Gareth Morgan & Kiwisaver

Good to see Gareth Morgan putting actions behind words. His newest venture is a KiwiSaver product, and information is available at aptly named Kiwisaver.com. Great scoop on getting that url.

Gareth is on a campaign to remove a lot of the shoddy practices in New Zealand’s investment community.

The new Kiwisaver product is aiming for simplicity and transparency.

“No hidden agendas or fees, no conflicts of interest. We don’t hide fees behind unit prices, bank fees, or insurance premiums. Beware the low headline fee merchants – it’s their hidden expenses you should be terrified of.”

Here is the prospectus, which is hidden in plain view on the site – to get there you need to click on the big red link above the menu line on the right, but I cannot (yet) find it in the menus.

Investors have a simple choice to make – whether they want a conservative, balanced or growth based investment strategy. I like this approach a lot, as the average Kiwisaver investor isn’t going to be up with the latest in portfolio theory.

The fees (in the prospectus)  are $200 or 1% per year, whichever is the highest. That’s a great fee for those investing hundreds of thousands, let alone a few thousand. There is also an option to pay $500 and then just the 1% fee from the next year – rather than the $200 fee if that applies. I did a rough model, and, assuming you will invest the same amount as your original investment each year, this option makes sense if you place $2,500 or less each year. At 4% of income that implies an income of $62,500, so this approach makes financial sense for the majority of New Zealanders. Actually it also relates to what you expect the average return to be, which gets quite complicated as you really have to do a monte-carlo of the range of expected returns each month. But $2500 or less per year is a good rule of thumb if you believe returns will be in the 6-9% range, which you should. The benefits of the $500 approach kick in in the fourth year or so.

If you are considering a Kiwisaver scheme, as an employer or employee, then I wouldn’t consider any other.

(Disclosure: I have some money placed with GMI, the company behind GMK, and have also recommended GMI before. That’s it.)