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INVESTMENT REVIEW – Presentation by NZ Funds

On Monday 8th April three members of the NZ Funds Management Ltd (NZF) team travelled up from Auckland and provided a yummy lunch and a one hour presentation on:

  • Behavioural Finance
  • Investment Review 2013
  • Helping NZers become savers

Behavioural Finance:  It was interesting to see the figures showing that the average returns over the past 25 years for Term Deposits 5.2%; Govt Bonds 5.2%; NZ Shares 5.7%; Global Shares 6.7%; NZ House prices 6.5% were within a very narrow band over that length of time.Inflation over that same 25 years averaged 2.6%.
With all of the market volatility experienced over the past decade it is understandable (and interesting) that according to Statistics NZ the average NZ house was held for 17 years yet shares were being held on average for a much shorter period of time……in the US it was just 6 months in 2010 according to Business Insider.
As pointed out above, Global Shares provided a return of 6.7% and NZ House prices 6.5% over the past 25 years so why hold onto houses and sell shares?
Why don’t we go the distance?
As advisers we assess your risk tolerance on a regular basis but what about your emotional composure? Are you always composed? Are you up and down? Are you always anxious?
Applying an accurate tolerance to risk is important, and STEP ONE.
STEP TWO is to ensure that you are appropriately diversified. The figures above support our stance on this matter.
STEP THREE is about averaging in and out of a portfolio rather than taking lump sums and similarly, placing large sums all on the one day.

Investment Review 2013:  Not all inflation is created equal.
If you think about it the cost of communications has reduced since about the year 2000, and the cost of a new shirt or pair of shoes is probably about the same as it was back then, and the cost of recreation has risen only very slightly.
On the other hand we all know too well how the cost of housing and the power bill and water bill has risen over that same period of time, along with the cost of healthcare and what we call consumer staples such as food.
The investment managers at NZF continue to analyse and research ways of mitigating the effects of inflation on your portfolio by having an appropriate exposure to shares and bonds in companies which are most likely to provide this protection of the purchasing power of your retirement capital throughout your retirement years.
It is also very important to be aware of the cyclical nature of share market returns over time.
Cyclical nature of share market returnsThe graph illustrates the accumulated effect of 10 decades from 1900 to 2010. As you can see, the first 3 years of the current decade has already provided more of a positive result than the previous 10 years, 2000 – 2010, and as can also be seen, previous poor decades have been followed by strong results. No one is projecting anything here, it’s simply interesting to observe the trends over 100 years.

Helping NZers become savers:  New Zealand’s population mix is changing. In 1976, just 8.8% of the population was over 65 years old. In 2006 this figure had risen to 12%. Statistics NZ estimate that by 2061 this figure will have reached 27%. Obviously the question is “can this country afford to continue to provide universal super at the current rate?”
Calculations and assumptions have been made by NZF showing that in 2013 NZers are saving 6%, and figures in 2012 put Australia 9%, UK 9.7%, USA 10% and Singapore a whopping 35.5%.
KiwiSaver funds total approximately $12b at present and are estimated to reach $100b by 2027 however this is unlikely to be sufficient to meet retirement funding requirements for most Kiwis.

Smart Solutions for Savers are available to you now. If you or someone you know may benefit from having us email you our Financial planning software myWealth we would be pleased to assist. You can either email or telephone your request to us.
Alternatively we would be delighted to take you through the software here in one of our offices especially set up for this purpose with a big screen. The coffee is great too, just like going to the movies. We look forward to hearing from you.

In conclusion, we have available a small supply of a booklet covering the presentation. If you would like one please let us know.
If you would like to revisit your own tolerance to risk and/or meet with me to discuss further any of the contents of this topic or anything else investment related, including a test drive of our myWealth software we would be delighted to hear from you.

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