MARY HOLM’S TIPS HEY, PAY ME MORE! GET RICHER Frances Cook explains Martin Hawes: It's all How to get the best how to get a pay rise about risk and reward out of term deposits
608002 9 772744
ISSN 2744-6085
NZ$11.95 INC. GST
Will your properties still be profitable after the tax changes? opespartners.co.nz WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 2
The government tax changes will significantly impact property investors who own existing properties. From 1st October, the government’s interest deductibility tax changes started to come into effect. Investors will pay more tax on some properties, and this new reality will change the types of properties Kiwi investors choose to buy. Here’s what that means for you as a property investor. Any properties within your portfolio will gradually start to pay more tax. Once fully implemented, a property with a $600,000 mortgage will be about $5,000 worse off per year. While your properties might be cashflow positive now – providing a small passive income – you may soon need to top-up their bank accounts. But there are strategies you can use to avoid being punished by the new changes. Government announcements suggest that New Builds will not be impacted by these changes. With no extra tax paid, newly built rental properties will soon have a significant tax advantage compared to other properties on the market. This may make New Builds a more practical investment for you if you want to get ahead and earn the flexibility to live life on your terms. Opes Partners’ Finds New Builds Properties For Investors You can view New Build investment opportunities from developers around New Zealand when using Opes to find your next investment property. This includes projects from developers with a national brand name and smaller organisations that only the locals know. • Investment properties sourced from 47 different developers • 63 projects currently under construction • We find investment opportunities across the country • Investment recommendations based on solid economic analysis • The New Build-finding service is provided complimentary. We are paid by the developer when we find the right investment property for you.
The simplest way to become a property investor. Go to www.opespartners.co.nz to learn about our New Build finding service.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 3
Contents IN THIS ISSUE
REGULARS
12 What We Like
46. Are We at the Bottom Yet?
We find the hottest products, services, and places.
Pie Funds CEO Mike Taylor explains how to keep a cool head during tough times.
14 Subscribe to Informed Investor Subscribe to informed Investor for just NZ$20 for 4 issues at www.informedinvestor.co.nz.
48. Strategies to Survive Volatility When market corrections happen, you can hedge this risk, says Chris Smith, of CMC Markets.
52. Why Women Struggle With Separation PERSONAL FINANCE
Women are separating ill-equipped to cope with money. Brenda Ward talks to Bridgette Jackson.
56. When Money is Tight
20. Get Better Returns
As living costs increase, more retirees are turning to reverse mortgages. Heartland’s Andrew Ford explains.
Can you get a safe investment with stellar returns? Martin Hawes suggests some strategies.
60. Survive the Cost of Living Crisis
24. The Overwhelm Effect
The cost of living is starting to bite. Amy Hamilton Chadwick says it’s going to get worse.
Worrying about money can lead to ‘overwhelm’. Lynda Moore talks about financial anxiety.
64. Can’t Earn Money? Get Prepared
28. Is it the Right Time to Quit?
If you can’t work, your life plan could go out the window. Kris Ballantyne says income protection insurance can save you.
The Great Resignation means there’s never been a better chance to earn more, says Amy Hamilton Chadwick.
66. Invest in Kiwi Tech Start-ups
32. How to Get a Pay Rise You can get rich faster by having more income to invest. Frances Cook explains how to get pay rises.
35. Mid-Career Crisis If your role isn’t the right fit, could you start all over again? Ben Tutty talks to people who did.
38. Why your Profile is Worth a Million Bucks When employers check out your LinkedIn profile, what should they see? Brenda Ward talks to expert Stanley Henry.
Cool companies and clever Kiwis lie behind this Innovation Fund. But it’s a high-risk investment, writes Amy Hamilton Chadwick.
68. How the TV3 Case Changed the Game TV3 journalist Tova O’Brien couldn’t break a restraint of trade clause. Charlene Sell explains what this means.
70. The Secret of Laddering Mary Holm says laddering term deposits should give you a better return from your bank.
40. Mr Bond Lives Again
74. Your Guide to KiwiSaver: First Home Buyer’s Guide
Perhaps there’s a case for owning bonds again, writes Mark Riggall.
KiwiSaver is a great way to save for your first home. Here’s a guide to help you reach your goal.
42. Inflation Negation
78. ESG: Why Good Governance Works
Can you use investments to safeguard your money against rising inflation? Ben Tutty discovers you can.
Victoria Harris, of Devon Funds, explains why the G in ESG matters.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 4
$0 commission on US share CFDs Back your views on Apple, Tesla, Netflix & more. Trade your way FX | Indices | Commodities | Shares | Cryptos cmcmarkets.com We will waive any ordinarily applicable commissions on US share CFDs for trades placed until 30 September 2022. Commission rates will be automatically updated on our trading platform. FX fees may apply. With derivative products, you could lose more than your deposits. You do not own or have any interest in the underlying assets. Investing in derivative products carries significant risks. Seek independent advice and consider our PDS and the relevant Terms and Conditions of Trading at cmcmarkets.co.nz when deciding whether to invest in CMC Markets products. CMC Markets NZ Limited (CN 1705324).
PROPERTY
84. Should I Use a Mortgage Broker? An adviser gives you a better chance of getting a yes (and it’s free), says Peter Norris.
88. Investing Across Generations Many people want to see their family set up for life. Scott McKenzie says that’s why PMG started the Generation Fund.
90. There’s a Clear Shift in Market Dynamics There's been a cooling in investor demand, but the property market is still attractive, says Jen Baird, Chief Executive at REINZ.
84
92. Buy a Business and Be Your Own Boss Buying a business could be the best investment you’ve ever made. Neil Barker explains why.
LIFESTYLE
95. Young Investor Get your young people learning about money to improve their financial skills.
96. Snuggly Style Take inspiration for your home as the season changes.
102
98. Wellbeing: A Better Version of Me Simple changes, and a policy of progress, not perfection, help Brenda Ward make lasting lifestyle changes.
101. Book Reviews Sarah Ell reviews two of the latest hot reads.
102. Travel: Tropical Breezes Crypto columnist Jenny Rudd drives across the world-famous bridges of the Florida Keys.
104. Fashion: Winter Warmers Rich russets and tawny tones get you ready for winter weather.
MARKET INSIGHTS
110
106. Going Up, Going Down Economist Cameron Bagrie takes a good, hard look at New Zealand and how we are going as a nation.
110. Bitcoin Scales Up Jenny Rudd went to Bitcoin 22 and discovered that changes are revolutionising crypto.
114. Snapshot We take a look at some of the events around the world affecting the global economy.
116. The Good Fight Against Inflation Optimism for 2022 went out the window, says Greg Smith. But if we can get inflation under control there could be positives ahead.
118. How Will Ukraine Hit the Markets?
118 WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 6
The war in Ukraine will affect equity, bond, currency, and commodity markets. Andrew Kenningham suggests some outcomes.
Find an insurance broker or adviser at vero.co.nz
EDITOR’S LET TER
Published by: Opes Media Informed Investor Level M, 17 Albert Street, Auckland Central, Auckland. www.informedinvestor.co.nz
It’s All About You The keys to earning more are within reach, writes Brenda Ward.
Investing is all about generating returns, seeing interest build up, and buying assets that will go up in value, right? No, there’s something else – there’s the value of you. A really important factor few people realise is that your pay packet is closely tied to investing. Simply put, you can’t invest if you have no money left at the end of the week. So, in this issue we look at ways of boosting your earning power. An extract from Frances Cook’s new book tells us a new job is the best time to get a pay rise, but she also has top tips for twisting your boss’s arm when you ask for more money. Social media guru Stanley Henry explains how to increase your personal value in the workplace by giving your LinkedIn profile a facelift.
If you’re thinking of shifting up a gear at work, you’re not alone. Our story on the Great Resignation shows more of us are leaving jobs or retiring than ever before. Amy Hamilton Chadwick finds out why. Also in this issue, you’ll learn how to get better returns, how to deal with volatility without panicking, and what to do when you’re overwhelmed with money worries. This editor’s letter is the last you’ll read from me. I’m sad to be leaving but I’ve taken on an exciting new role at BusinessDesk. I leave the magazine in great hands and with a wealth of fascinating topics to entertain and inform you. I hope it’s helping you to have a richer, more comfortable life.
And is a career change the right move for your personal development? Read our story on The Mid-Career Crisis.
Brenda Ward Informed Investor Editor
Editor Brenda Ward – brenda@informedinvestor.co.nz
Resident economist Ed McKnight
Art Director Mark Glover
Printer Crucial Colour
Senior Writer Laine Moger
Retail Distributor Are Direct
This magazine is subject to NZ Media Council procedures. A complaint must first be directed in writing, within one month of publication, to the editor’s email address, brenda@informedinvestor.co.nz. If not satisfied with the response, the complaint may be referred to the Media Council PO Box 10-879, The Terrace, Wellington 6143; info@mediacouncil.org.nz. Or use the online complaint form at www.mediacouncil.org.nz. Please include copies of the article and all correspondence with the publication. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 8
Informed Investor is an investment magazine published quarterly by Opes Media. You need Informed Investor’s written permission to reproduce any part of the magazine. Advertising statements and editorial opinions in Informed Investor reflect the views of the advertisers and editorial contributors, not Informed Investor and its staff. Informed Investor’s content comes from sources that Informed Investor considers accurate, but we don’t guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk: Informed Investor magazine is not liable to anybody in any way at all. Informed Investor does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. Informed Investor magazine does not give any representation regarding the quality, accuracy, completeness or merchantability of the information in this publication or that it is fit for any purpose. To advertise in Informed Investor, you must accept Informed Investor magazine’s advertising terms and conditions. Please contact Stephanie@informedinvestor.co.nz about advertising. Informed Investor is printed on environmentally responsible paper. The paper is produced using elemental chlorine-free pulp, sourced from sustainable and legally harvested farmed trees. The magazine is recyclable. PRINT ISSN 2744-6085 DIGITAL ISSN 2744-6093
crane-brothers.com
Meet Some of Our Contributors CAMERON BAGRIE
STEPHANIE BRYANT
Cameron is the managing director of Bagrie Economics, a boutique research firm. He was previously chief economist at ANZ, a position he held for over 11 years.
Stephanie is Informed Investor’s new advertising manager. She also sells advertising for another Opes Media magazine, NZ Property Investor.
MARTIN HAWES
MARY HOLM
Martin is the chairman of the Summer KiwiSaver Investment Committee. He’s an authorised financial adviser and offers his services throughout New Zealand.
Mary writes in the Weekend Herald, presents a financial segment on Radio New Zealand, and is a best-selling author. She’s a former director of the Financial Markets Authority.
MARK RIGGALL
CHARLENE SELL
Mark is a portfolio manager at Milford Asset Management. Previously he worked with Morgan Stanley in London and Hong Kong as an equity derivatives trader.
Charlene Sell is a partner at Wynn Williams. She advises businesses and not-for-profit organisations on legal matters for their day-to-day operations.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 0
FRANCES COOK
VICTORIA HARRIS
Frances Cook is a reformed money mess who now works as a personal finance writer. She is the author of two books on investing. The latest is Your Money, Your Future.
Victoria is a Portfolio Manager at Devon Funds. She has over 10 years’ experience in financial markets, across a broad range of markets, specialising in ESG.
LYNDA MOORE
ANDREW NICOL
Lynda Moore spent 20 years in her own accounting practice before co-founding Money Mentalist. She blends psychology and neuroscience with money coaching.
Andrew is an authorised financial adviser and the managing partner of Opes Partners. He has more than 15 years’ experience in banking, finance, and property.
CHRIS SMITH
MIKE TAYLOR
Chris is the general manager at CMC Markets. He has more than 15 years’ investing experience in financial markets, global equity, commodity, and forex markets.
Mike is the founder and CEO of Pie Funds. He’s also Portfolio Manager of Pie Funds’ Chairman’s, Global Growth 2 and Conservative Funds.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 1
REGULARS
What We Like A showcase of the hottest products and places that are the talk of the town. Fable tells a beautiful story What’s not to like about golf, skiing, breathtaking scenery and great food and wine? There is somewhere where you can get it all, at a luxury resort in Canterbury. The iconic Fable Terrace Downs Resort has just started a new chapter with a new owner after becoming part of the Fable brand in March. Just an hour’s drive from Christchurch and nestled in the shadow of Mount Hutt and the Southern Alps, the luxury resort has become a destination in its own right. It features a prestigious 18-hole golf course, a clubhouse, restaurant, conference, event facilities and 25 luxury villas. CPG Group Operations Manager, Ronnie Ronalde, says the opening of this, Fable’s third property in the South Island, signals a new chapter for the resort. “It has a rich legacy in this area and we’re looking forward to elevating Fable Terrace Downs Resort even further to become the premier luxury resort in the Canterbury region.” Golf draws many to the resort. Views over the Southern Alps and the Rakaia Gorge make it a truly unique scenic alpine course. The par-72 Fable Terrace Downs Resort golf course was designed by Sid Puddicombe and has been ranked by New Zealand Golf magazine in the country’s top five courses. If you want more than golf, there’s also horse riding, archery and clay bird shooting available. After a day skiing or playing golf, enjoy the best of local produce at The Clubhouse Restaurant, which has a menu focused on local inspiration, whole foods and sustainable produce. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 2
W H AT W E L I K E
Softy, Softly Cashmere has long been referred to as ‘soft gold’, says the Kiwi founder of Modern Love Cashmere, Jo Lloyd. “It’s the standout choice for warmth and versatility, while the composition of the fibres allows for a higher level of design,” she says. “Also, if like me you can’t wear wool next to your skin, cashmere is a dream.” Lloyd has designed a collection of cashmere winter classics designed and made using 100 per cent pure cashmere, meaning it has not been mixed with other yarns. She believes consumers today are demanding more sustainable choices, so she supports a move to slow fashion – to pieces that are not trend-driven, but wearable season after season. She also traces each garment to the fair-trade Mongolian farm the yarn was sourced from. Lloyd launched her brand in 2020, after a long love affair with cashmere. “I can still remember buying my first piece, aged 23, at a vintage cashmere store in New York,” she recalls. “It made me feel like one of the models you saw stalking around Soho! It was a beautiful shade of pink, so soft, and when I pulled it on with my black jeans and high suede boots, I was enthralled.” Lloyd says she’s part of a huge trend globally. “The market for luxury goods has taken a notable step away from short-lived trends. “Modern Love Cashmere is part of that movement – a boutique retailer with sustainability at the core of the brand, starting at the very beginning of the supply chain. “Each batch of yarn can be traced right back to the goat, and farm it comes from. “To know that the animals, farmers and grasslands are being looked after and protected is incredibly important to me, and to our customers.” www.modernlovecashmere.co.nz
Think pink Yes, it’s a beer, and yes, it’s pink! Garage Project and Resene have joined forces for a colourful craft beer they’ve called Scrumptious. The beer’s soft kettle sour base has been saturated with purple pitaya (dragonfruit) and pineapple. It pulls off a convincing taste sensation matching the fuchsia of Resene’s Scrumptious paint colour. The collaboration was born because both businesses started in Wellington garages. Resene’s first ColorShop is just metres away from Garage Project’s Wild Workshop, so it made sense they should join forces. Buy it at www.garageproject.co.nz WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 3
Subscribe for just $20 For 4 issues of Informed Investor (one year)
Never miss an issue! Informed Investor (formerly JUNO) magazine is a New Zealand luxury investment and lifestyle magazine which explains in plain English your financial options and how to build wealth. It covers the share market, property investment, KiwiSaver, personal finance, the economy, books, travel, and all the good things in life you can buy when you invest wisely.
Subscribe now and get one year (4 issues) of this premium magazine for yourself or a friend, for just $20, a saving of $27.80. Or subscribe for two years and get eight issues for just $40. Go to: www.informedinvestor.co.nz/subscribe
Terms & Conditions 1. All prices for magazine subscriptions include free New Zealand delivery. 2. Please allow up to 10-13 weeks for your first delivery. 3. Your subscription will begin with the next available issue in late August 2022, and in most cases your magazine will be in your hands before it goes on sale in the shops. 4. Informed Investor magazine is published by Opes Media Limited, which handles delivery and stipulates the lead time shown above. 5. Offer expires on 20 August 2022. 6. Offer available to New Zealand postal addresses only.
“The key to
performance in 2022 will be nimble stock picking.”
MIKE TAYLOR Founder & CEO
Boutique. Bespoke. For you. Contact us on 09 486 1701 to find out how we can help you.
PIEFUNDS.CO.NZ
In times of high volatility, defensive, solid sectors like infrastructure and healthcare can perform well. Infrastructure has been a stable sector when the outlook is uncertain, and when consumer discretionary spending is under pressure due to rising costs. Companies in the infrastructure industry have provided strong opportunities for the Australasian Dividend Growth Fund. One example of this is Johns Lyng Group, an Australian-based building and restoration services company. There is strong demand for this type of work, particularly after the severe weather events in Australia. Digital infrastructure has been a strong-performing area too. Uniti, an Australian company, provides broadband internet infrastructure. Uniti is the fund’s largest position; a position justified by the multi-year growth profile, defensive nature of cash flows and strong demand for fibre assets globally, supporting its valuation. Pie Funds’ active management strategy means we can also be nimble and take advantage of opportunities in growth companies and sectors across Australasia, in this ever-changing environment. This strategy is used for our award-winning Australasian Dividend Growth Fund. Its portfolio favours companies exposed to structural growth tailwinds, led by founders or management with skin in the game. The fund has a risk rating of 5 out of 7 (high risk).
Pie’s award-winning Australasian Dividend Growth Fund: + Aims for long-term capital growth + Makes six-monthly distribution payments + Invests in hand-picked smaller high growth Australasian companies
YEA
RS
ESTABLISHED 2011
ND GROWTH F DE UN VI I D
D
GROWTH END FU ID N IV
D
D
+ Has been one of Pie’s best performing funds
SED UALI ANNINCEPTION E C SIN
Past performance is not a reliable indicator of future performance. Returns can be negative as well as positive and returns over different periods may vary. View the Product Disclosure Statement (including details of the risks associated with this fund), plus our duties and complaints process and how disputes are resolved at www.piefunds.co.nz. Figures are after fees and before tax as at 31 March 2022, showing the fund’s annualised return since inception of 18.1%. The market index return for the same period is 4.8%. Market index used is XSOAI S&P/ASX Small Ordinaries Total Return Index (NZD). Information is current as at April 2022. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. Pie’s Australasian Dividend Growth Fund has been named the winner of Research IP’s Australasian Equities Fund of the Year. Fund Manager of the Year Awards were announced by Research IP on 2 December 2021. These awards should not be read as a recommendation by Research IP. For further advice on the relevance of this award to your personal situation, please consult your financial adviser, or visit research-ip.com.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 8
ISSUE 33
WINTER 2022
Earn \ ˈərn \
(transitive verb)
1. To receive as return for effort and especially for work done or services rendered. 2. To bring in by way of return. – Merriam-Webster Dictionary
“
”
If you want to earn more, learn more.
– Zig Ziglar, author, salesman, and motivational speaker.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 9
YO U R I NVE STI N G
Get Better Returns The holy grail of investing is a safe investment with stellar returns. Martin Hawes has searched for 40 years and never found one, but he suggests some strategies that might work.
We all want our money to work as hard as possible, and to grow our money as fast as we can.
The trick with investment is to get the best investment returns for a certain level of risk.
Finding the best investments, the ones that will give us better returns, seems to be the name of the game.
We all want high returns with low risk, but after 40 years as an investor, adviser and financial author, and 40 years of hunting for such an investment, I have never found it.
However, the problem with investment is that every time you mention the word “returns” you have to remember the word “risk”. When people go out to get better returns, they often do so by taking on more risk. This may be no bad thing of itself but there is one big proviso: you have to be sure that you can tolerate that extra risk. History is littered with impoverished investors who have come unstuck because, in the good times, they took on more risk than was right for them. What is risk? Risk comes down to the proportion of shares and property which are in your portfolio, compared to the amount of fixed interest and cash. This is all about getting the right investment mix, called ‘asset allocation’ in the jargon. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 2 0
In fact, I can confidently say that such a paragon of an investment with low risk and high returns doesn’t exist. The first thing any investor should do is consider how much risk they can tolerate. If you take on too much risk, in the next major downturn you’ll end up very uncomfortable, and probably sell up at the bottom of the market. If you take on too little risk you’ll miss out on a good bit of return. You want the ‘goldilocks’ amount of risk, not too hot and not too cold. Check your risk level I’d encourage all investors to do a “risk calculator”. There are many of these tools available on-line. Government financial education site www.sorted.org. nz has one and some KiwiSaver providers have them.
PERSONAL FINANCE
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 2 1
YO U R I NVE STI N G
There are lots of people trying to do the same as you and for every winner, there’s a loser.
They’ll ask you a few questions and then tell you the type of investor you are (conservative, balanced, or growth). These descriptions are a way of expressing the amount that you should have in each of the main asset classes, that is, your asset allocation. In essence, these calculators ask questions about things like: •
Your financial capacity, which is your ability to withstand a major economic shock.
•
The length of time you’re investing for, because the volatility of shares and listed property mean that they need time to get their better returns, and
•
Your psychological makeup. If you worry a lot about your money, you’re more likely to be rattled out of the market in the next slump.
These kinds of questions will establish your risk profile and you need to be very careful before you even think about taking on more risk than your profile suggests. Once you know your risk tolerance and the asset allocation that you should have, you can start to think about improving your returns within that risk tolerance. How to improve returns There are three main ways to improve your returns. Pick the right shares First, you can try to improve your investment selection. This means that you try to select the best investments within each asset class, the best securities that will outperform the average. To do this, you’d spend a lot of time reading about and researching high-growth companies and companies that are under-priced compared to their future prospects. Pick the right industries Second, you could try to find the right industries and invest in them. For example, you may decide that automation and robotics is an area likely to achieve a lot of growth and, instead of trying to identify specific companies, you could buy funds that are based on these. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 2 2
Tactical Asset Allocation Third, you could use ‘tactical asset allocation’. This means that you temporarily tweak the asset allocation that you’ve set according to what you think will happen in the immediate future. For example, you may think shares are very expensive and, with other things that are going on, decide that a recession and market slump is imminent. In these circumstances, you’d sell down some of your shares to buy fixed-interest investments or hold more cash to wait for a future buying opportunity. Taking more or less risk is dangerous because predictions are always difficult and you may be stranded with too little or too much exposure to shares, but it can be a very successful means to extra returns.
None of these three things (tactical asset allocation, identifying the best future industries and selecting the best securities) is easy. There are lots of people trying to do the same as you and for every winner, there’s a loser. Nevertheless, I think it’s certainly better to do these things rather than just take on more risk permanently – and if you spend the time diligently researching, there’s no reason why you shouldn’t join the winners. The information contained in this article is general in nature and is not intended to be personalised financial advice. Before making any financial decisions, you should consult a professional financial adviser. Nothing in this publication is, or should be taken as, an offer, invitation or recommendation to buy, sell or retain a regulated financial product. Martin Hawes’ disclosure document can be found at www.martinhawes.com
Booster Innovation Fund Supporting the next generation of innovative Kiwi start-ups.
Search BIF on NZX or visit booster.co.nz/bif
Early-stage company investing is generally considered the riskiest type of equity investing because many more early-stage companies fail than mature companies. You may lose some or all of the money you invest. You should consider whether the degree of uncertainty about the fund’s future performance and returns is suitable for you. See the PDS for the risks associated with investing in this fund. Booster Investment Management Limited is the manager and issuer of the Booster Innovation Scheme, Booster Innovation Fund (Fund). The Product Disclosure Statement for the Fund is available at www.booster.co.nz
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 2 4
PERSONAL FINANCE
The Overwhelm Effect Worrying about money can put us at risk of ‘overwhelm’, says Lynda Moore. Here’s how to deal with financial anxiety.
Does the idea of checking your bank balance leave you in a cold sweat or with a feeling of dread? If it does, you could be suffering from ‘overwhelm’. The technical term for overwhelm is financial anxiety. First, you need to understand that anxiety is a normal emotion.
that financial anxiety was ranked number two in terms of what is stressing Americans out. I think it would be the same here in New Zealand. Before I go any further, let me just bust a myth. Financial anxiety doesn’t just happen to people who are struggling financially. It can hit you regardless of your net worth, income, or financial stability.
It’s a healthy, temporary response to stress, and it shows up in the way we think, feel, and behave.
Know the signs How can you tell when overwhelm is affecting your life?
It’s anxiety that gives you the sweaty palms, dry mouth and dread feeling in your tummy you get before you make a speech or do something outside your comfort zone.
When we are feeling anxious, we go into Fight, Flight, or Freeze mode.
We’ve all felt like this and it’s fine. In small doses anxiety can be beneficial. With financial anxiety you feel the same – on edge, nervous and worried about money – and the feeling isn’t going away. We’re seeing more overwhelm It’s not too surprising that after two years of living in a pandemic, financial therapists like me are seeing more cases of financial anxiety. In April 2020, not that far into the pandemic, the Financial Therapy Association noted
We do things to make the anxiety go away. We make unwise choices: like sitting on the couch watching Netflix with a bag of potato chips instead of heading out for a walk and getting some fresh air and exercise. From a financial perspective, this can lead us to make irrational decisions, like buying a brand-new big-screen TV when we’re facing job uncertainty and we’re worried about paying our rent. We don’t think through our decisions, or we’re paralysed and avoid making any decisions at all. These symptoms can all have a long-term impact on our future financial security.
Distorted thoughts We get caught up in the Thought – Feeling – Behaviour cycle. Our thoughts become distorted, or just not true – but we think they’re true. We tell ourselves: “I’ll never get my spending under control. I’m doomed, I’ll never have enough money for retirement. I’ll never be able to buy a house. I’m such an idiot.” Then the anxious feelings kick in. We worry, we feel on edge and nervous. This can also show up physically with a tightness in the chest or throat, stomach aches, tension, or headaches. You may notice these feelings more when it’s time to pay the bills, log into your bank account, or when you need to have a conversation about money with your partner, or boss. If you’re waking up in the night with your stomach churning because you’re worrying about money, that’s a pretty good indicator that you have some level of financial anxiety going on in your life. Two sides of the story The two ends of the behaviour’s spectrum are ‘perfectionism’ or ‘procrastination’.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 2 5
YO U R I NVE STI N G
•
•
Perfectionism shows up as being superorganised, rigid, and inflexible. You’re over-researching everything, constantly refreshing and checking banking apps to make sure everything is correct. Procrastination is just not starting things: “I’ll do it tomorrow”. And as we know, tomorrow never comes. So, you don’t cancel subscriptions you no longer need. You don’t fill in the forms to increase your KiwiSaver contributions. You don’t look at your banking app and you continue to overspend.
Take back control How can you take back control of your life and commitments? Recognising you have the signs of financial anxiety is a good place to start. Realise it’s just a stage. You can move through it and come out the other side. You might just need some help and some tactics to help relieve the anxiety. Listen to your thoughts. Have a conversation with yourself and find proof against the thought. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 2 6
How true is the thought, “I’ll never get my spending under control”? Think of times when you haven’t spent all your money. Be aware of your feelings. If your heart is racing before you open your banking app, take a few deep breaths first and ground yourself in the here and now, not the past or future.
Financial anxiety can hit you regardless of your net worth, income, or financial stability. If you’re stuck in perfectionism, set yourself a challenge to not open your banking app for 24 hours. Set some boundaries to slow yourself down. If you’re procrastinating, you need to do the opposite. Set a time to do whatever it is you need to do. Start with a tiny 10-minute task and build up from there. You might need to set an alarm to make sure you do it!
Do I need help? If anxiety isn’t dealt with, it can spiral out of control into depression. Don’t let it get that far. If the techniques I’ve suggested aren’t helping, and you’re feeling even more anxious, then ask for help. Talk to your partner, a close friend, your GP, or a financial therapist. Find someone you can trust to have an honest and open conversation with about how you’re feeling. This is not the time for a stiff upper lip, fix-it-myself mentality. At some point in our lives we’ll all feel financial anxiety, even if just briefly. Help others, too If you see warning signs in others, ask if they’re okay. Don’t push your views or offers of help too hard, as you may not know which stage they’re in – fight, flight, or freeze. Suggest they get some help. When they’re ready to face their anxiety, let them know you’re there to support and help them in any way you can.
YOU’RE 1 IN
Everyone has different hopes, dreams and of course health needs. At nib our purpose is your better health, we’re here to help Kiwis and their families live healthier and happier lives. We also believe healthcare shouldn’t be one size fits all. Speak to an expert adviser who can help tailor health plans, that put you and your wellbeing first.
To find out more, talk to your financial adviser today. To find an adviser visit nib.co.nz/adviser-plans Terms and conditions apply.
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 2 8
PERSONAL FINANCE
Is it the Right Time to Quit? Across the globe, workers are quitting their jobs. And this means there has never been a better opportunity to earn more money, says Amy Hamilton Chadwick.
Since 2021, we’ve been hearing about the Great Resignation: employees quitting their jobs in huge numbers. In the US, 4.4 million people quit their jobs in February this year, driven by factors like low wages, job dissatisfaction, and people’s changing priorities, thanks to the pandemic. Lockdowns made people reassess their lives, and some realised they didn’t like their jobs, or couldn’t face returning to the office after working from home. Online movements like r/antiwork on Reddit fuelled the fire, championing those who demanded better conditions or quit. Most workers moved on to higherpaying jobs, but some left the workforce altogether, leading to labour shortages that have been exacerbated by widespread Omicron infections. Employers beg for staff Have we had our own version of a Great Resignation here in New Zealand? Yes and no, says economist Finn Robinson of ANZ. Our labour laws and healthcare make New Zealand a better place to be an employee than the US, he says. But New Zealand is definitely part of the global trend that’s seen the balance of power shift from businesses to employees. Where employers once called the shots, they’re now having to bend over backwards to keep their staff.
“A worker generates income for an employer,” Robinson explains, “and what share of that income the worker receives depends on how tight the labour market is. “Here we’re seeing quite a different dynamic to the post-global financial crisis period where employers could dictate terms. “Now we have close to record job vacancies, and employees can more easily get other job offers, so the employer has to pay up. “That fundamental shift from the previous labour market is one reason why inflation is expected to be so persistent over 2022.” Perfect time to hunt for a job With our borders closed for so long, our worker shortage has worsened, with businesses competing for the same pool of local talent. Employers have had to get creative to make themselves attractive, primarily with higher pay, but also with work-from-home options, greater flexibility, and more emphasis on treating employees well. All these factors are encouraging Kiwis to quit jobs they’re not happy with and make the switch into a new higher paying role or jump into an industry they’re more passionate about. It’s even attracting people to stay in the workforce longer or return from retirement, particularly in the face of rising household costs.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 2 9
YO U R I NVE STI N G
“In the US, millions of people left the workforce and never came back, which means a big chunk of the labour supply is gone,” Robinson says. “But in New Zealand, labour force participation is close to the highest it’s ever been. That’s surprising because structural demographic changes mean our workforce is getting older, so you would expect that to reduce participation. “Instead, higher wages are pulling people back into the labour force – whether that lasts is another question.” With unemployment at a record low, and underutilisation close to pre-pandemic levels, there are very few workers to go around, so employee negotiating power has never been stronger. It could get worse Kiwi workers have already jumped at opportunities to move up the career ladder, says Warrick Ryan, sales consultant at CCR Group, which specialises in bringing migrants to New Zealand for employment. Labourers, for instance, have taken their chance to get builders’ apprenticeships, setting them on a pathway to an extra NZ$7 to NZ$10 an hour. That’s leaving significant numbers of job openings that, before the pandemic, might have been filled by new migrants. But with our borders closed, bringing in migrant workers is much more difficult, which is putting the squeeze on employers. “Over the past couple of years, migrants coming here to work completely stopped,” says Ryan. “Our economy kept growing and developing, and now there are not enough people to do the jobs we need. “Unemployment is at 3.4 per cent, and the majority of people in that category don’t want to work. So, employers are having to pay high rates to get migrants to come to New Zealand to fill roles, but they’re prepared to do that because they just can’t find Kiwis to do the work.” Migrants can come here to work in specific roles where there are severe labour shortages, including ski workers, forestry, deep sea diving, vets, tech sector workers, teachers, and dairy workers. All these workers must be paid at least NZ$27 an hour, in some cases NZ$28 an hour, while ‘other critical workers’ must be paid NZ$40.50 an hour or NZ$84,240 a year. Each job is advertised locally at that rate before the employer can apply for an approval for a migrant worker – these rates are helping push up average wages in New WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 3 0
Zealand, but still don’t attract workers. “Even at $28 an hour, Kiwis are still not applying for those jobs,” Ryan says. “The border policies haven’t opened up quickly enough to keep the economy moving as fast as it could. “We’re going to miss the boat – the situation for employers is going to get worse before it gets better.” Wages likely to keep rising Ryan believes that the government isn’t going to return to the days of allowing large volumes of low-skilled workers to come here and fill minimum wage positions. That’s for the best, he says, because it should encourage businesses to invest more in productivity and not rely on low-paid labour – which means wages are likely to keep rising. Robinson’s forecasts agree. He says that while wages aren’t yet keeping up with inflation, real wage growth is on the cards for 2023 and 2024. “Wages are sticky. It’s much easier for them to go up than down. A decade of low
nominal wage growth is a hard habit to get out of, but we think they will catch up.” For employers, this means there’s no relief in sight. For the time being, it’s vital to find ways to hold onto your workers and attract new team members – or spend the time and money bringing in a migrant to do the job. It also means thinking hard about how to invest in systems or tools that will lead to higher productivity, so your business can run with fewer staff. Workers have the power If you’re an employee, you hold the balance of power in a way that has probably never happened before in your lifetime. This is a time of opportunity – whether that’s switching jobs, asking for a pay rise, or negotiating on some other aspect of your work that you’re not happy with. We don’t know how long this shift in balance will last, so make the most of it. This is your chance to either jump up your current career ladder, switch to a new ladder, or move into a job that does a better job of delivering the kind of lifestyle you want.
Invest like an expert (without having to be one)
Join an Investment Fund to invest with confidence $1,000 & you’re in Claudine, 27 — Digital Marketer Invests with Milford Past performance is not a reliable indicator of future performance. Please read the Milford Investment Funds Product Disclosure Statement as issued by Milford Funds Limited at milfordasset.com. Before investing you may wish to seek financial advice. For more information about our financial advice services please visit milfordasset.com/getting-advice.
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 3 2
PERSONAL FINANCE
How to Get a Pay Rise You can get rich faster by having more income to invest. Frances Cook explains how to get pay rises, how to be more valuable at work and how to be strategic, in this extract from her new book.
A new job is the best time to get a pay rise. You look for new opportunities, ones that sound like a good step up from where you are now. In the interview focus on the role and its responsibilities, and what you and the company can offer each other. And then when you are (hopefully) offered the role, you negotiate a salary that’s nicely above what you’re getting now. They’ve already offered you the job, so you know they want you. Try to get them to offer you a figure first – they know more about industry rates than you do, and you don’t want to name a figure that sounds like a lot to you, only to find out later you could have got more. Once they make you an offer, ask for something above that. Bear in mind, that’s how this dance goes every time. They will make you that first offer expecting you to ask for more. They’ve offered you slightly less than they’re willing to give. If you take that first offer, you’re leaving money on the table. When I was at journalism school, one of my lecturers told me about a job offer he had right when he was starting out. When he received the offer, he looked at the person and said, “Once I’ve been here six months, and have started talking to people, will I become unhappy with this offer?” They upped the offer. So, get all the information that you can. It’s your best weapon. After that, here are some concrete strategies to use. Ask for more This is almost too obvious to include, and yet, so many of us fail at this.
For starters, always negotiate when you start a new job. It’s so much easier to negotiate a higher amount at the beginning than it is to ask for a raise once you’re there. Once you’ve been offered a job, you then start negotiating how much you will earn for it. And I promise you, they expect you to negotiate. You also want to negotiate pay rises once you’re in a job, if you can. I’ve always found it helpful to think of it as ‘arguing from the other person’s point of view’. Don’t talk about why you personally want a pay rise. Your boss doesn’t care about that, not from a business perspective. But if you think about what matters to them, and argue based on that, it’s much more persuasive to them. Talk about what you’ve achieved for your boss or your company, how you’ve helped them achieve their goals, and why that should translate into more money for you. It helps if you’ve kept a running ‘show-off file’ of your best work, which shows your wins or money that you’ve brought into the company. Here’s a blueprint to start talking to your boss about salary. Ask your manager for a meeting to talk about ‘career growth’. Then ask for some clear goals of what they would like from you over the next year. Make sure it’s things that are solid, like a new skill they would like, so you can
immediately go and sign up for a free online course and learn it. Have these catch-ups with your boss regularly. Keep notes about the goals and how you’re achieving them. Then, when you want to talk to them about a raise, you have a solid case on how you’ve improved to hit their goals. One of the ways you can start the conversation with your boss is what’s called a ‘gratitude sandwich’. The first slice of gratitude bread is how much you enjoy working at the company. Then comes the meaty filling. You would like a pay rise, because of all the things you’ve been achieving and, according to your research, people doing that are usually paid X amount. Then you finish it off with a last slice of gratitude bread; that you love working there and you appreciate them taking the time to have this conversation with you. Become more valuable A company is essentially paying for the value you give them. So if you can spot the valuable skills, particularly rare ones, and then learn them, you’re going to be worth more. Which should eventually translate into you being paid more. If at all possible, it’s always best to upskill for free first, so that you don’t have to spend the extra money paying off what it took to get you there. There’s an amazing number of places where you can learn new skills for free. The first, of course, is your workplace. Say “yes” when you’re asked to take on new roles, to fill in for people. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 3 3
YO U R I NVE STI N G
You’re getting experience to add to your CV, and maybe even lining yourself up for a promotion if the company ever needs a new person in that role or area. They already know that you know how it works. It doesn’t even need to be filling in for roles that you’re interested in for the future. At the beginning of my career, I had a rule that I didn’t say “no” if I was asked to take things on. Even if I felt out of my depth, my rule was that I said “yes”, then did what I had to do to figure it out and do it well. This saw me filling in as a producer, a news director, and on all sorts of reporting jobs. I knew very quickly that I had no interest in becoming a radio producer but I continued to fill in for them, because why not? Eventually this led to having skills that I used in an entirely different area – hosting podcasts for the NZ Herald. I produced my own podcasts, as well as hosting them, and doing some of the audio engineering on them. I was very much a one-woman band, which saw projects handed to me sometimes because there was simply nobody else to do them. It worked out well for me and became an important step up on my career ladder. Other places to learn include the library, or tutorials on YouTube. If you really want or need a course, there are free courses from Yale, MIT, Harvard and elsewhere, all online.
So don’t be afraid to take opportunities for small talk; ask your co-workers if they want to grab lunch together or head to the pub.
These can help you learn the skills to level up at home or at work, even if you don’t have a piece of paper to show at the end of it.
This is how true alliances are made, and how new opportunities can come about.
Be smart, be nice… You have to show people what you’ve achieved for them. Success doesn’t come from quietly working hard – make sure people know it. I’ve rarely got jobs through interviews – I’m terrible at them. People need to know you, know your work. It helps if you’re not a nightmare to be around. But more than that, your work is only one of the factors that go into whether someone would hire you again or recommend you for other jobs. The other one is how well you fit in with the team – and boy, I wish someone had told me this one earlier.
And be strategic Then find the roles in your current field for which people are paid more. Start moving yourself in that direction with the extra skills you pick up, the people you network with, and the extra work you take on. I know, ‘networking’ is a horrible word that makes you sound slimy. It really just means getting to know the people working in that area. People like to hire a known quantity – so if they know you, and know you do good work, you’re already well ahead. We all want to work with people who aren’t painful to be around. It’s amazing how far you can get by being a team player and being pleasant.
If you sit in the corner quietly, working hard, and then head home, the sad truth is that people will barely notice your work.
The flip side of this is that you also need to market yourself. Unfortunate but true – you’re not going to get credit for something if people don’t know you did it.
Being someone who knows how to make sure others on the team look good, who can lend a hand, or just share a joke, can get you surprisingly far.
Make sure those you report to know what you’re achieving. And bite the bullet and go to a few industry events so that you can get to know others in your field. That’s how you
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 3 4
find out about new opportunities before they even officially exist. Be ready to walk away Research shows that those who ‘job hop’ end up earning more money overall. You don’t want to change too often, but every two years or so is often what employers see as acceptable – the median time for people to spend in any one job is between three and five years. If you’ve gone to the effort of improving your skills, building good relationships and building up a good portfolio of work, you’ve made yourself an enticing prospect to other employers, too. If you get another offer, then you can negotiate and see whether your current employer wants to offer more to keep you. The one warning I would give here is, don’t bluff. If you tell your current workplace that you’ve had an offer and that you want them to match it, they could decide they’re fine with letting you walk. Be well prepared and accept that you may need to take up the new offer. This is an extract from Frances Cook’s book Your Money, Your Future (Penguin Books, RRP $35).
PERSONAL FINANCE
Mid-career Crisis If your role isn’t the right fit for you, could you start all over again? Ben Tutty talks to people who retrained and now work in fulfilling roles.
Most of our waking adult life is spent working. Despite that, around 40 per cent of Kiwis hate their jobs, according to a recent survey by culture coach Shane Green. Are you one of them? If you are, there are probably several reasons why changing jobs or retraining seems difficult or downright impossible. And the fact is, you’re right – changing careers is a gigantic undertaking, a leap into the unknown. But for some who’ve found a new calling, it’s well worth the trouble. Crisis sparked a career Liz Barry studied her masters in pharmacology at the University of Otago and got a high-flying job for a large drug company. It aligned with what she wanted to do, and what she felt she should be doing, but for some reason the job was the wrong fit. Then Barry’s parents were killed in a car accident. As the oldest of four, she took on the role of mentoring her brothers and guiding them through life’s obstacles, not to mention their careers. Something about mentoring just felt right. She felt this was her calling so she now runs a thriving Auckland business as a life and career coach.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 3 5
YO U R I NVE STI N G
“There’s an unease when you know your job isn’t right. Sometimes it takes life whacking you with a four-by-two for you to realise you’re doing the wrong thing,” Barry says. “We’re often too worried about what we’re socialised to become by our culture and the people around us that we don’t listen to our intuition.” Barry reckons once you face up to the fact you need to change it’s absolutely terrifying – but also liberating. Soul search, research, job search When I got my first big-kid job writing for an online business it started off great, then something changed and suddenly I hated it.
apparently isn’t the best way to change careers. Barry says instead of getting a facial rash and quitting out of the blue, there’s a threestep process you should try first – soul searching, researching, then job searching.
It’s about tapping into your network, getting out there and meeting people and talking about what you want to do.
I’d feel nauseous as I walked to work every morning and I got eczema all over my face from anxiety and lack of sleep.
“Soul searching is all about looking at your values and your personality type. It’s not about looking at what you’re good at but what skills you’d like to use; what you’re interested in.
I ended up leaving suddenly one day and doing odd jobs to pay my rent, which
“If you have no idea, think about what conversation topics spark your interest,
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 3 6
which movies you watch, what you’re reading. There are career clues everywhere.” Once you’ve taken a good look at yourself and figured out what you really, truly want to do, she says it’s on to step two. “Research. Do your due diligence. Research the job market. Speak to people who already do the jobs, find out if you really need a degree to do the work.” Most people skip step one and two and go straight to job-searching, which Barry says is a big mistake. She adds that job searching isn’t purely about jumping on Seek – to get the best jobs you have to access the hidden market. “It’s about tapping into your network, getting out there and meeting people and talking about what you want to do. “LinkedIn is awesome for a place to start.
PERSONAL FINANCE
Think about how you articulate your value proposition and convince someone you’re worth their time and money.” Why it’s worth it Soul searching, researching and job searching is a lot of hassle. Is it really all worth it? Hannah, a psychotherapist from West Auckland, says her career change definitely was worth it. “I was in a senior human resources position at an infrastructure company in Auckland. It was a good job and good money but it didn’t excite me. “I wanted to do something that I was passionate about and make a difference.” While she was soul searching, Hannah realised she liked the parts of the job where she supported the development of young graduates and looked after employee
wellbeing. So, five years ago she started retraining in psychotherapy. “I was studying full-time and working part-time and it was so difficult to switch between the corporate mindset and being a student. It was a huge life transition.
The big thing I’ve lost is money. That’s not my priority, but for some people it is. That may stop them changing careers and that’s OK. ‘’Psychotherapy was much more demanding academically and personally than I thought it would be. There were times when I wondered what I’d gotten myself into.” Hannah adds that there was stress about whether she and her partner could
manage financially, but in the end she got her masters in psychotherapy and now has her own small practice. She says she had to make sacrifices but in the end it was worth it. “The big thing I’ve lost is money. That’s not my priority, but for some people it is. That may stop them changing careers and that’s okay. “Being a woman, I also would have started a family earlier if I’d stayed in HR. If I was still in a stable corporate job, I would have been hanging out for maternity leave, but that wasn’t an option for me. “That said, I wouldn’t change it for the world. I’m 100 per cent certain I did the right thing. “It was really, really hard, but I’m so glad I made the change.” WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 3 7
YO U R I NVE STI N G
Why Your Profile is Worth a Million Bucks When employers or clients check out your LinkedIn profile, who do they see? An expert or a missed opportunity? Brenda Ward talks to Stanley Henry of The Attention Seeker.
A potential new employer checks you out on LinkedIn. Do they see an impressive CV, that you’re influential, and that you have a welldeveloped network of high-calibre people? Or will they just see an old photo, an outdated resumé and a few dozen connections? Stanley Henry of The Attention Seeker says that’s not enough to get the most out of this influential social platform. He says the first thing many people do after meeting you at an event, being referred to you as a potential client or seeing your job application is check out your LinkedIn profile. And they’ll judge you on it. “Nothing is as effective as personal reputation and relationships in business,” he says. “Networking and connections are part of ‘your brand’. So, don’t leave it to chance. Control it.” If you’ve neglected LinkedIn, it’s not too late to start now, he says. “You can become influential within your own personal or business circles. LinkedIn creates opportunities every day. And it’s not just for when you’re looking for a job.” WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 3 8
Stanley returned to NZ at the end of 2019 and started The Attention Seeker, just before the first lockdown in 2020. Now he leads personal branding and marketing for multimillion-dollar companies in New Zealand and internationally, has a team of 14 in Auckland and outsources work to the Philippines. A fast-growing platform In 2016 there were just 1.5 million Kiwi users of LinkedIn, but by February 2022, there were 2.3 million. That’s 47.7 per cent of the entire New Zealand population, and 1.4 million of those are people aged 25 to 34. So, why is LinkedIn worth your time and effort, and how can your profile be worth a million bucks? There have been changes at LinkedIn, says Henry. “It’s optimised its algorithm to show relevant content from within a network instead of allowing big influencers to dominate. “Unlike other platforms, this lets small
companies build and grow, not just corporations.” Small start-ups can turn into businesses worth millions or billions by using business-to-business marketing on LinkedIn, says Henry. He cites the example of the owner of a small IT startup he worked with. “It started with a team of two. “Through the power of digital marketing via LinkedIn, the business has grown to having 36 clients and a massive following within its industry. He’s on his way to becoming a thought-leader.” The rise of the thought-leader For a chief executive to become an industry expert, they need to become a thoughtleader in their industry, says Henry. “A thought-leader is more than a marketing strategy and a way of promoting your ideas, your role and work of your company. It can help change the nature of your company culture and industry. “The content you produce as a thoughtleader can help raise the value of ideas and the spread of information in general. You
PERSONAL FINANCE
become a person people want to associate with and connect with.” He says LinkedIn is the perfect platform to host that content and nurture that community. How to use LinkedIn Here’s how to build a digital influence fast, says Henry: 1. Start by using your personal profile. Who you are on LinkedIn is far more powerful than any company profile and will give you more organic reach. Building a personal brand is about ensuring others know you as a person first. 2. People build rapport much faster with faces so we recommend candid shots in a work or professional environment. 3. When you use LinkedIn, think about the content you post. Focus on the why, rather than what you do. Approach each post as a thought-leader within a company, rather than from a company perspective. 4. If you’re a small or medium business, people love it when you share your
business journey – both good and bad. Be authentic with your storytelling. Share the wins, the lessons you have learnt. How have you grown from the experience and what did you learn to help you in the future? 5. If you’re a chief executive or leader, why do you get out of bed every day? What are your core beliefs? What conversations do you want to have? How can these be related to leadership, failure, community, networking, entrepreneurship and team. Post on these subject matters three to five times a week, and also interact with others’ posts. 6. LinkedIn is a conversation, not a speech, says Henry, so engagement is important. Comment and engage with other people’s posts. It’s about having professional conversations. As a user, you don’t need to make your own content, you can comment on other people’s posts instead. They get a notification along with everyone who interacted with that post before you. LinkedIn also displays your
engagement within your network, so your connections know what you’re interacting with. 7. Being consistent is key. Content on LinkedIn doesn’t stay around long. It’s not like social media platforms where your entire profile is content. We recommend dedicating a minimum of 10 minutes a day on the platform so your connections are still seeing you. It is a small time commitment to invest in your business connections and peers, so pick a set time you’ll spend on it and don’t go over it. 8. LinkedIn isn’t stupid. Sharing company content doesn’t really get you much reach. If you want company content to get more reach, you need to pay LinkedIn and run ads. Says Henry: “These strategies are all things we have done as a company at The Attention Seeker to create a seven-figure business.”
www.theattentionseeker.com WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 3 9
YO U R I NVE STI N G
Mr Bond Lives Again The spectre of the death of the bond is receding, writes Mark Riggall, portfolio manager at Milford Asset Management. And he suggests perhaps there’s a case for owning bonds again.
Late last year I wrote an article about the dire outlook for bonds. It was called “So, you expect me to perform? No, Mr Bond, I expect you to die”.
That compares to New Zealand shares, which have fallen by 4 per cent over the same period and global shares which are up 2 per cent over the same period.
These returns aren’t that attractive versus inflation running at 5.9 per cent, but at least now there’s a reasonable alternative to holding cash.
Declining bond returns were expected to have an impact on the performance of diversified funds that hold bonds, including KiwiSaver. They did.
Unfortunately, bond-heavy Conservative funds have borne the brunt of this, largely underperforming Growth funds on a oneyear basis to end of March, despite the falls in share markets this year.
The prospects of future returns are looking better, given these more attractive yields, but what about the risk bond prices might fall further as even-higher interest rates are priced in?
So, bonds have been a terrible investment recently, but should investors still steer clear?
In New Zealand, the Reserve Bank is expected to hike rates to over 3 per cent by the end of 2022.
Yields look more attractive The falls in bond prices mean yields going forward are now much more attractive. The yield on a five-year New Zealand government bond was around 3.3 per cent at the start of April.
In the US, interest rates are expected to rise to 2.5 per cent at the end of 2022. With global inflation high and still surging, such expectations of rate hikes are understandable.
Since then, bonds have been terrible performers. Shares have also seen some volatility this year, but global investor appetite for shares appears to be relatively undimmed, with evidence of significant buying from global retail investors this year. Is it time to switch? Can we make a case for owning bonds and is it shares’ turn to kick the bucket? Since July last year, the S&P New Zealand government bond index has fallen by around 9 per cent to the end of March 2022. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 4 0
Yields on offer haven’t been this high since early 2015. Yields on five-year high-grade corporate bonds in New Zealand are around 4.5 per cent.
But given the large amount of hiking already priced in, and significant uncertainty about inflation and growth outcomes on the other side, it’s reasonable to assume that we’ve already seen much of
E XP E RT O P I N I O N | M I L F O R D AP SE SR ET EN T S OMNAANLAFGI E NM AN CE
the weakness in shorter-dated bonds. What’s more, if we see economic weakness later this year, chances are these bonds could perform well as investors rein back their expectations for rate hikes. What about shares? How about shares: do their inflationbusting properties mean they continue to be the asset class of choice? In theory, company revenues should rise along with inflation. After all, it is the companies that are setting the selling prices. However, input costs (including labour) are also going up. If consumer demand falls as a result of high inflation, then company margins could be squeezed and profits could stagnate. The starting point of valuations also matter for long-term returns. In times of
uncertainty, like now, investors demand higher future returns and therefore lower valuations.
In the background we can see surging inflation, rapidly rising interest rates and squeezed consumer budgets.
Global share markets are trading at a price of 17 times next year’s expected profits at the start of April, which is slightly higher than the 10-year average of 16 times.
An optimist would hope for a settling of inflation and growth at more modest levels in the next few months, requiring fewer interest rate hikes than currently expected.
While that’s only modestly expensive, it masks a huge divergence in valuations across different types of shares. •
•
High-growth companies have attracted a lot of attention (and investment) in recent years. This leaves them looking very expensive compared to both history and the broader market. Conversely, ‘value’ type companies are looking inexpensive. This segment includes less exciting businesses such as banks and energy companies, and some of these companies have valuations that are downright cheap.
A more cautious investor would be concerned about stagflation – persistently high inflation but stagnant demand. Whichever way the path goes, the outlook for investors is not necessarily poor. Some bonds are looking like solid investments for the first time in years. Meanwhile, share markets are still full of sensibly priced companies with reasonable outlooks. You just might have to look beyond what has done well over recent years. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 4 1
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 4 2
PERSONAL FINANCE
Inflation Negation Can you use investments to safeguard your money against rising inflation? Ben Tutty talks to the experts and discovers you can.
Making ends meet in a ridiculously expensive country like New Zealand is hard. A block of cheese will set you back about NZ$17, gas has almost tipped NZ$3 a litre and a house deposit could cost you an arm, a leg and your first-born. The worst part is – inflation is on the rise, so the cost of living here will probably keep increasing. Is this something we should be worrying about and preparing for? And what can everyday investors do to protect our wealth against inflation? The inflation situation Inflation, or the rising cost of goods and services, decreases the buying power of your money, or in other words, after inflation the same amount of money buys less stuff. When inflation is chugging along at 1 to 3 per cent, it’s usually a good thing for us and the economy, but when it’s higher for a sustained period it can be bad news. As of December 2021, inflation was running at 5.9 per cent and ANZ is forecasting it could rise past 7 per cent and beyond. For younger Kiwis this is an entirely new phenomenon, but Mary Holm, New Zealand’s foremost personal finance journalist, says older generations have seen this before. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 4 3
YO U R I NVE STI N G
If you’ve got long-term money sitting in the bank or a low-risk fund, be braver with that money, regardless of inflation. “If you were around in the 70s and 80s, inflation was up around 18 per cent, and we just got used to it. We got 16 per cent to 17 per cent on bank term deposits, but inflation was even higher.” As well as decreasing the buying power of your money, inflation can decrease the effectiveness of your investments. After all, an 8 per cent annual return doesn’t look too hot when everything costs 10 per cent more per year, does it? So what’s the solution? The secret to protecting and growing your wealth during inflationary times isn’t really much of a secret, says Holm. “Returns from shares and property tend to exceed inflation. Not always over the short term, but over the long term they do. “A recent study showed that if you invested a dollar in the US share market in 1900 you’d have $710 in 2000, after you adjusted for inflation – and around $17,000 when not adjusted.” Holm adds that the main thing during uncertain times is to think carefully about your investment horizons. Or in other words, when will you need to use the money that you’re investing? If you can wait more than 10 years, you may be better off considering higher-risk, higher-growth investments like shares and property. If you can only wait 3 to 10 years, you might look at bonds, while cash funds and term deposits might be your best bet for shorterterm stuff. Investing in high-growth assets over the short term is always risky and during times of uncertainty large dips in markets can be more frequent and pronounced, meaning you’re more likely to lose money. Opportunity in uncertainty Uncertain is one word for this moment in history, but that may be an understatement. There’s war in Ukraine, a global pandemic, fast-rising inflation, and Will Smith slapped Chris Rock at the Oscars. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 4 4
Despite that, Stuart Millar, chief investment officer of Smartshares, one of New Zealand’s leading investment platforms, says that uncertainty can present opportunities.
Businesses may absorb these rising costs in the short term, but when they continue to increase they may have no choice but to put their prices up.
“People naturally shy away from taking risks when things are uncertain, but actually it can be a good idea to do the opposite. To be contrarian.
Millar explains that while this is certainly true, inflation's roll may be slowing already.
“For example, look at those fallen angel stocks, like Tesla. Some of them have been smashed recently, so they now represent better value than they did a few months ago.” Millar adds that it’s also worth thinking about which assets usually perform well in inflationary or late cycle periods. This may include gold, infrastructure, commodities, and bonds. Last of all, you should keep the future in mind, because the fact is, super-high inflation may not be around forever. When will things get better? The problem with inflation is that it can snowball. For example, employees might go to their employers and ask for a pay rise because everything costs more – which in turn drives prices up further.
“The consumer can only stand so much, so there comes a point when they cut their spending, which can help slow inflation. “Central banks are of course hiking interest rates, which will slow the demand side, and some supply-side stuff and oil prices may ease soon.” What does all that mean for us everyday Kiwis and part-time investors? Mary Holm reckons it’s a case of sitting tight and perhaps even taking more risks. “Just weather the storm and see what happens. Don’t panic. “And if you’ve got long-term money sitting in the bank or a low-risk fund, be braver with that money, regardless of inflation. “Even if you put 25 per cent of your KiwiSaver into a higher-risk, higher-growth fund … just dip your toes in.”
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 4 6
EXPERT OPINION | PIE FUND S
Managing your emotions is one of the keys to investing success. If you can learn to stay calm, remain rational, and ride out the waves of volatility, you’ll likely do better over the long term. Here’s what I’ve found:
Are We at the Bottom Yet? It can be difficult watching your investments plummet as you wonder where the bottom is. Pie Funds Founder and CEO Mike Taylor explains how to keep a cool head during tough times.
Trying to time the market is difficult. That’s why you’ll hear investment managers say, “It’s about time in the market, not timing the market.” I’ve found that it’s very hard to work out when a market has reached the bottom. In all the market turns I’ve seen over the years, no one rings a bell. It’s very, very hard, even for investment teams to determine exactly when the market’s going to bottom out. Usually, it’s the time when you feel the worst, when you really feel like, “This is terrible, I need to just sell everything and crawl under the couch.” It’s key to always have in the back of your mind that markets do recover. But despite this, you still might be feeling anxious or worried in the short term when you see your investments drop and lose value. That’s a normal feeling. Nobody likes to see their investments drop in value, even if it’s just on paper. I’m afraid the year ahead probably has more volatility in store for us. The world is going through some big events (the war in Ukraine, oil prices and inflation, among others) which are having an impact on a lot of people, and markets can take time to recover.
It’s normal to want to “do something” But don’t do anything. In times like this, the impulse when the stock market dips is to do something. Anything. Our life savings are often on the line, after all. But don’t. Changing your investments during this time could end up costing your future self thousands or even tens of thousands of dollars. As well as that, feeling stressed and emotional is not a fun place to be, so learn some techniques that help. Staying rational is key to your success Staying calm and rational when it comes to your investments is a key part of long-term success. Many of us will be investors for most of our lives. Investing can be a good way to build wealth over the long term, but it is not worth losing sleep or getting upset over. Market ups and downs will happen many times during your investment lifetime, and sometimes these downs will be severe and dramatic. The important thing is to take it in your stride, and try to avoid getting angry, anxious, or upset. Investing is for the long term Investing is more about emotions than it is about having a high IQ. Even though we say we won’t, in the heat of the battle most people decide to sell in the face of fear. Many of us know we shouldn’t react, but emotions overcome us, and we do. Looking back at 2008 during the recession, the best investors were those who hung in and didn’t panic and withdraw their investments, so they didn’t lock in their losses. Even better were those who were buying when the world was selling. It wasn’t easy, let’s make that very clear, but they benefited significantly over the next few years as markets bounced back. Knee-jerk reaction changes based on the market can have major financial consequences further on. Long-term investors have time to recover. Know that volatility is simply part and parcel of the business of investing, and that staying focused – and educated – is the key to seeing through difficult times.
Be patient Being patient means you’re willing to wait until your plan materialises. Building wealth and financial security takes time, and you’ll likely encounter financial challenges along the way. But viewing your finances and investment portfolio as a lifelong journey can help you remain patient and stay on course despite these challenges. If you haven’t received financial advice and the last few months have been particularly unsettling, maybe it’s the time to talk with an expert. There’s inherent value in a trusted relationship with someone who can travel with you on your investment journey. Another reason for anxiety could be that your portfolio is not set up to suit your personal situation and risk tolerance. An adviser can help with this.
6 tips for staying calm in a market dip •
Don’t check your investments too often. Every six or 12 months is good for most people.
•
If Facebook groups and other discussion forums are making you anxious, stop looking.
•
Be careful who you get advice from. Trusted professionals are always best. Be careful of well-meaning friends or online strangers.
•
Speak to your financial adviser. If you don’t have an adviser and you’re struggling a bit, you might want to look into getting one. Advisers can be a great support during tough times.
•
Focus on the long term. Think of your investment goals that are five or 10 years away.
•
Making decisions about your portfolio is best done when markets are calm, not during a dip.
Correct as at April 2022. Mike Taylor is the CEO and Founder of Pie Funds Management Limited. You can view our disclosure documents on the Pie Funds website. For personalised financial advice, please speak to a financial adviser.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 4 7
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 4 8
PERSONAL FINANCE
Strategies to Survive Volatility Market corrections will happen. When they do, you can hedge this risk or adjust your risk tolerance levels. Chris Smith, of CMC Markets, looks at hedging strategies and some shares that did well in tough times.
Volatility and market corrections are a normal part of any economic cycle, but whenever they happen it can be scary. Seeing the value of your shares drop is never enjoyable.
Volatility returns to Wall Street in 2022 Cboe Vix index, implied volatility of the S&P 500 gauge 40
Being prepared for these events is like taking insurance for your house. It’s a cost to the investor – you’ll forgo some market performance for some piece of mind.
35
Of course, having a very low risk profile for investing versus a high-risk growth investment allocation is part of any decision on whether to hedge or not.
30
25
Hedging isn’t easy for most investors to do consistently well. 20
It’s normally done by purchasing securities or an index position that’s inversely correlated with the assets in their portfolio that might be vulnerable. If prices move in a way that will adversely affect them, the inversely correlated security protects them against losses by moving the other way.
15 Jan 2021
Jan 2022
Source: Refinitiv © FT
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 4 9
YO U R I NVE STI N G
Hedging strategies are designed to reduce the impact of shortterm corrections in asset prices and are commonly used by experienced retail traders. Who uses a hedging strategy? Hedging strategies are designed to reduce the impact of short-term corrections in asset prices and are commonly used by experienced retail traders, operating under a certain mandate, who have a good knowledge of the financial markets and can predict upcoming changes in the economy. However, anyone can use hedging strategies, particularly if there’s a large sum of money or an important portfolio to protect, which is why professional traders and institutional investors use them. There are many different hedging strategies you could use, depending on what you’re looking to trade and which market you’re trading in.
Here are some of the more common ones: 1. Defensive Portfolio – Diversification is one of the most effective ways to hedge a portfolio over the long term. By holding uncorrelated assets as well as shares in a portfolio, you can reduce overall volatility. Holding cash can also reduce volatility, because the less the portfolio allocates to risky assets, the less it’s likely to lose in the event of a crash. The downside is that cash doesn’t earn much of a return and can lose value due to inflation.
could buy put options on individual companies they already own or over the entire index or sector they’re most exposed to and connected with. 4. Selling Covered Calls – A covered call strategy is done by trading in the underlying stock and an options contract at the same time. If the stock price rises above the strike price, losses on the option position offset gains on the equity position.
2. Index Derivatives – Taking a short position in a market index alongside a portfolio of shares gives some investors comfort that when their shares fall, the futures short position will rise. This type of hedge can cover any portion of your portfolio correlation and can change depending on different stages in the cycle.
5. Buying Volatility – Buying futures, Contract for Differences (CFDs) or options on a volatility instrument is another way of hedging. When corrections and events occur, the volatility in the market spikes. This volatility can be traded and help offset the movements in your account. Buying protection when volatility is lowest and selling when it spikes is an ideal strategy – but it’s hard to get perfect timing.
3. Put Options – Buying put options gives the investor the right to sell at a certain strike level for a premium paid. Investors
Note that derivatives are complex financial instruments best used only by experienced investors.
Fear and Greed Over Time Extreme Greed
100
80
60
40
20
Extreme Fear 2020
Source: CNN Money Fear and Greed Index
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 5 0
2021
2022
PERSONAL FINANCE
Steady performers I’m not recommending that you buy or sell these firms – I’m just showing you two examples of local listed companies that have performed well versus the index during recent market corrections. Spark New Zealand is a telecommunications company with a large customer base, the type of company that doesn’t offer high growth and is referred to as a value stock. Focus tends to be on the dividend return. Over the past five years, the NZX50 index is up 65 per cent, and Spark is up 35 per cent. This year, despite sharp market corrections, Spark is up 8 per cent, excluding dividends, while the NZX50 is down 10 per cent as at April 19.
EBOS Group is Australia’s largest and most diversified healthcare products distributor. Its shares have been trending up. The NZX50 performance over the last five years is up 65 per cent, but EBOS is up 131 per cent, excluding dividends. As with Spark, market corrections have not hit the shares too hard, with EBOS down just 1 per cent at April 19, compared to NZX50 being down 10 per cent. To recap Risk and uncertainty aren’t pleasant, but they’re a given when it comes to financial markets – and you can seldom avoid them completely.
Portfolio hedging is one way to protect against potential loss and, although it comes at a cost, it can give you peace of mind while helping you take on enough risk to achieve your long-term investment goals. Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person. The author does own shares in some of the securities mentioned.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 5 1
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 5 2
PERSONAL FINANCE
Why Women Struggle With Separation Women are separating from their partners ill-equipped to cope with money, says Bridgette Jackson of Equal Exes. Brenda Ward finds out what she’s doing to fix this. Too many women leave the family finances to their partners, which leaves them poorly prepared if their relationship ends, says separation coach Bridgette Jackson of Equal Exes. “It’s shocking. On average, 80 per cent of women who approach me at Equal Exes have no concept of their shared marital assets – what they own and what they owe,” she says. They might start out with a good understanding of family finances but when the woman’s role is to run the family home, she’s often given a credit card or an allowance. Over time, says Jackson, there’s a ‘disconnect’ that happens, where the woman gradually loses understanding of and control over the couple’s finances. “Often, they won’t know or will have lost touch with what their spouse earns and key expenses for the home, such as debt, mortgage or insurance.
Some of the impacts of this on women include: •
Five out of six children will live with their mothers after divorce.
•
Women suffer financially more than men after divorce because of unequal wages and earning capacity, and usually have more expenses associated with day-to-day physical custody.
•
Three out of four divorced mothers don’t receive full payments of child support.
•
About one in five women fall into poverty as a result of divorce.
Custody arrangements can make it hard for single parents to work outside of school hours or a typical working day, says Jackson. “The cost of childcare can also inhibit a single parent working overtime, or in the evenings and weekends.”
“This is often coupled with minimal or no knowledge of their investments or retirement savings.”
In terms of protecting family finances from divorce, Jackson says both men and women have the same issues to contend with, just from different positions.
Statistics show that separated or divorced women often struggle financially.
“It all depends on who has been the main breadwinner and caregiver.”
In New Zealand in 2020, there were 5,973 children under 17 whose parents filed for divorce.
There are a number of things people need to do before they split from a partner. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 5 3
YO U R I NVE STI N G
•
Find out exactly what your partner earns.
•
Gather copies of tax returns, bank statements, and other documents with information on current joint finances. This includes statements for investments, term deposits and retirement funds like KiwiSaver or superannuation.
•
Make a list of all your joint major items that could be considered assets, such as furniture, jewellery, artwork, property and cars.
•
Work out what the household spends on bills, food and expenses. If possible, go through your accounts for the past 12 months. Document mortgage repayments and interest rates, and list utility costs with other household expenses for each month. Keep track of the cash you spend.
If you’re thinking about separating from your partner, the next step is to set up your own bank account, with a different bank than the one used for family finances, says Jackson.
Win
Then you should learn how to become confident in running your own family finances and investments, she says.
a free online course
A study by the Financial Services Council says 25.2 per cent of women aged 50 – 59 years admit to having limited or no investing knowledge or experience.
The Cambridge Partners online financial capability programme, Understanding Your Money, is usually $399, but at Informed Investor we have five free courses to give away. Enter at:
Concerned about this financial knowledge and capability gap she was seeing, last year Jackson approached financial advisers Cambridge Partners about partnering on a programme for women.
www.informedinvestor.co.nz/win
Cambridge Partners purpose-built the online financial capability programme ‘Understanding Your Money’. Says Jackson: “It aims to equip people with the knowledge, tools and support they need to set them on a path towards financial capability. “Ultimately, we want to see them gain confidence and control.”
Anybody, of any age or life stage, can take themselves through the programme to become more financially confident, aware and debt-smart. It’s confidential and secure. It tackles many of the issues Jackson sees among her clients:
She says the course is designed for people who want to educate themselves at home.
•
“It’s in plain English, and we’ve removed all the technical jargon that confuses people. It can be done at your own speed.”
Financial struggles relating to life transitions such as marriage breakups, or the death of a partner.
•
Upskilling of financial capability, so women can become more financially aware and independent, and to educate those wanting to invest and diversify.
•
An understanding of their own ‘money
She says if you need it, there’s also the ability to connect with a real person for support and to answer questions. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 5 4
personality’ – how they see, spend and save money. •
Useful tips on borrowing, spending and saving, such as ways to pay off a mortgage faster and hire-purchase hacks.
•
How to keep financially fit with budgeting and goal-setting.
•
Education about money management, how finances work, and good and bad debt.
Jackson says although New Zealanders are well-known for not talking openly about money, it’s essential for everyone to be financially capable and confident with their money.
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 5 6
RETIREMENT | HEARTLAND
When Money is Tight As the gap between living expenses and NZ Super grows, more retirees are turning to a cash reserve facility linked to a reverse mortgage. We talk to Heartland’s Andrew Ford.
When you imagine your retirement, you’re doing all those bucket list trips, spending time with the grandchildren and living life to the full. But the reality can be quite different. Financial stress is a major concern for Kiwi retirees, who can find themselves strapped for cash quite early in retirement – and, especially on a fixed income, feeling like they have few options. According to New Zealand Seniors’ Retirement Living Report 2022: •
One in five senior Kiwis do not feel financially secure; only 10 per cent felt ‘very secure’
•
40 per cent lack confidence in their financial situation in retirement
•
32 per cent reported ‘emerging needs in retirement they did not anticipate’
•
40 per cent said general financial pressure was one of their biggest worries when it came to future living arrangements.
“In an ideal situation, you’d choose to retire with a freehold home, a rental property and a whole lot of investments,” says Andrew Ford, General Manager – Retail and Reverse Mortgages at Heartland Bank. “But that’s not the case for most people. They often own their own house, but their savings only last five years.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 5 7
YO U R I NVE STI N G
“Then they need cash, either to pay off debt, repair a leaking roof, fix a car, or take that bucket list trip. “People see their friends travelling and spending money on the grandkids, and they feel like they’re the only ones who can’t afford those things; there’s a real sense of failure.” If you have a house, you have options Among Kiwis aged 65 or over, 72 per cent own a home with no mortgage, while 12 per cent own a home and are still paying a mortgage, according to Te Ara Ahunga Ora/ Retirement Commission. House prices have soared in the past few years, so some retirees are sitting in million-dollar homes feeling anxious about day-to-day expenses like power bills and car repairs. Although they may feel trapped, homeowners are lucky; having equity means you also have options. You can choose to downsize and free up cash. Or you can stay in your home and draw down the equity with a reverse mortgage, including a cash reserve facility that acts as an emergency fund. Ford says Heartland is seeing an increasing number of Kiwis using a reverse mortgage to meet the gap between living costs and NZ Super. “We know that nobody wants to take on debt in retirement,” Ford says. “But you don’t really want to borrow money for a house or a car either – it’s just that sometimes you need to borrow money based on what you need at the time. “For people who want to stay connected to their community and age in place, they can use their equity and not have to compromise on their quality of life. “With guaranteed lifetime occupancy and knowing you’ll never owe more than the value of the house; there is real protection.” Typical customer Ford says a typical customer might be a couple aged 72 and 73, who borrow NZ$70,000 on a home worth NZ$800,000.
reserve facility in case they need it – and they dip into that to take the grandkids to the Gold Coast or for private healthcare when one of them needs knee surgery. “Then when they’re in their late seventies, they sell the house, which has gone up to NZ$900,000 in value, they pay back the reverse mortgage and use the remaining equity to buy into a retirement village.” Despite some people being wary of reverse mortgages, Ford says they’re a product with an extremely satisfied customer base.
They use the money for some home maintenance, pay off some small residual debts, and no longer need to stress about everyday bills.
He remembers one client who had lost his wife and felt burdened with debt describe himself as “the happiest man in Rangiora” after just a small reverse mortgage allowed him to eliminate his other debts and stop worrying about basic expenses like power.
They take a monthly advance of NZ$1000 for five years, keeping NZ$120,000 in a cash
How cash reserve facility works The cash reserve facility is a huge benefit to
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 5 8
reverse mortgage customers, but one that gets little publicity. It’s like a revolving credit mortgage but it doesn’t need to be repaid until the house is sold. It means you have instant access to an emergency fund that you can use for unexpected expenses, or to fund travel. It’s a free facility with a NZ$70 access fee, and you’re only charged interest on the money you use. That means if you never dip into that facility, you never pay any costs. This can provide a better quality of life, and considerable peace of mind in retirement. “We don’t see customers materially erode equity – instead, we see people be able to do the things they really want to do,” says Ford. “I’ve been in the finance industry for over 20 years, and I’ve never been involved with a product that genuinely changes lives like a reverse mortgage.”
Want Wantgreat greatreturns returnson onyour your hard-earned hard-earnedsavings? savings? Choose Choosethe theright rightproduct productfor foryour yoursavings savingsneeds, needs,whether whetherit’s it’saa Term TermDeposit, Deposit,32 32oror90 90days’ days’Notice NoticeSaver Saveraccount accountororDirect DirectCall Call account, account,we’ll we’llhelp helpyou youmake makethe themost mostofofyour yourmoney. money. Why Whysave savewith withHeartland? Heartland?
Canstar Canstar Savings Savings Bank Bank ofof the the Year Year four four years years running running
Competititve Competititve interest interest rates rates
Over Over 145 145 years years managing managing Kiwis’ Kiwis’ money money
100% 100% NZ NZ owned owned and and operated operated
Apply Applyonline onlineatatheartland.co.nz heartland.co.nzororcall callus uson on0800 080085 8520 2020. 20.
Heartland Heartland Bank Bank Limited’s Limited’s current current Disclosure Disclosure Statement, Statement, Product Product Fact Fact Sheets Sheets and and Account Account and and Service Service General General Terms Terms and and Conditions Conditions areare available available at heartland.co.nz. at heartland.co.nz.
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 6 0
PERSONAL FINANCE
Survive the Cost of Living Crisis The cost of living is starting to bite into household budgets. And Amy Hamilton Chadwick says it’s only going to get worse.
You’re standing at the petrol pump looking at $3 per litre. At the supermarket checkout, you’re spending an extra $30 a week. Every day you get an instant reminder of how much prices have risen for every Kiwi household. Why have costs increased so quickly, and how long will this last? And what can you do to help your household keep up with your new cost of living? Why is the cost of living increasing? The cost of living has been rising around the world, thanks mainly to factors caused by the Covid-19 pandemic. The pandemic changed how we live, what we buy, and who we see. The previous balance of supply and demand has been completely upended. We stopped spending, then we started spending far more on products and far less on services. That threw our supply chains into chaos and it’s only just beginning to emerge from it. Toss into the mix a war in Ukraine and you have a recipe for supply shortages and rising prices. “This is a global phenomenon,” says ASB senior economist Mark Smith, who recently published a Household Living Cost Outlook. “The price of tradable goods, supply-chain frictions, oil prices – they’re adding a lot to inflation at the moment. “You can then see it broadening out to include domestic prices picking up. “As demand has switched towards goods and away from services, the economy in New Zealand and around the world needs to reorientate, and it doesn’t have the capacity to do that quickly.” WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 6 1
YO U R I NVE STI N G
Will prices keep rising? For now, household costs will continue to go up, says Smith. “Prices are heading one way. That includes not only fuel, food, and shelter, but also non-essentials.
Ways to meet the higher cost of living
“We were surprised by how broad-based the increases were, and they will remain so this year.”
If prices are going up by 7 per cent, you’ll need to meet that with either a higher income, lower spending, or both.
Smith forecasts an overall increase in costs of around 7 per cent this year. These persistent price rises are a concern for central banks, which face a dilemma.
Economist Tony Alexander surveyed his 25,000 subscribers on how they coped with inflation in the past, and many came back with ideas.
“Do you crunch the economy to slow demand and tackle inflation, or take a risk on letting it get out of hand? “High inflation has a lot of costs in the long term, so central banks are saying they have to tackle it.” The main tool available to tackle inflation is higher interest rates, which means people borrow less and spend less, ultimately reducing inflation. Most central banks are increasing interest rates, including our own Reserve Bank, and Smith says we can expect home loan rates to be around 4.5 per cent by the end of the year. This means the high rate of price growth will ease off, but it may take some time for higher interest rates to have a significant impact. In the meantime, handling higher interest rates can be painful. What you can you do Wages are increasing, but Smith says incomes won’t go up enough to bridge the 7 per cent rise in costs. “Like the old saying, you need to live within your means, but for a lot of households that will be challenging. “Many have already trimmed their non-essential spending aggressively, and then they need to look at the essentials – and that’s going to hurt.” WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 6 2
These were the most common suggestions: Find ways to earn more • Ask for a pay rise: “List your strengths and don’t explain because it’s the cost of living,” suggests one respondent. “Focus on what you bring to your employer. They are more likely to consider it if your reasons are based on what you bring them. After you’ve explained why you are the bee’s knees and you’ve asked for your increase, be quiet and let them do the talking. I’ve worked in HR for countless years and the amounts of time people talk themselves out of an increase is astounding.” •
Look for a new job with better pay.
•
Sell unwanted items on TradeMe.
•
Take in a boarder or flatmate.
Reduce your spending • Make a budget and stick to it. •
Plan your meals, cook at home, and pack lunches.
•
Cancel credit cards and buy now, pay later accounts.
•
Eat more vegetarian meals.
•
Review all your subscriptions, including insurance, utilities, and entertainment.
•
Grow your own vegetables.
•
Cut fuel use – a Consumer NZ study in March found 81 per cent of drivers are already driving less.
Invest in yourself • Look for investments with higher returns – the share market and property market have both traditionally produced returns above inflation. •
Learn more about personal finance, investing, and budgeting. You can learn for free online or from the library.
•
Start a side hustle.
•
Keep up to date with the latest apps designed to help you save money, like fuel research app Gaspy, budgeting app Pocketsmith, or Splitwise for sharing expenses with flatmates.
Alexander says people should keep household growth rises in perspective. “Over the past 10 years, the cost of living has risen 19 per cent, while wages have gone up 36 per cent. “Over the past 20 years, the cost of living has risen 55 per cent and wages have gone up 109 per cent.” That’s probably not much consolation when you’re filling your tank, but it’s something to consider.
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
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 6 4
E X P E R T O P I N I O N | PA R T N E R S L I F E
Can't Earn Money? Get Prepared If you can’t work, your home loan, the kids’ education, and your retirement plan could all go out the window. Kris Ballantyne, of Partners Life, says income protection insurance can save you.
We’re lucky to live in a country that has the Accident Compensation Corporation (ACC). It’s a no-fault scheme that’s one of a kind. It provides compulsory insurance cover for personal injury for everyone in New Zealand, whether you’re a citizen, a resident, or a visitor. ACC can cover the payments for your treatment and may even cover a portion of your income if you’re not able to work as a result of an accident. But it stops there – it’s just for accidents. But what about illnesses, long-term disability or health events that aren’t a result of an accident? What can help you then in your hour of need? A health event could strike Imagine this: you’re minding your own business and suddenly your heart gives out. The doctors have said you need to take three months off work to recover. You don’t have much in savings to cover your lost income and you’re wondering how on earth you’ll be able to afford to take the time off to recover without stressing about who will pay the bills. You thought, since ACC helped to cover costs a few months ago for your broken ankle, that maybe they’ll help you now? Sadly, a heart attack isn’t considered an accident, so ACC isn’t able to help you this time. This is when a monthly disability product, like Income Protection, can step in and save the day.
Insurance pays the bills Income Protection in its basic form can provide payments to help cover any financial commitments like household bills and mortgage or rent payments.
type of Income Protection cover you want, because you can discuss this with your financial adviser, so that you choose together the best option for you and your financial needs.
It’s designed to ensure the person with the insurance is protected against situations where they’d lose their ability to work or earn their income because of a partial or full disability.
The reason why a product like Income Protection won’t cover 100 per cent of your income is because if the insurer did that, we wouldn’t be giving you any incentive to return to work.
Even better, the cover remains in place after you’ve recovered enough to return to work. This is to safeguard you against any recurrence or any new health events that may hinder your ability to work.
But it doesn’t stop there.
Unlike products like Life Cover or Trauma Cover, which pay a lump sum, Income Protection is a disability product, which is paid out monthly.
Some of the options you can select with Income Protection allow you to protect yourself against any interruptions to your wealth.
There are other benefits Did you know that Income Protection can sometimes have built-in benefits and additional options to help you even more?
The sum is determined based on your own financials, and the type of Income Protection you bought.
These options aren’t limited to health events that directly affect you, for example, having a stroke.
Depending on your insurance provider, there are different types of cover to choose from, for example Agreed Value or Indemnity. Here’s what they are:
But it can also include health events which don’t directly affect you, for example, your child or partner being injured in an accident, where you might need to take some time off to care for them fulltime.
•
•
Agreed Value: This type of cover is agreed on when you apply and your financial circumstances are assessed, regardless of any pay changes you go through over time. Indemnity: This type of cover allows you to select an amount to be insured for when you apply for the cover, however, your financial circumstances are assessed when you submit a claim for your Income Protection.
You don’t necessarily need to know which
There are limits to ACC ACC truly is a great scheme to help spread the costs of all accidents across the community, but it’s also limited in how it can help. No-one likes to think about struggling for money, so I’d suggest you invest in yourself and protect your income by talking to a financial adviser about how Income Protection could help you and your loved ones. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 6 5
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 6 6
F U N D R E V I E W | B O O S T E R I N N O V AT I O N F U N D
Invest in Kiwi Tech Start-ups Cool companies, exciting inventions, and clever Kiwis are what lie behind the Booster Innovation Fund. But it’s a high-risk investment, writes Amy Hamilton Chadwick. The New Zealand Stock Exchange-listed Booster Innovation Fund gives everyday Kiwi investors the chance to get involved with exciting technology startups trying to break onto the world stage. This is a high-risk investment category with the potential for high rewards, designed for investors to put a very small proportion of their funds towards supporting New Zealand innovation and tech. What does the Innovation Fund invest in? The Booster Innovation Fund was launched in August 2021 and was listed on the NZX in March this year. Since 2018, Booster has been working with Victoria University and the University of Otago, helping to fund inventions and startups that have emerged from their research. The Booster Innovation Fund expands this work, adding in private-sector technology businesses and widening its range of companies to create greater diversification for investors. The fund looks for innovative technology that has originated or been developed in New Zealand, all the way from the earliest start-up stage through to expansion into international markets. As Kiwi companies scale up, some tend to reach a tipping point where they need to move offshore to reach larger markets, and four of the roughly 20 companies that the fund owns have already reached that point – with two having operations in the US and two in Australia. Some of the more well-established businesses the fund invests in include Biolumic, which is using UV light to maximise crop yields, and Ferronova, a cancer diagnostics company. Early-stage investments include PowerOn, which specialises in soft robotics, and XFrame which sells sustainable construction framing products.
At the seed stage are cool companies like Tasmanlon, which is developing aluminium ion batteries. “This is quite an exciting fund,” says Melissa Yiannoutsos, Booster Innovation Fund Manager. “It spotlights fantastic innovations, and investors get to hear about them early – sometimes pre-revenue. “These are high-risk but potentially highreturn opportunities, which have previously only been available to wholesale investors. “This fund makes them accessible to all New Zealanders.” The fund team finds new opportunities from its many relationships and by syndicating with other venture capital firms and specialist investors. “We have many relationships in investment markets and the university sector, as well as angel investment clubs. “There’s quite a different variety of ways that New Zealand wholesale investors are supporting early-stage tech, and we syndicate with those investors.” Risks and returns This fund has been carefully designed to help investors access local emerging tech businesses, diversifying by size, stage, and industry. But start-ups are inherently risky, with greater volatility and a higher failure rate than established businesses. Estimates of the failure rate for venturebacked companies range widely – data from the New Zealand Venture Investment Fund shows that 28 per cent of start-ups fail after four years. “If you take 10 of these start-ups, three or four might fall over, a few will make some capital return and one or two would be expected to produce substantial returns,” explains Yiannoutsos. “It’s important to us to make sure people understand the investment risks of this scheme. “This should only ever be a small portion of your investment activities; it’s a long-term vehicle for diversity and it's a long-term investment option so patience is key when investing in young companies.” The goal is to achieve a return over 10 per cent, and the performance fee is set accordingly – it’s only paid if the fund returns more than 10 per cent. There is no management fee for the fund, and there are admin charges of around 0.56 per cent. Because it’s a listed portfolio
investment entity (PIE) fund for tax purposes, tax is paid at 28 per cent. The Booster Innovation Fund is available directly through Booster, or through buying listed shares via a share platform or broker. Trading with the NZX gives investors excellent liquidity, which is rare with venture capital. However, investors should take a longterm outlook on the fund, due to its high volatility. If you invest directly via Booster, the minimum investment is NZ$1,000 and there are withdrawal charges. According to the Product Disclosure Statement: “You should regard an investment in this Fund as not readily redeemable when making your investment decision.” “People have to be quite aware that they could lose a lot investing in this high-risk end of the market, so it’s all about finding the right balance,” says Yiannoutsos. “This isn’t for everyone, but I think what resonates is that it’s about supporting Kiwis to do impactful things.”
FUND FACTS: BOOSTER INNOVATION FUND Fund size: Around NZ$7.5 million Asset allocation: 99% equities, 2% cash Fund fees: A 1% to 2% performance-based fee that applies when the fund’s net return is over 10%, plus admin expenses of around 0.56%. Returns Objective: The fund aims to deliver a significant total rate of return (net of fees but before tax) that outperforms the NZX50 index over rolling 15-year periods. Read the Product Disclosure Statement online at www.booster. co.nz/booster-investments/ booster-innovation-fund.aspx.
Booster Investment Management Limited is the manager and issuer of the Booster Innovation Scheme. A Booster Innovation Fund product Disclosure Statement is available at www.booster.co.nz
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 6 7
How the TV3 Case Changed the Game 1. Non-compete: This is the most TV3 journalist Tova O’Brien was told restrictive restraint and stops a former she couldn’t break a restraint of trade employee from working for a competitor clause. Charlene Sell, of Wynn Williams, or setting up a business competing with them for a period of time. This applied to explains what this means for you. O’Brien.
In October last year, TV3 journalist Tova O’Brien quit her job to help launch Mediaworks’ new breakfast show, but soon things went awry. The ‘restraint of trade’ clause in her employment agreement said she had to wait three months before working for a competitor – and the Employment Relations Authority determined that her restraint of trade was enforceable. Many people wrongly thought restraints of trade weren’t worth the paper they were printed on, and few employers bothered to take legal action if they were broken. But in this case, TV3 went to the Employment Relations Authority so O’Brien had to delay starting at her new breakfast radio show for several weeks. Does this mean restraints of trade will always be enforceable? Let’s take a look. What’s a restraint of trade? A restraint of trade clause stops a former employee from carrying out certain activities after they’ve left their employment, to protect the interests of the former employer. It allows the former employer time to safeguard their business, for example by introducing customers to others in the business so they can keep their custom. Media commentary on the O’Brien case has focused on the non-compete aspects of the restraint. But, in fact, employment agreements will often cover several restraints and may not always prohibit competition. These are the common types of restraints used in employment agreements: WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 6 8
2. Non-solicitation: A non-solicitation restraint prohibits a former employee from approaching and soliciting customers, suppliers, or employees of their former employer. It’s intended to stop “poaching” of staff and clients. 3. Non-dealing: A non-dealing restraint goes further and prohibits a former employee from providing products or services to a former customer or client, even if there has been no active solicitation. How does a restraint work? A restraint of trade clause needs to cover the following: The activities prohibited: They could be competition, soliciting or dealing with customers, employees, or suppliers of the former employer. But it must be reasonable when you consider the role and its seniority. For example, it’s unlikely a restraint will be enforceable against a junior who has little access to customers or commercial secrets. Area: It says where the employee is restricted from carrying out certain activities. This is particularly relevant to non-compete restraints. The area of the restraint must be reasonable, too. Say the former employer’s business only operates in Auckland, it wouldn’t be reasonable to extend the non-compete restraint to cover the whole country. How long: It says how long the restraint applies after the employee leaves. It can’t last longer than is needed to protect the former employer’s interests. In the O’Brien case, the Employment Relations Authority cut down O’Brien’s non-compete restraint from three months to seven weeks.
Compensation: The employer must have paid the employee adequate compensation in return for the employee agreeing to the restraint. Typically, employment agreements will say that the employee’s initial wage or salary is sufficient compensation for the employee being bound by the restraint. Are non-compete restraints fair? The idea of preventing someone from earning a living in their chosen field for a period of time sits uneasily with many New Zealanders. This is a small country, and there are few workplace options in some industries. But increasingly, our courts are saying that reasonable non-compete restraints can be enforced. This is because employees were free to negotiate the terms of their employment before they signed the employment agreement. If you’re writing the clause There is no ‘standard’ restraint of trade clause. Employers should consider which restrictions are right for their business and the role they’re hiring for. If you’re signing the employment agreement Employees would be wise to take note of such clauses now. The commonly held misconception that restraints of trade provisions are not worth the paper they were written on is simply not true. The O’Brien case gives both employers and employees a timely reminder that restraints should be properly drafted and negotiated before the employment agreement is signed, because employees may be held to them.
Charlene Sell is a partner at Wynn Williams. She advises businesses and not-for-profit organisations on all legal matters relevant to their day-to-day operations.
WOULD YOU RATHER BE WORKING OR LIVING?
BUSINESS SALES FROM $500,000 TO $500 MILLION
FREEPHONE: 0800 SELL BIZ
EMAIL: info@barkerbusiness.co.nz
www.barkerbusiness.co.nz
PERSONAL FINANCE
The Secret of Laddering How can you get the best returns at the bank? Mary Holm says laddering term deposits should give you a better return in the long run.
Many New Zealanders have money in the bank in term deposits. A term deposit is where you lock your money away with a bank for a set time and get a fixed interest rate. You can’t get your money out until the end of the term, but you can be certain just how much interest you’ll be paid every year, and for how long. Even if interest rates drop, you’ll still get the same amount. Who uses term deposits? Some people have just a few hundred dollars in term deposits – for emergencies or when the credit card bill is higher than usual. Others have hundreds of thousands of dollars sitting in term deposits, perhaps the proceeds from a house sale waiting to be reinvested in a new property. But for many, it’s a safe place to leave their retirement savings – either before or during retirement. These people have probably heard the message that they should take a bit more risk with at least some of that money, because higher risk brings higher returns on average. But they like the security of holding their money in the bank. Or they might, indeed, have their longerterm money in riskier investments, but wisely keep their short-term spending money in term deposits. “Interest rates are too low!” A common complaint in seminars I run is that term deposit interest rates are too low.
Until the last year or so, I’ve responded by showing a graph of deposit rates and inflation. “The interest you get might seem low, but at least it’s considerably higher than the Consumer Price Index,” I would say. “Look at what happened back in the 1970s and early 80s. Interest rates were in the teens. Wow! But inflation was even higher. “You put $100 in the bank in January and withdrew $116 the following December. But that $116 would buy you less for Christmas than your $100 bought at the start of the year! “At least now your term deposit money buys more when you withdraw it. Stop moaning!”
How laddering works If you don’t want to move your money into other investments, I’d recommend laddering – setting up your deposits so they mature at different times. Here’s how it works, step by step: Let’s say you have $200,000 of retirement savings. Step One: Divide the money into, say, four lots of $50,000. Step Two: Invest $50,000 in a 1-year deposit, another $50,000 in a 2-year deposit, another $50,000 in a 3-year deposit, and the last $50,000 in a 4-year deposit. Step Three: In a year’s time, when the first $50,000 matures, reinvest it for four years. When the others mature, reinvest each lot for four years.
But I can’t say that any more. While term deposit interest rates are rising, inflation has zoomed up and, at least for a while, is higher than interest. If you have money in term deposits, the value of your money – expressed as how much you can buy with it – is falling. That’s not good!
Or you might want to ladder over the shorter term. You could put, say, a third of your money in a 3-month deposit, a third in a 6-month deposit and a third in a 9-month deposit. When the first one matures, reinvest it for nine months, and keep reinvesting the others for nine months.
Laddering $200,000 of Term Deposits X is the year the deposit matures. You then reinvest it for four years.
2022 $50,000 $50,000 $50,000 $50,000
2023
2024
2025
2026
x
2027
2028
2029
2030
x x
x x
x x
x
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 7 1
YO U R I NVE STI N G
Why is this a good idea? There are three reasons why laddering is a good idea: •
•
•
Longer-term investments usually pay higher returns. Occasionally – when the experts are expecting interest rates to fall considerably – this won’t be the case. But generally, banks prefer customers to commit their money for longer, so they reward you with higher interest if you do that. But you probably don’t want to tie up all your money for, say, four years. You never know when you might need some. And if you withdraw it early, there can be severe penalties. Once you’ve set up laddering, you’ll get the usually higher longer-term rates on all your money, but much more frequent access to some of it. If interest rates are rising, when a portion of your money matures, you can reinvest it at the new, higher rate.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 7 2
What can go wrong Of course, the opposite can happen. When interest rates are falling, you’ll have to accept lower rates on some of your money, as it matures. But at least some of it will still be at the old, higher rates!
they automatically roll over to the interest rate that applies that day. •
You can also ladder bonds in the same way.
•
I’m writing here about term deposits issued by banks. Other financial institutions offer term deposits too, sometimes with considerably higher interest rates. Some of them are probably safe investments, but I suggest you do lots of research before investing. Personally, if I want a higher return than on bank term deposits, I invest in managed funds at various risk levels.
•
It might be possible, if your mortgage lender is willing, to ladder your mortgage. You would fix, say, a quarter of the loan for six months, a quarter for one year, a quarter for 18 months and the last quarter for two years. Then renew each loan for two years. This spreads the risk of an interest rate rise, making it easier to adjust to it. Also, you’ll have the opportunity every six months to pay off a lump sum without penalty.
Laddering lets you adjust to the lower rates gradually. You’re diversified. Most people prefer to spread their risk in this way, rather than taking the chance that the whole lot will mature when interest rates are really low. Things to think about • You usually need a minimum amount to set up a term deposit, $1,000 or more. •
Make sure you won’t need the money before the term ends. If you want to break a term deposit, you’ll probably have to give up to a month’s notice and pay a penalty fee.
•
Keep an eye out for your terms’ expiry dates. When some term deposits end,
C O M PA N Y P R O F I L E | F I R S T L I G H T C A P I TA L
That Personal Touch First Light Capital is a bespoke investment service, so you’re talking to the people who make it all happen. When you’re investing with a property fund, it’s great to know you’re in good hands.
Their seed investment vehicle, the First Light Property Fund Ltd, was launched in April 2021, says Hunn.
with those of their investors, says Hunn.
At First Light Capital, the team has years of experience in property, funds management and administration, accountancy, taxation, and investor relations.
“It was very well received and oversubscribed ahead of schedule,” he says.
“We’re a small team, offering direct one-onone communication with the fund manager. We’re only a call away.”
And if you call into the office, it’s likely you’ll be talking directly to the fund’s manager, Toby Hunn. After more than 20 years working in senior investment banking roles in Tokyo and Hong Kong, Hunn relocated to New Zealand with his New Zealand wife and three children. Hunn founded First Light Capital with the three principals of the VCFO accountancy business: Randolph van der Burgh, Andy Archer and Roger HatrickSmith, who joined him 18 months ago to set up the new commercial property funds management business. They invest in commercial properties and initially sought like-minded investors from their personal contacts to co-invest with them, and now the business has grown are looking to expand on their database of investors.
Following the successful launch of this fund, the team went on to complete the purchase of a strong existing portfolio of syndicated properties, Parnell Services Ltd, which settled on October 1 last year. The properties had been meticulously managed by David Nicoll for over 20 years, says Hunn, and their acquisition significantly increased the size of the First Light Capital portfolio. “David has agreed to join First Light for five years, to assist in all matters related to property acquisitions and disposals, lease negotiations and investor relations. “At First Light, we’re looking forward to maintaining the high standards of the offerings that Parnell Services provided. Using our combined knowledge, this newly formed team provides expertise across all facets of the business.” The directors’ principles align their interests
But their personal touch and boutique service are what sets the business apart, he says.
Property funds cater to investors who want the benefits of direct real-estate ownership without the barriers to entry and annual compliance that owners find so challenging, plus the benefit of scale whilst co-investing with others. Investors help to fund the purchase of specific commercial properties that have been targeted based on their locations, quality of property, strength of tenant and length of leases. Investors then receive a regular return from the rental income of the property and a share of all capital growth, leaving the day-to-day management up to the First Light team. To find out more about First Light Capital visit the website www.firstlightcapital.co.nz or call 0800 3000 31. First Light Capital offers are open to wholesale investors or eligible investors only. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 7 3
KIWI SAVE R GU I D E | BO O STE R
PART THREE: Strategies for First Home Buyers
Your Guide to KiwiSaver
KiwiSaver is a great way to help you save for your first home. Here’s a guide to help you reach your goal. WHY BUY A FIRST HOME USING KIWISAVER?
WHAT’S THE FIRST STEP?
Because it’s a smart idea. When it first started, KiwiSaver was primarily intended as a superannuation scheme for retirement, but the government also realised how important owning your own home is to retirees.
How much do houses sell for where you’re looking? What help can you get to get a deposit, from friends and family, or the government? What’s your timeframe?
The KiwiSaver First Home Withdrawal means that after you’ve been a member for three years, you can withdraw your money for a first home deposit, as long as you leave no less than NZ$1000 in the account.
“In our experience, a lot of people underestimate the amount of time they need to get enough money to buy a house,” says David Copson, Booster’s Head of Growth.
KiwiSaver has been the single biggest change in the past century helping Kiwis buy their own homes. Here’s why:
“We have a process that we take first home buyers through, to work out their goals and timeframes.”
•
It makes saving automatic. You’re putting aside a percentage of your pay without having to think about it.
•
Your employer puts in money, too, currently 3 per cent of your pay.
•
The government pitches in as well, giving you $521.42 a year. Just put in at least $1042.86 between 1 July to 30 June each year to get this ‘government contribution’.
•
And there are other cool things you can get to help you buy a house, like the First Home Grant and the Kainga Ora First Home Partnership Scheme. Read on for more on those.
Do your research.
If you joined when the scheme started in 2007 and claimed the full government contribution for 14 years, you’d be
$7,300 RICHER by now (plus returns).
WHO CAN WITHDRAW FOR A FIRST HOME? When you’re buying your first home you may be able to make a one-off withdrawal of most of your KiwiSaver savings – as long as you’ve been a KiwiSaver member for at least three years. You may even qualify if you have owned property previously, but you’re in a situation similar to a first home buyer, say after a divorce. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 7 4
He says one of the most important first steps is to make sure you’re realistic about when you’re going to buy your first home and how much you expect to spend. “Are you currently using KiwiSaver, how much are you saving, and do you have any other funds? Where is that going to get you in two years? And where do you want to buy that first house?” Calculators like those on KiwiSaver provider websites and at www.Sorted.org.nz will tell you roughly how much money you’ll have in one year, two years or up to 20 years. Just put in: •
Your date of birth.
•
Your annual pay.
•
Your contribution rate.
Copson says there’s a free calculator on the Booster website, www.booster.co.nz, that lets you dial up your contributions from 3 per cent to 10 per cent, to see how much faster you could reach your goal. Do your numbers first. He says sometimes it’s a wakeup call for buyers to discover they’ll have to push out their timeframe a year or more if they want to buy in the city.
PERSONAL FINANCE
WHICH PROVIDER IS BEST FOR FIRST-HOME BUYERS? Every KiwiSaver provider will let you withdraw from a KiwiSaver account, if you meet the criteria. But the services providers offer vary widely. Ask yours to see which services it provides. Some online-only providers just offer an investment service and online calculator. Others have free advisers to help first-home buyers plan and save. However, they will all process your application and pay out your deposit in just
the same way as a provider that offers free advice. There is no cost to this service. “It may pay to ask your provider what their average processing time is to pay out a first home withdrawal,” says Copson. “There are stories of some very nervous buyers coming down to the wire. If you'd prefer to save yourself the stress at what can already be a nail-biting time, this may be a consideration for you.” They will give you a letter to take with you to your lender, showing the amount you are able to withdraw from your KiwiSaver account.
GROWTH, BALANCED OR CONSERVATIVE? If you’re saving for a deposit, which fund should you be in?
GROWTH
There is no right answer. It starts with how comfortable you’d be if the market moved suddenly down. If you know that you’d panic, choose a less volatile fund.
BALANCED
CONSERVATIVE
And the answer also changes as you get closer to buying the house, which is when you should dial back the risk. Growth: If you’re five to seven years out, you could be in a growth fund, for maximum returns. But you’d need to be comfortable with seeing some ups and downs in your balance. Balanced: If it’s three to five years to buying, you might consider a balanced fund, with less risk than a growth fund, but still with some ups and downs. Conservative: When you’re within a year or two of buying, it’s safer to switch to a conservative fund. Growth will be slower but you’re less likely to be hit by sudden market drops just as you’re about to buy.
Booster is Kiwi-owned and operated. We’ve been looking after New Zealandersʼ money for over 20 years. With Booster you can manage your whole financial universe with the mybooster app. mybooster lets you track your total wealth and create the future you want by giving you a joined-up view of your bank accounts, investments, property, assets, and debts. On www.booster.co.nz you’ll find the Booster KiwiSaver Scheme, mybudgetpal, and mymoneymap, which helps you plan how long your KiwiSaver savings and other investments will last.
Join the Booster KiwiSaver Scheme now. www.booster.co.nz
Booster Investment Management Limited is the manager and issuer of the Booster KiwiSaver Scheme (Scheme). The Scheme’s at | I N F O R MStatements W I N T E RProduct 2 0 2 2 Disclosure E D I N V E S Tare O R available 75 www.booster.co.nz
KIWI SAVE R GU I D E | BO O STE R
FIRST HOME PARTNERSHIP FREE MONEY! Who can say no to free money from the government?
•
If you’re eligible, the First Home Grant through Kāinga Ora could give you up to NZ$5,000 towards buying an older, existing home, or up to NZ$10,000 towards buying a new home or land to build on.
Have earned less than the income caps in the last 12 months – NZ$95,000 or less before tax if you’re buying alone, NZ$150,000 or less before tax for two or more buyers.
•
Not already own a property.
•
Have been contributing at least the minimum amount to KiwiSaver for three years or more.
•
Buy a property that is less than the regional house price caps – these limits vary by city and district council, see the Kāinga Ora website for these. Agree to live in your new house for at least six months.
Copson says many people forget that if you’re a couple you can both apply for a grant. “Each partner can apply for themselves, so instead of getting $10,000 towards the deposit for a new build, you could get $20,000 as a couple.” To be eligible for a First Home Grant, you must: •
Be over 18.
•
•
Have a deposit of at least 5 per cent of the purchase price of the house you want to buy or build, in KiwiSaver and/or other savings.
Check your eligibility at www.kaingaora.govt.nz/ home-ownership.
THE FIRST HOME LOAN You might also qualify for a First Home Loan through Kāinga Ora. As well as having a 5 per cent deposit, you need to meet certain criteria, including an income cap and regional house price cap. You’ll also need to meet the lending criteria of the participating lender you choose.
WHAT ABOUT AFTER YOU’VE BOUGHT? Once you’ve bought a house, don’t forget to reassess your KiwiSaver contributions, says Copson. “Depending on how you feel about market ups and downs, you should go back into a more aggressive growth fund because your next goal is retirement, and that’s a way off. “If your budget is tight with the new home loan, you might think about pausing your KiwiSaver contributions for a year, until you’re sure you can meet the cost of your mortgage without struggling.” But Copson says people need to realise that KiwiSaver is important for their retirement. “Definitely, you should get your KiwiSaver restarted as soon as you can.” WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 7 6
First Home Partner is a littleknown shared ownership scheme to help aspiring first home buyers whose deposit and home loan aren’t quite enough to buy a home that meets their needs. Instead, you purchase a home together with Kāinga Ora, where Kāinga Ora becomes a part-owner, and you progressively buy them out until you own the home yourself. ‘Shared ownership’ means that you initially share ownership of the home with a third party who purchases the home with you (in this case Kāinga Ora). You are the majority homeowner and occupier, and will own an increasing share in the home as you buy them out over time. Find out more information at www.kaingaora.govt.nz/ home-ownership.
Let us show you why Property Brokers is recognised in the top 1% of real estate companies in New Zealand.
Everything we do contributes to our commitment to provide long term tenancies for landlords and healthy homes for our tenants and their families. We get our clients the very best results, and that’s never going to change. For award-winning provincial property management, talk to us today 0800 367 5263 | pb.co.nz/pm
Property Brokers Licensed REAA 2008
Property Management
YO U R I NVE STI N G
Why Good Governance Works Companies with strong, diverse boards and transparent accounting are proven to do better. Victoria Harris, of Devon Funds, explains why the G in ESG matters.
If you missed the memo about ESG in investing, you’re one of very few investors who have. Environmental, social and governance (ESG) factors are being used more and more by investors to assess the sustainability and risk profile of companies. And a good G rating is fast becoming an indicator of solid and reliable companies with great returns. It’s worth thinking about, because ESG factors can dramatically affect a company’s financial performance and shareholder value, either in a positive or negative way. What is the ‘G’ in ESG? G stands for governance. Governance falls into ESG investing as the decisions and changes made to help create a ‘better’ company. This could be through the ethics of its board members, its diversity standards, the company culture, or the sustainability of its day-to-day operations. Governance covers pretty much everything about a company – a broad range of corporate activities including its board and management, as well as a company’s policies, standards, information disclosure, auditing and compliance. Yes, everything! For example, investors want to know that a company’s accounting is accurate and transparent, and that its business practices are ethical. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 7 8
ES G I NVESTO R | D EVO N F U N D S
They also like to see policies that encourage shareholder engagement and they want to invest in companies with a board of directors that’s both accountable and diverse by gender, race, skills and experience. What boards do Every share market-listed company has to have a board of directors. A board is an elected group of directors that represents the interests of shareholders. A board’s role is different to a the job of the chief executive officer (CEO). Both boards and CEOs make high-level decisions, but a board can choose (and fire) the CEO, approve sweeping policies and make major decisions. The board oversees the CEO and makes sure the company’s performance is strong and it’s profitable. The board usually only meets a few times a year to review how the company’s performing and makes plans for the future. On the other hand, the CEO makes decisions daily, carrying out the board’s directives. As CEO, you’re in charge of developing and executing strategy, while the board is responsible for approving and advising you on it. At some companies, the CEO sits on the board, sometimes even serving as chair. This is not the most appropriate form of good corporate governance because the lines are blurred. Ideally, board and CEO roles are separated so there are clearly defined roles and the strategy is well executed. As an investor, you can screen for good governance practices, as you would for environmental and social factors. Poor governance What does poor governance look like? A poorly governed company could be one that’s involved in legally or ethically questionable practices, that opens itself up to bribery or corruption, or one that doesn’t adequately address long-term risks to its business, such as the risks presented by climate change. Just like environmental and social issues, corporate governance issues also regularly hit the headlines. Take Volkswagen Group, a perfect example of the negative consequences that can stem from poor governance.
It was revealed in 2015 that the company had cheated emissions tests on more than 10 million of its diesel cars. Volkswagen had to pay billions of dollars in criminal and civil penalties related to the scandal, which had a significant impact on shareholders. Even today, the company’s share price hasn’t fully recovered. CEOs’ salaries under scrutiny Senior executives’ pay and bonuses are set by boards, and this is a contentious issue, which often comes up for discussion. Regulators in many countries require publicly-traded companies to allow shareholders to vote on executive compensation packages. Certain compensation structures work against the long-term interest of shareholders.
There are far-reaching effects to good corporate governance. It fosters a culture of integrity and leads to a positive performing and sustainable business.
Recently, Norway’s influential US$900 billion sovereign wealth fund announced it would focus on curbing excessively high executive salaries at its investee companies. Diversity is profitable Gender diversity and gender equity are other high-profile governance issues. Many institutional shareholders are demanding more women on corporate boards and in executive positions, and want to see equal pay and career prospects for women. Research from Morgan Stanley shows that a better balance of men and women in the workplace can deliver returns with less volatility, meaning that gender diversity is actually profitable for companies and investors. In New Zealand, corporate diversity is still lacking on most major company boards. Most are made up primarily of older white men, which is probably not reflective of the needs of the business.
In 2022, New Zealand’s top 50 public companies (NZX 50) have an average of seven board members per company. The average representation of females is two, or in other words, 30 per cent of board directors are women. Only five out of those 50 companies have majority female directors. It’s even worse when we look at company leadership. Only four companies in the NZX 50 are led by a woman – PushPay, Sky TV, Spark and, more recently, Auckland Airport. There are more CEOs called Peter than there are women! Great governance However, there are also some great governance stories in New Zealand. One is Auckland Airport. Despite having a tough couple of years financially, it’s a leader in corporate governance. Global research house MSCI says Auckland Airport “falls into the highest scoring range relative to global peers”. It went on to say that its governance practices are well aligned with investor interests. Not only does the company have a female CEO, it has majority female representation on its board. This is, unfortunately, unusual in New Zealand. What is the ideal board? The ideal board is one with: •
gender balance
•
a mix of independent and nonindependent directors
•
members from different backgrounds
•
a variety of ages
•
differing skills and expertise.
A diverse board leads to a company making effective decisions, guidance, and risk management. Having a diverse board of directors is a key element to a company’s success. There are far-reaching effects to good corporate governance. It fosters a culture of integrity and leads to a positive performing and sustainable business. There have been many studies done that show a positive correlation between good governance and corporate performance, measured in both financial terms and nonfinancial metrics. Investors have started noticing this correlation, too. Now, more than ever, they’re demanding better corporate governance from the companies they invest in. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 7 9
YO U R I NVE STI N G
‘We bought houses in Australia, NZ and the US’ Their first property investment was an accident, but now Vicki and Mark Lambert live the good life.
Dunedin couple Vicki and Mark Lambert fell into property investing by accident. Says Mark: “Out of the blue someone offered to buy our house in Noosa, where we were living, and we had to look for somewhere to live.” They had A$30,000 after the sale and soon found a block of nine units being split up. They saw the potential, says Mark. “I thought this could be our retirement fund, if we played it correctly, and suggested buying three.” Vicki was horrified and tried to talk him into buying just two, but their accountant said they could afford three – if they lived in one. So they bought all three for A$105,000 to A$120,000. They planned to sit back while the units went up in value over the next 20 years. But soon Australian property prices started to climb and their units went up about A$200,000 each. Mark realised no-one else had noticed the market turn. “We quickly asked the bank if we could borrow against our assets and they agreed.” They bought another unit for a steal, and sold it less than a year later for a A$100,000 profit. “That $100k cash in the bank was a light-bulb moment. Investing became a passion. We realised we could invest instead of working.” He gave up work immediately and talked Vicki into handing in her notice months later. The pair also bought a home for a good price and lived in it for a year before selling it for a reasonable return. They were feeling pretty happy with their investments, but the market had peaked. Mark told Vicki “this is the end of the line for Aussie investing”, and she suggested New Zealand. “My sister had a house in Dunedin that was WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 8 0
cashflow-positive, something we’d never had in Australia,” she says.
a 25-room block at a local hotel. They saw the potential to rent it out by the room.
Mark went online and started seeing hundreds of homes in Dunedin that did generate cashflow, but were old and tired.
They turned it into two dwellings, one 11-bedroom and one 12-bedroom, converting 2 rooms into kitchen/laundries.
He says: “We booked flights instantly and Vicki and I arrived in Dunedin a week later. We were very naïve, but timing and a bit of luck was on our side again.”
The pair ran the business for about five years with amazing cashflow, but got tired of ‘mothering’ tenants, and sold it for a “very handsome gain”.
Over six months, they bought 13 houses, all with borrowed money, and renovated them.
“We realised we still needed income or else we were just eating up capital,” says Mark. So they bought a mix of commercial and residential properties in the city centre, renovated them and sold them after about three years for a good gain.
Prices in Dunedin were climbing. “To our absolute joy, the properties all doubled in value in just over a year.” As big as Texas So, Mark researched other areas round the world where prices hadn’t gone up and found Texas in the US stood out, so they flew to Houston and built houses for sale. They built and sold five houses before realising the Texan lifestyle wasn’t for them, and came back to Dunedin. They built two houses on a site they’d bought with Vicki’s brother-in-law, finishing them just as the market crashed. “We sold one and Vicki and I moved into the other and lived there five years.” For the next two or three years, the pair took time out and travelled, before buying
Next came the “worst project of our lives”, says Mark, building new houses to rent out in Dunedin. Resource consent became a nightmare, with years of planning delays. “We decided enough was enough, and started to look towards retirement.” They have four houses and are building a house and flat in Queenstown. They’ll have the income from those, and their investments in managed property syndicates. When the build is finished, they’ll relax, travelling in their campervan. Mark says: “Investing has given us a life we could only dream of. Looking back, would we still do it again? Absolutely!”
PERSONAL FINANCE
‘I couldn’t buy a house, so I invested in shares’ Rather than taking on an eye-watering mortgage, Madden Burns started investing with online share-trading platform Stake.
We tend to think that stress is always a negative force in our lives – but a little stress can prompt us to make positive changes. When Madden Burns was feeling left behind as her friends all bought houses, she used that stress as motivation. She started putting money into the share market, teaching herself about investing and setting herself up for a more secure financial future. In 2020, when she was 28, Madden and her partner realised that the property market was out of reach. They live in Sydney, where the median house price is now over A$1.5 million (NZ$1.6 million). “We’d been saving for a deposit for a long time, and we had a big chunk of money. But we weren’t going to be able to crack the property market and buy anything we really wanted. “A lot of my friends were buying houses with eye-watering mortgages. I think home ownership is just culturally ingrained – taking on a debt that big would really scare me.” With a decent sum of money saved and a growing acceptance that she would be renting for the foreseeable future, Madden knew she needed to change her strategy. Term deposits weren’t keeping up with inflation, and she wanted to make her money work harder. She started thinking that perhaps her retirement fund could come from investing in shares rather than into a mortgage. Cutting the fees “When Covid hit, I started to look into it. I looked at the fees and I realised I could lessen those if I did it myself. “So, I decided to jump in and start slow. Stake
has no brokerage fee on trades and the ability to buy fractional shares, so I was able to get a feel for it, buy little amounts of companies I knew, and hone my skills.” She began by investing in Uber, Atlassian and a company specialising in solar power. “I just had a go, and it paid off, but that was good timing, it wasn’t necessarily my expertise.”
– although it’s a struggle not to look at her balance too often. “When the market goes through a correction it can be alarming, but I trust my long-term strategy, my research, and the fundamentals on which I’ve selected my portfolio. “I’m just trying to be really logical and less emotional about my money.
Encouraged by this early success, she did more research and learned about the benefits of exchange-traded funds (ETFs).
“It doesn’t make sense from a financial perspective to buy a house; it makes much more sense to buy shares, but you have to wrap your head around it.”
She still owns her early investments, and continues to do a bit of stock-picking with individual US stocks, but puts most of her savings into ETFs.
When she first started investing in shares, Madden was feeling anxious about her financial future.
“I’m funnelling money into ETFs religiously now with every pay packet,” she says. “It helps me spread my risk and gives me a bit more safety for my retirement plan. I do still put money into my early shares, and I recently bought into Square and Salesforce.” Passion for tech firms Madden works in consulting, often with clients in the tech sector, so she’s biased towards investing in tech companies. She mainly invests using the platform, tracking her investments using Sharesight
Always a worrier She’s still a little worried, because the worrying is part of who she is, but she does feel more confident that she’ll be able to retire in comfort, even if she never buys a house. “The most powerful thing about investing is it gives you control of your financial future. Getting started is the hardest part, then you are on your way to a better future. “I’m confident I still have plenty of time on my side to not have to worry about things in 30 to 40 years’ time.” WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 8 1
YO U R I NVE STI N G
‘We bought a business to help out our family’ In a heart-warming story, the lives of three generations of Paul Blair’s family have been changed after they bought a childcare centre. Paul Blair and his wife were both high-flying corporate businesspeople at the peak of their careers when they made some life choices some people would see as rather different. “Our middle son, Jamie, was diagnosed as autistic,” explains Blair, a former head of institutional banking for a big Australianowned bank. “Jamie is 18 and six foot three but marooned at about age four or five in his interests, for example, he still loves playing the Wiggles. “Well, we’re not going to get younger, so we thought we should figure out a business where Jamie will have some part of it and where his interests will be supported and accepted.” So, Blair left his job and his wife Jo, who used to be head of marketing for Fisher & Paykel, retrained as an early childhood education teacher so they could set up a childcare centre. First the pair tried to develop their own centre by renovating a heritage building, but the consent process defeated them. Eventually they realised it would probably be easier to buy an existing business, so they approached Barkers Business Brokerage and bought a large centre in the North Shore suburb of Northcross that had been operating for close on 20 years. “We bought it from the founders, who were in their 70s. He was a builder who built it, and she was an early childhood teacher who ran it.” At first, they just bought the business and leased the property, with a first right of refusal to buy the property if the owners decided to sell. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 8 2
Says Blair: “When the owners decided to sell, we exercised our first right of refusal and bought it just before Christmas last year.” They did the purchase as a family deal with Jo’s parents, who were of retirement age but still farming. “It was a not-so-subtle push by his daughter: ‘Dad, you love the farm but maybe you should have a bit more of a passive investment’,” he says. “This is a move towards him getting off from the farm and into a family-owned business. It’s still gives him an interest, but it’s just physically a bit easier.” It turned out to be a difficult time to take over a business, right at the start of the Covid pandemic, but they loved it. “We’re enjoying the fact that we are our own boss, and the children are great fun.” He says one of the advantages of childcare for an investor is that about half of the income for the centre comes from government funding. “It’s quite stable, but it’s a highly regulated industry and economies of scale really matter. That’s why we wanted a large centre, with an experienced manager. “It’s got a really good team of teachers and that’s important, because it’s a people
business through and through.” When the manager left to have her own life change in the Far North, Blair stepped in as manager for a time, but he’s just appointed a new manager. “The concept was always to have it under management and go from there, but it’s been such a period of change for everyone, that it needed more hands-on work.” Jamie’s part of the team, too, on three days’ work experience a week. He helps assemble furniture, cleans the water fountain, and does odd jobs around the centre. Says Blair: “He came into the centre yesterday when there was a little fouryear-old dressed in an Emma Wiggle costume. Jamie just thought that was fantastic. The staff were delighted to see this big kid and this little kid dancing and singing ‘Fruit Salad, Yummy, Yummy!’.” Now the couple’s oldest son has left to study at Canterbury University, their youngest is 16 and Jamie’s 18. “It’s the best time for the next stage of life for us. It’s very rewarding. “Everyone has challenges, and this is just us thinking outside the box, how we can shape our family into this little life that we want to lead.”
PERSONAL FINANCE
‘My dividend is the joy of driving my classic cars’ Hayden Johnston turned a passion for Japanese boy racer cars into an investment portfolio.
The classic advice about investing is to buy what you know – and Hayden Johnston is putting that advice into practice. His specialist knowledge of the global car market and lifelong involvement in the industry means he has the insider advantage to invest in classic cars as a successful strategy. Cars are a family passion for Hayden, whose dad Peter Johnston rallied in Group B race cars across New Zealand. Boyhood love affair The younger Johnston started out as a spectator, but from the age of 13 he was codriving for his dad. His love for Japanese cars stems from that time, he explains.
He still owns the R33 GTR, which has appreciated dramatically, along with many other models, including a “very, very nice” Honda Civic Type R and a Honda Integra Type R, both of which have jumped up in value in the past two years.
“I have a specific date range for the cars I buy: 1992 to 2000 Japanese classic cars. When I was young, they were the brand-new race cars of that day, in rally, circuit and drift.
“These are cars that five years ago we used to buy for $8,000 and thrash at the racetrack. Now they’re worth $40,000-plus and only get driven on Sundays!”
“I’ve had a lot of European cars over the years, but the Japanese cars were the ones I yearned to own.” Johnston joined his father, who owns Genuine Vehicle Imports (GVI,) one of New Zealand’s largest importers of used Japanese cars, and he’s now the chief executive of the business. He’s always kept a close eye on the market, and in 2014 he made his first move into investing in his favourite JDMs, as Japanese domestic market cars are known. Skyline was a keeper “The first car where I thought, ‘This one I’ve got to keep’ was the [Nissan] R33 GTR Skyline,” he says. “I was seeing the lift in prices, and I thought, ‘This could be a future little earner, but if I want one, I need to get in now’. “I bought five or six other JDM classics in 2014 – I wish I’d bought more!”
The trade in classic cars is bustling, says Hayden, with Kiwi scouts on the lookout for vehicles they can buy locally and ship to the US, Hong Kong, Thailand, and Canada. Over-25s in demand Demand for ’90s Japanese classics has shot up, because any car manufactured at least 25 years ago can be imported to the United States, which is normally tightly regulated. Johnston watches the market closely as part of his job, ready to pick up a car for himself when the price is right. “I’m always buying cars to sell, then handpicking really good ones to keep. “I’m on the hunt for a later-model version of the R34 GTR Skyline, but they’ve gone ballistic. Ten years ago, you could buy one for $50,000, and now they can go for as much as US$500,000 – even the most horrible one is knocking on $200,000.”
Johnston believes Japanese classic vehicles are still a fantastic investment opportunity. Their popularity continues to rise among younger generations, fuelled by a burgeoning ‘JDM culture’ on social media. Fans drop by For now, Johnston has no plans to sell his cars, but every day he gets requests. Fans often stop by to admire the vehicles. Add their growing value to the fun of driving the cars, and this hobby is the perfect retirement fund for Johnston. He didn’t grow up knowing about investing in the share market and admits he doesn’t really trust other people with his money. But buying cars allows him to indulge his passion, take advantage of his insider expertise, and remain fully in charge of his investment. “With cars, you can see them, touch them, and drive them – so you get to enjoy them while they appreciate. “It’s not like buying Bitcoin and hoping you can do something with it. You can jump in, go for a fang, and really enjoy your investment. “It’s true that you don’t get a dividend, but for me the dividend is not financial, it’s the enjoyment you get from driving them.” WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 8 3
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 8 4
PROPERTY
Should I Use a Mortgage Broker? Sure, you could approach a bank yourself, but working with an adviser gives you a better chance of getting a yes (and it’s free), says Peter Norris of Catalyst Financial.
First of all, these days they’re mortgage ‘advisers’, but for the purpose of the article, let’s run with brokers. Right now, mortgage brokers account for close to 40 per cent of all new mortgage business settled in New Zealand. In Australia, that number is closer to 65 per cent, and in the UK it’s up over 90 per cent. That percentage in New Zealand is growing as more and more borrowers look to the experts for help getting a mortgage. What they do But what does a mortgage broker do, and should you use one? Fundamentally, using a mortgage broker should simplify the borrowing process for you. But it’s more than that. And it’s more than simply getting the best interest rate. In fact, I’ll often say to clients that bank pricing is close to last on my list of priorities when I’m helping them get a loan. The main reason for this is that banks are all largely offering the same rates and cash and, in almost all cases, it’s the advertised special which the client could get themselves. If you’re broker’s point of difference is based on price, question it. A mortgage broker acts as the middle person between you and the bank. They’re your representative.
They’re the person who’s going to take all your documents (like your pay slips and bank statements) and present your mortgage application in the best possible light to give you the greatest chance of getting a loan. That last bit is key. A good mortgage broker will be the difference between how much you can borrow, and whether or not you can borrow at all. What you don’t know Could you deal direct with a bank? Sure, of course you can. The problem is you don’t know what you don’t know. A great banker is still working for whatever bank pays their bills. They’re constrained by their bank’s policy and have to work within that. A mortgage broker has the ability to look at your application and assess which lender will best fit your needs in the short and long term, and across all lenders. This gives you access to a wider range of options and, ultimately, a much higher chance of getting a yes. Which structure? Structuring your mortgage is the next important part a broker will help you with. They’ll advise you (a banker can’t advise) and help you make decisions on how to structure your mortgage is a way that suits your short and long-term plans.
They’ll take into account these factors: •
How long to fix your loan for? And why?
•
Should you put some on floating or revolving credit?
•
What structure makes sure you pay your loan off faster?
•
Whether you should use an interest-only mortgage.
•
Should you split across multiple lenders?
•
Do you have future plans, such as investment property, that need to be factored in.
I can’t believe this doesn’t cost! All of this should be reason enough to use a mortgage broker. A good mortgage broker should give you an experience that you’d be happy to pay for. But the beauty of it is that in almost all cases, you don’t have to pay for it. A broker gets paid a commission by the banks once your loan settles and, because of that, it doesn’t cost you anything. It’s also becoming more common for mortgage brokers to be in salaried jobs, which means they’re not incentivised to go with any particular bank. This takes away any bias and ensures you get the best independent advice. Get a good one So, is it worth using a mortgage broker? Hell, yes, provided, of course, you have a good one. There are very few ‘no-brainers’ in buying property … but for us, using a mortgage broker is one of them. We’re in a rising rate market with rapidly changing lending rules. Navigating that without an expert could be as costly as building your own house with no building experience. You simply wouldn’t even think about doing that, let alone actually do it. A good mortgage broker is an experienced hand guiding you to where you want to go financially.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 8 5
H E A LT H | N I B
Pandemic Takes Toll on Health Increasing numbers of Kiwis are seeking help for mental health issues, nib NZ’s Head of Partnerships & Groups, Sarah McBride, tells Brenda Ward. As we live through one of the biggest health crises of the 21st century, the Covid-19 pandemic has taken its toll on Kiwis’ health and wellbeing. Health insurer nib NZ claims data shows a 246 per cent increase in psychiatric claims made between Jan 2019 and Dec 2021 across the entire member base, says nib’s NZ Head of Partnerships & Group, Sarah McBride. And the amount the company paid out in total hospital claims in 2021 leapt 14 per cent to NZ$148 million last year, up from the previous year’s NZ$129 million. McBride says employers are recognising more and more their staff’s health and wellbeing is a top priority. There’s been a 12.4 per cent increase in active group policies between 2020 and 2021.
approach to helping members manage their health and wellbeing, offering 12 health management programmes at no additional cost. “They’re designed to help our members take control of their health and wellbeing,” says McBride.
“We’ve seen a significant increase in organisations joining our group health plans, as well as a greater uptake from employees signing up to their workplaces’ existing employee health plans,” says McBride.
Wellness coaches She says members can speak to a qualified nib wellness coach and get personalised health and wellness advice for everyday support or to help them recover from treatment.
“Employers are looking for new ways to attract and retain staff, and health insurance has become a great perk for new employees.”
The wellness coaches can refer eligible members to one of nib’s dedicated health management programmes, which help address conditions like weight management, pain management, heart risk or cancer care.
She says there’s never been a more relevant time for businesses to consider health benefits. Job seekers “We’ve all heard of ‘The Great Resignation’, as Covid-19 has forced people to think about what’s important to them. “A recent survey1 also found that 43 per cent of Kiwis plan to actively look for a new job this year. “Offering a corporate health plan is a fantastic way to show your people that you care and stand out among the crowd.” The company is taking a proactive WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 8 6
“The idea is to ensure our members who either have a chronic disease or are at risk of chronic disease have the right tools, resources and support they need to prevent both immediate and long-term health issues.” McBride says in 2021 alone, over 1,100 members took part in nib health management programmes and they’ve consistently seen reported improved health outcomes from those taking part. “For example, we’ve seen a 22-point reduction on average in the Oswestry Low Back Pain Disability Score for members who have participated in our nib Healthier
Joints: Pain Management programme since February 2020.” She says this is a significant clinical improvement because it allows members to be moved from the ‘severe disability category’ to the ‘moderate disability category’. This means they’re likely to be able to manage this pain conservatively on their own without intervention and helps ensure a greater quality of life for members suffering from debilitating back pain. Why use group schemes? McBride says there are some great benefits to having a corporate health plan that work for both the business and employee. “By providing group cover, you’re also showing your employees that their health and wellbeing is priority,” says McBride. “For an employee, our corporate health plans offer access to tailored cover that includes hospital, specialist, and everyday treatment at an affordable price. “It also means, in the unfortunate event they may get sick or need to go to hospital, they can skip the wait for treatment in the public system and get back to work faster.” For more information or to get a quick quote for health insurance, contact health.nib.co.nz/business 1. newshub.co.nz/home/money/2022/02/more-than-two-in-fiveworkers-plan-to-quit-their-jobs-a-sign-the-great-resignationcould-soon-hit-new-zealand-research.html
ham
REAL PEOPLE, REAL HOMES Unlocking the value of your land could be easier than you think. When Chris and Andrea’s children left home, they discovered subdividing their section and building a second home was an ideal way to unlock the value of their land and get what they wanted in a new home.
“When the kids left home, we decided we should do something with our extra land. We got a real estate agent, weighed up our options, and decided it was by far best to build a second home on the site rather than sell the section. It had to be a nice house, that would complement our old home to keep the value of both of them. GJ’s helped us with all our boundaries, plans and daylight angles, and dealt with all of the contractors and services. It was a complex job made simple with GJ’s. In the end it’s going to be a really good investment. We’ve got two really nice homes.”
– Watch Chris & Andrea’s full story gjgardner.co.nz
YO U R I NVE STI N G
Investing Across Generations Many people want to see their children and grandchildren well set up for life. Scott McKenzie says that’s why PMG started the Generation Fund.
In March, Florida governor Ron DeSantis signed legislation into law requiring high school students in the US to pass a financial literacy course to graduate. DeSantis said: “This will provide a foundation for the students to learn the basics of money management, understanding debt, understanding how to balance your chequebook, and understanding the fundamentals of investing.” Florida joins seven other states that already require a personal finance course before graduation. In New Zealand, financial education is not mandated as a part of the school curriculum, and a recent survey of 2646 young New Zealanders by the New Zealand Council for Educational Research* shared these sobering results: •
35 per cent of pupils felt they had learnt “almost nothing”.
•
38 per cent learnt “some things” about money at school.
Couple this information with the crippling effects of a pandemic, and we see why the gap between the haves and the have-nots has accelerated at an alarming speed. Can we stop this spiral? I believe we can – and it starts with early education and investment accessibility. It starts at home Financial literacy is key to building wealth, and can be summarised as making money, saving money, and investing money. If children are not learning basic financial skills at school, the baton then passes to parents, who have a responsibility to educate their children and have ‘The talk’. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 8 8
Obviously, this talk should be straightforward and appropriate. A three-year-old does not need to know the differences between fixed and variable annuities or the impact of rising interest rates on a home loan. At PMG, we have fourth-generation investors, and these families discuss regularly the importance of saving, planning, and tracking investments. In fact, most of the families in our investor story videos repeatedly say you should start your investment journey young, compound returns, and plan ahead. Generational wealth At PMG, we’re seeing a growing demographic of investors who’ve benefited from generational wealth creation. These families have a focus on education and a mentality of ‘custodianship’, which has allowed them to ensure that multiple generations of their family can thrive. A driving force behind investing in property is to create both a passive income (monthly or quarterly cash income) and capital gain (increase in property value) to provide a comfortable lifestyle.
At PMG we’re walking the talk. We feel a deep responsibility to our investors, tenants, suppliers, contractors, and community to provide financial direction, so we created a PMG Charitable Trust that’s committed to supporting financial literacy programmes across New Zealand. We also have a strong commitment to educational content. We use: •
Website tools, creating online compounding and cash return calculators that help those seeking to invest, to gauge what their investment really looks like for them.
•
Multiple free and downloadable educational series that cover the current economic environment.
•
Free investor seminars through the year, normally with high-profile economists who educate and provide a unique perspective.
This growth acts as a future nest egg for their beneficiaries, so they too can enjoy a similar lifestyle as their parents and grandparents. Why property works Historically, property has been, and will likely continue to be, one of the more successful long-term investment platforms for building long-term wealth – and in high inflationary environments it performs well as an inflation hedge.
PROPERTY
Investment accessibility PMG is committed to helping Kiwis achieve financial freedom by providing access to direct investment in high-quality commercial real estate, at an entry level that most everyday New Zealanders can realistically attain. With this in mind, last year PMG launched a new unlisted commercial property fund named PMG Generation Fund. At that time, the entry level was NZ$1000, which gave investors access to a property portfolio valued at NZ$166 million, with a forecast gross cash return of 5.8 per cent per annum, paid monthly**. Additionally, this fund was available to invest through investment platforms Sharesies and InvestNow for considerably less. In just over two years, that fund has grown to be PMG’s second largest portfolio by
total value, with an estimated NZ$204m*** of assets under management, and six properties offering a diversified mix of national brands, including Torpedo7, Countdown, BP, Kmart, and Coca-Cola Amatil. Of particular note to original investors is that since inception, PMG Generation Fund has performed well, with a total annualised gross cash return, including unrealised capital growth, of 12.9 per cent****. Despite its name and the overall younger profile, the fund is still popular with the industry’s traditional demographic – retirees who require regular and reliable income streams and security of their wealth for future generations. This clearly aligns with the fund’s strategy for sustainable growth – to offer an unlisted property commercial fund that’s diversified by geography, tenant and industry, with an entry level that’s attainable for most.
Investors can reinvest returns, make regular contributions, and benefit from compounding returns. We’re delighted to be one of the first funds managers in New Zealand creating alternative and attractive investment options for younger New Zealanders just beginning their journey towards generational wealth and financial freedom. We always say, don’t wait to invest in property, invest in property and wait. Content of this article is the opinion of Scott McKenzie and is not intended as personalised financial advice. You should seek independent financial advice from an authorised financial adviser before making any investment decisions. * https://cffc-assets-prod.s3.ap-southeast-2.amazonaws. com/public/Uploads/Sorted-in-Schools-ResearchPolicy/3ef25c819c/secondary-schools-report.pdf ** Historic return as of 20 May 2020. *** As of 31 March 2022. **** Past performance is no guarantee of future returns.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 8 9
YO U R I NVE STI N G
There’s a Clear Shift in Market Dynamics There's been a cooling in investor demand, but the property market is still attractive, says Jen Baird, Chief Executive at REINZ. The property market is cyclical. We’ve seen a long period of exceptional growth over the past couple of years, despite Covid-19 uncertainty. This period of high activity and growth saw property prices reach a record median high of NZ$925,000 in November 2021. Momentum has since slowed and we’ve seen a clear shift in market dynamics. We now find ourselves in a market that’s changed gears to a more settled pace. Property prices tend to be more sticky when they’re decreasing than increasing because people simply chose not to enter the market, or to not sell if they can’t achieve their price expectations – this is a dynamic we’re seeing now. Month-on-month, across New Zealand the median property price increased 0.6 per cent. However, in many regions prices dipped, with Otago (down 8 per cent) and Southland (down 7.4 per cent) seeing the greatest decline from February to March. Prices continue to increase year-on-year in most areas across New Zealand and nationally we saw an increase of 7.9 per cent, but the rate of annual price growth has eased significantly. Further, sales activity is down, and stock and the median days to sell are up. A market changed We’ve talked a lot about the economic headwinds that gathered through 2021. These macro and micro economic factors are now embedded, and it shows in the current market sentiment. Tighter lending criteria, loan-to-value ratios (LVRs), and increasing interest rates, coupled with inflation – worsened WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 9 0
by the Ukraine war – are contributing to uncertainty and conservatism. Last year we saw a fear of missing out (FOMO), but so far 2022 has been marked by a fear of over-paying (FOOP). A recent survey of real-estate professionals conducted by REINZ and economist Tony Alexander found FOMO is now essentially non-existent – replaced by FOOP. In April, only 6 per cent of agents surveyed reported buyer FOMO, compared to 70 per cent in October last year. The effect is a smaller pool of buyers willing or able to pay the prices reached towards the end of 2021.
A time to sell New listings are not soaring. Investors haven’t exited the market en masse, nor are owner-occupiers rushing to sell, comfortable in a strong labour market that means they can service their mortgages. Vendors remain motivated in many parts of the country. The property market is partemotion, part-rational. Some may choose to hold off selling, but others will keep upsizing, downsizing, or making lifestyle changes. The wheels of the market won’t stop turning. The challenge for vendors now is adjusting expectations. They should talk to realestate professionals to understand the nuances of their local market. Property investment There’s been a cooling of investor demand, but the property market remains attractive. Many predicted the tax changes of March 2021 would see an exodus of investors but, while some took a step back, the exodus never materialised.
Real estate professionals across the country report a fall in the number of first-home buyers and investors, in particular.
Despite the challenges of rising interest rates, tax changes, Healthy Homes standards, and tenancy law changes, investors continue to hold residential investment property long-term.
Is this a buyer’s market? Today’s dampened demand coincides with an increase in supply. It was that lack of supply that gave urgency to the market through 2021. In March, many regions recorded a significant increase in stock levels, partly because properties were longer on the market as the time to move a sale through to completion increased.
Tony Alexander noted most did not over-borrow when LVRs were removed between May 2020 and February 2021, and banks’ requirement for borrowers to be able to service a mortgage increase rate of 3 per cent or more has provided a buffer for most. With 40 per cent of New Zealanders renting, there’s a clear need and opportunity for rental properties.
Basic economics says a decrease in demand and increase in supply tips the scales in the favour of buyers. In theory, more stock is good news for all buyers, giving them more time to shop around and do their due diligence. However, compounding factors make for a more complex scenario.
Many of us have seen similar downturns before. Downward pressure from LVRs, decreased affordability, tightened lending, and rising interest rates have moved the market to a more measured pace. This will continue, but it’s impossible to pick when it will reach the ‘bottom’ or pick up again.
Property prices remain firm and the current environment has curbed some buyers’ access to finance. But buyers backed by equity now have more choice and more time.
When you’re investing in property, it’s not about timing, it’s about time on the market. The longer you hold the property, the better your outcomes.
PROPERTY
Median House Prices Month-on-month March 2022
Northland
$820,000
Bay Of Plenty
$937,000
Auckland
$1,200,000
Gisborne
Waikato
$715,000
$845,000
Taranaki
$650,000 Mananawatu/Wanganui
Hawke’s Bay
$610,000
$780,000
Tasman
$870,000
Wellington
$939,300 Nelson
$800,000 Marlborough
$660,000
West Coast
$345,000
Canterbury
$701,000 Southland
$440,000 Otago
$735,000
National Median Price
Up 0.6% $890,000
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 9 1
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 9 2
BUSINESS
Buy a Business & Be Your Own Boss Buying a business could be the best investment you have ever made. Neil Barker, of Barker’s Business Brokerage, explains why.
The Covid pandemic has presented Kiwis with heaps of surprises, but one of the biggest ones is that more Kiwis than ever are buying businesses because they want to be in control of their own destiny. Despite two years of government lockdowns and negative business policies, Barker Business Brokers is finding that many businesses have done well and have managed to increase their profitability due to smart adaption to the new economic climate. Demand for profitable businesses continues to remain extremely high and business sales now are higher than they’ve been in the past 10 years. There are, of course, sectors that have been negatively impacted, such as tourism and hospitality, but many more businesses are making better than ever bottom lines.
•
Most of our business owner clients, prospective clients and contacts have rebounded significantly over the past six months from their past bad yearend results. Even clients in the tourism sector have seen a resurgence in bookings from domestic travellers.
•
After their businesses were hit by Covid, some owners have become risk-averse and feel that 2022 is the right time to sell their business. They’re tired of the operational challenges and are feeling pandemic burnout. They want to retire and enjoy the fruits of their hard work.
•
With less opportunity for international buyers and New Zealand companies not able to easily grow overseas, there’s a strong appetite from large New Zealand companies to buy revenue and earnings through acquisition.
I believe this growth and increased profitability is being fueled by Kiwis not travelling overseas and choosing to spend their money on things like household goods, household renovations, vehicles, and boats. In other words, they’re spending money in New Zealand, rather than overseas.
With such significant demand out there, brokers are often seeing competing offers for some businesses.
Many Kiwis have come back from overseas looking for fresh opportunities, which is helping to push up the demand for solid, profitable businesses.
Barker Business Brokerage has a Complete Client Guide to help you understand how it adds value to your business sale and makes selling your business easier, available at info@barkerbusiness.co.nz.
We’re seeing general businesses continue to be highly popular and are experiencing keen interest in wholesalers, childcare centers, home-based firms, manufacturing, import, building, contracting, service, and transport businesses.
Interested in buying or selling?
If you’re interested in a buying a business, go to www.barkerbusiness.co.nz and check out the listings.
At Barker Business Brokerage, we’ve recently sold a range of general businesses in the NZ$3 million to NZ$30m price bracket. The demand for these businesses is very strong.
Neil Barker says: “We love helping people to reap the benefits of their business-building efforts, and we enjoy helping others to aspire to business ownership.
But there are also buyers for smaller businesses, starting at NZ$200,000.
“We are business sales specialists. Our focus is to get you the best possible price on today’s market.”
With the border restrictions lifting, the outlook for 2022 is optimistic. We’ve noticed three clear trends:
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 9 3
EXPERT OPINION | VERO
Why DIY When a Broker’s the Expert? As businesses grow, their insurance needs become more complex, says Chris Brophy of Vero. He says a business that’s expanding should consider using a broker. Many small and medium-sized business owners (SMEs), especially younger age groups and those just starting out, think insurance for their business is easy enough to DIY. Some think dealing with a middle man might be more complicated, expensive or that there aren’t any real benefits to using a broker compared with a simple online platform. But Vero's annual SME Insurance Index research shows that small business owners who do use a broker are getting access to expert support to help assess their risk and get the best cover. But is it right for your business to use one? Many factors can affect whether SMEs use a broker or try to go it alone. Vero's research shows that the majority of small business owners prefer to use a broker, particularly larger sized small enterprises or businesses that are growing or changing, which often have more complex insurance needs. Expert advice in a changing world Owners are increasingly seeking advice on what a changing business needs, especially after seeing the effects of Covid-19 on their companies. Covid-19 has changed the risk landscape significantly, and even early in the pandemic, 79 per cent of New Zealand businesses reported that they were making changes to their businesses due to its impacts. They might have temporarily closed their premises, shifted to remote work or adjusted staff levels. These all have an impact on the risk profile of a business. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 9 4
As companies recover and grow, they might have more employees, more vehicles, larger premises containing more equipment, and have higher income at risk. We find that businesses using a broker report being more likely to feel they have the right cover and actually review their insurance needs, rather than just ‘set and forget’. Too busy Many owners find themselves time-poor, especially if their company is growing, with the stresses of managing staff, clients and contracts.
claim on your policy, that’s when the advice and support your broker has provided really comes into its own. From supporting you with claims paperwork to following up with your insurer, they’re on your side. You’re also more likely to have had support with risk assessment and cover decisions, with 74 per cent of broker clients saying they received advice from their broker last time they renewed their insurance, compared to direct buyers where one in three simply renewed their insurance without reviewing it.
Researching insurance cover takes time and energy away from your core business. A broker will do an assessment of your needs and then go away and provide recommendations and prices for the cover you require.
This means broker clients are more likely to have the right type and level of cover in place before they need to claim, which makes claims experiences more satisfying – 73 per cent of brokers clients who have made a claim are satisfied versus 55 per cent of direct buyers.
Satisfaction with claims Should the worst happen and you need to
To find a broker near you, go to www.vero.co.nz
• • •
•
•
• • • •
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 9 5
YO U R I NVE STI N G
Snuggly Style
1
2
Take inspiration for your home as the season changes. 7
6
5
4
3
1. Grenelle sunglasses in peach - ahlemeyewear.com, 2. Merino fingerless mittens - standardissue.co.nz, 3. Mr Minimese Shearling in Black - deadlyponies.com, 4. Wilma chair in Ivory - nood.co.nz, 5. Rectangle hoop earrings in gold - cosstores.com, 6. Breitling Chronomat Automatic 36 - www.partridgejewellers.co.nz, 7. Crop funnel neck jumper - standardissue.co.nz WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 9 6
10
8
9
Cosy into colour.
Resene Reservoir
13
Resene French Grey
Resene Galliano
11
12
Resene Dark Knight
Wrap your walls in cosy and soothing hues to brighten the dullest days. 1210
8. Bottle salt and pepper grinder in grey - superette.co.nz, 9. Keepsake earrings - silkandsteel.co.nz, 10. Mohair scarf in steel - deadlyponies.com, 11. Moma cube clock alume in grey - boltofcloth.com, 12. Ivy locker in slate - nood.co.nz, 13. Kenzo World by Kenzo 75ml EDP - farmers.co.nz
resene.co.nz/colorshops
YO U R I NVE STI N G
A Better Version of Me Simple changes, and a policy of progress, not perfection, help Brenda Ward make lasting lifestyle changes.
I’m pretty health-conscious and I read widely, so I was sceptical that Resolution Retreats’ four-day refresher could teach me anything I didn’t already know. But I thought, well, I need a relaxing break, and some tennis, swimming, saunas, yoga, and mindfulness in luxury near Karapiro sounded divine. And if I picked up some tips along the way, all the better. I knew all the things I should be doing. In fact, I have no idea why I wasn’t doing them already. I soon found out that even the things I thought I was doing right were undermining my best efforts – and some of the simplest lessons were a complete surprise to me. Let’s look at some of them. Meals Oh no! Like most women who arrive at this wellness and weight loss retreat, it turns out I wasn’t eating enough. That’s right, not enough. Energy in should equal energy out. It’s maths, right? No. Eat less and you’ll lose weight? No, again. Trying to cut down on food and overexercising was doing me no good at all. In fact, my body was stuck in starvation mode and compensating by laying down a lovely layer of fat around my middle. Within four days I’d learned that I needed to eat more meals a day. Even though I wasn’t hungry, I obediently munched chocolate bliss balls at morning tea and had a protein smoothie for afternoon tea as well as a sizeable healthy breakfast, lunch and dinner. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 9 8
WELLBEING
I couldn’t see how eating more could possibly help … until I got home and found I had lost a kilo in those four days, while eating more than I ever had.
I couldn’t see how eating more could possibly help … until I got home and found I had lost a kilo in those four days, while eating more than I ever had. At home, I kept eating that way and over the following weeks, every day the scales continued to show another drop in weight. Some of the success was due to when I ate, but also it was what I ate. Protein at every meal made me feel satisfied. My body was full and happy at last. And there were no carbs at dinner, because I didn’t need them to just sleep. The menu over that four days showed me what worked. All I had to do was buy better and plan better. Fitness I’m a runner. That is, I run at least 20km a week, the longest a 5k on a Saturday. So I had fitness sorted, didn’t I? For the first time in months I resisted the urge to take a morning jog along the path to look at the horses grazing in a nearby paddock. Instead, I just did what the programme suggested: a nice walk in the country each morning, some simple group agility and balance exercises, or a hilarious hour of pool fitness fun. I couldn’t believe I could work up a sweat with such simple routines – and, embarrassingly, I could only just keep up with the non-gym bunnies. It was easy to do, but it was a full-body workout that built balance, strength and capability. I realised that running had taken over from all-round
fitness and flexibility. I needed to get back to some bodyweight work, and I’m now adding it back into my life. Yoga and mindfulness I’ve dabbled in yoga a few times and always strived to be one of those women who can stretch further, twist more and look like a social media influencer in my lululemon matching yoga pants and top. Ha, not likely!
Opposite page: The retreat is peaceful and surrounded by fields. Top left: There's a large yoga and meditation room. Top right: A free beauty treatment comes with your booking. Above: Between meals, there are snacks or smoothies.
I never kept it up and now I know why. When there’s no pressure, no-one watching and no-one cares, you can breathe and move at your own pace, learning to be calmer, really relaxed and ready to sleep like a baby. I have hunted out a yoga class near me and I’ll give it another go. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 9 9
YO U R I NVE STI N G
On the retreat, everyone has wisdom to offer. Just one tip can make life that bit easier for someone else.
Vegetables Good old Watties frozen peas and corn. What would I do without it? But relying on the frozen veges turned out to be a problem for two reasons: Peas and corn are veges, but they’re also carbohydrates. And I’d been eating them with carbs like potatoes and carrots, and sometimes with lentils and chickpeas, too. I was trying to eat my veges, but consuming carbs on carbs on carbs. And my limited food choices were cutting out a whole lot of delicious veges like mushrooms, asparagus, baby carrots, crunchy green beans, and elegant stems of broccolini. When your veges are tender and sweet, you eat more of them, and crave less of the starchy stuff. I’ve discovered that it doesn’t take that much longer to prepare fresh vegetables every day, rather than frozen ones. Label lore Surely Sultana Bran is healthy. What could be wrong with sultanas (basically grapes) and bran (great for fibre)? Surprise: It’s actually one of the most fattening cereals around. After a seminar on labels, I discovered eating healthily was fraught with pitfalls. Only reading the labels will show which nut bar gives you three teaspoons of sugar and which one has less than one teaspoon per bar and lots of great protein – Nice N Natural Protein bars, if you want to know. You’re not alone When we’re all at our own homes, we’re alone in our struggles to eat well and fit in some fitness where we can. But at Resolution Retreats I discovered everyone else has the same battles with temptation and guilt. Some women would binge-eat biscuits out of loneliness. Another ate chocolate at frustration for a recurring injury. Another was changing her life after defeating breast cancer. On the retreat, everyone has wisdom to offer. Just one tip can make life that bit easier for someone else. It’s a journey The best tip was the empty journal we all received. I left it on my book pile for three days but followed the suggestions anyway, until one day I felt ready to plan my days and now it’s a daily record of my journey to become a better me. Resolution Retreats runs wellness and weight loss retreats for women, and Resilience Retreats for both men and women. www.resolutionretreats.co.nz WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 0 0
REGULARS
Book Reviews Reviewed by Sarah Ell
Inside Out: Why Leadership Starts with You
Burnout to Brilliance: Redefining Peak Performance
Deb Bailey Deb Bailey, $29.99
Jess Stuart Inspire Publishing, $30
If you think about the world’s great leaders, you might think they have reached that position of responsibility by having some special skill in telling people what to do. In fact, leadership coach and human resources expert Deb Bailey suggests they have mastered their ‘inner game’, recognising their personal values, strengths and weaknesses, then worked with them to create better results, relationships and team culture. Bailey’s book Inside Out takes a holistic view of all the aspects that make for a good leader. Understanding mindset and motivation can be a powerful tool to help managers and other leaders reach their goals and bring together strong, high-performing teams. Rather than being about the ‘outer game’ of how to manage and lead, this clearly written book encourages readers to get to know themselves. ‘Insight to action’ boxes at the end of each chapter help readers identify positive steps they can take, and practical exercises and diagrams help to increase action and understanding. The first three sections look at: understanding the fears and beliefs which might be holding them back; the bigger picture of what they want to achieve; and recognising their values and personal ‘superpower’ that they can deploy to become a better leader. Finally, it summarises how these aspects can be brought together in a tactical plan to move forward and make meaningful change.
Being busy seems to be a badge of honour for many people, in their professional and personal lives. But what toll does rushing around all the time take on our health and wellbeing? And even though we’re constantly doing stuff, how much are we actually achieving? Author and coach Jess Stuart, now living in peace and harmony on Waiheke Island, has been to the burnout end of the spectrum. She starts this book with an account of her own crash and burn as a young executive who tried to have it all, before turning to how peak personal and professional performance can be achieved through cultivating a state of ‘sustainable brilliance’. Stuart looks at how we can work smarter, not harder, overcome feelings of overwhelm and have a clear, more focused mind – ‘the art of slowing down to speed up’. She writes that the coronavirus pandemic has highlighted the ‘busyness pandemic’ and made being flexible and resilient in the workplace even more important. If you think you’re far too busy to read a book like this — this book is for you. “If we go beyond busy and beyond burnout,” Stuart writes, “what we find is a field of potential: a pathway to performing at our peak. “When we can achieve this, not only are we happier, but everyone around us benefits too.”
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 0 1
YO U R I NVE STI N G
Tropical Breezes Crypto columnist Jenny Rudd and Mat Tomlinson drive across the world-famous bridges of the Florida Keys. The borders are open! We wanted to listen to big ideas about blockchain and have a fun holiday at the same time. The Bitcoin 22 crypto conference was being held in Miami, so we booked our tickets and tacked on a few days beforehand to explore the Florida Keys. After booking the gorgeous Betsy Hotel for a week in Miami, we decided to go where the tropical breeze took us in the Keys, thanks to booking.com’s flexible cancellation policy, an essential in Covid times. Each morning we’d flick through the local hotels on the app, check out the reviews and photos and then book the accommodation. It was super-easy and we found some great deals. Into the vibe After the long flights, we were keen to get straight into the Florida vibe, so we headed to the Tranquility Bay Resort on Marathon, about halfway down between Key Largo and Key West which are at either end of the chain of coral islands. Tranquility Bay turned out to be an upmarket resort with two and three-bedroom weatherboard townhouses painted fresh white and curving round the resort’s private lagoon. Cape Cod chairs were slung with lemon-yellow beach towels and children splashed around with snorkels and masks, looking at colourful coral and tiny fish in warm, shallow water. Three swimming pools, a cute restaurant, beach bar, and plenty of water toys like jet skis and kayaks made this an ideal start to our holiday. In Florida, we discovered the journey is half the fun. Bridge to happiness Driving across the bridges between keys is magical, floating over an undulating blue blanket of sparkles. Pigeon Key, off the world-famous Seven Mile Bridge, is a little dot of land between Marathon and Duck Key. You can access it by foot or bike along the old bridge, or a 10-minute ferry from Faro Blanco Marina in Marathon. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 0 2
MARKET INSIGHTS
By day three, we had discovered there is so much to do in Key West that we didn’t know where to start. Haunted by Hemingway Our favourite was visiting the house of its most famous resident, Ernest Hemingway, who’d moved there from Paris to ‘dry out his bones’. Set in lush grounds, it was one of the biggest houses on the island. Every room had been preserved with his furniture and belongings. We heard the stories of his past, and about the people in Key West who’d inspired his books’ characters. One friend who looked after his boat became the ‘old man’ in his famous book The Old Man and The Sea. The world’s third-biggest coral reef slinks down parallel to Florida Keys to its south, so we booked a snorkelling trip with Islander Girl Tours in Islamorada. Marine magic They took a group of 25 of us about quarter of an hour offshore, out to Cheeca Rocks, a marine sanctuary. The visibility was superb, and the reef was busy with marine life – barracuda, puffer fish, big schools of stripy sergeant majors, and many more. I have no idea of the names of most of the fish, but I stared at them all for ages, floating in the warm, calm waters of the Straits of Florida. By the time we headed back to Miami and the oldschool charm of the Betsy Hotel, our home for the bitcoin conference, we were refreshed and ready for action. The concierge at the Betsy welcomed us out of the blistering Miami heat with the clink of ice and something fizzy. There’s a one-hour guided tour to learn about the rich history of the island and its role in housing the railway workers who helped build the Seven Mile Bridge, an astonishing engineering feat for its time, which linked Florida to the Keys. Duval Street, in the centre of Key West, was buzzing, with drag shows, weed shops, karaoke, and live music. All the bars were open to the road, with no windows, conch fritter vendors sent out buttery seafood aromas, and the familiar pastels of buildings on the Keys were further brightened with rainbow flags. This is a place to be happy. Holiday-makers seem to stay permanently lubed up, walking the streets with plastic beakers of margaritas and piña coladas. Clockwise from bottom left: palm trees at Tranquility Bay Resort, the rooftop pool at the Betsy Hotel, Key Lime Pie on a stick, Pigeon Key by the Seven Mile Bridge.
We loved staying at the quirky Mermaid and Alligator guesthouse, handily located near the centre of the town.
Our suite was capacious and calm, and swimming on the rooftop overlooking the ocean while drinking bright, sweet, Florida orange juice is an activity I could get very used to.
Top tips • Use the booking.com app. All the pics and reviews saved us so much research time and allowed us to book everything at the last minute. • Take your own fins, mask, and snorkel. There are loads of places to jump in and swim. • Grab a Key Lime Pie on a stick from any shop along the islands. I averaged one of these a day but could easily have eaten more. Jenny and Mat’s accommodation was supplied courtesy of www.booking.com
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 0 3
YO U R I NVE STI N G
Winter Warmers
1.
2.
Rich russets and tawny tones get you ready for winter weather. 8.
9.
3.
7.
5.
6.
4. 1. Erica Boots - www.rmwilliams.com.au/nz, 2. Carnarvon Jacket - www.rmwilliams.com.au/nz, 3. Leigh Trouser - www.rmwilliams.com.au/nz 4. Champ De Mars Sun - www.ahlemeyewear.com, 5. Phantom Duffle - https://deadlyponies.com, 6. Traditional Belt - www.rmwilliams.com.au/nz, 7. Cashmere Raglan Sweater - https://standardissue.co.nz, 8. Wool coat - www.cosstores.com, 9. Oversized Scarf - www.cosstores.com. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 0 4
L I F EST YL E
2.
1.
3.
9.
8.
4. 7.
5.
6.
1. Mila Knit Vest - https://nz.kowtowclothing.com, 2. Morgan Boot - www.kathrynwilson.com, 3. Theory Dress - https://nz.kowtowclothing.com, 4. Mr Sling Mini - https://deadlyponies.com, 5. Laura Bow Neck Blouse - www.rmwilliams.com.au/nz, 6. Crush Tote Mini - https://deadlyponies.com, 7. Samantha Coat - www.twentysevennames.co.nz, 8. Empire Hoops - www.silkandsteel.co.nz, 9. Henri Roll Neck Jumper - https://nz.kowtowclothing.com. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 0 5
YO U R I NVE STI N G
Going Up, Going Down Economist Cameron Bagrie takes a good, hard look at New Zealand and how we’re going as a nation.
Pop goes the balloon Success has now created a challenge: how to contain inflation. Throw together Covid, supply chain bottlenecks, money-printing, low interest rates and huge government stimulus, and something will pop.
Housing backs up House prices are down 4 per cent from their November 2021 peak and are likely to remain under continued pressure, given rises in interest rates and rising housing supply. Falling interest rates and looser monetary policy worked their magic lifting house prices. The effect cuts both ways. There are still pockets of resilience. Taranaki, Northland and Canterbury remain the better performers assessed by average across median sale price, days to sell, volumes, house price index, and sale to list price. Queenstown-Lakes district is another bucking the national trend.
Inflation is back, after being dormant for 30 years.
Close to a peak? Inflation has hit 6.9 per cent. Some are blaming offshore factors, but actually inflation is a combination of both offshore factors and an economy that is exceeding its available capacity to supply, which puts pressure on prices to rise. This is inflation that the Reserve Bank can and will influence, by lifting interest rates.
F-grade Headline inflation is high and two-year ahead inflation expectations sit at 3.3 per cent. That is a FAIL for the Reserve Bank, which has a 1 to 3 per cent policy band target. Having inflation outside the bank’s goal the odd year is OK, but not for this year and expectations of another two!
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 0 6
MARKET INSIGHTS
Too many houses? Do the maths. When you have population growth of 90,000, which is made up of 60,000 migrants and 30,000 natural increase, and around 2.5 people per house, then add on a factor to depreciation on the housing stock, you need to be building around 40,000 to 45,000 houses a year. That changes markedly when population growth is 22,500 (30,000 natural increase less a net migration outflow). You need fewer than 20,000 houses.
Fighting inflation Credibility and showing your inflation-fighting credentials remain the name of the game for central banks, which are facing the strongest inflation pressures we have seen for 30 years and need to slow growth. The talk is tough. Our Reserve Bank and the Bank of Canada both hiked 50 basis points at their last meeting and the US Fed is set to do the same.
How high will they go?
New Zealand has never seen around 400 basis points of increase over a two-year period. Mind you, we haven’t seen inflation around 7 per cent since the 1980s, either!
Construction turns House prices are dropping at a time when construction cost inflation (replacement cost) has hit 18.3 per cent. The ratio is known as ‘Tobin’s Q’ and signals a turn in the building construction cycle.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 0 7
Correct as at 3 May 2022.
Financial markets are, at the time of writing, expecting the Official Cash Rate will rise above 4 per cent. That’s almost 400 basis points of tightening over two years, and the Reserve Bank has so far delivered 125 basis points.
YO U R I NVE STI N G
Credit wheels slow Housing credit growth continues to ease, with annual growth easing from 10.5 per cent in calendar 2021 to 8.7 per cent for the12 months to March 2022, a pace of growth more normal and in line with income growth. This is being driven by a combination of higher interest rates curbing loan demand, loan-to-value ratio (LVR) restrictions, rising bank test mortgage serviceability rates, shifting bank risk tolerance and the impact of the Credit Contracts and Consumer Finance Act.
Hiring now! One influence on inflation is a tight labour market, with the economy noted by the Reserve Bank as exceeding maximum sustainable employment. The more direct description is that the unemployment rate (3.2 per cent) is too low. Success in the form of the strongest labour market conditions in decades and too few workers for the jobs we have is now holding the economy back and driving up wage costs. That’s a good thing for workers but adds to costs and inflation.
Budget blowout? Inflation is now household’s top concern, according to the IPSOS Issues Monitor, knocking housing off top perch.
The Reserve Bank has been open, saying government policy could help dampen inflation. ‘Help’ in the form of a big-spending 2022 Budget is not likely to be the help the Reserve Bank had in mind.
Rise of the non-bank lender Many borrowers are now turning to nonbank lending sources for finance. Non-banks are less than 2 per cent of the home lending market, but in the past few months have been writing 8 to 10 per cent of the rise in the stock of home lending (new loans less repayments).
While Bagrie Economics uses all reasonable endeavours in producing reports to ensure the information is as accurate as practicable, Bagrie Economics shall not be liable for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage. Data and information have been gathered from sources Bagrie Economics believes to be reliable. The content does not constitute advice. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 0 8
Correct as at 3 May 2022.
The cost of living rising is a concern, but so too are expectations the government will do something about it – and there are growing calls for spending to ease.
We lease, we sell, we manage, and we know how to increase the value of your Commercial property When results matter, you’ll want to talk to our specialist Commercial team. 0800 367 5263 | pb.co.nz/commercial
Commercial Real Estate
Property Brokers Ltd Licensed REAA 2008 PB057378
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 1 0
MARKET INSIGHTS
Bitcoin Scales Up Jenny Rudd went to the Bitcoin 22 conference and discovered that changes are revolutionising the crypto ecosystem. She says the future of crytocurrencies is exciting.
Miami is positioning itself as the bitcoin capital of the world. The mayor, Francis Suarez, takes his paycheck in bitcoin. And about 25,000 people flocked to Bitcoin 22 at the Miami Beach Convention Centre in April. Suarez opened the event by unveiling a crypto bull with glowing blue eyes, saying: “The future of finance is here, in Miami.” And there were some big themes. Like Senator Cynthia Lummis from Wyoming, who said that regulation and legislation were on their way - a good thing. Capital will pour in from institutions when the legislation arrives, she says. If all fund managers put one per cent of their portfolio into bitcoin, the market would grow enormously. Early adopters are already doing something similar, like wealth management firm NZ Funds who own crypto assets in their growth-orientated mandates. The options and derivatives markets are just two per cent of the bitcoin spot market at the moment, as compared to being eight times the size of the entire gold market. Pat Baker, chief executive of Centaur Markets, says banks are ‘salivating’ and just waiting to jump in and create new derivative financial instruments around the currency. The mortgage market has also woken up, with some experienced players taking part. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 1 1
YO U R I NVE STI N G
Mat Tomlinson and Jenny Rudd outside the Miami Convention Centre.
But my biggest takeout from the week was the Lightning Network. For the bitcoin blockchain, a layer-one protocol, how to scale up has always been a challenge. Its proof-of-work consensus makes it the most secure and decentralised payment system in the world. But it can only process around seven transactions per second on-chain. To give some context, Visa processes around 1,700 transactions per second, with the capacity for around 65,000. To be a truly global payment system, bitcoin needs to process hundreds of thousands of transactions per second.
It's a bit like going to a bar, handing over your card to the bartender, running up a tab then settling all your beers and margaritas in one payment at the end of the night. The difference is that on the Lightning Network, you aren’t doing it with credit, it’s with liquidity provided by bitcoin loaded into Lightning wallets.
Any ideas that bitcoin is merely a store of value are outdated and outmoded.
The Lightning Network (LN), a layer-two protocol built on open-source code, solves that problem by allowing you to send micropayments in bitcoin (sats) around the world at a tiny cost. The Lightning Network sits on any blockchain, but its biggest adoption so far has been on bitcoin.
The adoption of Lightning exploded in 2020 when El Salvador made bitcoin legal tender. Businesses are supporting the payment network and helping increase its adoption, offering merchant-friendly software so shops can accept bitcoin, and credit cards like GoSats in India.
A series of smart contracts act like IOUs, allowing people to transact with each other through nodes on Lightning, swapping IOUs until one person goes back on the blockchain and closes out the transactions.
These ideas are being fueled by an enthusiastic and innovation-friendly venture capital industry. Lyn Alden, an expert in financial modelling and engineering economics, says unlike many things in
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 1 2
crypto, Lightning has one of the highest “utility-to-speculation ratios”. Elizabeth Stark, co-founder and CEO of Lightning Labs, which develops software to power the Lightning Network, says she realised its power for change when she met DJ Switch. The Nigerian musician used her phone to live-stream police killing peaceful protestors in Lagos in 2020. The Nigerian government denied the shootings and froze protestors’ bank accounts. DJ Switch fled to Canada, where she met Stark. “Jacob on my team got her to pull her phone out, download a digital wallet, and a few seconds later had transferred about US$10 of sats to her over the Lightning Network. “She didn’t have to open a bank account, so the government couldn’t take it away from her.” Any ideas that bitcoin is merely a store of value are outdated and outmoded. Bitcoin isn’t just an asset, it’s becoming a truly global monetary system. Jenny Rudd is an investor and analyst who is passionate about creating equality for women through business. www.aimsure.co.nz
catalystfinancial.co.nz
Better Outcomes. Now. Catalyst mortgage advisers get you the money to invest in property. Most people have dreams. They dream about building a better life, a future that’s going to be substantially different from today’s reality. But, most people wait. They wait for something to happen – someone to tap them on the shoulder. Something to change. They need something to spark them into action, an idea, a meeting, a new insight to cause that change and drive us all forward. In short, they need a catalyst. For more information go to www.catalystfinancial.co.nz
YO U R I NVE STI N G
Snapshot We take a look at some of the events around the world affecting the global economy. From the Americas, through Europe, and then Asia, find out the latest from around the globe this quarter.
Israel Israel’s coalition government, made up of a diverse range of political parties, has such a razor-thin margin, it’s vulnerable to losing its majority in parliament.
USA Warren Buffett says the influx of new traders buying and selling stocks during the pandemic has turned the market into a casino in which corporations have become “poker chips.”
Honduras Honduran ex-President Juan Orlando Hernández has been extradited to the United States, accused of receiving millions of dollars from drug traffickers, including from Joaquin ‘El Chapo’ Guzman.
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 1 4
France Tens of thousands of Parisians demonstrated to send a message to re-elected president Emmanuel Macron that he must consult the people more and change plans to raise the retirement age.
MARKET INSIGHTS
Afghanistan A report from the World Bank has warned that more than a third of the Afghan population can’t meet basic food needs, after the economy was shattered by the Taliban takeover.
India Indian PM Narendra Modi says India can send food to the rest of the world to help after supply issues and rising prices hit many countries due to the war in Ukraine.
Australia China has expanded rail lines between its coal fields and cities so rapidly it could cut coal imports by 25 per cent by 2025, hitting Australian coal exporters.
A year after a military coup, Myanmar is in a state of civil war, as mass protests by the People’s Defence Forces demanding democracy have turned into an armed uprising.
Correct at 3 May 2022.
Myanmar
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 1 5
YO U R I NVE STI N G
The Good Fight Against Inflation Optimism for 2022 went out the window with Omicron and the Ukraine War, says Greg Smith of Devon Funds. But if we can get inflation under control there could be positives ahead for investors.
There were many reasons for investors to be optimistic as we headed into 2022.
The main fallout from the invasion was a parabolic surge in commodity prices.
We had waved farewell to the Covid-19 alert system and moved to a more fluid traffic light protection framework.
Prices for oil, gas, wheat, corn and nickel, among others, took off on supply concerns. Many of these have since settled back to some degree, but remain higher than before.
The borders were still closed, but life felt like it was starting to normalise, which gave many businesses greater certainty. The economy was doing well, unemployment was very low and housing prices were still rising.
This added to already high prices being experienced by a world coming out of the pandemic, confounding central bank officials’ attempts to fight against inflation.
The markets had also ‘adjusted’ to the Reserve Bank moving early relative to the rest of the world on rate rises, to head off inflation.
Rate hike expectations ratcheted higher – the yield on the US 10-year Treasury bond has since gone above 3 per cent for the first time since 2018.
The rest of the world was also opening up, which was good news for many corporations.
Keep an eye on inflation Inflation and its implications for interest rates look set to remain highly relevant to investors through the June quarter.
Shares that were Covid ‘beneficiaries’ were meanwhile still doing well, and the New Zealand stock market had finished the year with a spring in its step. A contagious new twist But, as we know now, the first quarter of 2022 bought some significant developments. The arrival of the highly contagious Omicron variant provided a new twist to the pandemic. We coped, but the markets were also starting to fret over the prospect of higher interest rates as the world’s central banks sought to combat multi-decade highs in inflation. And then, on 24 February, there was a new threat from a not-so-invisible aggressor. Russia invaded the Ukraine. There was a corporate backlash but, from the market’s perspective, the direct impact to New Zealand was minimal, possibly because Russia ranked only 25th in terms of trading partners. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 1 6
New Zealand’s largest customer, and developments around its covid-zero stance.
No-one knows how the war will play out, but commodity prices appear to have calmed following an initial stratospheric surge.
Also of interest will be any stimulus plans to maintain economic growth there, because President Xi faces re-election later this year.
At the same time, there’s some evidence – but not conclusive – that supply chain blockages are starting to ease in the midst of the global reopening.
We’ll be closely watching New Zealand’s economy as the first quarter’s gross domestic product (GDP) numbers are due mid-June.
Developments here will be closely watched across the corporate sector. Any signs that inflation has peaked will be well received, dampening the prospect of super-sized rate hikes in the coming months.
Investors are ideally looking for a ‘Goldilocks’ scenario where the economy is cooling, but not too fast.
Some people worry about the prospect of a recession, but many economies are in good shape. This includes the US economy, which is still growing, and where unemployment is at 50-year lows. The strength of the world’s largest economy was also evident in the March quarter earnings season. The China question Investors will be watching China,
The New Zealand property market has softened substantially this year as homeowners faced up to the realities of higher mortgage rates. Property prices are, however, still some way above pre-pandemic levels. Also encouraging is that unemployment is at the lowest level since the 80s. Pressure on the border The borders will remain in sharp focus. Tourism operators got a lift from the removal of restrictions for New Zealanders,
MARKET INSIGHTS
Australians and other eligible travellers a few months ago. This proved to be good timing for Air New Zealand, which pushed through a NZ$2.2 billion recapitalisation package, with strong interest from retail investors for the NZ$1.2b rights offer. All visa categories are set to open from October, but political pressure could well mount to do this ahead of this date. Again, this would be well received by companies exposed to the touristic economy. We’ll be closely watching data around consumers’ confidence, retail sales, and trading updates from retail companies. After enjoying a ‘sugar rush’ for much of the pandemic, consumers’ wallets have been hit by higher prices for just about everything. Leading the charge were food and petrol, even with a reduction in fuel taxes. With mortgage interest bills also rising, we’ll be closely watching the temperature check of the consumer. A fair number of companies will be reporting and updating in May and June,
which will provide a further gauge on how the corporate sector is seeing inflation and supply-chain blockages, and the overall demand outlook.
less harrowing road than some forecasts.
Results season looms The “main event” for the Kiwi results season will however be when companies with 30 June balance dates report from August onwards.
There could be casualties In the ‘good fight’ against inflation, there could however still be stock market casualties.
The Reserve Bank meeting, and any comments from officials, will as always be under the microscope. An encouraging thing for investors is that the central bank has sought to keep its options open and doesn’t have a predestined path of interest rate rises. This could also allow other central banks to effectively play “catch-up” on rate tightening plans. This process has already seen some heat come out of the NZ dollar in recent months, which is good for the export economy. Overall, inflation may not be as intense or as persistent as many are warning, making the central bank fight against inflation a
In fact, many old economy stocks and sectors that are tied to the economic cycle could thrive in that environment.
The initial stages of 2022 have already seen investors move away from high-priced growth stocks, or those with cash flows weighted towards periods far into the future. The large sell-off in the Nasdaq in the US is a clear example of this. The New Zealand stock market, meanwhile, is not as endowed with expensively priced growth stocks, and has lots of great businesses trading at fairly modest valuations. That’s something to be positive about as we head to the halfway point in the year! Greg Smith is the Head of Retail at Devon Funds Management. www.devonfunds.co.nz
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 1 7
YO U R I NVE STI N G
WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 1 8
MARKET INSIGHTS
How Will Ukraine Hit the Markets? The war in Ukraine will affect equity, bond, currency and commodity markets. But how bad will it be? Andrew Kenningham from Capital Economics suggests some outcomes. We’ve already seen the war in Ukraine have an immediate impact on global equity markets. Let’s look at what might be to come. Share markets have fallen in the first few months of this year, partly because of the war in Ukraine. That said, the falls have not been huge. European equity markets fell by around 10 per cent after it became clear that Russia was going to launch a full-scale invasion and these falls have since been partly reversed. The one exception, unsurprisingly, is that Russian markets have fallen much further. Russia’s equity market is down by more than 50 per cent since the invasion, and bonds have collapsed in value, too, as the central bank has doubled interest rates. There are plenty of historical examples of wars which have affected financial markets, but it’s not easy to draw any simple lessons, because experiences have varied so much. Extreme crashes At the most extreme end of the spectrum – such as following the Russian Revolution and the Chinese civil war – equity and bond investors were completely wiped out. Investors also generally lost a lot of their wealth during World War 1. However, in World War 2 they did much better, at least in the countries which were on the winning side. More recent conflicts probably offer more useful clues about how the war in Ukraine will affect the markets – but these also suggest that the impact of conflicts varies. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 1 9
YO U R I NVE STI N G
Some examples are quite reassuring. Although there were big falls in equity markets following Iraq’s invasion of Kuwait in 1990 and after the attack on the Twin Towers in 2001, these were quickly reversed because it became clear that central banks would cut interest rates to support the economy. A close parallel But others are less reassuring. For the world economy, the closest parallel to the current conflict in Ukraine may be the Yom Kippur War of 1973. Like the situation today, the Yom Kippur War took place at a time when inflation was already rising. And like the Ukraine war, its most obvious impact was to raise commodity prices. This meant that policymakers were not able to cut interest rates to help the economy through the crisis, because they needed to concentrate on fighting inflation. In fact, the Yom Kippur War led to an even bigger energy price shock than we have seen this year – oil prices rose four-fold during 1973-74. The 1973 conflict was followed by one of the biggest falls in global equity markets in history and falls in bond prices at the same time. Overall, the war is likely to have significant effects on commodity, equity, bond, and currency markets. Perhaps the most clearcut case is commodities. Commodity prices may stay high Oil and gas prices rose steeply during 2021, as the world gradually recovered from the pandemic, but they have both taken a further leg up since the conflict started. The price of Brent crude has risen from US$80 per barrel at the beginning of the year to well over US$100 at the time of writing. European natural gas prices had already risen much further – from below €20 per megawatt hour below last year to €90/MWh today – and the conflict has driven them higher. In other parts of the world, natural gas prices have also risen, but much less steeply. The prices of many other commodities have also been pushed up by the war. Russia and Ukraine are among the biggest producers of metals such as nickel and palladium, as well as agricultural commodities including wheat and potash (used to make fertilisers). WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 1 2 0
Prices of all these commodities have shot up and will likely remain higher for the foreseeable future. This will push up inflation and cause supply problems in factories and farms in Europe and elsewhere. Bonds not as safe Second, the war is likely to cause bond prices to fall, because interest rates will rise further than they would otherwise have done. Bonds are usually seen as a safe haven when equity prices are falling, or in the face of bad economic and political news. But they may be much less safe than normal this year. Yields were rising even before the Ukraine war started. Ten-year US Treasury yields rose from 1 per cent early in the pandemic to 3 per cent today and the equivalent German yields rose from a low of -1 per cent in 2020 to nearly +1 per cent today. After declining when the war first broke out, they have since risen steeply because central banks have signalled that they will raise interest rates faster and further than previously expected. Stock markets may stay low Third, the war will have a negative effect on equity markets. The initial falls in US and European equity markets of less than 10
per cent were much smaller than the falls after 9/11 and the subsequent US invasion of Afghanistan, for example, and they have already been partly reversed. But by pushing up interest rates and dampening expectations for growth, the war may result in equity markets remaining lower than they would otherwise have been. Currency markets Finally, the war is already having substantial implications for currency markets, most notably by strengthening the US dollar relative to European currencies. This makes sense given that Europe is much more vulnerable to the war due to how close it is to the conflict. It is worth saying that wars that remain regional rather than truly global usually end up having only a limited impact on financial markets. The big drivers of global markets this year are the hangover from the pandemic and the policy response to it, rather than the Russia-Ukraine conflict. Also, the conflict has generally reinforced existing trends, rather than causing unforeseen changes in direction.
Download the Download the OneRoof App. OneRoof App. Everything you need to buy, sell or rent a property, in one easy-to-use app: Everything you need to buy, sell or rent a property, in one easy-to-use app:
Residential, New homes, Commercial, Business and Rural listings
Recently sold, Estimated values and Rateable values in one view Residential, New homes, Commercial, Business and Rural listings Insights on school zones, suburbs and commute times Recently sold, Estimated values and Rateable values in one view Get notified about new listings and property updates in your saved searches Insights on school zones, suburbs and commute times Create multiple wish lists and utilize the Open Home planner Get notified about new listings and property updates in your saved searches Create multiple wish lists and utilize the Open Home planner
Download the OneRoof App today. Be property prepared with OneRoof.co.nz
Be property prepared Download the OneRoof App today. Be property prepared with OneRoof.co.nz
Be property prepared
WORLD’S MOST ADMIRED WINE BRANDS Craggy Range - Number 30
THE PEAK OF LUXURY Under the spectacular escarpment of Te Mata Peak, Craggy Range Winery presents a second-to-none visitor experience. A short stroll through the vines from our luxury accommodation, enjoy a seated tasting in Cellar Door or Head Chef Casey McDonald’s Hawke’s Bay menu in an intimate, comfortable & relaxed space. 253 Waimarama Road, Havelock North, Hawke’s Bay, New Zealand | +64 6 873 7126 | www.craggyrange.com
