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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.

#FinancialWellness

#EmployeeWellness

#MoneyWorkshops

#YourMoneyMatters

#SortYourDosh

#HealthAndWellness

#MoneyWorries

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

Women and Money

Dom Bish — Mon, 11 Apr 2022 02:40:46 +0000

https://bolsterriskmanagement.com/

Women and Money

Recently we had International Women’s Day and the Financial Services Council of New Zealand (FSC) encouraged businesses to promote and discuss women and money in the finance sector. This is important and relevant but is difficult for me to write about as a man without mansplaining (wow the autocorrect saw that as a real word!) and to really get to the heart of the issues.

There is no denying that there are clear discriminations when it comes to women and money and I will discuss these. I actively want to encourage women to have agency over their financial affairs. Read on, let’s see how I do.

Key ideas

“It’s a man’s world”
Facts, more facts and inference
Strong women help women get stronger
Keep It Simple

“It’s a man’s world”

Is it a man’s world? The answer now would be ‘probably’, but times are changing slowly and I believe for the better.

In 2018/19 when I was looking at the financial services industry, I was trying to figure out if I really wanted this as a career. Did I want to learn a new industry, maybe start my own business one day? Did I want to be ‘just’ another insurance salesperson?

I started taking note of the likes of the Financial Services Council of New Zealand (FSC) and Te Ara Hunga Ora Retirement Commission. They were doing some interesting work on financial literacy in NZ. While I was learning the ropes as a financial adviser, I was talking with people from all walks of life. There were people who had large incomes, yet they struggled on a week-by-week basis. There were single mums doing it tough, but showing great resilience and financial awareness. There were people starting out in their twenties showing more financial intelligence than I ever had at their age. The range of financial ‘success’ was vast, yet the majority of people, were struggling.

Many households have both partners working while trying to raise a family. There is pressure on the finances, pressure to do the kids’ homework, pressure to get the kids to sports training, fed, showered, birthday parties… seemingly endless things to do and think about. As a result, there becomes some under-discussed division of labour, where one person gets the kids to sport, while the other does things to keep the household running.

So the last thing many of these people want to do is to spend an hour with me talking about risk, death and disability scenarios. They have even less time to think about who is looking after the money.

Ah… let’s read that again: They have even less time to think about who is looking after the money.

However, in reality, someone, normally one person out of necessity becomes the ‘money person’ of the household.

Whether it is deliberate or by default it is typically the male who takes on this role. This is not always the case but studies have found that often when women hit their fifties and for whatever reason, their husband is no longer around, they are left on their own. It is only then she realises that she doesn’t know anything about her financial position. This is a daunting and scary situation for anyone to be in.

That is why I decided, in the end, to make this industry my career, because I get to help bring about change, in whatever small way, to help everybody understand that your money matters.

Facts, more facts and inference

Social Structures:

The facts do not lie and these highlight that financial literacy is a big component of the ‘personal money management’ challenge, and I’ll discuss that in more detail later. However, there are also structural and societal forces that exist across the cultural divide.

For example, women experience pay inequity in the labour market and tend to be the family members who take time out of the workforce to care for children or older relatives, meaning when it comes time to retire they have less. We know this not just intuitively, but because a study by Te Ara Hunga Ora Retirement Commission has confirmed this.

The same findings also highlighted that women were disproportionally impacted financially by divorce and domestic violence. To top it off, women also bore the brunt of the COVID-19 crisis with higher rates of job losses than men.

None of these issues has anything to do with financial intelligence. Yet is it any wonder that over 8 of 10 women rate their financial wellbeing as being moderate, low or very low? Based on the uncertainties discussed above, is it any surprise that:

Over 6 in 10 women worry about money daily, weekly or monthly
Over 6 in 10 women don’t feel prepared for retirement

You can read the full report here from the Financial Service Council.

Financial Literacy

This comes up again and again that women have significantly lower financial literacy than men. It irks me to write this, because just by typing it, I feel that I am highlighting and labelling the issue even more. Almost as if, the statistics justify the reasons that women should not handle the household money, because statistically, they are less prepared.

That is most definitely not the case. Women have shown that they handle daily budgets far better than their male counterparts. Many studies on micro-credit or microfinance, show women are far more capable than men and are better credit risks.

That all said, the Commission for Financial Capability’s ‘Barometer Survey’ (2020) found:

Women have lower financial knowledge than men; twice as many men as women answered all questions correctly.
Women who have children have lower financial knowledge score than women without children.
Single women with no children have a higher financial knowledge score than women in a relationship.
The gender gap is largest in understanding simple and compound interest.
The gender gap is similar across all ethnic groups.

The financial literacy statistics for women do not look flash and this is only a part of the picture. Unpaid work, the gender pay-gap, low ‘money’ confidence and societal constraints also hinder progress.

Strong women help women get stronger

For a couple of weeks in March, I joined a few webinars about women and money, getting women into the finance sector and this one with Hilary Barry. One of the key takeaways from these sessions was there are strong women taking ownership, being comfortable in their own skin and owning their place in the world. This leads to other women standing up and starting to shine too.

Men and women think and communicate about money matters in varied ways. The FSC highlighted that “institutional trust issues lead to gender gaps in financial risk aversion, spending and saving preferences, further supporting the view that women manage financial risk, spending and saving differently to men.”

Jane Wrightson talking about her work at Te Ara Hunga Ora Retirement Commission (much of the above is drawn from their research), was empowering. Their National Strategy is focused on three audiences; women, Māori and Pacific Peoples. By working together their aim was to demystify money, by using clear and consistent language. It might sound simple, but helping people learn about debt and saving, and understanding that through cultural behaviours and practises is not simple in reality.

The way forward is strong women helping others, leading the charge, not waiting for men to mansplain or direct them and for them to simply just get on with it.

Keep it simple

Things are changing slowly and taking small steps do make a difference. Many good ideas are simple. For a lot of us, trying to go up against institutional conventions and behaviours is daunting. Having open conversations with your spouse about money is a good start.

Creating a time and date in the family diary to have 30 minutes once a month may work well for your family. If you are on your own, don’t be shy with yourself. Face the situation that you are in, get real with where you are at. Then do a bit each day to make a change.

Maybe it is as simple as checking the bank balance daily so that you can track your spending. Or setting up a new account and automatically putting away $5 a week (or whatever you can comfortably afford). It could be reading the blogs of women who have gone through similar experiences as yours, learning how to make small changes in your behaviour. Find a voice that suits you and learn from them.

Having agency over your money is a powerful thing. No matter what position you find yourself in. Whether it be the comfortable ‘home executive’ or the single mum working three jobs, you both need to have a feeling of control. That and patience. Good change takes time.

So, at the risk of sounding like ‘that guy’, I’ll stop now.

#FinancialWellness

#EmployeeWellness

#MoneyWorkshops

#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 Women and Money 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

#MoneyWorkshops

#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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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..

The Basics of Personal Insurance

Dom Bish — Thu, 14 Oct 2021 23:37:22 +0000
https://bolsterriskmanagement.com/

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Who is this article for?
This information article is aimed at helping anyone gain a basic understanding of insurance. Bolster Risk Management deals in ‘personal insurance’.
This means anything that effects the body (such as health, accident and death).
There are other types of insurance, such as boat, car and house insurance.
These are typically known, rather antiquatedly, as ‘fire and general’ cover. This booklet does not deal with these.
Note: this is not a policy document. It’s a basic guide to some of the more relatable insurance issues, the ones we discuss with clients time and again. Always seek advice from a registered adviser if you have any insurance questions.

What can you expect to read?
Common questions and concerns from people like you. We speak to a lot of people – we love to, it’s our job – and the people we speak with all tend to have similar questions and concerns.
These include:

Why do I need insurance?
What will it cost me?
What types are there?
What if the insurer fails?
What if they don’t pay claims!

Why do I need a broker?
What does a broker do?
Who pays the adviser?
Why is it so complicated?

What exactly is insurance?
History
Insurance has been around since the Babylonian traders. Life insurance as a category was not formalised until the first contracts written in the early 1700s. This gave rise to the use of the mortality rate, a measure of the number and causes of deaths. This quickly led to the use of ‘actuaries’, those who look at all possible risks and quantify these risks into possible liabilities.
So, what is it?
Insurance is simply the transfer of risk, from one person (or entity) to another. It is a means of protection from financial loss, or more formerly, risk management. Essentially, you pay a premium to someone else, an organization, usually, so that if a risk event occurs, you are financially covered.
Ok… so, show me how it works…?
A simple way to describe what it is, is to describe what might happen if you had it.
Let’s say that Leon has a family and a mortgage owing $500,000 to the bank. Unfortunately, Leon dies, leaving his wife and family with that debt.
The simple risk = $500,000 to the bank. But what does that mean in practical terms? The bank could foreclose or repossess the house if the family is unable to pay the mortgage repayments.
Therefore, the actual risk = $500,000 and the loss of the family home, a slightly different and, let’s face it, less attractive picture.
The solution: Pay someone else a small amount (a premium to the insurance company), so that in the event of death, the insurance company will give Leon’s wife $500,000. This means the risk has been transferred from Leon to the insurance company for the price of the premium.
Product Types
Broadly, there are five types of personal insurance: Life, Trauma, Income Replacement, Total and Permanent Disability (TPD), and Health and Medical insurance.

Life insurance

Death cover (a lump sum benefit). Some insurers will pay on terminal illness (if you are likely to die within 12 months).

Trauma insurance

Serious illness or accident (lump sum cover). Sometimes known as critical cover (although this is occasionally a ‘skinny’ version of a full trauma product).

Income Replacement: Income Protection

Replaces part of your income because you become too sick or injured to work (monthly paying benefit). This type of benefit is often offset by other income (such as ACC payments).

Income Replacement: Mortgage Protection

Pays most or all your mortgage repayments on a monthly basis because you are too sick or injured to work. This can also be used to replace a portion of your gross income, (can be up to 45%) to help pay rent and other expenses.

Total and Permanent Disability

Never able to work again? This may mean that you cannot work in your current occupation, or you may never work again in any meaningful capacity. It pays you a lump sum benefit.

Health and Medical

For elective treatment (not acute), i.e. it’s for surgery, not a car accident. If you need a shoulder reconstruction or treatment for bowel cancer, you may be able to claim (policy conditions may apply).

What is BMI and how might it effect your personal insurance?
Body Mass Index is a simple tool that helps insurance providers. The index helps the insurance underwriters to assess the ‘risk’ that you might pose them as a policy holder.
A very high (or low) index, may mean that there are underlying health conditions.
Check out the calculator for yourself.

Insurers, brokers and you
Insurers
Each insurer has an array different features and benefits for their various products, themselves too numerous and complex to try and distinguish them here. The products categories above are a simplified and generic view, and a method of segmenting them for future discussion. Part of a good adviser’s role is to make sure that the product selected for you matches your situation.
QuoteMonster™, an independent quoting platform that some financial advisers use for insurance, suggests that there are over 20,000 product variations in New Zealand alone. This obviously makes it extremely difficult for the general public, people like you, to navigate through all these variations and product differences.

Brokers, insurance agents, advisors
The purpose of a good financial adviser is to guide you through the process of making the purchasing decision. However, it doesn’t (and shouldn’t) end there. As a lifetime client, that adviser will be there to help you and your family on an ongoing basis, as little or as much as you need them. They can assist you to make claims, to ensure that you get the benefits that you have been paying for, and to review your product choices. The broker is your advocate.
They sell on behalf of the insurer, they help you purchase the products and benefits that suit your requirements, and then they assist your claims if (and when) they occur.
The agents are paid a commission from the insurance companies.
Price, Cost & Premiums
The primary question people ask
How much will it cost?
With so many product variations, the price is difficult to determine. It is not like buying a tin of beans. On top of the varieties of different products, a number of other factors feed into the final cost of premiums. We can, at least, outline what those are.
Below is a list of some of the key factors that influence the price of cover:

What is the total sum insured?
Age of the person insured
Gender – yes, different prices between menand women, determined by risk factors
Smoker or not (including vape & e- cigarettes)

CPI (consumer price index)
Underlying cost of the product, as determinedby each company
Certain pre-existing conditions mayincrease the premium. This will show in the Offer of Terms from the insurer
Weight. Excessive BMI (body Mass Index) willattract higher premiums

For monthly-paying benefits such as income protection and mortgage repayment insurance, there are often additional factors to consider, such as:
How quickly does the insurer start paying?
How long does the insurer pay for?
Are any additional add-ons and benefits applied to the cover

Read this article to get a better understanding of how the premiums are determined.

What if….?
A question that comes up quite often is, “what happens if the insurer fails?”
While there is not a specific guarantee on insurance companies, there are several factors to consider. Each is financially rated with a reputable agency (such as Standard & Poors). The insurance industry is regulated under the Reserve Bank (RBNZ) and the Financial Markets Authority (FMA). From a market perspective, if a company was running into difficulty, it is highly likely that the asset book (all the policies) would be sold to another insurer. The net effect on the policyholders would likely be negligible.
The insurance companies try to avoid paying claims… don’t they?
It is in the interests of insurance companies to pay claims. If they don’t, then people will stop buying their insurance, brokers will stop recommending their products and the company will become less than competitive. The top insurers make a point of telling everyone exactly how much they payout each year, to whom and why.
Most companies will pay around 90-95% of all claims made. Those that are not paid are normally due to the claim not being eligible in the first place. On rare occasions, claims are not paid due to fraud, i.e. claimants trying to claim when they are deliberately misleading the insurer.
Why do I really need insurance..?
The best explanation…
Maybe you don’t need insurance..!
If you don’t have responsibilities to anyone, if your income is fully secure for the next 30-40 years through to retirement and beyond and if you are totally debt-free, then you may not need insurance. For everyone else (!) talk to your adviser to find out more.
We hope this introduction to basic insurance products and concepts was useful. To finish, a little clarification around some common insurance terms.

Keep it simple
A brief explanation of a few terms…

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

The top 8 Mistakes …when buying insurance

Dom Bish — Thu, 14 Oct 2021 22:56:50 +0000
https://bolsterriskmanagement.com/

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Not that thrilling…
…but utterly critical. No one will argue that insurance is super-exciting, and a list entitled “ways to spend my money other than on insurance” would be a long one indeed. But, simply put: insurance is an integral part of any financial plan. Because? Because the risks of not carrying insurance are simply too great.
But where do you start? It’s easy to make mistakes when buying insurance coverage – especially if you’re a bit new to all this – mistakes that can result in the loss of your assets or create an unnecessary burden on your monthly expenses. And we’ll be direct here: if you die unexpectedly, and you do not have your financial affairs in order, that burden becomes your family’s.
Taking the time to think through your requirements now, will save many weeks, months and sometimes years of pain, in the future. We reckon that’s reason enough to start a discussion. So that’s what we’re doing, beginning with a few simple bits of information that can really help you avoid those pitfalls, come up smiling and say, didn’t I do well? Yes, you did!
Many of these mistakes we discuss below may be applied across all insurance types. However, the focus here is on personal insurance, such as life, trauma, and disability cover.
Avoid these common mistakes when you’re shopping for insurance:

1. Failing to Shop Around
Companies use a bunch of different equations and calculations to determine client premiums. Some insurers will have more faith in someone of your demographic and risk profile than others. Shop around before you make a decision. It might be the most lucrative time you spend this year. With personal insurance, there are many options to consider. Use a registered financial adviser, who can look at different companies on your behalf, to guide you through that process.

2. Ignoring the importance of long-term care or disability insurance
This type of policy can take a significant bite out of your finances, but it is insurance that most people eventually need. Long-term care is expensive, but crucial. If your budget is limited (and that’s most of us) it’s possible to limit the policy to a two or five-year period to cut your premium.
3. Purchasing an inadequate amount of insurance – or too much
There are some old-school brokers still around who will encourage you to buy perhaps more cover than you should. Sometimes they’re right – bitter experience tells us that purchasing too little coverage is a bigger mistake than purchasing too much. However, purchasing too much will result in a larger expense than necessary. So, what do I do?! Exactly. A good financial adviser will help you find the sweet spot.
4. Unknowingly leaving some financial risks uninsured
Covering your debt and income are two obvious risks to insure. However, what are the future needs of you and your family? Do you have risks that might not be covered? It’s important to ensure that you have at least considered all worst-case scenarios, so that you have comfort in what is covered.
5. Not Updating Coverage
Everyone’s needs change over time. Your insurance coverage should change over time, too. Companies can also change their pricing structure. A “great deal” this year might not be as competitive next year. Re-evaluate your needs annually and after any major life event.

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The calculator will then tell you your net wealth.
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6. Choosing a low premium structure for your risk strategy
Choosing to “share the risk” with the insurance company is a great way of minimising your monthly costs. However, be sure that you have a financial ‘buffer’ at hand, so that when that unfortunate event does happen, you are not left short. Any savings that you make on the premium should be added into your emergency savings account so that you can be prepared.
7. Buying coverage without background checking the provider
A quick internet reference check can save you a lot of grief. While you’ll always have to filter “review” information, if there are a lot of complaints regarding refused claims or slow response on an insurer you’re looking at, look somewhere else. Lowest price isn’t always the best option, and price shouldn’t be the only factor you take into consideration when buying. Do your homework. Again, this is something that a good financial adviser should be able to help you with.
8. Check your adviser’s motivations
While there are, in the majority, highly ethical agents that would never sell an unnecessary policy, many insurance brokers are focused on the bottom line. Their bottom line. Double-check the information and advice that your agent provides. Use an agent that you can trust, especially one that you think is in for a long-term client relationship. To be fair, in New Zealand, the recent regulations from the FMA (Financial Markets Authority) are rightly making it harder for the ‘quick-sell, slick insurance’ transactions to take place, ensuring the key focus is on developing the client relationships.

Some final thoughts
The thought of insurance can be daunting, and going through it in detail can seem confusing. But insurance provides you with fundamental, critical security. Most of us simply don’t have the financial resources to replace our home or our car, or pay large medical bills when unexpected events strike.
Insurance is a way of protecting your assets and your future.
Insurance coverage will take a portion of your monthly income – and you can decide what that proportion is – but it really is money well spent. How much it costs depends on individual circumstances.
In Australia and New Zealand, we know that many policies will cost 3-6% of the gross household income. This is not a hard and fast rule, but it does give you an indication and benchmark for financial security. Without that security, it is very difficult to plan effectively for the future, especially for retirement. If you have to spend years recovering from a financial loss due to sickness or ill health, those years are compromising, not enhancing your retirement.
And we think that’s reason enough to have “that insurance conversation.” Talk to us, or your financial adviser; we’re here to help.

The post The top 8 Mistakes …when buying insurance first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

15 Tips for Finding a Good Life Insurance Adviser

Dom Bish — Thu, 14 Oct 2021 02:52:40 +0000
https://bolsterriskmanagement.com/

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What does “good” look like?
If you’ve heard that a good life insurance adviser is hard to find, you may well be right. Yet the vast majority of people living in New Zealand will, at some point, need to purchase life insurance. And when it comes to buying something that’s so critical to the lives and protection of your family members, you definitely need the right person to guide you through the process. And, ideally, be in for the long haul.
So how do you find an exceptional insurance agent? Will you know even one when you meet one? What you need is a life insurance agent, (or financial adviser or insurance broker) that will inform you clearly and without bias about the myriad products available and will honestly advise you regarding how much life insurance you will need.

We’ve put together a quickfire checklist that will help get you thinking and can start the conversation. Have a read below to find the 15 tips for finding a good life insurance adviser.

1. Ask Around
Talk to friends and family about their advisers. Word of mouth is still one of the best methods of finding a quality professional. But ask the right questions – what do they like about their adviser?
Why do they trust them? Do they think they’d be the right fit for you? Inquire as to whether they have any concerns regarding their agents’ ability to assist you.

2. Check the staff
When you first make contact with an adviser, you’ll probably speak to the agent’s office staff. How well did the staff member respond to your questions? Did they seem professional and resolve your requests in a timely way? A good adviser will have competent office staff.

3. Shop Around
Talk to 2 or 3 financial advisers. This way, you can do some comparisons and narrow your focus to the agent you prefer to work with. Plus, you’ll want to take the opportunity to find out about their credentials and work histories, which will help you to rule in or out specific agents. Pay special attention to each agent’s diligence in responding to your questions.

4. Check their Experience
Ask some questions around their background. How long have they been selling insurance? Have they worked for other companies or brokers? Gather as much information about the agent’s work history as possible, and think about what else is relevant for your decision.

We have plenty of tools and calculators to help.
It can be hard to figure out how much cover to get.
This simple tool is a step in the right direction. It won’t have all the answers, but you’ll have a much greater understanding of what you should be thinking about.
This tool will allow you to have a better chat with your financial adviser.

5. Check the financial adviser’s registration
In New Zealand, every financial adviser must be registered with the Financial Services Provider Register with the Companies Office. If you cannot find your adviser there – do not use them! New laws have come into force that tightens the definition of financial advice further in favour of clients and the public. There is more compliance for your financial adviser than there is for your accountant!
6. Favour Independence
Focus on obtaining an independent insurance agent. This type of financial adviser can sell a variety of insurance products from numerous providers. This is to your advantage. To explain: if you make contact with a specific insurance company and work with one of their agents, then the only type of policy that agent can sell is one of that particular company’s. However, with an independent agent, you’ll be offered a wider selection of insurance products with a better likelihood of finding one to fit your specific needs. The more insurance companies that the financial adviser interfaces with, the better the chance that they’ll be able to find a policy that fits you and your needs – and your budget – like the proverbial glove.

7. Trust Your Instinct
If an agent says right off the bat that they have the “perfect” policy for you, be suspicious. Finding the right policy takes some quality Q & A time between you and the adviser, so that they have a real understanding of what you need – and what you don’t. And don’t let them push that “perfect” product on you: the final decision will be yours to make.
8. What’s that??
Make sure they know how to listen. If they start pressuring you to head in a certain direction or focus on a certain product, they haven’t been listening, deliberately or otherwise. Vote with your feet and move on. An effective adviser listens and is attentive; they don’t get to do all the talking.
9. Takes Time to Get to Know You
A good adviser is one that will sit down and really focus on your financial needs, your deal-breakers and must-haves. His or her recommendations must be solutions that work well with your own personal circumstances and your situation.
10. Is Responsive
How quickly did they return your calls? Whenever you have questions or comments about an insurance policy or claim, a quality agent should call you back (or email a response) within 24 hours if they were unavailable when you called. You should be that important to them.

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11. The Adviser Combo: Tact, Understanding and Knowledge
An effective adviser understands where you’re coming from. They’ll listen to you and then present you with facts and examples that provide clarity regarding the insurance you’re looking for, information that helps allow you to make an informed decision.
12. The Adviser Combo II: Honest and Impartial
There is no such thing as a dream product. Everything has benefits, and some will have shortcomings. A good, fair, and smart adviser will tell you about any downsides as well as the benefits of the policy. Their advice will not be biased, and they will recommend products that suit your needs (not theirs). This is especially relevant if you are changing your policy from a particular provider or modifying your risk management strategy.
13. Has general legal and tax knowledge
A good agent should be able to explain to you the general legal and tax implications of a policy. Specific legal and tax knowledge, however, should still be directed to your lawyer or accountant.
14. Is friendly!
There’s a thought! It’s a serious business, but an approachable manner is critical. You’re going to like dealing with someone that you’re going to like dealing with! A competent agent will have a smile on their face and openly chat with you.
15. And not pushy
The days of white shoes and “close the sale” are long gone. You should never feel pressured; you should always feel comfortable.

When you’re seeking an insurance broker you can trust, look for these characteristics. Trust your own instincts about whether someone is the right financial adviser for you. With a little background work, you’ll find an engaging, professional and knowledgeable agent whose focus is to fulfil your insurance needs. Your objective is to protect your most precious assets and find the perfect life insurance to protect your family’s future. Choosing your adviser is the first step.

The post 15 Tips for Finding a Good Life Insurance Adviser first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

Money, Stress & Wellbeing

Dom Bish — Mon, 16 Aug 2021 02:38:42 +0000
https://bolsterriskmanagement.com/

Money stress & Wellbeing

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Last week was Money Week in New Zealand. It is a good time to talk about financial wellness, resilience and financial mental health. It has huge impact on individuals, families and communities. It also impacts on business. Productivity, absenteeism and revenue are all directly and indirectly affected by the financial wellness of your team. If your team are busy thinking about how to pay the bills, they are not thinking effectively about their job performance.
Key points:
The state of our nation (in terms of personal finance)
Presenteeism is even worse than absenteeism
Is the ROI of Employee Assistance Programmes worth it? (Spoiler – yes, up to 12x)

The State of the nation:
I say quite often that personal money is personal. And it is. Yet… Because it is so personal, there are unseen barriers for people who may need help. Some of these barriers will be people thinking that they can ‘sort it themselves’, and then they do nothing until it gets too bad. Sometimes the obstacle is pride, not wanting to ask for help, that it may appear a sign of abject failure. Needing to ask someone’s advice on how to manage our money can feel humiliating.
It may be that boss isn’t inviting these discussions openly enough, most likely, because they are unsure how to approach the topic with their team.
What seems apparent from the research, is that money worries are not really discussed at work. And if they are, they are certainly not discussed with the boss – not at least until it is too late. It can be difficult trying to explain that you took a sick day because you didn’t have enough money to buy fuel to get you to work (yes, I’ve heard that one before).
There are plenty of studies that are coming out now, relative to New Zealand. I talk quite often of the Financial Services Council. They regularly survey Kiwi’s to gauge financial literacy and their sense of ‘wellbeing’ with regards to money.
Some findings in their Resilience Index – May 2021 are quite startling though not unsurprising:
56% of people are financially unprepared for retirement (and yet… it is even worse…)
21% have no household investments
29% have less than $50k
21% have $50k-150k
This group alone makes up 70% of the people surveyed.
So for perspective, 70% of people have less than $150,000 in preparation for retirement. At a time when we are living longer, and ‘retirement’ maybe for decades.
56% of people have financial issues which affect their wellbeing
40% financial issues that adversely affect PHYSICAL health
54% financial issues which adversely affect Mental health
51% financial issues that adversely affect Relationships with family & Friends

When taking these results and looking at the demographics, it shows that it is tough for anyone in the mid-thirties or younger. Just looking at those who worry daily or weekly about money:
57% Generation Y (<37years old)
8% Generation X (38-52 years old)
1% Boomers (52-72 years old)
8% Pre-Boomers (>73 years old)

Te Ara Ahunga Ora (or The Retirement Commission), also publish interest data on the impact of financial stress on relationships. This is where we start to see the impacts of this type of stress in a much wider context.

19% of people (1 in 5) have interpersonal relationship problems due to financial concerns
While those with little or no income (under $10,000 per annum) were most likely to experience financially driven interpersonal problems (28%),
high income did not protect from money conflicts – 21% of those earning $150,000 to $200,000 reported financially-driven inter-personal problems.

Other groups with high rates of interpersonal issues due to financial stress included respondents:
who had children aged 0-4 years (27%),
Māori (27%),
Pacific Peoples (28%)
those renting (25%).

In their 2020 report, the gender gap in terms of financial knowledge is very noticeable and across all ethnicities.
Women have lower financial knowledge than men; twice as many men as women answered all questions correctly.
Women who have children have lower financial knowledge score than women without children,
single women with no children have a higher financial knowledge score than women in a relationship
The gender gap is largest for those in understanding simple and compound interest.

This observation about simple interest and compound interest has come up before in the research from the Financial Services Council. It is significant, because long term investing, KiwiSaver and debt all rely on using interest calculations. Combating the lack of understanding in this single area could have dramatic social benefits.
This is especially relevant when the 2021 survey showed that “Women are, on average, better than men in a range of financial capabilities related to day-to-day money management”. Giving women access to better education and guidance around compound interest, could positively improve the net results of these surveys over time.

Presenteeism is even worse than absenteeism
The New Zealand Institute of Economic Research (NZIER), was commissioned by Xero to look at wellbeing and productivity at work. The findings mirror others, which all demonstrate that productivity is negatively impacted by low wellbeing and high stress.
Presenteeism is when health, including mental health, affects or prevents an employee’s ability to perform adequately while at work. The headline point showed that 80% of lost productivity is due to people still working but at reduced capacity. Additionally:
Performance decreases as the severity of mental health increases.
The effect on co-workers and management of having to fill in for or manage impaired workers
the effect of depression and mental health impairment was a decrease in productivity of between 6.6 % and 10.1 %
the average loss in productivity due to mental wellbeing challenges was 22 hours per week.
Productivity loss due to presenteeism 6.6%-36.4% for impaired Mental Wellbeing

For absenteeism, there is up to a 20% productivity loss, with absenteeism costing a range between 1.4 and 2.6 days per year to the business.
Southern Cross and BusinessNZ ran a workplace survey in 2019 that showed that when the average number of days lost, is projected across the New Zealand workforce, 7.4 million working days are lost due to absence. Each employee’s absence may cost the employer $600 to $1000 a year.

Is the ROI of Employee Assistance Programmes worth it?

There are a range of initiatives and programmes that companies and employers can use. The big question though is, what is the pay-off, or the return. Some will obviously help their staff, because they have the budget and the culture that makes it easier to run employee benefits. Other managers and leaders may need some more convincing.

When times are good, it is easier to open the company coffers, but when times are heading for trouble, ‘excess spending’ can seem superfluous to the business plan.

How then can you justify allocating budget to employee programmes? Even when you know that absenteeism might be costing your firm up to $1,000 (as above).

Change in employee wellness doesn’t have to be massive and extreme. Changing financial wellness can happen when employees feel they have more control. It happens when they feel like there are some support mechanisms in place, should the worst happen. People link financial decisions to their values. Employers can help to instigate this change quite often for very marginal costs.

The Commission for Financial Capability (or the Retirement Commission) has also studied how to bring about behavioural change. In this context, behavioural change happens when:

People who felt out of control realise they have the power

People realise they can do something small and achieve a big result

People learn something they absolutely believed to be true, is not true

People get the support to overcome the fear and anxiety and to face their finances

People link financial decisions to their values

People see an implementation that works for them

People realise they are not alone in their situation

This assistance may be in the form of coaching & workshops, resilience training and education about financial wellbeing.

Deloitte looked at the mental health of employees and discovered that for every $1 spent to help the mental health of employees, $5 dollars are returned. Spring.kiwi suggest this ROI may be as high 1:12. “Financial wellbeing is about giving people choices. It’s having the skills, knowledge, confidence, and motivation to make informed financial decisions”.

Te Ara Ahunga Ora say, “supporting and managing the wellbeing of employees is beneficial for the productive output of the business they work for and critical to lift the real wages that drive economic wellbeing in New Zealand”.

There should no longer be a debate about the ROI on helping employees. Happy, healthy employees are more productive. It can take huge courage to raise a hand and ask for help. How about making that whole process easier? Give people the tools they need to take control over their finances. Yes, money is personal. But that doesn’t mean we should abdicate our responsibility to empower people to learn and use simple tools to help change their life, in a meaningful way. Teaching a person to fish is a far better method of helping NZ Inc improve our productive output.

#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 Money, Stress & Wellbeing first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

MONEY: Buckets & Automation

Dom Bish — Mon, 02 Aug 2021 04:34:09 +0000
https://bolsterriskmanagement.com/

MONEY: BUCKETS & AUTOMATION

It is easy to think that good money management is all about numbers and spreadsheets. Honestly, that is only about 10% of the whole gig. The rest, yes all the rest, is made up with our behaviours and attitudes around money. How do I know? I’ve been there in the worst of times.
If you have been following me for a while, you’ll know that I really believe everyone can change their financial position. It may take a while and it may be hard work at times. But there are some key concepts that could change your life.
We know many people struggle with basic money behaviours. There are many books, articles and podcasts from many sources that can help you. Here are a few…
Common themes from the reading list below:
Split your income & automate what you can
Live within your means & save what you can
Get advice & set your money to work for you

Barefoot Investor – Scott Pape
The ‘Aussie guy next door’, yes, Australian, but close enough to home to make it relevant to the New Zealand market. The basic concepts are the same throughout other books and guides. Split up your money into separate amounts, create automatic transfers so that you don’t even have to think about it, then get on with living life. Small actions repeated consistently can create massive change (this is a central theme in personal finance).
Use ‘3 buckets’; Blow, Mojo and Grow
In the Blow account, split your after-tax income across a few accounts*.
·        60% for essential expenses
·        20% for additional debt repayments
·        10% for fun money (Splurge)
·        10% for long term goals (family holiday, car, new curtains)
[*if these percentages don’t work for, don’t worry, split your money in a way that works for you]
The Mojo bucket is a spare lump of money tucked away, that can be called on in an emergency. Some people talk about 3-6 months of expenses, Pape suggests starting with around $2,000 (if you can). It helps when the water heater starts leaking, or the car needs new tyres – those unexpected costs. You have a lump of money that takes the stress out of the situation.
Grow, is basically using your KiwiSaver, increasing your contributions and/or investing in low-cost index funds.

Automatic Millionaire – David Bach
We meet ‘Jim and Sue’ who teach the English financial adviser a thing or two.
You don’t need have to earn a lot of money to be rich
You don’t need discipline
You don’t need to be your own boss
You can build a fortune on a few dollars a day
The rich get rich because they pay themselves first
Above, you need to automate as much as you can
A key theme for Jim and Sue is “If we didn’t have enough cash to buy something, we didn’t buy it”.
And the ‘automatic’ bit…? If you don’t have to think about your actions, you won’t change or stop what you are doing ‘for something better’. So remove the temptation – “protect yourself from yourself”. Automate your spending so that you forget that you are even doing it. This is key.

Focal Point – Brian Tracy
Not usually known for his money advice, Brian is prolific writer and teacher of small business success, distilling complex ideas into easy-to-digest concepts. Focal Point is a case in point. Tracy only devotes 13 pages to money with his opening sentence starting with this: “Money is like food. When you have enough of it you don’t think about it at all. But when you are deprived of it for any period of time, you think of nothing else.”
Examine every purchase before you make it. Delay it if you can. Put off making the purchase, perhaps you will change your mind and forego the expense entirely
Set clear goals and targets for the amount you intend to earn and keep. Measure the results against these – ‘what gets measured gets done’
Look for ways to reduce your monthly expenditure, save the money instead. Cut out as many non-essential expenses as possible.
Take all opportunities to increase your value and earning ability. Upgrade your knowledge and skills. Do more, be more.

The Richest Man in Babylon – George S. Clason
This small book sets out a nice narrative showing people how to build and protect wealth. There are two overlapping themes in the book “Seven Cures for a Lean Purse” and “Five Laws of Gold’. It is an old classic by George S. Clason from 1926 that helps to cement the idea that wealth must be grown from the inside first. We need to develop ourselves so that we become ‘worthy’ of the wealth we ultimately receive. The two themes can be summarised as below.
Pay yourself first – i.e. save at least 10% of your income.
Live within your means.
Put your money to work.
Keep your money safe.
Insure your future income.
Improve your skills to earn more.

Cashflow Quadrant – Robert Kyosaki
This book changed my life. Two decades ago, I didn’t know anything about money until I read this book.
The flow of money, as an employee versus an investor (who controls the flow?)
How to read a financial statement
Pay your self first, before everyone takes their cut (notice a common theme here?)
Change your thinking (rich dad/poor dad) to change your behaviours

Your Money Matters – Dominic Bish
Recently I wrote a short book and developed a 7-Day online course “Your Money Matters”.
Understand General Concepts
Automate Behaviours
Protect against Risk
Find Value in retirement
Build Wealth
Get Advice
Take Action
There are plenty of common themes and concepts with the previous books. You need to understand the basics of money, even just some of the language around money, to give you a fighting chance. Behaviours are crucial to how we do everything. It stands to reason that behaviours impact how we deal with money. One solution – automate as much as possible so that our behaviours do not sabotage our efforts.
Protect against risk is the same as ‘keeping your money safe’. Pape talks about protecting your income earning ability. Without your income life gets tough. You can get affordable insurance for that.
Retirement planning and wealth creation may appear to be the same thing, and they might be for you. But, they may also have different timeframes, different requirements and therefore require different instruments and methodologies. Essentially they require slightly different investments plans.
Getting advice is crucial. You don’t need to wait until you have $1m before you get advice. If you get advice on which phone to buy, or what Burger Fuel burger is best, why not get advice on your money? If you go to the doctor because you know you need some help, why not get some financial help from a professional. Would you lay a brick wall if you’re not a brick layer? Would you pull your own teeth if you’re not a dentist?
Take action – this is where the rubber meets the road. You will need to do something. Start with an idea of how things might be better. Then use some of the concepts above to help your journey. You could even follow some of the links and read the books mentioned. Change your thinking and you change your life – trust me, I know this first-hand.

There are other authors, but for brevity I cannot show all of them, Mary Holm and Martin Hawes are homegrown Kiwis for instance, and have a range of good books covering all things personal money.
What ever you do, if you are not where you want to be financially, you are not alone. If nothing else, make a start, do something. Ask for help; chat with me or another professional. Look through a book or article, do a course, listen to a podcast.
It might change your life.

If reading is not your thing...

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 MONEY: Buckets & Automation first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..