Friday, January 31, 2014

Nudged into poor returns

The not inconsiderable number of people who believe NZrs need to be “nudged” into savings (due to their dim witted nature and inability to understand anything much) also nudge these hapless folk into “default funds”.

The brilliantly conceived administrative slope to be climbed to get out of these defaults, understand easily where is a better place to go and then get there at low cost in a timely manner, means that default providers are having “a big time” and a good time.

The investor who is “looked after” with a little nudge into a “safe place” is not necessarily having fun though – as Fundsource point out here:

Let’s use the example of KiwSaver and, as the majority of KiwiSaver funds under management are sitting in Default funds (more than $5 billion), the Conservative sector. Currently, the average performance from inception to 31 December 2013 for the Conservative sector is 4.74%. And over any of the six calendar years to 31 December that the Scheme has been running the average performances range from 0.32% to 8.27%. There are currently twenty five funds in the KiwiSaver Diversified Defensive (Conservative) sector and the annualised five year return starts at 4.07% per annum to 10.94% per annum (not a Default fund).

So its seems that there is wide variation in what can be earned. Competition between these funds would be useful then. So would pressure on fund managers to compete hard for investors funds.

Fundsource has not published on variations in costs for investors (fees etc.) but the variation is equally wide.

The moral is clear and “letting the government nudge you and pick your default position is likely to be bad for your health.”

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