Getting on top of it. 

If it transpired that your level of debt wouldn’t be paid off until after you retired then we’d have to do something. Sorting the finances seems a good idea. The credit card hangover notwithstanding, the mid year hibernation offers an opportune time for people to reassess their levels of debt, but anytime is a good time to start.

We like the saying ”tomorrow’s good, but today’s better”, meaning it’s important for people to think about their monetary situation and take action as soon as possible. Debt is one of the most significant factors that the average Kiwi needs to deal with. People should plan first, then make decisions about spending or investing. If you don’t have a plan you’re not in a position to make informed decisions about your lifestyle.

Money (or lack of it) can sometimes be a stressful subject therefore we as Authorised Financial Advisers sometimes become involved in a form of financial counselling. Often our partners/spouse might disagree. They come to the table with different views. There is an element of coaching involved. It’s easier said than done but remind yourself often ”The more you spend today, the less you have later”. It’s about changing habits, and it can take time.

Credit card or store debt is an issue for a lot of people. This is the highest-cost debt, and putting it on the mortgage is not ideal because that extends the debt period, so it is important to get that consumer debt out of the way.

Much of our time as advisers is taken up with the bigger picture, long-range financial planning. Mortgages and retirement savings are top of this list. If I was to sit down with you I’d look at your mortgage, your KiwiSaver situation, your age and your earnings up until when you expect you might retire. If it transpired that your level of debt wouldn’t be paid off until after you retired then we’d have to do something. That might include increasing debt repayments or taking a completely different decision – say, selling your house. We talk about people having a ‘mortgage pledge towards savings’. For instance, if a person paid a mortgage off in 18 years as opposed to, say, 25, and they then saved the same amount as they were paying on their mortgage, what would that mean for them?” Say you had a house worth $600,000 and a 20 year mortgage of $400,000 giving you equity of $200,000. If you were able to pay off the mortgage in 15 years instead of 20 years then you’d have an extra five years of pledged savings.

Let’s look at when you might retire. Take the notional age of 65, the age at which entitlement to KiwiSaver and New Zealand Superannuation begins. However, for the purpose of planning, let’s exclude superannuation because who knows what future governments might do. Now, work out what percentage of your current level of income you’d like to live on in your retirement, say, you are on $100,000 per year and thought you could live on $75,000 per year in your retirement; at 65, you would need to have saved around $1.5 million.

We have software which enables us to sit with you and illustrate your own situation in front of you, creating scenarios tailored to your own circumstances, and it’s free to anyone. For existing clients this software demonstration forms part of the annual review process. We would welcome enquiries and requests from anyone who might like to have their own situation demonstrated either here at our office or in your home, cost and obligation free.  

The next 6 monthly Adviser Investment Day is in Auckland on 23 February.  Following this event we will be communicating with you again to share knowledge gained regarding the strategies our fund managers are intending to implement in order to help navigate what could be an interesting year in the investment markets.  The media are already talking up a “volatile year ahead” in the investment markets.

Our managers predicted the very predictable negative impact of the slowdown in China late last year and had already implemented mitigation strategies which resulted in halving the impact of that event on our clients’ portfolios.  These strategies remain in place, so it will be interesting to see whether our managers consider it necessary to take further measures to protect our clients’ hard earned life savings.

 

WHERE IS BILL HIDING???

Find Bill and let us know where he is hiding in the room of attendees.

At every review we will revisit your Risk Profile, and together with your age and any spending needs you advise us of, we apply that Risk Profile to our investment recommendations.   Each client portfolio is individually tailor made.  In every case there will be an appropriate allocation to defensive investment assets which means that any amount exposed to the Growth markets will be appropriate to you, your age and stage in life, and your circumstances.

 
Each of the 10 Portfolios we have access to across the NZ Funds Managed Portfolio Service investment platform have their own specific objectives, and it’s our job, following a review, to match your objectives with the appropriate portfolios and in the correct weighting in order to provide the best likelihood of you achieving your objectives.

We rely on you advising us of any change in your circumstances in between reviews.  We firmly believe that having a portfolio reviewed every 18 – 24 months is the best insurance against the ups and downs of the investment markets over the long term, and significantly improves the likelihood that you will be able to achieve the outcomes you desire from your portfolio in retirement.
It is also important to us that you fully understand the advice process and the assets you are invested in.

  
We will be in touch to ask you in for a review within our suggested timeframes however please always feel free to contact us if you would like a review anytime.  After all, you are paying an advice fee.

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New survey asks how well New Zealand’s older population is planning for retirement

A new study shows that almost half of people over 50 years old have yet to figure out how they will reach their retirement goals. While four in ten people who have already retired, did so without a financial plan for their retirement.

A  joint survey, released today by the Commission for Financial Capability (CFFC) and the Financial Markets Authority (FMA) looked at how well older New Zealanders are preparing and investing for when they stop working.

The survey found that while some people are planning thoroughly for a comfortable retirement lifestyle, others are drifting towards a more frugal future. The research was commissioned to give some insights into the financial challenges and decisions facing New Zealanders, and some possible solutions, as the country’s population ages.

Only one in ten people over the age of 50 are certain they have enough money saved or invested to enjoy the lifestyle they want when they stop working.  And of those already retired, a quarter said they do not have the money to do the things they would like in retirement.

Among people in the survey approaching retirement, 54% said they had some form of financial plan. However the degree of planning varied, with only about a quarter having planned thoroughly.

42% of non-retirees have calculated the regular expenses they would need to cover, and 34% have worked out how much they would need on top of NZ Superannuation to give them the lifestyle they wanted.

David Boyle, CFFC general manager of investor capability, said “It’s encouraging to see that almost half of those approaching retirement have done either good or thorough planning, however the research shows that many are leaving their plans to the last minute.”

“There is also a big gap between the reality of lifestyle in retirement and the expectations of the over 50s age group in reaching their goals. At 50-years-old, when you have potentially 15 years to go before you stop working, there’s still time to make a big difference to your lifestyle choices in retirement.”

The experience of those who have already retired showed that while 28% have enough money to do all the things they want in retirement, 25% are just getting by and managing the basics. Retirees who had some form of plan for their retirement were far more likely to enjoy the kind of lifestyle they wanted.

When it comes to investment risk the overwhelming majority, 83%, said that higher risk investments were to be avoided and 71% said that in general people should choose more conservative investments. However only 24% of those surveyed had ever used a risk profile tool to help them think about what level of risk was appropriate for them.

Simone Robbers, FMA director of primary markets and investor resources, said these answers seemed to indicate a gut-instinct approach to retirement planning rather than well-informed decisions.

“We can see that if people take time to make a plan, they are generally more likely to choose a more diversified range of investments.”

“It’s essential for people to find out what kind of investor they are and to diversify their investment choices appropriately. That’ll help their investments grow, spread risk and leave them well placed for a better retirement,” said Ms Robbers.

Ms Robbers and Mr Boyle concluded that with so many people now accumulating wealth in KiwiSaver – and other investments – towards their retirement, it’s critical they get hold of the information and tools needed to help plan, prepare and make smarter investment choices. This will help people reach their retirement lifestyle goals and www.sorted.org.nz is a great place to start.

The survey was targeted at New Zealanders aged 50 years or more, including those approaching retirement and those who have already stopped working.

The questions in the survey were designed to cover the kinds of factors everyone needs to consider to help them plan, prepare and make good investment decisions. These factors, in turn, will have a major impact on the kind of lifestyle people have in retirement.

For full results go to www.fma.govt.nz and http://www.cffc.org.nz/

Notes:

The collaboration between the CFFC and the FMA is aligned to their shared focus on improving investor capability and decision-making to help New Zealanders get ahead financially.

The survey was conducted by Colmar Brunton between 10-22 April 2015. 1,052 people over 50 years old were involved in the survey, respondents were weighted for age, gender and income to represent New Zealand’s demographic spread.

Margin of error = +/- 3.0%.

Financial markets have been very volatile over the last few weeks. As of last valuation (28 Aug), the global equity market was down 6.6% month to date (in New Zealand dollars). That follows a bumpy few months with China, Greece, Puerto Rico, oil prices and equity (share) market valuations among the main sources of worry.

We construct client portfolios knowing that we will have to navigate these periods. We aim to build in to each client portfolio sufficient “protection” to enable them to remain confidently invested, despite the prevailing turmoil.

That “protection” comes at four levels:

• First and foremost, making sure that each client’s portfolio is suitably balanced between cash, income, inflation and growth assets, relative to their age, risk profile, income requirements and goals.
• Second, ensuring that each of the underlying portfolios is constructed with an appropriate diversity of assets and management styles.
• Third, actively managing the mix of assets and managers in each portfolio to reflect our view of the current environment.
• Fourth, allocating to investment strategies (for example currency, credit default swap or option positions) and/or managers who we expect to perform strongly when the broader market may not be.

This recent period of volatility provided a useful test of our current portfolio construction relative to that “protection” goal.

To be clear, we do not think it is a realistic goal to eliminate downside – at least not without eliminating the potential for upside as well! Rather we are trying to make periods of volatility more endurable for our clients – so they remain invested and get to reap the compounding benefits of being invested over the long run.

So, how have we done? Our model client portfolios are down 0.5% – 1.3 % month to date, in an environment where pretty much every asset class is in the red for the month, some deeply.

After a very strong July the investment team actively positioned the growth portfolios with lower equity exposure coming into this latest bout of volatility. As the market has declined, and our downside managers have responded positively, it has provided a nice backstop to enable us to lift equity exposure and participate in the spring back that occurred late in the month.

Our absolute return managers who predominantly use a long /short equity approach – Suvretta and TT – are down around half the market which is about what we would expect in a very sharp selloff.

Our absolute managers with a broader investing approach tracked really well during August. Odey, after having a tough start to 2015, came into their own, up around 7% for the month. ISAM is also up strongly, around 6.5% for the month. Both of these managers fulfilled exactly the role we appointed them for.

In most of our inflation and growth portfolios we also hold a position with a downside manager called Universa. Universa is what is known as a tail risk manager. They use option strategies to construct a portfolio which will pay off when markets decline deeply (typically by more than 10%) and when volatility spikes.

While we are still waiting for final valuations we estimate Universa was up 160% in August. This means that a portfolio with a 1% allocation to Universa will have seen that investment more than double in value over the month and make a net 1.6% positive contribution to the portfolio return.

While commodities have been a drag on performance year to date, the remarkable month end rally in oil (up 25% in the last three days) means that our commodity exposure will end the month up, providing another positive offset to the decline in equity markets.

So while the downward move has been sharp, markets needed a blow out after an extended uptrend with little volatility to speak of. Our portfolio construction has enabled clients to navigate that period with very modest losses, enabled us to build further confidence in our team of external managers and provided an opportunity to reset the portfolios for the next leg.

Most importantly, despite dramatic headlines, which can unsettle clients, the performance of your portfolio has hopefully made the period reasonably comfortable for you.

Our regular review meetings ensure that each client’s portfolio is suitably balanced between cash, income, inflation and growth assets, relative to their age, risk profile, income requirements and goals. We will happily meet with you and revisit your portfolio balance if you are concerned about its suitability. After all, this is why you pay an advice fee.