Which is the best investment: Bitcoin or KiwiSaver?

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OPINION: A reader commented last week “in the long run, bitcoin has proven to be a far superior investment to any KiwiSaver fund.” Interesting challenge, is it true?

Let’s compare Bitcoin and KiwiSaver across ten metrics, from returns to diversification, from taxes to fees. Which one is above?

Bitcoin earns on past returns. The average KiwiSaver Growth Fund achieved annual returns as of June 30 of +21.7 percent (one year), +10.7 percent (5 years), and +10.5 percent (10 years). Great results, but bitcoin is next level with +124 percent per year compounded over five years. First point on Bitcoin.

Next comes volatility. Bitcoin’s long-term returns are legendary, as is short-term volatility. For the six months starting in September 2020, bitcoin rose + 445% stratospheric, only to drop 40% two months later.

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Such drops are not uncommon, with the worst fall being 71% over 12 months from December 2017. The average KiwiSaver Growth Fund is relatively calm. Two 12-month loss periods are March 31 of last year (down 3.2%) and December 31, 2018 (down 2.1%). With lower volatility, it’s a win for KiwiSaver – one each.

Towards diversification. KiwiSaver growth funds diversify into stocks, bonds, countries, sectors and currencies. Meanwhile, bitcoin is only exposed to bitcoin, one of 5,000 cryptocurrencies. KiwiSaver again, up to two to one.

Liquidity means the ability to turn an investment into cash. With KiwiSaver, once you are 65, you can access your money anytime you want, but before that you are limited (like buying a first home). Bitcoin has liquidity – although with volatility you might not like the price you are getting! Point to Bitcoin, now both of them.

Pathfinder Asset Management chief executive John Berry said comparing Bitcoin and KiwiSaver was almost

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Pathfinder Asset Management chief executive John Berry said comparing Bitcoin and KiwiSaver was almost “apples to oranges” and investors might decide that both have their place.

The tax is another victory for KiwiSaver. You buy bitcoin for capital gain and not income, which is fully taxable. In contrast, KiwiSaver does not have capital gains tax and your fund manager does all tax calculations and payments. KiwiSaver leads three to two.

KiwiSaver wins on government incentives. If you are between 18 and 65 and invest $ 1,042 each year, the government gives you $ 521 for free. Contribute 3 percent of the salary and your employer contributes 3 percent. Bitcoin is a big zero for these advantages. KiwiSaver advances four to two.

The costs are significant. Our commentator last week said that with Bitcoin “you pay no fees to fund managers looking for deceptive rents.” Unfortunately, zero bitcoin fees are not true. Invariably, you will have to pay fees for transactions, withdrawals, bid / offer spreads, and currency. Meanwhile, KiwiSaver has fees but they are transparent. Point to KiwiSaver, up to five to two.

The security of how investments are held or stored is important. Billions of dollars in bitcoin have been stolen, including the 2019 theft from New Zealand-based Cryptopia. During this time, not a single KiwiSaver dollar was stolen. KiwiSaver benefits from high levels of regulation from the Autorité des marchés financiers and strong custody structures. KiwiSaver goes six to two.

Environmental issues are increasingly important, especially around bitcoin mining. On the other hand, it is easy to find KiwiSaver funds that invest with environmental and social considerations in addition to financial considerations. KiwiSaver leads seven to two.

Finally, check. Last week’s commentator said that with bitcoin you “have control over your savings at all times.” Certainly, as long as you haven’t lost your password, you can sell your bitcoin at any time. KiwiSaver also gives control to investors. You can choose a supplier, switch from a conservative to a growth strategy, and invest actively or passively. Both give control, so we’re going to award one point each. The final count favors KiwiSaver eight to three.

While KiwiSaver comes out on top against bitcoin, in reality they are quite different. The comparison is almost “apples to oranges” and investors may decide that both have their place. Don’t expect bitcoin to be a low-volatility, well-regulated, diversified, and tax-efficient retirement savings alternative to KiwiSaver – because it absolutely isn’t.

John Berry is Managing Director of the Ethical Fund Manager and Provider of KiwiSaver Pathfinder Asset Management, which is part of Alvarium Wealth.

Pathfinder does not invest in cryptocurrencies, although John Berry owns them personally (out of curiosity). KiwiSaver performance and fee data is sourced from Morningstar.


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