Market impacts of presidential elections

A lot of people are surprised and a bit shocked after last the US election results and while I won’t be discussing the actual results of the election and the fall out (plenty of the media, who were wrong about the election will spend time telling you what will happen), it’s important to know about the market impact.

kiwisaverThe expectation of a Trump presidency would be that the market would react negatively and we are starting to see that (though the DOW was actually up for a bit today, but this could change).

So what does this mean?

Well it means that in the states people are selling shares in companies as they react to the news of the new president and, as more people sell shares, the price drops. This price drop reduces the value of your KiwiSaver units, which results in the cash value of your KiwiSaver (and other managed funds) going down as well.

If you prefer to watch a video on this go here.

The three areas I am going to discuss are:

1. Changing your fund
2. Hedging
3. Historical impact.

Changing your fund:

So should you change your fund to Conservative?

In short no. if you have a longer time period (more than a few years), then you should leave your fund as it is, because markets always recover and the benefits of the drop, will be a positive for you.

If you are about to get your money out of KiwiSaver, then scaling down your fund to a more conservative fund, could be a good idea.

If you have a longer time period, then the benefit of this is that while the funds are down in value, you are buying these shares on a discount. So when they do go up, you will have more units and they will be worth more.

So counter intuitively, it’s the time to buy rather than sell.

To use an analogy, if the housing market drops 20%, would you sell your house or look for bargains to buy more?

Shares and managed funds are no different.

Hedging:

The other thing to think about is that most of the managed fund providers will have been hedging against this (at least one of them we spoke to was planning for this). In very basic terms, downside hedging involves buying a contract that states that at any time until it expires you can sell your shares for a certain value.

So for example, you have some shares worth $10 each, and you take out a contract to be able to still sell them for $10 over the next 90 days. If during this time the share price drops to $8, you can choose to trigger this contract and sell them at $10, rather than $8. And then of course you could use this money to buy them again at the new lower price.

Historical View:

Major events happen all the time, and markets drop all the time. Major events like 9/11, WW2, the dot com crash and many other events will result in the market dropping. But it always rebounds.

On the image below you can see the historical trends of the market overset with the momentous events. As you can see, the market recovers.

graphic-for-investments

So whatever the impact of a Trump presidency, the market will recover, like it always does.

Summary:

If you have any questions on any of this, or want some advice for your KiwiSaver, get in touch with us. And if you know someone not getting advice on their KiwiSaver, get them to give us a call.

By Alan Borthwick

There are Ethical Options for KiwiSaver

Leaving aside the overblown hyperbole of the journalists in this article (I don’t think any company advertises itself as a cluster bomb company, but whatever), it’s important to know where you are investing and if you have preferences to not invest in certain areas, to see what you can do about it.

 

It’s not enough to just look at the default funds and see where they invest, but all funds.kiwisaver

 

If investing in alcohol, tobacco, firearms, gambling, uranium mining and fossil fuels is something you want to avoid, there are about 4 options in the market (unless you only invest in cash) for you.  2 of those are run by Grosvenor, a fund we do a lot of work with.

 

These two funds are the first two in NZ to be certified by the RIAA, the Responsible Investment Association Australasia.

 

It’s easy to switch these funds if you want access to them, and you can also get advice ongoing from the team at DUX Financial.

 

We can set up your funds to fit all risk appetites from high growth to conservative and will advise you on this.

 

Alan Borthwick of DUX Financial is an Authorised Financial Adviser (AFA) and Certified Financial Planner (CFPCM) who assists his clients with ongoing advice to achieve their goals.

 

There is no fee to switch to an ethical KiwiSaver with DUX Financial or to get ongoing advice about your asset allocation, buying a house with KiwiSaver etc.

 

To arrange a switch to the DUX Financial advice system and Ethical KiwiSaver investing, call us on 0800 000 987 or email us at admin@duxfinancial.co.nz

 

By Alan Borthwick

Quality Financial Advice Is Important Not KiwiSaver Provider Choice

It’s adviser bashing time at the New Zealand Herald again as they breathlessly announce that some Financial Advisers only deal with a few KiwiSaver companies.  They never say outright it’s bad, but it’s the impression they are trying to give.

Even the Financial Markets Authority (FMA) says that getting advice is their main concern, not the choice of funds.

Leaving aside the fact that 85% of KiwiSaver funds are sold through banks, and they, funnily enough never mention anyone else’s fund, why is it an issue if an adviser only sells one product?  While there are 600 bank Authorised Financial Advisers (AFA)s, I have never heard of one who sold KiwiSaver.  Most of the KiwiSaver funds are sold through the branch tellers, who can sell it to you but not give you personalised advice on it, or offer any advice on your existing funds.

Advisers have to disclose how many products they sell from each category to their clients.  If an adviser says they only deal with company X, then you have the choice of sticking with them or going to an adviser who deals with more companies (even if they end up recommending company X).

An adviser has to tell you the pros and cons of moving to, or away, from a particular company.

I can tell you that no bank staff member has told my clients when they try to move their KiwiSaver that they are going to lose personal access to an AFA, and that they will be signing up for a scheme that is not even the bank itself but one with their label over it, run by someone else.

I have to disclose, but the bank staff don’t.  That’s left out of the article.kiwisaver

The IFA president is correct that there is not much money in KiwiSaver for advisers.  It’s viable for me, because I have taken a loss on so many clients that now I have enough to cover the costs of advising everyone.  But its hard work.

But let’s look closely at why we don’t deal with all 28 plus companies.

  1. Only 10 deal with advisers – even if I could deal with all 28, 18 of them won’t talk to me anyway, and won’t pay me. And as the consumer won’t pay for KiwiSaver advice, that’s the end of that.
  2. They are mostly interchangeable. There is not a lot of difference between providers. They all offer similar funds, have similar fees, have similar returns over time etc. the differences are between specialist funds such, as the ethical funds that only three providers have, and the vast differences between the quality of the online information offerings are about as good as it gets.  The providers don’t give advice directly anyway, so unless you go to their sales team, you need to talk to an adviser to find out the differences anyway.
  3. Some of them are tiny. Some of the funds out there are very small. So even if I could deal with them, I might want some bigger options.
  4. Some of them are hostile to advisers. One fund that specialises in a particular industry spends a good portion of their value proposition slagging off advisers and the need to get advice. They spend a bunch of time on the fact that we can get commission, but leave out the fact that their sales people are clearly paid for their work and probably get bonuses.  Why would I recommend a fund that does not even think we have a place in the industry?
  5. There is no reason to. If I have a value offering to you that gives you the advice you need, the service, communication etc., does not leave you with any risks from leaving your current fund and you are happy with it, but it’s only with one provider, what’s the problem? The key is disclosure and advice, not the number of choices.

The New Zealand Herald is trying to claim that choice of funds is most important, not advice.  Well, I disagree.

There are 28 plus providers out there, I doubt anyone could name over half of them easily and most are much the same.  They don’t advise, they sign you up and hope you forget to leave.

For me, the key thing is advice.  At DUX Financial Services we work with five KiwiSaver providers, though we don’t use them evenly.  We focus on the initial advice, and ongoing advice, which is the most important focus.

The choice of provider is not as relevant as the quality of the advice.

By Alan Borthwick

Are You Moving KiwiSaver For Bad Reasons?

kiwisaverHarsh that the AMP KiwiSaver gets singled out here for who has lost KiwiSaver business, when in reality the banks are creaming most of the KiwiSaver transfers from everyone, as they ‘touch’ clients more often than the other providers.

It has nothing to do with quality of KiwiSaver advice as no providers give any, yet AMP can actually refer you to a non-aligned adviser who can give you some; where at best the banks might put you on to one of their in-house Authorised Advisers, but good luck finding one.  ANZ has 70 Authorised Financial Advisers (AFA) for 660,000 members, Kiwi Bank has 1 Adviser for every 50 branches etc.  It’s pretty dire.

People are moving KiwiSaver for usually bad reasons, it will be ‘convenience’ such as seeing your balance on internet banking, which for the life of me I have never seen the appeal unless you are withdrawing your KiwiSaver next week, as you cannot touch it for years.

AMP’s KiwiSaver online access is no better or worse than others, although the adviser end of the system is clunky (though not as clunky as other providers), but for the consumer it’s much of a muchness.

The other reasons to transfer are past returns, which is like picking next year’s Super 15 winner based entirely on this year’s winner.  It’s possible that the past winner will win again, but it’s equally as likely they won’t.

A reminder – past performance has nothing to do with future performance.  In investing it’s all about, “What have you done for me lately?”

Very few are basing their investment plans on the future and access to advice.

Most people we speak to have never had KiwiSaver advice from their provider and are sitting on thousands of dollars, hoping it’s doing the right thing.

There are only 1,800 AFAs in the country and not all do KiwiSaver, so it’s not easy to find an adviser.  But it’s worth it.

By Alan Borthwick

Trans-Tasman Retirement Savings Transfers – Advice Is Key

kiwisaverThe rules around Trans-Tasman transfers are a bit odd, and a giant pain in the neck, but worth it.

It took years for the two governments of New Zealand and Australia to get to a place where we could get Trans-Tasman portability, and while the KiwiSaver providers leaped at it, the Australian ones, not so much.

Bringing money to New Zealand requires a pile of paperwork, a visit to the Australian Embassy (if you are in Wellington) or a lawyer who is recognised as being able to practice in Australia otherwise, and then hoping that some minor infraction does not have them send it all back.

Most people I know have had their stuff reposted back to New Zealand at least once.

Going the other way, most of the Australian providers are not interested in helping.  It’s starting to change, but essentially they don’t want the hassle.

I don’t blame them, it’s a bit of a pain as the money that’s transferred has to stick to the original countries rules, so money from Australia cannot be used to buy a home in New Zealand, and money going to Australia has to stay in the fund till you’re aged 65, not as part of the early withdrawal they can do.

So the answer?  Get advice as usual, read the documents thoroughly and be patient.

Once the money is here, you don’t have to worry about what Australia does with their rules.

It’s not about long term returns etc., just about having your money in a country you are in and can keep an eye on.

By Alan Borthwick

KiwiSaver Withdrawals and Tax Credits – Get Advice

kiwisaverTime to learn some facts about KiwiSaver. There is too much misinformation out there.

There are not many situations where by you can withdraw your KiwiSaver:

  1. You turn the age of retirement (currently 65)
  2. You die (goes to your estate)
  3. You permanently emigrate (after a year of leaving)
  4. You suffer a serious financial hardship
  5. You are buying your first home

That’s it, and the rules are pretty strict around each area of early withdrawal.

The tax credits (stupid name, nothing to do with tax), are paid out each year on a 1:0.5 ratio up to $1042.86. What this means is that for every dollar you put into KiwiSaver between 1 July and 30 June each year, the government matches you 0.50c up to a max credit of $521.43.

Everyone from 18 years old and up (to age 65) is due it, and all you have to do is contribute the money.

Most people pay this via PAYE, from their wages, but if you are self-employed (and not on PAYE) or not employed, you need to contribute directly to your KiwiSaver.

In theory, you are only due this money if you are a tax resident of New Zealand, but they seem to pay it to everyone regardless, as I guess they cannot tell who is not here.

So, everyone seems to get the funds.  The government does do a check when you go to buy a home to make sure you were not overseas, but beyond that, I am not sure how they double check.

If you need to query any other facts about KiwiSaver or have questions about your own, best to talk to an Authorised Financial Adviser (AFA).  There are 1,800 of us in New Zealand and I (Alan Borthwick) is one of them.

By Alan Borthwick

DUX Financial Smart Tip: KiwiSaver Benefits

KiwiSaver benefits› Member tax credit


To help you save, the New Zealand Government will make an annual contribution towards your KiwiSaver account as long as you are a contributing member aged 18 or over.

To get the full member tax credit automatically you have to contribute at least $1,042.86 a year.  If you contribute less than $1,042.86 from your pay, you can make voluntary contributions to ensure you receive the full member tax credit payment from the Government.

Your KiwiSaver provider will claim the tax credit on your behalf after 1 July each year.

DUX Financial Services contacts all their KiwiSaver clients and reminds them about the Member tax credit and gives them help in reaching the goal to get the “free money”.  Does your current Financial Adviser do that?  If not, talk to us at DUX!

By Alan Borthwick

kiwisaver

How much do I need to live on in retirement?

kiwisaverWhat I am going to focus on today is not the ins and outs of the NZ Superannuation product when it comes to the applying for it etc., but more the process of getting to retirement.

The retirement amount you will get from NZ Superannuation is $22,417 before tax – $19,475 after tax per year, for a single person living alone, or $33,935 before tax – $29,962 after tax per year for a couple.

This may seem okay, but if you are currently living off more than that and are not far off retirement, you need to make sure you have the rest of the money.

Too many people have not worked out what they need to earn in retirement, or how to get there.

Too many people wait till retirement to ask me the question “do we have enough to retire?” what if the answer is no?  It’s too late now.

So, rather than spend too much time making sure you have fulfilled Work and Income New Zealand (WINZ) rules to get NZ Superannuation, spend some time getting the answers to the following:

  1. How much do I need to live on in retirement?
  2. How much capital do I need to make this happen?
  3. Can I save this capital between now and retirement?

There are other questions, but without the answers to those questions, the others are irrelevant.

No matter how old you are, do it now, don’t wait another year.  Even if you are still paying down debt etc., it’s important to know your numbers, so you can start to plan this out.

This is some of the most important calculations you will do, make sure you do it properly, and get advice from qualified financial people.

By Alan Borthwick

Saving Money For Yourself

financial-planningSome irony of a bank sponsoring an article about not spending money you don’t have, as the banks rely on it!
The psychological stuff is fascinating and I do enjoy reading it, but I have a simpler explanation.
Spending money is always more fun than not spending it.
See, don’t need to be a PhD in Psychology to know this.
While it’s not true for some people, most people do not find much enjoyment in seeing money in a bank balance and not spending it.
It’s why KiwiSaver works. No matter what you want to do, you cannot spend the money, and you have to save for retirement.
You cannot lock money away for savings goals, so you need to find ways to hide your money from yourself.
Saving for its own sake is hard to do (see above), but saving for a specific goal is easier. For example, saving $2,000 for the shear hell of it, is much harder to stick to than saving $2,000 for a trip to Sydney for 2 weeks next July to watch State of Origin (for example).
Here is one tip to make it slightly harder to stop yourself saving.
Set up a savings account (the interest rate is irrelevant), set a total for the target (make it accurate, price out what you are doing etc.), name the savings account on line (for the above it would be “Sydney 2016 SofO”, or as much as you can fit). If your bank allows it, have the account not show up on your mobile phone apps or on your internet banking.
What will happen is that when you are tempted to spend the money, you will see the account name, remember why you are not spending the money and will hopefully avoid the temptation to spend it.
If you still do spend the money, you are stealing from your trip, so either the goal was not big enough or you are lying to yourself. It’s near impossible to make you not break your goals, but you can minimise the chances.
By Alan Borthwick

Transferring Super to Australia – Australian suppliers not keen

A very disjointed article (don’t read the comments, as always it’s always highly opinionated but conversely very low on kiwisaverknowledge, though it’s great for conspiracy theories), but one thing that is true is that the Australian Super funds are (to the best of my knowledge), not accepting KiwiSaver Transfers.

Why the author has focused on Australian banks with NZ branches is beyond me, Australia’s super system is 15 years older than ours and has many more providers than the ones that have NZ bank branches.

Essentially, the Australian providers don’t want the hassle of bringing over NZ money as they have to have the money they bring over follow the NZ rules; so even though you can get your OZ super out before 65, you would have to have the KiwiSaver portion stuck till 65, so it’s a bit of a hassle that they don’t want.

NZ KiwiSaver providers have been waiting for ages for the Australian money to be available, so were ready the moment the law passed.

The second part of the article is a cryptic comment about the people in another author’s article who are over 65 and can access their funds. She comments that they are lucky to have the choice.

Is the financial writer for the Herald really complaining about KiwiSaver being a locked super? Has she missed all the discussion on what KiwiSaver is locked till retirement? Did she miss the bit about it being retirement savings?

KiwiSaver is not for paying off short term debt before you are 65, if you can do that, no one will have any retirement savings (other than the wealthy), just like it was before 2007. Back then, 70% + of people I met were doing nothing for their retirement (the only ones who were, were government works in the State Sector Retirement Savings Scheme (SSRSS)). Now, 70% or so of people have something in place.

Early access would have ruined that. However, I suspect that the financial writer has never actually advised real people, so is another purely theoretical academic analyst.

By Alan Borthwick