Simplicity Review - is this the Kiwisaver or investment fund for you?
Updated May 2018
TLDR Review Summary of Simplicity
- 6 funds offered, with annual fees set at 0.31% of total investment plus a $30 membership fee - the fees beat comparative funds from Superlife and the ASB.
- Management company behind Simplicity operates as a not profit, claiming profits from any fees will be given back to investors.
- Funds invest in cash, bonds and the sharemarket, the mix depends on the risk profile of the fund.
- Simplicity is an excellent choice for Kiwisaver participants looking to invest in a low risk, index fund with low fees.
We are not a fan of high Kiwisaver fees, and for a while there wasn't much change since Kiwisaver first launched. New providers entered the market and charged 1-2-3% depending on what they offered. With the arrival of Simplicity, we're pleased to see a lower fee point and a commitment to fee transparency. But is Simplicity right for your retirement savings?
Our Review
In this guide, we outline what Simplicity is, how it differs to standard Kiwisaver providers, what index funds are and how they're different to other funds, as well as looking at whether it's safe to invest in given its recent appearance as a Kiwisaver provider.
Please note: moneyhub is not a Financial Adviser, and this guide has been published to explain the investment fundamentals and outline the pros and cons of Simplicity as a Kiwisaver provider.
Our Review
In this guide, we outline what Simplicity is, how it differs to standard Kiwisaver providers, what index funds are and how they're different to other funds, as well as looking at whether it's safe to invest in given its recent appearance as a Kiwisaver provider.
Please note: moneyhub is not a Financial Adviser, and this guide has been published to explain the investment fundamentals and outline the pros and cons of Simplicity as a Kiwisaver provider.
First Steps - What is an "index fund"?
- An index fund (or "ETF") is a type of investment that is established to invest in or track the components of a market index, such as the New Zealand NZX50 (our largest 50 companies) or the Standard & Poor's 500 Index (S&P 500).
- An index fund provides a diversity in risk, as your investment is spread over many companies within the index, proportioned by the size of each company's market value.
- The index fund benefits from low operating expenses and management fees due to the fact that the fund must invest in the companies within the index and therefore doesn't need fund managers to make judgments or research in order to make the investments.
- An index fund operates no matter the state of the markets, so as markets overall go up your investment is worth more, and vice versa.
- An index fund is different to many other Kiwisaver funds, which have investment managers hoping to predict market movements and make investments on your behalf to add value to your portfolio. Simplicity does none of this, instead it simply invests in the specified index and value is created by the movement in the overall sharemarket.
The Specs of Simplicity
Funds on offer: Simplicity offers six different Funds, and each fund is comprised of over 3,000 different investments in 23 countries, and are 100% hedged to the NZ dollar. This means that if the NZ Dollar rises against any overseas currency, the value of the overseas investment is not diminished due to the hedging and therefore eliminating exchange rate movement as an investment risk.
The fees are as followed:
Investment Products include:
Funds on offer: Simplicity offers six different Funds, and each fund is comprised of over 3,000 different investments in 23 countries, and are 100% hedged to the NZ dollar. This means that if the NZ Dollar rises against any overseas currency, the value of the overseas investment is not diminished due to the hedging and therefore eliminating exchange rate movement as an investment risk.
The fees are as followed:
- Annual fees (which are the same for all funds): $30 + $3.10 for every $1,000 in your account. Excluding the annual fee, the management fee is 0.31% on your invested funds.
- Other fees: The Guaranteed Income Fund charges an additional 1.3% for an insurance policy, which guarantees income payments.
- Transfer in and exit fees: There are no exit fees, but your existing Kiwisaver scheme provider may charge an exit fee - you'll need to contact them to find out what that is.
- Minimum Initial Investment: $1 for all funds.
Investment Products include:
- Cash (i.e. bank deposits in New Zealand banks)
- New Zealand Fixed Income (i.e. investments in government bonds or company debt)
- New Zealand Shares (i.e. shares in Spark, Fletcher Building and Air New Zealand)
- Australian Shares
- International Fixed Income bonds and deposits
- International Shares
What Funds are Available, and What's the Difference Between Them?
Simplicity offers six funds - Conservative, Balanced, Growth and Guaranteed Income, as well as NZ Shares and NZ Bonds. Generally, the rule is that the higher the percentage invested in shares rather than cash deposits and fixed income, the riskier the investment. This is because shares fluctuate in value, where as cash deposits don't and your investment is near-guaranteed for anything classes as cash or fixed-income.
1. Conservative Fund
This fund investments largely in fixed-income (78%) and cash (2%), leaving an exposure to the sharemarket of 20% of funds invested, with most of the risk in overseas shares. Based on this, most of the fund's return can be predicted year-on-year and this is the safest Simplicity fund currently offered.
The fund comprises of:
Intl Fixed Income 39%
NZ Fixed Interest 39%
Intl Shares 12%
NZ Shares 4%
Australian Shares 4%
Cash 2%
2. Balanced Fund
This fund is a bridge between the Conservative fund above and the Growth fund below, offering a midway point for someone looking for higher returns without high risk. As such, the fund is 56% shares and 44% fixed income.
The fund comprises of:
Intl Shares 36%
Intl Fixed Income 21%
NZ Fixed Interest 21%
NZ Shares 10%
Australian Shares 10%
Cash 2%
3. Growth Fund
The most aggressive fund simplicity offers, with 86% tied up in shares in New Zealand and around the world. The return and value of this fund will depend heavily on how international sharemarkets are performing.
The fund comprises of:
Intl Shares 58%
NZ Shares 14%
Australian Shares 14%
Intl Fixed Income 6%
NZ Fixed Interest 6%
Cash 2%
4. Guaranteed Income Fund
This is a unique fund in that the Guaranteed Income Fund pays the investor 5% of the fund invested at age 65, after tax and fees, for the rest of his or her life. Simplicity makes these payments on the same day as NZ Super/pension, and the payments are the same every time. The guaranteed income is paid from the fund's returns (and capital if necessary). Simplicity requires you to take out an insurance policy to guarantee the same income payments, even if your investment goes to zero. You can still access your Kiwisaver fund, and whatever is left gets paid to your estate. The minimum investment amount to participate in this fund is $50,000.
The fund comprises of:
Intl Shares 29%
Intl Fixed Income 23.5%
NZ Fixed Interest 23.5%
Cash 8%
NZ Shares 8%
Australian Shares 8%
5. NZ Share Fund
This fund consists 100% of New Zealand shares. The NZ Share Fund invests in the top 50 NZ listed companies.
6. NZ Bond Fund
This fund invests in over 20 investment grade New Zealand bonds.
Simplicity offers six funds - Conservative, Balanced, Growth and Guaranteed Income, as well as NZ Shares and NZ Bonds. Generally, the rule is that the higher the percentage invested in shares rather than cash deposits and fixed income, the riskier the investment. This is because shares fluctuate in value, where as cash deposits don't and your investment is near-guaranteed for anything classes as cash or fixed-income.
1. Conservative Fund
This fund investments largely in fixed-income (78%) and cash (2%), leaving an exposure to the sharemarket of 20% of funds invested, with most of the risk in overseas shares. Based on this, most of the fund's return can be predicted year-on-year and this is the safest Simplicity fund currently offered.
The fund comprises of:
Intl Fixed Income 39%
NZ Fixed Interest 39%
Intl Shares 12%
NZ Shares 4%
Australian Shares 4%
Cash 2%
2. Balanced Fund
This fund is a bridge between the Conservative fund above and the Growth fund below, offering a midway point for someone looking for higher returns without high risk. As such, the fund is 56% shares and 44% fixed income.
The fund comprises of:
Intl Shares 36%
Intl Fixed Income 21%
NZ Fixed Interest 21%
NZ Shares 10%
Australian Shares 10%
Cash 2%
3. Growth Fund
The most aggressive fund simplicity offers, with 86% tied up in shares in New Zealand and around the world. The return and value of this fund will depend heavily on how international sharemarkets are performing.
The fund comprises of:
Intl Shares 58%
NZ Shares 14%
Australian Shares 14%
Intl Fixed Income 6%
NZ Fixed Interest 6%
Cash 2%
4. Guaranteed Income Fund
This is a unique fund in that the Guaranteed Income Fund pays the investor 5% of the fund invested at age 65, after tax and fees, for the rest of his or her life. Simplicity makes these payments on the same day as NZ Super/pension, and the payments are the same every time. The guaranteed income is paid from the fund's returns (and capital if necessary). Simplicity requires you to take out an insurance policy to guarantee the same income payments, even if your investment goes to zero. You can still access your Kiwisaver fund, and whatever is left gets paid to your estate. The minimum investment amount to participate in this fund is $50,000.
The fund comprises of:
Intl Shares 29%
Intl Fixed Income 23.5%
NZ Fixed Interest 23.5%
Cash 8%
NZ Shares 8%
Australian Shares 8%
5. NZ Share Fund
This fund consists 100% of New Zealand shares. The NZ Share Fund invests in the top 50 NZ listed companies.
6. NZ Bond Fund
This fund invests in over 20 investment grade New Zealand bonds.
If I invest with Simplicity, is my money going into the sharemarket?
For all funds, the answer to this is yes. However, the percentage of your money invested in the sharemarket depends on the fund and its risk profile - the Conservative Fund has the least money in sharemarket, where as the Growth Fund invests the most money in the sharemarket. However, all of the investments are diversified so you are protected if and when one or two investments don’t work out.
Risk
For all funds, the answer to this is yes. However, the percentage of your money invested in the sharemarket depends on the fund and its risk profile - the Conservative Fund has the least money in sharemarket, where as the Growth Fund invests the most money in the sharemarket. However, all of the investments are diversified so you are protected if and when one or two investments don’t work out.
Risk
- The 6 funds each offer a unique investment strategy. Some are low risk, some are medium risk and some are high risk. The returns/profit you make don’t necessarily depend on the risk you take.
Who is Simplicity Suited to?
Standout Features:
- Best For: Long-term Kiwisaver participants looking for stability and growth that is passive with low management fees.
- Also suitable for: Those nearing retirement who want a fixed annual income with the Guaranteed Income Fund
- Not suitable for: Kiwisaver participants looking for aggressive, active funds that aim to beat the markets year on year.
Standout Features:
- Simplicity is New Zealand’s lowest priced Kiwisaver fund, with management fees capped at 0.31% (compared to the industry norm of 1-2%).
- Low annual fee of $30 irrespective of how much you have invested.
- The scheme has a commitment to return all profits to investors.
- No investment in tobacco, nuclear weapons and landmines
- A flexible Guaranteed Income fund for those approaching 65.
Simplicity - What You Need to Know
The Claim
Simplicity advertises that it offers a "low-cost, hassle-free investment solution for Kiwisaver participants looking for low fees and safe investment". It states that it offers a “nonprofit retirement savings vehicle which charges members only what it costs to deliver”. As such, the platform is 100% online and doesn’t offer financial advisers or other industry participants commissions.
Is it True?
Yes. It’s new to the market but is on a mission to slash fees and deliver market-tracking results. Having formed in mid-2016, it’s funded exclusively by ex-Tower Insurance CEO Sam Stubbs who also acts as the platform’s Managing Director. Its success so far is due in large part to its marketing of ethical and low-cost index funds. These are a type of investment fund that invests in a number of securities, including from cash deposits, bonds, New Zealand shares and international shares. The more “aggressive” the fund, the higher the investment in shares.
Simplicity advertises that it offers a "low-cost, hassle-free investment solution for Kiwisaver participants looking for low fees and safe investment". It states that it offers a “nonprofit retirement savings vehicle which charges members only what it costs to deliver”. As such, the platform is 100% online and doesn’t offer financial advisers or other industry participants commissions.
Is it True?
Yes. It’s new to the market but is on a mission to slash fees and deliver market-tracking results. Having formed in mid-2016, it’s funded exclusively by ex-Tower Insurance CEO Sam Stubbs who also acts as the platform’s Managing Director. Its success so far is due in large part to its marketing of ethical and low-cost index funds. These are a type of investment fund that invests in a number of securities, including from cash deposits, bonds, New Zealand shares and international shares. The more “aggressive” the fund, the higher the investment in shares.
How does the investing happen and why are the fees lower than other Kiwisaver providers?
There are two fund managers involved. Firstly, the simplicity team manage the New Zealand assets and are responsible for getting the lowest costs. The manager of offshore investments is Vanguard Asset Management Limited (Vanguard), the world’s second largest fund manager. As Vanguard looks after $6 trillion in assets already around the world, Simplicity investments in Vanguard’s own funds to establish the specific portfolio diversification. This keeps costs low for Kiwi investors. As the international investing is outsourced to Vanguard and New Zealand investment is index-based, there are no fund managers and investment analysts to pay. This allows the savings to be passed on to investors, hence the low 0.31% annual fee.
There are two fund managers involved. Firstly, the simplicity team manage the New Zealand assets and are responsible for getting the lowest costs. The manager of offshore investments is Vanguard Asset Management Limited (Vanguard), the world’s second largest fund manager. As Vanguard looks after $6 trillion in assets already around the world, Simplicity investments in Vanguard’s own funds to establish the specific portfolio diversification. This keeps costs low for Kiwi investors. As the international investing is outsourced to Vanguard and New Zealand investment is index-based, there are no fund managers and investment analysts to pay. This allows the savings to be passed on to investors, hence the low 0.31% annual fee.
Simplicity’s funds under management:
- November 2016: $8.5m, 277 Kiwisaver members
- March 2017: $91m, 3,531 Kiwisaver members
- December 2017: $318m 10,258 Kiwisaver members
- May 2017: $414m, 13,854 members
The Simplicity scheme started in 2016 – can I trust it and is it safe for me to invest?
On the issue of trust, the answer is yes. All Kiwisaver providers must comply with a number of strict rules to ensure the funds of their clients (i.e. what Kiwisaver investors put in) are kept completely separate from the funds used to run the scheme (i.e. money to pay the staff and run the business). Simplicity appoints Public Trust as their independent supervisor and custodian. Public Trust has been around for almost 150 years and are ‘guaranteed independent’ under the Public Trust Act 2001.
Should Simplicity close down, your funds would transfer to another provider under the rules of the Kiwisaver.
With regards to whether it’s safe to invest, no fund is guaranteed, but the risk profile indicates where your money will be invested. This is the case with any Kiwisaver scheme, and not unique to Simplicity. If a Simplicity fund went ‘bad’ then you could see similar negative results in other funds given Simplivity heavily diversifies its investment in New Zealand and around the world.
On the issue of trust, the answer is yes. All Kiwisaver providers must comply with a number of strict rules to ensure the funds of their clients (i.e. what Kiwisaver investors put in) are kept completely separate from the funds used to run the scheme (i.e. money to pay the staff and run the business). Simplicity appoints Public Trust as their independent supervisor and custodian. Public Trust has been around for almost 150 years and are ‘guaranteed independent’ under the Public Trust Act 2001.
Should Simplicity close down, your funds would transfer to another provider under the rules of the Kiwisaver.
With regards to whether it’s safe to invest, no fund is guaranteed, but the risk profile indicates where your money will be invested. This is the case with any Kiwisaver scheme, and not unique to Simplicity. If a Simplicity fund went ‘bad’ then you could see similar negative results in other funds given Simplivity heavily diversifies its investment in New Zealand and around the world.
The Competition - Simplicity vs Superlife vs the Rest
Simplicity and Superlife currently offer the only index fund investment schemes in Kiwisaver. We've included the ASB Balance Fund to show fees of an actively managed investment portfolio.
Superlife: This is a Kiwisaver provider that offers funds similar to Simplicity, with investments in shares, bonds, and cash under an index fund arrangement. Superlife doesn’t offer similar fees - latest data of its range of funds puts the annual management fee at 0.80 - 0.84% on a $10,000 investment, far higher than the 0.31% charged by Simplicity.
ASB (Balanced Fund): This fund invests in bonds, shares and cash in New Zealand, Australia and around the world, but isn't an index fund and the fund managers will buy and sell investments based on market movements. The fees are 0.84% on a $10,000 investment.
The numbers
Comparing the above funds with Simplicity's 0.31% + an annual $30 fee, the cost of a $10,000 investment would be $61 with Simplicity, $80 with Superlife and $84 with ASB's Balance fund.
Simplicity and Superlife currently offer the only index fund investment schemes in Kiwisaver. We've included the ASB Balance Fund to show fees of an actively managed investment portfolio.
Superlife: This is a Kiwisaver provider that offers funds similar to Simplicity, with investments in shares, bonds, and cash under an index fund arrangement. Superlife doesn’t offer similar fees - latest data of its range of funds puts the annual management fee at 0.80 - 0.84% on a $10,000 investment, far higher than the 0.31% charged by Simplicity.
ASB (Balanced Fund): This fund invests in bonds, shares and cash in New Zealand, Australia and around the world, but isn't an index fund and the fund managers will buy and sell investments based on market movements. The fees are 0.84% on a $10,000 investment.
The numbers
Comparing the above funds with Simplicity's 0.31% + an annual $30 fee, the cost of a $10,000 investment would be $61 with Simplicity, $80 with Superlife and $84 with ASB's Balance fund.
What Others Are Saying
Stuff.co.nz reported in 2016 that Simplicity offered New Zealanders the chance to be “$65,000 better off in retirement”, claiming Kiwis could expect to pay $54,700 on KiwiSaver fees on current structures over their working lives.
The New Zealand Herald published an article looking at the fees and how a Kiwi with $50,000 invested in the Simplicity growth fund over 10 years could be $13,000 better off than if an investment was made in an average fund. The 0.31% annual fee compared favourably to other provider conservative fund fees which range between 0.97 per cent and 2.38 per cent, balanced fund fees which range between 1.16 per cent and 2.75 per cent and growth fees which range from 1.25 per cent to 2.93 per cent.
The National Business Review published a piece looking at the ambitions of Simplicity, citing managed investment schemes as a $40 billion market and with an average management fee of about 1.6%, Kiwis are paying $640 million taken out in fees per year. Simplicity “hoped to get 10% of that market in five years.”
Stuff.co.nz reported in 2016 that Simplicity offered New Zealanders the chance to be “$65,000 better off in retirement”, claiming Kiwis could expect to pay $54,700 on KiwiSaver fees on current structures over their working lives.
The New Zealand Herald published an article looking at the fees and how a Kiwi with $50,000 invested in the Simplicity growth fund over 10 years could be $13,000 better off than if an investment was made in an average fund. The 0.31% annual fee compared favourably to other provider conservative fund fees which range between 0.97 per cent and 2.38 per cent, balanced fund fees which range between 1.16 per cent and 2.75 per cent and growth fees which range from 1.25 per cent to 2.93 per cent.
The National Business Review published a piece looking at the ambitions of Simplicity, citing managed investment schemes as a $40 billion market and with an average management fee of about 1.6%, Kiwis are paying $640 million taken out in fees per year. Simplicity “hoped to get 10% of that market in five years.”
The Bottom Line
Simplicity is a good choice if you’re wanting to save on fees and want exposure to the share market (both in New Zealand and overseas) without significant risk. In short, it’s a “set and forget” offering a very wide diversification in investments, from cash and government bonds to shares in American and Australian companies. The underlying rationale to the scheme is that market investment always beats a fund manager in the long term, and as Kiwisaver is about the long term, the risks are low and the return is seen to be reliable.
With regards to user experience, logging in is seamless and the dashboard breaks down your total fund invested into components including returns since you joined. There is also a feel-good graph showing projected totals until you reach 65 years of age based on your previous contributions
But, Simplicity is not for everyone. If you are an active or aggressive Kiwisaver investor and want a fund manager to continuously pick shares or other securities for short/medium term investment, Simplicity is not for you.
Simplicity is a good choice if you’re wanting to save on fees and want exposure to the share market (both in New Zealand and overseas) without significant risk. In short, it’s a “set and forget” offering a very wide diversification in investments, from cash and government bonds to shares in American and Australian companies. The underlying rationale to the scheme is that market investment always beats a fund manager in the long term, and as Kiwisaver is about the long term, the risks are low and the return is seen to be reliable.
With regards to user experience, logging in is seamless and the dashboard breaks down your total fund invested into components including returns since you joined. There is also a feel-good graph showing projected totals until you reach 65 years of age based on your previous contributions
But, Simplicity is not for everyone. If you are an active or aggressive Kiwisaver investor and want a fund manager to continuously pick shares or other securities for short/medium term investment, Simplicity is not for you.
Limitations
Simplicity doesn’t have a customer-facing office, but it does have a phone number to call - 09 446 6112. Contact can also be made by email, Twitter or Facebook, and the website also offers a “phone me back”.
If you’re looking for funds investing in specific industries, such as oil and gas, agriculture or mining, Simplicity it not for you. Its offering is focused on diversified equity investments in the biggest companies in New Zealand and around the world. As such, you would need to find a specialist fund for such an investment.
Simplicity doesn’t have a customer-facing office, but it does have a phone number to call - 09 446 6112. Contact can also be made by email, Twitter or Facebook, and the website also offers a “phone me back”.
If you’re looking for funds investing in specific industries, such as oil and gas, agriculture or mining, Simplicity it not for you. Its offering is focused on diversified equity investments in the biggest companies in New Zealand and around the world. As such, you would need to find a specialist fund for such an investment.
10 Things to Know About Simplicity's Kiwisaver Scheme
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Your Kiwisaver balance will be largely based on the rise and fall of sharemarketsDepending on which Simplicity fund you invest in, the movements in New Zealand, Australian and/or overseas share prices will affect the value of your investment. What's important is not to look at the day to day, but the year-on-year return. Markets are volatile, and individual shares more so, but as every company on the sharemarket is profit-orientated, over time the value of the share index as a whole will increase, and as will your investment.
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The Simplicity fees are the lowest in the Kiwisaver marketWe've not seen anything like it, with 0.31% of funds invested + a $30 annual fee outpacing any other provider. Low fees in Kiwisaver make a huge difference to your overall fund value over time due to the benefits of compounding interest/returns. In short, low fees are excellent.
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Simplicty offers a proven investment model by investing in index fundsIndex funds historically outperform managed funds. According to Fortune Magazine, the S&P 500 (an American sharemarket index) outperformed more than 82% of all active funds over a 15-year period. Given the low fees an index fund charges and the reliability in outperforming active funds, it's a relatively conservative approach to investment for your retirement.
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It's usually free to change your Kiwisaver provider and join SimplicityCheck with your current provider so that you're aware, and follow the Kiwisaver transfer guidance to make sure you're not caught out.
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Simplicity operates as a non-profit enterprise, meaning it returns excess fees back to its investors (i.e. you)Just to be clear, Simplicity is profit-orientated when it comes to investments, but the entity itself that operates the funds is a not-for-profit. This means that the $30 annual fee and 0.31% annual management fee on your invested funds may exceed what's required to operate the fund, and as such Simplicity pledges to return the excess to every investor. This is very different to standard Kiwisaver funds which are run as a for-profit enterprise.
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Simplicity isn't the only index fund on the marketOutside Kiwisaver, many index funds exist, so if you already have exposure to index funds through personal investments then you might want to look for another Kiwisaver option. Within Kiwisaver, Superlife has a range of index-based funds. So while Simplicity isn't the only index fund provider, it does at the moment offer the lowest fees.
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Signing up isn't ComplicatedYou'll need a form of ID, your IRD number and know your PIR (personal income tax) rate. It takes about three minutes via their online form. Once submitted, Simplicity will then contact you and arrange the onboarding to their scheme.
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Your support is online and by phoneLow fees can mean no frills and email-only, but in 2018 Simplicity offered phone support. Simplicity also offers call backs to new and existing customers, as well as email support.
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Major Kiwi companies have made Simplicity their default providerSpark, Genesis Energy, Foodstuffs (North Island only) and Z Energy are among many big companies that have made Simplicity their default employee Kiwisaver provider, convinced most likely by the low fees and low risk investment strategy of index funds.
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15% of management fees go to charityWhile you won't get any tax credit directly from this, the charity donation is unique to Kiwisaver and we're unaware of any other provider that does something similar. Whether this is good or bad depends on how you feel about charities as a whole. We couldn't find any information as to what charities received donations.
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Our Conclusion
- We think Simplicity is an excellent choice for Kiwisaver participants looking to invest in a low risk, index fund with low fees.
- With investments funneled into New Zealand, Australian and international bank deposits, bonds and shares, Simplicity brings a number of passive funds to Kiwis looking for a steady return in the long term without active management.
