Yep. At this stage of the markets - If Were not already in KiwiSaver, I would be at least looking at making the minimum contribution to a big bank conservative fund to become entitled for the annual credit.
DYOR.
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No doubt kiwisaver saver has been a gold mine for fund managers and although I am not mad keen on investing in funds because of the fees.
The $521 tax credit would be one reason to join Kiwisaver but when you say "opt-out" I am assuming your wife is working for wages. Therefore not joining Kiwisaver means she misses out on the compulsory employer contributions which would be like a 3% pay rise. An additional 3% of her gross wages less the employer contribution superannuation tax (ESCT) going straight into her retirement savings every pay day. That should more than cover the fees.
Although I can't agree entirely with 777 I would suggest you relook at the pros and cons of joining Kiwisaver.
There are other cons including having that money tied up until retirement(this could also be a pro). I imagine eventually they will require Kiwisaver funds to be turned into annuities at retirement so people don't blow it all. Especially if we ever start means testing NZ super. Although this is wild speculation at this stage and an annuity isn't the end of the world.
My Kiwisaver strategy currently is to put it all in the most conservative fund and will switch back to grow after the next GFC.
Having a background in finance, i'm not at all impressed with the whole NZ Kiwi Saver approach (keep in mind i'm speaking finance from a N. American point of view). Can you believe the insult I felt when speaking to countless of financial advisors in NZ when they could not tell me a clear cut example WITHOUT the advice of a SEPARATE TAX advisor? I questioned on tax minimisation and efficiency of the investments and they could not comment directly about taxation (regarding rules about FIF and FDR etc). Where I studied, attaining a CFA designation always accounts for taxation (meaning the person not only has to know accounting, but also taxation). It's a complete joke that the NZ advisor would charge out a fee for their service + another fee for a tax advisor. Just utter rubbish to think an investment advice does not include tax advice.
Anyways, coming from the Buffet and Munger side of investing, i'm not convinced the 3% matching will cover the fees in Kiwi Saver on a "cumulative basis" over say 10 or 20 years. Buffet has won his wager bet last year that no hedge (or actively managed) fund could beat the market index (S&P500) and he presented this at his Berkshire annual meeting last year. What purpose does a Kiwi managed fund service when they just buy the low cost Vanguard ETF? Sounds like the bureaucracy that NZ investors would be subjected to under the FDR/FIF if they bought Vanguard funds directly.
The $521 tax credit? That's called a bribe in my books.
There is a real reason why share investing isn't a hot topic for NZ. The reason is that you have an asset class (real estate) where the capital gains can be untaxed. Now recent news says the Labour Gov't will introduce a CGT to address this issue but the opposing National Party may remove it if they win the next election. Either way, when you talk about the realm of investing, one CAN'T speak without the issue of tax minimisation and my crystal ball think the NZ equity market pales in comparison to the US equity market (from a risk reward point of view). But what am I to judge? We have high paying 'actively manged' Kiwi Saver funds that would tell Buffet and Munger is wrong.
$521 tax credit, bribe or incentive call it what you will. Probably not huge in the greater scheme of things.
I would strongly disagree with your statement "i'm not convinced the 3% matching will cover the fees in Kiwi Saver on a "cumulative basis" over say 10 or 20 years."
My thought processes might be wrong but the only way you could be worse off is if fees were more than 100% of invested funds. I think they are probably around 2%.
Maybe you could give an example of your reasoning behind this statement as I must have missed something.
You're not quite right - the 100% return only applies year 1, but then that money is nibbled at by fees potentially for 40 years. If you're paying too much, you could easily see the initial doubling being eaten away at. For example, if I invest $100 a year for 40 years and receive a net 7% return after tax/fees I end up with something like $20k. If I contribute $200 a year (employer doubling) for 40 years and receive a net 4% return, I only end up with $19k despite contributing twice as much. That said, this represents a 3% fee which is much higher than I've seen for Kiwisaver funds.
My Kiwisaver approach is to put in my 3%, I get 3% from my employer and $521 from the government. This goes into the cheapest general share fund I can find. If I could stick it straight into Vanguard or some other cheap index fund I would, as it is I currently pay Simplicity 0.3% to do this for me. Not ideal, but I'm happy the fee is low enough that the matched contribution + government addition will leave me significantly richer than investing in a similar but cheaper fund outside Kiwisaver.
Since i'm my findings point more towards US equities and their rates of return, I would be interested to see how various Kiwi Saver funds have performed since they started 10 years ago? Also, i'm very weary of published data from NZ sources and would only take what the Kiwi Saver funds published rate with a grain of salt. Use a MER ? figure? How is that audited?
I grew up in Canada and saw the whole mutual (managed) fund industry be turned upsidedown when RRSP (equivalent Kiwi Saver) was introduced. You had all sorts of funds claiming to have consistent returns 'claiming' they've beat the S&P500 index etc. but those were gross figures not counting the ACTUAL returns and initially, they would never ever disclose the fee structure of these managed funds. Eitherway, I would be interested to see what Kiwi Saver funds have done and if there was a way to measure it on a cumulative 10 years basis. Because we all know all those managers of these funds need to get paid in times when the markets goes negative.
The 3% figure is too small despite the employer matching it. When I was in Canada they went through all these contribution issues and the results was it's way too small to generate ANY sizeable retirement fund UNLESS you were a HIGH income earner (but the savings and retirement pushed by the gov't was aimed at those on the low income ; high income earners or the rich don't need to save). Also there was a general view that employers would only contribute the minimum despite the employee could contribute a lot more. The tax dept in Canada allows up to 18% of a person's annual income as contributions and any unused limits can be carried forward with no penalty, but even still ; these efforts to encourage those on the low income did nothing but benefit the rich high income earners and because of that, I don't see the Kiwi Saver scheme being any different.
But we can talk differences until the cows run to the moon. The single factor that hurts all of us (and more particularly towards those on low incomes) is called "Inflation" and often at times if you simply don't have the $ to save, you're best to spend it on needs, or put it towards paying the house off faster. When I think about all this, it's probably a crime to believe what the gov't has done. People that needs $ the most, should not be coerced into a savings plan like Kiwi Saver when the end result is not much more than what the gov't could of done with their national pension plan by directly investing it into say the S&P500. There's a lot of inefficiencies involved by getting the public to invest ; just look at all those financial advisors fattening their back pockets, all those 'actively managed' funds in Kiwi Saver Funds (this is standard practice worldwide). While at the same time, when the National Party was in power they reduced or stopped investments into the NZ Super / Pension plan.
Now the gov't wants to attack those property speculators and investors by imposing CGT. (Historically, Kiwis enjoyed retirement from their real estate investment portfolio).
and lookee here.
https://www.nzherald.co.nz/business/...ectid=12194740
"Independent research firm MoneyHub has accused Fisher of "ripping off" customers by charging high management fees.
The 14 funds which have $289 million invested from around 20,000 people charge between 1.5 per cent and 6.83 per cent for management."
This is the kind of behaviour I hate. How do you justify 6.83% pa for management fee? I also laugh at the response saying the take over of these funds is complicated. What are they exactly doing to warrant such high fees?
The issue is, your money is only doubled once when it's put in. The fees apply for years, or even decades. The maths is compound interest in reverse, which we all know is a powerful effect when you give it time.
Think of what happens in, say, year twenty. Your contributions are only maybe 2-3% of your total balance, so your employer contributions only add 2-3% to your balance. If you were paying 3% fees, this would totally counteract your employer matching.
Luckily, high fees are optional. SBQ, no argument that some companies charge silly amounts, anything above 1% is very hard to justify. Fees are coming down as scale increases, I'm paying 0.3% now and hopefully this will come down further in the future. At that level, you'd be crazy not to snap up the perks by putting in minimum contributions. My savings above 3% are invested elsewhere.
For long term returns I'd recommend interest.co.nz who publish comparisons every so often.
https://www.interest.co.nz/kiwisaver...ket-volatility
I'll have to admit i'm not in a NZ position to invest in Kiwi Saver as my wife would be. Fortunately my father lives abroad where we can manage our investments jointly. So our NZ household savings take a different path ; which i've strongly advised the wife not to join Kiwi Saver. If there were prospecting shares (or managed funds) in NZ that would be attractive, we would of done so. But for the past 15+ years, we've pretty much done better by simply buying none other than "Berkshire Hathaway".
Most people in NZ have never heard of the company. They don't even know who Warren Buffet is. But time and time again Buffet has said you're playing a fools game if you can time markets when to buy or sell or know when to be in cash or bonds (hence the behaviour actively managed funds practice). He says, "That's not how you get rich in this industry... you can't tell your clients to go put their $ in the index fund because how else would they (the financial advisors) get paid? .. That's not how the system works".
From a performance point of view, tt's a shame that the default Kiwi Saver funds 'net of fees' isn't doing any better than what the banks pay in term deposit. Of course, interest income is taxed at marginal tax rates but on a cumulative basis it might be very comparable? I recall during the Hanover Finance era banks were paying over 9% on term deposits.Quote:
For long term returns I'd recommend interest.co.nz who publish comparisons every so often.
https://www.interest.co.nz/kiwisaver...ket-volatility
I have heard of Berkshire Hathaway - despite their history they haven't done any better than the S&P500 over the last decade at least. Their size is such that they're unlikely to outperform going into the future (especially as their secret sauce is likely to retire/die soon). Buffet himself has said on his death he will advise his wife to invest in the cheapest share tracker she can find. If your wife is able to get employer matching, you will not find an easier way to outperform. Even if not, may as well stick $1k in each year and get the member tax credit. The only downside is your money is locked up until 65, which is why I put in a minimum required to get the benefits and any extra cash goes elsewhere.
I agree, the default funds are not doing very well - I guess the decision was made to assume people want a conservative fund by default, so the default funds are in invested in about 80% cash and bonds. Sadly only a minority will ever question this and stick their money somewhere more appropriate.
As SBQ said, kiwis have invested heavily in real estate as most of the gains came from untaxed capital gains. Real estate whether owner-occupied or investor still forms the backbone of retirement savings.
Perhaps the the reason why real estate gains have not been taxed was as a result of the political influence of farmers with their land wealth and the desire not to force the break up of large farms?
Excluding the primary residence from any CGT will increase the relative appeal in NZ of using the family home as the pension plan - Especially in the absence of providing further tax incentives to invest in KiwiSaver (apart from the $521 annual credit on annual contributions over $1042 no matter how large the balance and how large the PIE tax payable on the balance each year.)
There is no secret sauce. Buffet's been able to beat the S&P500 10 out of the past 13 years:
https://www.fool.com/investing/2019/...he-last-1.aspx
Total Return BRK: 247.8% Annualized Return: 7%Total Return S&P500: 164% Annualized Return: 3.8%
Buffet has mentioned many times to his shareholders that Berkshire's large size is an issue. But that's not how Buffet beats the market. Berkshire is not a company that can be compared to other mutual / managed or hedge funds, and this is where Kiwi Saver funds really fall short. They simply can't 'broker deals' like Berkshire can. Good examples was when the 2008 GFC hit, no one had $ to be bailed out. When Goldman Sac wanted money, where did they go? When GE wanted money, where did they go? They knocked on Buffet's door step asking for $ and in classic style, Buffet named his terms. 10% p.a. + options or convertible warrants or preferred shares. These kinds of deals managed funds don't have the ability to do or simply, are not in the loop of things. Buffet is also famous for conveying deals that require large amounts of $. Such as Burger King moving to Canada (to buy out Tim Hortons). Kraft Foods, Mars Confectionary, 3G. When one major corporation doesn't have the funds to buy out another, they usually knock on Buffet's door.
No one really knows the performance of Berkshire after Buffet is gone. But we are assured that succession plans are already in place and in Buffet's last years, he would simply let the younger managers take place and make sure the Berkshire culture remains within. It's a lot different to how Finance companies or managed funds operate where they may cycle through many different managers to tweak things in their portfolio throughout the years.
I'm hoping my wife understands my approach to investing and why i'm hesitant to Kiwi Saver. She knows that NZ may not be our home for the long term and there may be a good possibility our children may move abroad. So being locked into Kiwi Saver until we're 65 is not something in our books.
One thing for certain, no one really knows what the future will hold.
The CGT will just simply level the investment playing field. The reason why CGT is so hard to push through is simply, we have too many NZ politicians that own real estate. I hear Winston Peters owns like a dozen houses in his portfolio and isn't a fan of this CGT. So it would be interesting to see how serious these politicians will be when it comes implementing CGT and hopefully, it would encourage more people to invest in other areas of finance (which is more productive).
In Canada and i'm quite certain in the US. Farmers owning land is treated differently. They allow exemption of taxes when passed down to next generation after death. I don't see why NZ couldn't do the same. All I hear is excuses how complicated taxes will be in NZ when other countries have managed fine with concessions or exemptions. Like GST exemption of food? In this day of age of computers, can it be that difficult?
13 years is a strange timeline. Here's my source
https://seekingalpha.com/article/415...vs-s-and-p-500
Looks like they did well around 2007 which bumps up your quoted 13 year returns. The trend is pretty clearly towards matching the market in the future, as you'd expect as the size of the company increases. Not a terrible place for your money, but don't expect the future returns to look like the past.
I can fully understand not wanting to be in kiwisaver if it's too inflexible. On a pure financial returns basis, I will take it over Berkshire anyday due to my employer and the tax man more than doubling all my contributions.