It may be of interest if I share some of the experiences gained through my own investments:
“Never give up. Today is hard, tomorrow will be worse, but the day after tomorrow will be sunshine.”
Warren Buffett, CEO Berkshire Hathaway
“You only have to do a very few things right in your life, so long as you don’t do too many things wrong”.
Mark Zuckerberg, Co-Founder Facebook
“The biggest risk is not taking any risks. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
Jeff Bezos, Founder Amazon
“We’ve had three big ideas at Amazon that we’ve stuck with for 18 years, and they’re the reason we are successful: put the customer first, invest, and be patient”.
Larry Ellison, Founder Oracle
“I have had all the disadvantages required for success.”
Michael Bloomberg, CEO Bloomberg
“You must first be willing to fail – and you must have the courage to go for it anyway”.
Ageing populations could be a boon rather than a curse. But for that to happen, a lot needs to change first, argues Sacha Nauta in The Economist
“NO AGE JOKES tonight, all right?” quipped Sir Mick Jagger, the 73-year-old front man of the Rolling Stones, as he welcomed the crowds to Desert Trip Music Festival in California last October.
At 11pm on the night of 9 November, members of the Summer KiwiSaver Investment Committee discussed our asset allocation. I Chair this committee and Trump had just been elected - a whole new investment environment with new opportunities and new risks had been dropped on us. We decided meet formally the next day.
The S&P 500 has returned more than 11 percent since the election of President Trump on Nov. 8, adding a bit of renewed thrill to a bull market that’s already eight years old. Clearly, investors are feeling optimistic about the prospect for returns. But many companies that put individual investors’ money to work for the long run have been arguing for lower long-term expectations.
The problem with retirement planning is that everyone’s lifestyle differs in style and cost. There is no universal amount that needs to be saved by the time you hit retirement to ensure you have saved “enough”. What you need to work out is your own personal number. Then you need to determine if you are going to achieve that number or whether there is going to be a shortfall. If there is a shortfall, you need to decide what you are going to do about it.
These strategies are written from an Australian perspective however apply to the NZ situation too.
They are directed more so around saving for private school fees however can also apply to Tertiary education fees and as we know a public school education is hardly fully funded by the government these days.
Here are a few basic tips for choosing the right Financial Adviser
Think about your financial situation and what financial goals you want to achieve.
A Financial adviser who’s the right fit for you can depend on what kind of help you need. Before you start searching for the right financial adviser you’ll need to ask yourself exactly what it is you want an adviser to do for you.
If you are worried illness or injury could leave you without enough to pay bills, there are ways to protect your income.
When purchasing insurance or reviewing your exisiting insurance cover, there are a few factors to keep in mind.
This is a great article by Martin Hawes which explains why the key driver for accumulating retirement funds is the level of savings.
The savings rate nearly always beats the investment rate. This basic rule of personal finance effectively says that you are likely to end up with greater wealth if you can save more rather than find a higher rate of investment return.
It means someone who budgets and puts more aside will usually beat the investor who hunts out a higher return.
This idea is one of my basic financial planning principles and, in most circumstances, I encourage people to save as much as they reasonably can, although, obviously enough, I do not ignore good returns either!
This high savings rate is one of the reasons KiwiSaver is working so well. Many people are starting to see quite significant balances in their accounts. Kiwisaver accounts have been getting very good returns in the past five years or so, but this is not the main reason for growing funds.
The real reason for the high balances is the amount that is being contributed. You put in 3 per cent of salary, your employer also puts in 3 per cent and on top of that the Government chimes in with the Member Tax Credit ($520 p.a.)
Add it up and for many people that is a lot of savings – and the good investment returns that we have had in recent years put the icing on a nice, big cake.
Given that the biggest factor for the ultimate size of your KiwiSaver is the amount of your contributions, a question arises: should you add more? Why not put in 4 per cent or even 8 per cent or more? In fact, if you received a lump sum (e.g. an inheritance) why not put that in?
Well, if you added more you would certainly end up with a much greater amount. Although any amounts over 3 per cent of your salary probably will not attract any further employer subsidy, you can, if you want, add more.
The big problem with adding more than the amount to attract maximum subsidies (usually 3 per cent of salary) is that you would be unable to withdraw the additional contributions if that became necessary.
KiwiSaver accounts can only be cashed up for the purchase of your first home or on retirement. There are a few other extraordinary circumstances that allow you to get at your KiwiSaver funds (e.g. bad health or financial hardship), but these are not things that you want to plan for.
This lack of KiwiSaver liquidity means standard advice from most financial advisers is that you only contribute sufficient to receive maximum employer subsidies. Then, for any further money that you have spare, open another investment account. This new investment account that you open would be liquid – i.e. if the need arose you could draw on your funds at any time
However, there are some circumstances which could mean that do not follow standard advice and you add more than the usual amount:
- You are using your KiwiSaver account to save for your first home.
- You are within a few years of retirement age – i.e. funds are able to be drawn quite soon.
- You want to access some particular kind of investment account which is not available outside of the KiwiSaver scheme.
- You lack discipline and do not trust yourself to keep your hands off another more liquid investment account.
- You judge that you are most unlikely to need your KiwiSaver funds before retirement age.
To get ahead financially you do need to save as much as you can. KiwiSaver might be a suitable savings vehicle for a relatively small amount of your additional savings especially if you find the array of other, alternative funds confusing to the point of inertia.
Remember also that the fees on KiwiSaver are often lower than other comparable funds. Generally, using KiwiSaver as an all-purpose savings vehicle is not the right thing to do, but I would rather see a client save through KiwiSaver than not save at all.
Sunday Star Times 24 April 2016 Martin Hawes
While this article is written for Australians it raises a number of relevant points for New Zealanders including the point; investors should be paying more attention to infrastructure offerings given the low rates of return available in the equity market and defensive nature of the infrastructure.
Australians are a diverse bunch. We enjoy a variety of food, sport and cultural activities. But when it comes to investing, our tastes are a little bland.
With the exception of some token hybrid shares or a handful of capital notes, the average Australian investor is holding just three asset classes: local shares, property and cash.
Chris Morcom of Hewison Private Wealth knows this only too well. As a private client adviser he is frequently presented with the portfolios of clients that are a little, shall we say, lopsided.
"Most investors tend to start with assets they know and understand, such as term deposits and then residential property, then they move onto Australian shares," he says.
This can cause investors significant heartburn when markets take a leg down.
Few realise, for instance, that property is in fact a growth asset and when times are bad the capital values of property can correlate with other growth assets, such as shares. That means prices can fall, and sometimes fall swiftly.
The way to solve this problem is to diversify into other asset classes.
Craig Keary is the Australian and New Zealand director at fund manager AMP Capital. Like other traditional fund managers, AMP Capital runs a number of strategies including equities, fixed income and so-called alternatives.
Keary says, however, that it is the company's infrastructure offerings that investors should be paying more attention to, given the low rates of return available in the equity market and the defensive nature of the infrastructure sector.
"Investors are getting wise to the benefits," says Keary, highlighting the steady nature of income that flows from multibillion-dollar assets such as toll roads, airports and railways.
In the past, the problem has been getting access to such gems, which are typically owned outright by industry superannuation and global pension funds, or conglomerates such as Warren Buffett's Berkshire-Hathaway.
But as rates dipped lower, fund managers such as AMP have spotted an opportunity to launch retail products offering access to the wider market, opening up a whole new world for investors.
"The need for infrastructure is never-ending," Keary says.
"For investors, it offers predictable, regular and sustainable income as well as portfolio diversification as is lowly correlated to other asset classes such as bonds. Infrastructure is a good defensive play when markets are volatile."
Which brings us to another asset class that Australian investors have largely dodged: fixed income or bonds.
Where shares are equity – an actual portion of the company which may or may not pay dividends and are prone to wild swings in valuation – bonds are debt.
Bonds are also more stable. The price you pay for a bond at issue is the face value and the interest payment the company makes to you is called the coupon.
The face value of the bond rarely changes very much and the coupon should never change unless the company (or country) that issued it goes broke.
A nice, boring, stable asset class that should be in the portfolio of every investor.
Or should it?
Dr Doug Turek is the managing director of advice firm Professional Wealth and has a keen interest in asset allocation and investor psychology.
He says that the typical Australian investor is under-exposed to bonds but says right now, that's actually a good thing.
"Bond prices have never been so high. For instance, the benchmark 10-year Commonwealth Government Bond is yielding 2.2 per cent and so is trading on a price-to-earnings ratio of 45 times. You might justify paying that for Google but not a nil growth bond," Turek says.
Expectations of low rates for longer have weighed on the coupons for bonds and the only way for investors to get a higher yield is to drift up the risk curve, which means swapping the safety of a bond backed by a government to one backed by a company the specialises in lending to commercial kitchens.
Turek says most investors will get much better value by hunting down a high-yielding bank account offering around the 3 per cent mark or by heading offshore.
"If you must buy bonds consider buying global bonds, which enjoy an about 2 per cent lift in yield from currency hedging or buy local inflation bonds, which nowadays give you free protection from surprise inflation."
But if you're shopping overseas for bonds, then why not shares? Over the past few years there has been a growing acceptance among local investors that having a massive bias to Australian banks and mining stocks makes very little sense.
Nick Ryder, an investment strategist with JB Were, says that over the past five years, annual total returns from international shares have averaged at around 16 per cent, against 6 per cent from Australian shares.
"By value, Australia represents only about 2 per cent of global equity markets, yet the ATO [Australian Tax Office] statistics show that self-managed superannuation funds hold 31 per cent of assets in Australian listed shares," he said.
Andrew Moir, managing director of private wealth at Evans & Partners, says that if you assume that the majority of an SMSF's managed fund exposure is to overseas shares then the overall allocation could be as high as 10 per cent.
"It's hard to generalise, but for growth investors looking at wealth accumulation over the long term this should be two to three times higher," Moir says.
He points to the asset allocation of the Future Fund, a benchmark for investors with long term horizons as an example. The Future Fund had a 22.5 per cent portfolio allocation to international equities as of March 31, 2016.
Of course that's before we even get into such investments as private equity and alternative assets such as hedge funds. All of which the Future Fund has meaningful exposure to.
But those in the early stages of diversifying, it might pay to knock over the big ticket items first.
Australian Financial Review, Smart Investor 8 June 2016