15/3/2023 0 Comments
The latest financial blow-up involving Silicon Valley Bank (SVB), and the contagion of Credit Suisse, have likely had one of two responses: “SVB who?”, Or :”Which one is next and am I invested in it?"
If your reaction was the first, read Matt Levin’s excellent piece here in Bloomberg. If the latter, read on.
Levels of panic depend on whether you're a depositor or a shareholder in the banks that go bust or are at risk of going bust.
To stem a full-on banking sector melt-down, Governments are leaning in with guarantees that retail deposits are safe, well to a certain amount anyway. They do this to comfort retail investors who have comfortable size term deposits and the like to prevent a mass exodus. The greater fear lies with shareholders who aren't likely to benefit from any Government bail-out.
Before you heave a sigh of relief about not being a shareholder in any American banks, or Credit Suisse, take a beat.
If you’re a New Zealander, chances are you have a KiwiSaver account. More than 3 million people do. The majority are invested in Growth funds, which tend to have a broader exposure to sharemarkets around the world, including Switzerland and of course America.
So despite being at the bottom of the world, when it comes to diversified share portfolios, it is a small world indeed. There is a good chance you do have exposure to both SVB and Credit Suisse.
The good news is, it's not likely much.
The average balance in KiwiSaver is around $30k. And when you breakdown all the investments you hold around the world, your exposure to any single stock (unless it is in the Top 10 holdings) is likely to be miniscule.
On a balance of $30k if you're invested in the S&P500, its around $11.
On a balance of $100k for example, it's around $36. In other words, it is not going to throw off your retirement. This is the benefit of being invested in a wide range of companies, across a wide range of countries.
The lesson here for investors is to start caring, more, about what they're invested in.
I will hazard a guess that 98% wouldn't have a clue.
It’s a bit harsh but consider the fact that close to 40% of savers don't make regular contributions into their accounts. KiwiSaver is an investment vehicle engineered specifically for your retirement. You need to make regular contributions to optimise what you'll have for retirement.
Step by Step
Before we go forward, let's take a step back.
If you want to understand better what you’re invested in, firstly you need to know your fund type.
If you don’t already know, log into your KiwiSaver account. If you're invested in other funds outside of KiwiSaver, I expect your understanding (overall) will be better. If you don’t who your provider is, phone Inland Revenue or try logging into your MyIR account online. You'll find it under the KiwiSaver tab.
Once you know with whom and what fund you’re invested in, you can look at the composition of that fund on your provider’s website. Regardless of who you’re invested with, all of them will have a Fund Update page, usually it is alongside the Fund type you’re in.
This is an example below with reference to Simplicity KiwiSaver.
Navigate to the page that outlines the different fund types and find your fund. There will find a risk indicator rating.
This indicates the level of risk you face given your fund type with 7 being the highest and 1 being the lowest.
Generally speaking, the more shares you have in your fund, the higher the risk.
The risk is higher because the share market has a lot of volatility.
Regardless of your level of expertise, you’ll have some appreciation for this after all the covid aftershocks and the rise and fall of your balance.
Underneath the fund’s description, you’ll see the first year return. Don’t panic if you see a negative numbers. It has been a horrible year in the markets and most providers will be posting a negative one year return at this stage. To cheer yourself up, look at the return p.a. since inception. There you will see a happier story, unless you only joined KiwiSaver recently.
Underneath the return, you’ll see a pie chart. This breaks down the types of assets you’re invested in.
In this case it breakdown as follows:
The key difference between a Conservative Fund and a Growth Fund is the ratio of income assets (cash and fixed interest) to growth assets (shares and increasingly other assets like Private Equity holdings - more on that in a later blog).)
These are great documents to read. It’ll explain all of the above in greater detail.
It’ll also show you how your fund fared, compared to the benchmark that it uses to compare performance.
“The market index annual return is a composite index, calculated using the return of each asset class index the fund invests in, weighted by the fund’s benchmark asset allocation."
Okay so these are broad brush strokes.
For the real juicy details, i.e. are you invested in Credit Suisse or SVB, you’ll need to look at the holdings of your fund. The fund update will show you a provide of the top 10, but you’ll want to go deeper than that for the rest. With Simplicity's diversified funds, you're invested in 3,000 shares spread across 23 countries so SVB won't be in the Top 10. If it was, you'd be worried.
You can find the entire holdings on the Companies Offices disclose register. Search your provider and fund type.
Your fund manager, if asked, should provide you with the complete holdings. It may also be on their website if you did a big of digging.
With Simplicity, you have total transparency via a cool tool called Where in the World is My Money. If you enter your balanced and the fund type you’re in, you can find out to the dollar what shares, bonds and other assets you own.
Users will be reassure how well diversified they are.
It is an age old adage, but diversification really is one of the best ways to mitigate risk when it comes to investment. Imagine you were only invested in US bank stocks for instance and there was a huge run on banks there. As an investor, you'd be in shocked.
Property is another good example where diversification should be considered. Let's take Christchurch as an example. Say you were only invested in property located in Christchurch in 2010. I'm willing to bet many investors learned the hard way, not to put all their eggs in the property basket after that year.
Risk is all around us. Understanding what the risks are with your investments means you can either sleep better at night or potentially enjoy a higher standard of living in retirement. Of course there are no guarantees, but it pays to know either way.
The information contained above is purely informational and should not be construed as personalised financial advice. For personalised advice, I recommend you seek a fee charging financial advisor.
Amanda is a personal finance specialist and published author based in Auckland, New Zealand. She is also a certified meditation and yoga instructor which informs her teachings on financial wellness.