A good investment strategy should be diversified into global assets, not overly concentrated in Australasia.

Even if the New Zealand investment universe is widened to include our neighbour Australia, it still represents quite a small part of the global economy. To illustrate, the following chart shows the percentage of the world economy represented by the top 100 countries in terms of nominal GDP, as calculated by the IMF in its 2006 survey:

As a proportion of the global economy, New Zealand on its own represents less than 0.2% of world GDP and still less than 2% when combined with Australia.

One of the fundamental principles of investing is to diversify your risks. It makes sense then, to include a significant exposure to global markets in your KiwiSaver plans.

Where Brook's KiwiSaver plan invests in markets outside of Australasia, management of those funds may be outsourced to global equity specialists with a philosophy and investment strategy that Brook assesses to be appropriate.

Dollar Cost Averaging

The nature of KiwiSaver contributions means investors should not be concerned by market volatility.

A key feature of KiwiSaver is that investors are likely to be making regular contributions to an investment portfolio as opposed to one large lump sum investment. Your savings will then build up gradually over time. This “drip-feed” aspect of KiwiSaver is significant because:

• KiwiSaver investors should be less concerned about starting levels of market valuation. This is unlike a “lump-sum” investor who is committing to a single one-off investment and is rightfully sensitive to the market level at the start of their investment time horizon. KiwiSaver contributions will be invested in a range of market environments.
• Assets that fluctuate in value will be acquired at a range of prices. When prices are depressed, investors will benefit from what is known as “dollar-cost averaging”. The constant dollar value of contributions will acquire greater amounts of securities. Hence, a disciplined investor will regard short term market declines as an investment opportunity.