Hilda.
I'm Chelsea Daniels, host of the front Page, The Ends at Herald's daily news podcast. The podcast is taking the day off as the country marks and Zach Day. Instead, we're presenting an episode of The Prosperity Project, The Herald's Personal finance podcast. Listen as host Nadine Higgins talks with personal finance columnist Mary Holm about what you need to know about Kiwi Saver, including what the most important thing
to consider is when picking a provider. If you enjoyed the episode, follow The Prosperity Project wherever you get your podcasts, and we'll catch you back on Monday for another look behind the headlines.
Yilder, I'm Nadine Higgins, and welcome to your personal finance podcast, The Prosperity Project. On this podcast, I'm on a mission to empower you financially. I am a columnist and a journalist, an investor, a financial advisor, and the mum of a toddler.
But I do not claim to be the font of all knowledge.
I'm still figuring it out too, and that's why I'll be bringing you the experts and mining their big brains for all the things you and I need to know.
Every week.
More than three point three million New Zealanders are in Kiwi Saver and we now have more than one hundred and ten billion dollars invested. But too many of us are not making the most of the scheme. So today we're going to get some guidance to ensure that you are and joining us as finance expert columnist and author Mary Holm, who has just revised and updated her eighth book, Rich Enough. Hi, Mary Hei Nadine, It's so lovely to
be talking to you. I've been a longtime reader, first time interviewer.
Same.
What are some of the ways that we Kiwis who have signed up to Kiwi Saber are getting it wrong?
Yeah? Well, firstly, just not contributing. I mean, obviously people sometimes have to take a break if they lose their job, although even then perhaps they could still put twenty dollars a week, and it depends on the situation. Twenty dollars a week will get you the maximum government contribution, and so it's really good if people can keep doing that or even five dollars a week, just to keep the
habit rolling apart from anything else. But beyond those sort of situations, people I think take what used to be called contributions holiday and is now called a saving suspension to make it sound a bit less appealing, like a holiday. Yes, yes, yeah, and then not getting back into the contributing later.
And it's one of those things that maybe goes into the too hard basket they have life edmund basket, and once they're out, they just don't get.
And think it, you know, possibly think it's quite a hateful to get back in, but it shouldn't be. It should be really easy to get back in. And peaking speaking from the perspective of someone who's been around a while and did some retirement savings back in the seventies in America when I worked in journalism over there, that money that I then left in America has grown hugely. It's really wonderful for young people to get in and keep contributing, and by the time they get to retirement
sort of age, it's huge. You know, the growth is huge.
And that's what they mean by time is your greatest ass that you start young and you've just got decades for that money to compound and grow exactly.
I mean, these the young ones, a lot of them are going to retire with a million and kiwi saving, especially if they go into the higher risk funds that tend to have higher returns. And we should know that a million dollars then probably won't buy as much as it does now, but it's still going to buy a pretty nice retirement. So we want people to just be if you have to take a little break, take it, but be really religious about getting right back into contributing.
Yeah.
Absolutely, you mentioned the higher risk funds. Yes, is that one of the other mistakes that we're making that we're all a bit too nervy about taking on risk. We're not all that way. I mean, some people take on going to a high risk fund and then panic when the markets go down, and so if they really really can't cope with that volatility, they shouldn't have been in that fund in the first place. But there are a lot of people who are the opposite, in particular women.
There's quite a lot of research to suggest that women tend to go into the lower risk investments and end up retiring with a lot less money, because it makes a big, big difference over the years.
The reason I laughed then is I think maybe you only know what your risk profile is when things are volatile, because when it's all going up, you can say, great, take on lots of risk, because it doesn't feel risky the fair assumption.
Yes, I think so. I mean in early twenty twenty, when the market's really plunged, when COVID broke out, that was the first time for a lot of people that their Kii Saber had gone down much. People who got in at the very beginning in two thousand and seven or eight, they saw a big downtem because the global financial crisis happened around then. But first of all, quite a lot of people went in yet, and secondly, it was on a pretty small balance. People went all lad interested.
At that stage. They might have a couple of thousand dollars in key saber and it went down five hundred dollars and they, oh, you know, it's only five hundred bucks. But by the time we got to twenty twenty, for a lot of people they saw the value dropping by thousands of dollars and panicking. And of course, as we all know now, the market's recovered remarkably quickly that time. They don't always so fast. But I mean, I was
in my HAIRLD column. I was continually saying to people, no, just stay poor, just stay put, and even even if there is a downturn, and you learn from that that you can't cope with volatility as much as you thought you could, if you can just hang in there for a while, because markets that go down suddenly quite often recover quite fast. And then once things have sort of turned around again, if you really want at that point to move to lower risk because you can't cope with volatility,
that's fine, but you're not allowed to. Then when the markets start going back up again, Oh, I'm going to flick back into the high risk again. People that do that, really do. There's a lot of data that shows that people that shift around like that end up with sometimes only about half as much money as Wow, people who just we just misstime it.
We jump in after the markets have risen, and we jump out when they're falling after they've fallen.
It's it's absolutely awful what happens where people they're buying at a high price and selling at a low price. And if you you know, think about cars, If you buy a car at a high price and then sell it when the prices are low for that model, that's not good. It's just the same and key we saving.
Do you think that the term high risk needs some workshopping by the marketing department to be something that doesn't sound so scary.
Yeah, yeah, that's you know a lot of people say, well, it's really volatility, it's not risk, and that's absolutely true in a key we sab fund because they're all quite widely diversified. They own a lot of different shares or bonds or whatever, and so they're not the value is not going to fall to zero just and when it goes down it's almost certainly going to go back up again in time. It might it might take a few years, or it might take just a few months, but it
will come back up. So it's not really risky. It's volatile. The trouble is high volatility is the kind of it doesn't flow off the tongue is easy. Yeah, and I think quite a lot of people might not even fully understand. Well, you know, it's a little bit of a hard word. Maybe do you think, yeah, we preaps need to find some other one. I'm not sure what you Yeah.
No, I wonder whether it is one of the other mistakes that some of us are making, is we're looking at our balance too often. I know people who have it on their mobile banking app and so on any given day they can tell you whether it's up, down, or otherwise. But if we're looking at a twenty or thirty year investment on the daily, we're more likely to be worried.
Yeah, absolutely, And I mean I think that's one one reason why I'm not a huge fan of the bank kV saver schemes. I mean, they're not bad, but they're not not amongst the bettest schemes for the most part.
But that problem too, of people seeing their balance. It was fine while the markets kept growing, and you know, in the ten or so years from about twenty ten to twenty twenty before that COVID crash, there weren't many downturns at all, and I think people thought that's just the way it was always going to work, and so they look at their bank balance and it was often it was a bit higher, and it made them feel good.
But then when it went down, that was especially if it's on your bank app or something and you're seeing it every time you buy something or whatever, not a good idea. I think you can ask the banks, do you know. I think you can ask them not to have your balance come up like that. I think they'd be a good idea for people to if they want to stick with their bank too.
If that helps them manage their personal feelings about risk or volatility, then perhaps that's a really good idea. If you feel like you don't have the stomach for volatility, is there a way of just at least dipping your toe in and partially exposing your fund to more risk.
Absolutely, And that's one of the reasons why I think, well nearly all the key we saber providers let you be in more than one of their funds. And there are sort of two situations where people might want to do that. One is, as you're approaching the time of spending the money, maybe on a home or maybe in retirement, then quite often you want to put some of the money, the money you're planning to spend soon in low risk and then the longer term money in a higher risk.
But the other time is when you're thinking, i'd quite like to be brave and go into something that's a little bit more high risk, high volatile, that you can if you're I'm not sure I can cope because I reckon you should actually picture your balance to be radical harving. I mean, there have been market crashes where where the value of something like a Key Sab fund would have halved, and that's very rare, but I think in the eighty
seven crash it probably happened. I mean it's possible. And so if you had a Key Saber balance of one hundred thousand and you're moving into a higher risk fund, picture it going to fifty and you know, it's great if you can cope with that, because to hang about it and it'll come back up again. But if you really can't, you know that just sounds too grim. Then perhaps put a quarter of your money into high risk and then see how that goes for a couple of
years and get more transferred over. Now, last I took to Simplicity. They were the one major provider that wasn't letting you be in more than one fund. But Sam Stubbs will say, no, no, no, we're going to change that. I'm not sure whether they have yet, but those of you who are in simplicity and want to be in more than one fund, hassle them because.
It so once you've figured out, you know you need to be in growth, aggressive, balanced, whatever it is.
I guess.
The next step is to figure out, well, whose growth aggressive balanced fund should you be in? How will we best to determine because there's many providers and it can be a bit overwhelming.
Some it can. I think the major basis on which I would suggest you choose a provider is fees, which is controversial because people say, well, if you pay more for something, you tend to get something better. Not always, but you tend to when you're buying clothes or or
houses or whatever, pay more and get something better. But really, in managed funds and including key we that doesn't necessarily happen that there's a lot of research to show that the low fee ones can perform as well, if not better, after fees than the high fee ones, and so I reckon it's good to just go with low fees. And the easy way to work out which funds charged low fees is to just go on the sorted website on the smart and Vesta tool and it's pretty neat tool
for those who haven't explored it. You just click on kipsaber and then you can choose what risk level you want to look at, or you can look at all KP saber funds. But It's easier really if you say, look, I'm in a balanced fund. Click on balance funds and rank them by fees. You can rank them by returns. You can rank them by quite a few different different things,
but rank them by fees lowest first. You can get fees the highest first, fees lowest first, and then have a look at say half a dozen of the one that charge the lowest fees, and read about them that website has got. If you click on the name of the particular fund, you get a good summary of information. It's not you know, screeds and screeds of it. It's what major investments they're in and how their returns are compared with other returns are warning on that people look
and see that it hasn't had such good returns. Now, if it's had really bad returns relative to other funds in that risk level, I would perhaps give it a miss, but don't necessarily dismiss it because it's had only mediocre returns, because there's once again heaps of research to show the ones that did well in one period won't necessarily do well in the next period. So I think it's better to go with low fees and then one that's had
reasonable sort of returns. The other thing you can look at is the services that the that the different keyv Saber providers offer, and the Retirement Commission does surveys annual surveys on and asks all the providers do you offer this, do you offer that? And they come up with a score for each provider on on how good their services are, and you can find that on the keypsaber fund finder tool on Sorted you can find it which one's got good services.
Yeah, and I would agree that that tool is phenomenal. And we should point out to people that Sorted is created by the Retirement Commission, so it's government funded. They're not trying to sell you anything. It's just good independent information. So head there. We'll put the link in the show notes. I want to talk to you some more about the mistakes we're making and the importance of fees, but we do have to take a quick break back after this
Welcome back to the Prospers charity project. We're talking to money expert Mary Holme about ensuring you're getting the best out of your kiwisaver, and we started talking about fees, Mary, and I know that on the Sorted website that you can rank them from lowest to highest. But is it most important to look at the fees or is it most important to look at the return after fees?
Yeah, I think look at the fees. Yeah, you know, that does seem counterintuitive because you want to look at which everyone's doing well. The trouble is it's all past information, And as I was saying a minute ago, there's lots of research to show that funds that have done well in the past in fact are sort of less than average likely to do well in the future. There's a
real tendency. You know, the active fund managers which charge the higher fees, tend to have a certain way of selecting investments which quite often does well in one environment and not well in an environment. So really, honestly, and people find it quite hard to believe it's a very good idea to ignore returns unless they're particularly bad.
Yeah, I think people would struggle to get their heads around the idea of ignoring returns when they're all ranked on this fund or that fund has achieved the best return, and we've got the morning Star report that'll tell you who's done what over the past five years, ten years, So what is the research that tells us that it really doesn't matter if they've done well in the past, it doesn't mean they're going to do well in the future.
By the way, on morning start have a look and it says that you know, it says there don't take much notice of the returns. It does say on their reports. But the research is mostly American, I have to admit, done by S and P, which runs the S and P five hundred and huge big American research firm, but there has been some done in New Zealand that shows
the same. So things happening here where they look at, for example, the funds that have done best let's say a five year period, how did they do in the following five year period or over ten years, and how do they do in the following ten or whatever the period is. And very often the ones that did well in one period then they tend to be less likely than by chance, to do badly next time around. And the ones that did badly are quite likely to do well the next time around. It's really it is hard
to get head around it. If you're doing you know, if you study finance, which I've done, I could explain it. But it's not a quick crab. Really yeah, fair enough?
And when I know that there's plenty of debate over active funds versus passive funds, and I guess the lower fee ones tend to be the more passive funds.
Is that to say that there's.
Just really no benefit to some highly powered financial analyst who's paid lots and so therefore charges you lots going through and picking the investments.
Yeah, I think there is no benefit. I mean that's perhaps a bit sweeping. And people always bring up Warren Buffett to me, you know, when I'm saying you can't really pick shares. He and Charlie Munger have been exceptional. They are the exception that proves the rule. In fact, he himself Warren Buffett has said you should go into index sons. But generally speaking, when you look at the research, I've been following this for more decodes than are clear
to men. But when you look at people who are praised for being very good at selecting shares, and then suddenly next time around they don't do very well, it's just a common thing.
I actually underlined in your book a quote from Warren Buffett in his twenty seventeen Annual Report, where he says performance comes, performance goes, fees never fault, yes, which I thought was quite poignant because maybe what people don't understand is you're not just charged fees if your fund grows, right.
No, that's right. Then people can get upset by that. Sometimes if their balance goes down quite a lot in the fees just keep on coming along. But if you're realistic about it, you can't really expect the people who are running KYP Saber funds to just get no or low income when the markets are down. That's not going to work for people. They're still doing the work, they're still running the funds, and many times it's not their fault that the markets have gone down, you know, it's
market condition. Yeah, COVID or something like that comes along, and you can't blame them for that. There's nowhere to.
Run and hide in a situation like that. What about performance fees? Not all funds charge them, but some do where if you achieve a certain amount above the benchmark.
That they'll charge you extra. Is that a waste of money? It's yes, there's not that many do charge those anymore, I think, and they're not really They can give the wrong incentives for the managers to go for short term performance as against longer term because they can take the money and run to South America. Yeah, you're stuck in Kip Saber over the decades. I mean, I know the FMAS looked into performance fees and I don't think they're
particularly impressed by by the way it works. It's not I wouldn't wouldn't applaud a fund that charges performance fees.
At the last FMA report and it said that the I think this is for the twenty twenty four year that we paid seven hundred and eighty nine point six million in fees. Gosh, do you think that we're just paying too much? Should there be a cap on what you canch?
Sure? I prefer in these sort of situations to let the market do it, and we should vote that with our feet, then yes, and move to the low fee ones, which is not only helping the market work better, but also helping you. And it's absolutely true that fees have gone down, and you know, the f he may has
been monitoring that, and especially at the low end. It used to be that a zero point five percent fee was low and now there are quite a few providers offering you know, a fair bit and sometimes quite a lot less than that. Yeah, So I think we just let the market work that one out. Yeah.
I think you've been quite definitive though. We're looking for the lowest fee and not performance, and so I think if everyone thinks that way, I think we'll all drift in a certain direction and surely the other fund managers will catch ale.
Yeah, and there has been was it being one of the big providers not long ago lower their fees, tended to lower them across all all their funds. Yeah, it's.
Yes, we've talked about the fees. We've talked about not necessarily getting hung up on the returns. Is there anything else you should consider when you're picking a provider, Well.
There's you know, the whole issue of ethical investing, which has become more and more popular and a lot more new Zealanders are taking an interest when Mindful Money, which
is the website I recommend on it. They got some great information on which kei we saber providers and which funds invest nicely as far as the environment goes or social issues or that in fact that you can look at, whether they're animal testing, all sorts of factors you can look at, and so have a look at the Mind for Money website, but they when they do surveys, they find that, you know, the majority of New Zealanders really care about the ethics of their investments, but a lot
fewer people are actually translating that into choosing a key we Saver fund that is an ethically strong fund. But I think that's probably gradually changing, and it's certainly something so on the Mind for Money website, have a look at a fund you're thinking of moving into, and you can specify which issues matter to you and then see how that fund scores, and that that might make you change your mind.
I'm keen to know whether there are other changes more broadly that you would like to see to how key we Saver it works, because obviously there's only so much that we as investors can do within the scheme to maximize its value for us. For example, some people are on contracts that are total remuneration contracts, so your key we Save a contribution and the employer contribution comes out of your salary, and that's always struck me as not
really being within the spirit of the legislation. Cricket, It's not cricket.
No, I really don't like people doing it tends to be big and play lawyers who do it, and they they say it's because they want to treat the people that are in key We Saver equally with the employees who are not in ki We Savior. And I say, that's that's pretty weak. We want there to be an incentive for people to be in Kee We Save, but we want the employees to want to be in it.
And I know that, you know, the Retirement Commission has for a long time said we should get rid of total remuneration it's called and I'd really like to see that gone.
And this is maybe a tricky one for those who find it difficult to find the three percent, But should we have higher minimum contributions.
I'm not particularly a fan of that. The people who are are often in the industry, and you sort of think they've got a bit of an incentive.
Because because they can charge a fee based on how much has invested more.
Yeah, And they say, no, no, no, Mary, that's not what I mean at all. I just think people aren't retiring with enough money. But actually, funnily enough, I mean in my Weekend Herald column, every now and then there's a letter from someone who lives on New Zealand super alone and is quite happy on it. I'm not saying everybody is, and I'm not saying that's good. But I don't think we don't need to retire with half a
million dollars in key we saber. Most people don't. It's you know, if you can, well that's nice, but it's not essential. I would rather see contributions made, but by the government to unemployed people. That's the change I would really like to see. Get them into the system. Don't take it out of their benefit because they are on
pretty low money already. Just puts three percent of their benefit in addition into a Kiwi Saber fund for them, because then they are part of the system, and when they get off off the benefit, they're already enrolled and things are rolling. They've got a stake in their future. And I just think cycle logically, it could make a
big difference. And it doesn't cost that much. I know the Retirement Commissioned did the number crunching on it a while back, and it wasn't very expensive because the benefits so low that three percent of the benefit is not that much money. It's a really interesting concept. There's a million more things I would love to ask you, and perhaps we have to get you on another time, but we really appreciate your time, Mary Halks, Nadine, I've enjoyed it. Thank you.
Thanks for listening to The Prosperity Project. You can follow this podcast on iHeartRadio or wherever you get your podcasts, and please do chuck us a rating or a review while you're there. For more personal finance and business content, head to inzid Herald dot co dot zed and please do feel free to get in touch with your questions and your stories Nadine dot Higgins at zme dot co
dot zed. A reminder though, that this podcast is informational only and nothing we say here should be considered personal financial advice. But also remember that while listening to this podcast is hopefully going to be additive to your financial knowledge and that is fantastic. Knowing stuff doesn't create change. Doing stuff does. So what action are you going to take today to make your life more prosperous. My producer for this episode is Ethansels, sound engineer is Richard Martin.
I'm Nadine Higgins. Thanks for listening to the Prosperity Project.