Kiwisaver Strategy

[SBQ]

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.

The author's can pick the timeline to suit what every spin they want, also I would question where that SeekingAlpha link gets it's data from as their chart doesn't seem to reflect what I posted.

The employer matching of contributions is not always double. The minimum is 3% of person's income and the employer doesn't have to match any higher if the employee chooses to contribute more (up to 8% - a far cry from 18% that Canada allows).

My notion is at the minimum, the 3% matching contributions can easily be eaten up by the fund's mgt fees and this you lose out on compounding returns. More importantly, contributions only come if you're employed. What does that leave to those with disabilities or on the benefit? This is why I wonder if the NZ gov't would of been better to boost their superannuation pension fund by directly buying the S&P500 index so that everyone will see the benefit at retirement. Not just those that are able to work.

[Bjauck]

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.)

[SBQ]

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.)

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?

[Valuegrowth]

My Kiwisaver started in early 2010. 100% cash fund. I feel like I should adjust my kiwisaver now. Is it wise to keep 100% cash? Are there any risks?Thanks in advance.

[Aaron]

My Kiwisaver started in early 2010. 100% cash fund. I feel like I should adjust my kiwisaver now. Is it wise to keep 100% cash? Are there any risks?Thanks in advance.

Are you pulling my leg as your name doesn't suggest someone who would be in cash mr valuegrowth

With the power of hindsight I would have suggested a growth fund from 2010 to Dec 2019 and then a move to cash.

Cash right now to me would seem the best option but it will depend on what central banks do. they have been working hard to debase currencies to clear debts but have been unsuccessful so far. I am not wise so take my ramblings with a grain of salt I would suggest a move to growth or balanced fund might be good sometime in the future but not yet as the virus might only be the pin that pricks the debt bubble. I believe the debt bubble is what the financial markets are really scared of.
https://www.theguardian.com/world/20...ggle-with-debt

Personally my Kiwisaver will remain ultra conservative unless we go to negative interest rates or suggestions of a currency crisis.
When to move to growth is impossible to know but personally I don't think it is just yet.

[Valuegrowth]

Thank you so much Aaron for your great Advise. Now I feel I am going to get opportunity to re-adjust my kiwisaver. I have few options. One is high growth. Other one is balanced. I am also thinking about kiwisaver funds which allow us to pick individual companies to invest or a very aggressive fund. As it is kind of retirement fund, I would think about margin of safety as well. As you suggest, balanced or growth seems to be good option.

[Aaron]

As you suggest, balanced or growth seems to be good option.

I was suggesting cash is a good option right now. Balanced or Growth sometime in the future.

[SBQ]

I was suggesting cash is a good option right now. Balanced or Growth sometime in the future.

Cash is a horrible option if you intend to invest / lock it in for 1 or 2 years. As Warren Buffet said, 'why would anyone lend cash ; such as buying gov't bonds, that return only 1 - 2 % when annual inflation is more than 2%?

We're going to see a lot of 'quantitative easing' meaning, the NZ reserve bank is going to print money like hell (no different to other gov'ts abroad). The unfortunate problem with NZ is we can't print our way out of debt. Our NZ currency exchange rate will take a massive hit over the coming years and this leads to higher prices on imported goods.

The NZ tax system is a joke. Consider the negative returns of this financial year and if the funds are invested abroad, they're are wacked with FIF / FDR on the entire managed fund balance. Don't forget, management fee takes a cut.

Why pay RWT on interest income ? It's a for sure way of not beating inflation.

[Aaron]

Cash is a horrible option if you intend to invest / lock it in for 1 or 2 years. As Warren Buffet said, 'why would anyone lend cash ; such as buying gov't bonds, that return only 1 - 2 % when annual inflation is more than 2%?

If you lock it in for one or two years wouldn't that be fixed interest rather than cash which is available at a moments notice. Agreed most of what is being done QE etc is to destroy cash and make debt affordable. I would hazard a guess that possibly we are in for a brief period of deflation in asset prices, if the market went down a further 5% this week while you got 0% in cash you would be better off in cash. Time will tell.

The big question would be when is the best time to switch out of cash which we all agree is a good idea.

[SBQ]

If you lock it in for one or two years wouldn't that be fixed interest rather than cash which is available at a moments notice. Agreed most of what is being done QE etc is to destroy cash and make debt affordable. I would hazard a guess that possibly we are in for a brief period of deflation in asset prices, if the market went down a further 5% this week while you got 0% in cash you would be better off in cash. Time will tell.

The big question would be when is the best time to switch out of cash which we all agree is a good idea.

People that hold cash typically lock it into interest bearing deposits or bonds. This is no different to the silly Kiwi Saver fund options between Conservative to Aggressive where the amount of return on the fund (and risk level) is based on the proportion of the investment held in equities and the rest held in interest bearing bonds or cash. (ie. 60/40 80/20 ratios). and I tell you, these fund managers don't have a plan on investing, they take the income streams day after day and just buy an ETF and the rest to some cash/bond fixed interest return. They won't operate a managed fund like hedge funds do or like Berkshire Hathaway would where the cash says in liquid form and buy in times of crisis. As I mentioned before, what point is earning 1 or 2% a year when the gains are far more by buying at the right time.