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

Easy Finance Is Not Always Easy

It’s not a surprise to read about people racking up lots of debt on the mobile lenders.  People will always find a way to borrow if they are that way inclined.

What is interesting and relevant is that the lady has no idea what she bought or what it cost.

This is because the focus of the client in these case is to get the item, not what the cost (bar the initial price) is.  They have no interest in the long term price because that’s tomorrow’s problem.

When you only live for today, it’s easy to dump stuff on tomorrow.financial-planning

The way to avoid falling into the (self-inflicted) trap of borrowing for consumer purchases is to be very aware of today and tomorrow.

What I mean is:

  1. Be very clear about what your income is.
  2. Be very clear about what your expenses are – i.e. do a budget.
  3. In this budget have a clear breakdown of what is allowed for discretionary spending.
  4. If an item is over this, you cannot by it.
  5. Only buy things with cash, i.e. you have to save. And if you have to save, you have to budget an amount each pay to save so you can spend this money.
  6. have a goal for the future that is more important than borrowing more, i.e. buying a new car, a house, a holiday etc. it’s easier to save for a goal and not spend than to just ‘not spend’.

Doing this will mean you are less likely to wander into a shop and just borrow money, as you will be aware of the impact on your future if you do.

But let’s also get away from this nonsense of these companies ‘preying’ on people.  They don’t drag you into their truck/shop and you have to sign the dotted line to get the money/loan.

Yes, if they are not fulfilling their legal obligations on disclosure, sale of goods act etc., they need to be dealt with, but offering a loan at 25% is not illegal (its less than GEs standard rate btw), as long as you know its 25% and take it with no pressure or fraud.

as you can see from the article most of the companies have already written off much of what she owes them, which shows why they charge so much, to cover the cost of those who they never get money from (it also shows they need a better assessment process).

High interest lenders are a pain in the ass and I enjoy helping them lose money by cashing them out early, but they are part of the market and there is demand for them, otherwise they would go out of business.

The best way to run these people out of business and to lower their rates is for people to stop borrowing for items they should save for, and to live for today and tomorrow, not just today.

DUX Financial Services can provide some advice in this area if you need it.  Check with your Citizens Advice Bureau (CAB) and budget services as well.

By Alan Borthwick

Changes to KiwiSaver Homebuyer’s withdrawal

mtgeThe government has announced some changes to KiwiSaver withdrawals for 2nd chance first home buyers that will come into place on the 1st of July 2016.

 

I have read a couple of articles and there is some confusion about what it all means, so I thought I would clarify this for everyone.

 

Current situation:

There are two aspects to KiwiSaver assistance for buying a home.

 

First, the KiwiSaver withdrawal, and secondly the Home Start Grant.

 

If you are a first home buyer and have never owned a home before, you get your KiwiSaver provider to confirm you can withdraw your funds, and you apply to Housing New Zealand Corporation for the Home Start Grant.

 

If you are a 2nd chance first home buyer, you have to first apply to Housing NZ for permission to withdraw your KiwiSaver, on the same form you use to apply for the Home Start Grant. Once housing NZ approves you as a 2nd chance buyer, you go back to your KiwiSaver provider with that approval to get your KiwiSaver withdrawal confirmation.

 

So far, all makes sense right?

 

The current rules for both the withdrawal and Home Start Grant are:

 

First home buyer

Withdrawal Home start
No income requirements $80 000 max for 1 borrower, $120 000 for 2 or more
No maximum assets 20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house).

 

2nd Chance First Home Buyer

Withdrawal Home start
$80 000 max for 1 borrower, $120 000 for 2 or more $80 000 max for 1 borrower, $120 000 for 2 or more
20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house). 20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house).

 

So what’s changing?

The bit that is changing is the maximum income for the 2nd chance first home withdrawal is being removed, so it does not matter what you earn, you can get your money out.

 

It’s not changing for the Home Start Grant, but just to get your own money out.  And there are no changes for people who have never owned a home before.

 

What difference will this make?

Well if you have owned a home before, but earn over the cap, you can now get your money out of KiwiSaver to fund your first home.

 

This could well speed up your ability to get into a home, and I can already think of a lot of clients this will help.

 

It won’t help if you already have over the asset cap, so it’s for genuine cases of people in a first home buyer’s situation, but it’s a good boost for those who used to own a home, came out with little to nothing, but have a bunch of money still in KiwiSaver.

 

If you have used KiwiSaver before, you cannot withdraw it twice, and you cannot take out any Australian super or UK pensions that have been transferred in, but other than that, you can withdraw all but the first $1,000 of your fund.

 

The Housing New Zealand Corporation site has an official notice of the change, but if you have any questions on this, let DUX know, and we can provide advice and make it easy for you to get into your (2nd chance) first home.

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

Student Loans – No Interest, Doesn’t Mean No Cost

financial-planningI am guessing the journalist on this story was not a student in the mid to late 1990s when you could download your entire living allowance money in one go.

That meant that many people used their money to buy cars, travel, stereos (back when CD players cost money) and alcohol of course.  Me, I bought magic the gathering cards with my first loan money (I was 17 and a career in financial advice was a long way away in my own defence).

So, none of this surprises or worries me particularly, students have spent their loan money on whatever they want for a couple decades now.  Sure there is the issues that this money is only for course costs, but that’s minutiae more than anything.

With student loans essentially free now, there are some bits relevant to students to think about.

  1. Just because it has no interest, does not mean no cost. You have to pay this back when you are earning more than $19,000 a year, at 12% of every dollar you earn above that. This is going to take you a few years to repay, and the more you borrow, the longer it will take.  The longer it takes, the longer before you have the money in your pocket to do more fun things.
  2. It’s going to impact your ability to go overseas with no worries. If you go overseas, you need to pay the loan back at a higher rate and so you cannot quite so carefree head off on your overseas experience.
  3. The expense makes it harder to buy a home. The balance of your loan is not taken into account by the bank, but they will take the actual cost into account. For example, if your loan payment is $100 a fortnight, they take that off your available money, which could impact your ability to get the loan you want.
  4. Saving will be harder, as you have less surplus funds left each pay, making saving for goals take longer or require bigger sacrifices.

The government who made student loans interest free stated that no one would borrow more money.  And they were proven to be very wrong, as governments who ignore incentives always are.  Borrowing has gone up, and voluntary extra repayments dropped 99% when the changes came in.

There is a block of young adults, (anyone who was studying in 2005 and past), who has a bigger loan than those before them, and now has to deal with it.

So, before booking that stripper on your student loan, thinking about how long it’s going to take to pay back.  Are they worth it?

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

Property Investors Buy More Than First Home Buyers? Crazy Idea!

Mortgage_first-home-150x150This is another one of those, it’s happening in Auckland therefore it’s the entire country articles.

 

There could be many reasons why in some areas, investors are buying more property than first home buyers.  In fact, the only way to make this data look useful at all, is to have something to compare it to, i.e., what where the numbers in 2008 when rates were 11.95% floating.

 

If we have a rolling comparison, we would probably see a confluence of when rates are low, and investors buying more.  The more tax rules change to disadvantage property investment, the lower the number.

 

So, why might investors buy more than first home buyers?  They probably have more money?  Crazy idea, that someone further in their plan has more money so can buy more property than someone saving their first house deposit.

 

Off the top of my head I have done 1 loan this year for an investment property, I have done quite a few home upgrade loans (i.e. sell the current home and buy a new one), a few where they buy a new home and keep the current as a rental and I have done 80% of my loans in the first home buyer space.

 

Some clients are finding it hard to find the house they want, but oddly, they are in the higher price range ($400K plus), not the typical first home buyer range ($200-350K).

 

There is likely to be a confluence of investors and home buyers looking at similar properties, but a good home is not necessarily a good investment and vice versa.

 

I suspect many of the investors are buying bad investments, which means they will be back on the market in a couple of years with the owner taking a loss.  Why?  Well many New Zealanders think that property investment is easy and you just buy a property and wait.  But it’s not that easy, yield, return, tenant choice etc. are all things to take into account to make sure it’s a good purchase and even then the payoff may be 10-15 years later.

 

So, it’s bad investors just buying property willy nilly, good investors will let properties go when the numbers don’t work.  Home buyers may have to pay $10K more than they would have, but if this ruins the investors numbers, then you get the home.  Good investors buy on numbers, bad investors buy on ego and emotion and will probably lose out (unless they get lucky).

 

Right now my rentals are not amazing, but when I bought them 8 years ago, I had a 30 year plan, so as long as I stick to that and don’t react to the media doom and gloom merchants, eventually they will be good for me and provide a good return.  But, that’s get rich slow, not the media obsessed get rich quick approach.

 

For first home buyers?  Keep saving, ignore the media, keep saving, and buy what you can afford to get into the market, keep saving and get advice!

 

There are homes out there, and they are quite affordable.  Just ignore the media.

By Alan Borthwick

Early KiwiSaver Withdrawal – Who Benefits?

Mortgage_first-home-150x150While the changes to the KiwiSaver rules are a good thing, the idea that they are primarily for the purchase off the plans is an odd one and strikes me that the person from Gareth Morgan (and the article writer) don’t really know how the mortgage side of things works.

If you are buying off the plans and doing a full land and build package, where you only have to pay a small deposit on signing, then you won’t settle for 9 months or so.

During that nine months, you will keep putting funds into KiwiSaver, plus your employers’ funds, and possibly tax credits depending on the time of year, which means that by the time you get close to settlement, you will have a bunch more money in your KiwiSaver.

You only get to do the withdrawal once, so doing it at the point you sign the loan contract is not the ideal time.

Clients of mine recently ended up with $10K more between them to put down as their deposit, which nicely reduced their loan and saved them money.

Now, if the property you are signing up for requires a large deposit up front, and will use all your KiwiSaver, then maybe you have to do this at that point, but if you can swing it, hold off till just before possession.

The deposit you pay to the agent at sign up (unconditional phase) is pretty much pointless for the buyer.  It’s a relic of the old days.  The vendor does not get the deposit till settlement, it just pays the agents commission 10 days after you pay it.

Why get $20-30K out of KiwiSaver and leave it with the agents trust account for 9 months when it could be in your KiwiSaver earning you growth and letting you get more out later?

While the early withdrawal has some benefits, it’s not really for a land and build package.

But this is the difference between knowing headlines of a rule and knowing how it applies in real life. The KiwiSaver product provider does not get this. The DUX Financial Service difference is that because we do everything, we know how it all interacts.

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