about in bad markets?
- Is their performance above the industry average or below?
All these factors are important, but what’s most important to the size of your savings are your investment returns after fees and tax. The media often focus on fees, which are important, but since KiwiSaver began in 2007, the difference between investment returns among KiwiSaver funds has been much larger than the difference in fees. This indicates that a manager’s skills and processes have impacted your savings more than their fee.
This is why you cannot think of KiwiSaver as a commodity and just choose the lowest price option. Sure, when you’re filling up your fuel tank, what’s the difference? But when you’re choosing someone to manage your retirement savings, it pays to weigh-up all the factors. You’ll be doing yourself a lot of good.
Sean Donovan
KiwiSaver Associate