Managing Investments

Martin Hawes
October 2024

When you boil investment right down, it’s best to get two things right. The first of these is the right amount of risk, and the second is to decide who will manage your investments.

The first of these is relatively straightforward: since the advent of KiwiSaver in 2007, people have become familiar with their investment risk settings, and many have done one of the risk profile questionnaires (e.g. www.sorted.org.nz or Summer’s own here). Most people now know whether they should be in a conservative, balanced or growth fund.

These funds should have appropriate asset allocations for you and your situation. Asset allocation is the proportion of shares, listed property, fixed interest and cash within the fund and is likely the greatest determinant of the investment volatility you will experience and the returns you will achieve.

Getting the right risk is relatively easy – although many people do get it wrong and find that when there is a slump they have a more risky, volatile investment than they would like!

Figuring out who will manage your investments is much harder. This is true regardless of whether you have a lump sum to invest or are considering your KiwiSaver.

Of course, if you have a lump sum you could invest your money yourself. However, as investment gets ever more complicated with more and more options, it is harder to keep up. Unless you can do the research or, at least have access to it, and are prepared to commit the time, effort and energy to managing your investment, you are better to have the bulk of your money managed for you.

Managing investments is never free – you will either have to pay someone a fee or, if you do it yourself, you will probably find it is demanding of both your time and space of mind.

I celebrate the fact that there are now a lot of people using retail investment platforms. I hope this will give them a good education and, assuming that they are mostly investing relatively small amounts, this education comes with relatively low risk.

It is a different matter when the amounts invested get larger: in my opinion people who have an inheritance, who have sold a business or are investing their life savings should mostly have their money managed for them.

I think that the investment of your life savings is too important to manage it yourself unless you are certain you have both the time and the skill, and are fully committed to the task.

So, if you have a lump sum or are in KiwiSaver, how do you do choose your manager? There are four main factors that you should consider:

Past investment performance. Past performance does not guarantee how your investment will do in future, but it could be a reasonable indicator. If a fund manager has outperformed it’s peers for years, that is a reasonable indicator that it either has good people or good investment processes (and, hopefully, both).

Time. I do think that experience counts in investment management. The people responsible for your money would ideally have had some years (maybe a decade or more) investing. In particular I do like to see that they have invested through a major market slump (e.g. the COVID slump).

Communications. Most people like to know what is going on with their investments - not just how they are doing but also how the investment manager sees the future and what it is doing to take advantage. I think clear and regular communication from the people who are looking after your investments are an essential part of the fund manager’s job.

Cost. Cost is an important part of any of your purchases and this is no different for investment management. The cost of your investment management does not have to be the lowest in town, but it does have to provide value for money. This can be specific to the individual investor but for my money you should be looking for good active management at a fair price.

Finally, I think it important that you should like the people that are managing your investments. They should be easy to work with, speak plainly, be happy to explain what they are doing and be responsive to your queries. For most of us, managing our own investments is not an option – those who are doing it for you should realise that they have been put in a position of trust and take their job seriously.

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For information relating to Martin Hawes, visit his website. Martin Hawes is not a Financial Adviser or a Financial Advice Provider. The views in this article are not intended to be financial advice. The views and opinions are general in nature and reflect judgement on the date of communication and may change without notice. They may not be relevant to an individual's circumstances. Past performance is not a reliable guide to future performance. Before making any investment, or other financial decisions, you should consult a professional financial adviser. We have prepared this web page in good faith based on information obtained from other sources, but we do not guarantee the accuracy of that information. We do not make any representation or warranty (express or implied) that this web page is accurate, complete, or current and to the maximum extent permitted by law disclaim any liability for loss which may be incurred by any person relying on this web page. Martin Hawes provides these articles to Forsyth Barr Investment Management Limited for the Summer KiwiSaver scheme and is remunerated for them.