WealthDesign

Most of us remember the now famous “okay, boomer” comment from Chloe Swarbrick in parliament, which may have been meant as a put-down to a fellow politician who allegedly heckled her during a debate on climate change. Funnily enough, we actually use life stages as part of our financial planning framework at WealthDesign. And we’re keen to see the “boomer” segment of our population in a more than “okay” situation!

We class the 55 year olds and above as “Planners”. This broad group are the boomers and above (those in 1964 or before), along with the top end of the Gen Xs (those born from 1965 to 1975). They are now either fully focused on their next life stage or are about to be. The fact is, there is a good chance they will live as many years in retirement as years they may have worked. Their problem is that KiwiSaver hasn’t been around long enough for them to rely on their KiwiSaver balance, to comfortably retire.

Often this group have their kids off their hands, their mortgages paid down and have higher disposable incomes, however this isn’t a time to coast.

Massey University did an extensive research paper in 2017 and established that a retired couple would need between $1,399 and $1,104 per week to live in relative comfort.

The good news is the New Zealand Government Superannuation provides $652 week, but leaves about $600 per week shortfall. The problem is we are now living in a low interest environment and to generate $600 per week to cover the shortfall, you would need around $2.7 million in the bank.

The answer unfortunately, is planning and compromising. Most boomers will work until they are 70 – not through choice, but through necessity.

If you are a boomer or a Gen Xer, give me a call as it’s time to plan for your next life stage.

John Barber

WealthDesign – a life well planned

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Today the market is increasingly volatile on the back of the coronavirus crisis. Prices are down and people are talking about the losses they have made on their KiwiSaver schemes.

It is at times like these that I remember why I don’t like managed funds! I’ve been running investment portfolios for clients for many years and I’ve lived through both good and bad market cycles (yes, I deserve these wrinkles!). In 2008 we saw the world equity markets lose around 50% of their value and lots of investors had a tough year or two. In the past few years it seemed nothing could go wrong. That was until the coronavirus struck.

I like investors to know where their money is invested. Why? Because when things are tough, smart investors get out their cheque books and start buying companies from those who want out of the market. They are armed with knowledge and make the most of the timing to make the best of the circumstances.

Funnily enough, the sellers at these times are often the fund managers. In my opinion, this is because investors in managed funds (including KiwiSaver) are completely disjointed from where their money is actually invested. They don’t know if their fund manager is holding shares in great companies or if they are invested in the next get-rich-quick share. It’s not until after the event, who owns what becomes apparent.

For me, I want to invest in companies that have strong balance sheets, robust business models and conservative debts. As a by-product of this, these companies normally pay solid dividends.

A current example would be Contact Energy. Trading today at $6.02 and paying a gross dividend of 8.0%. This share is down from $7.66 on February 20.

My question is, has the Contact Energy business changed? Will the coronavirus impact on their business in the next twelve months? Will Contact Energy be around in 10 years’ time and making money?

My view is simple. As an investor, it’s your money and you should be in control. Don’t pass the responsibility and decision making to someone else. If you do, don’t be surprised if the outcome is average at best.

If you want to come and talk to me about my approach to investing for me and my clients, contact me now. I’m always happy to be helping people reach their investing goals. And your initial chat is always free of charge.

Disclaimer: The market is volatile and share prices can and do change. This is not a recommendation to buy or sell any asset as each individual should get personalised advice suitable for their circumstances.

John Barber
WealthDesign – a life well planned

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Sounds like a title for a movie and a scary one at that! Well zombies and black swans could well have an impact on your KiwiSaver fund, so settle in while I give you the heads up. What you don’t know can hurt you!

Today there is over $10 trillion of US Corporate debt. This debt bubble has been created by reserve banks and governments around the world trying to fix the last financial meltdown by printing money. All it seems to have done is fuel a borrowers feeding frenzy. Companies in the US have been able to borrow capital for next to nothing  – hence the problem. Instead of investing for growth, many companies in the US have just borrowed and bought their own shares back – everyone’s been happy, the share price goes up so the shareholders are happy, the directors pat themselves on the back for making their shareholders more wealthy and the CEOs get bonuses. The only problem is that some of these companies are only surviving because they can borrow cheap money. In a true market they should have gone broke and died – as in become a zombie.

The theory is that companies going broke and then being rebuilt is a healthy part of a thriving market, as it allows new blood to come in and take over the assets, and then rebuild a more efficient business. Artificially cheap money is mucking with this evolutionary system.

Another problem is that around 40% of this $10 trillion debt is BBB credit rated debt, just one step away from junk bonds. The scary thing is we really don’t know who owns all this debt. Think of it like you owing someone a mortgage but you really don’t know who.  Part of me worries that the smart Wall Street bankers have packaged it up and sold it off around the world. It could very easily be hidden in your KiwiSaver fund, and you don’t even know.

If we see a black swan event such as an Iranian War, we could see a GFC scenario with a repeat of 2007.

KiwiSaver is a great thing, you hear me telling you through the years. And it is. But just by having money invested in a KiwiSaver fund is not the answer if you want to ensure your money works for you through to age 65. You need to know how to manage it. The scary movie scenario described above, could play out.

So expect the best but plan for the worst. Review your KiwiSaver now. Make sure you aren’t unknowingly exposed to events that could jeopardise your investment.

Give me a call and let’s check out your KiwiSaver situation and ensure your hard earned funds work for you optimally through the years.

John Barber
WealthDesign – a life well planned

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Today the world debt is US$217 trillion – and we should all be preparing for what that means.

10 years after the end of the great recession, the world is still a volatile place for investors. We have seen asset values continue to rise on the back of historically low interest rates.

We now seem to have asset bubbles in property, and in world share markets. This is on the back of the world reserve banks printing money. If money is cheap to borrow, it is only prudent for businesses and individuals to borrow and buy assets.  As the money supply has expanded and invested, then we’ve seen asset prices around the world grow.

To make things worse, the historically low interest rates have created “zombie companies”. These are companies only being kept alive by the low interest rates. In the US, 10% of the businesses are classified as zombies. If we see a 2% increase in interest rates, these companies will be killed off.

The impact of low interest rates doesn’t just impact on the share market, but it also impacts on the bond market. Since the global financial crisis, global credit has boomed. In the US, 49% of the corporate credit is BBB. This US $5 trillion is one step away from junk bond status. If a down grade comes, these company bonds will be sold off in the millions. To make things even more complex,  US $0.5 trillion of this debt is due to mature in the next three and a half years.  This has serious implications to us all as every recession is preceded by a bond crash. This is where interest rates increase and bond values fall.

New Zealand might be at the end of the world, but our financial stability is fragile. As a country we are tiny, and if the US economy sneezes, our economy will need to head to intensive care.

In 2001 we had the DOTCOM bubble and I remember reading about it the day after most of the news hit. In 2007 we read the news on the internet, but next time we are going to be reading the news at real time on our phones.

With three million people invested in KiwiSaver schemes, and most of them not taking advice, when the bubble pops, it is going to be an interesting time.

So here’s me shouting from the roof-tops:
GET SOME ADVICE TODAY!
Honestly guys – this is important. For your financial future (and your family’s) be well prepared for whatever is coming up. Give me a call today to make sure you have your KiwiSaver scheme set up optimally – it’s really not that painful, I promise you!

John Barber
WealthDesign – a life well planned

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I often ask myself if we learnt anything from the GFC a decade ago? The latest Morningstar report on KiwiSaver came out the other day and there is now $51.7 billion invested with various KiwiSaver providers. There are over 3 million individual accounts and these people have heavy exposure to both local and international shares.

I don’t believe all of these investors understand the KiwiSaver beast and I think there is going to be a day that proves my concerns are valid. Human nature makes us all react to fear. With investments, fear of losing is greater than the thrill of winning. For the past ten years, the sales pitch around KiwiSaver has been “you can see your daily balance on your phone”. This is great when things are on the up and up but not so cool when the prices are falling. For the past few years, a monkey could have run most KiwiSaver funds and made money.

I’m reading the old platitudes rolled out by fund managers and regulators. Things like, “don’t try and time the market, it’s important to be in the market, get your risk tolerance right.” These are all valid points, but experience has shown me that people are emotional beings and when things go south, they make decisions with the heart not the head, and they just won’t listen.

Here’s an example:

Just think, your KiwiSaver balance is $50,000 – you are feeling great and every time you look at your online banking app on your phone,  you know you are  in line to meet your retirement goals. You are in a balanced fund so you are comfortable you have things in hand. You feel great. It’s worked for the past 10 years, so why worry?

Let me tell you why. Tomorrow you wake up to the news that the DOW Jones is down 25%, the NZX and ASX are following suit. The papers are full of bad news. You look at your KiwiSaver account balance and it’s down to $40,000. You are a bit concerned but you remember the FMA has been telling you it will be okay. The next day the DOW Jones bounces and you KiwiSaver account follows suit and the balance comes up to $45,000. You blood pressure recovers and you start to feel better.

Two days later that DOW drops again, your KiwiSaver drops to $38,000. You have a sick feeling in your stomach. You know in real terms you have lost $12,000.  You try to phone your provider but there are hundreds of other investors doing the same.  You get that cold feeling that things are only going to get worse. What if it drops another $5,000? You start to question the glib one liners coming out of the FMA and the managed fund industry. You go online and start to do some research and find that the cash accounts in KiwiSaver have only dropped a couple of percent.

You feel you need to do something.

This is the day that thousands of KiwiSaver investors will make the same terrible mistake. They will hit the transfer button on either their phone or computer and move to a defensive cash based fund.

They will realise their losses and by transferring, the fund managers will be forced to sell shares both locally and internationally. Worst still is this will happen on a falling market. Compounding this even more is the size of the total KiwiSaver, and the amount invested in our local share market.

There aren’t enough qualified independent advisers to influence this action after the event.  I don’t  believe for a minute that market briefing, emails or newsletters or hand wringing by the regulator, will alter this behaviour. We are just human.

 Smart investors will line up to buy great shares in awesome companies at hugely discounted prices. The question you need to ask yourself is which side of the table will you sit on? The panicked seller or the smart buyer?

My advice? Get advice now! Make tactical decisions and have a plan for when the markets change. The markets will fall and this scenario will pay out, it’s just a matter of when.

Reach out! Call me now and let’s make sure you’re ahead of the game.

John Barber
WealthDesign – a life well planned

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