Diana Clement: How to DIY your KiwiSaver

KiwiSaver is now worth around $90 billion. Photo / NZME

OPINION

Not everyone wants a vanilla-flavoured growth, balanced or conservative KiwiSaver. One option for those who want a hands-on approach is a “self-select” AKA “self-managed” KiwiSaver.

Self-select is an approach where savers can build their own KiwiSaver from a mix of funds, or shares in well-known companies. Five KiwiSaver providers offer self-select options with a range of choices. Each is different.

The general idea is that there’s a KiwiSaver wrapper around a series of funds and shares, which the investor chooses. The investor can buy and sell within the wrapper as investment preferences change. But not withdraw. They can only cash in when they buy a first home, retire, or a small number of other circumstances such as hardship.

Sometimes a vanilla KiwiSaver fund doesn’t fit well with a person’s other investments. Or they’re hands-on investors and would prefer to be masters of their own destiny.

The providers are:

Craigs KiwiSaver Scheme: The first off the block with a self-select KiwiSaver. Investors can build their own portfolio from hand-picked funds and quite a large number of leading New Zealand and international shares such as Genesis Energy, Amazon or Apple.

InvestNow KiwiSaver: Popular fund supermarket InvestNow launched a self-select KiwiSaver scheme in 2020. The options are all diversified funds from 15 leading fund managers such as Harbour, Milford, Mint, Pathfinder and Russell.

Kernel Wealth: This self-select KiwiSaver fund also offers a variety of funds. It has vanilla conservative, balanced and high-growth funds, but also a range of other more specialised funds to choose between.

KiwiWRAP: The least well known self-select scheme is KiwiWRAP KiwiSaver Scheme, from Consilium. KiwiWRAP is offered via financial advisors rather than direct to the public. Working with an adviser, an investor can choose from more than 400 New Zealand and international investments.

Sharesies: The darling of small investors, Sharesies in the process of a phased rollout of self-select options. Investors will choose base funds for around 50 per cent of their investment, and a range of New Zealand companies and exchange traded funds listed on the New Zealand Stock Exchange for the balance. To reduce risk, investors will not be able to put more than 5 per cent of contributions into any single company share.

Investors have many different ways of approaching these flexible KiwiSaver options. Despite the variety on offer, the majority of investors have chosen the basic funds, says Kernel’s chief executive Dean Anderson. “[The] vast majority of investors use the pre-diversified funds, the most popular being the high growth fund. Those that do build their own tend to use a mix of core funds such as the Global 100, S&P 500, and NZ 20.” An investor can choose to build a totally sustainable portfolio using the NZ 50 ESG, Global Green Property, Global Clean Energy and Global ESG funds, says Anderson.

InvestNow’s general manager Mike Heath says some clients choose several similar funds from different fund managers. By doing that they diversify and take away hidden risk of choosing managers who may be having a bad year or that don’t perform as well as they could against the individual investor’s goals.

“You can’t be expected to pick the winning fund manager year in year out, or that the managers that you’ve selected are going to get their strategy is going to deliver the best possible outcomes for you,” says Heath.

InvestNow calls its approach the power of “and”. The ideal number is about four managers. After four, the marginal benefit almost disappears, Heath says.

Sharesies is currently rolling out its self-select KiwiSaver with a mix of funds and New Zealand shares. The company’s general manager of super and funds, Matt Macpherson, says as time goes on the choice will be extended. “We’ve started with the [investments] we know are popular on our platform. Companies like Air New Zealand, which is the most popular NZX option that Sharesies provides.”

Macpherson says the 5 per cent per share contribution in a single company is an example of what Sharesies calls “guardrails”. Those guardrails enforce diversification. Other protections include only offering more “liquid” shares that can be sold if necessary, and “personalised risk indicators”, which highlights to investors how risky or otherwise their mix of investments is.

The schemes are all different, and may suit some investors more than others. Anyone who isn’t confident about investing or is time poor should stick to a standard conservative, balanced or growth fund, or seek financial advice.