Sorted targets new investors
Financial literacy champion Sorted has completed a project it hopes will transform the nation's understanding of investing.
After six months in development, a new investment planner has gone live on the Sorted website, which is operated by the government-funded Commission for Financial Literacy and Retirement Income.
David Kneebone, commission executive director, hopes the planner, developed in association with Sunday Star-Times columnist Martin Hawes, will give people rushing to buy Mighty River Power shares pause to consider their overall savings strategy.
And, given the following Sorted's online calculators and tools have - 34 per cent of adults have used one of its calculators at least once - Kneebone said it could play a significant part in helping KiwiSavers relying on cash and conservative default funds understand that those may not be the best option.
The planner is designed to help individuals build an investment strategy that will deliver the kind of retirement they hope for.
Kneebone said many people with KiwiSaver funds will find the tools Sorted has developed will help them understand what kind of fund they have chosen, or been allocated, and whether it is the right one for them.
It includes giving people a snapshot of the kind of returns they should expect and the chances of sudden losses, information rarely put in an easily digestible form.
The numbers behind the investment planner were provided by actuarial firm Melville Jessup Weaver.
Kneebone said an exhaustive peer-review process was carried out.
That process is designed to minimise the risk of the commission making a mistake and damaging its standing as the country's financial literacy champion.
"We had hoped to have the tool ready in the early part of 2013, knowing this was going to be a big year for investing," Kneebone said. "We were very conscious of the number of people considering share purchases for the first time with the Government's asset sales programme."
The flood of people signing up - many of whom indicated in a Horizon poll last week that if they bought the Mighty River Power shares these would be the only shares they held directly - has only cemented the view at the commission that people need to think more deeply about their personal investment strategies.
That included thinking about where a direct share purchase fitted alongside KiwiSaver accounts, as many Kiwisaver providers will build a Mighty River Power position into their portfolios.
But getting the tool right took longer than expected.
Sorted's numbers do not sugarcoat the pill. They leave investors in little doubt that investing is likely to be a bumpy ride.
A middle-aged investor with a longer time frame categorised as a "growth" investor (60 per cent shares, 26 per cent bonds, 10 per cent property and 4 per cent cash) would have an expected average annual return of 7.7 per cent (3.6 per cent after fund managers' fees, the taxman and inflation).
But the range of annual returns that investor "might" have to face is -5.5 per cent to 22.5 per cent. Once fund manager fees, inflation and the taxman have taken their shares, the range shifts to -10.1 per cent to 19.3 per cent.
A negative return is likely one year in six, but that just underlines the long-term nature of building retirement savings.
- © Fairfax NZ News