Question:

My friend has just signed up for superannuation and told me she has invested her contributions four ways - 25 per cent conservative (cash); 25 per cent moderate (cash plus fixed interest); 25 per cent balanced (shares plus cash/fixed interest); and 25 per cent shares.

Is this the same as investing in one fund with a similar balance of allocations; for example, a balanced fund with 49 per cent income and 51 per cent growth?

Answer:

Mary Holm:  Basically, yes, although her total in growth assets - in her case shares, although it could also be property and sometimes other assets - is less than 50 per cent. And her total in income assets - cash and fixed interest - is more than 50 per cent. So let's say it's rather like being in one fund that holds about one-third shares and two-thirds cash and fixed interest.

It sounds as if you are wondering if your friend has overdone the idea of spreading her money around, by going north, south, east and west - assuming she had the option of a suitable balanced fund.

Perhaps so, but it's no big deal. Generally, it would be more worrying if she had erred the other way, by putting all her money in one asset type.

By investing in a wide variety of assets, she will get a smoother ride because when one goes down there's a good chance another will rise.

The exceptions:

* If your friend planned to spend the money in the next couple of years, she would probably be best to put the lot in the conservative fund. Over a short period, there's too big a chance of losing value in riskier funds.

* At the other extreme, if she doesn't expect to spend the money for several decades - and she has the stomach to stick with her investments through downturns - she would probably be best to put most of her money into growth assets. If there's a downturn, she has time to recover, and she's highly likely to end up with a fair bit more.

Let's say, though, that neither applies to your friend, and that her total asset mix is right for her. Is she better off than if she were in a single fund with a similar asset mix?

Yes and no. If her four funds have different fund managers, and one manager commits fraud or is inefficient, she'll be glad she hasn't got all her money with that manager.

On the downside, if she gets reports of how each fund has performed, she might become unduly worried when, for example, the share fund performs badly for a while. If she were in a single fund, that would be watered down, and it might make life easier.

Also, she might be paying higher fees than if she were in a single mixed fund. Beyond these issues, though, it probably doesn't matter much either way.

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.