2019
December
Calling time on TDs?
Traditionally, term deposits have been a popular strategy for many retirees and Kiwis who weren’t quite sure about how to choose or access other investments.
What has happened with term deposits?
Around 11-12 years ago, before the Global Financial Crisis (GFC), New Zealand’s Official Cash Rate was sitting at 8.25%. The official cash rate tends to influence the rates which banks offer on, amongst other things, Term Deposits. According to data from interest.co.nz, in November 2007 the average 1-year bank term deposit rate was 8.6%.
Fast forward to now, and in the intervening years the Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate – it now sits at the lowest level on record, 1%. The average bank term deposit rate was down to 3.3% by November 2017, and on 1 November 2019 was down to 2.6%. What’s more, the RBNZ have indicated that interest rates are more likely to head further downward rather than upward.
Of course, the Official Cash Rate also has impacts on other things like mortgage rates – borrowers may be pretty happy with the rates they are paying, relative to the past. But investors who once may have relied mostly on term deposits to earn some extra income are facing a challenge.
The attraction to term deposits is understandable, as they deliver a stable return and, in the past, have generated pretty good income to investors.
So, what other options are there?
There are a number of different places where investors are turning to earn some income from their investments.
One option is investing in riskier assets like shares. Many New Zealanders would be surprised to know that the New Zealand share market has returned over double what the NZ property market has over the past ten years. Yes, shares can go up and down, but throughout time they have delivered strong returns to investors.
According to a study by Credit Suisse, the New Zealand stock market has returned an average of 10% per year since 1900 – a time period which includes many ups and downs such as the Great Depression of the 1930s, the 1987 market crash and the GFC.
Diversified income funds have become increasingly popular as investors have started to consider their options in a world of low interest rates. These funds typically hold a combination of corporate bonds, dividend yielding equities, listed property and infrastructure stocks.
KiwiSaver has not only been a fantastic tool in helping New Zealanders save for their retirement, but also in showing New Zealanders the benefits of sticking the course with investing in managed funds. After launching around the time of the GFC, KiwiSaver has shown investors that if you stay the course with a mixed portfolio of shares and more defensive assets, while there will be some ups and downs, over the longer term you could beat the return you’ll get with term deposits.
The increasing complexity of investment options available means now is a great time to seek financial advice. Advisors are able to listen to your goals and concerns and design an investment solution which suits your situation.
Source: Harbour Asset Management.
November
Five reasons why I am not so fussed about the global outlook
There is always someone telling us that there is some sort of economic/financial disaster coming our way. However, there does seem to be a higher level of hand wringing now about the global economic outlook than normal. These concerns basically go something like this:
- Global debt – both public and private – is at record levels relative to GDP and with public debt ratios so high there is no scope for fiscal stimulus should things go really bad.
- Years of quantitative easing and other unconventional monetary policies like negative interest rates by central banks in major advanced countries haven’t worked and seem to have no end.
- More and more debt globally is trading on negative interest rates – it’s now around $US14 trillion including around 25% of all government bonds – which is unnatural and causing distortions in valuing assets with risks of asset bubbles.
- Inequality (as measured by Gini coefficients) is rising – particularly in the US – which is driving a populist backlash against rationalist market-friendly economic policies of globalisation/free trade (as evident in Trump’s trade wars), deregulation and privatisation.
- This along with the relative decline of US economic and military power is contributing to geopolitical tensions as we move from a “unipolar world” (dominated by the US after the end of the Cold War) to a “multipolar world” as other countries (China, Russia, Iran/Saudi Arabia, etc) move in to fill the gap left by the US or even “challenge” the US.
This is all seen as being bad for global growth and hence growth assets, all of which is being heightened by the downturn in global growth seen over the last year or so.
Five reasons not to be too fussed.
There is no denying these concerns. Debt is at record levels globally. QE has been running in various iterations for more than a decade now in some countries. Inequality is up – albeit its mainly a US and emerging country issue. Support for market-friendly economic rationalist policies such as globalisation, deregulation and privatisation seems to have waned (except in France). And geopolitical risks are up. All these developments point to the risk of slower global growth and investment returns ahead and may figure in the next major bear market. But there is always something to worry about (otherwise shares would offer no return advantage over cash) and trying to time the next downturn is hard. Moreover, there are five reasons not to get too fussed about the global outlook.
1. Debt is more complicated than being at a record
History tells us that the next major crisis will involve debt problems of some sort. But what’s new – they all do! Just because global debt is at record levels does not mean that a crisis is imminent. There are several points to note here:
- debt has been trending up ever since it was invented;
- comparing debt to income (or GDP) is like comparing apples to oranges as debt is a stock and income is a flow – the key is to compare debt against assets and here the numbers are not so scary because debt and assets tend to rise together
- debt interest burdens are low thanks to low interest rates
- all of the rise in debt in developed countries since the GFC has come from public debt and the risk of default here is very low because governments can tax and print money.
While Modern Monetary Theory has its issues, it does remind us that as long as a government borrows in its own currency and inflation is not a problem, it has more flexibility to provide stimulus than high public debt to GDP ratios suggest.
2. QE’s end point is not necessarily negative
Quantitative easing and other unconventional monetary policies actually do appear to have helped. Since its high in 2013 unemployment in the Eurozone has fallen from 12% to 7.5% and in the US it fell from 9% in 2011 to 4% in 2017 enabling the Fed to start unwinding unconventional monetary policy. Inflation has not been returned to 2% targets, but wages growth has lifted and at the start of last year it looked like the global economy was getting back to normal. What kicked the global economy off the rails again was a combination of Trump’s trade wars, a debt squeeze in China and tougher auto emission controls. But this it wasn’t due to a failure of quantitative easing.
As to how quantitative easing is eventually unwound there is no easy answer, but there is no reason to believe that it will end with a calamity. First, in the absence of a surge in inflation necessitating a withdrawal of the money that has been pumped into the global economy there is no reason to withdraw it. And when inflation does start to rise it can be reversed gradually by central banks not replacing their bond holdings as they mature.
Second, the assets central banks purchased as part of QE have boosted the size of their balance sheets but the varied size of central bank balance sheets from one country to another as a share of their economy shows that there is no natural optimal level for them. In fact, the Fed is now resuming natural growth in its balance sheet as occurred prior to the GFC so its balance sheet may just stay high (as along as inflation is not a problem).
Finally, if push came to shove just consider what would happen if say the Bank of Japan told the Japanese government that it no longer expects payment at maturity for the 50% of Government bonds it holds? The BoJ would write down its bond holding and the Japanese Government would suffer a loss on its investment in the BoJ but that would be matched by a write down in its liabilities. Basically, nothing would happen except that Japanese government debt would fall dramatically!
3. Inflation and interest rates are low
The key thing that has caused many sceptics to miss out on good returns this decade is that they focussed on low inflation as reflecting low demand growth but missed out on the positive valuation boost to assets like shares and property that low inflation and low interest rates provides.
4. Rapid technological innovation and growth in middle income Asia is continuing
This is well known and has been done to death, so I won’t go over it suffice to say that there are still a lot of positives helping underpin the global outlook and these two remain big ones.
5. Global growth looks like it may pick up
While the slowdown in global growth over the last 18 months has been scary and associated with share market volatility, the conditions are not in place for a deeper slide into global recession like we saw at the time of the GFC – excesses like overspending, surging inflation, excessive monetary tightening are not present. In fact, various signs are pointing to a cyclical global pick up ahead:
- Bond yields are up from their lows & look to be trending up
- The US yield curve is now mostly positive – suggesting the inversion seen this year may have been another false recession signal like seen in 1996 and 1998
- European, Japanese & emerging shares are looking better
- Cyclical sectors like consumer discretionary, industrials and banks are looking better
- The US dollar looks like it might have peaked; and
- Business conditions PMIs for the US, Europe & China were flattish in October & may be stabilising. This saw the global manufacturing PMI go sideways and a rise in the services PMI and both still look like the 2012 and 2016 slowdowns.
First, the economic slowdown in both China and the US is pressuring both to defuse the trade dispute in the short term. This pressure is greater now as Trump wants to get re-elected next year and knows that he won’t if he lets the US slide into recession or unemployment rise. China may prefer to wait till after the election but is more likely to opt for the devil it knows.
Second, Trump’s avoidance of retaliation after the attack on Saudi’s oil production facilities in September shows a desire to avoid getting into military conflict in the Middle East.
Third, Brexit risks are on the back burner for now (although they could still come up again next year).
Concluding comment
There is good reason to expect the global economic cycle to turn up in the year ahead just as it did after the growth in 2012 and 2016. This should be positive for growth assets like shares. Finally, for those worried that more and more debt will trade at negative interest rates our view is that this is unlikely: many countries have already sworn off using rates including the US and RBA Governor Lowe says it’s extremely unlikely in Australia. And if growth picks up as we expect the proportion of global debt on negative rates will decline as it did after 2016.
October
Unclaimed money
September
Driving and shark attacks
I was talking to a friend recently and he was complaining that he had been stopped and fined by police for texting and driving. He thought this was unfair. He felt he was in perfect control of the vehicle and presented no risk to himself or others. Later in the conversation (we had moved on to other subjects), he was talking about his summer holiday plans and mentioned he loves the beach but never goes swimming in the sea because of his fear of shark attacks.
Most human beings are not good at taking a rational view of risk. In the above example, we all know that the risk of being attacked by a shark in NZ (or globally for that matter) is vanishingly small whereas, sadly, the chances of dying or being seriously injured in a car crash caused by someone using their phone while driving are much, much higher (and rising fast as people become less and less able to resist touching their phones for more than a couple of minutes).
Attitudes to risk in the financial markets are often similarly irrational. Investors in the stock market are obsessed with worrying about volatility – and that’s a natural reaction. It hurts when values go down, right!?
It’s a well-known principle in the financial world that the pain felt from losses can be twice as hard as the pleasure experienced from gains.
Source: Kahneman & Tversky – Research on Loss Aversion.
As soon as markets start to wobble, investors’ immediately start to worry about the next “bear market” and their minds go back to the dotcom bust of the early 2000’s or the Global Financial Crisis.
The risk of not investing
Perhaps the bigger risk is not investing at all. Keeping money in cash over the long term (in savings accounts or term deposits) often does not keep pace with inflation and it is this loss of purchasing power that is the real risk to investors with a medium to long term risk horizon, especially those saving to provide for their retirement. This is true even in these days of low inflation – costs of healthcare and aged care keep relentlessly going up even if the headline rate of inflation stays low.
Keeping money in cash for the long term can lose you money in real terms. I’m not saying don’t hold any cash ever, but one of the best ways to ensure you don’t lose purchasing power is to construct a diversified portfolio invested in a range of asset classes from bonds to equities at a level of risk you are comfortable with. Cash comes into the equation from time to time on a tactical basis and can be used by a skilled, active fund manager to protect the portfolio if required.
Sometimes it’s a good exercise to take a step back and re-assess your attitudes to risk.
Are you more afraid of;
- Shark attacks or heart disease?
- Flying or driving?
- Sky diving or running a marathon?
- Bear markets or loss of purchasing power?
In terms of probability, you are more likely to suffer from the second of these pairings.
If you want to re-asses your attitude to investment risk, you can talk to an Authorised Financial Adviser.
Disclaimer: This article is intended to provide general information only. It does not take into account your investment needs or personal circumstances.
Source: Milford Asset Management.
August
A narrative to take markets higher
In June 2016 we wrote a light-hearted article called “Solving Japan’s Financial Problems”. In it we proposed that Japan’s Reserve Bank, which at the time owned over a quarter of the Japan government’s debt, should just write it off. What little income it was earning was going to the Reserve Bank, the maker of money, that had no need for it. The only consequence would be the risk of inflation, but Japan was, and still is, struggling with deflation. The Japanese government would then be unencumbered by its debt problem and be able to borrow more and spend it on infrastructure, providing much needed stimulus to its economy and potentially pulling it out of deflation woes. Simple!
And apparently, we weren’t the only ones thinking about this. Policy and business circles are increasingly talking these days about an economic theory called Modern Monetary Theory (MMT).
MMT is being discussed for one main reason. It provides a rationale for government spending despite high levels of debt, a problem that most of the largest economies of the world are encumbered with. In countries with sovereignty over their currency MMT argues that, rather than using interest rates to regulate employment and inflation, it can be regulated by spending and taxes. It is sort of an extreme version of Keynesian economics, asserting that interest rate changes have no discernible effect on an economy’s aggregate demand. The risk-free (government) interest rate can therefore be set at zero so the level of debt a government holds becomes irrelevant. Nice!
There are a fair number of MMT critics. Former US Treasury Secretary, Larry Summers, has called it “voodoo economics”. Warren Buffet is “no fan” of MMT either. However, MMT also has a few high-profile supporters. Ray Dalio, the highest paid hedge fund manager in the world last year, is a backer of the philosophy behind MMT. He recently noted that MMT can be used to redirect stimulus from those who own financial assets to those who don’t, helping to reduce the wealth inequalities that are part of the current rise of populism. “Quantitative Easing (QE) and interest rate cuts help the top earners more than the bottom (because they help drive up asset prices, helping those who already own a lot of assets). Those levers do not target the money to the things that would be good investments like education, infrastructure, and R&D.”
We do not profess to have more economic firepower that these experts to be able to determine who is correct. What interests us about MMT is the potential for it to push markets higher.
Most of the world’s largest economies are in a bind, fighting high government debt levels, deficits and the threat of debt defaults and deflation. MMT must be a very palatable option for consideration by our world’s law makers. Why not use free money to build much-needed roads, bridges and hospitals, while at the same time reducing wealth inequality and stimulating the economy? Especially when the alternative option requires the almost impossible task of reining in spending and paying down debt.
QE is sort of a watered-down application of MMT. The difference is governments technically must pay their reserve banks back one day. Now that governments have got the QE habit, it will be easier for them to move onto a purer substance with a bigger hit. In our opinion, QE will be used until high inflation ceases to permit it. MMT makes it easier for them to do that, or even one better.
Whether MMT is a workable theory or not, it is likely to be ultimately misused in practice. Too much of a good thing never works out well, and it is likely that inflation will not be kept in control under this approach because governments will not introduce unpopular higher levels of tax quickly enough. Basic human nature will result in too much money being printed, and this will result in high inflation.
Dalio acknowledges this weakness. “The big risk of this approach arises from the risks of putting the power to create and allocate money, credit, and spending in the hands of politically elected policy makers”. This is also probably the reason why Buffet is no fan.
But inflation appears to be some way off. In the interim, MMT can be used to describe the current situation and justify the monetisation of government debt, and further fiscal spending while lowering interest rates at the same time. What this long bull market lacks to date is a euphoric melt-up based on a “this time is different” narrative. Perhaps we have it.
Source: Castle Point Funds
Celebrating New Zealand Shares!
On the 23rd of April, the NZ share market index (S&P/NZX50) broke through the 10,000 level for the first time in its history. But a quick look back through the major headlines around that day suggest we were more focussed on weather forecasts for the upcoming holiday period. To us it’s simply puzzling that this major milestone wasn’t more widely recognised, acknowledged and even celebrated. One possible answer is that Kiwis and the media simply aren’t aware of, or focussed on, the continued strong performance of our local share market. Our concern here arises from the missed opportunities for New Zealanders to grow their wealth that this lack of awareness implies. We readily celebrate sporting success but seem reluctant to acknowledge business or financial success even though it is critical to our long term wellbeing as a country.
To put some context around the 10,000 level, it’s worth looking at the performance of our local market relative to its international peers. Since early 2009, essentially the end of the GFC, the S&P/NZX50 Index has rallied 255% (122% from capital growth and 133% from dividends). This is an impressive number in isolation but when we compare this performance to other markets, it warrants particular attention. Over the same time period, for example, Australia’s S&P/ASX200 has delivered a more modest return of 176%. Perhaps even more importantly from a New Zealander’s perspective is the comparative returns that have been achieved between our local stocks and our local residential property market. Since January 2009, the S&P/NZX50 has outperformed the residential house price index by a massive 167% (255% vs average house prices rallying 88%). Even if we start this analysis back in 2001, local stocks have again been the winner delivering a total return of 438% against a house price index which is up 264%.
The frustrating aspect of this local bull market is that our domestic “Mum and Dad” investors have not enjoyed the benefits of it to the extent that they could have. Foreign ownership of the S&P/NZX50 has been strongly increasing since 2015. At that time, 45% of the index was foreign-owned whereas today, non-domestic interests control 54% of the stocks on our exchange. During this time we have also seen the level of retail ownership fall steadily. In 2015 it was at 27%, but today this number sits at only 21%.
Again, we feel that there are a number of factors at play in explaining these trends. The high dividend yielding nature of the NZ stock market (currently the S&P/NZX50 Index has a gross dividend yield of 4%) has caught the attention of foreign investors who are looking to offset a lack of opportunities to generate income from their investment portfolios. Remember this is a world where about one third or US$11 trillion of government bonds offer a negative yield! We’ve also seen strong earnings growth from businesses as GDP growth around the world has averaged above 3%p.a. over the last decade and inflation has all but disappeared.
While in the 1980’s and 1990’s NZ’s stock market represented the Wild West of the worlds’ financial markets, over the last 20 years serious financial regulation has transformed the NZ Exchange into a well regulated market that domestic and global investors can have confidence in. The robust regulatory framework in New Zealand and the creation of the Financial Markets Authority have added greatly to the integrity of our capital markets. In our view, the potential for risks and returns to be misrepresented by financial service providers has reduced considerably relative to where we have been in the past.
It’s also worth reflecting on some of the local success stories that our stock market has produced. Xero and TradeMe are a couple of well-known names which have been extremely productive opportunities over time for our retail investors to benefit from (Xero rallied 3,900% from 2009 until it’s delisting from the S&P/NZX50 in 2018 whilst Trade Me generated a return of 180% for investors from its IPO in late 2011). A2 Milk in particular has been a spectacular success, growing from a very small company into a $12 billion business over just a few short years. Its stock price has reflected this success rising from 4 cents per share in 2005 to over $16 today.
We have also seen a number of our infrastructure assets brought to the market by the Government as they have sold down their ownership of state-owned enterprises. Although the partial divestment of companies including Meridian Energy, Mercury Energy, Genesis Energy and Air New Zealand during 2011-2014 was the focus of much political debate and commentary, the outcomes for New Zealanders (both investors and the public) have been very positive. As highlighted in the TDB Advisory Review of the Mixed Ownership Model last year, the performance of these companies largely improved as evidenced by their earnings growth, dividend growth, return-on-assets and levels of debt. Tax payers have received more in dividends from partial ownership than they ever would have had the companies remained fully in Government hands. Through their successful offer our international reputation as a country which offers investment opportunities that are well governed, transparent and financially stable has been enhanced. These qualities should appeal to all investors.
Our capital markets play a hugely important role in the healthy functioning and growth of our economy. For this contribution to be fully realised, markets require strong engagement from a broad range of our domestic investors and institutions. As we see it, this requirement is simply not being fully met. In part we think that this is explained by a disproportionate focus on property investment as a savings mechanism by retail investors. While we accept that property has a valid role to play, we do feel that this current over reliance on a single asset class risks creating a lack of diversification and with that potential consequences for the long-term financial security of retiring New Zealanders.
It’s unlikely though that the attraction of investment properties is the sole factor which explains the poor engagement with our capital markets; a lack of understanding and confidence in shares and bonds is likely to be equally as significant. While the advent of KiwiSaver over the last decade or so has helped on this front, there is much more progress to be made yet. Hopefully financial awareness will increase in line with KiwiSaver balances.
So where to from here? As an industry we are currently engaged in a review of our Capital Markets together with the NZX and the Financial Markets Authority. We have been charged with identifying strategies which will encourage retail investors to increasingly consider the New Zealand share market as a viable and attractive investment option, and for private businesses to consider a domestic listing as a credible path to fund their growth. The success that the S&P/NZX50 Index has enjoyed over the past 20-years should play an important part in developing this solution, but this message of success needs to be heard, understood and even celebrated.
Source: Devon Funds.
June
TROUBLE BALANCING YOUR BUDGET
Fund manager Booster has launched an innovative new budgeting tool, which instantly provides a snapshot of spending and income by automatically collecting and collating live transactional data from a user’s different banking providers.
The budgeting tool, available free to all Booster members, automatically sorts spending into categories, allowing the user to track their expenses against income and compare their expenses to previous months via an easy-to-follow graphical user interface.
“Many people tell us they find managing their money difficult and time-consuming. Even the best of us can be broken by it. We wanted to create a simple and pain-free way to help people understand what they’re spending, set goals and then keep track of them,” says Allan Yeo, Managing Director of Booster.
“Our tool automatically tells you how much you are spending on what. Often that’s the hardest part; nobody enjoys wading through statements and bills to create a budget. By using your payment data and automating it, what once took hours is now done in seconds. From there, you can identify the changes you want to make and most importantly, track how you are going.
“Additional functionality will be continually added over the coming months to provide users with the ability to set personalised spending targets for each category, set ‘good months’ as an example to follow, and receive notifications when set spending limits are reached.
“We already provide our members with an app that gives them a snapshot of their total financial picture. It enables users to capture all their assets (cash, KiwiSaver, properties, savings and investments etc.) against their liabilities (rent, mortgages, debts, student loans etc.).
“It’s a simple net wealth calculation but for many people, it’s the first time they’ve seen it that way. Once they do, it can be very motivating. Driving down debt and saving becomes even more rewarding when you can see the effect it has on your overall financial picture.
“The launch of the budgeting tool marks an important step for the Booster team. We are one of nine default KiwiSaver providers. We want to not only lift the savings of Kiwis but improve their overall financial resilience.
“At Booster, our philosophy is to help New Zealanders live with financial confidence. We want to put them at the centre and in control of their whole financial picture, helping them make the best possible decisions and live well, no matter what stage of life they are at – from starting out to retirement,” says Yeo.
If you would like to find out more about this tool contact Graeme today.
May
Why the Reserve Bank’s rate cut punishes savers
Sometimes it’s hard to be a cheerleader for saving and thrift and boring old-fashioned fiscal responsibility.
It feels like being one of those lone protesters standing on street corners, awkwardly mumbling slogans as motorists toot and throw McDonald’s wrappers at you.
Well-meaning sermons are drowned out by the chorus of marketers, banks, retailers, and loan sharks, all of whom push the same intoxicating message: spend, borrow, buy, consume. Why wait? Treat yourself. You’re worth it! And so, it was a bit dispiriting to hear the Reserve Bank – that fusty paragon of financial prudence – add its voice to the lusty chorus.
The banking boffins have cut the official cash rate to 1.5 per cent, a new historic low. To get technical for a moment, this is the equivalent of serving the nation a gigantic bowl of adult party punch. The idea is to stimulate growth: get us buying more stuff, encourage businesses to borrow and invest, and increase the supply of money sloshing around.
It’s lovely news for borrowers. Within moments of the announcement, the banks started offering juicy new loan rates, sparking another round of the mortgage wars.
But pity the poor savers. Bank deposit rates were already looking anaemic. After the inevitable post-announcement haircut, they’re positively pathetic. Once you adjust for tax and inflation, keeping your savings in the bank has a negative return: you’re basically just losing money very safely. Term deposits still protect your cash from eroding, but only barely – and there could be further cuts to come.
One of the big banks was “concerned” this would prompt savers to move towards riskier assets. Were they referring to shares, perhaps, which have returned 17 per cent in the last year, compared to the 3 per cent the bank is offering? Gee, I wonder why anyone would migrate.
Buying “growth” assets like shares is one of the ways we savers might benefit from this situation. Low interest rates and a weaker dollar mean companies can borrow cheaply, export products more competitively, and look more attractive to foreign investors. That’s all good news for shareholders: if big business is thriving, then so is your investment account.
There are obvious risks associated with growth assets, as discussed in previous columns. But sometimes, not taking enough risk is the riskiest thing you can do. Who knows how long we’ll be stuck in this low-interest rate environment? It would be a mistake to rely on traditionally safer investments to generate much in the way of income.
So: the first takeaway from this week’s historic cut is to think carefully about whether you’re taking on enough risk to actually get ahead financially.
The second takeaway is to ignore the calls to borrow and spend, as if it were your patriotic duty to never let your credit card cool down.
The Reserve Bank doesn’t care about you, or me, or any individual. And nor should it. It can’t be beholden to the whims of voters, or to slippery politicians. Instead, it has to consider the big picture – and right now, that means making sure this decade-long party doesn’t fizzle out.
If a few people drink a bit more punch than they ought to, or spill guacamole on the carpet, well, so be it. An economy is a messy thing. But when the music stops, I don’t intend to be among those unfortunate souls who overindulged.
Source: Richard Meadows Sunday Star Times 12th May 2019
April
What you need to save for a comfy retirement
Massey University & Westpac have just updated their research first published in 2015 on retirement expenditure guidelines. The Fin-Ed Centre is a joint initiative between Westpac and Massey University. The Centre aims to empower New Zealanders to make more financially savvy decisions – to give people the tools they need for the life-long process of managing their finances. Key projects include a 20- year longitudinal study that follows 300 New Zealanders to understand their needs for financial knowledge at different life stages, a multi-level certification programme for personal financial educators and the New Zealand Retirement Expenditure Report
– a joint initiative between the centre and savings industry body Workplace Savings NZ to establish guidelines for ‘modest’ and ‘comfortable’ retirement.
The report can be viewed at:
March
Paul Glass: Taxing our Future
5 March 2019
The recently released Tax Working Group (TWG) report “Future of Tax” should more correctly have been labelled “Taxing our Future”. Tax is an incredibly important component of a well-functioning economy and it is good to review our tax structures periodically. Unfortunately, rather than being a visionary document as we might have hoped, the TWG have produced a report that is economically naïve and would, in our view, shift more of the tax burden onto aspirational younger people.
Before looking at some of the problems with the report’s recommendations it might be useful to shed some light on NZ’s current tax framework. Let’s start by looking at the amount of tax that New Zealanders pay. The best measure of this is the tax to GDP ratio which in NZ sits at 32.0% or just below the OECD average of 34.2% and above countries like Australia and the USA at 27.8% and 27.1% respectively. Relative to OECD averages the NZ structure is characterised by higher taxes on personal and company income, rates about average on property taxes and contains no separate taxes relating to payroll or social security contributions. So, all in all, our overall tax burden looks about right.
Where it gets very interesting in NZ is when we look at who pays the tax. One measure is the amount of net tax paid, which is the amount of tax paid less transfer payments (like benefits, Working for Families etc). There are many different ways to slice this but according to Treasury figures the bottom 50% of households, as measured by income, pay no net taxes (that is after transfers and benefits), the top 3% pay about 24% of all net tax paid, and the top 10% pay over 70% of net income taxes. On top of this, wealthier households often pay twice for the provision of services (for example private healthcare and education), which is not picked up in the tax numbers. The question of whether or not the wealthy should pay more tax than this is largely a political one. The best way of levying these taxes was the focus of the TWG and the majority (3 members dissented) recommended the introduction of a broad approach to the taxation of capital gains.
NZ is unusual in not having a Capital Gains Tax (CGT). Superficially a broad CGT has great appeal in that it sounds fairer and would help capture “windfall” profits which have occurred largely in the property sector. The devil is of course in the detail and we can simply look overseas at other jurisdictions to see the problems with a CGT:
- Almost everyone with assets or income would require a tax advisor. This would be great for financial advisors, accountants, lawyers and valuers but would add huge complexity and cost to what is currently one of the world’s simplest tax systems.
- All CGT’s come with significant loopholes and the very wealthy will spend a great deal of resource to minimise their tax burden. For example the Australian Tax Office reports that in one year alone 48 Australian millionaires who earned a total of $118 million and who paid accountants and lawyers $20.2m were able to legally reduce their taxable income to $0!
- Would be likely to bring in much less additional money than anticipated (due to the point above).
- Would fall heavily on the upper-middle who already pay a lot of net tax (again the very wealthy are very good at structuring their affairs), small businesses and aspirational younger people.
- Would be a real productivity burden – every business decision would need to be weighed up with a CGT lens.
- Assets would become locked up as the tax only applies when an asset is sold, so there is a real disincentive to sell assets. This is bad for the economy.
- It is hard to find a fair treatment for inflation (surely it’s only fair to tax the inflation adjusted capital gain?).
- It would result in double or even triple taxation.
- Valuing all taxable assets on a certain date would be extremely difficult and would very likely be “gamed”.
- Using the highest marginal tax rate to levy a full nominal CGT would make the proposed scheme one of the harshest in the world.
The theme of “fairness” comes up very frequently (54 times!) in the TWG report but this is a very hard concept to put into place with a complicated tax system. In particular what we are likely to see occur will be a tax on future generations to fund the retirement of baby-boomers, which is probably exactly the opposite of what the government would like to achieve.
Let’s look at a few practical examples to demonstrate some issues:
- At Valuation Date (the date at which all assets will need to be valued for the CGT) a wealthy individual who is close to retirement, who owns a business and a number of investment properties will seek a favourable valuation of their assets. Valuation is as much an art as a science, particularly with businesses. This individual has already accumulated her assets and so will pay no tax on her current accumulated wealth. Two years later let’s assume this individual sells her business to her young staff at a value 20% less than the favourable valuation received. She will actually receive a tax credit now. The young staff who have acquired the business will have to pay a full CGT based on their purchase price when they in turn retire and sell the business. Likewise with the investment properties. Even if the new investors do not make any gains on the real (after adjusting for inflation) value of the business or properties they will have to pay full CGT on the inflation component.
- A young entrepreneur who, after Valuation Date, builds up a business from nothing to be worth say $100,000 and which, after paying all staff wages and other expenses earns $30,000 before tax or very roughly, to keep the numbers simple, $20,000 after tax. Most people do not understand that every business already has a silent partner, one who takes no risk and puts in no capital but takes a third of any profits every year – the Government. The value of the business when sold is already discounted to reflect the share of the profits that the Government takes each year. Under a CGT, assuming the top marginal rate, the Government will also take another tax, being a third of the sale price, and which also ignores the impact of inflation. The entrepreneur would now have only $67,000 to invest in their next venture or retirement and so may decide not to sell the business, particularly as they can earn more from the $100,000 before CGT than they can from the $67,000 post CGT. This level of taxation may put many people off starting businesses.
- The family home is to be exempt from a CGT so we are likely to see the “mansion” effect occur. This is where instead of investing in additional properties or a business, an investor will put all their investable funds into buying or upgrading the family home to avoid paying CGT.
There are numerous other problems in the proposals including the treatment of lifestyle blocks, farms, NZ shares (very unfavourable and which will drive money out of NZ and into international shares) and Kiwisaver, but it is probably not worth focusing on these issues until we know what the Government position is- this will be disclosed in April. Politically the issue of a CGT appears to have arisen due largely to the untaxed gains which have occurred in the housing market and related to land. There are much simpler mechanisms to achieve “fairness” in this area than a broadly based Capital Gains Tax, the burden of which which will largely fall in the years ahead on aspirational young people.
Source: Devon Funds Management Ltd.
February
The Case FOr Bank Deposit Insurance
By Geof Mortlock*
New Zealand currently has a strong banking system, with banks that are well capitalised and generally owned by strong parent entities. The strength of the New Zealand banking system owes much to the fact that the four largest banks (holding close to 90% of banking system assets) are owned by strong Australian banks and are overseen by a very competent banking supervision authority in Australia.
Nonetheless, no country is immune from bank failure. New Zealand is no exception. Although it is around 30 years since New Zealand experienced the failure or near-failure of banks (BNZ in 1990 and DFC in 1989), it is only a decade ago that we saw the failure of more than 50 non-bank deposit-takers; a scandalous failure of the New Zealand regulatory system that has only been partially rectified by subsequent reforms. If the global economy experiences a deep and protracted recession, and New Zealand goes with it, there is no guarantee that we will not see a bank failure or two.
In most countries around the world (and all advanced countries except New Zealand), small depositors are protected when a bank fails. That is because most countries have what is called deposit insurance – a scheme under which depositors are fully insulated from loss and guaranteed prompt access to their funds up to a specified amount if their bank fails.
New Zealand is the only advanced OECD country without deposit insurance. If a bank fails in New Zealand, there is no protection available for small depositors. Even worse, if the Reserve Bank got its way, it would impose losses on depositors through a ‘haircut’ to your deposits to absorb losses that the bank has sustained. Under the Reserve Bank’s approach, depositors are deliberately forced to absorb losses (after shareholders have first lost everything). In every other advanced country, small depositors are protected from losses through deposit insurance.
This crazy situation is finally under review. Thank heavens it is being led by the Treasury, given that they seem to have a genuinely open mind and mature approach to the issue. In contrast, the Reserve Bank retains a largely irrational, ideological (almost theological) opposition to any form of depositor protection. Its head is deep under the sand.
The Reserve Bank’s opposition to deposit insurance is based on their assertion that this would significantly weaken ‘market discipline’ on the banks and thereby reduce their incentives for prudent risk management. This is a nonsense of an argument. Market discipline on banks comes not through small (‘mum and dad’) depositors, but mainly through large (wholesale, corporate and inter-bank) deposits and other funding. These large depositors and bondholders monitor their funds in banks closely. They understand credit ratings and they understand risk. They are the ones who exert discipline on banks, both by demanding a higher price for higher risk and by, ultimately, cutting funding off from a bank if they have serious concerns about its safety.
In contrast, small depositors – your average Jack and Jill out there – have no realistic way of knowing whether their bank is safe or how it compares in terms of risk to other banks. They can look at bank credit ratings and financial disclosures, but they do not have the knowledge or experience needed to interpret this information. And if a small depositor did develop a concern over a bank, they would have very little scope to exert influence on the bank through the pricing of deposits, unlike large corporate depositors. Their only option is to withdraw their deposits from the bank. Moreover, small depositors, unlike the large ones, do not generally have sufficient money to spread it across several banks to diversify their risk. They tend to have most of their funds in just one bank.
In the absence of deposit insurance, small depositors are left vulnerable and exposed in a bank failure. Worse than that, the absence of deposit insurance creates a significant risk of depositors running on the banking system at the first hint of trouble. That is one of the reasons other countries have well-established depositor protection systems. The risk of a mass depositor run on banks is made much worse in New Zealand because of the Reserve Bank’s ill-conceived ‘open bank resolution’ policy, given that it involves ‘haircutting’ bank deposits and forcing depositors to take losses.
In the absence of deposit insurance, the Reserve Bank’s ‘open bank resolution’ policy is a recipe for creating panic across the banking system. It creates a risk that the failure of one bank could trigger a run on many other banks (especially in a period of financial system fragility) because depositors and other creditors would not know whether their bank is next for the Reserve Bank’s haircut. In my assessment, the risk of the Reserve Bank’s ‘open bank resolution’ policy creating a mass run on bank deposits is sufficiently high that it would likely force the government to place a blanket guarantee on bank deposits to stop the run and stabilise the banking system. In other words, the Reserve Bank’s policy – ostensibly designed to protect taxpayers by avoiding government guarantees – would very likely create an even worse risk for the taxpayer by making a blanket guarantee all the more likely.
Deposit insurance would significantly reduce this risk. It would protect small depositors by insulating them from any loss on their deposits up to a specified amount and by giving them prompt access to their deposits. This would greatly reduce the risk of depositor runs. It would also strengthen the ability of the government to enable the Reserve Bank to apply some form of ‘bail-in’ of a failing bank by imposing losses on larger deposits and bonds (after shareholders first absorb losses). Deposit insurance would avoid the need for an emergency ad hoc response from the government in a bank failure situation, such as a blanket guarantee. It would provide for a much calmer and more structured approach to resolving failing banks. And at lower taxpayer risk.
What would a sensible deposit insurance structure be for New Zealand? I think it would have the following features:
- The deposit insurance scheme would be established by legislation, setting out the objectives of the scheme – essentially to provide protection to depositors in a bank failure situation up to a defined amount.
- The scheme would be mandatory for all banks; there would be no scope to opt out.
- Non-bank deposit-takers (NBDTs) licensed by the Reserve Bank should be brought within the scheme, but on the basis that they become subject to a supervision regime the same as for banks (i.e. no longer being supervised by trustees).
- The scheme would apply to any depositor of a bank or NBDT, regardless of whether they are resident or non-resident, natural persons or legal entities, but would not apply to inter-bank deposits.
- The scheme could be applied to deposits in any currency, but subject to a standard NZD maximum cap. However, the simplest option would be to limit the scheme to just NZD deposits.
- The scheme would limit the amount of protection to a specified sum set either in statute or regulation, which could be increased over time in line with inflation or the growth in the nominal average value of deposits. The deposit insurance limit should be set at a level that fully protects the vast majority of householders’ deposits so as to minimise the risk of retail depositor runs, but not so high as to protect wholesale depositors (i.e. those who can be expected to protect themselves). Internationally, the deposit insurance limit varies considerably from country to country. The international average is around US$75,000 per depositor per bank. In Australia it is A$250,000 per depositor per bank. In the EU it is €100,000. In the UK it is £85,000. In Canada it is C$100,000. And in the US it is US$250,000. For New Zealand, I would favour a deposit insurance limit of not less than NZ$50,000 per depositor per bank and not more than NZ$100,000 per depositor per bank. The latter would be closer to international norms for OECD countries.
- The scheme would apply the deposit insurance limit on a per person per bank basis. Under this arrangement, a person’s deposit accounts in a bank would be aggregated to a single total balance. If they have a joint account with their partner, half of the joint account deposit balance would be included in that person’s aggregate deposit balance.
- The deposit insurance scheme would require the scheme administrator to pay the insured deposit amount to the depositor within a specified period following the closure of the failed bank. Internationally, the standard is to complete this payment within 20 days, but increasingly deposit insurance agencies are moving to complete payments within seven days.
- The scheme would sensibly be structured to enable the deposit insurance fund to finance the transfer of eligible deposit balances to another bank (a so-called ‘purchase and assumption’ form of bank resolution), so that the depositor can access their deposits with minimal interruption – i.e. the deposit account in the failed bank simply becomes a deposit account in another bank, with the same terms and conditions. This is how over 90% of bank failures in the United States are handled. Typically, in the US, the failed bank is closed on a Friday. The insured deposit accounts are transferred to another (healthy) bank over the weekend. The depositor can then access their deposits at the new bank on the Monday. No loss. No fuss. No instability.
- If the Reserve Bank’s ‘open bank resolution’ approach was applied to a failed bank, the ‘haircut’ to deposits and other liabilities would only apply to deposits above the aggregate value covered by the scheme. For example, if the deposit insurance limit is $100,000, then the haircut would apply only to deposit balances (aggregated on a single depositor basis) above $100,000.
- The scheme would be administered by a government agency. Rather than establish a new agency solely for the purpose, one option would be for the Reserve Bank to administer it, given that it is the bank supervisory and resolution authority. However, my favoured approach would be to split the supervision and resolution functions from the Reserve Bank to a new Prudential Regulation Authority and for that authority to administer the deposit insurance scheme. I would rather see the creation of a professional supervisory and resolution authority, separate from the Reserve Bank, rather than continue to have the Reserve Bank do the job in what, all too often, is an unprofessional manner. This would also avoid the current excessive concentration of power in the Reserve Bank. And it would avoid the conflicts of interest that exist with the Reserve Bank as supervision authority – e.g. using prudential regulation for monetary policy and macro-financial stability purposes.
- The deposit insurance scheme would be funded by regular levies on banks and NBDTs. These would be used to build the deposit insurance fund to a level considered sufficient to meet the expected value of payouts over the long term. In the advanced OECD countries, the target size of a deposit insurance fund is generally between around 1% to 2% of insured deposits. A start-up fund would normally be given around seven to 10 years to reach the target size.
- The bank levies would be based on their holding of insured deposits and calculated as a percentage fee per deposit per annum. Banks would doubtless pass most or all of this cost on to their depositors. And that is fair enough. No insurance scheme is free. If depositors want the benefit of safety, they should be prepared to pay for it. Typically, in most countries with deposit insurance schemes, the levy is small – usually between 0.02% to 0.05% per annum. On this basis, an insured deposit interest rate for one year might fall from around 3.5% currently to maybe 3.45% under a deposit insurance scheme if the bank in question passed on the full deposit insurance levy to the depositor.
- A risk-based bank levy could be established. This is done in some countries. And sensibly so in my assessment. It means that higher-risk banks and NBDTs (e.g. those with lower capital ratios, higher risk appetites and less diversified portfolios of assets) pay a higher deposit insurance levy than banks and NBDTs of lower risk (e.g. banks with higher capital ratios, strong asset quality, conservative risk appetite, etc). This would help to strengthen discipline on banks and NBDTs and reinforce incentives for sound risk management.
- The deposit insurance scheme would need to have either the ability to borrow from the government or from the financial markets (with a government guarantee) in situations where it did not have sufficient funds to make payments. It would then repay the full amount of the borrowing (including interest) over time through higher levies on banks and NBDTs. This is a conventional feature of deposit insurance schemes in other countries.
- Finally, the scheme would be enabled to use its funds to contribute to the funding of alternative forms of bank resolution, subject to it not paying more than it would have done under the lowest-cost form of deposit payout.
The sooner New Zealand establishes a deposit insurance scheme the better it will be for the millions of New Zealanders currently exposed to the whims of the Reserve Bank’s odd approach to managing a bank failure. And the sooner we will have a financial system in which small depositors can feel that their funds are safe.
*Geof Mortlock, of Mortlock Consultants Limited, is an international financial consultant who undertakes extensive assignments for the International Monetary Fund, World Bank and other organisations globally, dealing with a wide range of financial sector policy issues. He formerly worked at senior levels in the Australian.
Source: www.interest.co.nz
2018
December
Knowledge still lacking on KiwiSaver
New Zealanders still have a lot of unanswered questions about KiwiSaver, a new survey shows.
Monday, December 10th 2018, 6:00AM
The latest ASB KiwiSaver survey shows that 63% of respondents said they needed to save more for retirement and 18% were unsure.But many did not know what was an appropriate amount to be aiming for.A full 17% of respondents were unsure how much saving would be required each year in retirement.A fifth thought the amount required per year was less than $30,000 while another 31% thought a figure between $30,000 and $50,000 each year would be needed. A remaining quarter thought that more than $50,000 per year would be required per year of retirement.Four in 10 of respondents planned to use KiwiSaver to cover day-to-day expenses and provide income within retirement, and 11% planned on leaving the money in KiwiSaver once retired. Another 11% of people planned to use KiwiSaver to pay off mortgages or other debt.
“With good returns a key reason for satisfaction, markets remaining volatile, and KiwiSaver knowledge still low, the survey highlights the importance of good financial planning and seeking advice to help with all the uncertainties,” ASB wealth economist Chris Tennent-Brown said.
“At times like now when sharemarkets are volatile it’s especially important to seek help if investors are unsure what they should be doing.”
Source: www.goodreturns.co.nz
November
A View on Brexit from Downunder
Tony Abbott: How to save Brexit. Britain has nothing to fear from no deal.
It’s pretty hard for Britain’s friends, here in Australia, to make sense of the mess that’s being made of Brexit. The referendum result was perhaps the biggest-ever vote of confidence in the United Kingdom, its past and its future. But the British establishment doesn’t seem to share that confidence and instead looks desperate to cut a deal, even if that means staying under the rule of Brussels. Looking at this from abroad, it’s baffling: the country that did the most to bring democracy into the modern world might yet throw away the chance to take charge of its own destiny.
Let’s get one thing straight: a negotiation that you’re not prepared to walk away from is not a negotiation — it’s surrender. It’s all give and no get. When David Cameron tried to renegotiate Britain’s EU membership, he was sent packing because Brussels judged (rightly) that he’d never actually back leaving. And since then, Brussels has made no real concessions to Theresa May because it judges (rightly, it seems) that she’s desperate for whatever deal she can get.
The EU’s palpable desire to punish Britain for leaving vindicates the Brexit project. Its position, now, is that there’s only one ‘deal’ on offer, whereby the UK retains all of the burdens of EU membership but with no say in setting the rules. The EU seems to think that Britain will go along with this because it’s terrified of no deal. Or, to put it another way, terrified of the prospect of its own independence.
But even after two years of fearmongering and vacillation, it’s not too late for robust leadership to deliver the Brexit that people voted for. It’s time for Britain to announce what it will do if the EU can’t make an acceptable offer by March 29 next year — and how it would handle no deal. Freed from EU rules, Britain would automatically revert to world trade, using rules agreed by the World Trade Organization. It works pretty well for Australia. So why on earth would it not work just as well for the world’s fifth-largest economy?
A world trade Brexit lets Britain set its own rules. It can say, right now, that it will not impose any tariff or quota on European produce and would recognise all EU product standards. That means no border controls for goods coming from Europe to Britain. You don’t need to negotiate this: just do it. If Europe knows what’s in its own best interests, it would fully reciprocate in order to maintain entirely free trade and full mutual recognition of standards right across Europe.
Next, the UK should declare that Europeans already living here should have the right to remain permanently — and, of course, become British citizens if they wish. This should be a unilateral offer. Again, you don’t need a deal. You don’t need Michel Barnier’s permission. If Europe knows what’s best for itself, it would likewise allow Britons to stay where they are.
Third, there should continue to be free movement of people from Europe into Britain — but with a few conditions. Only for work, not welfare. And with a foreign worker’s tax on the employer, to make sure anyone coming in would not be displacing British workers.
Fourth, no ‘divorce bill’ whatsoever should be paid to Brussels. The UK government would assume the EU’s property and liabilities in Britain, and the EU would assume Britain’s share of these in Europe. If Britain was getting its fair share, these would balance out; and if Britain wasn’t getting its fair share, it’s the EU that should be paying Britain.
Finally, there’s no need on Britain’s part for a hard border with Ireland. Britain wouldn’t be imposing tariffs on European goods, so there’s no money to collect. The UK has exactly the same product standards as the Republic, so let’s not pretend you need to check for problems we all know don’t exist. Some changes may be needed but technology allows for smart borders: there was never any need for a Cold War-style Checkpoint Charlie. Irish citizens, of course, have the right to live and work in the UK in an agreement that long predates EU membership.
Of course, the EU might not like this British leap for independence. It might hit out with tariffs and impose burdens on Britain as it does on the US — but WTO rules put a cap on any retaliatory action. The worst it can get? We’re talking levies of an average 4 or 5 per cent. Which would be more than offset by a post-Brexit devaluation of the pound (which would have the added bonus of making British goods more competitive everywhere).
UK officialdom assumes that a deal is vital, which is why so little thought has been put into how Britain might just walk away. Instead, officials have concocted lurid scenarios featuring runs on the pound, gridlock at ports, grounded aircraft, hoarding of medicines and flights of investment. It’s been the pre-referendum Project Fear campaign on steroids. And let’s not forget how employment, investment and economic growth ticked up after the referendum.
As a former prime minister of Australia and a lifelong friend of your country, I would say this: Britain has nothing to lose except the shackles that the EU imposes on it. After the courage shown by its citizens in the referendum, it would be a tragedy if political leaders go wobbly now. Britain’s future has always been global, rather than just with Europe. Like so many of Britain’s admirers, I want to see this great country seize this chance and make the most of it.
Tony Abbott served as Prime Minister of Australia from 2013 to 2015
The above article was published in The Spectator 27th October 2018 The views represented are those of the author and do not necessarily reflect those of FinancialCompass Ltd.
https://www.spectator.co.uk/2018/10/tony-abbott-how-to-save-brexit/
October
Here’s what to consider if you’re wondering about giving up your insurance
As their insurance premiums rise year after year, many people start to wonder whether they would be better off to save the money instead, and “self-insure” against disasters. After all, if you’re spending a couple of hundred dollars a month on your cover, you’d end up with a decent pot of savings before long, right? Well, sometimes. For some, this strategy can pay off. But you need to fully understand the risks you’re taking – and why it can fail horribly. First, consider what you pay in premiums versus the likelihood of a claim.
Health insurance
Insurance premiums: For a 35-year-old non-smoking woman, $22.74 per fortnight for a policy from Southern Cross or $25.27 from Accuro with more non-Pharmac cover.
Cost of claim: Ministry of Health figures show that the average price of breast cancer treatment is $28,074. It would take you 47 years to save that if you put aside $22.74 a fortnight.
Do you need it? Financial product comparison website MoneyHub suggests not, for some.
“If you’re young and healthy, there is less chance you will need to claim on health insurance. You can save yourself $500 a year and put the money in the bank. If you do need any medical treatment, it’s likely the public health system will cover you. If they don’t, or if you want to speed up the treatment, you can draw down on the money you have saved by not having a policy.”
Health insurance comes into its own when you want to be dealt with quickly, want extra tests or diagnostics, or need cover for non-Pharmac medicines. If you’re saving $500 a year, you’re relying on the assumption that you won’t get sick before you’ve built up enough money to help pay for any treatment required.The problem with waiting until you are older to take health insurance is that you will not be covered for pre-existing conditions. If you don’t act until you think you might need cancer treatment, it’s too late.
Income protection
Insurance premiums: A 35-year-old woman would pay anything from $62.17 a fortnight for $4688 a month cover until age 65, with a four-week wait time for the payments to start.Cost of claim: It’s highly unlikely that a 35-year-old could save anything like enough to generate $4688 a month in income for life. If you could save $400,000, put it in the bank and drew it down monthly, you’d run out in eight years. Do you need it: If you have a partner who works, you’re unlikely to get any government assistance if you’re sick and can’t work. Each year about 54,800 Kiwi households experience a sickness that keeps a household member out of work for three months or more. Insurance commentator Russell Hutchinson, director of Quality Product Research, said while some people recommended younger people save their money instead of insuring, that could go wrong. “What if you get disabled and you’ve only saved three years’ of income protection premiums? It’s gone in a month.” Insurance adviser Jon-Paul Hale agreed it was risky. “‘Self-insure’ is a bit of a misnomer, for the majority of the population self-insure typically means taking on more debt or being reliant on family members. “For the moderately wealthy with cash on hand, they will be able to weather minor storms but more serious situations will challenge them financially.”
Life insurance
Insurance premiums: From $12.41 a fortnight for a 35-year-old non-smoking woman wanting $500,000 of cover. Cost of claim: You’d have to save $100 a month for 62 years to generate that lump sum, assuming you put it in an investment that gave a return of 5 per cent compounding per year.Do you need it: If you have debts that you would want cleared when you died, or expenses that would need to be covered, you should have life cover. It’s relatively inexpensive because the chance of claiming as a young person is low. It becomes more expensive as you age, but by then you should have less debt and more savings, anyway. More on that shortly.
House and contents insurance
Insurance premiums: Stats NZ figures show the average household pays about $30 a week for building insurance. This varies a lot depending on the type of house and where you are in the country. Cost of claim: Insurers have varying estimations of a “typical” contents claim but about $100,000 to replace everything is reasonable for a three-bedroom home. The cost of rebuilding a house varies wildly according to the type of property you have. Do you need it: If you have a mortgage, the bank may require you have adequate insurance in place. Your home is probably your biggest financial asset. If you don’t, and disaster hits, you could find it very hard to recover from.
Partial self-insurance
If you can save some money in an emergency fund, it will reduce the cost of your insurance. When you can take a longer stand down period before your income protection kicks in, or a higher excess on your medical cover, your premiums will reduce substantially. Hutchinson said having a savings account equal to three months’ income would expand consumers’ options. “It might sound crazy to have an $8000 excess on a [health] policy but it’s not when some treatment is $30,000 or $40,000. It’s not binary, all or nothing.”
As you get older
Hutchinson said people should aim to eventually become self-sufficient. “In the end, especially with life and health and income protection, you have to stop buying insurance.” Insurance was a way of creating an estate when someone did not enough money, he said, but over time people should build up enough reserves not to need it. He said it was something people should consider with their wider financial planning. “Sooner or later you have to adjust. You have to save enough so that all your future consumption in life is paid out of your investment returns… ideally you reduce your liabilities and increase your investments so you don’t need your insurance. But that’s something you have to get to.” Hale said there were opportunities for people who had no debt and who had assets to fall back on. “This needs to be a conscious choice. Most facing this approach have done so without the conscious decision to do so and often underestimate the true cost to this approach. If it is a conscious and considered decision then that is a different story, though most in hindsight would have transferred the risk and insured if they were able to,” he said. “For the very wealthy, using available funds from their assets, as they will have planned, is typically a reasonably sound approach. And many in this area don’t have a problem finding the money to get things done. However, they are also a minority of the population.”
September
Hidden Costs in Aussie Super?
A recent article on Stuff highlights that if you have moved back to NZ without transferring you Aussie Super back to a Kiwisaver account, then in some cases, the balance can be eroded by insurance premiums deducted from the account. Worse still is that the insurance may not even pay out should you have a need to claim. To read the story go t0: https://www.stuff.co.nz/business/106027344/5000-insurance-bill-gives-kiwi-migrant-surprise?cid=facebook.post.106027344
August
anxieties over our overseas debt obligations
The anxieties over our overseas debt obligations have faded significantly over the past generation. David Chaston updates the data and explores why we are less worried now
Our overseas debt has now reached $408.5 billion.
On a per capital basis, that is $83,900 for each person in New Zealand.
That debt is made up of both private sector debt, plus Government debt. In addition we have other international liabilities (like carbon credits) and they are included in this total as well.
But the real question is, is that debt growing? And how fast?
And as a proportion of our growing economy, is that getting larger? Are we more indebted on a real basis?
The answer to those questions are less alarming.
A first principle to recognise is that we have long gone past the period where we had to borrow-to-pay-the-groceries. Now debt is incurred almost solely to invest in assets. And every lender requires the borrower to have skin in the game, a level of equity to support the borrowing. So asset levels are a core benchmark. Borrowing by either Government or corporates (including banks) isn’t for straight consumption; no lender would agree to such an arrangement anymore. They want to know that the asset being funded has a future income stream that will comfortably allow for repayment.
So the GDP benchmark is the appropriate one when looking at this issue on a national basis.
Focusing solely on the international position, here is the track of borrowing we are on: 
On a net basis – our Net International Investment Position, Net IIP – we have a liability now of $156.1 bln to the rest of the world. This net position has been pretty stable over the past 10 years. It grew from $92 bln to $155 bln in the nine year period to the end of 2008, and has staying at that absolute level since.
But over those two blocks of time, nominal GDP grew +65% and +51% respectively (the second block includes the GFC recession).
The lid on net debt is held on by strong growth in our overseas assets, almost all by the private sector.
Putting this in the perspective of the underlying economy, here is the same data:
In this perspective, overseas liabilities are now at 143% of GDP and that is its second lowest since the data in this form became available (from 2000). And that is a recovery from its worst level in March 2009 when it was 166%.
On a per capita basis, the recovery is not as strong. It reached its peak at $88,016 in September 2016 and has fallen since then to the current level of $83,862. At the same time, our international assets on a per capita basis were at their peak at December 2017 at $52,017.
Community anxiety about our overseas debt levels has faded over the generations. Prior to 1984 when New Zealand was a closed and centrally controlled economy, anxiety levels were generally high and everyone worried about our overseas debt. Governments set public policy to try and reduce the stress. But since the opening up of our economy, while the debt levels have risen in absolute terms, the shock-absorbing mechanisms of the exchange rate, and the market-driven signals about what debt is sustainable, have both worked to push the issue back down to its rightful place in our economic perspectives and conversations.
July
KiwiSaver law changeS From July 2019
KiwiSaver law changes adopt Retirement Commissioner’s recommendations
Proposed changes to KiwiSaver in a bill introduced to Parliament will open the scheme to people over 65 for the first time, and enhance it for thousands of others, says Retirement Commissioner Diane Maxwell.
Maxwell, who heads the Commission for Financial Capability (CFFC), said she was pleased to see recommendations made in her 2016 Review of Retirement Income Policy had been enacted in the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill.
Among the changes the bill would introduce would be to allow people over 65 to join the scheme, giving them access to KiwiSaver as a provider of low-cost managed funds through retirement. It would also remove the lock-in period that required people over 60 to remain in the scheme for five years before withdrawing their money. These two changes would be effective from July 1, 2019.
At present, people over 65 cannot join KiwiSaver or move to a new scheme, although they can continue to contribute to their accounts if they are already a member. If they joined after the age of 60, they still have to wait five years before withdrawing their money, a rule which is inappropriate for this age group.
“Following our 2016 Review of Retirement Income Policy we recommended that allowing entry to KiwiSaver to people over 65 would remove a policy inequity, provide another investment option for this age group, and allow employers to voluntarily make contributions for all employees over 65,” says Maxwell. “There is no apparent reason for those over 65 not being able to join KiwiSaver.”
Other key changes the bill would make effective from April 1, 2019, are new contribution rates of 6% and 10%, reducing the maximum contributions holiday that people can take from the scheme to one year, and renaming the holiday a “savings suspension”.
“Adding more contribution rates gives members more flexibility and control over their saving,” says Maxwell. “We’ve had many New Zealanders tell us that the gap between 4% and 8% is too large for those able to contribute more, so they feel stuck on the lower rates. Others want the ability to save even more for their retirement.” says Maxwell.
Inland Revenue figures showed that 24% of members contribute at the 4% rate, but only 9% of members contribute at the 8% rate, indicating more might take up a 6% option if it were offered.
The CFFC recommended in the 2016 Review that a name change from “contributions holiday” to “savings suspension” would remove the positive connection with a “holiday” and better reflect what occurred. It also recommended that the default suspension period be reduced from five years to one year, when a member could consider whether to extend their suspension for another year.
In the year ended June 31, 2017, 131,710 members were on a contributions holiday. Almost 85% intended to suspend saving for the current default period of five years.
“Stopping contributions for five years has a significant impact and disrupts long-term savings,” says Maxwell. “Not only do members’ accounts not grow by their contributions, but they also miss out on their employers’ contributions and the government contribution of up to $521 a year. For many people five years is likely to be longer than necessary and a one-year renewal provides a prompt to reconsider their position and assess whether they can restart saving.”
Maxwell was optimistic the bill would be passed so that an enhanced KiwiSaver scheme would benefit more New Zealanders.
Source: http://www.scoop.co.nz/stories/BU1807/S00021/kiwisaver-law-changes-adopt-commissioners-recommendations.htm
June
Which is more important – fees or performance?
14 May 2018 by Guy Fisher
A few recent articles have highlighted the fees charged by KiwiSaver providers and urged members to select the lowest cost options, but is this really the best advice? Our analysis of the New Zealand KiwiSaver market shows that, over the 9 years to 31 March 2017, funds with lower fees have tended to deliver below-average returns, while those with higher fees have outperformed, even after fees are taken into account.
Overseas research has shown that low cost funds tend to outperform over the long term. Perhaps the most compelling research has come from Morningstar who looked at data in the US from 2010 to 2015 and concluded that ‘expense ratio (or annual fee) is the most proven predictor of future fund returns’1.
But this is not necessarily the same for all markets. Australian superannuation research house, SuperRatings, came to the conclusion in 2015 that ‘Low fees have little correlation with fund performance or retirement outcomes … In the majority of cases, the funds with lower fees do not necessarily provide a better retirement outcome or return for its members’.2
Our analysis shows this also seems to be the case for the New Zealand KiwiSaver market. It is clear from the chart below that the funds with lower fees have delivered lower returns, relative to other funds with the same asset allocation.
To plot all of these funds on the same chart, we have standardised the data by plotting the difference between the return a fund delivered and the average return from other funds in the same category (Conservative, Balanced and Growth). We have made a similar adjustment for fees (since funds with a higher growth allocation typically charge higher fees).
This does not mean that fees are unimportant – but they are only one factor to consider when choosing a KiwiSaver scheme. A focus on fees tends to skew investors towards options with a more conservative asset allocation, which may not be the best long term solution for them. And, as our analysis has shown, choosing a lower cost option amongst funds with a similar asset allocation will not necessarily lead to the best outcome.
It is widely accepted that the most important determinant of investment returns within a diversified portfolio is the asset allocation decision. KiwiSaver members may be better served by taking the time to ensure that they select a fund with the appropriate asset allocation for their risk profile rather than simply looking for a fund with the lowest fees.
Fees are important, and choosing a low-cost fund may be a good option for those KiwiSaver members who don’t want to spend time investigating the different types of funds and investment managers available. However, our analysis shows that, over the last 9 years at least, the lower cost KiwiSaver options have tended to deliver below-average returns.
1 http://www.morningstar.co.uk/uk/news/149421/how-fund-fees-are-the-best-predictor-of-returns.aspx
2 https://benchmark.superratings.com.au/media/mediarelease/27042015
Guy Fisher is an Investment Consultant at Aon. He is responsible for providing investment consulting services to a broad range of trusts and superannuation schemes. These services include the design, development and implementation of investment strategies, asset/liability modelling, investment governance (including preparation of SIPOs), investment manager selection and monitoring. Guy has more than 20 years of experience in providing investment advice, investment analysis and portfolio management to retail and institutional clients in New Zealand and the UK.
May
Facebook and the Awakening of our Private Selves.
For all you facebook users out there the following is from a blog post from Rick Bookstaber. Ricks background is in risk management.
“I have worked in risk management with chief risk officer roles on both the buy-side at Moore Capital and Bridgewater, and on the sell-side at Morgan Stanley and Salomon, and from 2009 to 2015 I served in the public sector at the SEC and the U.S. Treasury, drafting the Volcker Rule, building out the risk management structure for the Financial Stability Oversight Council, and developing an agent-based model to assess financial vulnerabilities.”
“I wrote about Facebook in a blog in January, pointing to ominous clouds on the horizon. (And, one looking at the future of Facebook and the world in 2011.)
For an update. Those clouds now are overhead. With the ever-growing realization that Facebook has been a channel for manipulating our life-as-we-know-it (literally so), there is the drumbeat of #deletefacebook (which I joined last week). And with this are articles showing how difficult it actually can be, which bring to the fore just how deeply Facebook has plunged itself into our being.
There are how-to guides to find alternative to Facebook. There is the recounting of the times Zuckerberg has skirted over the line on privacy, each followed by the ritualistic apology. And there is Colbert’s acerbic humor on “Suckerberg”, which includes screen shots showing the mind-blowing amount of information Facebook holds on various staff members of his show — including call’s made from one staffer’s cellphone, the family tree of another, and the data for the face-recognition of a third.
Many people will leave Facebook and use alternatives. Some will discover they can leave without using social network alternatives at all. People who stay with Facebook will opt out of everything they can think of, especially related to sharing their personal information with advertisers and apps. (As part of the mea culpa this time around, Facebook is centralizing the privacy settings so you don’t have to navigate through twenty different places to do the job.) People will log into apps using their email addresses rather than Facebook, thwarting the insidious tunneling by Facebook beyond its own borders.
Whether people leave or decide to stay with tighter privacy controls, the targeted advertising and third-party sharing that is the life blood of Facebook will be eroded.
Beyond these short-term, but possibly devastating reactions that are focused on Facebook, it is becoming all the more likely that we are at the beginning of a broad sea change in how we view social networking and in our willingness to give up privacy for a song. Jaron Lanier pointed out the faustian bargain we have made with Facebook, Google (which at least gives us something of value in the search engine) and the like, and proposed a path for us to be enfranchised for the personal data we toss into the world.
There is an alternative to the business model of mining personal data, which is having Facebook and others move to a subscription model. But this will not sustain the valuations Facebook currently enjoys. People are not likely to pay out of pocket anywhere near the value that is implied by giving the world all of their personal data. Which suggests just how much we all are giving away.
Source: rickbookstabber.com
Please note the views expressed in this article may differ in some ways from those of FinancialCompass Ltd.
April
How to avoid a retirement savings disaster
The vast majority of Kiwi retirees will be reduced to living off the pension alone after just ten years of retirement, according to a new report by the Financial Services Council. Video and article at:
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12038322
March
Bonus bonds – what are the odds?
Each Bonus Bond has a 1 in 3.4 billion chance each month of winning a $1m prize, and if you hold under $1,000, it’s more likely than not you’ll win nothing over one year. Moneyhub has taken a close look at the return you are getting from your Bonus Bonds- https://www.moneyhub.co.nz/bonus-bonds.html
February
Milford Asset Management’s Stephen Johnston compares the biggest listed companies of 2008 with those of today, detailing what has changed and why.
What a fascinating time to be an investor! The world is changing at a phenomenal pace and nothing illustrates this better than looking at changes in rankings of the world’s largest companies. Mind you this is not a global trend, but region specific. Let me tell you more.
Stating the obvious, you will not be surprised it is the technology sector that is the key catalyst for change in the world. Technology companies not only dominate our daily lives (how many times have you checked your iPhone today?) but also the ranking of world’s biggest companies. More on that in a moment.
Who do you think the smartest graduates want to work for these days? It’s not the investment banks anymore but the T-shirt, sneaker wearing, fast moving internet giants like Amazon, Google and Facebook. These technology giants are achieving world domination by investing heavily in developing new products and services leading to an explosion in innovation and faster growth. As these companies become more dominant, they are disrupting established companies. Think of the impact of Amazon on the retail sector.
These large technology companies which benefit from globalisation, are accessing new markets. Any promising small company that could compete is quickly gobbled up by its larger rival. For example, Facebook acquired upcoming threats WhatsApp and Instagram, while Google has made more than 120 acquisitions in the last 10 years.1
Now back to company rankings. The US is where we are seeing more rapid changes in its biggest companies than any other region. The table below shows the top 10 US companies 10 years ago versus today, ranked by market value (market capitalisation) in US dollars.
To read the full article go to-
January
Bit to soon to tell about Bitcoin?
Frank Jasper from Fisher Funds writes about Bitcoin in the NZ Herald.
It’s the summer of Bitcoin. The media, Twitter and blogosphere have been peppered with articles on whether cryptocurrencies will head higher or if it’s just a giant delusional bubble.
Much of what is written has been close to idle speculation on what the future might hold. Thoughtful long-term perspective is rare. One article, though, shone through in my summer reading.
Viktor Shivets of investment bank Macquarie shared a perspective that makes his work my favourite Bitcoin article. He makes the important observation that money is not like other assets. Money is based on a promise and on trust.
The promise is that the central bank won’t just randomly print more, for instance, New Zealand dollars – forcing a decline in its value. Similarly, as owners of New Zealand dollars, we trust the Reserve Bank won’t do this, so we are comfortable keeping our money in the bank and using those dollars as a medium of exchange – a benchmark for the value of the goods and services we buy every day.
The 2008 global financial crisis rocked people’s confidence and trust in that system. Confidence was not helped by the extensive programme of quantitative easing undertaken by central banks around the world. This meant more and more “dollars” were created in an attempt to save the global economy.
Printing more dollars risks making those currencies less valuable and leading to inflation.
The fact cryptocurrencies like Bitcoin can’t be created on a whim by a central bank and take time and expense to produce means, according to Shivets: “They already reflect the essence of money better than existing money.”
He sees a long term role for a cryptocurrency independent of global central banks and immune from the influence of politics.
There is a “but”. One way of illustrating it is by comparing the rise of crypto currencies to the history of the automobile industry.
This is less of a stretch than it appears. In 1900 there were 2000 car makers globally. Despite the fact cars changed the world, making the horse and cart virtually extinct, it was impossible to have predicted which automobile manufacturers would survive.
By 1920, those 2000 producers had narrowed down to 200. Today it’s well below 50.
This is precisely the challenge facing investors in cryptocurrencies in 2018. Even if we accept the role of an independent cryptocurrency, and believe the blockchain technology underpinning them is a car-like step forward, it is all but impossible to predict the winners.
Like the automobile industry of 1900, there are over 1000 crypto currencies in existence today. The least brave prediction I have ever made is that things won’t end well for all of them!
There lies the dilemma for genuine investors interested in diversifying currency exposure away from central banks and towards cryptocurrencies. It’s simply too early to pick the winners and the costs of backing the wrong cryptocurrency could be disastrous.
To finish with the words of Mr Shivets, and using the automobile manufacturing analogy, “we are still closer to the 1900s than the 1920s.”
Our view is the same. There is genuine promise in cryptocurrencies and in blockchain technology but right now this is a speculators’ market, not ready for serious investors.
I suspect by the summer of 2038, spanning the 20 years of the automobile example, the winners of the cryptocurrency wars will have well and truly emerged and this will be a mainstream currency.
I wonder what articles Twitter will be swamped with then…flying cars?
2017
November
Ever wonder how the official cash rate works?
Here is a short video from the Reserve Bank which explains.
October
The the world really is getting better
We’ve just had a week focused on the present not the future; on New Zealand not the world; and broadly speaking, on negative rather than positive issues.
This is no different to most weeks. It is how life is these days, our human biases leading us to dwell on issues affecting us personally.
A recent survey by online publisher Our World in Data found this short-term focus to be a global phenomenon.
Survey respondents were asked: All things considered, do you think the world is getting better or worse?
Very few people thought the world is getting better. Swedes were the most optimistic with 10 percent of respondents seeing an improvement; in the US it was only six percent, and in Germany just four percent felt good about the worlds progress.
The researchers concluded that the question of how the world has changed requires both a global and historical perspective.
They sought to convince people their perceptions about the world are wrong since “knowing we have come a long way is a necessary condition for self-improvement”.
Their report, The World as 100 People Over the Last Two Centuries, used poverty, literacy, health, freedom, population and education as markers of global living conditions.
The study shows remarkable progress has been made and is completely at odds with the view of the majority of people who don’t think the world is getting better.
In 1820, the vast majority (95 per cent of the global population) lived in conditions that we would call extreme poverty today. Since then, increased productivity, economic growth and technology have led to a significant improvement.
Today, less than 10 per cent of the world’s population lives a subsistence lifestyle.
If you were aged over 15 living in 1800, there was a 90 per cent chance you weren’t able to read. Today more than eight out of 10 people are able to read.
Today there are 4.6 billion people older than 15 years who are literate. In 1800 there were fewer than 100 million people with the same skill.
In 1800, nearly half of the world’s newborns (43 per cent) died before their fifth birthday. Today child mortality is close to four per cent – ten times lower than two centuries ago.
The study’s most interesting conclusions related to knowledge and education.
Projections supplied by the International Institute for Applied Systems Analysis (IIASA) say by 2100 there will be almost no one without formal education and more than 7 billion minds will have benefited from at least a secondary education.
Given the importance of education for improving health and productivity, ending poverty and improving living standards generally, this projection is very encouraging.
The publishers noted our ignorance of these important global developments is partly due to the media being obsessed with single, negative events without a historical perspective.
For example, we would surely be interested in a media headline reading: “The number of people in extreme poverty fell by 130,000 yesterday” – especially if it featured every single day since 1990.
The publisher concluded by saying it’s vital for us to know our history so that it can be a source of encouragement.
“The group of people able to work together today is a much, much stronger group than ever there was on this planet. The last 200 years has brought us to a better position than ever before to solve the world’s problems.”
Now that’s a far better read than anything else I’ve seen in the last week.
Source: Carmel Fisher in the NZ Herald 29.09.17
September
Share markets are at record levels! Shouldn’t I sell??
The first eight months of 2017 have seen global markets continue to go up at a surprisingly consistent rate. However, most investors, particularly those in growth or high growth investments, will be aware that equity markets rarely experience such blissful performance without some form of volatility. This has led many commentators to opine that markets are at record levels and therefore they are primed for a significant sell off. While in growing markets, corrections happen from time to time, they are healthy part of market cycles, and history suggests that record highs are not as uncommon as many investors think.
The below chart counts every trading day since the 1950’s for the United States S&P 500 share market index, which is over 15,000 trading days, measuring how far shares are from the latest market peak. What the chart shows is that over 40% of the time markets are within 5% of the market peak. As markets rise over time, on average more than one in twenty days is a new record high!
While this year so far has had a higher percentage of record highs (over 20% of days have been a record), the market is moving strongly higher on global economic growth and expanding corporate earnings. In this type of economic and market environment, record highs are a confirmation of the underlying fundamental drivers of the market. This positive setting for markets will end at some point, and global markets will in time experience another recession, however the downturn won’t be driven by record highs. So, should you sell because markets are at record highs? For a long-term investor, probably not.
Source: Booster Client Newsletter September 2017
August
What to call the time of life between work and old age?
A recent article in the Economist posed the question- What do you call someone who is over 65 but not yet elderly? This stage of life, between work and decrepitude, lacks a name. “Geriactives” errs too much on the side of senescence. “Sunsetters” and “nightcappers” risk being patronising. Perhaps “Nyppies” (Not Yet Past It) or “Owls” (Older, Working Less, Still earning) ring truer.
Branding an age category might sound like a frivolous exercise. But life stages are primarily social constructs, and history shows that their emergence can trigger deep changes in attitudes. Such change is needed if the questions that swirl around rising longevity are to get a fitting answer.
End of Generation zzz
Before 1800 no country in the world had an average life expectancy at birth beyond 40. Today there is not a country that does not. Since 1900, more years have been added to human life than in the rest of history combined, initially by reducing child mortality and lately by stretching lifespans. Longevity is one of humanity’s great accomplishments.
Yet it is seen as one of society’s great headaches. The problem lies in the increasing dependency of the old on the young. By 2100, the ratio of 65-plussers to “working-age” people will triple. As the world greys, growth, tax revenues and workforces will decline while spending on pensions and health care will increase. So, at least, goes the orthodoxy.
Doom-mongers tend to miss a bigger point, however. Those extra years of life are predominantly healthy ones. Five of the additional six years that a British boy born in 2015 can expect to live, compared with one born in 1990, will be healthy, according to the Institute for Health Metrics and Evaluation, at the University of Washington. Too many governments and firms fail to recognise this fact, instead lumping all the extra years in the damning category of 65 and over. This binary way of thinking, seeing retirement as a cliff edge over which workers and consumers suddenly tumble, bears little relation to the real world. It also encourages unimaginative policy, whereby the retirement age is occasionally moved as lifespans lengthen.
A more radical approach would start by acknowledging that, in the rich world at least, many of the old are still young. As this week’s special report argues, they want to work, but more flexibly. They want to spend money, too. In western Europe the over-60s will account for 59% of consumption growth in cities between now and 2030, says McKinsey, a consultancy.
Declaring a new stage of life could help change perceptions. It has done so before. Today’s conception of childhood emerged in the 19th century, paving the way for child-protection laws and a golden age of children’s literature. Spotty, awkward 15-year-olds predated the 1940s, but only then did mystified adults coin the label “teenagers”, fuelling all sorts of products and services, from bobby socks to the music industry. In 1944 Life wrote that “American businessmen, many of whom have teen-age daughters, have only recently begun to realise that teen-agers make up a big and special market.” By the mid-1960s both Time and Newsweek had splashed “The Teen-Agers” on their covers.
Marking out youthful old age as a distinct phase of life might have a similar effect, prodding employers and policymakers to think differently about how to keep the young old active. As life becomes longer, the word “retirement”, which literally means withdrawal to a place of seclusion, has become misleading. At 65 you are not clapped out, but pre-tired. So, as they embark on the next stage, here’s to all those pre-tirees.
Source: The Economist website 5th July 2017
July
What you need to save for a comfy retirement
Massey University have just updated their research first published in 2015 on retirement expenditure guidelines. The chart below shows their findings on the required level of savings either for a basic “no frills” retirement or a retirement with “choices”.
To read the full report click here
MAY
Socially responsible investing has been in the news quite often over the last few months. If you are not aware how it works watch this video clip.
APRIL
The Auckland Property Market Looks Tame Compared to Toronto
Joe Castaldo in Maclean’s, recently wrote about what is happening to residential property in Canada, particularly in Toronto. For example:
“But signs of real estate mania are everywhere in the city. Open houses can attract lineups, even in sub-zero temperatures. On a -10° C day in March, Stephanie Fusco queued up with her husband and around 15 other interested buyers to view a house listed at $1.2 million. “They had us waiting outside like it was a nightclub,” she says. The 1,200-sq.-foot property couldn’t accommodate all the people who turned out, and the listing agent kept the crowd moving swiftly through the house.”
“List prices these days are largely meaningless and properties routinely sell for over asking—which agents happily promote by affixing a “Sold for over asking!” plaque to the sold sign on the front lawn. Take a recent semi-detached listed in the city’s west end for $699,000. To step inside was to travel back in time to the 1970s. The house was festooned with brown rugs, brown linoleum floor tiles and, in the basement, wall-to-wall wood panelling. After just five days on the market, it sold for $1.03 million in March [2017]—$331,000 more than the list price.”
“The rental market, meanwhile, isn’t any more forgiving. The rising cost of homeownership is pushing more people to rent, and the vacancy rate in Toronto has tightened over the past few years to 1.3 per cent, according to CMHC. Some landlords are exploiting the situation. Tenants in a condo building known as The Bridge received letters in March informing them rent would double in some cases—from $1,400 to $2,800, a resident of a one-bedroom unit told Maclean’s.
Just how did Toronto end up in this situation? Most industry reps point to housing supply constraints. Economists, however, say that’s only part of the picture. Foreign investment, speculative activity and buyer psychology are also driving the market.”
To read the full article go to-
MARCH
National Super to 67 by 2040?
The Government has just announced that, if re-elected, they plan to pass legislation to progressively extend the age of eligibility for National Superannuation. Starting in 20 years time they intend to progressively increase the age to 67. However potential coalition partners have all come out against the proposal. So it remains to be seen whether National, after the September election, will have the numbers to pass the legislation, or whether the policy will be traded as part of forming a new coalition. To listen to the announcement and find out what other parties are saying go to- http://www.stuff.co.nz/national/politics/90103723/superannuation-age-to-gradually-rise-toward-67-starting-in-20-years-time
FEBRUARY
Is Donald Trump the new Muldoon?
While I usuallly do not link to political articles this one caught my interest. Authored by Tyler Cowen at Bloomberg, it compares the policies and leadership under Muldoon in the Think Big era to those of President Trump. Remarkable when you think how far we have come in just over 30 years! To read the article click here- https://www.bloomberg.com/view/articles/2017-02-13/feisty-protectionist-populism-new-zealand-tried-that
JANUARY
Company car tax perk to return: expert
Small business owners are set to benefit from the expected return of some tax perks for company cars. Under existing rules, if a company car is also available for personal use, it is subject to the fringe benefits tax. But Mike Shaw, director at tax advisory firm OliverShaw, said planned changes would significantly benefit small and medium-sized businesses where the owner’s car is used both at work and privately. “While the halcyon days of tax-free company cars is not returning, [the] law change to take effect from April 1, 2017 will reintroduce some tax perks for company cars,” Shaw said.
2016
DECEMBER
Time to review your Bonus Bonds?
New Zealanders have 3.6 billion invested in Bonus Bonds yet according to Stephan Herrick a spokesman for ANZ who run the bonds ” with the prize pool decreasing and the number of bonds on issue increasing, the odds have increased. The low interest rate environment we’re in is impacting the size of the prize pool,”. “The scheme only invests in fixed interest and cash assets. Lower rates equals lower investment income equals lower prize pool.” Bonus Bond management fees are 1.28 per cent a year compared to an average of 0.74 per cent on KiwiSaver conservative funds, which also invest in low-risk cash and fixed interest. “There are no plans for changes to fees or investment strategy at this stage, although we continue to review our products to ensure they meet our customers’ needs,” Herrick said. To read the full article- http://www.stuff.co.nz/business/86901113/anz-has-no-plans-to-cut-bonus-bond-fees-despite-dwindling-odds-and-prize-pool
NOVEMBER
The Trump Victory – How might investors react?
Harbour Asset Management managing director looks at what the Trump victory means for New Zealand and investors. Without doubt, Trump’s victory has been a surprise for markets and the pollsters. However, in the wake of the Brexit vote, and a closing in the US poll gap, investors had generally been hedging their bets and markets had already sold off significantly in the last 6-7 weeks coming up to this election. There is evidence of a significant cash build-up in global portfolios, investor fear indices have been elevated and high (if not record volume) of US equity futures, and put to call ratios have set the scene for conservative biases going into this US election. After an initial sharp sell-off, the local and Asian market reaction has recovered, with broad European and US equity markets actually rising last night. Some specific risk indicators, such as the US dollar versus the Yen and Swiss Franc and the Mexican peso, have understandably taken a more brutal price shock. We would be surprised to see the New Zealand equity market weaken significantly in the near term, given the peak to trough fall of 13% in the last 6-7 weeks. To read the full article please go to – http://www.goodreturns.co.nz/article/976504876/the-trump-victory-how-might-investors-react.html
OCTOBER
Car insurance industry gone by 2030, academic predicts
The car insurance industry will cease to exist by 2030 according to a new book written by a Massey University lecturer. The prediction is just one of a number proposed by Michael Naylor, a senior lecturer in insurance at Massey’s business school, who has analysed how a range of technologies will change the insurance industry in the coming decades. Naylor says the car insurance industry will probably be the first to sector to face major disruption. “Once networked, autonomous cars are widely available, it’s been predicted that car crashes will reduce by 80 to 90 per cent. “This development is not as far away as you might think – Volvo, for example has an aim of eliminating car crashes by 2020.” Naylor believes car theft will largely become a thing of the past as voice and face recognition technology makes them nearly impossible to steal, leaving insurance only for damage caused by things bumping into the car or extreme weather events. “The result is car insurance premiums will fall drastically, probably by as much as 90 per cent by 2030.” To read the full article go t0 : http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11737795
SEPTEMBER
Can working past retirement extend your longevity?
According to a study published online in the Journal of Epidemiology and Community Health, the risk of dying from any cause was 11 per cent lower among people who delayed retirement for one year — until 66 — and fell further among people who retired between 66 and 72. Even those workers who retired for health reasons had a lower risk of dying compared with those who left work at 65. The study suggests postponing retirement may delay the natural age-related decline in physical, cognitive and mental functioning, reducing the risk of chronic illness. Researchers at Oregon State University analysed data from 2,956 people over a period of approximately 18 years. Retirement age ranged from 55 to 77 years old. Compared to retiring at age 65, workers who retired in good health at 67 had a 21 per cent lower risk of dying. By age 70, the risk was 44 per cent lower and at 72 it was 56 per cent lower. To read the full article go to- http://www.fisherfunds.co.nz/news/how-working-can-extend-your-life
AUGUST
HEALTH INSURANCE Regular premium increases both due to age and to high rates of medical inflation can make us question the benefits of continuing to pay for health insurance.If you are questioning whether or not to continue your health insurance or considering taking out a policy have a look at the following chart from health insurer NIB: The top claims in June were all from long-term clients. The youngest policy was 10 years old, and the oldest policy being with us for 37 years. 
And, on a more personal note, I have just had surgery for a cholesteatoma which is a growth in the inner ear. It was unexpected as the incidence of this disease is about 1 in 10,000. But the cost thus far has been around $18,000. Additionally, in approximately nine months I will need another lot of surgery to re-construct the hearing bones. This adverse health event was completely left- field and I am so pleased that I have kept my own health insurance . You just never know when your health insurance policy might be needed.
JULY
RETIREMENT INCOME FROM KIWISAVER
New Zealand needs an action plan to help retirees turn their Kiwisaver balances into the best retirement incomes possible. Over the next 15 years, 500,000 Kiwisaver members will reach 65 and be able to withdraw a total of $36 billion. But there are fears those savers may see the money as akin to a Lotto win and not understand how to make it last through 20 or 30 years of retirement. KiwiSaver providers are not required to give members any advice on what to do with the money when they are eligible to withdraw it. David Boyle, group manager of investor education at the Commission for Financial Capability, said the issue of decumulation and how to help New Zealanders make their money last through retirement was a big one.
JUNE
Does Gen Y have a real Critical Illness Insurance need?
MAY
What has happened to the rates on Cash Pies?
Over the last few years the banks have promoted Cash Pies. Initially rates were quite attractive and generally better than traditional on call accounts, especially for those investors on the top tax rate. The rates for the on-call funds of the four main banks have recently reduced substantially, and are currently advertised as 0.75% for ANZ, BNZ and Westpac, whilst ASB is offering up to 1.2% for those with more to invest. Westpac also has a Serious Saver option at up to 2.75% (if extra funds are added each month and no withdrawals are made). Rates applicable as at 1st May 2016. If you would like to consider alternative options to bank Pies be sure to contact Graeme. APRIL No real political will to tackle the housing crisis Paul Glass writing in the NZ Herald about the housing market concludes that while a number of serious solutions are self-evident, the level of the debate is bogged down in headline grabbing but relatively ineffective proposals like registration and a potential land tax on foreigners. Potential solutions include adjusting taxation setting for property investors, making residency or citizenship a condition of house purchase, adjusting lending criteria, requiring banks to hold more capital against residential property loans and a putting a short term brake on immigration. Read the full article at- http://www.nzherald.co.nz/home-truths/news/article.cfm?c_id=1500914&objectid=11629629 MARCH Habits to build extraordinary relationships (i) Step in without being asked. Pay attention and know when others are struggling. Come up with specific ways to help, roll up your sleeves and make a difference in another persons life – just because you care. (ii) Answer the unasked questions. Often people ask a different question from the one they really want answered. Behind a simple question is often a larger question that goes unasked. Think about the question that lies underneath and try to answer that too. (iii) Know when to dial it back. Know when to have fun and when to be serious, when to be over the top and when to be invisible, and when to take charge and when to follow. Great relationships are multifaceted and require adaptation to the situation and to the people concerned. (iv) Prove that you think of others. Think about other people and act on those thoughts. Give unexpected praise and take a little time every day to do something nice for someone you know. (v) Realise if you have acted poorly. Apologise before you are asked to or indeed before anyone notices you should. Explain why you are sorry and don’t try to push the blame back on the other person. Responsibility is a key building block for great relationships. (vi) Give consistently and receive occasionally. Great relationships are mutually beneficial. Connect with people who can be mentors who can share information and who can help create other connections. Think about what you can give to establish a real relationship and a lasting relationship. (vii) Value the message and value the messenger. Although it is tempting to only listen to people in positions of power or authority also listen to ordinary people. Smart people strip away the framing that comes with the source and consider the advice or idea based solely on its merits. And know that good people are good people regardless of perceived status. Source: http://www.inc.com/jeff-haden/9-habits-of-people-who-build-extraordinary-relationships.html
FEBRUARY
Crowdfunding is Not a Replacement for Life Insurance
JANUARY
The 10 Biggest Money Blunders by the Middle-Aged
- Upgrading your life (increasing your spending too much). The 40’s to 50’s are often the greatest income producing years. But even if you then have more disposable income avoid the temptation to upgrade the house, buy a holiday home or new car without retirement planning requirements being first met.
- Not having a plan with written goals and time frames (that if married both partners agree on).
- Living in an unaffordable house. If all of your equity is tied up in your home, when you stop work you may have to downsize, or move to another area to free up capital
- Taking a set and forget approach to insurance. Review insurances as mortgages are paid off to determine if some of the premiums can be re-directed to retirement savings.
- Relying on NZ Superannuation (in its current form). Future governments may change entitlements and/or eligibility criteria.
- Underestimating how long you will live for. Living to age 90 plus is much more common than it was even 10 years ago. Low interest rates may mean more capital is required to fund retirement needs.
- Thinking you are sorted because you are in KiwiSaver. Check that you are a suitable fund for your age and circumstances and that your contributions are adequate.
- Giving too much to the kids. Having children later in life or having a blended family can pose a problem as can being too generous in supporting adult children.
- Making yourself unemployable. It is important to keep your skills up to date and invest in yourself to remain employable. Earning power is a huge component of how well you will get on in life.
- Having no exit strategy from work. Many people do not consider that they will retire at 65. A part time employment transition period may provide more money in retirement and also be good for mental health.
Source: Tamsyn Parker NZ Herald January 13th 2016.
2015
DECEMBER
Want a present from the Government this year? Check and make sure that you are not one of the million Kiwisavers who last year did not get the full benefit of the Governments annual tax credit. Figures from the Inland Revenue Department show 573,231 KiwiSaver members did not get any of the $521 member tax credit in the year to June 30 because they didn’t put any money into their account. A further 593,356 people got some of the $521 but not the full amount because they put less than $1043 into their accounts over the year. You have until 30th June 2016 to make sure that you get your full entitlement so check now: • Are you putting in a least $20 a week to your KiwiSaver account? • If you earn under $35k, consider increasing your contribution rate from 3 to 4 per cent • Check how much you have contributed with your provider and consider a one off top up before June 30 2016 to reach the $1043 minimum Source http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11523658
NOVEMBER
Are you saving enough for your retirement? Massey University has just released an update to their estimates of the amounts that retirees spend. The question is: Do you want a ‘no frills’ retirement or one with choices? “Given the current New Zealand Superannuation payment for a single person living alone is just $374.53 per week, it quickly becomes apparent that retirees need additional income to survive,” says Massey University’s Dr Claire Matthews, the report’s author. “That’s even the case when spending is limited to the essentials, the shortfall quickly widens if you want a more comfortable lifestyle. “When the guidelines talk about a ‘choices’ lifestyle, it’s not about being extravagant. It just means not having to watch every cent and being able to enjoy some treats from time to time – things like going out for a meal, not buying the cheapest cuts of meat, doing some travel, or going to the movies or theatre.” Dr Matthews says only two-person metropolitan households can achieve a ‘no frills’ retirement with the standard rate of New Zealand Superannuation, which is $576.20 per week for a couple. But couples living in the provinces, or those wanting a ‘choices’ lifestyle, will need additional savings. Workplace Savings NZ executive director Bruce Kerr says he hopes the Retirement Expenditure Guidelines will assist people to “cut through that much-asked and somewhat scary question: ‘How much retirement savings is enough?’” “The retirement savings industry focuses a lot of energy and money on the accumulation phase of the retirement savings journey,” he says, “but few providers remind their members that a lifetime of savings effort is really about providing an income in the period after paid employment.” Source: http://www.massey.ac.nz/massey/about-massey/news/article.cfm?mnarticle_uuid=58984FF0-F8C3-B77F-B323-CD7F3FCFC114 Contact Graeme if you would like help planning for your retirement needs.
OCTOBER
A website called World Life Expectancy has very interesting research, information and statistics including health, life expectancy, and causes of death in various countries around the world. For example: Get stronger fast- Eat more spinach. It improves muscle performance because the amount of nitrates it contains reduces the oxygen requirement to power muscle by up to 5%. Source: http://www.worldlifeexpectancy.com/spinach-improves-muscle-performance Improve memory- Lose weight . A growing body of evidence suggests that obesity is linked to several cognitive deficits including memory loss because of the effect on a number of different metabolic pathways that alter the way information is processed. Source: http://www.worldlifeexpectancy.com/weight-loss-improves-your-memory Meditate for brain control. A recent Yale study indicates that meditation produces better long term results than brain games. A calm mind improves concentration reduces stress and leads to far less brain disease than keeping it in overdrive. Source: http://www.worldlifeexpectancy.com/brain-control-meditation-brain-games For more fascinating facts to help your health and well-being go to: http://www.worldlifeexpectancy.com/
SPRING INTO SEPTEMBER
NEW ZEALAND RESPONSIBLE INVESTMENT ON THE RISE AGAIN TO OVER $63 BILLION
Responsible investment assets in New Zealand continue their strong growth reaching $63.5 billion following a 10% increase in 2014. The August report from the Responsible Investment Association Australasia (RIAA), found more money is being invested under responsible investment portfolios through superannuation funds, fund managers, advisers and kiwisaver accounts to underpin strong investment returns, and deliver a healthier environment and society. The 2015 Responsible Investment Benchmark Report New Zealand found, “Growing consumer confidence in responsible and ethical investments plus the finance sector taking ever-stronger positions on their management of environmental and social issues, are both factors driving the growth of responsible investing,” said Simon O’Connor Chief Executive of RIAA. “2014 has seen a rising interest in how the retirement savings of New Zealanders are invested. Consumers in ever greater numbers are awakening to the fact that you can invest prudently and profitably without compromising your values which is resulting in the growing retail interest in responsible investment.” The full report can be read here http://responsibleinvestment.org/wp-content/uploads/2015/08/2015_Benchmark_Report_NZ_FINAL.pdf AUGUST Colmar Brunton have just released a new survey called “New Zealanders aged 50 plus expectations for and experiences of retirement”. This survey looks at older NZ-ers and was conducted amongst those aged 50 years plus. It included the views of 1052 NZ-ers who were either near to retirement or already retired. The results are weighted by age gender and household income to ensure that they are representative. Field work was conducted in April this year. Some key findings amongst retirees: a quarter do not have the money to do what they want in retirement; nearly a half say they have some discretionary money; and only just over a quarter have the money to do all of the things that they want to. Some key findings for those near to retirement 50 plus: 11% currently have sufficient to deliver the type of retirement lifestyle they want; one third think they might have enough; and 50% say they need to accumulate more. 46% don’t have a financial plan and only a quarter have given a great deal of thought to the sort of retirement lifestyle they want. Whilst most with a financial plan have factored in NZ super and the expected time they will spend working, only 42% have actually calculated their required income and expenditure. To read the full 32 page report follow this link- http://s3.documentcloud.org/documents/2270442/cffc-fma-survey-nzers-aged-50-years-plus-2015.pdf Make sure you are on track to meet your retirement goals contact Graeme for an appointment. JULY Want to know the comparative worth of a house or consumer item relative to its purchase price? You may be surprised. Take a look at the Reserve Banks Inflation Calculator showing national inflation rates for food, housing, wages, clothing and transport. Each of these can be found by clicking the link below and selecting the appropriate category.http://www.rbnz.govt.nz/monetary_policy/inflation_calculator/
JUNE
Are you thinking about that winter getaway? Better think carefully about your travel insurance too because the travel insurance that comes with your credit card may not cover all situations. To begin with, many credit card insurance providers want you to let them know you are activating the travel insurance and most require you to pay for a large portion of your flights and travel expenses using the credit card before you leave NZ. Some clauses may require you to start and end your trip in New Zealand. A key difference between credit card and regular travel insurance is the insured travel time limit. For example, Westpac Platinum Mastercard has a 35 day limit and ASB 90 day Gold Card has 90 day limit. If you are away for longer than the limit you may have no cover at all. Non-disclosure of any pre-existing medical conditions can pose a particular risk as you must notify the credit card insurer of any existing conditions on your own accord. There are also age restrictions on credit card travel insurance and anyone over 65 should check to see if automatic cover applies or not. Source: http://www.interest.co.nz/insurance/75870/look-why-credit-card-travel-insurance-ts-and-cs-are-worth-read
MAY
Personal insurance claims have topped $1 billion for the fourth year in a row, new statistics from the Financial Services Council show.In the year to March 31, New Zealanders were paid more than $21.8 million a week for their life, income protection and credit insurance claims. FSC chief executive Peter Neilson said claims were up more than $151.8 million compared to four years ago, to $1.137 billion for the year. He said paid-out claims had grown 15.4% over the past four years, three times faster than inflation. That showed the industry was meeting its commitment to pay valid claims when policy-holders suffered long-term illness or premature death. Neilson said the latest statistics showed there was a trend for more New Zealanders to hold income protection insurance.“There is increasing awareness that ACC covers accidents but not sickness unless caused by long-term workplace exposures. The government’s sickness benefit is also family income-tested,” he said. Neilson said thousands of families did not qualify when the main income earner fell ill and quickly found their savings ran out. “It’s pleasing more are deciding to protect their wealth by taking up income protection cover, while huge numbers are benefiting from more than $1.13 billion being paid out annually for life, income and credit insurance claims,” he said. Source: www.goodreturns.co.nz 13th May 2015
APRIL ATTITUDE
A novel approach to keeping body and mind fit and active during retirement years MARCH MEMO
CHANGES TO KIWISAVER FIRST HOME WITHDRAWAL RULES
During the 2014 election campaign, National indicated that they would be making changes to KiwiSaver’s benefits for first home buyers. These changes include:
- Allowing access to member tax credits Members making a first home withdrawal will be able to withdraw any member tax credits they’ve accumulated, in addition to any employee, employer or voluntary contributions (the $1000 kickstart will still be excluded)
- KiwiSaver HomeStart GrantThe First Home Deposit Subsidy will be replaced by the KiwiSaver HomeStart Grant, which doubles the support given to members who are buying a newly built home:
- members buying an existing home can still receive a contribution up to $1,000 for each year of membership, up to a maximum of 5 years
- for members buying a newly built home, this is doubled to $2,000 for each year of membership, up to a maximum of 5 years
- income and house price caps still apply
- Increased house price caps for KiwiSaver HomeStart Grant and Welcome Home Loans
- Auckland: $550,000
- Wellington, Queenstown, Christchurch, Selwyn District, Hamilton, Tauranga, Western Bay of Plenty, Kapiti Coast, Upper Hutt, Hutt City, Porirua, Tasman, Nelson & Waimakariri: $450,000
- All other areas: $350,000
These changes are scheduled to take effect from 1 April 2015. The HomeStart Grant and increased house price caps won’t require any new legislation, but allowing access to member tax credits as part of a first home withdrawal will require changes to the KiwiSaver Act. A Bill to allow this is currently before Parliament, but it hasn’t yet passed – however Helen Twose writing in the NZ Herald on March 3rd says she was assured by the Office of Todd McClay that it will be passed in time for the April 1st deadline. DO YOU HAVE HEALTH INSURANCE? According to an article in the Dominion late last year waiting lists at public hospitals are not a reliable guide to the number of people who need an operation. Many thousands of people who need surgery are not on the list at all. They are however in pain and distress. For the full article see: http://www.stuff.co.nz/dominion-post/comment/editorials/10723622/Editorial-Waiting-lists-don-t-tell-the-whole-story If having access to healthcare when you need it is important to you contact Graeme at FinancialCompass Ltd.
WAKE UP FOR WOMEN
A recent ANZ retirement survey indicated that, whilst an overall 44% of respondents felt confident about saving for their retirement years, only 34% of women did so. And there are good reasons for this. Women are generally paid less than men and 85% take time out of the workplace to raise a family. Women also tend to retire two years before men and on average live longer. It is therefore to a woman’s advantage to consider the impact of a career break and to perhaps increase regular savings contributions and to carefully assess their overall savings strategy.
Source: Good Returns December 2014. For assistance with your savings strategy and retirement planning contact Graeme at FinancialCompass Ltd. 2014 CHRISTMAS NOTICES Thank you to all of our valued clients for their business throughout the year. Wishing you all a safe, happy and relaxing time over the festive season. My office will be closed on December 19th 2014 at 5 pm and will reopen on January 12th 2015 at 9 am. I look forward to assisting you in the New Year.
DECEMBER DISCOURSE
Christmas is fast approaching, so here’s some hints to help successfully navigate the festive season. How Successful People Stay Calm:
- Appreciate what you have
- Avoid asking “what if”
- Stay positive
- Take a break from technology
- Limit caffeine intake
- Sleep adequately
- Squash negative self talk
- Reframe perspective
- Focus on your breathing
- Know when to use your support systems
Source: The Blog, Dr Travis Bradbury, Huffington Post 30th October 2014 http://www.huffingtonpost.com/dr-travis-bradberry/how-successful-people-stay-calm_b_6071982.html
NOVEMBER NOTIFICATION
Wondering why I have to verify your address and identity? It is due to the Anti-Money Laundering Legislation which came into force on June 30th 2013. As an Authorised Financial Adviser I am a Reporting Entity and therefore have obligations under the Act. The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 seeks to detect and deter money laundering and terrorism financing, contribute to public confidence in New Zealand’s financial system, and bring New Zealand into line with international anti-money laundering and countering financing of terrorism (AML/CFT) standards.In brief the Act provides:
- a supervision, monitoring and enforcement regime, including new civil and criminal offences
- a set of requirements for reporting entities (such as customer due diligence, account monitoring and suspicious transaction reporting requirements)
- a framework to detect and deter money laundering and terrorist financing.
source: Department of Justice NZ
OCTOBER OBSERVATIONS
Kiwisaver Facts and Figures
There are now 2.35 million members with total Kiwisaver assets as at March 31st 2014 exceeding $21.4 billion. There are 29 scheme providers with 200 different funds, but 75% of all savers are in seven schemes. The FMA annual Kiwisaver report noted that the default schemes have 20% of total membership and 17% of total assets.
However, some 576,700 members earned less than $20,000 and the FMA believes that many of these are non-contributing. Some of these may well be youth aged 17 years or under, as 342,000 members fall into this category.
More people have joined voluntarily than have been auto-enrolled. The IRD says that 917,544 have been auto- enrolled by employers and 267,943 have opted in via an employer. However the number joining directly with a provider was 1,155,078 or some 69%. The self-employed are more likely to have joined Kiwisaver independently than others not self-employed – 49% verses 25%.
In the year to 31st March 2014, 13,821 savers had collectively withdrawn $169 million for first home purchases. And, in the financial year to October, Housing NZ approved 1577 first home subsidy applications.
The IRD says that, to 30th Sept 2014, 45% of eligible members or some 52,500 members had withdrawn their savings and closed their accounts due to retirement.
The Government holds $400 million a year in Kiwisaver subsidies, that it would have to hand over if everyone paid the minimum amount. Only 58% of member credits were paid in the 2014 year and this was up from 47% in 2013. So by not investing the minimum amount of $20.06 per week, collectively kiwis are missing out on millions. Futhermore, some members don’t know that they are not contributing. A recent survey suggested that more than a quarter of those on a contributions holiday didn’t realise that they were not paying in, presumably having forgotten to resume again.
Not all Kiwisaver investments are new savings. NZ Treasury research found that members sometimes adjust where they save to take advantage of Kiwisaver benefits. Only about 33% of contributions represent additional savings. A Massey University study found that 63% of people interviewed for Finsia research agreed that Kiwisaver should be compulsory.
In the 12 months to June 2014 a 75% of funds earned more than a bank term deposit with 33% earning more than 10%.
Source: Abridged from Diane Clements “We’ve taken to Kiwisaver like ducks to water” Oct 11th 2014 Weekend Herald.
SEPTEMBER SERENITY
Ten Simple Things to Make You Happier – Part Two
(vi) Help Others. One hundred hours per year or two hours per week is the optimal time we should dedicate to others in order to enrich our own lives. Research indicates that spending on activities such as concerts and group dinners out brings far more pleasure than material purchases like TV’s or expensive watches. Spending money on other people “prosocial spending” also boosts happiness and makes us happier than buying more “stuff” for ourselves. Volunteering and spending time with others may bring higher life satisfaction. Martin Seligman, in his book “Flourish: A Visionary New Understanding of Happiness and Well-being”, explains that “we scientists have found that doing a kindness produces the single most reliable momentary increase in well-being of any exercise we have tested”.
(vii) Practise Smiling. It can alleviate pain. Smiling itself makes us feel better but when backed by positive thoughts, such as a vacation or a childs recital, it improves mood and outlook. But smiles have to be real, not fake. Real smiles use the eyes and light up the face. According to Psyblog, smiling can improve attention and help us perform better at cognitive tasks. It makes us feel good which increases our attentional flexibility and ability to think holistically. In trying circumstances, smiling can help reduce the distress caused by an upsetting situation. Psychologists call this the facial feedback hypothesis.
(viii) Plan A Holiday. It seems that merely planning a trip or a break from work can improve happiness. A study published in the journal “Applied Research in Quality of Life” showed that the highest spike came during the planning stage when employees enjoyed the sense of anticipation. Holiday anticipation boosted happiness for eight weeks but after the vacation, happiness quickly dropped backed to baseline levels for most people.
(ix) Meditate. Rewire your brain for happiness. Meditation improves focus, clarity and attention span and helps keep you calm. It also improves your happiness. One study at Massachusetts General Hospital compared brain scans of 16 people before and after participation in an eight week mindful meditation course. After completion, participants brain areas associated with compassion and self-awareness grew and parts associated with stress shrank. In the minutes after meditating, we experience feelings of calm and contentment and heightened awareness and empathy. Futhermore, regular meditation can permanently rewire the brain to raise levels of happiness.
(x) Practise Gratitude. There are many ways, but examples include: Keeping a journal of things you are grateful for; sharing three good things that have happened each day with a friend or your partner; and by expressing gratitude when others help you. The Journal of Happiness Studies published a study that used letters of gratitude to test how being grateful can affect our levels of happiness. 219 men and women wrote three letters of gratitude over a three week period and results showed decreased depressive symptoms and an increase in life satisfaction and happiness.
Article Sourced from: Huffington Post, Science. The Blog, Belle Beth Cooper 11.11.2013
AUGUST ATTITUDES
Ten Simple Things to Make You Happier – Part One
(i) Exercise More. Exercise has a profound effect on your wellbeing. For the time strapped, even a seven minute workout can help. Exercise helps relaxation, increases brain-power and helps to improve body image (even without actual weight loss). A daily twenty minute walk will help to release proteins and the endorphins that make us feel happier. Exercise is an exceptionally helpful strategy in overcoming depression and its effects are long lasting.
(ii) Sleep More. Adequate sleep not only helps our bodies to recover and repair, it helps us to be less sensitive to negative emotions and therefore means we will be happier. Negative emotions are processed by the amygdala and positive or neutral ones by the hippocampus. Sleep deprivation effects the hippocampus more than the amygdala, hence lack of sleep will mean that more gloomy memories are recalled than pleasant ones. Sleep helps with focus during the day and therefore our levels of productivity. Sleeping well will effect how you feel when you wake and can make a difference to your whole day as early mood is linked to perception of other peoples moods and how they are reacted to. Even a power nap in the afternoon can also prevent sensitivity to negative emotions like anger and fear later in the day, and can improve perception of positive or happy expressions.
(iii) Move closer to work. A short easy commute is worth more than a big house! The commute to work can powerfully impact on levels of happiness. If we have long commutes twice daily for five times a week, the cumulative effect can decrease wellbeing because people tend not to acclimatise when traffic conditions are so variable. Trying to compensate for arduous commuting by buying a bigger house or by getting a better job unfortunately will not work.
(iv) Spend time with family and friends. Social time is a highly valuable method of improving happiness from which even introverts benefit from. George Valliant directed the Grant Study into the lives of 268 men. He found “That the only thing that really matters in life are your relationships to other people”. Social connections really matter. Mens relationships at age 47 indicate late-life adjustment, better than other variables (except defenses). Good sibling relationships are especially powerful. The Journal of Socio-Economics states that your relationships are worth more than $100,000. And the Terman Study, covered by The Longevity Project, found that relationships and helping others were profoundly important factors in living long and happy lives.
(v) Spend time outdoors. In “The Happiness Advantage” Shawn Achor recommends spending time in the fresh air to improve happiness. Spending twenty minutes outside on a lovely day not will only boost positive mood but will also broaden thinking and improve working memory. Being outdoors, near the sea, on a warm sunny weekend is the perfect spot for many. But, in fact, a University of Sussex study found that participants were substantially happier outdoors in all natural environments than they were in urban situations. Interestingly, The American Meteorological Society published research in 2011 which found that current temperature has a bigger effect than wind or humidity and that outdoors happiness is maximised at 13.9 C. (Inside it would need to be much warmer!)
Source: Huff Post. Science
Look Out for Part Two coming in September
JULY JOURNAL
Geoff Bascard, Deputy Governor of the Reserve Bank, has announced that next year there will be new banknote designs with updated security settings, higher colour contrast, larger print and optically variable. However, the notes will remain the same size and denomination and still feature NZ flora and New Zealanders Ed Hiliary and Kate Shepherd.
Although final designs by the Canadian Bank Note Company will be tested and available in November, the new notes will be released in stages next year. An education campaign will help people to familiarise with the notes before they come into use and for a while old and new notes will both be in circulation.
JUNE REMINDER
Have you contributed sufficient to your Kiwisaver this year to receive the maximum Government subsidy of $521.43? You need to be 18 or over, living in New Zealand, and personally contribute at least $1042.86 per year into your Kiwisaver account. Some conditions apply, so check your specific situation before 30th of June.
For more information or assistance to tailor your Kiwisaver to meet your specific needs, contact Graeme at FinancialCompass Ltd.
MAY MOMENTS Asset Magazine this month reports that the Commission for Financial Literacy and Retirement Income have been looking at feedback as part of it’s revision of National Strategy for Financial Literacy. If this strategy is adopted it will seek to promote the benefits of financial advice and means to offer this qualified advice to New Zealanders. Although at present only 15% use an Adviser but the goal is to increase the number to 50% by 2025. You don’t have to wait until 2025 talk to Graeme today for qualified and experienced advice. APRIL ANNOUNCEMENT The Reserve Bank has produced an interesting short video called “Inflation-a thief in your wallet” which explains how inflation is measured and manifests itself in everyday life. http://youtu.be/EFk8FAkGU7U Talk to Graeme about how to invest to help mitigate the effects of inflation. MARCH MEMO More education is needed to help New Zealander’s achieve a comfortable retirement and keep their money going once they get there, Mercer says. A report released in February, says that Kiwis will have to save for their retirements if they want to maintain their lifestyles, but the lack of knowledge about retirement saving and planning is a problem. Mercer’s surveys have shown that only one in five New Zealanders rate their knowledge of retirement savings highly but 55% would like to increase their understanding. To increase your understanding and to discuss your specific circumstances contact Graeme at FinancialCompass Ltd FEBRUARY FORECAST Here are a few ideas to get your day off to a great start and help achieve workplace happiness in 2014. Organise a daily coffee run; smile to yourself as often as you can; use music to relax yourself; make changes when you need to; spring clean your work environment; say “thank you” to those who help you; learn something new; have lunch or coffee to get to know somebody better; do a lunchtime quiz with your workmates and write your own profile and feel good about yourself. For the full article go o http://www.stuff.co.nz/business/better-business/9730838/Don-t-worry-be-happy-at-work JANUARY JUMPSTART Whether you make your financial resolutions at the beginning of the year or later, make them stick by writing them down. This will increase your chance of reaching your goals and will push you to work out areas that need improvement. Something as simple as “I will increase my retirement savings” means that you have thought about a problem area and will encourage you to find a solution. Of course goals must be attainable and may take several years to achieve, but even small changes to daily, weekly or monthly routines can add up over time and make a substantial difference. 2013
DECEMBER DISPATCH- UK Pension Transfers
There have been a number of changes to the rules for transferring UK Pensions to New Zealand in recent years. Most recently the Foreign Super Tax Bill was introduced by the Minister of Revenue on 20th May 2013 and will apply from the 2014-2015 tax year. If you have a pension entitlement in the UK and intend to reside in NZ permanently you should make an active and informed decision on whether or not to transfer these funds.
For an appointment to discuss your specific situation and for more information on this these changes contact Graeme at FinancialCompass Ltd.
NEW IN NOVEMBER- Progressive Care Insurance
Progressive Care is a type of insurance that is new to New Zealand. It’s not a traditional all-or-nothing trauma insurance, which just gives you one lump sum when you are critically ill. Progressive Care can pay out more often, giving you financial support when you need it. Benefit payments are linked to the severity of your medical condition- the more serious it is, the larger the payout. (Subject to any previous claims on the policy)
For an appointment to discuss your specific situation and for more information on this new product contact Graeme at FinancialCompass Ltd.
OCTOBER SPOTLIGHT- Kiwisaver First Home Buyer Rule Changes
The 1st of October marked the introduction of increased threshold allowances both on house values and for income levels for eligible first home buyers.
For an appointment to discuss your specific situation and information on theses changes contact Graeme at FinancialCompass Ltd.
SEPTEMBER SPOTLIGHT- The Future of National Super
The Government has released a discussion document called “Flexible Superannuation”. The possibilities cited include optional retirement ages, starting as early as age sixty (with a reduced amount) or delaying until up to age seventy (with an increased amount). Closing date for submissions is Friday 11th October 2013. A copy of the document can be downloaded fromhttp://www.beehive.govt.nz/sites/all/files/Flexi-Super%20Discussion%20Document.pdf
For an appointment to assess your specific retirement planning requirements contact Graeme at FinancialCompass Ltd.
AUGUST REMINDER
Rule of thumb guide. Take your existing income and multiply it by the number of years you have left until retirement. eg $50,000 p.a. x 20 years = $1 million. If you become sick and unable to work your potential income may be at risk. For an appointment to assess your specific income protection insurance requirements contact Graeme at FinancialCompass Ltd.
JULY REMINDER
Are you in the right Kiwisaver Fund? If you joined Kiwisaver through a workplace scheme, you may have been allocated to a fund which no longer meets your particular requirements.
For a review of your Kiwisaver plan contact Graeme at FinancialCompass Ltd.
JUNE REMINDER
Have you contributed sufficient to your Kiwisaver this year to receive the maximum Government subsidy? If not, you need to top up your contributions by 30th of June.
For more information or assistance with Kiwisaver contact Graeme at FinancialCompass Ltd.