So, as part of signing up for a new job I’m also signing up for KiwiSaver. I’ve managed to put off learning about this for a while now but last night I finally put the time in to do a bit more reading. I knew the scheme is reputed to be generous and is generally seen to be well worth it for the individual but I needed to choose a provider and a scheme.
As my government-enforced retirement age of 65 is some years off I have chosen a growth-oriented scheme with a concentration in the share market. My understanding is that, over the long term, share markets have historically given the best returns. Of course this won’t go so well if we have an economic collapse triggered by climate change or runaway gray-goo or whatever and slide into a post-technological world – but my retirement plans are going to be in trouble if that happens anyway.
More importantly, I have chosen a ‘passive’ fund. This is one where they don’t have smart managers who wheel and deal to choose the best stocks/investments at any given time. Instead they just invest in shares/securities so that the fund tracks well-known indexes like the NZX 50. Therefore if the stock market as a whole goes up you’re winning, and vice-versa. It’s easier to manage so fees are a lot less.
Now, the interesting thing about ‘dumb’ passive funds is that they typically out-perform the ‘smart’ active funds. All that wheeling and dealing costs money (in transaction and management costs) and any increased returns are typically eaten by that. Indeed, I seem to recall that actively managed funds typically perform worse than passive funds, even *before* transaction and management costs are taken into account. Most people aren’t Warren Buffett and are apparently pretty crap at investing. Of course, the managers still get paid their lovely salaries so at least they’re happy about it.
The only major flaw in KiwiSaver (from my selfish perspective) is that the government doesn’t guarantee the investments – but also doesn’t let you spread your risk by splitting your KiwiSaver contributions between 2 or more companies. So, it looks like all my eggs will be going into the scheme run by the ASB.