Will I be changing my KiwiSaver from Growth to High Growth?

May 21

May 21 Will I be changing my KiwiSaver from Growth to High Growth?

21 May, 2023

Every Monday morning, I receive an email from Investment News New Zealand, and it always contains the latest news on investment, superannuation and advice industries both here and in Australia. Much of it is too much information for me, but I’ve become used to how many changes companies are constantly making to personnel and the products that they market to consumers.

Change is constant. The addition of new products is never-ending.

Nothing stays the same. CEOs come and go all the time. They move from one company to another, come and go from Aotearoa, or go out on their own to try to create the next big thing. Mergers and acquisitions are constantly happening, and company branding is forever in flux. Regarding KiwiSaver, managed funds and index funds, new niche funds are constantly being dreamed up to pull customers away from competitors or address a need that customers say they want. Or fund managers quietly close investment funds that they used to tout as the next big thing - but were actually an underperforming crappy investment.

You may have heard that Sharesies have added new products to their suite of share market offerings in the form of savings accounts and KiwiSaver. It’s all to constantly innovate and bring as many customers and money into their platform as possible. That’s business. It’s been interesting to watch their ongoing evolution over the years as their business transforms and grows, but honestly, and with respect, I don’t need to buy 99% of what they are selling. But what doesn’t appeal to me might appeal to the next investor, and if Sharesies throw out enough lines, they will surely catch more fish.

Investment News New Zealand published a piece on the Simplicity changes, drawing my attention to my KiwiSaver provider. Several people have emailed me about my opinions on these changes. I thought I’d share how I process new information when it comes my way and what you might want to keep in mind if you are faced with new options for your investments.

The fundamental changes that I can deduce that Simplicity has made are:

Added seven new funds (both KiwiSaver and non-KiwiSaver investment funds)
Moved all of their funds from Vanguard to DWS (Deutsche Bank subsidiary)
Reduced their fees from 0.30% - 0.29%
Added a higher percentage of private assets in the form of mortgages and property (build-to-rent housing)
Changed the structure of their funds to be NZ domiciled, using PIE funds which are more tax efficient

For more detailed information on the changes to the funds, Money King NZ wrote a blog post that covers things nicely.

I found a few other articles referencing the changes as well: NZ Herald, Good Returns, Stuff

No doubt that somebody hotly debated these new changes on social media, too, I barely go there, but it is sometimes interesting to test the vibe of the responses. I think people freak out far too easily, but occasionally someone who knows what they are on about will chime in with something valuable to say.

Your KiwiSaver provider has no doubt sent you information about their latest changes at some point, too; they are all constantly tweaking what they offer to appeal to their customer base and attract new customers.

When changes are announced by any provider I’m invested in, I just start Googling, reading, talking to people and learning; and I keep two things in mind:

Consider my options slowly; there is no rush. Waiting a month or two to act (or not) will make little difference to my net worth at retirement
Don’t overthink it

They say, “Jump,” I say, “I’ll do it in my own time, thanks.”

Just because they have made some alterations and additions doesn’t mean I have to jump to attention and do something. Using Sharesies as an example, they have added so many options that I’d lose my mind trying to work out what to do. So, I pick a path using my information and roll with it. Using the Simplicity changes above, they have introduced seven new funds; I’m only interested in researching one of them.

It doesn’t matter who you invest your KiwiSaver with or who you bank and invest with; just because the provider thought up something new doesn’t mean you have to buy it. You don’t have to constantly be ‘doing something’ when you manage your investments. I would assume that you signed up with the provider you are with after some considered thought and research, so you are safe while digesting this new information.

I’ll keep in mind that the week before they launched these changes, I was perfectly content with the provider and fund I was with, so let’s not panic about fixing what I never thought was broken in the first place!

Work out in simple terms what has changed.

As befits my age (49) and stage of life, I’m still 16 years out from accessing my KiwiSaver; I was always in the most aggressive fund they offered, their Growth Fund. I understand that for a long time, Simplicity KiwiSaver members have been asking for a more aggressive fund, one that pushes for higher returns over the long term, so they finally delivered and have launched a High Growth Fund. It’s likely to be more volatile over time because of that, but also possible that it might have higher growth over time because that’s the whole point of it.

To understand what is different, I went on their website and compared my fund with their new High Growth Fund.

It is increasingly hard to compare KiwiSaver funds because there are just so many, and they are all a little different to each other, even when you are looking at ones with the same level of risk, but Sorted Smart Investor is quite handy for this for those who have the time and inclination to dig a little deeper. But be warned; it’s hard to compare apples with apples. Compare your fund with others as best you can; it makes you more aware of similarities and differences in asset allocation, returns and fees.

I invest in residential real estate.

While reading up about the changes, I came up with a couple of thoughts, particularly about investing my KiwiSaver funds into the niche area of residential rental property, something they have been doing for a while now. Simplicity was getting pushback about investing in unlisted investments (meaning they can’t be traded on the share market), particularly their rent to build housing, which I find ironic given that Kiwis love to pimp investment property as the primary way to get rich. No part of me would ever want to buy a rental property of my own, with all my money (or the bank's money) tied up in one illiquid rental property. Try selling that in a hurry! No thanks. But a sliver of my KiwiSaver tied up in hundreds of newly built, well-built, long-term rental properties, with a builder that appears to know what they are doing, that will not be sold for capital gains? Yep, I can absolutely live with that. The fact that they have already completed homes that are now being rented and have more underway shows that they are more than just talking about increasing rental supply.

Cut the fees I pay? Yes, please!

I note, too, that Simplicity has stayed true to its word and continued to drop the fees I pay. From the beginning, they said they would do this because we were all being fleeced by providers lining their bank accounts by charging too much. I’m now paying .29%. How does that compare to your provider? Are your returns better than mine once you deduct their fees?

Diversification I can live with.

There is more exposure to international shares and less to New Zealand shares, something I’m perfectly comfortable with. The Growth fund is in 80% growth assets; the High Growth fund is 98% growth assets. We also invest a little into an NZ 50 ETF and a lot into a US 500 ETF, which aligns with that. With a home we own, plus an ETF investment into the NZ 50, I’d much prefer to see our international investments growing over time so that we are not too concentrated in our little economy at the bottom of the world.

A fallible human is in charge. Not ideal.

Another consideration I keep in mind as I learn about the changes is the longevity of the personnel behind this fund. What if they come up with a weird investment idea or die? Who takes over, and what's their deal? While the rest of my investing is in two ETFs because I’m trying to just “buy the whole market” and have as few people involved with my investing as possible, that can’t be the case with my KiwiSaver provider. The CEO of Simplicity, Sam Stubbs, said in that article above that they are “still 90 per cent passive”, meaning fewer humans have a say, making the fund 10% active by investing in housing and mortgages. With a human at the helm making decisions for the company's direction and, therefore, the direction of my retirement fund, I am at the mercy of what he thinks is a good idea. I think what they are doing is a good idea, but that might not always be the case.

Will I change, or won’t I?

What’s the answer? Will I be changing my KiwiSaver from Growth to High Growth? I’m leaning towards ‘probably’. While I’m not overthinking it, it is a decision I want to make once, so I’m not rushing it. While reading and learning from others about these changes, there is no harm in holding off for another month.

I’m choosing from two good choices, so as I mentioned above, it’s not worth overthinking it and getting super bogged down in the details (in fact, you might be horrified at the lack of numbers/percentages/returns in this blog post). The commentary of those I respect and the articles written by those who write about investment for a living all add to the good track record I’ve already experienced with this KiwiSaver provider. I’ll make a decision either way soon enough.

Don’t let FOMO get in the way of your investing.

The next time you receive an email telling you that your KiwiSaver or investment provider now has even more choices of things to invest in, I don’t want you to panic and second-guess your entire investment strategy. Instead, take a deep breath, have a read and then, if there is something that piqued your interest, follow it up. This is what led many people to email me and use me as a sounding board. But otherwise, mark it up as something new you learned today, delete the email and get on with your life.