Defensive Profile

While accepting that all investments involve an element of risk, you wish to minimise any volatility (variation in the value of your overall capital) and you seek to maintain the nominal (dollar) value of the sum saved. You accept that lower levels of investment risk are associated with lower rates of return and that the sum invested may not keep pace with inflation.

A Defensive portfolio may comprise 95% income assets (e.g. cash and fixed interest) and 5% growth assets (e.g. Australasian, global and property equities).

The following sample asset allocation, based on data sourced from Melville Jessup Weaver, an actuarial consultant to the Summer KiwiSaver scheme, can be used as a guide in constructing a Defensive portfolio.

Asset type Sample allocation %
New Zealand Equities 1.00%
Australian Equities 1.00%
Global Equities 3.00%
Total growth assets 5.00%
New Zealand Fixed Interest 35.00%
Global Fixed Interest 35.00%
New Zealand Cash 25.00%
Total income assets 95.00%
Total portfolio 100.0%

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Risk indicator

The Financial Markets Authority has provided guidance on indicators which can help describe investment risk. These indicators are based on annualised standard deviations, a mathematical measure of risk. 

On a scale of 1 (least risky) to 7 (most risky), the investment risk of the asset sectors can be described as follows:

Asset sectorRisk Indicator
Cash 1 Very low volatility
Fixed interest (New Zealand) 2 Low volatility
Fixed interest (Global) 3 Low to medium volatility
New Zealand equities and listed property 4 Medium to high volatility
Global equities 5 High volatility 
Australian equities 6 Very high volatility

The risk profile for a Defensive portfolio can be described as 2 (low volatility).

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