NZ Herald - Money Wise Feature April 2022

MONEY

A New Zealand Herald Commercial Publication Thursday, April 28, 2022

WISE Make the most of your money Inside: KiwiSaver | Wealth Management Cryptocurrency | Commercial Property Mortgage Funds | Risk Tolerance Wills and Trusts

It’s time to change the way you invest.

Squirrel term investments return %* up to 7.50 p.a.

No Squirrel investor has lost a cent, and our goal is to keep it that way.1 Most investments are secured against residential property.2 Reserve Funds help to protect against missed payments.

Receive regular repayments from your investment, fortnightly or monthly.

Manage your investments on the go, with our mobile app.

Start with as little as $500 with regular repayments and the opportunity to get your money out early.3

squirrel.co.nz/invest *Interest rates vary by investment class and are subject to change.

1. Whilst we’re proud of our track record to date, past performance does not provide a guarantee of future performance. (Learn more more about the risks of investing at squirrel.co.nz/invest/risks-of-investing). 2. Investments in Home Loans and Construction Loans are secured against residential first mortgages. Circa 90% of Personal Loans are secured over residential property (~50%) or other tangible assets (~40%) . 3. The ability to transfer an investment on our Secondary Market is dependent on another Investor being willing to take over that investment for the remainder of its investment term on the same terms as you signed up to.

MONEYWISE | 3

inside Plan your way to a better financial future

5

Look after your KiwiSaver and it will look after you

8

Have you considered investing in commercial property

13

Getting started in investing

16

What’s your tolerance to risk

21

A guide to investing in cryptocurrency

27

Teach them young – help your kids grow up financially literate

29

CREDITS Writer Diana Clement Designer Courtney Wenzlick Print Commercial Manager Kelly Spice GM Publishing Commercial Chris Rudd Advertising Enquiries Kelly.Spice@nzme.co.nz 021 605 297 A NZME publication

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MONEYWISE | 5

Goals give you something to aim for. Photo / NZME

Plan your way to a better financial future People who plan, get ahead. That’s definitely the case with money. If your finances are in a murky mess, create a plan. It will put problems on paper and reduce stress.

I

’m talking about a holistic plan, not just insurance or investments. It includes your budget, your future goals and dreams, your career, your insurance, your investments and more.

Your goals may be to get out of debt, buy a house or business, to support your children into adulthood, being hands-on grandparents, travelling around the world or something else. The only way to start is with a plan. You don’t want to be asking yourself or partner “are we there yet?” in 10-, 20- or 30-years’ time.

DO A STOCKTAKE You can’t make plans if you don’t know how much money you have or owe currently.

Try the net worth calculator on the Sorted. org.nz website to sum up how much you own and owe. If you prefer apps or simple spreadsheets, you can do that instead. Search “net worth calculator”. Budgeting apps such as PocketSmith have built in calculators.

BRAINSTORM Think long and hard about what makes you happy in life and how your finances/savings affect that. Consider the roadmap to get to financial security, whatever that means for you. If you can discuss this with others, all the better.

WORKING TOWARDS RETIREMENT Consider whether you’ll work all the way through to retirement or take time off for parental leave, sabbaticals, caring for parents or other reasons. Will you continue to work full or part time after the age of 65 when you qualify for NZ Superannuation?

GIVE YOURSELF GOALS Create written short-, medium- and long-term goals. It doesn’t matter if you reach these goals ultimately or find a completely new route. What matters is you have something to aim for. That gives you purpose. Sorted.org. nz has a good goal planner.

PUT NUMBERS TO THOSE GOALS If you know how much you need to save and

how that will grow over time your plan comes to life. Work out how much money you need in retirement. Will you be able to live on NZ Super? If not, how much extra per week, month or year will you need. Don’t forget to include contingencies such as the car dying, or roof needing replacing. How are you going to reach those numbers?

THINK ABOUT INSURANCE Work out what it will cost to cover yourself for contingencies such as losing your income through illness, or your home, car and other assets. The worst can happen and paying for insurance needs to be part of the overall plan.

PUT YOUR BUDGET UNDER THE MICROSCOPE You are going to reach these goals faster if you review your cashflow regularly and plug any leakage in your budget. You do have one, don’t you?

SEEK OUTSIDE HELP Consider taking all this pre-prepared information to financial advisors who specialise in insurance and investments. They tend to do one or the other. According to the Te Ara Ahunga Ora Retirement Commission’s latest survey into the financial capability of New Zealanders, two thirds of people make poorly informed choices about financial products. A good adviser will go further and help you identify your financial choices and goals. If you have money to invest or plan to build up a portfolio then professional financial advice is well worth it. Expect to pay from $250 for one-off advice up to $4000 for a comprehensive financial plan. Some advisers still offer “free” services. That means they’re likely earning their keep from commission.

Not everyone feels that’s the right way to buy financial products because it may skew the advice.

Finally, put everything in writing and set a recurring date in your calendar to review your progress every year or two. Life and your priorities can change.

Previously published in the NZ Herald

6 | MONEYWISE

MONEYWISENEWS Photo/Supplied

Photo/Supplied

Wholesale investment opportunity

We all want our KiwiSaver scheme to provide us good returns and a comfortable retirement, but have you thought about whether your money is doing good?

If you like doing your bit to help people and the planet, you should check where your KiwiSaver money is invested.

The MAS KiwiSaver Scheme has been independently certified for its responsible investment standards. Profits MAS makes also help fund the MAS Foundation, tackling health inequity in New Zealand communities.

Du Val Capital Partners Limited is the Funds Management division of the Du Val Group, investing and managing capital on behalf of wholesale investors^. Currently there are two funds open to wholesale investors; The Du Val Mortgage Fund and The Du Val Build-to-Rent Fund.

The Du Val Mortgage Fund provides wholesale investors with a 10%* PA fixed return on their investment. Capital raised by the fund will be lent to Du Val projects to acquire, construct and develop residential housing. The Du Val Mortgage is only opened to wholesale investors+ and distributions are paid quarterly. Minimum investment amounts apply^.

The Du Val Build-to-Rent Fund provides wholesale investors with the opportunity to invest in a large-scale residential property portfolio in Auckland. The targeted return to investors is net after costs and generated from rental income. The Build-to-Rent properties are retained as part of a scheme and are not sold as individual units. Currently, the Build-to-Rent Fund is paying a 7% distribution and is fully subscribed. Enquire about upcoming allocations.

Make your choices count. mas.co.nz Medical Funds Management Limited is the manager of the MAS KiwiSaver Scheme. The PDS is available at mas.co.nz

*For further information about minimum investment amounts, the fixed return and risks, please go to www.duvalpartners.co.nz to request a copy of the Information Memorandum. +Investment in the Du Val Mortgage Fund LP is only available to wholesale investors as defined in the Financial Markets Conduct Act 2013 ^Minimum investment $250,000

Photo/Supplied

KiwiSaver choices that matter

Get access to Best Doctors Would you like to have access to world leading medical experts, answering your questions, or giving you a second opinion, all at no extra cost? That’s exactly what you and your family get from the Best Doctors programme as an Asteron Life customer with Disability Insurance, Trauma Cover or Cancer Cover. Plus included in the benefits is Mental Health Navigator, offering you a quick and easy review of your mental health by a team of New Zealand registered psychologists and psychiatrists, from the comfort and security of your own home. Get in touch with your adviser to find out more.

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Superannuation

Voted best KiwiSaver service 2022^ Talk to a Generate KiwiSaver Adviser about maximising your retirement savings.

Call 0800 032 071 or email info@generatekiwisaver.co.nz www.generatekiwisaver.co.nz

^ Winners of the Gold Quality Service Award 2022 for Superannuation. A copy of the PDS and advertising disclosures are available at generatewealth.co.nz/pds/. Issuer is Generate Investment Management Ltd. The ratings issued by SuperRatings Pty Ltd ABN 95 100 192 283 AFSL 311880 (SuperRatings) for Generate KiwiSaver Scheme (‘Gold’ rating), are as of 23 November 2021. Head to https://www.generatewealth.co.nz/pds/ to view SuperRatings full disclaimer.

8 | MONEYWISE

ABOVE: Many first-home buyers qualify for a First Home Grant of up to $20,000 for a couple. Photo/NZME | BELOW: The graphs and predictions from your KiwiSaver provider have more than a grain of truth in them. Photo/Supplied

Look after your KiwiSaver and it will look after you I

supercharge your savings.

f you want to maximise your KiwiSaver then grab it with both hands. Set and forget is great. But it is not enough if you want your investment to grow, and grow, and grow. If you get it right, you’ll have much more money under your belt with surprisingly little effort.

to sign up for KiwiSaver first even if you’re not 100 per cent sure you’re in the right fund or provider. At least you’re starting to build some savings. Once you’re in, take time to educate yourself about the right fund for you and other factors such as fees. It’s easy to switch.

HERE’S HOW: Save hard and save early: Time equals growth with investments.

Saving a little regularly in your 20s and 30s is essential for maximising your KiwiSaver.

Your highest-earning years might be over by the end of your 40s thanks to health, family, redundancy, or ageism. If you have the bulk of your retirement savings in place before then, the money can grow over time.

SAVE AT LEAST $20 A WEEK: The government contribution is 50c per dollar invested for the first $1042 you save a year ($20 a week). I challenge anyone to get a 50 per cent day-one return on any other legitimate investment. The government’s contribution of $521 a year along with employer contributions and investment growth will snowball and be worth more than the money you put in personally.

RAMP UP THE RISK: That might sound scary.

Providing you don’t need the money in the next five years for a house or retirement, then you can choose a higher-growth, higherreturn fund.

DO MORE THAN THE MINIMUM: Game yourself to add more dollars. Every cent added to your KiwiSaver will multiply over the years. If you can increase your contributions from 3 per cent to a higher figure such as 4, 6, 8 or 10 per cent you’ll

PUT YOUR BLINKERS ON: If the markets go into free-fall, it’s too late to do anything this time around. Just put your blinkers on for now. When the market starts to recover consider what would be better for you next time around. This is a long-term investment,

IGNORE THE CONSPIRACY THEORISTS: Ignore anyone who thinks KiwiSaver is some big government plot to steal your money, deny you NZ Super when you retire, or cash in on your savings when you die. They’re Kiwidiots.

GET IN FIRST, WORRY LATER: It’s better

THINK OF THAT HOUSE: If you can’t imagine retirement, psych yourself into saving by imagining getting your foot in the door of a first home. KiwiSaver savings can be withdrawn when you buy that home, and many first-time buyers qualify for a First Home Grant that can be up to $20,000 for a couple. According to the IRD’s latest KiwiSaver statistics, the biggest cohort of KiwiSaver members at 692,204, are in the 25to 34-year-old group.

and your savings will bounce back better eventually.

PUMP MORE IN ON THE UPTURN: When there are big dips in your KiwiSaver fund, this is the time to save more not less.

Learn from your investment: Our brains aren’t wired for investment. By watching your KiwiSaver grow you learn some good skills. One is to put money into savings at the beginning of the month and plan the rest of your spending after that.

TAKE NOTE OF THOSE GRAPHS: The graphs and predictions from your KiwiSaver provider have more than a grain of truth in them.

Sometimes they don’t fully take into account all the tax you pay on your investments and assume you’ll never take breaks from work.

Your money really does multiply, however.

Finally, too many people apply for savings suspensions. If you can’t save now, don’t just forget about it. Make a diary note to review your situation. The sooner you start saving again the greater your nest egg will grow.

Previously published in the NZ Herald

MONEYWISE | 9

Make a positive impact with your KiwiSaver investment and grow your returns Have you considered where your KiwiSaver savings are invested?

G

enerate is an award-winning New Zealand owned KiwiSaver provider, that actively pursues ‘impact investments’ that create positive environmental or social benefits, in addition to strong investment returns.

In 2020 Generate was the first KiwiSaver scheme to invest in social housing via a $21m investment into Salvation Army community bonds, which helped build 118 new warm, dry, affordable community houses. And in March 2022 Generate invested $13.7 million in the Te Puna Hapori - Verdi Social Housing Bond – an investment which provided the funding for two more social housing projects, which will house 39 families currently living in sub-standard accommodation.

Outside of housing Generate has invested in Skyline Healthcare Group (SHG), New Zealand’s market leader in aeromedical transport, that provides essential healthcare services to every District Health Board in New Zealand, with scheduled and emergency patient transfers.

It’s important to note that an ‘impact investment’ is not an act of charity. It’s made with the intention to produce at least reasonable returns for investors – as at the end of the day, long-term returns are very important.

This is why Generate is proud that their flagship Focused Growth Fund has ranked either 1st, 2nd or 3rd in the Aggressive Growth category for five-year returns, every quarter since June 2018 in the Morningstar KiwiSaver survey. * If you’re ready to make a positive impact with your KiwiSaver investment, talk to a Generate KiwiSaver Adviser today: 0800 855 322.

*Morningstar KiwiSaver Survey Report June 2018 to December Quarter 2021. Past performance is not a reliable indicator of future performance. The issuer is Generate Investment Management Limited. The Product Disclosure Statement is available at generatewealth.co.nz/pds.

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N

ot enough home buyers are seeking professional financial advice when it comes to applying for a mortgage or life insurance, says Aseem Agarwal of Global Finance.

The company opened in 1999, has offices in Auckland and Tauranga, and has helped thousands of firsthome buyers obtain the mortgages they need.

“Not many Kiwis take professional advice when it comes to their finances,” he says. “They often don’t know who to turn to or who to trust.

We have been here for more than 20 years, helping clients across the country buy their own home, remortgage, and advised them on how to pay off their mortgages as fast as possible.”

Agarwal says there are six questions he is routinely asked: What deposit do first-home buyers need?

If you are a first-home buyer today, the banks are still open to lending to those with a 10 per cent deposit. Rules differ from bank to bank, but they are all open to supporting the purchase of a new build – a property that’s no older than six months.

Should I get a fixed rate or floating rate home loan?

Both types of loan have their merits. With a fixed rate loan, you have certainty over your home loan

repayments for a set period of time.

Knowing your mortgage payments are fixed for one to five years can be very reassuring. However, interest rates can go down, and that’s the risk you take when settling on a fixed rate option.

With a floating rate, you risk the interest rate going up but you will be able pay more off your loan if you receive an influx of cash. Some borrowers have both fixed and floating loans to hedge their bets and pay extra when they can.

How can I pay my home loan off faster?

I always advise borrowers to budget so they can account for all their dayto-day living expenses and then use any surplus funds to pay down their home loan.

If possible, increase your regular mortgage payments to pay more than the minimum required by the lender – because all the extra payments will help reduce the amount you borrowed. With a floating rate home loan, or a revolving credit loan, you have the freedom to make extra payments when you like.

If you have a fixed rate mortgage, you may not be able to make any extra payments to reduce the loan over a specified limit – which differs from bank to bank . So start a savings plan to pay a lump off the loan once the fixed rate period ends. Before

xxxx re-fixing, it is good to get professional financial advice on your options.

What about business & commercial borrowings?

It is more complex than home lending. It’s better to seek specialised advice from an experienced and competent financial adviser and then compare your options – so you can choose the best option.

Global Finance has over 20 years’ experience in supporting SME borrowings and helping them save interest on such loans.

Do I need life insurance?

In my opinion anyone who has a mortgage, insures their life for at least

Photo / Supplied the value of the home loan. Then, should the worst happen, the loan is paid off. Ideally, if there is a partner and children then insure both adults for the maximum you can afford. If a partner dies, the surviving person may need to pay for child care so they can work, or need an extended time away from work.

Too many people are not insured and the impact on a family when the main income earner unexpectedly passes can be financially devastating – and that comes on top of the grief.

As long as all medical questions are answered accurately, the death benefit claim is guaranteed to be paid.

What other insurances should I consider?

Trauma Insurance should be considered because the Accident Compensation Commission only helps in the case of an accident. For example, if you have a stroke and suffer limited mobility you may need to have your home modified for wheelchair use. It’s an extreme example, but it happens all the time.

Protecting your income against illness or disability can be very worthwhile.

For more information: (09) 255 5500, info@globalfinance.co.nz, GlobalFinance.co.nz

Join the KiwiSaver provider driven by purpose, not by profit.

Join today. mas.co.nz

Medical Funds Management Limited is the issuer of the MAS KiwiSaver Scheme. The PDS is available at mas.co.nz.

MONEYWISE | 11

Secure your financial freedom with commercial property investment

P

MG is one of New Zealand’s most established unlisted commercial property funds managers. For 30 years, PMG has maintained a track record of stability, continuity, and performance through various economic environments.

HOW MIGHT PROPERTY BENEFIT ME IN THESE INFLATIONARY TIMES? Property is a tangible asset, and typically real-estate and commodities have historically performed well in high inflationary periods.

However, a long-term view is required - time in the market is the best investment strategy as opposed to ‘timing the market’.

HOW CAN I GET REGULAR AND RELIABLE INCOME FROM A PROPERTY FUND? PMG’s property funds are long-term investments that generate value from rental income and any increase in the value of the property (ies) over time. Currently, PMG’s retail commercial property funds are returning to investors a gross cash income, of between 5.26% and 6.02%*.

Typically, tenants enter into leases for several years, and this provides us with a clear understanding of the regular rent that will be generated from the buildings within a portfolio, and consequently a level of confidence in the regular cash returns that can be generated by our Funds for investors.

Periodically, some leases have rent reviews, many of which are linked to inflation and accordingly we see income growing over time, which is a natural hedge to inflation.

ARE COMMERCIAL PROPERTY FUNDS A SAFE INVESTMENT? Commercial property investments typically perform well during inflationary periods and market volatility while providing regular and reliable income. PMG funds are diversified by geography, building, tenant, and industry sector. Our property funds are very different to standalone syndicates that typically invest in one building with one tenant or a small number of tenants.

The PMG Generation Fund, for example, has a total portfolio value of $204m with 66 tenants** across different geographies, different building types and in different sectors of the market including industrial and large format retail. This provides investors the confidence that if one of those tenants has financial difficulties, the impact to the overall return for the Fund is low.

Four of PMG’s funds are aimed at the retail market (non-professional investors or wider market) and this means that we must have appropriate governance and processes in place to safeguard investor capital and ensure that the manager is acting in the best interest of the investors in the investment scheme. As a funds manager, we are regulated by the Financial Markets Authority (FMA), and this provides an added layer of protection to investors.

ARE SHARES OR PROPERTY BETTER? Different asset classes offer different benefits.

With equities (shares) the prices are affected by market sentiment. In adverse times, we tend to observe that investors pull back from equities and as a result, values can be impacted. In uncertain times investors look for stability. For that reason, the defensive characteristics of land, bricks and mortar of a property fund provide a level security and therefore confidence to investors. In volatile times, like those we are facing now, we are seeing growing demand for commercial property investments.

HOW DO I BUY AND SELL UNITS IN PMG’S FUNDS PMG has five unlisted commercial property funds, with affordable entry levels. New investment offers are advertised and from time to time and are periodically available on the InvestNow and Sharesies platforms.

Thanks to our extensive database, we have an active secondary trade market service where we match interested buyers and sellers of PMG shares and units. If you are interested in buying, exchanging or selling shares or units in any of our funds, please get in touch with our Investor Relationships Team today.

* based on the performance of the funds for the quarter ending 31 March 2022.

Past performance is no guarantee of future returns. ** as per the product disclosure statement dated 22 February 2022 Content of this article is the opinion of Scott McKenzie. The information

provided is for information purposes only, is not intended to be relied upon and should not be construed as financial advice. We recommend that prospective investors seek professional advice from a Financial Advice Provider who takes into account their personal circumstances.

Scott McKenzie, PMG Funds Chief Executive Officer & Director Photo/Supplied

Delivering consistent cash income through inconsistent times

PMG is one of New Zealand’s most established unlisted commercial property funds managers. For 30 years, PMG has maintained a track record of stability, continuity, and performance through various economic environments.

Visit pmgfunds.co.nz to find out about our commercial property funds.

P 0800 219 476 pmgfunds.co.nz

MONEYWISE | 13

Have you considered investing in commercial property?

ABOVE: There are a number of ways you can invest in commercial property. Photo/NZME | INSET: Leonie Freeman, Property Council chief executive, has advice for would-be commercial property investors. Photo/Supplied

B

uying residential property seems to get harder by the week. Commercial property investment is often forgotten in the race to buy a quarter acre or other residential paradise.

There are many ways to buy a small slice of commercial property, which covers retail, office, industrial, hotel/leisure, tourism and development sites.

Some investors bypass residential or advance to buy small commercial properties direct, with a mortgage. Entry-level commercial units are sometimes priced from $250,000 to $400,000 plus GST, even in Auckland, although most are in the millions.

You do need to be very wary at the bottom end of issues such as leaky buildings.

Leonie Freeman, Property Council chief executive, points out that selling isn’t quick if you need to get your money out. “If you decide to sell, that obviously takes time.”

Another issue, says Freeman, is if your commercial tenants move out, it can be very hard to find a replacement. Freeman owned a property management company in the past and saw some small commercial property owners struggle financially when they lost

tenants but still had to pay the mortgage. Most residential tenants can be replaced in a few weeks.

On the positive side, commercial tenants don’t tend to phone in the middle of the night to complain that the toilet isn’t working, and commercial tenants are easier to evict.

A much lower hassle investment is buy shares in listed property companies, which spread your money across multiple quality properties. The three best-known ones in New Zealand are Goodman Property Trust, Kiwi Property Group and Precinct Properties. The return comes from a mix of dividends and capital gain.

A similar option is to buy units in managed funds. Many New Zealand fund houses such as AMP, Harbour, Kernel, Milford, Mint, Pathfinder, Russell, SmartShares, Pie Funds and many others offer a variety of commercial property funds. Investors should compare the offerings or seek advice from a financial adviser.

You can invest in listed property and managed funds direct, via financial advisers, or by investing through platforms such as Sharesies, Stake, Hatch, InvestNow and

Flint Wealth. By using a single platform, you reduced your administration. If you want a hassle-free life and to minimise tax, it’s worth checking if your investment is a Portfolio Entity Investment (Pie).

One of the big differences between owning individual commercial properties and buying into a fund is the power of leverage.

For argument’s sake, if you invest $400,000 into a $1m property and borrow the remaining $600,000, you reap the capital growth on all $1m of the money, amplifying your gain. On the other side of the coin, and this is very relevant right now during the pandemic, your losses are also amplified, should the property fall in value, and you need to cash in.

Another option for commercial property investment is syndicates, such as those provided by Oyster, Jasper, and others. You may be buying a small percentage of a single building or a multi-property private fund.

There will generally be much higher minimum investment than with listed property or managed funds.

“The issue with syndication is if you decide you want to sell your syndicate, how do you get out of that?” says Freeman.

Property syndicates can be illiquid with no secondary market, and you may have to hold on until it winds up after a set period of years.

Many of the big syndicators recognise this issue and have mechanisms so that investors in the funds can sell to others, or on a secondary market in some cases.

If you are considering buying into a syndicate do check out the Financial Markets Authority’s checklist: Tinyurl.com/ FMACommercialSyndicates Most New Zealanders will have money in commercial property by default through their KiwiSaver. For example, ANZ KiwiSaver, which has the biggest market share by membership, has listed property investments ranging from 10.36 per cent to 3.05 per cent in all of its funds, except of course the cash fund.

Previously published in the NZ Herald

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PROPERTYFUNDING.CO.NZ

Investing FOMO? Take a mo... ✓ Do your due diligence ✓ Drip feed your investments ✓ Diversify ✓ Don’t freak out if markets dip ✓ In Doubt? Talk to a financial adviser

fma.govt.nz ADVERTORIAL

Thinking of investing? A few tips to help guide you More than half a million Kiwis are now using online platforms to invest. They’re easy to use and allow you to get started with just a few dollars.

Investing is a great way to build your wealth over time, but before you jump in it’s a good idea to familiarise yourself with a few basics first. The Financial Markets Authority (the FMA) - Te Mana Tātai Hokohoko - sets out what to think about.

Before you start It’s a good idea to take a look at your overall financial situation. Do you have consumer debt?

You might want to pay that off first. Do you have a cash emergency fund in case unexpected events occur? What about KiwiSaver and are you happy with your set up? Once you’ve considered these things, it’s time to think about your online investing goals.

Fear of missing out (FOMO) Research by the FMA into online investing platforms in 2021 found 31% of all online DIY investors jumped into an investment in the last two years because they didn’t want to miss out. To help avoid the pitfalls of FOMO investing, the FMA suggests you follow the Five Ds of DIY investing.

The Five Ds of DIY investing

Do your due diligence. It’s important you

understand how investments work and whether the investment you’re considering is a good investment for you. If you’re investing in a managed fund, read the Product Disclosure Statement. If you’re thinking of buying a company’s shares, check out the company’s track record and announcements. Be wary of taking recommendations from friends or social media forums. The FMA has more information on doing your due diligence at www.fma.govt.nz.

Don’t put all your eggs in one basket’ is especially true when investing.

Financial writer Mary Holm.

Drip feed. Also known as dollar cost averaging,

this means investing a certain amount at regular intervals (for example automatically every pay day) rather than a lump sum. It saves you having to try to pick when it’s a good time to buy, and helps smooth out price fluctuations.

Diversify. Aim for a mix of different types

Hits and myths Hits and myths An introductory guide to investing

By Mary Holm

An introductory guide to investing

By Mary Holm

of investments rather than putting all your eggs in one basket. For example, you could invest in a variety of different companies, industries and countries, and include bonds and cash alongside shares. So, you’re less exposed if one investment declines.

Don’t freak out. Investment markets rise and

fall, which is a normal part of investing. If the value of your investment drops, it’s often best to stay the course. History shows us that markets can and do come back, but it might take time.

In Doubt? Talk to a licensed financial adviser who can help you choose the best option based on your own individual circumstances.

Investing in capital markets is easier than ever before, but do your research first, says the FMA.

Find out more about the Five D’s and how to invest at fma.govt.nz

New to investing?

The FMA has produced a free introductory guide to investing by financial writer Mary Holm. You can download this from the FMA website by searching ‘FMA Mary Holm’.

MONEYWISE | 15

Q&A with Cath Lomax, Chief Client Officer Fisher Funds W

omen lag behind men on financial wellbeing. More than 80% of women surveyed by the Financial Services Council in 2021 rated their financial wellbeing moderate, low or very low.

ARE WOMEN MAKING THE MOST OF THEIR FINANCES IN NEW ZEALAND? A gender gap exists between males and females in terms of their finances. In my role I want to help women become more financially literate, and really think about their retirement in particular. KiwiSaver is a great vehicle for this.

WHAT EXTRA FACTORS DO WOMEN NEED TO CONSIDER WITH KIWISAVER? One of the major life events many of us go through is starting a family and although there is an increase in the number of men taking parental leave, it is often us women who take the bulk of leave which removes us from the workforce for a period of time.

A few things we should consider during this time is firstly, if you meet the eligibility criteria, think about if you can proactively make contributions of at least $1042 each year (it works out to be around $20 per week) to ensure that you get the government contributions over the parental leave period.

Secondly talk to your employer about the possibility of continuing your KiwiSaver contributions during your leave. If you have a partner, you could agree to continue contributing to your KiwiSaver account during this time.

And lastly as soon as you are back try and restart your contributions straight away.

HOW CAN WOMEN MITIGATE THE GAP? Women typically retire with less money than men, however, this can be mitigated by a few simple things.

Try by increasing your KiwiSaver contributions. If you’re on 3%, try increasing

this to 4%. A small change now could make a big difference for your retirement.

as KiwiSaver can help you learn about the power of investing.

You can also add extra money into your KiwiSaver at any time. That could be a few dollars regularly, or a lump sum. You could tie this in with your budgeting.

HOW DO WE ENSURE THE NEXT GENERATION OF WOMEN ARE BETTER WITH MONEY THAN US? The great thing about the next generation is they challenge the status quo. I want my kids to learn the language of money, the magic of compound interest and understand risk and reward. So we have “money talks”. We can give our daughters financial tools by talking to them about money and teaching them how to save and plan.

Make sure you’re in the right fund. A growth fund could help you boost your KiwiSaver balance over the long-term compared to a balanced or conservative fund.

Also, have a chat to your provider or a financial adviser – they can really help you set some goals and get you set up to achieve them.

SHOULD WOMEN CONSIDER OTHER INVESTMENTS? KiwiSaver is one of several ways you can save for your retirement. It can be a good idea to take some time to learn about other ways of investing for your future, for example, investing in managed funds as well

Fisher Funds Management Limited is the issuer of the managed investment schemes referred to in this article. It is intended for general information only and is not personalised to you. It does not take into account your particular financial situation or goals. It is not financial advice or a recommendation. The findings, ratings and/or opinions expressed in the article are the intellectual property of Fisher Funds and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of investment products, asset classes or capital markets. Past performance is no guarantee of future performance. Product Disclosure Statements for the schemes can be found at fisherfunds.co.nz. Contact us to speak to an adviser at no additional charge.

16 | MONEYWISE

ABOVE: Shares are one way to start investing. Photo/Supplied | RIGHT: TBy dipping your toe in the water of shares, funds, property and other investments you can learn as you go. Photo/Supplied

Get started in investing

G

etting started in investing can be daunting. By dipping your toe in the water of shares, funds, property, and other investments you can learn as you go.

Not long ago you really needed $1000 or more as a minimum investment and the brokerage fees made buying and selling small investments unprofitable. Thanks to disrupters such as Sharesies, Hatch and other investing “platforms”, first-time investors can get started for quite literally a few dollars at a time.

Low-cost online platform Sharesies in particular has grabbed the hearts and minds of many first-time investors. The idea is you buy small amounts of your chosen investments regularly and learn as you go, says co-founder Leighton Roberts.

Some customers are investing $5 a week, although the average is $30, says Roberts.

They choose either individual New Zealand shares, or from a range of funds.

Through investing customers learn about important concepts such as asset allocation, risk and return and diversification as their investments grow.

When Roberts was younger, the percentage of income his parents suggested he invest left him little money for going out. It’s different with Sharesies, he says. If you start small your investments

become fun in their own right. Many investors choose to get started with companies they know and love, such as Xero or Apple.

But don’t invest in shares and funds if you haven’t paid $1042 into your KiwiSaver for the year. KiwiSaver is the only investment in New Zealand that pays a 50 per cent return (from the government contribution) plus investment growth. Even more if your employer contributes.

INDIVIDUAL SHARES You too can own a small share of a2 Milk, Spark, Apple, Netflix, and many other Kiwi and overseas companies. Hatch specialises in US shares such as Apple and Netflix.

Australian-based platform Stake has a similar offering. Whether it’s Sharesies, Hatch or Stake, your fees are very low compared to traditional stock broking.

FUNDS Managed funds spread your money over a number of shares or other investments such as bonds. They may invest in only shares from a particular region or may have a theme such as being environmentally responsible. You can buy funds through Sharesies, but many investors graduate over time to other funds platforms such as InvestNow, Flint Wealth, and SuperLife

Invest.

PROPERTY Even if you can’t buy your own home yet or a commercial property yet, you can invest small sums in managed commercial property funds. Funds such as Kiwi Property and Precinct Properties hold a wide range of properties under their belt. Or you can buy shares in individual commercial properties through platforms such as Jasper and Oyster.

Peer-to-peer lending Lending Crowd and Squirrel offer something different. You can lend direct to borrowers from as little as $50 per loan. By doing this via these platforms you cut out the middleman and get a greater return than you would in a term deposit.

CRYPTO AND CURRENCY At the risky end of investing is crypto, currencies and derivatives trading. Crypto is the investment du jour and there is no

harm in playing a little with money you can afford to lose in major crashes.

Crypto currencies are similar to trading other currencies and are volatile. Like investments in gold and other precious metals these investments don’t pay interest or dividends. There is no harm, however, in dabbling a little with money you can afford to lose.

Finally, no one has the Midas touch that turns everything you touch to gold.

Too often, first-time investors put all their money into one investment, which lo and behold falls in value or fails. Or they think because they’ve made 15 per cent over the first few months that it’s a one-way track to wealth. It isn’t. This is gambling and sooner or later you’ll get a sharp shock.

Previously published in the NZ Herald

Take our advice.

It’s personal. p The most valuable advice comes from those you trust the most.

We’re New Zealand’s most trusted KiwiSaver provider.

Talk to our team of expert advisers today.

Call us on 0508 FISHER (0508 347 437) or visit us at www.fisherfunds.co.nz Ki

w iS av er

on

2 202 i at u n & S upera n

Fisher Funds Management Limited is the issuer of the Fisher Funds KiwiSaver Scheme. Past performance is not a reliable indicator of future performance. Returns can be positive or negative. No returns are promised or guaranteed. A PDS for the scheme is available at fisherfunds.co.nz

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hen the Covid-19 pandemic hit, our lives were changed in ways none of us could ever have imagined. Social distancing, masks and hand sanitiser became part of our everyday behaviour. Lockdowns, quarantines and working from home became part of the adjustment to a ‘new normal’.

As we continue to adapt to the impacts of Covid-19, we’ve heard from many customers who have used this time to reset goals with their financial adviser and take stock of how life changes can have an impact on their insurances, including life and income protection insurance.

Taking a ‘set and forget’ attitude to your life insurances can cost you money or put your financial wellbeing at risk – so here are a few key times to check your insurance is providing the right level of protection for you and your family.

1. If you get a new job If you’ve just landed a new job, congratulations! Quite often new jobs mean a change in income – hopefully up, but sometimes down if, for example you wanted to change industry or work part time. Whatever the reason, a change in income can sometimes lead to a change in lifestyle. It’s a good idea to check the income protection you have in place will be sufficient to protect you if anything goes wrong.

2. If you start a business If you’re starting a business, you might be taking on new

debt, so it’s a good idea to have a plan for that debt if you pass away or are unable to work for a while. Asteron Life offers business insurance cover to protect your business or your income if a key employee gets sick or injured. Ask your adviser about what types of business cover might work for you.

3. If you pay down debt Paying off your mortgage completely is a major cause for celebration – but even chipping away at it every year has an impact on your overall level of debt. Keep an eye on your mortgage (or other loans). As your debt reduces, you may wish to reduce your level of life insurance cover – and save money in insurance premiums as well as bank interest.

4. If you get married (or divorced) If you get married or divorced, you might not need to change your level of insurance cover – but it is a good idea to check who your policy owners and beneficiaries are and make sure they are the ones you want.

5. If you have a baby If you’re starting a family (or adding to it), you’ll probably be thinking about how to give your kids the best life you can.

Updating or taking out life insurances can help to ensure that your children are taken care of, even if something happens to you – so it’s a good idea to check your insurances before your little one arrives.

6. When you buy a house Buying a house is a major milestone that a lot of Kiwis

Life changes Make sure your insurance is still right for you Talk to your life insurance adviser today or find one at asteronlife.co.nz/contact

work hard to achieve. But, when you’re taking on a mortgage, or any other major debt, it’s a good idea to have a plan for that debt if you pass away or can’t work for a while.

7. When your children leave home Whether you’re a sad (or happy) empty nester, once your children reach independence it might have an impact on the amount of life insurance or income protection you want.

The changes you make to your insurance will be personal to you and depend on other

circumstances, such as your level of debt. If you can reduce your cover a little, the savings in premiums might help you feel a bit more like celebrating, even while you’re missing your kids.

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MONEYWISE | 19

ABOVE: Rhiannon McKinnon Photo/Supplied

What can you do to help build a great KiwiSaver balance for when you retire I

f you want to make the most of your KiwiSaver then online tools are important because they can help you get a better understanding of how you can set your KiwiSaver up for the retirement you want.

Kiwi Wealth CEO Rhiannon McKinnon talks to Money Wise about building for a great retirement.

WHY WOULD I USE ONLINE TOOLS? Retirement calculators like Kiwi Wealth’s help you choose the right fund for you, predict what you’re on track to receive at your chosen retirement age, and offer ideas on how to help close any gap to get there, such as investing in a managed fund. Kiwi Wealth customers can also access financial advisers through their online account.

WHY IS IT IMPORTANT TO MAKE SURE YOU’RE MAKING REGULAR

CONTRIBUTIONS? Making regular contributions to your KiwiSaver account over the long term is one of the most important things you can do.

Contributing regularly means your money is being invested continually to buy more and more shares or fixed interest assets. If your KiwiSaver provider is an active manager like Kiwi Wealth your investments are being continuously monitored.

WHAT DO YOU HAVE TO DO TO GET THE FULL GOVERNMENT CONTRIBUTION? To get the full government contribution, you need, along with other criteria, to contribute at least $1,043 by June 30 every year. For every dollar you put into your KiwiSaver account, the government will add 50 cents, up to a maximum of $521.43 a year.

If you’re not on track to hit the $1,043

for the year, you can bump up your contributions by increasing your KiwiSaver contribution rate, making a lump-sum contribution, or setting up regular contributions to reach that goal.

WHY ARE GOALS IMPORTANT? Identifying clear goals gives you long-term vision and short-term motivation. Kiwi Wealth’s retirement calculator allows you to choose the type of retirement lifestyle you want and can help recommend a course to help you get there.

Kiwi Wealth’s managed funds are an investment option which complement a KiwiSaver account, but with the flexibility to have multiple accounts and withdraw when you like. You only need $100 to start investing.

WHAT IS THE DIFFERENCE BETWEEN

PASSIVE AND ACTIVE FUNDS, AND WHY IS IT IMPORTANT TO DO YOUR RESEARCH? A passive fund invests in a very similar mix of shares to the market index it is aiming to replicate, such as the S&P 500 or NZX 50. Passive funds tend to invest in larger companies, imitating what the average direct investor does. Active management is where a fund manager like Kiwi Wealth selects shares or other assets for a portfolio according to the companies or sectors they think stand the best chance of being strong performers.

To compare passive and active funds, make sure you’re looking at the returns after fees and remember that KiwiSaver is a longterm investment for most people.

Kiwi Wealth Limited is the issuer of the Kiwi Wealth KiwiSaver Scheme and Kiwi Wealth Managed Funds. Product Disclosure Statements for these products, along with information about our Kiwi Wealth advisers and advice tools can be found at www.kiwiwealth.co.nz.

20 | MONEYWISE

Riding the wave of market uncertainty

2

022 has been a bumpy ride for Kiwi Investors. JMI Wealth Limited’s Andrew Kelleher answers questions about war, uncertainty, and how to cope when your risk tolerance is shot.

WHAT IS THE KEY THEME OF 2022 FOR INVESTORS? The real (financial) winner in 2022 has been uncertainty thanks to the conflict in Eastern Europe. Uncertainty is like a fog that has to clear. Once it lifts, then we’ll be looking back at other big picture issues that we knew about in December and January. That’s inflation, interest rates, supply chain issues.

WE’VE SEEN THE UKRAINE CONFLICT PUSH UNCERTAINTY SKY HIGH. HOW WILL THIS AFFECT MARKETS? Ukraine and Russia individually do not have a significant influence on global markets.

But the “what-if” does. Add to that a potential interruption in oil supply, which could make the inflation problem worse. If you get an oil shock, you get a shock to the supply chain and at the same time there are already issues around inflation.

The markets were already primed for a sell off before the conflict. The uncertainty just exaggerates and shines the spotlights on issues that were already there.

GOING FORWARD, WHAT CAN THE HISTORY OF CONFLICTS TELL US? When you look back on conflicts, we tend to see a couple of givens. One is you can

almost guarantee you’ll see volatility in the short term. The second is if you look back at conflicts in modern history, they often haven’t been the cause of a (long term) sell off. If they do coincide with a sell off that was (quite often) happening anyway.

In fact, if we look at major conflicts since 1990, U.S. share prices were actually on average about 10 to 12% higher 12 months later.

DO ALL CONFLICTS HAVE THE SAME EFFECT ON MARKETS? The Gulf wars raised the spectre of problematic oil issues. The biggest difference with this conflict and the Gulf wars, however, is the east versus the west, and the role of China. The economic implications of a global realignment of political influence are far greater than the economic implications of a war against the small states in the Middle East HOW DOES THIS PERFECT STORM AFFECT INDIVIDUAL INVESTORS? What volatility does is it tends to push market movements outside investors’ tolerance bands.

It’s really important in these times to be able to have that comfort of speaking to an investment advisor, to be reminded of the long-term plan in place and whether or not those movements are within the bounds of the risk tolerances that you had originally expected.

ABOVE: JMI Wealth Limited Director Andrew Kelleher Photo/Supplied

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MONEYWISE | 21

ABOVE: KiwiSaver funds are invested in the stockmarket, the value of which rises and falls.

RIGHT: Cryptocurrencies such as bitcoin have proved to be volatile investments. Photo/Supplied

What’s your tolerance to risk?

H

ow did you feel the last time your KiwiSaver balance dropped? The human brain likes to treat investment losses a bit like childbirth. You never remember how bad it was until it comes around again.

Some people have a high-risk tolerance and might still sleep soundly when their investments take a tumble. For others, a dramatic drop in the market value of their investments such as happened in 1987, 2008, and even the short-lived dip in March 2020, or the gradual decline of early 2022, can push them over the edge.

That “edge” isn’t just financial. Low-risk tolerance combined with investment losses can for some people lead to depression, family violence, and even suicide.

Financial adviser Murray Weatherston of Financial Focus remembers the “guy from across the road” who lived the high life before the 1987 stock market crash. The guy had built up $3 million in investments in what we know now to be dodgy companies such as Equiticorp.

Come the 1987 crash, $3m man lost the lot. A few months later the man looked so haggard he was barely recognisable.

Weatherston always asks clients how they felt last time their KiwiSaver balance fell to get them thinking. The answer is telling, he says.

If you panicked, then you were most likely investing beyond your risk tolerance.

Research by the Financial Markets Authority (FMA) found that thousands of young New Zealanders switched out of growth funds during the turmoil of March 2020, with more than 70 per cent of those switches being to more conservative funds.

One young New Zealander, “Ana”, told researchers: “I got scared because I didn’t understand how KiwiSaver really works, so I thought I had lost a whole bunch of money and I would never get it back. So then I switched immediately to conservative to keep the money that I had and hopefully not lose any more.”

By doing so she locked in the losses. If she’d understood her own investing style and

how the markets work, it’s most likely she wouldn’t have lost a cent.

Some investors never invest again after an experience like the 1987 crash or global financial crisis. Yet such crises come around every decade or so.

“I’m sure a lot of the population would be very surprised know that at least twice in the last 21 years, the equity (share) market has fallen over 50 per cent,” says Weatherston.

Financial self-awareness starts with understanding your own risk tolerance. If you have a financial adviser, you should be given a thorough risk-tolerance exercise. Most of the KiwiSaver providers have risk-tolerance tests on their websites, although some ask too few questions to be useful.

No matter how rock solid your ability to tolerate volatility, ask yourself what could be the worst that could happen to your finances with your current strategy.

Whether it’s $3m man and his “corp” investments that turned out to be corpses, or 21st-century crypto investments, there will always be someone who loses the lot when

the tide turns. They won’t see it coming because they haven’t considered the risk.

The more you educate yourself the less likely you are to be caught out by a 1987, 2008 or 2020-style financial disaster. Start with websites such as Sorted.org.nz, FMA. govt.nz and many others.

Be very wary of learning through social media and watch out for what the FMA calls “finfluencers”. Some of these social media influencers who post about finances are paid to promote high-risk investments such as cryptocurrency and derivatives and may not know what could go wrong.

That’s not to say you can’t have a bit of fun with higher-risk investments through Sharesies or on the crypto markets if you’re learning along the way. If you’re borrowing to invest or betting your financial future on it, then consider unwinding your position.

Previously published in the NZ Herald

22 | MONEYWISE

Propel your strategy for financial freedom

W

ith property prices continuing to rise, we talk to NZ’s Queen of Property Nikki Connors of Propellor Property Investments about getting started in property investment and why it can make a huge difference to your life.

WHAT ARE THE BENEFITS OF INVESTING IN PROPERTY? There’s a lot of risks around investment property but also a great many rewards. Investing in property can offer you a passive income that allows for inflation and increases your wealth to secure and maintain your future lifestyle. Just as importantly, with the right strategy and the right property you can pay off your home mortgage in record time.

WHY IS IT IMPORTANT TO GET THE RIGHT ADVICE? You don’t know what you don’t know! Most people we speak to do not have a plan in place for property investment. Knowing what you need to achieve can dictate the profile of investment property that is right for your portfolio. If you are serious about growing your investment property portfolio, you need the right advice from a specialist property investment firm. Believe it or not, banks can be the worst place to go for advice about your mortgage.

Specialist property investment firms are able to look at the bigger picture and help structure a loan package that suits the type of property you are looking to invest in.

HOW CAN I USE THE EQUITY IN MY HOME TO INVEST IN PROPERTY? Equity is your secret weapon to starting your investment portfolio. You can use the value of your home, minus any mortgage owing, to leverage the

funds for a deposit in an investment property. You don’t need cash to get into an investment property.

With new or off the plan property the required deposit is only 20%.

WHAT IS THE DIFFERENCE BETWEEN A FIRST TIER AND SECOND TIER LENDER? Traditional banks are known as first tier lenders and there are financial institutions known as second tier lenders. Traditional banks are in competition with each other often have similar interest rates however their lending criteria can be quite different. Second tier lenders have often been thought of as the last resort because of the interest rates, but today second tier lenders are seen as just as viable as first tier lenders. In most cases you are only looking at a 0.5 – 1% interest rate change. So if you get turned down by a traditional bank now, you might pay a little bit more with a second tier lender but you can return to a first tier lender in the future. The biggest thing is that you are securing the property today and enjoying the capital growth.

WHAT IS YOUR BIGGEST PIECE OF ADVICE FOR SOMEONE LOOKING TO INVEST IN PROPERTY? As the old saying goes, you have to build the foundations before you can build the house. In this case, a good strategy can make or break your property investment experience. A good strategy will give you the desired results. When you are looking at an investment property it’s important to know what that property has to achieve for you and consider a short, medium and long term goals.

Short term we want to make sure you are choosing the right property, paying off your mortgage in the medium term and eventually enjoying passive income long term.

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KIWISAVER AND FEES:What you need to know As the saying goes:You get what you pay for.

K

iwi Wealth’s market analysis has shown that low fee KiwiSaver providers might save you money now, but it could cost you later.

The belief that the lowest fees will make you better off in the long run isn’t always correct.

At Kiwi Wealth, we’re concerned that many Kiwi might not fully understand the longterm impact of choosing a low fees KiwiSaver provider. The returns after fees from a provider who charges mid-range fees may considerably outweigh those of a low-fee provider, making a purely fee-driven decision the unwise choice.

By way of example, comparing after fees returns with the highest performing low fee provider’s KiwiSaver Growth Fund and the Kiwi Wealth KiwiSaver Scheme Growth Fund over a 5 year period ending 31 December 2021, a Kiwi Wealth customer would have ended up with $633 more in their KiwiSaver account.* Your KiwiSaver is an investment, so it’s important to consider multiple factors when

making your provider and fund choice. There may be just as many low points as there are highs so how comfortable you are to withstand these ups and downs will help you decide which type of fund is right for you.

When you are weighing up different providers and their offerings and promises, remember that low fees can impact your KiwiSaver account balance over the long term but so can many other things. An approach that will provide a more accurate picture of your long-term investment options is to compare after-fee returns, and make sure that when you’re comparing performance, you’re looking at the same long-term timeframes for each fund.

The 5 year difference in Growth Funds (after fees), with $20,000 starting balance.

$37,000

$35,180

$35,813

+$633

Kiwi Wealth Highest performing low-fee KiwiSaver provider

$20,000 Kiwi Wealth Limited is the issuer and manager of the Kiwi Wealth KiwiSaver Scheme.

The Product Disclosure Statement for the Kiwi Wealth KiwiSaver Scheme is available on Kiwi Wealth’s website www.kiwiwealth. co.nz.

The return after fees comparison was calculated using an initial investment of $20,000 in a growth fund and no additional contributions or tax, for a 5-year period ending 31 December 2021 using fee data from Morningstar and returns information from Melville Jessup Weaver.

The highest performing low fee provider means the provider with the highest-

ranked returns for the 5-year period to 31 December 2021 for the three funds calculated to have the lowest fees as of 31 December 2021 using: • funds categorised as ‘growth’ in the Melville Jessup Weaver Investment Survey – December 2021; • return data from the Melville Jessup Weaver Investment Survey – December 2021; and • fee data from Morningstar Report December 2021 (See the Morningstar Disclaimer at kiwiwealth.co.nz/ about/about-our-site/conditions-ofuse/#e1075. Kiwi Wealth has performed its own calculations based on the fee

data from the Morningstar Report December 2021 by assuming a fixed balance of $10,000 over a 12-month period.

The Kiwi Wealth KiwiSaver Scheme Growth Fund has a minimum recommended investment period of 10 years. Performance over a shorter or longer period, along with fees, may vary.

Performance referenced in this piece is for a period of investment less than the recommended minimum.

Past performance is not a reliable indicator of future performance.The value of your investment (including returns) can decrease as well as increase.

MONEYWISE | 23

ABOVE: Chair and CEO of Hobson Wealth, Warren Couillault Photo/Supplied

The value of an advisor in unprecedented times N

o-one can predict 100% what will happen to investment portfolios in uncertain times. Staying close to your financial adviser can really pay dividends as you get the best possible advice to enable informed decisions. Money Wise talks to Chair and CEO of Hobson Wealth, Warren Couillault.

WHAT DID WE LEARN FROM THE MARCH 2020 COVID CRASH? What we saw in March 2020 was around a 45% fall in global stock markets which occurred very suddenly, over a short period of three weeks. Without the benefit of robust financial advice many investors may have panicked and made investment decisions in the heat of the moment. For example, we saw in the KiwiSaver market, something like $1.5 billion switch from growth Schemes to Conservative Schemes. But by September 2020 the markets had largely recovered, but it

will take years for the (people who switched) to recover (their) losses or even the foregone gains. Robust financial advice might have prevented some of this switching.

WHAT ADVICE DID YOU PROVIDE DURING THE COVID CRASH? Right when the markets were in full meltdown mode in 2020, we were hosting a conference for a few hundred of our clients.

The key topic of course was that the then somewhat unknown virus, Covid-19 posed a significant shock to the system and that markets would sell-off and remain volatile because markets do not like uncertainty.

I reminded the guests that collectively the team of people here at Hobson Wealth has hundreds of years of experience. We’ve seen and lived through a lot of market selloffs before: We saw the 1987 crash, the Asia currency crisis in the 1990s, the tech wreck and y2k in 2000 and of course the GFC in

2008/9. What all this experience showed us is that yes markets do fall from time to time, and we have no real certainty of the amount of the pullback or its duration. What we can say with certainty though is that markets always recover, sometimes quickly and sometimes a bit longer, but they always recover. So, remember that when discussing investment decisions with your adviser.

MARKETS WENT GANGBUSTERS THROUGH TO LATE 2021. WHY IS THE NEWS BAD NOW? What we’ve seen in the past two years during the covid environment is the “left hand” of the governments shutting down society and economies with covid restrictions while the “right hand” was providing massive, massive fiscal and monetary stimulus.

Guess what happens when you lock the economy down, you stop people being productive, and you flood the economy with

money? You get inflation and we’re getting it now like we haven’t seen in something like 40 years. And now combining inflation and interest rate worries with the war in Ukraine means we’ve got another bout of uncertainty in the markets and the resulting sell-off and increased volatility in markets.

WHAT SHOULD INVESTORS DO? (If I was speaking to our investment conference today) I’d say what I said a couple of years ago: look, we’ve seen this stuff before, things will likely stay volatile, but markets always recover at some stage. Stay close to your adviser to see what suits you, your circumstances, and your objectives and take advantage of any opportunities to do what’s best for you.

When you’ve got an investment portfolio, you talk to the experts who will look after it with you.

24 | MONEYWISE

Get started on your estate planning A

s baby Boomers begin to age, we’re on the cusp of the biggest wealth transfer in human history. Perpetual Guardian’s chief executive Patrick Gamble explains how to pass money to future generations smoothly.

SHOULD I HAVE A WILL OR A FAMILY TRUST? A Will ensures your wishes are followed after your death. Everyone needs to have a Will, regardless of their financial or personal circumstances. A trust is for protection of certain assets and is most often used to navigate complexity in family relationships.

With a normal Will, money and assets will pass directly to beneficiaries, which can be problematic. They may have

Perpetual Guardian Chief Executive, Patrick Gamble Photo/Supplied

relationship property issues, or they are wealthy themselves, and it’s actually the grandchildren who need a leg up.

A well-structured family trust can take a range of variables into account and help to preserve wealth for the next generation. It can also allow wealth to be used for specific purposes such as grandchildren’s first home deposits.

Estate Plan was drawn up. Most disputes we see involve beneficiaries with conflicting understandings of a will maker’s intentions, so if a university education or house deposit has been provided for one child or grandchild and not others, it may be worthwhile acknowledging that in your Estate Planning, so that all beneficiaries feel appropriately acknowledged.

IS IT BETTER TO JUST GIVE THE MONEY AWAY WHILE I’M STILL ALIVE? Most people aren’t in a position to gift a substantial portion of their estate while they’re alive. Even for those that can, we often see family tensions arise unless the gifting has been well-thought-out and discussed amongst family members as the

HOW DO I PLAN FOR THIS? Estate Planning is important. It can be very frustrating to see someone who spent their whole life building up their wealth and their family only to have both severely damaged in a dispute over a poorly thought out Will they only committed ten minutes to writing. Good estate planning isn’t hard, but it requires

sitting down for an hour or two and thinking it through with someone who understands the fishhooks.

WHAT ARE THE RISKS? It’s not unusual for even the closest families to get angsty when someone passes away.

Sometimes it’s money. Or it can be a need to feel in control, or a feeling that someone’s been disrespected or cut out. We’ve seen families fall out completely over the smallest of sentimental items - items which could have been accounted for in a good Estate Plan.

The biggest risk of a poor (or non-existent) Estate Plan is that the family unit will be damaged, and wealth eroded as legal challenges and counter-challenges are worked through.

Property Investment

MASTERCLASS With the Queen of New Zealand Property, Nikki Connors

I love investment property! A new investment property only requires a 20% deposit which can be secured against a small portion of the equity in your home. The mortgage can be structured on interest only with the tenant paying the main portion of the outgoings; and if it were sold in 5 years it would not incur tax on the profit.

But its important to have a strategy in place for your investments. Propellor works with clients to identify their short, medium and long term goals. Only then can we identify the profile of the right investment properties for them. We then work with a group of independent professionals to help our clients achieve those goals. We complete due diligence on all the properties we recommend; we also organise finance, conveyancing, property management and insurance.

Our aim is to have our clients’ mortgage free on their own home within a short time and then to have an extra income to supplement their lifestyle.

Let’s look at two clients we have recently helped on their property investment journey:

CASE STUDY 1

Jane and Grant* purchased two investment properties through Propellor in 2017. In that time both have increased in value and Jane and Grant now have nearly $1,000,000 in capital gain. As they have owned these properties over the required time period of two years at that date; they no longer have to pay tax on the profit when they sell them.

So together we have agreed the next stage: to sell both properties as there will be a tax liability due soon on both under the Interest Limitation Legislation on existing rentals – this could be as much as $20,000 they have to find for the properties per year.

They will then put 20% deposit (the minimum required) on two new properties which means they will be cash flow positive on settlement; pay of their home mortgage to be completely mortgage free and still have enough to renovate their beach house.

CASE STUDY 2

David* purchased property through Propellor in 2015. These properties now have a potential equity of $900,000+. However there is a mortgage on the three and as he recently stopped working he now wants to look at supplementing his pension. He has no mortgage on his own home Together we agreed that: he should sell the investment properties before the Interest Limitation Legislation gives a him a tax liability of $17,000 per year across all properties.

As the banks will no longer lend to David, due to his age and lack of permanent employment he will take the profit, purchase one property outright to receive a return of $30,000+ pa, go on holiday overseas and then put the balance into managed funds so as to diversify his investments.

Remember you don’t know what you don’t know. Speak to the experts. Propellor Has been successfully helping New Zealander property investors for nearly 14 years

To find out more or to organise a consultation please call 0800 81 81 91 or email info@propellorproperties.co.nz www.propellorproperties.co.nz *Names have been changed for privacy reasons

26 | MONEYWISE

Another way of investing in property

B

ank deposit interest rates are low, and both the share market and direct property investment have lost their gloss. Investors looking for a stable return could benefit by learning about mortgage funds. Squirrel’s John Bolton chats to Money Wise about the risks and rewards of investing in mortgage funds.

WHAT ARE MORTGAGE FUNDS? In New Zealand we love and understand property. But at the moment, it’s giving us a pretty poor return. Investing in mortgagebacked funds is another way of investing in property with a different return profile and outlook.

Mortgage funds and mortgage-backed peer-to-peer investments fund loans to borrowers with residential property as security. They pay over 4.50% p.a. to investors paid monthly.

ABOVE: Investing in mortgage-backed funds is another way of investing in property BELOW: Squirrel founder John “JB” Bolton Photo/Supplied

ISN’T THIS LIKE FINANCE COMPANIES? Before the GFC finance companies like Bridgecorp, Strategic Finance and Hanover offered debentures to retail investors. They typically invested your money in large scale property development. When the property market turned, developers weren’t good at paying the loans back and the finance companies collapsed.

WHY ARE RESIDENTIAL MORTGAGE FUNDS DIFFERENT? You’re typically investing into the mortgages on residential houses with money diversified across a wide pool of loans, removing the concentration risk that finance companies faced.

I’VE SEEN OTHER MORTGAGE FUNDS ADVERTISED LATELY. ARE THEY THE SAME? There are a range of property funds

available in NZ so do your homework.

Security could be residential property, commercial property or rural property.

Each fund will have a different risk profile based on who the money is lent to, the purpose of the loan, the number of loans in the fund, and the credit risk of each borrower. Returns range from 3% - 10%+.

Typically, funds returning more than 7%p.a. will have a higher risk profile. Some funds are only open to wholesale investors, which typically means they are higher risk funds.

WHAT ARE THE RISKS OF RESIDENTIAL MORTGAGE FUNDS? The risk to investors is homeowners defaulting on the loan and missing repayments. If a loan does default, first mortgage security is typically in place and any losses are spread across all investors.

Worst case scenario: In Ireland during the GFC, there was an 11% default rate and 50% reduction in house prices. However, the loss rate on mortgages was 5.00%. So, on every $100 that someone invested into the worst housing market in modern history, investors got back 95 cents on the dollar.

Over the same period the US share market dropped 54%.

Best case scenario: Banks collectively lost $4m on residential home loans last year. That’s a rounding error (0.001% to be precise) compared to the $330b of home loans in NZ. The other risk is that too many investors want their money back at one time. This is known as liquidity risk. In that case funds typically can be ‘gated’ and you can’t redeem until it settles down. The borrowers continue to pay interest in the meantime.

How much is your property worth?

OneRoof was voted as having the most accurate estimated property values compared to other real estate websites*.

Get your FREE property estimate today at OneRoof.co.nz/estimate

*Source: ConsumerLink Omnijet survey 11-18 August 2021 (n=1,000) | Property estimates listed & images are for illustrative purposes only.

MONEYWISE | 27

ABOVE: Crypto investing is both simple and mind-blowingly complex. RIGHT: Bitcoin, the first cryptocurrency, was created on January 3, 2009. Photo/Supplied

A guide to investing in cryptocurrency D

on’t try to get rich quick with cryptocurrency. Yes, there are ways to make money. You can also lose.

Some New Zealanders have quite literally made millions of dollars off the back of their crypto investments. But before you jump on the bandwagon, for goodness’ sake educate yourself. No investment is fool proof.

When you hear of people investing in cryptocurrencies, they’re almost always trading it in similar ways to people who buy and sell other currencies.

Crypto investing is both simple and mindblowingly complex. The starting point, says Stace Hammond lawyer and crypto investor James Cochrane, is that cryptocurrencies, of which there are more than 6500, are money.

You can buy stuff and sell stuff with them.

Most currencies start with an initial coin offering (ICO), where the company behind the currency looks to raise money by selling coins.

Then, once on the open market, the currencies’ values are set by what people are willing to pay.

People who do particularly well in any investment cycle that takes off are often the

ones that get in early, and get out when the asset is high, which isn’t easy to time.

It’s important to remember that you’re not buying an asset such as a property, share, or term deposit that produces an income.

You make money when the currency rises in value.

Bitcoin, the first cryptocurrency, was created on January 3, 2009. On November 20, 2015, one Bitcoin was worth $497.99. Its most recent high was $$94,395 on November 21, last year, but it was trading as low as $52,154 on January 22 this year.

Other digital currencies such as Ethereum launched later and again some of the early traders did best. The earliest price I can find for Ether was $16.85 on October 14, 2016; it was at $6,295 on November 28, then fell to $3586 on Jan 22 this year.

Like any currency, you can earn interest on deposits. The term deposit equivalent for cryptocurrency is Cefi and Defi, says Cochrane. You deposit your cryptocurrency with a third party, who lends it out to someone who needs to borrow money.

You can also use your cryptocurrencies to buy investments. Cochrane points to

New Zealand company Ruby Play Network.

Investors were offered both shares and Ruby token rights when Ruby raised money through the Snowball Effect marketplace.

One thing I do know from many years’ experience in personal finance, is the investment du jour is the topic of numerous BBQ conversations and endless news articles, and someone is going to lose their shirt.

The other thing, as Cochrane points out, is that cryptocurrencies are under constant attack by hackers, looking to steal money from people’s wallets. Bitcoin, he says, has never been cracked. Other currencies have.

Cochrane himself has a diversified portfolio of KiwiSaver, a Sharesies share portfolio, exchange traded funds and then crypto last.

When he first started in crypto, he allocated $100, opened several wallets, in case one was hacked, and bought some currencies to see how it worked. Then he did what all crypto investors should do. He read everything he could get his hands on and watched endless YouTube videos on the subject.

He uses bog-standard personal finance strategies for his crypto investments, such as good solid research, buy and hold, he doesn’t put all his eggs in one basket, and uses dollar-cost averaging. The latter ensures that he buys a little and regularly to ride the volatility.

And boy are there some ups and downs with crypto investing. Just Google “Bitcoin winter”. In 2017/8 Bitcoin had a nearly 80 per cent correction (fall), says Cochrane.

A very important point that Cochrane makes is no one keeps records of your investment. If you lose your electronic wallet or die and no one has a record of your holdings, that’s it.

Crypto assets may not yet be regulated here. Nonetheless they’re taxable by the Inland Revenue Department (IRD).

Finally, if you want to learn and have some fun, then allocate a small sum of money and start buying some crypto assets. The worst that can happen is you lose some or all your money. At best you make a nice tidy sum.

Previously published in the NZ Herald

ADVERTORIAL

THE GREAT WEALTH TRANSFER : WHO GETS YOUR MONEY?

GLOBALLY, THE DISTRIBUTION OF WEALTH FROM THE BABY BOOM GENERATION REPRESENTS THE GREATEST WEALTH TRANSFER IN HISTORY. Statistics NZ shows nearly two-thirds of New Zealanders’ household net wealth was in the hands of those aged 55+ in mid-2018 (and with relative increases in house prices, this will only have intensified). Recent estimates suggest more than $1 trillion in wealth will be transferred by this cohort over the next two decades in New Zealand alone.

All this makes sound investment management and estate planning essential to Kiwi families who have accrued wealth through successful businesses and long-term property holdings. If a couple now in their 60s or 70s intends to preserve their wealth for their children and grandchildren (and beyond), this will require a more structured and sophisticated approach than a straightforward distribution from a Will, where the distributed assets can be subject to a variety of competing claims.

In most scenarios, a well-structured family trust which takes all variables into consideration is the best way to a) preserve wealth, b) ensure everyone who matters to the trust settlor is taken care of, and c) ensure wealth is managed responsibly so it endures for many years.

Many baby boomer couples or families already have trusts: Perpetual Guardian estimates there are 350,000 to 500,000 family trusts in New Zealand.

However, the Trusts Act 2019, with its emphasis on trustee obligations, beneficiary disclosure and mandatory administration, has completely changed the landscape of trust law meaning many existing

Patrick Gamble - ceO PerPetual Guardian GrouP

trusts are no longer compliant or fit for purpose. Now is an excellent time to sit down with a trust expert and check whether a trust still ensures the long-term preservation of wealth as intended, or whether it is better to wind it up and settle a new trust.

If the primary vehicle for wealth transfer is a Will,

The work of intergenerational financial planning is relevant for families regardless of their wealth or complexity. Money can be a cause of tension or conflict in even the closest families, and an effective way to mitigate risk associated with family disharmony is to involve an experienced independent advisor early, to help get the basics right and to manage assets in accordance with the specific wishes of the owner/s. Good intergenerational financial planning includes creating sense of shared responsibility within a family, a knowledge of where to turn for specialist advice, and a clear commitment to ensure wealth is used to its maximum effect over the long term.

is independent of family dynamics. If wealth

There are also many ways wealth can be used to advance a family’s collective interests outside a family trust structure, and during the lifetime of those who created the wealth. Many of our clients choose to distribute early inheritances to fund concrete goals such as university education or the purchase of first homes for adult children or grandchildren.

Good estate planning will help ensure those gifts are remembered down the line, especially if there is an intention to “rebalance” inheritances in a Will to make sure all children are provided for.

YOUR LIFE. YOUR LEGACY OUR EXPERTISE

most professionals would strongly recommend appointing an independent executor rather than a spouse or family member. This ensures the person being asked to make the tough choices transfer planning revolves around a family trust, an independent trustee will referee to ensure the settlor’s wishes are honoured and legal obligations met. This small step can avoid the years of costly litigation that occur all too frequently.

The Perpetual Guardian Group is New Zealand’s largest statutory trust company and leading fiduciary services business. With sixteen branches nationwide, we’ve been a trusted adviser to Kiwis for over 135 years, helping families protect and grow their wealth, plan for the future, and successfully pass those legacies to their children and favourite philanthropic causes. The group comprises four companies, offering specialist services to support our clients at all stages of their lives: Perpetual Guardian, Openly Investing, New Zealand Trustee Services, and Givealittle.

When you meet with Perpetual Guardian, one of our experts will explain intergenerational financial planning, and talk through the various options to allow you to select the level of service most appropriate for your situation.

MONEYWISE | 29 M

ABOVE: Give them pocket money and allow them to make mistakes. Photo/NZME

Teach them young - help your kids grow up financially literate E

veryone wants their children to succeed financially. Teaching them good money habits starts with play, such as playing shop, as soon as they recognise what money is.

Simple actions help grow financially literate children: GIVE REGULAR POCKET MONEY Divvy the pocket money into spending and saving, to start instilling the latter. I remember a period when one of my children would demand an instant trip to the $2 Shop to buy some piece of nasty plastic on pocket money day. I was convinced I’d ruined their financial nous for life by enabling that, but it turned out to be all part of the process of learning about smart spending.

ALLOW THEM TO MANAGE THEIR MONEY Early on I implemented a system on holiday where the children received $2 a day to spend on little treats instead of hassling me. It turned out to be a wonderful money lesson.

They learned themselves if they didn’t spend it daily, they could save up for better treats.

In Hamilton one time they pooled their $2

and bought an entire 2L of ice cream in the supermarket. That was another valuable lesson financially, although they felt too sick afterwards for it to happen a second time.

LET THEM MAKE MISTAKES It feels cruel but let them experience getting it wrong. Losing money, for example, is in a sense a choice. One of my children learned that leaving a wallet in the shoe rack at a McDonald’s playground instead of giving it to an adult was a mistake with consequences.

That was an especially hard lesson for child and parent, and it took an emotional toll on me not to reimburse the lost money.

GIVE THEM BUDGETS I fell into this earlier than I expected thanks to a child who demanded designer clothing and top-of-the-range sports gear. My answer was to put both children on a clothing budget.

At the ages of 8 and 10 they took to this with gusto, choosing to buy their day-to-day clothing/shoes at the likes of The Warehouse, but saving for months sometimes for extra special items. Budgets can cover much more but read my next point.

IT WON’T BE EASY Sometimes the best-laid plans end up never getting implemented due to lack of time, energy, inclination or simply putting off decision making. I always meant to extend the clothing budget to an overall budget once they reached the age of 12, but it ended up getting overlooked, in part because they were heading down the right path anyway. Yet having to make choices such as catching the bus to school versus using that money in the tuck shop for treats, and so on, is powerful.

TALK Talk to your children about money and model good behaviour. Discuss the options for spending that $2, and the consequences of big electricity bills because no one turns the lights out. If you need inspiration check out Sorted.org.nz or some of the very good financial education programmes available through schools or direct online such as Sorted In Schools, ASB GetWise, Banqer, SaVy and PracticalMoneySkills.co.nz.

SAY NO The word “No” combined with an explanation

is a great way for children to learn. For example, don’t let them allow you to deviate from your list at the supermarket.

GET THEM INVOLVED IN INVESTING Even primary age children can understand what companies are and enjoy watching their money grow. If they receive birthday/ Christmas money or have earnings, then set up KiwiSaver or some other sort of share market-based investing account for them.

They can make regular deposits and choose investments, with your assistance. Check out child accounts at low-cost investing platforms such as Sharesies, Hatch, InvestNow and Stake. Show them graphs of their money growing, and when the market falls, explain what’s happening.

Finally, do be careful about giving your children a poverty mentality that can lead to giving up before they try.

Previously published in the NZ Herald

30 | MONEYWISE

ABOVE: FMA’s Manager of Investor Capability, Tammy Peyper. Photo/Supplied

How to prepare for a potential market dip

C

onfidence in investing is increasing, thanks in part to buoyant markets.

But many newer investors have never experienced a sustained market dip. FMA’s Manager of Investor Capability, Tammy Peyper, answers questions about what to do when markets take a tumble.

of the pandemic. FMA research in 2021 found some people – particularly young people switched to lower risk KiwiSaver funds.

Sharemarkets go up and down, this is a normal part of investing. History shows us that after a fall they do go up again – it might just take time.

ARE KIWIS PREPARED FOR MARKET DOWNTURNS? When the sharemarket drops, some people sell up or move their investments to lower risk options. This means you lose the opportunity to ‘bounce back’ when markets recover.

We experienced a market dip at the beginning

HOW CAN WE PREPARE FOR MARKET VOLATILITY? Investing is a long-term game. Know what your investing goal is and remind yourself of your plan.

Make sure you are well diversified, know your risk appetite, and choose well-researched investments.

Humans are emotional creatures, and we have a number of biases that affect our investing. It’s natural, for example, to feel panic, but there are things we can do to respond in our better interests.

Avoid thinking of your investment account as a savings account. Don’t “doomscroll” and consider if you really need to keep checking your investment balance. Contact your provider or a financial adviser before making sudden decisions.

Try to become more mindful of the natural human instincts that drive us. We’re primed to make an active choice in a crisis. Not doing something is also a choice.

WHAT SHOULD INVESTORS DO IF THERE IS A MARKET EVENT? Remember that just because the value of your investments might have dropped, it doesn’t necessarily mean you’ve lost money.

If you’re well diversified and you stay the course, it’s likely the value will climb back again in time.

WHERE CAN READERS GO TO FIND OUT MORE? The best thing investors can do is empower themselves with knowledge. The FMA website (www.fma.govt.nz) has excellent free guides.

We’re also on Facebook, Twitter, Instagram and Linkedin.

Money

Talks

Join NZ Herald’s Liam Dann as he talks with interesting New Zealanders about their relationship with money.

Listen on iHeartRadio or at nzherald.co.nz/podcasts

THERE'S MORE TO KIWISAVER THAN CHEAP FEES Returns after fees are one of the things we think Kiwi should look at when choosing a KiwiSaver provider. Even a small difference in returns after fees could make a big difference over the life of your investment.

Find out more at kiwiwealth.co.nz

Kiwi Wealth Limited is the issuer and manager of the Kiwi Wealth KiwiSaver Scheme. For a copy of the Product Disclosure Statement visit www.kiwiwealth.co.nz