Tag Archives | Investing

Playing safe might hurt in the future

Wye Creek038

 

Tom Hartmann, resident blogger at sorted.org.nz , recently posted about comparative risks in investment decisions. Specifically he looked at the classic ‘now risk’ vs ‘later risk’, or how “taking greater risks now means reducing them later, and vice versa: taking too small a risk now means it will loom larger down the line.”

With KiwiSaver, fund managers present these risks in different investment profiles from which the investor can choose to suit his or her preference. So growth assets like shares and property typically have greater returns in the long run but tend to have more volatility along the way than income assets like bonds or cash.

But for many investors the greater ‘now risk’ in the short term is outweighed by the ‘later risk’ of not having enough to reach their investment goals.

As Hartmann concludes: “Most of us have an allergy to risk – we naturally tend to put it off for the future. Somehow we need to overcome that.”

A discussion with us about your investment goals and our recommendations on how best to achieve them is a good place to start.

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Video

Video : Strategy Update – A US Led Recovery

Bernard Doyle, head of JBWere Investment Strategy, presents a high level investment strategy update for investors. For now, they see a US led recovery continuing and remain overweight equities. However they believe that we are now in a low return world, in the late stages of the equity market recovery, and they expect, by the end of this year, to have a more neutral allocation to equities. It also covers global earnings and valuations, stabilisation of world growth, China and Europe and tactical asset allocation. Well worth a watch, click on the image below.

Strategy Update JBWere Screenshot

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Do you know what type of Kiwisaver you are in?

CaptureEvery New Zealander under retirement age should be a part of this scheme and now over 2.1 million Kiwis are. There are a number of great benefits to being involved in Kiwisaver that mean it makes sense for most people. Both employers and the government contribute or provide tax breaks in addition to your own money saved. It gives New Zealanders exposure to productive asset classes outside of term deposits and residential property which generally make up a disproportionate slice of their net wealth.

So it was disturbing to read that, according to a survey done by ANZ Bank, a third of Kiwisavers do not know what type of fund they are invested in. This means that they do not know whether they are invested in a conservative, balanced or growth fund. So a retiree could be riding the waves of a growth portfolio whilst a recent graduate could have all their saving in fixed interest and cash. In addition to this the default funds are generally very conservative and so investors, and the country in general, will be missing out on long term retirement investment return which could make a huge difference to the standard of living of retirees in the future. A much better approach would be to have the default approach being based on the age of the investor (younger = aggressive, older = conservative) so that the risk and the returns will be more appropriate rather than all conservative. This approach was unfortunately recently rejected in a review of Kiwisaver so we are back to default being very conservative. This means investors need to be proactive about ensuring they are in an appropriate type of kiwisaver for their situation.

If this raises any questions for you regarding Kiwisaver or the scheme you are in then please get in touch via  our contact page as we can provide some advice in this area if need be.

 

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Buffets Rules for Retirement Investing

Capture40 years ago investment guru Warren Buffett wrote a letter to Katharine Graham  the legendary head of the Washington Post newspaper outlining his key strategies for managing retirement investments. This letter which is available here (http://bit.ly/19R4nWk) is remarkably still very relevant today for those looking at their retirement savings. Some of the most interesting point are as follows:

  • Think of retirement need in terms of actual goods, ie 1000 hamburgers per month. Because the price of hamburgers will almost definitely go up with inflation so the amount of capital that is required to fund retirement a long way in the future is unknown so you need to be sure that you save and grow your investments enough.
  • Buy businesses not stocks: this is a Buffet golden rule as he looks purely at the share you are buying as a slice of a business and not as a speculative investment so you need to be happy with the business and have good information about it.
  • Fixed income investments are not enough for building a retirement portfolio as inflation is a problem that will eat into the value of investors capital over time. Also if you are too conservative early on in your investing career you may not grow your fund enough to live off a conservatively placed asset allocation later in life.
  • Get tough and handle volatility: Buffett acknowledges that markets “may bounce widely and irrationally” but that we should remember that the investment timeframe for retirement income is perhaps 10 or 20 years and that investors should not get too easily distracted by short term fluctuations.
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Growth in the Decade Ahead

Jim O’Neill, the chairman of Goldman Sachs Asset Management, made some interesting comments regarding the sources of growth for the global economy over the next decade in a recent Viewpoint article (http://bit.ly/U1T2KE).

“…to emphasize the relative importance of regions for just this second decade of the century, let me repeat something key from our economic assumptions that I occasionally refer to. We are assuming that the eight economies we define as “Growth Economies” – Brazil, Russia, India, China, Indonesia, South Korea, Mexico and Turkey – will contribute around $15 trillion in real terms to the world this decade. This contribution will allow for faster, yes faster global GDP growth of around 4.2% than for each of the past three decades. Of this $15 trillion, one-half will come from China, and another quarter of the total will come from the other Asian Growth Economies. This $15 trillion total will be more than twice that of Europe and the US combined. The Next 11 (N-11) economies, which as well as including South Korea and Indonesia, include another four Asian economies – Bangladesh, Pakistan, the Philippines and Vietnam – will contribute nearly as much as the G7 and more than either the US or Europe.”

So Goldman Sachs is assuming greater growth overall this decade for the world’s economy than for any of the last three decades. This is particularly positive when investors consider the whereabouts of those areas of major growth as over half of total growth will come out of Asia. This ought to be structurally supportive for economies such as New Zealand and Australia who are geographically close and have goods and services which those economies should demand.

 

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