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Investment Returns Over
the 12
months, growth
funds returned –16.7%
(-10.8%), balanced
funds returned –9.9%
(-4.8%), while conservative funds returned –0.7% (1.6%) after tax, expenses
and fees were deducted (the previous quarter’s rolling twelve months are shown
in brackets). With inflation for
the year having jumped to 5.1% real returns are now negative. The AMP Tyndall Balanced Fund was formerly managed by BT. The returns shown are a composite of the BT and Tyndall earnings. This shows current investors in the fund how it actually performed. We have now included the back tested returns for the Tyndall fund as well, for the benefit of prospective investors in this option. The Sovereign Select Employer Retirement Plan is in the process of being wound up and so has been removed from the survey.
The
widening credit crisis has now caused a recession in Europe and the U.S.
Although central banks are trying to soften the landing there is little
they can do. The U.S. Federal
Reserve has cut its overnight rate by 0.5% to 1%.
The major concern is no longer the inflationary effects of excessive
borrowing and consumption – but one of aversion to risk resulting in deflating
asset prices and cash hoarding. Falling
incomes during a long and significant recession are also likely to reduce
borrowing, as debt becomes harder to service. Cash
is now king and debt out of fashion. A
financial services industry which can only borrow from the state is now very
careful who it lends to. Nobody is
very confident lending to banks who might not be able to pay the loan back, (and
banks themselves are reluctant to lend cash cushions they might themselves
need). Money which is under mattresses rather than circulating will
not boost spending. If a lack of
demand causes asset prices to fall, then they will become less attractive to
potential buyers, so that in the extreme even zero interest rates fail to
stimulate demand. A liquidity
trap like this can be hard to escape from, as evidenced by Japan in the 1980s
and the U.S. in the 1930s. The French Government is considering forcing its banks to lend. Rebuilding liquidity is clearly necessary and this is one way of tackling the issue. Another way might be to set up a state run bank like KiwiBank, with a mandate and funds to lend, to compete with the private sector. We suggest investors think carefully before buying or selling significant assets. Markets will bounce back but may take years, not months to do so. Manage discretionary spending, reduce debt and be patient.
The number of KiwiSaver members has topped 750,000! More importantly, we now consider New Zealand to have the second best retirement savings policy after Singapore. The combination of universal New Zealand Superannuation, the Guardians of New Zealand fund underpinning its expected cost increases and KiwiSaver provides a sound platform for the future unless subsequent politicians meddle.
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A MEMBER OF THE ERIKSEN BENDZULLA ACTUARIAL CONSORTIUM All care has been taken to provide correct and up to date information here, however no assurance is given as to its accuracy, or relevance in any specific situation. (c) Eriksen & Associates Limited and Eriksens Actuarial Pty Limited, 2006 - 2008. All rights reserved. |