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Having been punished for chasing returns from finance companies, investors are now being told they are playing it too safe.
In the meantime, "the biggest job for financial advisers is to encourage clients to stick with their programmes," he says. .
Even so, it was barely enough to make up for the drop-off in other superannuation and managed funds. Even conservative KiwiSaver funds have a few growth assets in the mix, and the right balance depends on investors' age and other factors.
The impossibility of designing one perfect fund to fit everyone is one reason independent savings advocates have resisted pushing people towards riskier KiwiSaver funds without giving them the chance to choose for themselves.
Yet Thomas says the overall mixture is wrong for the long-term future of savings.
"I take my hat off to [KiwiSaver architect and former finance minister] Michael Cullen [because] the worst thing that will happen was that, for the first two years of KiwiSaver, the markets might tank and everybody gets wiped out.
"[But] to me there is every sign that we have got an awful lot in income assets and not enough in growth assets, which is the inverse of Australia.
If you're thinking that, as she does, in "the cult of the equity" - that over time, shares, commodities and property do better - New Zealand's investment mix will not offer the best long-run returns.
Tate hopes the Financial Markets Authority will restore a few of investors' lost faith in the markets.
Quite a good deal of the movement towards fixed interest is out of the hands of ordinary people.
Then there was KiwiSaver, which automatically puts people in the lowest-risk funds (heavy on bonds, term deposits and cash) if they do not choose a fund for themselves.
Money invested in KiwiSaver is more likely than other managed funds to be invested in fixed interest and deposits, and where KiwiSaver goes, popular trends follow.
"By all means, move to a more- cautious stance when things look worrying, but you've to keep a bit of a spread across different assets in case you're wrong," Lister says.
"Having your money mostly in low-return cash-based investments is an awful long-term investing strategy.
In the real world, most people have a mixture of assets.
"Without KiwiSaver, the picture today would be a lot less cheery.
Then there is investor fear. Now many are guarding their future income, says Nigel Tate, president of the Institute of Financial Advisers.
"Most of what we're doing now is about risk management instead of managing returns," Tate says. " .
Financial adviser Stephen Fitzjohn, managing director of Milestone Financial Services in Wellington, says risk tolerance has not changed so much as people's understanding that they were taking a risk.
"Repeated risk profiling of clients indicates that the public's risk tolerance varies very little year to year, however, their view of risk has changed with greater understanding," he says. 97 per cent a year in the four years to December, while fixed- interest and bond funds gained 7. 72 per cent a year.
KiwiSaver's conservative settings have so far worked in investors' favour.
Reserve Bank fund figures don't show what happened to money from people who cut their losses and ran.
Tate says the official Reserve Bank figures probably miss "the amount of funds that have been pulled out because people got too shy, because they lacked the confidence in returns [coming back]".
"I have had probably half a dozen clients over the last six months who have said `This is not coming back the way I expected, I'm going to pull my money out and put it in the bank'.
But that may not be what investors are seeing.
"People have sat through finance company collapses and waning property prices," says Mark Lister, head of private wealth research at Craigs Investment Partners.
But the shift is making some in the funds industry nervous that people (and fund managers) will miss out on better returns in the long run.
Swinging too far towards caution means you risk paying a lot for conservative assets after selling your growth assets at a loss, he says.
Longer term, the risk is that fixed-interest returns will barely cover inflation.
"We still hear about debt problems in Europe and the US every day, and we haven't really seen enough of a recovery for people to get too positive again.
"The last decade has been an exceptionally bad decade for equities by any long run [view]," Thomas says. |
Monday 12 March 2012
NZ investors playing it safe
