WealthDesign

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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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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Maximising the income that will provide the lifestyle for your future self, is how to approach your KiwiSaver. And you may be surprised to learn that if you don’t have your finger on the pulse of your KiwiSaver scheme, your future self may be a little short-changed.

The KiwiSaver initiative is not a set and forget sort of deal, with a ‘bells and whistles’ app on your phone that gives you your balance instantly (can you tell I think the sales pitch for this gimmick is utter BS? But that subject can wait for another day!). It needs managing as it’s an investment like any other long term investment.

An example arose recently when a client’s tax rate was 28%, rather than 10.5% At 6% return on his money, he had paid $1050 more than he needed to. Unfortunately the app on the phone doesn’t prompt you to manage your KiwiSaver scheme balance wisely, it just tells you what’s in the account at any given time.

When was the last time there was a rendezvous between you and your KiwiSaver scheme balance? If you have over $50,000 in yours, recent research (by Westpac) reveals you are in the top 13% of men and the top 4% for women in New Zealand. And if your balance is over $30,000, you are in the top 27% for men and the top 15% for women in New Zealand.

These are scary statistics when you consider a 65 year old male will need enough money to live on for another 19 years from his 65^th birthday. It is even worse for women, as they tend to out-live the guys, yet their KiwiSaver scheme balances are on average, much lower than males.

Here’s what’s important.

Join KiwiSaver as soon as possible. When is the right time to join? Yesterday. When is the next best right time? Right now.

If you know you are in KiwiSaver and you’re not sure where yours is at, contact IRD and they will give you the relevant details. Or click here to find out more.

Secondly, ensure you’re in the right fund for you, plus you have the right tax rate for you. How do you know? Give me a call – I’m here to help.

It really makes my day when I ensure people are optimising their KiwiSaver investment.  So come and talk to me about your KiwiSaver scheme – your future self will thank you!

John Barber
WealthDesign – a life well planned

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KiwiSaver is ten years old now. There is more than $43.2 billion invested collectively. Of that figure, do you know the details of your slice of that pie?

Even today, 20% of members still have their funds invested in a conservative default scheme. These investors are missing out on potential returns as the average default scheme returned 4.1% for the rolling 12 months, compared to 7.8% for the average balanced fund. If you do the numbers, that means that if you have a balance of $30,000 in your KiwiSaver fund, and it’s in a default fund, you have lost out on $1110 in just this year alone! When you compound that up (over however many decades until you turn 65) it could make you weep!

We have been doing some research and we are finding that:

15% of people don’t know who their investment is managed by.

62% of the members don’t know if their fund is doing okay compared to the market.

43% don’t know if their PIR rate is correct.

53% of members have never had any KiwiSaver advice.

Of the 47% who have had advice, 13% of members got it from a qualified adviser and 19% got advice from a bank employee (who can only give information about their bank’s products).

The trends are interesting. Those who got advice, seemed to understand and have invested in the right fund for their age and stage of life, and they tend to have an understanding of the tax implications. They also understand market volatility and how it will impact on their individual KiwiSaver.

It is nine years since the global financial crisis smashed the global equity markets. For those investors who don’t understand risk (the chance their balances could fall), a market correction could cause a lot of sleepless nights when they see thousands wiped off their KiwiSaver balance.

If you are one of the 53% that has never had KiwiSaver advice, or one of the 47% who wants to ensure management of your KiwiSaver fund is optimised, give me a call and come and have a coffee. I don’t charge for the first appointment. Let’s first see if we are a good match, and then we can go about optimising your investment plan for you and your circumstances.

John Barber
WealthDesign – a life well planned

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Nothing stays as it is today – change is inevitable, and change in the global markets is on the way.

In good times, it seems investors believe that these times will always last and in bad times, investors think that things will only get worse. The problem with this is that in good times, uninformed investors don’t look at the fact that assets are becoming over valued, so happily keep investing, ignoring the risk that the market could change for the worse. In bad times, they don’t go looking for bargains.

The latest Morningstar economic briefing highlighted the fact that assets across the board now look expensive. With around $40 billion dollars invested in KiwiSaver schemes, it’s time for kiwis to concentrate on the risk that KiwiSaver portfolios could drop dramatically, if the world economy changes. Today people have KiwiSaver scheme balances that are often worth more than their car, and their KiwiSaver balance can make up a fair amount of their savings.

The markets never stay the same and turn they will. It’s been nine years since the last major economic meltdown, and today we have very high political risk, and potential military risk around the globe.

It is time to get advice. Don’t wait and hope that the scheme managers will provide you with individualised advice; they just don’t have the staff, time or reason to do so. Advice is cheap (in comparison to not getting any), believe me.

So don’t wait until you hear news that the world markets have gone pear shaped. Get individualised advice from a qualified financial adviser; one who is transparent and working on your behalf (not on behalf of the fund managers). Get yourself in the right position to take advantage of the markets, no matter what they are doing.

We invest in independent research to back our advice up. We make the complicated simple, so let’s have a chat. You’ll be surprised how we can make a difference in your life.

John Barber
WealthDesign – a life well planned

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