Have you heard all the talk about investing in passive or active managed funds?
I’ve been hearing plenty recently, from the front man for Simplicity KiwiSaver Funds, Sam Stubbs. He argues that by investing in their passive funds, an investor will be better off in the long term. This is based on the simplistic concept that lower fees (by using an index based fund) will reward the investor long term. And that active management (where managers are trying to add value by stock picking and moving funds around within sectors and between sectors) can’t beat the market, long term. Therefore by not paying for this expertise, the running costs can be much lower. And this sounds great – in theory – doesn’t always pan out in reality.
Simplicity’s fees are the lowest in the KiwiSaver fund market. There’s no denying that. Their results though, over the past 12 months for their balance fund? Average, at best and 27% below the top rated fund (excluding fees and according to Morningstar research). To date their value proposition hasn’t yet got the numbers to back up their theory, in my opinion. However in time, this could change.
Chasing cheap fees is one strategy as is using low cost index based investment strategies. If that is what you are comfortable with, that is okay. But I suggest anyone using this strategy really gets to understand where their money is invested, and how it would perform in a bear market.
I don’t care what colour your KiwiSaver fund investment folder is, but what I do care about is if you have the right investment strategy for your situation? And who can help you with that? A qualified and objective investment adviser.
For almost 10 years we have seen world share markets increase on the back of increasing money supply. One day this will change and we will be in a different economic cycle. On that day, I suggest you will want to have a human on your side of the desk, making calculated decisions, not a computer algorithm that just sells based on an index calculation. It doesn’t end well.
We don’t know when the market will change and I’m a firm believer we will all read it online or on our phone, all on the same day. The speed of information transfer is faster than ever before. From history, at these times good financial management counts. If the market falls, it will be too late to put any constructive plan in place.
In fact, I believe it is really important for KiwiSaver fund investors to be looking at their investment strategy today and having a plan in place – regardless who your money is invested with. Advice is vital, especially as your KiwiSaver fund balance starts to grow.
I’m only a call, email, or facebook message away. I’m always happy to have a chat to see whether WealthDesign can help you get to where you want to be. The first meeting is complimentary, so give me a call to tee up a time.
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