KiwiSaver | Bolster Risk Management - Simplifying financial risk, insurance and investments for you.

Markets go up, markets go down…

Dom Bish — Wed, 17 Aug 2022 05:24:18 +0000

https://bolsterriskmanagement.com/

Markets go up, markets go down…

Markets go up, markets go down. This is the nature of economic and market cycles. This can be worrying when investing for the short-term. However, KiwiSaver is a long-term investment. Unfortunately, the media like to jump on stories to make headlines. Highlighting how much people are ‘losing’ helps feed the fear that people are somehow ‘doing it wrong’. In broad-brush terms, someone in the thirties can expect to have another 3-5 ‘down markets’ or even recessions before they are 65 years old. These market swings tend to happen every 7-10 years. What we know from the long-term data, is that the trendline is generally on the up, given enough time.

To help visualise these market gyrations, take a look at the following four graphs on US data (these go back a long way). The first shows the volatility of bond yields, which go all the way back to 1714.

For the second, we can also look to the long-term US interest rates and see how these move over long periods of time.

We can look at the rolling one-year swings for the US S&P 500 back to 1927.

I fully appreciate that someone in their sixties will not take any comfort from the losses endured over the last little while. Approaching retirement and watching the value of your retirement nest-egg diminishing would be disheartening for anyone. That said, it pays to keep KiwiSaver in perspective. It is meant to be a supplement to our retirement plan, it is not meant to be the whole plan. It is meant to be a long-term investment. That is part of its power. That time period, in the ‘time value-of-money’ equation, allows the principal and interest to compound, thereby giving far greater returns, than if you stuck your money under the mattress.

This final chat highlights my comment in the first paragraph. Generally, given enough time, the returns improve

This article helps explain how just viewing different charts can give us the wrong perspective. If you are interested in a deeper dive, I recommend you take a look. When we hear of ‘massive losses’ or the horror word “recession”, along with all the blame that goes with it (Political Party ‘A’ did this while Political Party ‘B’ didn’t do that), everything gets lost in the noise.

Step back from the noise. Markets go up, markets go down.

Now to the KiwiSaver providers themselves. Here we go on a separate roller-coaster ride. As the article from Rob Stock last week pointed out, not all providers are created equally. Some are managing their inevitable losses better than others.

An interesting point to make, is that some of the largest or most popular funds in NZ are not actually NZ-managed funds. They are being managed by the mega-corporations such as Vanguard and Blackstone. Part of the fees being changed to New Zealanders are for the NZ logo to go on a non-NZ fund.

Fees, are the next hotbed of debate. The article made mention of the wholesale nature of some of these funds not passing along those savings to consumers. Many of these funds are ‘passive’ and therefore do not need a large, highly trained team of portfolio managers. Being passive, these funds track the indices of the markets in which they play. And here we come to the last part about KiwiSaver, the interaction of performance and market volatility.

Active fund managers, so we are told, like to think that they have skill in making investments outside of the index tracking that their ‘passive’ cousins like to make. This is really only part of the story. Some ‘active’ funds have been found to charge as ‘active’ but in reality, to be more closely ‘passive’ actors. Many funds in New Zealand are only mandated to invest in stock and bonds (& cash). This limits their opportunities to trying to ‘time’ the markets. Many market commentators will lambast how silly it is to even try such a strategy. Fair enough too. One comment from the recent FMA report in May said “performance data shows skill is present among some (not all) fund managers in the pilot study”.

So, what then? What if the above-mentioned investing mandate were different? Well, one basic investing strategy is to use diversification. There are many other ways to invest, not just with stocks and bonds. Commodities, futures and other vehicles can add not just depth but breadth to the investors’ portfolio. Good fund managers will have strategies ready prior to the inevitable down-turns, and will not be content to go with the flow of the index. Good fund managers will actively deploy various down-side mitigation tactics so that while their clients may have losses, those losses won’t be as extreme as they might have been, if the overseas mega corporations’ funds were blindly followed.

For New Zealand, long-term saving and investing is relatively new for most people. KiwiSaver is only 15 years old. As the fund balances start to increase, above the $23,000-odd level that it is today, we will see more and more discussion about KiwiSaver. This is a good thing. More people need to be actively involved in their own saving and retirement decisions. We have a vibrant KiwiSaver market, active with many choices and participants. This is a good thing. While it is worthwhile to check your provider every now and then, be wary of flipping your fund on every downcast article that you read. Remember that the power of KiwiSaver is time. Time and the ability to compound the returns to exaggerate the amount you hope to see in retirement.

Disclosure:
Dominic and Bolster Risk Management are resellers of NZ Funds KiwiSaver products.
Read more here.

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Dominic started Bolster Risk Management to help people along their personal finance journey.

He believes that personal insurance is the bedrock to financial security and wealth creation. You have to protect your greatest asset, your ability to earn an income.

Underpinning this is a philosophy that says Your Money Matters.

The post Markets go up, markets go down… first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

Inflation, Savings and Life Insurance

Dom Bish — Thu, 03 Mar 2022 01:43:24 +0000

https://bolsterriskmanagement.com/

Inflation, Savings and Life Insurance

We often hear the words ‘rising inflation’ and ‘rising interest rates’ but do we really understand these terms and the impacts they can have on us financially? What is inflation anyway and what does it have to do with the price of fish or the price of tomatoes which has received a lot of media attention lately?

More importantly, what impact does inflation have on your savings and in turn your retirement nest egg? Surely, it will not impact on your life insurance or does it?

Key ideas:

What is inflation?
And the price of fish and tomatoes?
Your savings and their returns
Life insurance and inflation – a double-barrelled impact

Read on to find out exactly way understanding the impacts of inflation is important to your short and long term financial wellbeing.

What is inflation?

In economics, inflation is defined as a general progressive increase in prices of goods and services in an economy.

Simply put, inflation means that money is losing its value in that each unit of currency buys fewer goods and services which results in a reduction in the purchasing power of money. As the Reserve Bank (NZ) says “The underlying cause is usually that there is either too much money available to purchase too few goods and services or that demand in the economy is outpacing supply. In general, this situation occurs when an economy is so buoyant that there are widespread shortages of labour and materials. People can charge higher prices for the same goods or services”.

The common measure of inflation is the inflation rate, the annualised percentage change in a general price index. A price index is the average price statistically designed to help to compare how these prices, taken as a whole, differ between time periods.

The chart shows inflation per year since 1960. The Reserve Bank (NZ) has a remit to keep inflation between 1% and 3%, on average. They will use the Official Cash Rate (ORC) as their main tool for implementing monetary policy. They use the ORC to influence the 90-day bank bill rate. This in turn effects domestic interest rates and the foreign exchange rate. By altering these rates, the Reserve Bank has influence of the costs of borrowing money in New Zealand, and thereby influencing the level of activity and inflation in the economy.

And the price of fish (or tomatoes)?

The Consumers Price Index (CPI) measures the changing price of the goods and services that New Zealand households buy.

To calculate CPI a fixed ‘basket’ of goods and services is selected. Items are selected to determine their relative importance based on spending patterns. The items in the CPI basket represent how New Zealand households spend their money.

The prices of the goods and services in the basket are collected over time to measure how they change. You can find out about price changes for 11 CPI groups:

food
housing and household utilities
health
recreation and culture
education
communication
clothing and footwear
transport
alcoholic beverages and tobacco
household contents and services
miscellaneous goods and services.

Tied to the Consumer Price Index, is the consumer purchasing power this indicates the degree to which inflation affects consumers’ ability to buy. As a general rule, if income rises at the same rate as inflation, consumers can maintain their present standard of living.

For most of us the impacts of inflation is most noticeable when we go supermarket shopping. We sure do notice when things we buy everyday increase in price each time we go, hence the recent focus on the cost of tomatoes which have dramatically increased in cost when compared to this time last year or the years before.

If you want to have some fun, use the Reserve Bank of New Zealand’s inflation calculator to see what something that cost $1 in 2000 is priced at today. A declining purchasing power by nearly 39%.

The fish that may have cost you $9 per kilo ten years ago now costs you $10.62 per kilo. This might not seem that big of a change, until you think about all the other items in your shopping basket and all of that adds up especially if your income has not risen at the same rate.

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Your investments and their returns

As highlighted above while inflation erodes away your purchasing power, it also means your savings takes a hit.

Let’s look at what this actually means with an example. At the time of writing, an average 6-month term deposit rate is giving savers a return of about 1.6% per annum and the rate of inflation is at 5.9% per annum. This means that your savings, that money you have safely in your bank account is actually losing you 4.3% per annum. In other words it is costing you money to save it.

Your investments, especially your long term investments, should be giving you a return rate above the rate of inflation so they can continue growing and compounding for you.

You don’t want to reach your well-earned retirement years to discover that your nest egg is much smaller than you’d expected because inflation has eaten it away. In other words, you need to remain proactive to ensure you are keeping on top of inflation.

Life insurance and inflation – a double-barrelled impact

The impact on life insurance is more interesting, but it can also catch out if you are not aware. The premium for insurance is basically made up of three parts. For life insurance, the three main ones are age (each year you get older, the cost goes up), the price of the product, and CPI.

Many policies are indexed to CPI. This is a good thing as you want to make sure that the policy you bought 20+ years ago, is still ‘worth’ as much you wanted at the time you took it out.

Let’s go back to that calculator. Let’s assume you got a $500,000 life insurance policy in the first quarter (Q1) of 2000, but you did not have it linked to CPI (use the general category on the calculator). If you died today, your family will get $500,000. That might be enough, but in today’s money, that money is actually worth $816,109 (2021 Q4). That would mean your family are potentially short by $300,000 in today’s money. (The caveat here is that circumstances may have changed so you might only need less, but we are keeping this example simple).

The next part in all of this though, the double-barrelled part, is the premium. If you don’t link your premium to CPI, then your premium will not increase by as much, i.e it is not keeping up with the cost of living. In short, you will be paying for less benefit and your premium will only be determined by your age and the price of the product.

However, if you do have your life insurances linked to inflation, you can potentially see quite large price increases over the years, not just due to the CPI, but because the sum insured is increasing too.

This is why having a good adviser is really important as they will talk to you about what you want to achieve and will help you understand the cost versus the pay-off to make this happen.

[My Disclosure statement can be found here]

#FinancialWellness

#EmployeeWellness

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#YourMoneyMatters

#SortYourDosh

#HealthAndWellness

#MoneyWorries

#FinancialWellbeing

#GetAdvice

#EmployeeBenefits

#GroupCover

#DominicBish

Dominic started Bolster Risk Management to help people along their personal finance journey.

He believes that personal insurance is the bedrock to financial security and wealth creation. You have to protect your greatest asset, your ability to earn an income.

Underpinning this is a philosophy that says Your Money Matters.

The post Inflation, Savings and Life Insurance first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

KiwiSaver Confusion

Dom Bish — Sat, 12 Feb 2022 00:26:26 +0000

https://bolsterriskmanagement.com/

KiwiSaver Confusion

We have all heard about KiwiSaver and despite having over 3 million members it would appear that confusion and lack of understanding of how it works is the most common talking point.

By the end of the March 2021 financial year, New Zealanders had invested $81.6 billion dollars into KiwiSaver, with $26,410 being the average amount invested. Not bad going for a scheme which started in 2007. However, given such a large amount of money has been invested into KiwiSaver it is hard to believe that there is still widespread confusion.

Key Ideas:

What is KiwiSaver?
What is the purpose of KiwiSaver?
When can or should you get the money?
Choosing the right scheme for you

Are you paying into KiwiSaver but are uncertain about how it actually works? Do you think you are in the right scheme? Where to you go to seek advice? Read on to find answers to some of these questions.

What is KiwiSaver?

KiwiSaver is an easy, affordable and voluntary savings scheme which was set up by the government in July 2007 to help New Zealanders save for their retirement years.

As employees you can choose to contribute 3%, 4%, 6%, 8% or 10% of your gross (before tax) wage or salary to a KiwiSaver scheme. Your employer in turn contributes with close to 3% of your gross salary.

Your contributions are invested on your behalf by a KiwiSaver provider of your choice. If you don’t choose a provider, Inland Revenue will assign you a default KiwiSaver fund.

A KiwiSaver scheme grows a number ways, automatic contributions, employer contributions, the investment returns from contributions being invested for you by your KiwiSaver provider, government contributions (even if you are not an employee, this can be as much as $521 each year) and any additional money you choose to put in. You can make voluntary contributions, lump sums or regular automatic payments at any time either directly to your KiwiSaver provider or through Inland Revenue.

Most employees contribute the minimum 3% and it is considered by many to be compulsory saving. With the money coming out each pay cycle it has become a way of life and it is not surprising that around a quarter of KiwiSaver members do not regularly check their account balance or know how much their KiwiSaver is worth.

What is the purpose of KiwiSaver?

KiwiSaver schemes have become increasingly popular as most of us recognise that when it comes time to retire the government pension and our own personal assets are not going to be enough for us to live comfortably. This realisation has been reinforced with the results of a recent survey carried out by the Financial Services Council which found that the majority of New Zealand adults, around 70%, think they will need to work past the retirement age in order to maintain their current lifestyle.

In addition, 65% of respondents, representing 2.5 million Kiwis, are worried they aren’t on track to have enough money or will be unable to afford where they want to live in retirement. This is scary, given people work hard for the majority of their lives for the reassurance that when they retire they will have the money to do what they want.

When can or should you get the money?

After you reach 65 years of age you are eligible to take all or some of your contributions out of your KiwiSaver scheme.

Just because you can take out it when you reach 65 does not mean that you should. You have options including leaving your money invested in as long as you like, rebalancing to better meet your needs, making regular withdrawals (note there could be a minimum amount and some fees may apply) or pulling it all out to either spend or invest elsewhere. If you choose to reinvest elsewhere look around as a KiwiSaver return of 10% is a lot better than putting into a bank which may offer only a 1% return.

At 65 you may still be working and if so you can keep your KiwiSaver scheme open and growing. At this point your employer can choose to continue to contribute, although they don’t have to as once you reach 65 you are then eligible for New Zealand Superannuation. The government will also stop its contributions to your KiwiSaver.

You can use KiwiSaver for buying your first home through a KiwiSaver HomeStart grant and home purchase withdrawal.

Early withdrawal from your KiwiSaver is an option under The KiwiSaver Act 2006 if you are suffering financial hardship or a serious illness but is not that easy to do as you will need to meet required policy criteria.

Before you make any decisions, talk to a financial adviser about your financial goals so you can work out the best course of action.

Choosing the right scheme for you

KiwiSaver providers offer a range of investment fund options to suit your needs, for example if you are just stating working or nearing retirement. These funds have different amounts of potential risk and return.

You can choose your fund from a KiwiSaver scheme provider and can switch at any time. You don’t have to stay with your employer’s chosen provider, or a default provider.

Things to consider when deciding on a scheme:

Your Risk profile

Each KiwiSaver scheme invests your money differently. If you choose a low-risk fund, most of your investments will go toward low-return, less-risky options such as bank deposits and fixed-interest investments such as bonds.

If you choose a very aggressive and high-risk fund type, most of your investment will go toward shares. Some of these funds may offer other investment vehicles such as futures and options.

For longer term savers, for example those just starting out in the workforce, you will have the time to take more risk, allow the market to go up and down (and back up again). Economic cycles tend to be round 7-10 years. If you have 3-4 decades before you retire, you will go through these ups and downs before you need to withdraw your KiwiSaver.

The level of risk you choose should be based on factors relevant to your situation.

The Fund type – this is similar to risk level.

The Te Ara Ahunga Ora Retirement Commission split the funds types into five categories; Cash, Defensive Conservative, Balanced, Growth and Aggressive.

Each one is slightly more ‘risky’ than the previous. High risk, means the potential for greater reward (remember nothing is guaranteed). An expert will advise you on the best fund for you.

In simple terms, higher risk funds are more likely to give you a higher return (grow your KiwiSaver faster), but there is a chance that they will also decline during those economic cycles. The low risk funds will grow your retirement nest-egg the slowest, however, their ‘volatility’ during the cycle should be less dramatic.

Active versus Passive

There are pros and cons for both types of approaches and an expert will guide you through this.

In recent times the passive approach has done well, because the market over the last 10+ years has gone up, which means every fund has done well. The downside of passive funds is there is not any downside mitigation, or protection from market losses.

The active approach is more selective on where the investments are made, they can move faster and be more nimble to market changes. There is also flexibility to deploy other tactics to minimise any losses, for instance, some providers will use options to minimise or in some cases, gain from market losses.

First Home buyer?

Are you planning to use KiwiSaver for your first home grant? If so talk to an expert.

The Fees

Not all fees are the same and when deciding on the KiwiSaver scheme best suited for you, the providers’ fee structures needs to be considered.

There is a big drive from some of the better known providers to lower fees and promote it as being the key to a good KiwiSaver scheme. However, if you take a more rational approach higher fees are okay if you are getting better performance from your fund manager.

Fees should be charged based on the actual service provided and giving customers value for money.

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Get advice

Your retirement nest egg is important, especially after working all those years to build it up.

A report in 2016 highlighted that only in 1 in 1,000 people sought advice on their KiwiSaver scheme, this is an alarming statistic given the amount of money invested.

It is important to seek financial advice to guide you on what is right for you and your circumstances. After all, you wouldn’t build your own house if you were not a builder, pull out your own teeth if you were not a dentist or fix the brakes on your car if you were not a mechanic. Why leave your financial future to chance?

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#FinancialWellness
#Financial-Wellness-Is-Important
#EmployeeWellness
#MoneyWorkshops
#YourMoneyMatters
#SortYourDosh
#FinancialWellness
#MoneyWorries
#FinancialWellbeing
#GetAdvice
#EmployeeBenefits
#GroupCover

Dominic started Bolster Risk Management to help people along their personal finance journey.
He believes that personal insurance is the bedrock to financial security and wealth creation. You have to protect your greatest asset, your ability to earn an income.
Underpinning this is a philosophy that says Your Money Matters.

The post KiwiSaver Confusion first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

The 5 Pillars of Personal Finance

Dom Bish — Wed, 08 Dec 2021 01:21:40 +0000
https://bolsterriskmanagement.com/

The 5 Pillars of Personal Finance

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Are you using tomorrow’s money today? What happens when tomorrow comes along? Are you spending more than you earn? What if your income stops? If you are spending money today that was meant for tomorrow, then you have a problem. You will at some stage need to catch up. Are you getting the right information?
Basic money management concepts
Cover against Risk
Build your retirement nest egg
Build Wealth
Get advice

1. Basic money management concepts
It might be easy to assume that people are just born with a wealth mindset. Yet on reading the self-help money management books, listening to the personal finance gurus, you get to realise that habits are the best predictor to wealth and prosperity. Often, small behaviours, repeated often, are enough to build up or tear down our stated aims.
By way of example: Buying the Rolls Royce products instead of the cheaper Toyota, that still serves the same function but will cost you five times the price. I use that example because it is highly recognisable, but the same could be said for the tin of beans (Heinz or store brand), milk (Mainland or store brand). Saving a couple of dollars on your supermarket each week, might seem trivial, but those positive behaviours stack on top of each other. This is taking a longer term view of your finances. Time and money can be for you or against you.
What do you want, really? Have you thought about your financial goals? I don’t mean your dreams, but the life you are looking to have for your future self, for your future family. How does that look? Are you working towards that, or are you actively walking away from it through the choices you are making today?
One of the simplest things that you can do, to start getting ahead, is to spend less than you earn. Simple maybe, but not always easy. I say this, and I know there will be some who read this and think I am stating the bleedin’ obvious, and I am. Yet look at the increasing household debt level that we have, not just mortgages, but credit cards, store cards and the like. Let’s not forget the latest money trap for people, buy-now-pay-later. You are using tomorrow’s money today. What happens when tomorrow comes along? Find a way to spend less than you earn. This is the bedrock of changing your money situation.
I am a squirrel with money. I have it in different accounts in different banks and institutions. I do this for two reasons. 1) so that each account has a purpose and 2) so that I don’t have a false sense of financial security. Let me explain. I have an account for debt payments, for everyday expenses, for enjoyable fun money and lastly for long term goals. I also have an emergency fund that I contribute to regularly. Each account has a purpose and cannot be used for a different purpose. The false financial security might come from thinking that I have more available to use right now than I really do. And surprisingly, because I know I have the basics covered, I get more financial security. That really helps my mental health and stamina about any money worries that could build up.
The last nugget in this section is compound interest. Understand that using tomorrow’s money today comes with a cost. That cost is interest. Understand the magic and pain of compound interest is essential for you to think about the future value of money and, more importantly, how it can help or hinder your financial goals. The savings that you get from money in the bank is using compound interest. The extra amounts that you get charged for credit cards, is tied to compound interest. It can work for you (with investments, KiwiSaver and savings), or work against you (with mortgages, credit cards and pay-day loans).

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2. Cover against Risk
Personal insurance is the foundation of personal wealth creation – in my opinion. Let’s work backwards for a moment. In retirement, there is a certain amount of money that would satisfy your needs. What ever that amounts is, there is a number that you will need to live comfortably.
For you to get to that number, you need to be working throughout your live, saving and investing as you go, over a period of 20, 30 or 40+ years.
What happens if you cannot work for one or two years because of accident or injury? In all likelihood, you will draw on the money that you have been saving for retirement. Meaning that you have far less for retirement. You now must work harder and faster to make up the significant shortfall, the money you’ve just spent on your recovery.
This is why people use personal insurance as part of their financial risk protection planning. Disability insurance (or the other insurance products) work to stop you haemorrhaging money, by paying to keep your financial life moving forward. It is a key part of their wealth creation plan, and it should be yours too.
The Bolster House, pictured below; insurance is the foundation, the walls are your income, your retirement sits on top as the roof. If the income stops the rest falls down. Your debts don’t get paid, the rent doesn’t get paid. You can’t feed the family, any savings are used, any investment properties are sold… which means that retirement plans are even harder to get to. The insurance protects your income, which in turn protects your retirement plans.
If you are spending money today that was meant for tomorrow, then you have a problem. You will at some stage need to catch up. Personal insurance solves this.

3. Build your retirement nest egg
In New Zealand, this is quite easy with KiwiSaver. Essentially it is forced savings that are ring-fenced until retirement. This is the point. You are not meant to be able to access it, unless you are investing in your own home.
The minimum 3% contribution from you is probably not enough though. But it is a start. It all depends on where you start, how old you are and how much you have in KiwiSaver. Remember compound interest will work for you (or against you) given enough time. The more you tip into KiwiSaver, the greater your chances of having a better fund to use in retirement.
Remember too, that it is a long-term investment. Markets, and therefore your KiwiSaver balance, will go up and down. That is part and parcel of investing. Become emotionally dull towards your KiwiSaver balance. Let time and compound interest do their job, on your behalf.
4. Build Wealth
This section might not be for everyone, but if you have placed the previous blocks in place, then this becomes a logical next step. You might build wealth to pass it along to your children, or to leave for a charity or cause that you believe in. It might just be to allow you to retire earlier than your initial retirement plan had allowed. Maybe retiring early will allow you to spend your time helping other organisations that are dear to your personal values.
Understand that the time frames for investing are different from retirement investing. Knowing what you are building and investing for is crucial. Partly because it allows you to exit the investment once your goal has been achieved (or to know when to exit because the investment has turned bad).
The typical Kiwi investment is property. This is the tradition. That still holds great psychological power for a great many New Zealanders. But this has turned now, with a whole generation of people locked out of the property market due to the ongoing sky-high valuations. That said, there is also a new wave of low-cost entry platforms like Sharesies or HatchInvest where people can start investing with small amounts, learn and make mistakes, without losing fortunes. The caveat here is the same as elsewhere in this article. Do your research and take the time to learn. You don’t need to know everything to become smarter with money. Small steps repeated often will see you succeed more readily than taking “big bets on sure wins”.
5. Get Advice
Success is not built by individuals, there is always a support crew. Don’t wait to get advice for when you are a multi-millionaire. Get different types of advice for different parts of your personal finance journey.
It may be from your accountant, or from the online platforms (Spring.kiwi and Sorted.org) that provide financial education and learning support. Advice might be direct and specific to your circumstances, or general and informative. We provide a range of tools to help people, and you don’t need to be a client to use them. We also offer specific client advise. Find out more here. Understand that there is a difference between the two. Don’t be afraid to ask for help.
The finance industry in New Zealand has just gone through a major shake-up. In most cases we are more heavily regulated than your accountant or lawyer. There are certain things that we need to do, to make sure that we give you the best advice for your situation. If you are unsure of the types of advice, or what is on offer, perhaps start here, the Financial Services Council NZ.
Personal money management can sound daunting and difficult. It shouldn’t be. Take small bite-sized steps to improve your situation. Given enough time and effort, it can be staggering what you are able to achieve.
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#FinancialWellness
#Financial-Wellness-Is-Important
#EmployeeWellness
#MoneyWorkshops
#YourMoneyMatters
#SortYourDosh
#FinancialWellness
#MoneyWorries
#FinancialWellbeing
#GetAdvice
#EmployeeBenefits
#GroupCover

Dominic started Bolster Risk Management to help people along their personal finance journey.
He believes that personal insurance is the bedrock to financial security and wealth creation. You have to protect your greatest asset, your ability to earn an income.
Underpinning this is a philosophy that says Your Money Matters.

The post The 5 Pillars of Personal Finance first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

Saving Money Made Easy

Dom Bish — Wed, 26 May 2021 02:29:03 +0000
https://bolsterriskmanagement.com/

SAVING MONEY MADE EASY

Do you struggle to save money? At the end of each month, do you wonder where all your money went? Perhaps you spend beyond your means?
If so, then this article is for you! Discover how saving money is as much a product of the mind as well as your financial habits. And speaking of habits, you’ll see how small positive changes, turned into habits, can automatically add up to big savings!
Consider these ideas:
Track your spending. Record every penny you spend for a month. Divide your spending reports into categories, such as restaurants, groceries, entertainment, clothing, house payment, utilities, and other categories. You might be surprised to learn where all your money went!
– At the end of a month, analyse your reports. Identify areas where you could cut down. Next month, cut down on those expenses and put the money you saved into your savings.
Clarify wants versus needs. There are certain things in life that you need to survive, such as food, water, clothing, and shelter. There are also the things that you want. Learn to differentiate between the two and you’ll automatically make some choices that will save you money.
Buy only what you can afford. You may think that you have to get every new gadget and gizmo available, but if you cannot afford it, the financial struggles they cause will outweigh the enjoyment that you receive from them.
– Consider using the ‘buckets’ method of planning for your spending. Divide your expenses into categories and use a different account for each category. With each paycheck, automatically divide out your money into the various ‘buckets’.
– Spend only the money that you’ve planned for each category. Once the cash is gone, it’s gone until more money can be added to that ‘bucket’.
– You may want to save for a few weeks to get enough cash in your ‘bucket’ for a desired purchase, at which time, you’ll know that you can afford it.
Do you need that expensive car? If you’re struggling each month to repay the high-interest loan that you had to take out to pay for your car, perhaps you’ll want to rethink whether you need such an expensive car.
– In some situations, you might need an expensive car. For example, if you’re a real estate agent and you take clients to look at high end houses for sale, an expensive, luxury car might help you make sales.
– On the other hand, in reflection, if you bought the car to impress the neighbours, you might feel that the additional expense and resulting financial struggles aren’t really worth it. If this is the case, a downgrade to an attractive, less expensive car may work better for you.
– Consider what a car is really for: to get you from one place to another, usually for short jaunts within your city. A less expensive car can get you there as well as a high-end car. Plus, you’ll have the extra money to do with as you please.
Consider downsizing. A smaller home can save tens of thousands of dollars on the purchase price and monthly payment, plus costs for maintenance and repairs are less. Even if you rent, a smaller place will likely cost less.
-Imagine the amount of money that you could save with a smaller house! All this money can then be used for other things that are important to you, like vacations or to add to your savings for retirement.
– Downsizing is an important decision that only you can make. Decide what’s more important to you – the larger house or the savings. For example, you might need extra room because you frequently have guests. An office space might be vital to the success of your business.
– Figure out if downsizing might work for you and, if so, go for it
6. Figure out ways in which you can enjoy life while still saving money. Money does not dictate how much you enjoy life. Remember, it’s not the material things in your life that matter most, but rather your friends, family, and the cherished times you have with each other.
– Research shows that the experiences in our life bring greater happiness than material items.
For example, instead of going out to dinner and a movie, invite your friends over for a potluck dinner and movie night at your house. You can still enjoy an awesome evening together while saving money. You might even enjoy it more than sitting in the restaurant and movie theatre!
– There are many other ways to substitute something less expensive and still have fun, like game night, sports (playing volleyball, basketball, rugby, football, soccer, bowling), card games, going camping or to the beach, and more.
– Create your own list of activities that are fun for you without costing a lot of money. Invite your friends to do the same and then choose those activities whenever you want to get together. You’ll all have fun and save money too!
7. Adopt some small, financially savvy habits, such as:
– Pay yourself first. Automatically have a small amount of each pay check deposited into your savings. You won’t miss what you never see!
– Let your money work for you. Invest regularly so that money will grow by itself into more money! Over the years, this can add up to many thousands, or tens of thousands, more than what you put in.
-Cook at home most of the time. Saving money by cutting down on fast food and coffee runs will add up.
-Buy when things are on sale. Try to avoid ever having to pay full price.
-Use free or streaming services for watching television. You can likely get the entertainment you want for a much smaller price and pocket some substantial savings.
Saving money doesn’t have to be a burden. Try these tips and you’ll find that you’ll actually have more money for the things you really want in life!

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Dominic started Bolster Risk Management to help people along their personal finance journey.
He believes that personal insurance is the bedrock to financial security and wealth creation. You have to protect your greatest asset, your ability to earn an income.
Underpinning this is a philosophy that says Your Money Matters.

The post Saving Money Made Easy first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

Save for a house or do something else?

Dom Bish — Fri, 05 Feb 2021 02:01:07 +0000
https://bolsterriskmanagement.com/

With property prices going through the roof and bank savings rates through the floor, what options do you have? If you do not currently have your own home, and you feel squeezed out of the property market before you’ve started, can you put your money to work in other ways?
Key Points:
Another back-of-the-envelope calculation
“Buy a business instead” (erm..?)
Get your money working for you in other assets

Another back-of-the-envelope calculation
I obviously get too many direct-mail letters as I keep using their envelopes to do quick calculations. My latest iteration was the result of me pondering what people do if they have ‘missed out’ on property. They may have missed out because the rising valuations are too much for the deposit they’ve raised, or too much for the income-serviceability conditions.

Using some averages…
The Auckland house market has hit $1m for an ‘average’ home. Using a 20% deposit will mean needing $200,000.
To save $200,000, over 20 years, means saving $800 per month. To save $800 per month at a savings rate of 10% of income earned, requires an income of $8,000 per month (this is net income, not gross). Why 10%? Because there is every chance that these people will already be paying rent, so they are saving whatever disposable income they can.
$8,000 net income a month requires a yearly net income of $96,000, or rather $140,000~ gross (assuming a 3% KiwiSaver contribution rate).
Now I realise that first home buyers can potentially use their KiwiSaver towards their home. I realise that some people will have family and friends to help them. But…
The average household income is $60,000 a year. Not $140,000.
The above also assumes that people are saving for 20 years. Plus, in the meantime, property prices may very well just keep rising. Now tell me that if you “just work hard” you can buy a house. The numbers don’t stack up.
I understand that there will be many views out there from different perspectives about property. I am not going to get into an emotive or political discussion about property. What I am doing is raising a point that for many people, given the above example, property-ownership is going to be out of reach.
“Buy a business instead” (erm..?)
The other day I heard a radio snip on RNZ about a business selling brokering firm advising that “instead of buying a home, buy a business”. While I applaud the ‘out-of-the-box’ thinking, I wonder at that advice.
Buying a business is another way of using your capital (the deposit that you were hoping to use for a home). In buying a business you buy a cashflow or an income from that business. This is not an inherently ‘good or bad’ idea, it is an alternative use of your money.
If keeping your deposit money in a bank earning 0.5% interest is not attractive to you, then sure, it is natural to look at other options. Remember though that a bank gives you greater security.
Moving your money to other assets in search of greater returns is part and parcel of being in control of your personal finances. Buying a home will likely give you capital growth over time. Buying a business will give you an income, which hopefully you will grow over time. Both investment strategies are potentially sound. However, understand the risks.
Have you ever run a business before? Do you know about the high rate of business failures? Running a business can be extremely rewarding. Done well, you can grow a business, get an income from it, and sell it at a higher price some years later. However, this investment strategy it is not for the feint hearted, nor are you in any way guaranteed a return on your money.
Get your money working for you in other asset
Another option available to you is to invest in another asset class altogether. Investing in securities like the share market can provide a low-stress alternative. “Most people don’t know how to invest”. This was a quote in a podcast by the Economist recently, which underscores part of the reason why people tend not to use this asset class. Buying property appears to be easier than understanding stocks and shares.
Again, this is not ‘right or wrong’, but there are many ways that people can invest without needing to understand the full breadth and depth of the share market. Managed funds have been available since around 1860. The funds are from people who pool their money to buy a range of stocks and other investments. Your KiwiSaver is a managed fund. This is a tried and tested form of investing. You pay a fee to the fund managers so that they can invest on your behalf.
The expected returns are usually higher than you would see at a bank, although the risks are higher. While the long-term average returns of the NZX trend upwards, stock markets do fluctuate, and there is always a risk at any point in time that the value of shares will tumble.
In New Zealand, we are starting to see more products that are becoming accessible to more people. Unlike Term Deposits in a bank, where your money is locked up for three or six months (for example), many managed funds will let you extract your money within a week (3-5 days for example). This is good for people who may need access to their money at short notice. Perhaps that perfect home shows up after all.
NZ Funds have launched two products this year that make investing in managed funds easier.
Wealthbuilder is an ‘unlocked’ KiwiSaver product, that invests in the same funds as their KiwiSaver, but you can access your funds when you need them.
Income Generator is a fund that invests in the top dividend producing companies in New Zealand and Australia, targeting returns of 4-7% (over 5 years).
If property is out of reach for you, there are other investments you might invest in. Before you do however, understand what it is that you are trying to achieve. Are you putting your money to work for an income or to grow? What time frame to you have in mind? Lastly, understand the risks of different decisions. If you are unsure, always get professional advice. Research from the Financial Services Council suggests that your investments will be 4% better off if you do get advice!

[disclosure: Dominic Bish & Bolster Risk Management
provide class advice on NZ Funds
KiwiSaver and managed fund investments.
This article does not constitute personal advice]

The post Save for a house or do something else? first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

“What is the Risk of Losing?”

Dom Bish — Thu, 15 Oct 2020 07:37:00 +0000
https://bolsterriskmanagement.com/

I was asked a great question recently. For all the talk of KiwiSaver-this and investments-that, what does it actually mean for my dollar? How much do I put in and for what return? Here we come to the wonderful world of ‘Risk’. What is ‘risk’ and what do insurance and investment companies mean by it?
KEY POINTS:
What is risk
What is the ‘return’ part of “risk and return?”
What is my comfort level?
What is risk?
Risk is a level of uncertainty that something will or won’t happen. There is a relatively large risk that you might get hit by a bus if you cycle everywhere around the city. There is a very small risk that the sun won’t rise tomorrow in the East. Both might happen, one is more probable than the other.
Probability is chance; what is the chance of something occurring. Toss a coin five times and you might come up with heads a few times and tails some other times. You have a 1/32 (or 3.125%) chance you will get all heads in 5 attempts.
Risk then, in our context, is about probabilities and uncertainty around money. This is also known as interest. When you see an interest rate, which is a percentage, they are talking about the risk related to that money. Specifically, the risk associated with that money over time.
What is the ‘return’ part of risk and return?
What does this have to do with finance, investments and savings? The percentage rate is the risk associated with how the capital is used. When you are looking at asset classes, these will have different returns. What is a return? It is the money you are likely to get back from the investment.
Again, to over-simplify things, your money in a bank is considered to be very safe. When you need it, you can withdraw it, easy-peasy (term deposits notwithstanding: these require notice before you can withdraw). Because there is very little risk to your money not being there when you want it, the bank will only pay a very small amount of interest. Current account rates are barely above zero right now (2020). Even term deposit rates are only 1.5%.
Other asset classes will have higher expected returns. For example, the historic averages for some asset classes are shown below. These are annualised returns from 31^st December 1970-31^st December 2018*.
New Zealand Equities – 12.2%
Australian Equities – 10.7%
World Equities – 10.7%
Residential property (capital gains only) – 8.8%
New Zealand Bonds – 7.8%
*data from Booster.co.nz
As an example, you have $1,000 to invest. If you put that money into a standard savings bank account at 0.5% interest, then your return would be $5 in a year. If you invested that same $1,000 in NZ shares at 12.2%, then your return would be $122.
Shares are deemed to be riskier, or to have a greater risk that you will lose money, therefore the expected return is higher, to compensate you for taking a bigger risk.
What is my comfort level?
The media like to throw around percentages and numbers, and it can become meaningless for people very quickly. What is a 5% gain and what does that even mean to me? Is that 5% in a day, a month or a year?
It is very easy to get overwhelmed by the media and our own expectations. So bring it back to where it is relevant to you. Four simple questions to start:
What are you trying to achieve?
What is the purpose of you investing your hard-earned cash?
What time do you have?
Are you prepared to take the loss if things go wrong?
For example, are you saving for a post-COVID trip to a pacific island? Or are you investing to give you an income in your seventies? Two very different things to aim for. Both require thinking about your risks differently.
If someone is going to offer you a 50% return on an investment, then it seems as though there is a lot of risk involved in that. Remember tossing that coin? You have a 50% chance of turning a Heads. You also have a 50% chance of losing. Are you prepared to lose? There is a big difference between long-term investing and speculation. Speculation is on the same continuum as gambling. If that is what you want to do, fine, just know that you are gambling and not investing.
Before taking any investment, think through what you are trying to achieve. Talk through your ideas with qualified and professional people. Jump on to www.sorted.org.nz to see what a 5% return actually looks like for your cash investment. Read some articles. Be informed. The returns are worth it.

The post “What is the Risk of Losing?” first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

An ‘Envelope’ Example for retirement savings

Dom Bish — Tue, 01 Sep 2020 05:25:22 +0000
https://bolsterriskmanagement.com/

Yesterday I was listening to a well-known finance commentator. They were saying that they didn’t agree with a caller who’d been advised they need a million dollars in savings for retirement. One of the clear things that we are taught as finance advisers, is that advice has to be ‘fit for purpose’ which means everyone’s situation is different. It is tough to give generalised advice when different scenarios require different solutions. That said, I did a back-of-an-envelope calculation to see what number might make sense in a very general way.
Key Takeaways:
A couple need nearly $1m (basic calculation)
A 3% contribution for a 35-year-old is not enough
In my example, a couple’s household income is $76,000 after tax. This is a fair number as half of Auckland’s households earn $70,000-100,000 before tax.
Now, let’s assume 30% of this is allocated for debt repayments. A mortgage plus credit cards and the like statistically consume about this much of most peoples’ income (and can often be closer to 40%). The assumption is that the couple have managed to clear their debts by retirement.

That leaves us $58,461. Now, assume that they only need 80% of this income, as retirement expenses are generally less than prior (kids have left home, less travelling to work…). That now leaves the couple with $32,478 a year to live and thrive on. Again, these are assumptions using averages, you’ll need to work out your own lifestyle needs.

The couple are planning to retire at 65, which in itself is becoming less realistic these days. We also know that ‘average’ life expectancy for men is about 91 and 94 for women.

This means we need to plan for an average of 29 years in retirement. 29 x $32,478 is $941,862 – a very simple calculation.

Note, this number is not taking inflation into account. Nor are we saying whether any of this income is coming from Superannuation, Kiwisaver or other schemes. Neither is there any assumption about interest earnings on the savings. NZ Super is currently paying $652 a week to a qualifying couple. The question is, with so much being spent to battle the COVID-19 pandemic, will NZ Super be available to people in 2-3 decades? Do you want to take that risk?
A Scary Example for a 35-year-old
Using the online calculators at sorted.org, someone born in 1985 with 30 years working ahead of them needs to have $561,132 in KiwiSaver for them to retire on the $32,852 a year, close to that calculated above (without relying on NZ Super). [The Sorted.org weekly amount is actually $628, not $32,478/52 = $631]. They will need to have an income of $90,000 contributing 8% towards KiwiSaver with their employer contributing 3%. Calculation assumptions are: retirement at 65, life expectancy to 91. The fund chosen is ‘aggressive’. Again, the assumption with Kiwisaver is that it will continue to earn interest even as you draw on it.

Therefore, someone who is 35 today needs to have
an above average income,
contribute well above the standard 3%, and
invest in a fund that typically most people don’t choose (many are still in the default ‘conservative’ scheme, or only slightly better for the age group, ‘balanced’).
This is a tough ask.

It is a good idea for people to understand how much they might want in retirement, then use tools like KiwiSaver and other assets to help them save and invest. Don’t rely only on bank accounts, as the returns are currently woeful, which is the current price of security on your cash asset. If you are older than 35, investigate how you might generate an income past 65, while still investing in KiwiSaver and other assets.

If you thought that just contributing 3% was going to be enough, think again.

The post An ‘Envelope’ Example for retirement savings first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

Unlocked KiwiSaver – what is it?

Dom Bish — Sun, 23 Aug 2020 05:40:55 +0000
https://bolsterriskmanagement.com/

In one of last week’s articles I mentioned ‘unlocked KiwiSaver’ products. It would be remiss of me to not explain what these are. For people outside of New Zealand, KiwiSaver is similar to Australia’s Superannuation or perhaps the 401K in the US. For KiwiSaver, members are not allowed to make a withdrawal on these funds until they are 65. There are exceptions of note here: first home buyers, and those under “extreme hardship” (with various conditions attached).
However, the idea of investing in a managed fund that is easily accessible and available to the public should be appealing to people who want to spread their eggs into different baskets. Remember that diversification is good basic risk management tool for long term investing.
KEY TAKEAWAYS
Two examples
Is it for you?
Get advice
Two examples
Unlocked KiwiSaver products may use exactly the same funds as KiwiSaver, such as WealthBuilder from NZ Funds. In this case, your money in WealthBuilder is invested in exactly the same way as the NZ Funds KiwiSaver, but is not locked away from you until retirement. Another variation is from Booster. Their Private Land and Property Fund gives you access to a managed fund listed on the NZX, again with similar flexibility. Both are accessible on their apps and client portals, making it easy for clients to track their progress. They are nice, simple, low-cost entries into markets and investments that may otherwise seem intimidating to many people.
If you read last week’s article you know I refer to the Retirement Commission’s term of the three-legged stool for retirement, using KiwiSaver, NZ Super and your “own Assets”. Without getting into the debate about whether NZ Super will be around in 20-30 years, creating our own asset base is just prudent risk & retirement management. Perhaps, the ‘unlocked’ KiwiSaver (or other similar funds) could form part of your asset base, ready for retirement. For others, this type of fund may provide a better (potential) return than the banks are currently offering on their term deposit saving accounts.
Is it for you?
The only challenge I have with these products is that it is still relatively easy to make a withdrawal. One of the reasons that KiwiSaver (or Australia’s Superannuation) are successful, is because they cannot be touched. Human behaviour seems to go like this. Person sees a lump of money growing year after year in a Bull market run and thinks to self “my that new car/boat/spa pool/cruise holiday…[insert fancy dream] looks great, we have the money, let’s just do it. And poof…! Investment/savings: gone.
You still need some discipline and personal management with your investing behaviour.
However, if things get really tough, if you’ve used all your personal insurance vehicles to manage your risks, yet still you have hardship, you have access to your funds without needing to prove it. Under the KiwiSaver scheme, the requirements for proving hardship are quite tough.
Get advice
There are different classes of advice that can be given in New Zealand. This is being simplified (I use that term loosely) as the FMA goes through their final regulatory changes. These are so the public can have greater clarity and trust around the advice they receive. Currently, Qualified Employees can talk only about their own company’s products. Class advice uses examples of people in a similar situation to yours. Personalised advise for investments is from an Authorised Financial Adviser only. Each serves a different purpose within the market. From March 15^th 2021, these definitions will change. All will be required to meet similar requirements in training and competency, and all will be referred to as Financial Advisers.
We know from recent research that “New Zealanders are poor at using financial services to help manage their finances.” Sorry to use this analogy, but I don’t know how to fix my car, so I don’t fix it myself. I use a registered and qualified professional to help me. Getting help with your financial and risk decisions should be the same.

It is ok to ask for advice. Not all advice costs. However, not seeking advice from qualified and registered professionals can end up being extremely costly indeed.
[Bolster Risk Management have agency agreements with NZ Funds and Booster. For more information please request a copy of our disclosure statement and privacy documents]

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KiwiSaver – Passive, Active & fees?

Dom Bish — Tue, 04 Aug 2020 04:54:15 +0000
https://bolsterriskmanagement.com/

Recently I put my nose into the debate around passive versus active investing. In my comment on the article I pondered why the choice should be so binary, one or the other? In my observation of investments, the prudent path always seems to be one of diversification. The old euphemism of not having ‘all your eggs in one basket’ is well understood. So, diversification can be across asset classes, specialised investment products and geographical markets.
How does this affect your choice of KiwiSaver? We can only choose one fund. As far as KiwiSaver is concerned, we must put all our eggs in the one-fund-basket.
KEY TAKEAWAYS
The birth of KiwiSaver
How do you diversify your risk within the one fund of your KiwiSaver?
Passive vs Active & fees
Is your 3+3 contribution enough?
Born during the Great Recession, or the GFC, whichever Doom-spelled description that you want to use, KiwiSaver has just had its 13th birthday. Happy Birthday KS. What a life! The markets were low and then had the longest bull run, culminating in COVID’s dramatic entrance earlier this year.
Essentially, the market was so strong, all KiwiSaver providers could demonstrate ‘good’ growth = after all a rising tide lifts all boats.
However economic cycles are usually around 7-10 years, not the 13 years of the recent cycle. What happens from this point on? Will those rising stars still shine?
How do you diversify your risk within the one fund of your KiwiSaver?
It is easy to get bamboozled into thinking there are basically three types of fund; low risk (conservative), moderate risk (balanced) and high risk (growth). Your diversification happens within that. Not too much choice. All providers are basically the same, right…? Wrong.
A review by the FMA in 2015 showed that only 3 out of 1000 people with KiwiSaver got advice about their investment. This may have improved a little in the last 5 years, but it is still poor. With the regulatory changes due in March 2021, this lack of client advice will be under the microscope. My issue here is that if clients are not getting advice on the fund decisions they make, that can end up costing them tens of thousands of dollars as they near retirement and potentially exit KiwiSaver.
Just as importantly is people’s requirement for the mix within their fund. Their needs change over time, therefore the asset allocation (between the typical low risk, moderate risk and high risk assets) changes as they get older. If only 3 in 1000 are getting advice, how do they know when or if they should ‘rebalance’ their own portfolio?
Out of the 30 schemes offered to New Zealanders to meet their retirement objectives, only nine have lifecycle options. This type of fund automatically rebalances your allocation as you age, ensuring the best return and fit-for-purpose depending on your stage in life. Of these 9, only one scheme (NZ Funds KiwiSaver Scheme) offers a waterfall asset allocation that ensures clients are rebalanced every twelve months for their lifetime.
Each fund provider will invest in a range of assets and markets. A good financial adviser will help you to understand how diverse that portfolio is, and if that meets your requirements. Remember those eggs? Spread them far and wide. Why? Because as we have recently seen with the COVID market scares, different stocks, assets and markets react to the same information differently.
Passive vs Active & the fees you’ll pay
KiwiSaver is not designed to be short-term speculative investment. You are potentially investing for decades. You will have market Bulls and Bears, economic growth and recessions. Markets and economies are not uniform and ordered.
Passive investing will choose a ‘strategic stock’ or index and hold for three decades, limiting active management, thereby allowing for lower fees, because there is less work to do.
For active managers, the ability to be dynamic within the market and economic conditions allows the manager to respond to changes with speed. They do so while still being focused on the long-term target asset allocations for each fund.
And thus, we have the birth of the KiwiSaver ‘active-passive’ debate.
Many commentators suggest aiming for the lowest fees. And with good reason. Excessive fees can chew up a fair chunk of change when compounded over time. Just going for the lowest fees may sound worthy, but if your diversification is limited, then potentially you are over exposed into certain markets or assets. That means that your eggs are bunched in just a few baskets. Lower fees, yes, higher returns in the short-term as the markets rise, yes, but potentially with long term consequences. However, research generally covered only a 10-year period of the bull market, not the 2-3 decades that most KiwiSaver investors will enjoy.
When I think about financial risk management, there is the upside of course: which baskets are you putting your eggs in, which markets etc. However, what about the downside? We know everything is cyclical, so how do you ‘insure’ against a downturn, such as the one we’ve just experienced? If you are in a passive fund, there is not much that can be done. The index goes up, you smile. The index goes down, you frown. Active management assumes (using the dynamic approach mentioned earlier) that your insurance policy is activated when things go south. In finance that is done with hedging, effectively profiting from price declines. As with any insurance, it costs a premium to take a position of risk.
Suddenly the idea of paying a fee makes a little more sense. You are not just paying for the upside management (and bullish quarterly returns), but you are also paying for the downside risk management, and in fact you are also paying for the ‘insurance’ on that downside, the hedging vehicle. If you have KiwiSaver for 2-3 decades, you are likely to see at least 2-3 downturns. Do you want to have an insurance policy in place for that, or not? Active management of your KiwiSaver can provide that insurance policy.
Ultimately, you get what you pay for. There are several no-frills KiwiSaver funds offering low rates. And that is good. They are servicing part of the market that wants that. There are also other providers that provide solid downside mitigation while actively diversifying your risks across assets, markets and geographies.
Is your 3+3 contribution enough?
My wife and I arrived in NZ from Melbourne in 2004 where we were used to contributing 9% to Superannuation. At the time, NZ did not have KiwiSaver, yet the discussion was already running hot about the pros and cons. I am still baffled by the fact that anyone thinks that 3%+3% will be enough to retire on – 3% from you and another 3% from your employer. The numbers just don’t stack up.
A report by MyFiduciary showed that if you wanted to retire at 70% of your pre-retirement income, you would need to contribute at a rate higher than the default 3% employee and 3% employer rate. This report assumed you still receive National Superannuation at age 65 onwards. [NZFUNDs – Where does the money go? – May 2020]. A challenge right now is that the NZ Government has taken on huge debt in trying to manage their COVID response. This debt is going to put pressure on future governments. Superannuation spending accounts for nearly 40% of the Government’s spending currently. With an aging population, that number is going to become tough to continue.
The retirement commission is known to have said that retirement planning can be thought of as the “three-legged” stool. The ‘legs’ of the stool are Kiwisaver, NZ Super and ‘other’ assets. How does that stool stand if the NZ Super is not there to help in the future? Many people I speak with do not even have ‘other assets’, so now we are left with a one-legged stool for our population’s retirement.
That sounds a little risky.
There are other products that people can use, other managed funds that work as ‘unlocked’ KiwiSaver vehicles. Throw in an additional 3% with one of these investment products and at least you are now you are investing 3%+3%+3% (of which one of these is from your employer) for your retirement. Maybe that 9% isn’t the right choice for you, maybe an unlocked KiwiSaver isn’t right either.
Regardless, seek some investment advice from a professional adviser. Get some knowledge so that you can decide what type of retirement and investing plan you want. Not all KiwiSaver schemes are created equally. Fees and quarterly returns maybe important, however, your long-term financial planning may require a little more thought.

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