Are you investing intelligently? Do you know how much capital you need to generate the income you’ll want for a comfortable retirement? How you will achieve that figure? And will your capital last the distance?
Most Kiwis have a “she’ll be right” attitude to their finances and figure that when the time comes they can sell down the family home, move into something smaller, and live off the proceeds.
Another mistake Kiwi’s make is to withdraw from their KiwiSaver schemes and put those funds in term deposits and interest bearing bank accounts. A decade ago that meant 8.5 per cent returns, while now it means 3-4 per cent. This equates to a 60 per cent pay cut. This pay cut means you’ll have to use more of your capital sooner so it is going to get eaten up faster, says Stephen Jonas, Head of Client Services at Craigs Investment Partners.
Worrying trends for retirement security
There are three worrying trends amongst retired Kiwi investors:
- the emphasis on depositing all their capital with the banks;
- a last minute stretch of income by taking on greater risk; and
- a fear of seeking advice.
Cash in the bank: Holding cash in bank term deposits and savings accounts is seen as “safe”. Although you may not lose your money, the reality is cash in the bank only keeps pace with inflation. History shows that $1,000 saved in the bank since 1992 would be worth $2,679 today, compared to $11,109 had the same amount been invested into shares. If you are drawing an income at an excess of the interest, then your capital is slowly reducing. A better way of making your funds last is to invest a portion of your money in assets that grow faster than inflation.
Last minute stretch for large returns: When retirees see their capital dwindling there can be a real risk that they “stretch for income”. That means investing their remaining capital in riskier investments in the hope of earning more. This is a dangerous strategy that could be avoided by investing wisely earlier on, or taking a longer term investing outlook.
Fear of seeking advice: Too often Kiwis fail to develop a plan for their money. Most Kiwis fail to plan to build sufficient capital for retirement, then fail to plan for the inevitable ups and downs of economies and markets once retired, says Jonas. Many Kiwis seem to fear seeking financial advice: they believe they don’t have sufficient money to invest, fear they will be sold something they don’t need, while some simply fear having to face the reality of their situation.
Engaging an Investment Adviser is a bit like going to the doctor or dentist. The sooner you seek the advice, the better the outcome. “We suggest you engage a qualified Investment Adviser to look at all your assets and help you understand how you can best structure your investments.” says Jonas. “It will cost you nothing to discuss your initial needs with an investment adviser, to consider your investment objectives and risk profile, and then have the Adviser recommend a suitable investment strategy, balancing risks with return.” It’s an Advisers job to overcome our behavioural biases and impartially assess your personal financial position. “While clients are ultimately in control, an Adviser’s role is to understand a client’s needs, draw on resources and recommend an investment strategy.” says Jonas.
The value-add of research
Craigs Investment Partners Advisers have one of New Zealand’s largest research teams behind them. “We believe the quality of our research is a key point of difference, and the recommendations you receive are founded on in-depth market analysis.” Jonas says.
Related articles and videos:
- Sitting Pretty. How empty-nesters can retire asset rich and cash rich.
- Hidden risks of stretch for income & drift for growth.
- Sector diversification matters too.
- Diversification. Why it matters when building an investment portfolio.
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Craigs Investment Partners Limited is an NZX Participant Firm. Stephen Jonas is Head of Client Services at Craigs Investment Partners; Adviser Disclosure Statements and Product Disclosure Statements are available on request and free of charge. Please visit Craigsip.com for more information. This information is general information only and Craigs Investment Partners Limited has not taken into account the investment objectives, financial situation or particular needs of any particular person. Investments are subject to risk and are not guaranteed. Before making any investment decisions, Craigs Investment Partners recommends you contact your investment adviser. Neither Craigs Investment Partners do not accept liability for the results of any actions taken or not taken upon the basis of this information.