Kiwisaver progress and the market dip

Lot of recent press about Kiwisaver, but I’m missing the real juice – how were those first month results?

Well – 92,000 people have signed up to Kiwisaver, which seems a tiny number (4.6%) compared to the working population of 2m or so. However Finance Minister Cullen is happy, figuring that the numbers will grow gradually as people start new jobs. After reflection I tend to agree with is growth sentiments, but I’d be disappointed with that launch myself.

Sadly there is no sign yet of first month Kiwisaver results. Whenever they do emerge expect to see some interesting results after the recent wacko volatile dollar and market movements.

The “news” that has been shaking the markets is that giving no deposit mortgages to people with no income during an overheated housing market was, well, bad. Really bad. $100 Billion bad (and that’s Fed Chairman Ben Bernanke talking)

But wait – NZX is being touted as a safe haven for investors by, err, NZX:

Mark Weldon, CEO of the NZX, is promoting the relatively stable Kiwi exchange as a haven for worried new KiwiSaver investors.

The New Zealand market tends to be a lot more stable than the rest of the world,” says Weldon.

Yes a safe haven. Why the NZX50 only dropped 4.1% in the last month, or 6.1% from its peak in the last month. Compare that to the S&P500 which dropped 6.4% and the ASX200 which dropped 5.8% in the same (about) period. Actually – aren’t those numbers kinda similar?

But hang on. Meanwhile the NZ dollar went from 79 USD cents back to 72.8 cents, so in reality (i.e. in  US dollar terms) the NZX50 dropped by 11.6% for the month, or 13.5% from its peak.

Put it another way – if you’d invested in the S&P500 and the NZX, and you think in NZ Dollars, then over the last month you would have lost 4 to 6% on your NZ investments, and gained 1.56% on your US investments.

So what would the smart investor have done? How do you pick which market and dollar will rise and fall in the future?

Any half-decent investor will tell you – diversify. Buy in both NZ and US markets, and include Australia, UK and get some real diversification into Europe, Japan and the rest of Asia while you are at it. Spread your money according to where the wealth in the world is – which means invest as much as you can overseas.

So diversify. But stay away from insurance companies and other shonky financial advisers:

Excessive commissions, free holidays and biased deals are plaguing financial advice in New Zealand

The incentives are so generous that commissions in New Zealand are among the highest in the developed world, adding as much as 30% to the cost of some insurance products.

It’s a great article, and needs more investigations. This is a particularly sad quote:

AIA does not offer volume-based commissions, a policy introduced in 2006 after its American parent company AIG was found to be rigging the quotes advisers offered US clients, and that it had been paying “contingency” commissions – essentially volume-based commissions – that were being kept secret from clients.
Since then many brokers had turned their back on AIA because its commissions were seen as too skinny.

And one last thing: Kudos to ASB’s PR folk, who managed to bamboozle at least NZPA and Stuff into the wonderfully misleading headline:

ASB has lowest Kiwisaver fees

NZPA

ASB Bank charged the lowest management fees for its balanced fund among the six default KiwiSaver providers…..

which ignores all of the other (some cheaper) Kiwisaver accounts.

So don’t forget the Kiwisaver fees, and let’s watch for the first returns. We shall see which funds really did have a balanced portfolio…