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Some need to know, with a bit of WealthDesign nice to know thrown in.

Good news travels and bad news flies

It’s been 10 years since the world suffered the greatest recession since the 1930s.  The first couple of months of 2008 was eerily calm and then all hell broke loose. A major economic meltdown was underway. Banks wouldn’t lend to each other and institutions such as the Lehman Brothers, AIG, Merrill Lynch, and the Royal Bank of Scotland all got wiped out. Mortgage companies in the USA such as Freddie Mac and Fannie Mae also took a hiding. It was tough for a lot of people and New Zealand didn’t miss out on the pain. We had our equivalent of the USA bank failures with the finance company sector falling over, and losing investor’s money.

I remember reading reports and looking at different graphs comparing the start of the recession to tough times of the past but it wasn’t until I started seeing graphs that matched the 1930 depression, that I really got to understand just how bad things had got.

Looking back, it took a while for the news to spread out. You had to be on line, watching TV or reading the news – but today the world is even more connected, bad news circulates instantly, as people’s love of smart phones intensifies. And this intensifies too, the impact of the bad news.

Today there is $46 billion dollars invested in KiwiSaver schemes by average kiwis, and most of these funds are at risk of losing value if things go south.

After every bull market (when everything goes up in value) we have a pull back, or a bear market. For 10 years we have seen the world capital markets increasing year on year. We will all see the turning point after it happens.  In my opinion when it happens, there will be a repeat of 1987, 2001 and 2008. Ill-informed investors will panic and move their funds to less volatile funds. In turn this will force the KiwiSaver manager’s to sell on a falling market. How would you feel if your KiwiSaver balance lost 20% over night?

My advice is to have a strategy in place now. If you have five to eight years left until you turn 65 – make sure you are in a capital stable fund.  But whether you have five, 15 or 40 years until 65 rolls around, come and get some advice. It will prove invaluable – now that’s a promise.

John Barber
WealthDesign – a life well planned

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Have you heard all the talk about investing in passive or active managed funds?  

I’ve been hearing plenty recently, from the front man for Simplicity KiwiSaver Funds, Sam Stubbs. He argues that by investing in their passive funds, an investor will be better off in the long term. This is based on the simplistic concept that lower fees (by using an index based fund) will reward the investor long term. And that active management (where managers are trying to add value by stock picking and moving funds around within sectors and between sectors) can’t beat the market, long term. Therefore by not paying for this expertise, the running costs can be much lower. And this sounds great – in theory – doesn’t always pan out in reality.

Simplicity’s fees are the lowest in the KiwiSaver fund market. There’s no denying that. Their results though, over the past 12 months for their balance fund? Average, at best and 27% below the top rated fund (excluding fees and according to Morningstar research).  To date their value proposition hasn’t yet got the numbers to back up their theory, in my opinion. However in time, this could change.

Chasing cheap fees is one strategy as is using low cost index based investment strategies. If that is what you are comfortable with, that is okay. But I suggest anyone using this strategy really gets to understand where their money is invested, and how it would perform in a bear market.

I don’t care what colour your KiwiSaver fund investment folder is, but what I do care about is if you have the right investment strategy for your situation? And who can help you with that? A qualified and objective investment adviser.

For almost 10 years we have seen world share markets increase on the back of increasing money supply. One day this will change and we will be in a different economic cycle. On that day, I suggest you will want to have a human on your side of the desk, making calculated decisions, not a computer algorithm that just sells based on an index calculation. It doesn’t end well.

We don’t know when the market will change and I’m a firm believer we will all read it online or on our phone, all on the same day. The speed of information transfer is faster than ever before. From history, at these times good financial management counts. If the market falls, it will be too late to put any constructive plan in place.

In fact, I believe it is really important for KiwiSaver fund investors to be looking at their investment strategy today and having a plan in place – regardless who your money is invested with. Advice is vital, especially as your KiwiSaver fund balance starts to grow.

I’m only a call, email, or facebook message away. I’m always happy to have a chat to see whether WealthDesign can help you get to where you want to be. The first meeting is complimentary, so give me a call to tee up a time.

John Barber
WealthDesign – a life well planned

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Where the rubber meets the road

What a week! It’s been ‘claim time’ at WealthDesign this week it seems. We’ve been helping our clients out, at the most important end of the insurance puzzle – when they most need it.

As much as I would prefer my clients weren’t having to claim on their insurance, because they were healthy and happy, I feel privileged to be able to help them in their hour of need. It reinforces why I’m a firm believer in insurance, and why we always work backwards, from a claim stance. We want to know that if one of our clients needs to claim, we can hand-on-heart know that they will be looked after, both by us, and by the insurance company.

This is why we are very careful around the process of putting cover in place, and with who we trust to look after our clients. In the past few weeks, two of the larger insurers have been bought out by third parties. What impact this has on their claim handling process is still to be seen. When people say “oh it’s business as usual” I don’t quite believe them as all culture flows from the top down. If you change the focus from partnerships between the client and the insurer and if the company starts to look more at profits than providing quality outcomes – things can get slippery. Often people don’t believe insurance companies work to pay out claims, but we know some of them do. The companies we work with have a clear client focus and pride themselves in paying claims – so don’t be put off!

This week at WealthDesign we’ve been working with a guy on an income protection case (he received his first cheque this week), a lady with a crippling lung disease (hopefully this will be sorted early next week) and a guy with a heart problem. That’s not to mention two or three hospitalisation cases ranging from a specialist test to a hip replacement.

Today there are over 60,000 people on waiting list for operations alone. The stress and heart ache this causes is unimaginable. I know why I carry medical insurance personally – I see the impact of people not having it, every second day.

I see cases where people put off buying insurance or just don’t get around to the paper work,  and the result can be financially disastrous, causing much stress to the client and their family.

So after a week like this has been, I wonder why buying insurance is such a grudge purchase – why do people put off this very important part of their financial lives? But then they’re not in my shoes, dealing with the fall out of not being insured. Perhaps they should be, just for a while, to see what can happen when you’re not covered.

Give me a call, email me, whatever it takes to make sure that you and your family are covered. Expect the best, but have a plan in place for the worst – just in case.

John Barber
WealthDesign – a life well planned

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I might sound like a broken record, but I love the KiwiSaver scheme. It has helped thousands of people into their first home and is starting to make meaningful impacts on investors’ retirement lifestyles.

There is now a staggering $46.5 billion saved in KiwiSaver schemes. 83% of this is managed by just six managers, dominated by ANZ, ASB and Westpac. These banks don’t offer any advice and their value proposition up until now has been “join us and you can see your KiwiSaver scheme balance on your phone!”

Unfortunately from my experience, some investors don’t really understand the scheme they are in, or how the markets that drive the returns of KiwiSaver plans work.  I often ask people who their KiwiSaver is with and they pull out their phone and show me the balance. When I ask what fund they are in or what their PIR rate is, oops, that doesn’t show up.  I’m concerned that if we see markets fall, many investors will not understand why they have suddenly lost thousands of dollars on paper (or worse still on their cell phones) and they won’t have anyone to talk to. It will be too late to have a meaningful discussion other than to say “tough it out, you’ve already taken the financial hit.” The cynic in me knows that the banks will roll out the graphs of old to show people its okay, but the truth is for some people it won’t be. The media will blame the adviser (yes, me) and yet the main culprits will once again, hide from sight. The banks have promised to manage your money but in truth, they don’t want you to take independent advice, preferring you take their in-house advice.

An example today is that ASB has over $3,668 million of investor’s funds sitting in their default cash fund. This is three times more than any other KiwiSaver provider.  You could argue that for some, this is correctly invested but when you consider this fund has only produced a 5.5% return over the past five years (and an average balanced fund returned 8.3% for the same period), this misplaced use of the default scheme could be costing investors thousands of lost potential returns.  Just think, an investor with a $40,000 balance, missing out on 2.8% each year, is worth $1,120 in lost return or $11,200 over ten years!

As our KiwiSaver balances increase, we need to get advice. Having the ability to see you balance on your phone is not advice, and KiwiSaver schemes are not just another cheque account.

I’m a financial planner and I’ve been doing this for almost 30 years.  Experience tells me we are getting close to a market change. When life is good, people think it will always be the same. Unfortunately this isn’t the case and behind every wave there is a dip. My advice is to have a meaningful discussion before the event, and have a plan of action.

I’m always happy to spend time with investors. We have independent Morningstar research that tracks the performance of most of the KiwiSaver funds. We give quality, impartial advice.

If you’re interested in being an informed investor, give me a call.

John Barber
WealthDesign – a life well planned

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