Scams. The more your know, the less they grow
With scams on the rise, there has never been a more important time to be alert.*
Make Money Work for You
The best way to protect yourself is to know what to look out for. Here are some of the tricks that scammers are using right now:
Cloned investment companies and pension scams
Not everyone is who they say they are. Any company, even a big company, can be cloned so that documents and websites look like the real thing. They may try to tempt you with a new investment or suggest you move money from an existing investment or pension. Scammers do their research on you so they sound even more convincing.
To check if they are who they say they are, go to the New Zealand Companies Office website and search the company and look for any warnings. If they’re genuine, you can then contact the company in confidence using the genuine details. If you’re still unsure, speak to someone you trust or your financial adviser.
Email, text and phone scams
Emails, text and even phone numbers can be made to look like they’re from companies you’re already dealing with. They may ask for account details or remote access to your computer. If you’ve been contacted unexpectedly, always treat it as suspicious and avoid clicking on links. To be completely sure, call the company on a trusted number you’ve found online.
Cold calling and doorstep scams
People may ring you up or knock at your door pretending to be from a well-known organisation – even from your bank or the police. They may scare you into thinking your money is at risk. If anyone contacts you asking you to withdraw cash or hand over your bank details and PINs, put the phone down or close the door.
Rogue tradespeople may also call at your door saying they’ve noticed that something needs fixing on your house. Never hand over money following a cold call – do your research first.
Latest Scam – voicemail texts
Text messages are being sent by scammers all the time. The latest text scam tells you to click a link to listen to a new voicemail.
Clicking on it could infect your phone with a virus, and you may be asked to download an app or give account information. This could give scammers access to your account, so be careful – don’t click on links you’re unsure about.
As a nation, we aren’t known for being direct. We say ‘yes’ because they don’t want to appear rude by saying ‘no’. And when it comes to fraudsters, being indirect could have serious financial and emotional consequences.
Always take a moment or two to stop and check when you receive a message or phone call, even from companies you already deal with. Could it be fake? Are they asking you for personal information or money? Remember, you can always ask someone you trust for advice.
The Financial Markets Authority (FMA) has a warnings and alerts on it’s website. If you want to know some of the scams currently operating in New Zealand check it out here
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What Is Important About Money To You
Whilst this may be an uncomfortable question to ask yourself, and it can certainly feel awkward when we ask it of our clients, it is a vital aspect of the planning we provide and helps you understand and define your significant ambitions in life. Our colleague Carl Richards explains more here
What’s important about money to you?
This is an uncomfortable question because we aren’t used to thinking about money in those terms. But it’s one of my favourite questions to ask.
The purpose of this question isn’t to think in terms of goals; it’s meant to go deeper than that or to get at the reason why we have certain goals.
The first answers people come up with are usually easy—things like security and freedom. But once we pause and really think, we can move even deeper still, or into what might be called the “why” of money.
This question gets uncomfortable because it forces us to get really clear about our underlying reason for doing things. It also forces us to face some inconsistencies in our lives.
Let’s say the first thing you come up with when you ask yourself the question, “What’s important about money?” is indeed freedom or security.
Then, the next question you should ask yourself is, “What’s so important to me about freedom and security?’” From there, keep asking questions until you get to the thing that is most important to you.
Let me give you an example of how this works.
My friend, who we’ll call Sara, was a hard-charging professional whose career required her to be super-competitive. She was “type A” to the hilt and worked long hours. So when I talked to Sara and her husband and asked her this question, I was curious what she would say was most important.
“Freedom,” Sara said, almost instantly.
When I asked her what freedom meant, she replied, “More time.”
So I said, “Okay, let’s pretend you’re there. Let’s say you have more time. What’s so important about being at that spot?”
With some emotion, she said, “I just want the time to raise a child.”
Bingo. There’s Sara’s money “why.”
Now, don’t get caught up on Sara’s specific value. Her values are hers; your values may be completely different. The thing to keep in mind is that, like Sara, once you identify what’s most important to you, things get clearer.
Being able to answer this question gives you a lens through which to view your financial decisions. And after you’ve identified what’s most important, you’ll have incredibly useful information to help you make decisions that match your values.
In fact, it can make it easy to say no to things that distract you from what’s important. Like the self-help author Stephen Covey said, “It’s easy to say ‘no!’ when there’s a deeper ‘yes!’ burning inside.”
For Sara, her answer became that “deeper yes.” The same can be true for you. You just have to ask the question.
Source: Behavior Gap www.behavior.com
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Infrastructure Megatrends: The Clean Energy Transition
Demand for clean energy is ramping up as a majority of countries target 2050 as the year to achieve net-zero emissions. But how much will this all cost?
According to the International Renewable Energy Agency (IRENA), upwards of $100 trillion is needed to build a system capable of keeping global temperatures from rising above 2C° (3.6F°).
In the above chart from New York Life Investments and Visual Capitalist, we take a closer look at the outcomes of such a massive endeavor.
Investment Required to Reshape Global Energy Markets
The IRENA believes there are two scenarios for how the clean energy transition plays out by 2050.
Their first scenario involves a total investment of $95 trillion (112% of global GDP in 2020) and is based on current policies and targets. Despite the lofty amount, this scenario is expected to fall short in achieving the goals set by the Paris Agreement.
Their second scenario involves a more ambitious set of targets, as well as a 16% larger investment of $110 trillion. Thanks to economies of scale, this scenario will reduce carbon emissions much further and keep the global temperature rise below 2C° (3.6F°).
The estimates behind these two scenarios are outlined in the table below.
|Current Situation||Scenario 1 ($95T in investment)||Scenario 2 ($110T in investment)|
|Renewable Share in Electricity Generation||26%||55%||86%|
|Electrification Share of Final Energy||20%||30%||49%|
|Energy-Related CO2 Emissions (gigatonnes)||34gt||33gt||9.5gt|
How Do We Get There?
For scenario 2 to become reality, significant changes would need to be made across the entire economy.
For starters, the IRENA estimates that 1.1 billion electric vehicles will be on the road by 2050, up from 8 million in 2019. The resulting need for charging infrastructure is reflected by Scenario 2’s higher share of electrification (49% vs 30%).
Government subsidies around the world would also need to be adjusted, with much less money flowing to fossil fuels. The chart below provides a roadmap for these adjustments—on the left is the dollar value of subsidies, and on the right is each segment’s share of the total.
Fossil fuel subsidies in the U.S. are facilitated through tax cuts, and are estimated to be worth around $20 billion per year. This may change very soon, as the Biden administration has signaled its intention to eliminate these subsidies as part of its 2021 tax plan.
With Great Change Comes Great Opportunity
The demand for clean energy is expected to kick-off a monumental transformation of the world’s infrastructure.
For investors, gaining exposure to this megatrend may combine attractive return potential with positive environmental impact. In fact, many listed companies in the utilities sector are establishing themselves as leaders in this regard.
Consider Enel, an Italian multinational with activities in Europe and the U.S. The firm has directed capital towards renewable energy since 2015 and is now the world’s largest player in renewables with 46GW of installed capacity across solar, wind, and hydro.
Further developments are planned, and Enel expects to grow its earnings (represented by EBITDA) at a compound annual growth rate (CAGR) of 5%-6% over the next decade.
To learn more about the opportunities surrounding clean energy, consider this infographic on the global sustainable recovery.
Source: Advisor Channel
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How do we ensure we achieve our financial ambitions in life
Well for sure, there are no guarantees involved with this question and when it comes to financial planning and investing for our futures, us humans do not fit into any kind of mathematical modelling tool, especially when it comes to managing our emotions around money.
As financial planners, we do use modelling algorithms, as this helps us guide our clients in what they need to be doing to have a successful future. However, whilst the modelling tells us what to do and why, when it comes to people and money, things can get a little messy and sometimes complex.
The best check on identifying the consequences of our actions when it comes to money, and anything for that matter, is of course hindsight. Also, our experiences and beliefs in life dictate how we feel about something going forward and therefore, how we are going to react. Challenging those belief systems is complex, and for us to just provide some simple formula to tell our clients what they need to do with their money, to be successful (whatever that means to them), is not always easy for the client.
The only way to navigate the complexity of managing money and investing, is through constant corrections of the course we travel and from our experience, the best way to do this is to assess someone’s situation, make the best guess of what needs to done, and when, then put some actions in place, before repeating this through regular monitoring.
Our ‘guess’ of course, is based upon our extensive knowledge and expertise, however, this cycle of assessing, guessing, acting and repeating is driven by the volatility and changes in the individual’s life. If their circumstances are relatively stable, we may only need to review plans every six or twelve months, or even longer, however, it is when things change or ‘blow up’ in their life, that they may need to revisit this cycle more regularly, and this is where we support their daily or monthly decisions.
The key is remaining flexible, especially as we know we do not fit into mathematical algorithms that financial modelling provides, so we don’t try to do this. In reality, we prefer to acknowledge that real life takes over, investment markets are volatile and money matters can be untidy, so making ourselves as adaptable as possible is the ‘way to go’.
Controlling what we can control and letting go of the things we cannot, whilst remaining flexible, is the crucial part of helping us achieve the things in life we value, and allowing our money decisions to support these.
G3 Financial Freedom Ltd
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SPIVA: the surprising results and what it means for you
One of the most persistent debates in the investment industry is whether investors are better to use passive or active managed funds. With strong advocates on both sides of this debate, it may seem like an obscure discussion. However, for investors, long term performance data tells a conspicuous story.
Managed funds provide a very efficient investment mechanism. They enable investors to gain exposure to a wide range of underlying companies at a fraction of the cost of buying shares in each of those businesses directly.
What managed funds don’t do is to tell you the best strategy to follow.
At the two ends of the investment spectrum sit alternative philosophical approaches – active and passive. An active fund manager will typically allocate funds into only a handful of companies; these are usually the businesses they believe will perform better than average in the coming period. A passive fund manager does not allocate based on a subjective forecast, instead they usually follow a more systematic process to buy and hold all (or the vast majority of) the businesses in a particular market or segment.
Each year, ratings and index company Standard and Poor’s (S&P) publish a score card to determine if active investing or passive investing performed better, as a whole, over the previous year. The score card, S&P Index verses Active, or SPIVA, answers the question, how many active managers actually did better than a passive benchmark and, conversely, how many did worse.
If you believe that active management is superior to passive management, then you’d probably expect the majority of active managers would be able to beat a simple market index.
If you did believe that, you’d be disappointed to see S&P’s results.
Once again in 2020, the majority of active managers did worse than their respective benchmark index.
We say ‘once again’ because in the US at least, which is the biggest and deepest market for managed funds in the world, it’s the 7th consecutive year this has happened.
Below is a table with the results for every year since 2001.
Source: S&P Dow Jones Indices LLC. Data as of Dec 31, 2020. Past performance is no guarantee of future results. Chart is provided for illustrative purposes.
As depicted by the yellow column, only 42.9% of active US funds beat their benchmark in 2020. This recent result is especially interesting because if there was a year that active managers had every opportunity to outperform, it would have been in 2020.
With the global pandemic causing significant market upheaval in February and March, a skilled active manager could, for example, have correctly anticipated the turbulence and decided to hold extra cash in their funds. They could have avoided investing in badly affected industries such as airlines and tourism. They could have instead invested into successful digital channels, firms such as Amazon and Google. Even getting just one of these calls right would have had a substantial impact on their relative performance, because 2020 was a year where returns were starkly different between Covid winners and Covid losers.
Yet, despite all of that, the majority of active managers still underperformed.
While 2020 is illustrative, the most important information for long-term investors is how active management compares to a passive alternative in time frames of 10 years or more. Fortunately, S&P collect this data and we are able to look across all global markets to see if active managers, as a group, are adding value in any country, or over any significant period of time.
The answer is a resounding no.
The table below shows the 10 year results for the percentage of active managers that perform better than a passive benchmark index. What’s notable is that none of these numbers are at 50% or higher. In other words, in every country or geographic zone, the majority of active funds have lost to the benchmark index over this longer timeframe.
|Fund category||Comparison Index||10 Year (%)|
|United States General Equity||S&P 1500||17|
|Australian Equity General||S&P/ASX 200||21|
|Europe Equity||S&P Europe 350||14|
|Eurozone Equity||S&P Eurozone BMI||8|
|Nordic Equity||S&P Nordic BMI||17|
|France Equity||S&P France BMI||8|
|Germany Equity||S&P Germany BMI||20|
|Italy Equity||S&P Italy BMI||20|
|Spain Equity||S&P Spain BMI||17|
|Netherlands Equity||S&P Netherlands BMI||0|
|UK Equity||S&P United Kingdom BMI||35|
|Denmark Equity||S&P Denmark BMI||15|
|Poland Equity||S&P Poland BMI||37|
|Switzerland Equity||S&P Switzerland BMI||16|
|Sweden Equity||S&P Sweden BMI||19|
|Indian Equity Large-Cap||S&P BSE 100||32|
|All Japanese Equity||S&P Japan 500||33|
|Brazil Equity Funds||S&P Brazil BMI||14|
|Chile Equity Funds||S&P Chile BMI||2|
|Mexico Equity Funds||S&P/BMV IRT||18|
Source: S&P Dow Jones Indices LLC, Morningstar. Data as of Dec. 31, 2020. Past performance is no guarantee of future results. Table is provided for illustrative purposes.
In fact, the simple average in the table above is only 18%. For the avoidance of any doubt, that means only 18% of active funds beat a passive benchmark over a 10 year period!
For those who might argue this is just a US phenomenon, and that smaller markets are more fertile markets for active managers to outperform, the graph below (including the same data as the table above) doesn’t back that up. In fact, it shows that the US is right in the middle of this wider distribution of countries. This shows that this active/passive story is not exclusive to the US.
Source: S&P Dow Jones Indices LLC, Morningstar. Data as of Dec.31 2020. Past performance is no guarantee of future results. Table is provided for illustrative purposes.
Although this may be academic to many investors, this is data and information that we monitor regularly. The implications are clear. If we pay extra to allocate to an active manager, the evidence tells us we should expect to lose. Over a 10 year time horizon, we have, maybe a 20% chance of selecting a fund that beats its benchmark over the decade. We don’t like those odds and we don’t think you should like them either.
But let us make this more interesting and practical. Through our affiliation with Consilium and other likeminded advisers, we have secured access to the lowest cost New Zealand Portfolio Index Fund available to retail investors. We have also secured access to the lowest cost New Zealand SRI fund. The cost to invest in these funds is about 0.10% each. This is a substantial achievement. If we allocate to these funds then, based on the S&P data above, we are fairly certain to beat the majority of more expensive active funds over any considerable time period. Although its true to say that past performance is no guarantee of future results, the data supporting this assertion is compelling.
We’re equally sure that there will be about one out of five actively managed funds that do outperform their benchmark, over a 10 year time frame. Unfortunately, there is no reliable way of knowing who these few outperformers will be ahead of time, especially not the fund managers themselves (although their self-promotion might say otherwise).
So rather than spin the roulette wheel and hope for a lucky pick, we’ll take the known odds that are on offer. By allocating to the lowest cost available NZ managed fund tracking the portfolio index, we give you an excellent opportunity at well above average results.
While this data from S&P may seem academic, it’s incredibly practical. And, over the long term, it helps clarify the strategies that are more likely to help you achieve your long-term investment goals.
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Timeless lessons from decades in finance
One of the major fund managers appearing within our client investment portfolios is Dimensional, and for very good reasons! Dimensional have recently had its 40th birthday and David Booth, founder, looks back on his decades in finance to share the lessons of investing that are wise and relevant, that our clients come to understand and appreciate. This article also has some great short videos that help explain the message. Click here for the article
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Online trading? Check your overconfidence at the door
A question we’ve been asked quite a few times within the last year goes something like this,
“So my son is investing on Sharesies. What do you think of them…?”
It’s a great question and one we thought deserved an article of its own.
Sharesies, Hatch and other digital trading platforms easily accessible by smartphones have grown enormously popular in recent years. Sharesies claims to have 350,000 users which would be about 7% of the population of New Zealand. That’s a remarkable achievement.
There are a number of positive aspects to these digital trading platforms. Easy to access and requiring only a small amount of cash to begin investing, they appeal to younger investors, and we now see New Zealanders investing (and saving) at a younger age. The result will hopefully be an increase in financial literacy born out of experience.
However, it’s a more nuanced question as to whether or not these platforms are leading to successful investing outcomes. Successful compared to what? Compared to term deposits? Compared to the average return of the market? The answer depends on the basis of the comparison. Unfortunately, we don’t have data available from these New Zealand platforms so it’s hard to evaluate the average performance of their investors.
While online trading platforms have only recently gained popularity in New Zealand, they have been around internationally since the 1990s. In the United States, Ameritrade, E-trade, Scottrade and more recently Robinhood, are all examples of online trading platforms. Having access to this longer-term international data lets us assess performance by looking at the evidence.
The academic peer-reviewed evidence shows a fairly consistent pattern. Those who trade online, and especially those who trade frequently, typically do worse than the market return.
One of the first studies of online trading platforms was conducted in 2000 by Dr Brad Barber (University of California, Davis) and Dr Terrance Odean (University of California, Berkeley), titled “Online Investors: Do the Slow Die First? (1)
Easy to access and requiring only a small amount of cash to begin investing, they appeal to younger investors, and we now see New Zealanders investing (and saving) at a younger age.
Their general conclusion was that investors who switched to trading online traded “more actively, more speculatively, and less profitably than before – lagging the market by more than 3% annually.”
That raises the question; if investors are less successful, why do they do it? The authors say their findings can be explained by, “overconfidence, augmented by self-attribution bias, the illusion of knowledge, and the illusion of control.” In other words, investors do worse because they give themselves too much credit when they are just fortunate with their picks, and they have a strong self-belief whether or not they actually have stock picking ability. Lastly, they feel like they have more control over investing outcomes than they really do.
Sources: 66,465 households with accounts at a large discount broker during 1991 to 1996, Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: https://ssrn.com/abstract=219228 or http://dx.doi.org/10.2139/ ssrn.219228
After the adoption of trading by smartphone, investors are also more likely to purchase risky and lottery-type assets and to chase hot investments on their non-smartphone trading platforms as well.
This result isn’t surprising. In 2002 the same authors published an article in the Journal of Finance called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. (2)
In this study they discovered that of 66,465 households that had an account with a discount share trading platform, the ones that traded shares most frequently underperformed the market by 6.5% per annum (i.e. an average high-trading return of 11.4% compared to a market return of 17.9%). The average household with a trading account underperformed by 1.5% (i.e. an average household return of 16.4% compared to a market return of 17.9%).
Perhaps more relevant is a recent European study on the impact of technology on individual investors. In February 2021, Drs Ankit Kalda, Benjamin Loos, Alessandro Previtero and Andreas Hackethal, published “Smart(Phone) Investing? A within Investor-Time Analysis of New Technologies and Trading Behavior.”3
The authors looked at the period from 2010 to 2017 and the results of two European banks that introduced online trading via mobile devices.
Below is a summary of a some of their key findings:
- Smartphone users were about 8 years younger and 13% more likely to be males compared to nonusers.
- Smartphones increased the purchasing of riskier and lottery-type assets and the chasing of past returns by 67%.
- Smartphone trades involved assets with higher volatility.
- Smartphones increased the probability by 71% of buying assets in the top decile of the past performance distribution.
- Smartphone investors chased performance evidenced by the fact that 68% of purchases involved assets that had earned above median returns in the recent past.
After the adoption of trading by smartphone, investors are also more likely to purchase risky and lottery-type assets and to chase hot investments on their non-smartphone trading platforms as well.
Perhaps this academic speak can be better understood in light of a recent headline grabbing story “GameStop stock price crashes as Robinhood app restricts trading. (4)
The idea that individual investors may be more inclined to buy a share after its price has gone up is behaviourally intuitive, but it’s not a particularly profitable strategy, at least according to most long-term measures.
Novice investors using the trading app/platform Robinhood bid up the value of a video game store called GameStop. The decision to invest in that business was not based on any careful evaluation of the business’s future prospects. Many investors piled in based on speculation alone. When it crashed some of those investors lost money.
This experience highlights a broader trend the authors of the Smart(Phone) Investing article bring to light. While smartphones offer convenience, that convenience sometimes comes with a cost of increased risk and reduced returns from lottery-like stocks which have historically produced worse than average subsequent returns.
The infographic above provides a snapshot of the three academic articles. These results are not particularly surprising. While in many ways Sharesies provides easier access to investing, we know from years of experience that investing isn’t easy. What feels intuitive is often misguided and can lead to poor long-term outcomes. The idea that individual investors may be more inclined to buy a share after its price has gone up is behaviourally intuitive, but it’s not a particularly profitable strategy, at least according to most long-term measures.
It’s no accident that advertisements for online trading platforms generally show the brands of some of the world’s most successful technology companies with good recent performance. But what young investors don’t realise is that those investments are also some of world’s most expensive companies based on earnings and prices. That doesn’t make them a bad investment. But a concentrated investment in those companies is far riskier than the ‘investing is easy’ advertising would lead you to believe.
In summary, if you have kids using online trading platforms in a casual way with small amounts invested, we believe this can result in many positive outcomes. It will increase their comfort with investing and likely lead to an increase in financial literacy. However, it may also lead to overconfidence, and the weight of evidence suggests you (and they) should expect outcomes lower than the market average.
When it comes to smart investing, the same principals always apply, regardless of age. If your kids are investing large amounts of assets they can’t afford to lose, they should probably seek a second opinion.
(1) Barber, Brad M. and Odean, Terrance, Online Investors: Do the Slow Die First? (December 1999). EFA 0335, Available at SSRN: https://ssrn.com/abstract=219242 or http://dx.doi.org/10.2139/ssrn.219242
(2) Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: https://ssrn.com/abstract=219228 or http://dx.doi.org/10.2139/ssrn.219228
(3) Kalda, Ankit and Loos, Benjamin and Previtero, Alessandro and Hackethal, Andreas, Smart(Phone) Investing? A within Investor-Time Analysis of New Technologies and Trading Behavior (January 13, 2021). SAFE Working Paper No. 303, Available at SSRN: https://ssrn.com/abstract=3765652 or http://dx.doi.org/10.2139/ssrn.3765652
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Living with uncertainty
In this webcast, Jim Parker, Vice President communications at Dimensional, provides a fresh perspective on news and markets, as well as five key investor lessons for dealing with uncertainty.
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The bumpy road to the market’s long-term average
Since 1980, the Australian stock market has rewarded investors with an average return of about 13%.
- Annual returns came within two percentage points of the market’s log-term average of 13% in just four of the past 41 years
- Yearly returns have ranged as high as up 67% and as low as 39%
- since 1980, annual returns have been positive 30 times and negative 11 times
Understanding the range of potential outcomes can help you stick with a plan and ride out the inevitable ups and downs
Past performance is no guarantee of future returns. Actual returns may be lower. Investing risks include loss of principle and fluctuating value. there is no guarantee an investment strategy will be successful. Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment
In AUD. S&P/ASX data reproduced with the permission of S&P Index Services Australia.
AUSTRLAIA and NEW ZEALAND: This material is issued by DFA Australia Limited (AFS License Bi. 238093, ABN 46 065 937 671). This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, to the extent this material constitutes general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.
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5 phrases to use to improve your emotional intelligence and relationships at work
This article is written by Bill Murphy Jr.
Many of us overuse “I’m sorry” when we should be using the phrase “Thanks for your understanding.”
- Having strong emotional intelligence is a self-improvement goal for many professionals.
- Author Bill Murphy Jr. says emotional intelligence starts with listening and being considerate of others.
- Use phrases like “tell me more” and “thanks for understanding” to shift the focus from yourself to others.
I’ve talked with a lot of readers about self-improvement in 2021. By far, the number one thing they want to work on is improving emotional intelligence.
Here are simple verbal habits that are designed to do exactly that. They’re adapted from my free e-book, Improving Emotional Intelligence 2021.
They’re easy changes really, just a matter of memorizing phrases. Let’s get started.
- “Tell me more.”
This is one of the most powerful phrases in the universe, and it’s my favorite one for improving emotional intelligence. It’s also nearly all-purpose. You can say, “Tell me more” in almost any situation, and you’ll do things like:
- Reassure the other person in a conversation that you’re interested and listening.
- Avoid the temptation of turning the focus of a conversation from the other person to yourself.
- Set yourself up for silence, which as we’ll see below is a powerful tool that emotionally intelligent people use.
Just imagine any conversation you’ve had — especially if it turned awkward or unsatisfying. Imagine replacing however you responded with this three-word phrase.
For example, imagine a friend tells you: “It’s hard to focus on work, since I’m stuck at home with the kids doing ‘virtual school’ on a computer all day.”
Most of us have been trained in that situation to say something like, “It’s hard at our house, too” or, “Can’t you just have your kids work downstairs while you work upstairs?”
But neither is really satisfying. Try replying instead with our three-word magic phrase, “Tell me more” and you reach a deeper level of conversation.
You’re giving the emotionally intelligent response, inviting your friend or colleague to share, explore, and maybe even find a solution.
- “Thanks for your understanding.”
We’re going to use this phrase as a replacement for something else: “Sorry.”
Not that you should never apologize. Of course you can, when you have wronged someone and you want to make amends. But many of us use that word too often, when we don’t truly mean to offer an apology.
- “Sorry I missed the meeting.”
- “Sorry we can’t meet your deadline.”
- “Sorry I didn’t go to your party.”
So much about emotional intelligence involves shifting the focus of interactions from yourself to others. But the pseudo-apologies in these situations put the focus squarely on you.
Also, you were probably taught as a child that if you say you’re sorry for something, you should try never to do it again. But I’ll bet you’re probably going to miss more meetings in the future, right? There will be deadlines you won’t meet. You’ll skip parties once in a while.
Consider instead how the message changes if you phrase each of these examples like this:
- “My boss needed my help on something at the last minute, so I missed the meeting. Thanks for understanding.”
- “We have so many commitments right now, and shipments are delayed, so I don’t think we can meet your deadline. Thanks for understanding.”
- “I wanted to go to your party, but by the time I got home, it was so late. I realized I’d only be able to come by for 10 minutes. Thanks for understanding.”
It’s subtle, but this phrase combines gratitude, sympathy, and other-focus, all in one package. It’s very powerful.
Wait, you might say. “Hello”? Doesn’t everybody say hello?
Actually, no. Pay attention to how people open conversations, and you’ll see that they more often start with open-ended questions — questions that everyone knows they have no desire to know the answer to.
I’m talking about things like:
- “How are you doing?”
- “What’s going on?”
- “How are you?”
It’s the rare person who wants a truthful answer: “Well, I have a headache, and the check engine light is on in my car, but my daughter got some good news the other day about her college applications, and I…”
Uh-huh. I mean, if you’re truly a friend or truly interested, great, maybe you want to know.
But the vast majority of the time, we ask these conversation openers expecting rote replies — phrases uttered so quickly and automatically that the phrases become contracted words:
- “Aw, nothing.”
At the very least, even if you do care about the person’s answer, everyone knows that your goal is to move past the answer and get to the point of your conversation: “Sorry to hear about your headache, but I need your help to…”
I know this sounds incredibly semantic, maybe even hair-splitting. But opening instead with a declaration — basically anything that doesn’t involve a disingenuous question that you don’t really want the answer to — is an improvement.
- “Great to see you.”
- “Thanks for coming by.”
See what I mean? These are neutral/positive messages — neither particularly other-centered nor self-centered. Try them out, and I think you’ll notice an improvement.
- “Am I making sense?”
This is another super-powerful phrase, and you’re going to use it in place of two others: “Do you understand?” or, “Do you have any questions?”
I realized its power after studying the speaking phenomenon of “high rising terminal” or “uptalk.” This is the phenomenon that results in people speaking declarative sentences with a rising pitch that is more commonly applied to asking a question.
Some people say it’s a bad habit, or suggests a lack of confidence.
But I’ve come to realize it’s a very powerful, emotionally intelligent mechanism that enables people to make suggestions, tune in with their audiences, and pull the other people in a conversation along with them — even when they have less power than everyone else.
Let me put it a different way. Imagine I have to explain something complicated to you. At the end, I can ask three different things. What subtle message is contained in each phrasing?
First: “Do you have any questions?”
The default answer to this question is, “No, I don’t have any questions.” Thus, it requires a bit of bravery even to be the first to ask. Why do you want to create that hurdle for the other people in a conversation?
Second: “Do you understand?”
This is other-centered, of course, but it can put people on the defensive. The subtle message contained herein is that you’ve explained perfectly, perhaps we need to work on the other person’s remedial understanding. You can do better.
Finally: “Am I making sense?” or another similar question.
This is powerful in its humility. Here, we’re shifting the presumption so that if there’s been a breakdown in communication, it might be your fault (you haven’t made sense) as opposed to the other person’s (they just didn’t understand).
That makes it much easier for the other person to respond truthfully and completely.
You might have to overcome a bit of vanity — “I know I’m making sense. I’ve explained this to hundreds of people.” But the point isn’t to pump up your ego.
Instead, it’s to use an emotionally intelligent strategy to facilitate communication — and make it more likely as a result that you’ll get what you want and need.
- Absolutely nothing.
You know that old saying: “Don’t just stand there. Do something!”
People with high emotional intelligence prefer the opposite: “Don’t just do something. Stand there!”
Or its corollary: “Don’t just say anything. Keep quiet!”
Saying nothing means you’re not saying something stupid. It means you’re giving yourself time to think before replying.
It also means, since people are naturally inclined to fill silences, that you’re inviting others to say something — maybe something they haven’t thought out as well as you might.
This is a good time to point out a misunderstanding about improving emotional intelligence. Since it can lead to more conciliatory conversations and better relationships, there can be a tendency to think it’s about being nice.
But to be cold-eyed about it, being nice is a tactic, not a goal.
Imagine a negotiation, for example: You make an offer, and the other person makes a counteroffer. Instead of continuing, you simply stay quiet.
It’s your turn to talk and yet, you’re not saying anything.
As a result, you seize control of your emotions, and theirs. Maybe the other person wonders if he or she has killed the deal. Maybe they sweeten the counteroffer before you’ve said a thing.
I remember reading an article about how car dealerships used to use a two-word phrase to take advantage of people’s natural inclination to want to say something. It went like this:
- Dealer: “I’m sure we can find a great car for you. What’s your budget?”
- Customer: “My limit is $25,000.”
- Dealer: “Up to…”
Supposedly, a non-zero number of customers would take the bait, and reply with a higher number. “Maybe we could go to $29,000.”
Don’t be like those people in 2021. Use these kinds of phrases to work on your emotional intelligence. And if you don’t have something emotionally intelligent to say, say nothing at all.
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Significant tax changes in place for residential property investors
We have pleasure in linking you to an article provided by Belly Gully on the changes announced by the government to the way residential property is to be taxed, so click here for more details: https://www.bellgully.com/Pages/Significant-tax-changes-on-the-way-for-residential-property-investors.aspx
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Time – it’s free, but it’s priceless!
Time is the one thing just about everyone I meet says they want more of….Imagine time as money…
Imagine that you won a prize where each morning your bank account was deposited with $86,400 for you to spend how you choose.
However, there are rules:
1. What you don’t spend each day is taken away from you.
2. You can’t save any of it.
3. You can’t transfer any of it.
4. The prize can be taken away without warning!
So knowing these rules what would you do?
Chances are you wouldn’t want to waste any of it. You would make sure you enjoy it. You would look after the people you love. You’d give to people you don’t even know.
You would spend every cent, every day!
This prize actually exists. Except instead of money, each day we are given a gift – TIME!
Each morning we awaken to receive 86,400 seconds as a gift of life. When we go to sleep at night, any remaining time is NOT credited to us. We can’t save any of it.
Source: Dean Lombardo, LinkedIn. regoslife.com
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When The Magic Happens
It’s interesting that in times of adversity, innovation thrives! Media often shares negative stories that we call ‘noise’, playing on our concerns and emotions. However, this article, whilst long, is a good read to remind ourselves that 2020 may be another year of amazing advances in many areas of our lives, especially when we look back at history, and how the world coped and changed in times of crisis. Check more out here
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Trust Act – are you ready for 31st January 2021?
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Trust Act 2019 – In or Out?
It really is decision time for professional trust service providers and many will already be ‘in the thick’ of supporting trust clients. However, in light of the change to the Trust Act that become effective from 30 January 2021, the window for trustees to decide how to position themselves and their trust services, is closing fast.
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When It’s Time For A Tune-up
My dad was a mechanic – a pretty good one from all accounts. That’s him in the photo. He’s always liked fixing things.
As a kid, I recall hearing “a mechanic’s car is always the worst”. It may well have been mum who yelled it whenever my brothers and I were push-starting her 1964 Ford Cortina in a heavy Invercargill frost.
That recollection came back to me recently when I was eating breakfast. I was thinking about how my affairs were organised and I had one of those “oh shit” moments
It wasn’t so much that I didn’t have good plans in place. It was the sudden realisation that as a single person living alone, no one else knew what they were.
Did my adult children know what I own? Did they know I have a family trust, that they are beneficiaries, or that my brother is a trustee? How would my laptop be accessed? Who knew where I keep my original documents? Did anyone know what was important to me
It dawned on me that I hadn’t told anyone. That’s like owning that ’64 Cortina and hiding it in a shed.
I sat down and wrote a letter to my children and brother about how things worked, where things were and what was important to me. The positive response I received surprised me.
As I see it, it’s up to me to make sure my affairs are in order and to prepare my heirs. It just took a pending crisis to expose potential vulnerabilities and take the right action to tune things up.
From my experience, we get to choose the impact of our legacy on the people (or causes) we care most about. That impact can be positive or negative.
What will the impact of your legacy be?
Source: Lindsay Pope www.lindsaypope.com
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Women Are Under Engaged With Financial Planning Despite Wealth Increase
Gender equality has yet to be achieved in terms of financial planning, even though women’s wealth has been growing rapidly in the last decade, according to a survey released by U.S. Bank on Wednesday.
Nearly half of women surveyed say they associate financial planning with negative words, such as fear, anxiety, inadequacy, and dread. By comparison, 31% of men express similar negative feelings toward financial planning. Conversely, 69% of men associate financial planning with positive words such as happiness, excitement, and pride, while only 53% of women respondents say so.
The data is from an online survey of 1,514 women and 1,486 men of all ages with minimum investable assets of $25,000. The survey is fielded between Oct. 23 to Nov. 15, 2019.
According to the survey, women are less engaged with personal finance than men. It showed that 52% of women talk about money with their friends, while 61% of men do; and 37% of women use a personal financial or budgeting app, compared to 48% of men.
While most women handle family finances, such as planning vacations, health care, and paying bills, they are still less confident about managing money. Just 23% of women say they feel very financially prepared, compared to 34% of men; 19% consider themselves financially savvy (vs. 33% of men); and 47% say they feel confident in their ability to manage their finances (vs. 61% of men), according to the survey.
“While we know that women have more money and power than ever before, the survey results tell us they aren’t getting the most out of it,” Gunjan Kedia, vice chair of wealth management and investment services at U.S. Bank, said in a news release.
In the U.S., women’s wealth has been growing significantly in the last decade. Between 2010 and 2015, private wealth held by women grew to $51 trillion from $34 trillion. By 2020, they are expected to hold $72 trillion, or 32% of the total wealth, according to a 2018 Boston Consulting Group report.
“Women today have unprecedented power to use money to influence our society, and by taking a few simple steps to engage more and earlier with money, we can get there,” Kedia said.
One crucial step is to start early, she said. “Whether it’s with a financial advisor, using a digital app, or just watching shows and listening to podcasts about money.”
Source Fang Block
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Introducing The Financial Resilience Index
The Financial Resilience Index uses five key financial indicators to gain insight into how Kiwis feel and think about financial issues.
- Financial Confidence
- Financial Literacy
- Financial Preparedness
- Job Security
Standout pieces of the research include the relationship between financial concerns and mental health with over 40% of Kiwis worrying about money on a weekly basis at least, and the effect that COVID-19 has had on New Zealanders with 50% of Kiwis feeling an effect from the crisis on job security in April. As an industry we have invested in this landmark research to build a better picture and understanding of exactly how New Zealanders feel at this time and in coming months about money and other everyday financial concerns.
For more information please see the following link
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Do NOTHING with your investments………ride the storm…
We have all heard of ‘walls of worry’ and in the investment world, the media and all the hype focus on the ‘reasons to sell’ investments when world news focuses on the negative. However, we need to also remind ourselves of the ‘reasons to buy’ and focus on what we CAN control, not what we cannot. Check out this article discussing exactly this :
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Hindsight Is 20/20. Foresight Isn’t
Dec 19, 2019
EQUITY INVESTING INVESTMENT PRINCIPLES
The year 2019 served up many examples of the unpredictability of markets.
The RBA expected the cash rate to stay steady or rise, but it fell instead. Sentiment around the residential property market started the year at an eight-year low with the prospect of potential changes to negative gearing on the horizon.1 Australian consumers’ confidence weakened as the year began,2 and news headlines broadcast fears of an economic slowdown. But investors who moved onto the sidelines may have missed the big gains in the Australian stock market. As of the end of October, the S&P/ASX 300 Index was up more than 20% for the year on a total-return basis. That puts it on course for the best showing since 2009, should it hold through December. Australian housing prices also rallied and are on track to post a positive gain for the year following reductions in the RBA cash rate, no changes to negative gearing policies and a loosening in loan serviceability policies from APRA.3
Outside Australia, Greece—the site of an economic crisis so dire some expected the country to abandon the euro earlier this decade, and a country whose equity market lost nearly a third of its value last year—has had one of the most robust stock market performances in 2019. On top of that, Greece issued bonds at a negative nominal yield, which means investors paid for the privilege of lending the government cash.
Taken as a whole, it’s a reminder that the prediction game can be a losing one for investors.
Up or Down?
A closer look at interest rates and bond markets around the world shows just how unpredictable asset performance can be. Going into 2019, the RBA expected no near-term adjustment in monetary policy, with the next move likely to be an increase in the cash rate.4 Instead, the RBA cut the cash rate three times throughout the year. It was a similar story in the US, with Federal Reserve officials expecting to raise rates, but instead lowering them three times.
Globally, we have seen bond yields fall. In some markets, yield curves inverted (where long-term yields fall below short-term yields), including the US Treasuries market, which inverted for the first time in more than 10 years, as seen in Exhibit 1. Moreover, yields on medium- and long-term bonds were at historically low levels at the start of the year, but they fell even lower by the end of October. Investors who moved to cash based on the expectation yields would rise in 2019 may have been disappointed with how events ultimately transpired, with global bonds returning 7.71% for the year to 31 October 2019 while bank deposits earned less than 2% interest.5
Yields on US Treasuries of various maturities since the end of 2018
Events weren’t any
easier to anticipate in the global equity markets, where no evident link
appears between markets that performed well last year and those that have
excelled this year, as Exhibit 2 shows.
Among the 23 developed market countries,6 only one country was a Top 5 performer for 2018 and 2019: the US. Last year’s strongest performing market—Finland— ranked 22nd this year through the end of October. Among emerging markets, Greece swung from a 30% decline last year to a 40% advance this year through the end of October.
Changes in the Ranks
Performance of equity markets in 23 developed and 24 emerging economies
Careful research of historical returns has shown there’s no compelling or dependable way to forecast stock and bond movements, and 2019 was a case in point. Neither the mainstream prognostications nor recent hindsight predicted outcomes in 2019.
Rather than basing investment decisions on predictions of which way debt or equity markets are headed, a wiser strategy is to hold a range of investments that focus on systematic and robust drivers of returns. Investors who were broadly diversified across asset classes and around the globe were in a great position to enjoy the returns that the markets delivered in 2019. Last year, this year, next year—that approach is a timeless one.
- 1Based on readings from the NAB Residential Property Index for Q4 2018.
- 2Based on readings from the Westpac-Melbourne Institute Index of Consumer Sentiment.
- 3Janda, M 2019, ‘Sydney, Melbourne house price surge accelerated in November’, ABC News, 2 Dec. 2019.
- 4Based on the December 2018 Minutes of the Monetary Policy Meeting of the Reserve Bank Board.
- 5Global bond returns measured by the Bloomberg Barclays Global Aggregate Bond Index (hedged to AUD). Bank deposit interest rates the average of interest rates between Jan. 2019 and Nov. 2019, sourced from RBA Statistical Table F4 – Retail deposit and investment rates; Savings accounts; Banks’ bonus savings accounts; $10,000.
- 6Markets designated as developed or emerging by MSCI.
This material is issued by DFA Australia Limited (AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, to the extent this material constitutes general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs.
Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss.
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The Chinese Coronavirus and its impact on Global Share Markets
In recent weeks, concerns have grown about the potential effect of a spreading coronavirus on the global economy and on share markets around the world. This coronavirus, a form of pneumonia (now labelled Covid-19), is a new disease that originated in China and still remains largely based in China. The disease, however, has begun to spread to other countries, most notably South Korea, Japan and Iran and it does appear to have some potential to slow economic growth, certainly in China, but also in economies reliant on China, including Australia.
In recent days some investors have taken fright, so that in the case of the all-important US stock market, the broad market (S&P500 index) fell 4.6% from its record peak on 14 February over the 10 days to 24 February. From 1 January this year though, net market movements have been more subdued, including a 0.1% decline for the broad US market, while the UK, German, French, Chinese and Indian markets fell respectively by 5%, 2%, 3%, 1% and 2%. On the other hand, over the same period this year, the Australian market (ASX200) rose by 4% and the technology-focused Nasdaq index in the US rose 3%.
In other words, market movements since the start of 2020 have been limited, despite an increased awareness and fear of the potential spread of this new coronavirus in recent days. Thus recent share market declines should be kept in perspective, as global share markets have been enjoying a bull run since early in 2019 and in many cases had run very strongly before this recent market correction. This recent pull-back means that most major stock markets are now more attractively priced than previously and most share markets continue to appear better value than most other investment opportunities, such as bond markets or cash holdings.
It should be kept in mind that share markets are inherently volatile, with periods of price rises following periods of decline. The overall trend of share markets though tends to be positive, as long as the economic fundamentals underpinning these markets remain favourable. This is because when we invest in the share market we are actually investing in the broader economy through the companies that make up that economy. If company earnings are on an upward trend, then share market prices are likely to follow this trend.
At present, despite the emergence in recent weeks of this coronavirus in China, global economic fundamentals continue to look reasonably positive. Although the International Monetary Fund (IMF) recently marginally revised down its global growth forecasts for 2020 and 2021 (from 3.4% to 3.3% in 2020 and from 3.5% to 3.4% in 2021), forecast growth rates remain on a par with the long-term trend (around 3.3%), led by a strong US economy. The US economy has been growing at a real (inflation-adjusted) rate of over 2% per annum and has seen the unemployment rate decline to a 50-year low. Despite this solid performance, however, the US central bank (the ‘Fed’) has maintained a relatively ‘loose’ monetary policy, lowering interest rates over the past year and increasing liquidity in the financial system (‘quantitative easing’ or ‘QE’) in recent months.
Also positive is the outlook for corporate earnings this year, not only in the US, where earnings are forecast to grow by around 8% this year and 12% in 2021 (Yardeni Research, 25 February) but also in other jurisdictions such as Europe (7% and 8%). Even better is the outlook for key emerging markets, such as India, where earnings are forecast to grow by 23% this year and 16% next year and even China, where despite the coronavirus hindering growth, earnings are nevertheless forecast to grow by 11% this year and 14% in 2021. The outlook for our own corporate sector is also positive (earnings growth of 4% and 3%). Overall, this bodes well for share market valuations. In most economies, monetary policy remains highly expansionary, with official interest rates now below 0% in Europe and in Japan and with ‘quantitative easing’ continuing in both regions, as well as in the US since last September. This is also positive news for both continuing economic recovery and for share market performance over time.
In the Australian context, of course, it’s economy tends to do well when the rest of the world is growing strongly. Our own share market tends to follow directional trends from the major overseas markets, especially the US, but has the added attraction of a high dividend yield.
Share market volatility is likely to remain high as long as the coronavirus continues to affect higher numbers of people and as long as it continues to spread to other countries. However, as the above graph demonstrates, there seem to be indications of success in containing the spread of the virus in China, while in Australia the virus still remains almost non-existent. As far as global share markets are concerned, this recent correction has pushed markets back to fairer valuation levels and further upside appears likely in time, given continuing solid growth in the US and ongoing recovery in Europe and Japan. In the case of China, the economy is likely to slow markedly over the March quarter and, on some forecasts, could even record close to 0% growth for this period. However, assuming that the virus can be further contained and assuming that the total number of those infected with the virus begins to decline significantly, the Chinese economy could be expected to begin to recover sooner rather than later. In turn, this would be positive for further global recovery and for share market performance over the rest of this year.
Our advice to investors is to stay well diversified across asset sectors………investing in growth assets is for investors who have a longer-term investment horizon, which allows time for markets to readjust to periods of negative volatility and, in time, resume their upwards trend. Certainly, now is not a time to panic, to sell out in haste and to potentially realise capital losses in some cases. Now is a time to stay invested and ride through the current period of market correction and to await a resolution of the Covid-19 coronavirus epidemic, after which share markets could potentially rebound in time.
Source: Conrad Burge, Fiducian Group Ltd
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Living In Fear Of A Market Downturn?
Maybe we will have a recession, maybe we won’t—but be wary of predictions on how markets will behave. It’s a losing game. The results of those who try to time markets or pick winners have been studied extensively, and there is no compelling evidence they do better than you would expect by chance. Check out this compelling read as reminder to us investors of what we need to focus on, rather than all the media ‘noise’ about whether there is going to be a market downturn or not. Click here
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Our world in 2019 is full of acronyms. For a long while we have had SKI (Spending the Kids Inheritance) where retirees are no longer focussing on protecting assets for the children to inherit. Instead, now that 70 is the new 60, they are out there travelling further and having fun.
But as the property markets continue to rise and first home ownership becomes more and more of a struggle for our children, BOMAD is becoming ever popular. The Bank of Mum and Dad is often the only option they have to get enough of a deposit together to buy somewhere.
As families gather for Christmas and we take stock, looking back over what we may have achieved and make plans for the future, it is often the time the topic of helping the children into their own home gets discussed. Whilst this can be helpful if done properly, we are here to play devil’s advocate!
- None of us know what is around the corner: We might feel that we are sitting pretty with enough funds in the bank or our investment portfolio to see us through but we need to factor in the unexpected. When our clients ask us our advice on whether they should gift or even lend their children a deposit, we look at the bigger picture. What happens if one of you die? Are you relying on two NZ Superannuation payments and the money left in the bank to support you throughout? What happens when one of those payments stops? Can you survive financially? It is important that your own financial security is exactly that, secure, before you consider helping – unless the children will be happy to have you live with them in the future!
- Get it in writing: our children won’t ever let us down will they? We all believe our children will be our friends forever. Sadly relationships often break down for a myriad of reasons and any money you have lent needs to be protected through legal documentation. It is important that you get legal agreements in place.
- Without proper agreements your children’s partners, whether current or future, might become entitled to half of the money you have helped them with.
- Sometimes a loan can be an option, and often it is intended that the money given is in fact a loan. No documentation is put in place on occasions for this loan, as this may complicate and restrict any lending the bank is prepared to offer the children, as the loan repayments need to be factored in to the borrowing affordability when looking to the bank for other lending. However, with no signed agreements, there is no recourse for the parent, and if the children have relationship issues you can potentially say ‘goodbye’ to at least 50% of your money
- It is not unusual for some parents to take on loans themselves to help fund the children – this is a high risk scenario and could easily jeopardise the parent’s home ownership and security.
- Giving them money now might mean that you do not qualify for Residential Homecare Subsidies down the track if WINZ believe you have deprived yourself of that money. If your son or daughter cannot pay you back or subsidise any care home fees, you might find yourself in trouble and with limited options.
- Many perceive that the easiest option is to act as a guarantor for the loan as they do not have to part with any physical cash. However, these are far reaching agreements and you could find yourself responsible for the full loan repayments if your son or daughter defaults
- Can you help all of your children? If you gift one child the deposit for a home, are you going to be able to do the same or similar for their siblings? Inequality in how you treat them can be a sure-fire way to create family tensions
In an ideal world, we would all want to see our children financially settled however, we need to ensure that any help we give does not negatively impact our own long-term financial security.
It is important to take legal advice and have contractual agreements drawn up. Getting the children in front of a Financial Planner first is also a good idea, as perhaps they can work on a plan which doesn’t involve BOMAD and as parents, you can go SKI ing instead!
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Happy 10th Birthday G3
We are now into double digits of being in business and we would like to thank all our clients and professionals who have supported us in reaching this milestone – you are very much appreciated and part of our family in helping us get where we are today!
Some of you kindly joined us for our celebratory function in September, where we had speakers from Consilium and Dimensional share their insights about investing around the world. Consilium are the experts we choose to partner with for our investment expertise and support and Dimensional are one of the fund managers that appear in our client portfolios. Both travelled distances from Christchurch and Sydney to be with us for this special occasion. Two of the speakers, Ben Brinkerhoff and Jim Parker, shared their thoughts on how the media create so much negativity and hype around investing, and what investors need to do to achieve a successful investment experience, so check out this video interview here
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The World Cup Of Investing
It’s been a banner year for New Zealand sport, with a world championship win in women’s netball, the narrowest of world cup losses in men’s cricket and an upcoming attempt by the All Blacks to win an historic third consecutive rugby world cup.
It’s fair to say that just as NZ punches above its weight in global sport, its share market has been an outperformer in recent years. But it’s also worth keeping a sense of perspective, both in terms of history and the size of
In sport, the women’s netball team, the Silver Ferns, waited 16 years to win the world cup, and then defeated Australia by just a single goal. Even the All Blacks, historically the world’s best rugby team, took 24 years to
repeat their 1987 world cup triumph.
NZ shares aren’t world beaters every year either. It’s true the Kiwi share market has been the developed world’s second-best performer in four of the past 10 years. In fact, it has posted positive annual returns for every year since the GFC.
But you only have to cast your mind back a little bit further to find years when the Kiwi market was a relative struggler. In 2000, it was the worst performing developed market in the world. In 2005 and 2006, it was the third worst, albeit with positive returns.
If you go back even further, the NZ market was hit harder than most by the 1987 crash and its aftermath. The market, as measured by the S&P/NZX All Index fell by nearly 50% in 1987 and did not turn cumulatively positive
till nearly a decade later.
Such was the pain generated by the 1987 crash in New Zealand that an entire generation of investors was turned off equities. The tragedy is that so many sought solace instead in poorly performing and illiquid property
There are a couple of lessons from all this for investors. Firstly, just as World Cup winners are hard to predict, there is no evidence that you can consistently outguess prices and pick which country will be the best market
performer from year to year.
The second lesson is you need to be mindful of how much your international portfolio is biased to your home market. Remember that NZ accounts for a tiny proportion of the global share market, at around 0.01% or one tenth of one per cent
Dimensional’s Jim Parker goes deep to investigate if the NZ stock market can maintain its All Blacks-like run – read the full story in the PDF
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What Dropping 17,000 Wallets Around The Globe Can Teach Us About Honesty
So picture this: You’re a receptionist at, say, a hotel. Someone walks in and says they found a lost wallet but they’re in a hurry. They hand it to you. What would you do?
And would that answer be different if it was empty or full of cash?
Those are questions researchers have been exploring.
The experiment started small, with a research assistant in Finland turning in a few wallets with different amounts of money. He would walk up to the counter of a big public place, like a bank or a post office.
“Acting as a tourist, he mentioned that he found the wallet outside around the corner, and then he asked the employees to take care of it,” says Alain Cohn from the University of Michigan, the study’s lead author.
The researchers assumed that putting money in the wallet would make people less likely to return it, because the payoff would be bigger. A poll of 279 “top-performing academic economists” agreed.
But researchers saw the opposite.
“People were more likely to return a wallet when it contained a higher amount of money,” Cohn says. “At first we almost couldn’t believe it and told him to triple the amount of money in the wallet. But yet again we found the same puzzling finding.”
The researchers decided to do the experiment on a much larger scale. They put together a team that dropped off more than 17,000 “lost” wallets in 40 countries over the course of more than two years.
All the wallets were about the same — a small clear case holding a few business cards, a grocery list in the local language, and a key. Some contained no money and some held the equivalent of about $13. Research assistants turned them in at the kinds of places people would typically bring a wallet they found on the ground — police stations, hotels, post offices and theaters.
Such a large operation came with a few headaches, Cohn says. One of the researchers was detained in Kenya for suspicious behavior. And researchers worried that a backpack full of wallets might raise eyebrows when crossing borders.
It’s also worth noting that for logistical reasons, most of the wallets were not literally returned to the researchers. After people reported a wallet to its supposed owner over email, they were told that the owner had left town and didn’t need the wallet anymore.
As results rolled in from around the world, the researchers kept finding the same result. In 38 out of 40 countries, people were more likely to report receiving wallets with money than those without. And in the other two, the decrease in reporting rates for the wallets with money were not statistically significant.
What if the wallets contained far more money? The researchers did a “big money” test in the U.S., the U.K. and Poland. In that phase of the experiment, the staff dropped wallets containing nearly $100, instead of $13.
Cohn says the results there were even more dramatic. “The highest reporting rate was found in the condition where the wallet included $100,” he says. Forty-six percent of wallets with no money were reported, compared with 61% of those with about $13 and 72% of those with nearly $100.
What’s behind all this honesty? The researchers suggest two explanations.
First, just basic altruism — the person who reports receiving a lost wallet might care about the feelings of the stranger who lost it.
There’s some evidence for that. The same team ran a test where some wallets contained only a key — a thing valuable only to the person who lost it. Those wallets were about 10% more likely to be reported than those with no key.
Caring about strangers doesn’t explain everything, though. The researchers think their findings also have a lot to do with how people see themselves — and most people don’t want to see themselves as a thief. Cohn says they polled people who said that if there’s cash in the wallet, it just feels more like stealing.
And, he says, “the more money wallet contains, the more people say that it would feel like stealing if they do not return the wallet.”
Duke University economist Dan Ariely, who studies dishonesty, says this shows material benefits do not necessarily drive people’s decisions about whether to be honest.
The study “shows in a very natural, experimental way our decisions about dishonesty are not about a rational cost-benefit analysis but about what we feel comfortable with from a social norm perspective and how much we can rationalize our decisions,” Ariely says.
The rates at which people tried to return the wallets varied a lot by country, even though the presence of money in the wallet almost always increased the chances. In Denmark, for example, researchers saw more than 80% of wallets with money reported. Peru saw a little over 10%.
The researchers think wealth could be a factor, but there’s a lot more research needed to explain the differences. “Now the problem is that we don’t really know whether wealth affects honesty or it’s the other way around” — whether honesty contributes to a country’s relative wealth, says Cohn.
Countries with higher rates of primary education were also more likely to see high rates of lost wallets being reported.
“What this suggests is that what you learn in school is not just math and reading but also social skills, or just more generally how you treat each other,” Cohn adds.
The study’s results could help policymakers and businesses that want to figure out what motivates people to act for the good of others, rather than for their own enrichment.
“What our study suggests is that there might be a potential to promote honest behavior, first, by making the harm that your behavior can impose on other people more salient,” Cohn says.
Cohn says the results also suggest that to promote honest behavior, businesses or policymakers should make it more difficult for people to deceive themselves that they’re being honest when they are actually doing the opposite. For example, by having people sign a statement promising truthfulness before they report their car mileage, rather than after.
And sometimes, honesty does pay. Almost all of the people who reported a lost wallet got to keep the cash.
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Getting A Pass Mark
Garrison Keillor is a US author who created a fictional town for a US radio show. The town was called Lake Wobegon, and was apparently situated in Minnesota, on the edge of the prairie. It was also described as “the little town that time forgot and the decades cannot improve”, and more famously a place “where all the women are strong, all the men are good-looking, and all the children are above average.”
The mathematically inclined will appreciate the humour in the line “all the children are above average”, as it is statistically impossible for this to occur. What was supposed to be an amusing turn of phrase actually described a cognitive bias called Illusory Superiority. It is a condition where a person overestimates their skill and abilities in relation to other people’s skills and abilities. The condition also has a few other names, such as the “above-average effect”, “superiority bias”, and the “Lake Wobegon effect”.
Studies have demonstrated this effect in various studies, such as a 2000 survey of Stanford MBA students, of whom 87% considered themselves above average. Similar results can also be found when surveying driving skills. Where this cognitive bias affects investors can be seen in share traders buying and selling shares between themselves, each believing they have made a good bargain.
A similar effect can be seen among active fund managers. The premise of active management is that, due to the skill of the manager, investors will receive above average returns. In some cases, this is accurate – there are fund managers who provide returns in excess of market returns. The converse also occurs – some fund managers provide below market returns.
Some people may consider this an investment opportunity – if you can identify the correct fund manager, you can receive above market returns. Admittedly there is a risk of choosing a poor fund manager, but you can rationalise this because all investments have some level of risk attached to it.
For investors, it is not enough to simply appreciate that there is a risk – you should know what level of risk you are exposing yourself to because not all risks are equal. Take the risk of capital loss (ie your investment is worth less than you put in) as an example. This risk is always present, even with “safer” investments like term deposits. That being said, it is safer to have a term deposit with a major New Zealand bank compared to a term deposit with a minor finance company. The reason some investors choose to place deposits with finance companies is that they provide a higher interest rate compared to the safer bank deposit. Simply put, the investor has judged that the higher return from the finance company is compensating the investor for accepting a higher level of risk.
You also need to assess the level of risk when looking at fund managers because not all risks are created equally. It is hard to assess the risk that your chosen active fund manager will have a below market return. Rating companies provide a lot of detail on fund managers, but they do not provide a guarantee of above market returns.
Instead of looking at individual fund managers, let’s look at the overall odds facing an active investor choosing a fund manager. Standard & Poors (S&P) reviewed the performance 860 Australian equity funds, 436 international equity funds and 116 Australian bond funds over a range of timeframes. Over longer time periods of 5, 10 and 15 years, they consistently observed underperformance in most categories.
Putting some numbers around this analysis, in the general Australian equity category, over the year to 31 December 2018, in excess of 86% of funds did not outperform the index. For the 10 and 15 year periods, over 83% of funds did not outperform the index. From this we can see that some funds did outperform the market, but they were massively outnumbered by the number of funds that failed to outperform the market. The odds were not in the investors’ favour.
This is not an uncommon scenario. S&P also reported on the performance of active funds around the world. Below are the percentage of active fund managers who were outperformed by their benchmarks.
The conclusion is that most active fund managers are unable to beat their benchmarks. Some can manage it for a short period – as seen by the generally lower percentage in the 1 year column. Over longer time periods, over 80% of active fund managers cannot beat their benchmarks (with India and Japan being the main exceptions, and even then a majority of active fund managers are still beaten by their benchmarks).
If you want your investments to beat the market, choose carefully. The odds are not in your favour. The alternative is to focus on getting a market return. You may not be able to claim the best return, but beating 80% of the alternatives is a good starting point.
Technical, but necessary?
The problem with this sort of analysis is that it can seem a bit dry. What makes it relevant for investors, outside of bragging rights around the barbeque?
Most investors are saving for their retirement. The goal is not to be in retirement having won first prize in the stock picking competition. The goal is to ensure that you have enough money to fund the lifestyle you want in retirement.
Investors will only get one chance at their retirement. The risk for investors is that they will not have enough income to last them in retirement. This is a common concern, and the World Economic Forum** has produced the graph below which illustrates the size of the problem of retirees outliving their retirement savings.
As a side note, you can see that Japanese retirees are expected to have the longest life expectancy past their savings. This partly reflects Japan’s longer life expectancy, but the primary driver is that the average investment is in defensive assets with low expected returns (such as cash), even for very young investors (eg 25 years old). As a result, their savings do not grow sufficiently to cover their retirement expenses. Choosing an inappropriate asset allocation can be as disadvantageous as choosing a poor active fund manager.
New Zealand is not included in this analysis, but the Financial Services Council reported*** in 2017 that “income from this accumulated wealth may run out for the majority of those aged 65+ within just 10 years after they stop work, leaving them with state pension income only for a decade or more”.
That would suggest New Zealand retirees are in a similar position to retirees worldwide.
The risk of outliving your retirement savings is real. It is complicated by uncertainty over the level of expenses you will face in retirement, and the level of income that will actually be generated to fund those expenses. Proper financial advice should consider both of these problems.
1 SPIVA Around the World, Standard & Poors
** Investing in (and for) Our Future, World Economic Forum White Paper, June 2019
*** Great Expectations, December 2017, Financial Services Council
Source: IOOF New Zealand – Portfolio Comment 30 June 2019
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To Be More Productive, Manage Your Time Like An Athlete
How do you focus? Carving out time for quality work has become more challenging as the technology designed to help us increasingly gets in the way.
Phone calls, emails, ever-pinging notifications are all productivity killers – and if you work from home, you can add the doorbell, family and even pets to that list.
It will take some practice, but once you’ve developed this muscle, you can repeat it over and over to really increase your output.
Brad Stulberg recommends the professional’s version of High Intensity Training to get it all done – relatively short bursts of intense work, followed by a break. Then repeating.
To get better at managing your time, borrow a training strategy from elite athletes
Article by Brad Stulberg
In the 1930s, a German coach named Woldemar Gerschler came up with a novel idea to help runners better manage their time. He discovered that they could accomplish more in a given stretch if they broke it down into discrete chunks of running, followed by brief breaks. For instance, you’ll run faster, farther, and with better form if you run hard for six sets of seven minutes, each one followed by three easy minutes, than if you run for 60 minutes consecutively. Gerschler used this style of training to guide multiple runners to Olympic medals, and it wasn’t long before it spread throughout running and eventually into just about every other sport as well. By the 1960s, Gerschler’s method — what came to be known as “interval training” — was the predominant training system across elite sports, and it still is today.
Although this idea has shaped elite sports over the last century, it’s only in the past couple decades that it’s being lifted from the playing field and applied elsewhere. This is largely thanks to the behavioral scientist K. Anders Ericsson, who, in the 1990s, began to explore what separates great performers — musicians, artists, chess players, even physicians — from everyone else. Ericsson is best known for the 10,000-hour rule, or the idea that almost anyone can become an expert in almost anything with 10,000 hours of practice — but his actual findings were somewhat different. It’s not that the best performers put in more practice time than their peers (often, they don’t). Rather, it’s how they practice: with full attention, focused on high-quality work, and in chunks of 60 to 90 minutes separated by short breaks. In other words, interval training.
Ericsson’s work focused predominantly on creative and competitive pursuits, but in researching my new book, Peak Performance: Elevate Your Game, Avoid Burnout, and Thrive With the New Science of Success, I learned there is plenty of evidence to support adopting an interval-based approach for the workday, too. For example, consider the Draugiem Group, an international social-networking company that wanted to discover what habits distinguished its most productive workers from the rest of the pack. In 2014, Draugiem partnered with the makers of DeskTime, a time-tracking app sophisticated enough to determine when employees are working and when they aren’t. After monitoring workflows throughout a typical workday, the company discovered that its all-star workers adhered to a particular routine: They spent, on average, 52 minutes engrossed in their work, took a 17-minute break, and then returned to their work.
Other companies are also beginning to follow suit, analyzing and manipulating how their employees use time. Thus far, the conclusions have all been the same: Regardless of the industry or job type, repeating cycles of intense, highly focused work followed by short breaks seem to produce the best performance. This finding has been replicated in studies examining employees in a meat-processing plant (on average, 51 minutes on followed by 9 minutes off), agricultural workers (75 minutes on followed by 15 minutes off), and computer programmers (50 minutes on followed by 7 minutes off). Across these studies, researchers agree that the reason such work cycles are so effective is the same reason why they work in sports: Intervals stave off both physical and mental fatigue, allowing people to work better for longer over the course of a day.
Nearly all of the world-class performers I met in reporting on Peak Performance — ranging from internationally acclaimed sculptor Emil Alzamora to Taylor Swift drummer Matt Billingslea to Olympic cyclist Megan Gaurnier to renowned venture capitalist Bob Kocher — told me that they, too, work in discrete chunks followed by brief recovery periods. They also said that eliminating distractions and single-tasking during such chunks is paramount to their productivity — and for good reason. Although most people love multitasking because it makes them feel like they’re getting more out of their time, it turns out that the opposite is true.
Studies using fMRI technology to view brain activity have found that it’s impossible to do two things at once, even in individuals who claim to be exceptional multitaskers. What’s really happening is that your brain is either dividing and conquering, dedicated only half of its available horsepower to each task, or constantly switching between tasks. Either way, your output level suffers, as does the quality of your work.
In a summary of the recent research on multitasking, the American Psychological Association wrote that seemingly effective multitasking can cannibalize as much as 40 percent of someone’s productive time. To put it another way: You may feel like you’re getting twice as much done when you multitask, but you’re actually only getting close to half as much done. Of course, when you step back from the world of constant stimuli that so many of us inhabit, this makes tons of sense. A runner would never stop in the middle of a sprint to check her phone — doing so would ruin the quality of the interval.
Regardless of the task at hand, it seems that highly focused, single-task intervals allow you to exert and sustain the physical, cognitive, and emotional energy required to get the most out of what you’re doing. This ebb and flow — time on, time off — runs counter to the most common strategies we adopt to get through the workday: either perpetually working in an “in-between zone” of moderately hard work rife with multitasking, or working at the utmost intensity nonstop. Neither of these more traditional approaches is ideal. The former leads to underperformance, the latter to burnout. A far better way to manage — and get the most out of — your time is to take a decades-old lesson from athletics and work in intervals, alternating between blocks of hard, deep-focus work and brief periods of rest.
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Amazing People Doing Amazing Things
We were honoured to be a sponsor again at this year’s Festival of Disability Sport in March and would like to share with you how amazing these athletes are.
Over two days in March, we saw competitions in wheelchair rugby, wheelchair basketball, powerchair football, sailing and blind lawn bowls. The Parafed Bay of Plenty Board have shared that there were 115 participants, 74+ volunteers and an average daily attendance of 375.
The Youth Programme was a first this year, where athletes between the ages of 8 to 21 years took part in Adaptive Table Tennis, SNAG (an adaptive golf game), Adaptive Indoor Rowing and Boccia.
The Awards Dinner held on the Saturday was an amazing evening, where nominations for awards were shared before winners announced.
This is such a worthwhile event to be part of and for those of you who haven’t been involved since it started last year, I hope we can encourage you to do so next year. Just going along to watch the sports is such a special experience and it helps put into perspective what is important in life – health, family, friends, being a good person and enjoying life to the full! These athletes overcome so many things in everyday life that the rest of us just take for granted, so we want to celebrate these people with you and encourage you to get involved in any way you can next year. Check out a short video kindly provided by Parafed BOP here
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Visualising The Happiest Country In The World
Whatever our woes may or may not be, here in New Zealand, us Kiwis have come out with a pretty high rating on the happiness score around the world.
It always puts a different light on data when it’s viewed in picture form. So here are the results from the World Happiness Report 2019
This report ranks 156 countries by their happiness levels, which of course, is relative I guess, however, the report is interesting reading when it highlights that the “main forces that influence happiness is around the changing way in which communities and individuals interact with each other”.
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Rental Property or Shares- Which to Invest In
We get asked quite a lot about whether to invest in a rental property for income and future capital gain, or invest in a share portfolio.
Although the answer depends on the client’s personal situation and in some cases, the answer may be “do both”, check out this video to help understand some differences to take into consideration: click here to watch
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Our Need For Stories
When stock markets were falling sharply late last year, the media was full of analysis of why it was happening and what might happen next. In 2019, with stocks heading sharply upwards, many of the same people are equally wise after the fact.
Behavioural economics refers to a cognitive failing called the ‘narrative fallacy’. This refers to our in-built need to fit often random events into tidy narratives where cause and effect are clear. For investors, this can be a trap.
Check out the importance of understanding Narrative Vs Data and why we at G3, prefer to use the evidence approach to investing. Click here
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Insurance – Is Cheapest and Easiest Best
We all know that bad news sells and the media seems to love stories from dissatisfied customers when it comes to their insurance policies. We thought that providing some insight into what choices are out there would give some guidance to anyone considering taking out insurance or reviewing what they already have.
We are all able to purchase insurance online these days, without obtaining advice from an insurance adviser. We can buy insurance for funeral cover, life and trauma cover, car insurance and house and contents cover, all online or over the phone – but what are the pitfalls?
When we buy online or over the phone, effectively going direct and bypassing an expert insurance adviser, we are led to believe we are getting a good deal with cheaper premiums and can have cover put in place immediately, without having to complete application forms or provide medical information. This all sounds easy and very attractive to many however, we need to know what some of the traps are and how to avoid them.
- If we want the cheapest premium, we are potentially not getting the best policy. When we pay for insurance, although we don’t want a disaster to happen, if it does, we want to know that we are going to have our claim paid. If we’ve picked the cheapest policy with the worst policy wording, our expectations may not be met, and we could be very disappointed! Some companies have guaranteed policy wording which means they cannot make changes to the cover you have and make you worse off. On the other hand, other companies do not have that guarantee and can change their customers benefits without the customers approval for example, Southern Cross recently made changes to their covers for existing customers and not for the better.
- If we do not have to provide any medical history details upon application for personal cover, it is likely that any pre-existing conditions we have will be excluded for up to 2 years or permanently. The older we get, the more conditions we accumulate unfortunately, some major and some minor. If everything is excluded, the potential for a claim being accepted by the insurer becomes less likely
- When it comes to specialist types of cover, whether this be for personal covers, for business assets, liability cover, cover for shareholders and key people in a business, or maybe marine, aviation or carrier cover, going direct will just not ‘cut it’
- How do we know we’re getting the right amount of cover for the right reasons and at the right price? Insurance is about insuring the ‘big ticket’ items in life, those incidents that are going to cost us a lot financially. Surely we want to ensure that our policy has the best wording for such an event and that we have someone who is going to ‘fight our corner’ and look after us if a claim arises?
- This leads us on to explaining the role of the expert – the insurance adviser. They will of course initially have you sorted with the right policy, the right cover and with premiums that are affordable to you, however, it is when a claim arises that their other skills ‘kick-in’. They are there for you, supporting you, organising the paperwork, liaising with all parties involved and making everything as simple and understandable for you as possible – isn’t this what we really want when the problems crop up?! As well as experiencing claims processes ourselves first-hand we have dealt with many claims on behalf of clients, helping to manage and facilitate the process to help relieve the pressure at what is invariably an already highly stressful time.
If you really want peace of mind knowing that in an event you are covered, you need to engage a professional insurance expert. Insurance of any kind is about putting the right money, in the right hands at the right time – the insurance expert will know how to do this. The price of going direct, without expert advice, is not worth paying in our opinion!!
by Charlene Overell, Authorised Financial Adviser
G3 Financial Freedom Ltd
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Recent Market Volitility October 2018
In the first three weeks of January 2018 alone the S&P 500 crossed ten new record closing highs in 13 days of trading. Then, in February, the index lost all its gains from 2018 in a few days. Over the next 7 months it built up gains again, and then lost all of them over the course of three weeks in October. What’s going on?
Let’s remind ourselves how markets work
Prices went down because someone was willing to buy at the discounted price. The buyer did not buy in order to lose money. The buyer bought because they felt that the discounted prices offered them enough return to justify the risk.
Markets bring optimists and pessimists together in equilibrium – they completely balance each other at a competitive price.
This is our shorthand way of saying at least half the market participants transacting in the last few days thought it was a good time to buy. Not everyone believes the sky is falling, even if the sensational headlines promote such a view.
But what about our investors?
For our clients with a 50/50 portfolio, we recommend a seven-year time horizon at a minimum, and most have a 20 or 30 year time horizon. In other words, any of our investors that are planning to spend money out of their portfolio this year or next year probably have that money sitting in bonds and cash, not in shares.
So, the portion of the portfolio suffering the most from this recent volatility is the portion that an investor has almost no chance of spending or using any time soon. That’s important, because it means that, whilst it’s not particularly comfortable to see volatility like this, it has little practical implication on their portfolio or current lifestyle. For most of our clients, we hope they’d look on this current situation with a level of disinterest.
For clients that are regularly purchasing assets in their portfolios or via KiwiSaver, this is actually a positive development, because they’ll be able to buy more shares with their same regular savings contribution and that will help grow their long-term wealth.
And let’s remember, when we signed up for shares, we accepted this would generally lead to more volatile returns. However, it’s volatility such as this that gives shares their wonderful return characteristics. Without temporary dips such as this most recent one, shares would have the returns of cash – which would not help us reach our financial goals.
The other point we need to make about the recent correction is that it’s not an unusual event. It is always extremely disappointing when markets go down, but as we’ve said many times, markets rarely go anywhere in a straight line. It is also the case that we cannot strive to achieve consistently higher returns than bank interest rates without assuming a higher risk that sometimes those returns will be lower than we would like; even negative.
The point is, what happened in the last quarter of 2018 is not new. It has happened before, and it will happen again. Having that knowledge is part of what makes a successful long-term strategic investor. It’s having an understanding and acceptance (at least a grudging one), that sometimes returns will be negative. We need to have this understanding, because otherwise our emotional response to difficult markets may prompt us to want to do the wrong thing at the wrong time. Quite often that can be far more damaging to a long-term investment plan than a temporary market correction.
We also need reminding because, as human beings, we are all prone to what is know as recency bias. We tend to overemphasise the most recent data and extrapolate that into the future (usually incorrectly) while at the same time undervaluing long-term trends.
Shares are volatile. The chart below shows the quarterly return of a 98% share portfolio. It goes up and down a lot; there’s no way around it.
The chart below, however, shows the growth of wealth this same portfolio has produced since 1991. While the volatility was uncomfortable, it produced large growth despite the Asian financial crisis, the tech wreck, the GFC and anything else you want to throw into the last 20 years or so.
The really critical point to remember in all this is the outcome that long term investors get to experience. It’s that share markets, on average, go up, and that consistent exposure to these markets is a key driver of long-term wealth creation. If there were no higher risk investment options available to us there would be no prospect of ever achieving a higher return.
In order to achieve higher long term expected returns and hopefully give yourself more retirement options you need to be exposed to a measured amount of higher investment risk consistent with your time horizon and your risk tolerance levels. Sound investment strategy doesn’t change just because market conditions do. Sound investment strategy includes a clear understanding and acceptance that changing market conditions are unavoidably part of the bargain in order to achieve your long-term goals.
We know the markets can be volatile in the short term, but this is already factored in to our long-term strategies. The worst decision investors can make is to react to short term volatility in a way that jeopardises the achievement of their long-term plans.
If you are still concerned, we want to talk to you. Give us a ring and let’s have a chat, so we can give you the confidence you need.
Source: Ben Brinkerhoff, Consilium
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We Could All Learn Something From Jack Bogle
Jack Bogle, the legendary founder of Vanguard, passed away 16 January 2019 at age 89.
He may not be the most well-known investor but he’s had by far the biggest impact on the investing public.
Warren Buffett said it best in his 2016 annual report:
If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade… Jack was frequently mocked by the investment management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.
Here are some things I learned from this brilliant man:
Common sense is highly underrated. The Little Book of Common Sense Investing was the first book that completely changed the way I think about the world of finance (and beyond). Reading about his ideas on buy and hold, long-term thinking, simplicity, low costs, and how to view the stock market correctly was a light-bulb moment for me. Being included in the updated version is one of the highlights of my career. The name of this blog was inspired by this book and Bogle’s clear and concise thoughts about investing.
There’s no price you can put on principles. Nathan Most, the brilliant guy behind the idea to create the first ETF, approached Bogle about making it happen in the early-1990s. Bogle listened to his presentation and then told Most his idea had three or four design flaws, but even if he could fix them Vanguard wasn’t interested. Bogle didn’t want to attract short-term speculators to the firm. I love the fact that Bogle turned him down on principle alone, even though it could have bolstered Vanguard’s business at the time (they’ve since become quite successful in the space).
If you want to be heard to learn how to communicate effectively. Bogle’s books are chock-full of great ideas but the way in which he communicates those ideas is a big reason they’ve spread so far and wide. Each one of his books I’ve read contains a similar message but the way he communicates that message always resonates with me. It was the same thing any time I heard him give an interview. You basically knew what he was going to say but you still paid attention anyways because of how he said it.
Simple beats complex. For 12 years I worked in the endowments and foundations world of institutional investors. It took me a few years to figure it out, but this group was so focused on complex strategies, high-fee investments, peer performance, and short-term results that I was completely flummoxed by how that world operates.
Bogle helped me realize none of this made any sense. Not only did he explain the benefits of simplicity, but he also proved it using data to back up his arguments. He wrote, “Avoid complexity and rely on simplicity and parsimony, and your investments should flourish.”
Cost matters. This one is now obvious but there’s still an entire industry of people who are incentivized to avoid this principle. Bogle said, “Where returns are concerned, time is your friend. But where costs are concerned, time is your enemy.” He also said the following:
The way to wealth, I repeat one final time, is not only to capitalize on the magic of long-term compounding of returns, but to avoid the tyranny of long-term compounding of costs. Avoid the high-cost, high-turnover, opportunistic marketing modalities that characterize today’s financial services system. While the interests of Wall Street’s businesses are well served by the aphorism “Don’t just stand there—do something!,” the interests of Main Street’s investors are well served by an approach that is its diametrical opposite: “Don’t do something—just stand there!”
This is becoming harder and harder to do in the information age but keeping your trading activity in check is one of the most important aspects of a sound investment plan.
Perfect is the enemy of good. Bogle once wrote, “To repeat, while such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite.” There will always be better strategies out there than simple indexing but your odds of choosing them in advance are slim and the odds of doing worse rises as you extend your time horizon.
Investing shouldn’t give you a rush. Bogle once said in an interview:
I look at indexing as being simple and, sad to say, boring. Be bored by the process but elated by the outcome. In Vegas, it’s the opposite. You’re elated by the process, by the moment, but you’re bored by the outcome because you know exactly what it’ll be. The more you bet, the more you lose. Investing shouldn’t give you a rush.
It’s hard to wrap your mind around the idea that boring is better but it’s true.
If you want a successful business you need to understand your customers. For many business owners and corporate management teams, the end user of their product or service is almost an after-thought. There are so many other details to cover — sales, marketing, HR, finance, compensation, quarterly results, etc. — that it becomes easy to forget why you created your product or service in the first place.
I always got the feeling Bogle truly cared about the investors who put their money with Vanguard and think that was a huge reason for their success. In his most recent book, he said he took 104 phone calls from terrified investors calling in during the Black Monday crash in 1987 and “periodically wandered through the ranks offering appreciation and optimism.”
How to think about the stock market. The idea of speculation versus investing is an important one and Bogle was constantly hammering this one home:
The expectations market is about speculation. The real market is about investing. The stock market, then, is a giant distraction to the business of investing.
That last quote on the business of investing is an all-timer and worth circling back to regularly.
Thinking long-term can lead to extraordinary results. Bogle rolled out the first index fund at one of the worst times in the past 50 years. It was a complete flop, bringing in just $11 million of a $150 million target. After its launch in 1976, index funds went on to trail 75% of actively managed funds from 1977-1982. He had to be extremely patient to get this idea off the ground. It took decades for Vanguard to become the behemoth it is today.
That patience has paid off to the tune of $5 trillion and counting in Vanguard’s coffers. Surprisingly, over 80% of Vanguard assets are in funds launched before 1997.
Long-term thinking is not only at the forefront of Vanguard’s business strategy, but Bogle’s investment strategy as well:
This is one of the most important rules of investing. If you never peek from the age of 20 to the age of 70, you’ll rip that first 401(k) statement open at age 70, and I recommend you have a doctor on hand because you’ll go into a dead faint. Your heart might even stop. You’re going to have an amount of money you can’t even imagine.
Saving is one of the most important investments you can make. Saving money and personal finance tend to get overlooked in the financial services industry because the markets are so much sexier and exciting. I love how Bogle always talked about the importance of saving money:
Everyone is looking for the Answer, and there really isn’t an answer except save. Save more. Invest for the long term, get cost out of the equation, and get diversified to the nth degree.
He also made the point that you have to invest in something, even in the face of irreducible uncertainty:
Well, you can only control what you can control. I think whatever your view of the world is, you have to invest. The alternative is – I mean, the only way to guarantee you will have nothing at retirement is to invest nothing along the way. So, you have to take your chances.
Money isn’t everything. Bogle died a wealthy man by any measure but he certainly left a lot of money on the table. It didn’t seem to bother him at all. The Bogleheads forum once wrote, “While some mutual fund founders chose to make billions, [Jack created Vanguard] to make a difference.”
Bogle wrote in his most recent book on the history of Vanguard, “Yes, mutualization was totally my idea, and I realized that a mutual company would never provide me with the personal fortune that so many denizens of Wall Street would earn. But it offered, I believed, my last, best chance to resume my career.”
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The Importance Of Being Independent
Susan B Anthony, who led the fight for women’s suffrage in the United States, once said, “Independence is happiness”.
She was talking about the ability to choose – to choose your representatives in government, to set your own course as a free person.
The same is true today. The ability to independently choose without unnecessary constraint often leads to better and happier outcomes. Unfortunately, in the financial advisory industry, the ability to be independent and freely choose is often impeded.
As you may know, Australia’s banking, mortgage and insurance industry recently underwent a royal commission inquiry. Here in New Zealand we’ve followed this inquiry with great interest.
There have been a number of findings related to investment advice.
Vertical integration is the combination, in one firm, of two or more stages of production; stages which are typically operated by separate firms. For example, if an adviser recommends a product owned by their employer, or recommends buying or selling a product where their employer gets paid to process the trade, they are vertically integrated.
The commission has found this behaviour to be rife in Australia, predominantly in major banks and institutions, and they’ve suggested it’s led to conflicted advice. For example, the Australian Securities and Investments Commission (ASIC) looked at ten vertically integrated advice offerings. They found that, while only 21% of the products on their respective approved products lists were manufactured in-house, these 21% of products received a whopping 75% of the money from new investors. You wouldn’t imagine this happens by chance. It’s more likely it happens because there is either pressure or inducement to put new money into investments manufactured in-house.
Fees for no service
Some organisations agree to purchase adviser businesses when the adviser retires. The clients are generally assigned to advisers within the new organisation, but some clients are ‘orphaned’. There were instances where an organisation had charged a client an advice fee where no service was being provided1, or even after they’d died2! To cap it off some organisations lied to regulators about the practice, because it was profitable3.
The commission has found other issues related to insurance and mortgage lending as well.
What does this mean for you?
We’re proud to tell you that we are a completely impartial firm, but what does that mean exactly?
It means that we are free to use practically any investment available to retail investors in New Zealand. It means that we only recommend those investments our research shows to be in our clients’ best interests. It is for this reason the investments we recommend are very low cost, in comparison to averages in New Zealand. The chart below shows the average cost of an allocation fund in New Zealand (data accessed from research firm Morningstar), compared to a 50% growth/50% income portfolio we recommend.
Perhaps now, more than ever, it’s clear why being impartial is so important.
When working with new clients, this can sometimes be seen as a disadvantage. This is because we don’t have the brand name and reputation of a large bank or institution. Who are we compared to them?
However, if we wanted to work for an institution such as a bank, we could. We don’t, though, because we want to be in a position where we can advocate for our clients’ best interests without any outside pressure. We want to be in a smaller business where we personally know our clients and, frankly, we know when one of them has passed away – there is no such thing as an orphaned client here! Being large isn’t necessarily an advantage in the advice business, because the advice business is, and will always be, a relationship business.
Although there have been lots of rumours about banks and larger corporates within the financial services industry, we prefer to ‘hang our hat’ on fact and focus on being committed to our business and our clients for the longer term. Change is opportunity and always provides a base for reviewing processes and systems, so we view any challenges in the industry worldwide as an opportunity to enhance the experience our clients receive from us. We are actively growing our business and have an independent, relationship driven business model, which we are proud of, with having the best interests of our clients at the core of everything we do.
We believe that greater adviser impartiality helps us provide perhaps the most important thing we can for our clients – their own financial independence.
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Does your NZ family trust have UK tax obligations?
Does your NZ family trust have UK tax obligations?
If your family trust has a ‘UK tax connection’ the trust might now be obliged to register with H M Revenue and Customs (HMRC) in the UK. The UK has recently introduced a Trusts Register and there will be a significant number of New Zealand family trusts which will need to register. The following article by Martin Riley of Sterling Tax Services explains which family trusts might be affected.
The reason for the introduction of the Trusts Register in the UK is to ensure that the UK complies with the Common Reporting Standard which is the worldwide initiative to counter tax avoidance. All participating countries (including New Zealand) are now collecting information about taxpayers which will be exchanged between tax authorities in order to ensure that taxpayers receiving overseas income are correctly taxed on that income in their country of residence.
Although most trusts on the UK Trusts Register will be UK constituted trusts, there will be some New Zealand family trusts which will be obliged to register. These will, broadly speaking, fall into four categories:
1. Trusts which were established in New Zealand either before the settlor became resident here or within a period of 3 years after leaving the UK.
Many UK migrants will have established a family trust soon after arriving in New Zealand and these trusts could be subject to the UK inheritance tax (IHT) regime. If you established a family trust within 3 years of leaving the UK permanently, then you should seek advice.
Even if the trust was established after 3 years it may also be subject to the IHT regime if you are unable to show that you are no longer domiciled in the UK – and it should be noted that you can still be domiciled in the UK years after you have left the UK if you regularly visit and maintain a close connection with the UK.
It should be noted that IHT liabilities can arise (a) when the trust was established; (b) on a subsequent 10 year anniversary; or (c) when capital is withdrawn. In many cases the liability may be NIL but there is still a duty to report to HMRC. The obligation to register the trust only arises where there is a tax liability.
2. Trusts which have untaxed UK sourced income.
These trusts will have a UK tax liability on their UK sourced income.
3.Trusts which have UK interest and dividend income and a UK resident beneficiary.
Normally a New Zealand family trust with UK interest and dividend income would not be subject to UK tax on the interest/dividend income derived in the UK. However, this exemption does not apply where there is a UK resident beneficiary.
If you have set up a typical family trust with children and grandchildren as beneficiaries and one of your children/grandchildren is resident in the UK (either working in the UK or doing their ‘OE’) then this may trigger a UK tax liability if the trust is invested in a UK company. This will apply even where there is no distribution to the UK resident beneficiary.
Any trust with a diversified investment portfolio is likely to acquire some UK listed shares and this could trigger the obligation to (a) pay some UK tax; and (b) register the trust in the UK. Does your trust have UK listed shares or UK sourced interest?
4.Trusts which acquire UK listed shares (including UK investment trusts).
The purchase of UK listed shares triggers Stamp Duty Reserve Tax and this, in turn, triggers the obligation to register the trust in the UK. Therefore, it would be much easier from a tax compliance point of view if the trust’s investment adviser purchases shares in New Zealand or Australian unit trusts rather than investing directly into UK listed shares.
All of these tax issues are manageable – but some of them may be best avoided. We are urging all clients who think they might have an obligation to register their family trust in the UK to seek advice.
Martin is a chartered accountant and chartered tax adviser based in Christchurch who can be contacted on 03-374-3595 or via the website www.sterlingtax.co.nz.
G3 Financial Freedom provides investment solutions with Australian Unit Trusts and New Zealand Portfolio Investment Entities (PIE) and avoids UK Investment Trusts – this problem for UK IHT and registering a NZ Family Trust would therefore potentially not apply.
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Learning from Johnny Depp
The 1980s television series “21 Jump Street” launched Johnny Depp’s acting career; “Edward Scissorhands,” director Tim Burton’s dark Gothic fairy tale, made him a movie star. But it was Disney’s “Pirates of the Caribbean” movies that made him rich. The original film and its sequels grossed about $4.5 billion in ticket sales. That franchise, along with other films, earned Depp an estimated $650 million, according to Rolling Stone.
If we are to believe the reports, most of it is gone.
Thus, we have yet another cautionary tale of what happens when too much money meets too little financial savvy. If it sounds familiar, well, that’s because it is. Lottery winners, pop performers, sports stars and other recipients of sudden wealth often fall into the same trap. They react emotionally to the windfall; they don’t think long-term or strategically. There is no plan for the future, only the unrealistic expectation that the firehose of earnings will last forever. These sorts of unforced errors leave a permanent mark on their emotional and financial well-being.
Depp is now suing his business manager and his firm for negligence, breach of fiduciary duty and fraud. I have no idea if the accusations have merit or not, but the mere existence of the lawsuit means financial mistakes were made and the suit will determine who made them. All of this could have been avoided, however, assuming one was willing to engage in some clear thinking and do a bit of work.
And so once again, I will lay out a simple set of rules that can help any recipient of new-found wealth avoid some of the most common errors, and maybe keep from going broke. Here goes:
1. Have a plan: I guess the mere fact that we are discussing a squandered $650 million fortune means I have to start with this one.
Anyone who comes into a pile of cash must think about ensuring it lasts a lifetime. Note this isn’t just about actors or athletes, but the 60 million people who stand on the precipice of a $30 trillion inter-generational wealth transfer. The beneficiaries and heirs of all that wealth need a plan to manage that money, even if it is in amounts somewhat shy of a half-billion dollars. Making whatever you have last as long as you need is the goal.
2. Delegate but be involved: Be aware of the details of your own finances. The most successful athletes and musicians have business managers who might handle the day-to-day chores while they are on the road working, but they must understand their own earnings, spending and investments. It’s your money, it’s your responsibility — if you do not know the specifics, then you are just asking for trouble. If Michael Jordan and Bruce Springsteen find time to be intimately involved in their personal finances, then you can too.
3. Understand your career cycle: We all begin as newbies, grow into our peak earnings years, then scale back the workload or retire. Those phases cover most of us. The first decade or so is when we become better, smarter, more skilled; the second phase is when we capitalize on those skills; the last is when we kick back. The mistake of assuming peak earning years will last much longer than they do is surprisingly common.
4. Friends and family entourage on the payroll: Buy Mum a modest house, if you’re so inclined, tell everyone you love them, then let them live their own lives. When they come around asking for financial help, politely sending them packing.
5. Avoid debt: Living within your means should get easier as earnings rise. Instead, people find more expensive ways to fritter away their cash. Access to credit all too often is the enabler of profligacy that can easily outstrip even multimillion-dollar salaries. It is one thing to use credit modestly to buy a home or manage cash flows, especially for someone who receives an annual bonus that makes up a substantial portion of total compensation; it is another thing to use debt to finance an ongoing lifestyle.
6. Keep your investments simple: This is especially important for anyone who is on the road or travels a lot for work. If you spend six months shooting a film in Malaysia, you probably lack the time to monitor how much risk your hedge-fund managers are putting on.
Better to keep it simple, hold down costs and limit tax liability. A portfolio of 60 percent stocks and 40 percent bonds will grow over the years with a minimum of volatility and headaches. Find an experienced pro other than your business manager — if you have one — to help manage this.
7. Understand what money is and what it isn’t: There is so much emotional baggage around money — especially the blind pursuit of it — that we often forget what it is. It isn’t a measuring stick or an end in itself but rather a means to an end. Money is a tool that lets you accomplish specific things, whether paying for good health care, ensuring financial security, freeing you from stress and worry, or covering the costs of leisure and philanthropy.
Depp would have been better served if he approached his money with the same gusto he applied to inhabiting his roles. That’s a lesson for all of us.
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If you’re wondering why you’ve lost friends in adulthood, this is probably why
What a lot of people don’t appear to understand is that the single easiest way to make friends is to show up when it matters — and the single easiest way to lose friends is to, well, not.
That sounds obvious, but a pattern I’ve observed again and again among the people in my social circle (a social circle that skews young and urban, to be clear) is that they often don’t have close, meaningful friendships. They want them, but they aren’t willing to go out of their way to dedicate time and effort to developing these relationships.
Take this scenario. You met someone who seems really cool, and you immediately think you could be good friends. They invite you to hang out again — say, to have drinks with some of their friends you haven’t met. You say sure, you’ll be there. Then the day arrives. Maybe you’ve had a long week at work, or you’re just not in the mood to meet new people, or you have a few other invites for that night that look more fun. You text them, “Sorry, can’t make it tonight.” They tell you not to worry about it, they’ll see you next time. But days and then weeks and then months pass, and you never become more than acquaintances.
There’s nothing wrong with this scenario. You’re not going to be friends with everyone! You don’t have to be; that’s normal. But if you’re someone who wants to build deep friendships but consistently chooses to not show up when the opportunity is presented, then maybe it’s time to unpack why and to think about what you can do to change that.
The most extreme case of this phenomenon I’ve experienced happened when a distant acquaintance messaged me saying that she wanted to be friends. So we found a time to have dinner. She messaged me the day we were supposed to meet and said she couldn’t make it, and so we rescheduled for the next weekend. That happened six weekends in a row, and each time she bailed last minute. I saved six Saturday nights for this person, and she found reasons not to come to every single one.
What drives flakiness
Let’s talk about flakiness. In an increasingly connected, noisy world where infinite possibilities for how we could spend our time loom over us, flakiness abounds. I host a lot of events, and what I know now is that I should expect at least half of the people who explicitly RSVP’d “yes” to bail. It makes sense — the societal norms have changed, we’re busy, we have a lot of options for how to spend our time. But while a packed schedule explains why we can’t attend everything we’re invited to, I’m not sure it explains why we say we will and then … don’t
My theory is that flakiness is rooted in dishonesty with ourselves and others about what matters to us. It’s not that we’re malicious; it’s that we’re aspirational. And while that doesn’t negate the harm caused by flakiness, it might explain why it’s so common. At any given point in time, there are countless versions of our lives that we can see for ourselves, and we’re committed to maintaining that optionality. We could be a person who has that hobby or goes to that event or has that friend; we have that option, and we expect it’ll always be there.
But inevitably, we make choices, and slowly over time, the choices we have made, not the choices that we could make, are what, in the aggregate, decide who we are. When it comes to friends, it’s the relationships we’re invested in that count — not the relationships we could invest in if we ever made the time for them.
What defines a friendship? Can it be quantified? I’m inclined to think not, and yet I have a vague feeling after I’ve spent some amount of time or shared some number of experiences with someone that I can call them a friend. At some point, somewhere, a switch flips.
So then I have to think, what flips that switch in the other direction? How many canceled drinks and dinners and coffees does it take before we’re no longer friends with someone? How many big life events do we miss before we start saying we used to be friends? Probably fewer than we think. Flakiness has its costs, and we often don’t realize them until it’s too late.
Some steps on how to keep friendships going
With that in mind, now I have a few proposals for you, a person who seeks to build and sustain meaningful friendships:
1) Don’t be chill when it comes to making friends. Tell people you like or respect or value that they’re great and you want to hang out with them. If they signal that they’re not interested, that’s fine — but don’t miss the opportunity to get to know someone wonderful just because you don’t want to appear overly eager.
2) Be personal. Talk about your real problems, and ask people about theirs. Invite someone into your home instead of going to a bar or coffee shop. Give thoughtful gifts. A big part of friendship is understanding someone for who they are and having them understand you for who you are, and that’s not possible without some degree of vulnerability
3) Get comfortable saying no to people you don’t want to prioritize. That sounds harsh, but in the end, it will save your time and effort and theirs. It’s not a kindness to “perform” friendship without genuine support and commitment, and both of you have limited time to spend. Instead of saying you’ll grab lunch and then canceling yet again, you can just part ways and make friends who are better suited to each of you.
4) Remember to reciprocate. If your friend is always the initiator, invite them to do something with you. If you do have to cancel on someone — sometimes circumstances happen — you should be the one to make a plan for the future. And then make sure that it happens.
5) Show up for people who matter to you. Sometimes that means your physical presence; sometimes that just means your emotional support. There will always be reasons to not be there, but if you keep choosing other commitments over a friendship, that’s a signal to that person. Friendships aren’t static. They require work from both people.
None of my closest friendships were forged solely because we had so much in common or it was convenient. It was because we prioritized each other. When we had options — and there are always, always options — we chose each other more often than we didn’t. There have been times when people I didn’t think were close friends showed up for me when I didn’t expect it, and that’s what deepened our friendships.
It was in that vein that I developed a close-knit group of friends. When I met them, two of them had just ended long-term, serious relationships. A few of us were deeply conflicted about our jobs and our lives and whether our work would ever be fulfilling. There were days when someone would post in our group chat that everything was awful and terrible, and we’d organize immediately to cancel our plans and gather somewhere and listen to them vent over dinner and a bottle of wine. And that was everything — knowing we all had that support and knowing we had people who depended on us for that support.
These relationships are some of the most rewarding parts of my life, and they didn’t just happen. We built them. So the next time you’re faced with the question of whether to show up or not show up for someone, be conscious about how that choice impacts your relationship. Because, for better or worse, it will.
Source: link to this: https://www.vox.com/first-person/2018/8/16/17694356/how-to-make-friends-adulthood
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You have to stop cancelling and rescheduling things. Really.
A friend recently returned to his parked car to find it had been sideswiped. Now, every time he calls the insurance company, he hears a message saying: “Can’t take your call right now. Leave a message. All calls will be returned by the end of the day.”
So far, he’s called over a dozen times; his calls have been returned only twice.
Why would an insurance adjuster have a voicemail message assuring callers that “all calls will be returned by the end of the day” and then return only 20% of the calls it committed to returning? Probably for the same reasons most of us promise “to write back to your email on Monday” but don’t, or promise “to send out that memo by Friday” but don’t.
Why do any of us say we will do things and then fail to do them?
We overcommit ourselves. We don’t like to disappoint people, so we tell them what we think they want to hear. We feel pressure in the moment and don’t stop to consider how much pressure we’ll feel later. We don’t think through how much time things will actually take — and we don’t leave enough slack time in our days to handle the (inevitable) emergencies and delays.
Up until a few years ago, I canceled or postponed meetings a lot. I would say yes to something (so much easier than saying no). As the commitment approached, I would feel overwhelmed and want to cancel. And often, I would cancel.
Then I read Stephen M.R. Covey’s book The Speed of Trust. It’s about being trustworthy. I had always thought that I was, but the author explains that when you make appointments and you cancel them, then trustworthy you aren’t. When you fail to fulfill commitments that you freely make, trust is not the result.
Since then I have realized that the temptation not to follow through is compounded by ease. Never has canceling, for example, been easier and less painful for us than it is in the age of the text message. We can cancel without ever having to speak with, much less meet, someone. We can cancel five minutes ahead and without explanation. Just tack on an emoticon to our message, and we can convince ourselves that it’s almost the same as if we’d met our obligation.
But the thought process still isn’t pain-free. We feel guilty about it. We waffle over what to do — and the indecision is draining. Finally, we cancel, and we undermine our confidence in ourselves. It reinforces our conviction that we can’t do it all — that we can’t control our schedule, or even our effort.
There are consequences for our personal lives, and there are certainly consequences in the workplace. Keeping commitments is a sign of maturity. Employees who don’t finish assignments, for instance, or finish them late or poorly, or are themselves routinely late, miss meetings, and cancel appointments, are an imposition on other team members and a liability to their employers.
Because these bad habits are nearly ubiquitous, they inevitably hitch a ride with some of us as we climb the ladder into leadership roles, where the workplace dysfunction they generate is magnified. It’s difficult to hold your subordinates accountable when you don’t hold yourself accountable. It’s hard to trust others when we know we can’t be counted on. How do we inspire commitment in those we lead when it’s obvious to them that commitment is a negotiable principle for us? It’s impossible to be a good leader if we don’t govern ourselves.
Last year I decided I would stop rescheduling my commitments and treat them as just that: commitments. And what I found is that when I committed to do the things I said I’d do, I actually felt much less stressed by them. As I kept more and more commitments, I got more and more confident. And I learned how long things really take, so I got better and better at giving estimates on when I could deliver.
If you really mean no when you say yes, then say no in the first place. We are all in the same boat — we have finite time and a seemingly infinite number of worthwhile things to do with it. Don’t know how to say no? Google “how to say no to a request” and then study up. Commit yourself to not agreeing to do things unless you’re going to follow through. Ask for time to think things over if you’re unsure. Don’t overschedule yourself. If you’re truly overextended, you may require a transition period to weed some things out; after that, once you say yes to something, stick to the yes. If the commitment seemed like a good idea at the time, it still is — even if the value is found not in the activity itself but in being trustworthy and following through.
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Wine Lovers Guide To Investing
Savouring a vintage wine is one of life’s great pleasures. But often overlooked in the joy of consumption is the carefully calibrated journey from grape to glass. Similar levels of care are critical to good investment outcomes.
A host of variables can determine whether a wine is great, good, mediocre or undrinkable. These include the quality of the grapes, the soil, the position of the vineyard, the weather, the irrigation and the timing of the harvest.
And picking the grapes isn’t the end of it. The harvest must be sorted, the grapes crushed and pressed, then fermented, clarified, aged and bottled. At any stage of the process, a lack of attention to detail can spoil the final outcome.
As in winemaking, investment management requires attention to detail—researching and identifying the dimensions of expected returns, designing strategies to capture the desired premiums, building diversified portfolios and implementing efficiently.
Just as winemakers don’t have any say over the weather, investment managers can’t control the markets. Not every harvest will produce an excellent vintage, but expert professionals can still maximise their chances of success by putting their greatest efforts into things they can influence.
For winemakers that may be taking extreme care in picking the grapes at a time that delivers the desired balance of acidity and sweetness. For investment managers, it can mean precisely targeting the desired premiums while ensuring sufficient diversification to lessen idiosyncratic risk in the portfolio.
Winemaking is as much an art as a science. While fermentation comes naturally, the winemaker must still guide the process, using a variety of techniques to ensure the wine is as close as possible in style and flavour to what he is seeking to achieve.
Similarly, in investment, real world frictions mean that basing one’s approach purely on a theoretical model is unlikely to be successful. For instance, trade-offs must continually be made between the expected benefits of buying particular securities and the expected costs of the transactions. Managing the effects of momentum and being mindful of tax considerations are among the other issues to be balanced.
Just as in viticulture, investment outcomes can also be affected by any number of external events—such as the imposition of capital controls in an emerging market, or changes in regulation, a severe financial crisis, or a major geopolitical event.
Dealing with uncertainty and navigating the “unknown unknowns” are part of the job. So investment managers must build into their processes a level of resilience, through diversification for instance, so they have sufficient flexibility to work around unforeseen events.
Ultimately, the benefits of discipline and attention to detail are easy to overlook. Great ideas count for a lot, of course. But great ideas, without efficient implementation can mean even the best grapes in the world go to waste.
Source: Jim Parker, Vice President, DFA Australia Limited Win
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7 Keys to a successful transition to retirement
1. Have a positive attitude towards your future
If you have the ability to ‘roll with the punches’, you will be able to dictate how you approach most areas of your life. There are changes that you can expect in retirement which are both positive and challenging and for many, the retirement years will see various ongoing transitions too. Seeing yourself change is a challenge, however, forgetting your age and focussing on your ability, passions and drive to continue to achieve things in life, whatever your age, can keep you strong and loving life.
2. Have a clear vision of this next phase of your life
The foundation of a successful transition is to have a clear idea of the destination that you have – that is the difference between a ‘wish’ and a ‘goal’. Also, you want to be clear about the values that will guide your life in the future because that understanding will let you devote more time to the things in life that are important to you.
3. Understand and practice healthy aging principles
Your life enjoyment of your new life will be influenced by how you feel. In fact, the life transitions that you will go through will likely be driven by changes in your health. Healthy aging is both mental and physical – keeping your mind and your body as fit as you can will go a long way towards creating the quality of life you want.
4. Consider the work opportunities that fit your life
Your work is the thing that you do to contribute your experience, skills, time and knowledge to society in some way. It is also a way to create positive stress in your life. Even when you leave the traditional workplace, you may still have a need to share your strengths and transfer your skills to others. Work doesn’t have to be full-time or paid for, and it doesn’t have to be something that you don’t like to do. Remember the saying “if you love what you do, you never have work again!”. Many retirees use their skills for the greater good, by volunteering with organisations and causes they have a passion for, and now have more time for too.
5. Develop and strengthen your family and social support network
In your retirement, you will depend on your family and friends to nurture and support you through all of your life stages. Not only are your personal and family relationships important to your happiness, but the depth of your social network will also play a key role. Remember that many of your fulfilling activities will likely come from your involvement with family and friends.
6. Take a balanced approach to leisure
The enjoyment that you get out of life will in most part come from how you spend your time. Leisure can be many different things to you. As you think about your retirement, you want to ensure that you are taking advantage of all of the things that you could do to truly live a fulfilling life. There is a big difference between ‘time filling’ and ‘fulfilling’ activities. Every day doesn’t have to be filled with meaningful pursuits. Successful retirees keep themselves more engaged and involved in activities they find stimulating.
7. Maintaining financial comfort
Some people feel that a happy retirement is guaranteed by financial security. There is no price however, on a successful retirement. Financial comfort refers to being able to manage your life in a satisfying and fulfilling way, using the financial resources that you have. If financial discomfort contributes to retirement stress, then your financial plan becomes a negative rather than a positive experience. The keys to achieving financial comfort are to have a clear understanding of the financial resources that you have and the demands on your money that will come from the life you lead, now and in the future. One option to consider your own situation, would be to think about what you have for the ‘essentials’ in life, which pay for your basic needs and fixed costs, what you have for your ‘lifestyle’ choices – the fun things in life you would like to do in retirement, and finally, any ‘nest egg’, which is for emergencies in challenging times and any legacy you may wish to ultimately leave.
Source: Barry LaValley, Retirement Lifestyle Center / Charlene Overell, G3 Financial Freedom
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So why do I need Enduring Powers of Attorney?
Many New Zealanders don’t have a Will in place, and of those that do, we find fewer have established Enduring Powers of Attorney. These are vital to support our loved ones in a crisis, when they are unable to act for themselves through injury, illness, or maybe just being overseas and needing someone they trust to sign documents on their behalf.
The Brown Family
Charlie and Carol are in their mid-50s and have two children – Jake age 22 and Rebecca age 20. Jake and Rebecca are taking time out from their study to travel overseas together for 3-4 months, to see a bit of the world before returning to further study and work. Whilst in Europe, Jake has a serious accident and is hospitalised. Through Rebecca, Charlie and Carol find out Jake is unconscious, with traumatic internal injuries as well as broken bones. The doctors in the hospital are wanting to talk with an adult who has legal power to speak on Jake’s behalf, as they have treatment options they wish to discuss so decisions about ‘what next’ for Jake can be made. Jake is an adult and has not established any power of attorney to appoint anyone to do this ‘talking’ for him, about what he would want to happen for himself. Through a lot of emotional angst, Charlie and Carol find out from their lawyer that they have to apply to the courts to have them appointed as Jake’s attorney, which costs money and takes time – both of which they do not have in abundance.
As parents, no-one wants to hear of such an accident with our children, let alone go through the stress and delays of having to apply to the courts to obtain a power of attorney, before being able to agree a treatment plan with medical staff.
A simple solution is to ensure anyone over the age of 18, who may be in a position of needing someone to act on their behalf, to establish Enduring Powers of Attorney – one to delegate signing powers over bank accounts and other property matters, and another to assist with care and welfare decisions in the event of medical support being needed.
Jack and Vera White
Jack and Vera have recently retired and are enjoying life together. They travel, see family, volunteer for local organisations they are passionate about and socialise regularly with friends. They both own their home jointly and have a joint bank account too. Jack inherited some money a few years back from when his mother died, and he has this invested in a portfolio of shares and bonds in his own name. Vera has some cash in the bank in her own name, a legacy of savings she built up herself during her working life. They do receive the New Zealand State Superannuation however, they use money from Jack’s investment portfolio to top-up their lifestyle expenses, so Jack dips into this when they need it.
During a sunny day gardening together, Jack unfortunately suffered a stroke and lost the use of the right side of his body. Jack is right handed.
Jack is unable to sign anything and he may never recover sufficiently to do this with his right hand.
In the meantime however, they need to access money from Jack’s investment to help with this treatment, and to continue to top-up other expenses they incur. Jack and Vera never established Enduring Powers of Attorney, so Vera is unable to access any of the money in Jack’s portfolio to support their financial needs. Vera now has to visit their lawyer who will arrange to apply to the courts to try to have Vera appointed as Jack’s power of attorney – this takes time and money!
Enduring Powers of Attorney are for every adult, for many unfortunate situations. There are two types – one for Property and one for Care & Welfare; both are needed.
It is important that you consider the costs, time and stress involved in NOT having these in place and organise them sooner rather than later – protecting yourself and your family is such a worthwhile thing to do NOW.
Charlene Overell, G3 Financial Freedom Ltd
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10 Tips for empowering children to be money smart
- Encourage your children to work for their pocket money. When they are old enough, possibly around fourteen, encourage them to work for someone other than you. This gives them a taste of the real world
- Teach your kids to budget. The Sorted website is very useful for this – learning about income, expenses and creating surplus income from an early age will stand them in good stead for their future
- If your children like to spend, say on clothes and personal items – things they want rather than need, consider giving them an allowance each month so that pretty much all their ‘wants’ can come from this. Once it’s gone, it’s gone. Things that are needed, such as school uniforms, shoes, books and trips can of course be bought by parents, but treats, they can be funded from the child’s own allowance
- Consider setting up a ‘3 pots of money’ system with their earnings or pocket money. One pot is for their own saving, another is for their own spending and the third could be a ‘family treat’ pot, where everyone contributes and can benefit from a family day out, a special meal – any treat for those who participate and save for it Encourage your children to save at least 10% of everything they earn, more if possible whilst they are young and living at home
- Inform your children that if they wish to go to University or experience a student exchange, you will expect some effort from them. This could mean that they save a portion of their money towards this or being clear that that they are expected to work part time while they study. Let’s face it, many of us parents study whilst working full time, running a business and home life
- Sign your children up for KiwiSaver when they start work and encourage them to contribute to this. This can be done via their employer and they can manually contribute. This is especially important when they reach 18 as they then start to receive the government tax credit which is $521 p.a. for every $1,042 p.a. contributed.
- Don’t buy your children designer labels or treats to show them you love them. Spend quality time with them instead and start teaching them about the value of money in conversations. Tell them how mortgages and loans work, what interest rates for savings and debt mean, how debit and credit cards work, what bills are part of our household, the cost of utilities and a shopping basket of food. Talk about how many hours are needed to be worked at $x per hour to pay for those things. Teach them to sew or look for bargains through ‘op shopping’
- Don’t lend your kids money without a plan for repayment. All you are doing is teaching them how to accrue debt. Ideally, they need to have earned and saved the money before spending it however, sometimes they need help with buying their first car. Agree a monthly repayment plan and stick to it. Ensure they buy the fuel, pay for the insurance and their AA cover too. It will mean more to them if they’ve used their own hard earned
- When your kids start working fulltime and still live at home, charge them board. It doesn’t have to be a lot but it does need to be something. They will be paying for rent or mortgage or at some stage when they move out, unless you still really want them living at home at thirty?!!
- Encourage your children to purchase household items for when they are ready to leave the nest. When I was young we called it preparing your glory box and it was something only girls did. I have no idea why it was called a glory box and nor do I have the faintest idea why boys weren’t encouraged to do the same! Ridiculous!
Finally, one of the best investments you could make in your child’s life when they get to the stage of needing financial support, is to buy them a few hours of time with an expert financial planner. Getting them on the right track with their mindset around money early in life will empower them greatly as they get older.
By Charlene Overell – G3 Financial Freedom Ltd
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The media locks in on a particular ‘hot’ sector.
In the late 1990s, it was technology. In the mid-2000s it was mining. Writing about fashional sectors is one thing. Building sustainable investment strategies around them is another. Finance journalists tend to write lots of articles about particular industries or sectors because these stories fit into a current narrative. In the tech stock boom, it was the information revolution. In the mining boom, it was the rise of China.
Of course, the changes in the global economy brought about by innovations in digital technology and communication is a real story, as is the impact of China due to its rapid industrialisation and global integration of the past 15 years.
The big question for investors is what information about those trends can you act on that is not already reflected in share prices? Too often, people end up trying to jump on a train that has already left the station.
In the Australian share market, for instance, mining stocks boomed last decade amid voracious demand for coking coal and iron ore from steelmakers in China, the world’s largest producer and consumer of steel.1
The performance of stocks like Fortescue Metals Group mirrored what was going on in commodity markets. From mid-2003 to mid-2011, the Reserve Bank of Australia’s index of commodity prices roughly quadrupled in value. (Chart 1)
By 2012, new iron ore supply was coming online just as China’s expansion started to slow and steelmakers’ demand moderated. Spot iron ore prices fell by nearly 80% from a record $US180 a tonne in 2011 to around $40 by late 2015. (Chart 2)
The market prices of mining stocks followed suit. On the Australian market over the four years from 2012-2015, many of the worst performing stocks were either iron ore miners or companies that serviced that market.
While iron prices recovered a little since then to near $80 as at March 2017, bringing mining stocks with them, many of these stocks still lagged the wider market’s performance over the past six years. (See Table 1)
This story is a powerful argument for the virtues of diversification. The more concentrated the portfolio, the more it is exposed to these idiosyncratic events beyond the control of an individual investor. Diversification involves spreading risk and diluting the influence of sector-specific themes. Just as materials stocks struggled from 2012-15, other sectors such as healthcare and telecoms and financials did well. Resources bounced back in 2016, while healthcare, telecoms and financials lagged.
The fact is that trying to forecast the best performing sector or industry from year to year is a mug’s game. Observing that commodity prices are rising again is not useful information for you as an investor because that’s already reflected in the market.
But diversification does not just apply to sectors. We can also manage it by using all the information about expected returns that is available to us. Academic research has identified certain dimensions that point to differences in expected returns. To meet this definition, they must be shown to be sensible, persistent across different periods, pervasive across markets and capable of being cost-effectively captured.
The four dimensions are the degree to which the portfolio is exposed to stocks versus bonds, to small companies versus large companies, to low relative price stocks versus high relative price and to high versus low profitability firms.
In the small cap end of the Australian market, we can manage company specific idiosyncratic risk by holding a well-diversified portfolio. Furthermore, we can improve expected returns by overweighting stocks with higher profitability.
Of course, this does not mean a portfolio will be completely immunised against idiosyncratic risk. But it is a way of diluting those influences and ensuring a balance between improving expected returns and achieving appropriate diversification.
So, we’ve learnt that chasing ‘hot’ sectors and industries is a good way of getting your fingers burnt. But through diversification, discipline and maintaining a level of flexibility, we can help ensure that a single sector doesn’t have a disproportionate influence on your investment outcome.
Jim Parker – Dimensional Vice President, Outside the Flags May 9, 2017
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Pension Flexibility at 55
In 2015 the UK government introduced a rule that anyone with a UK personal pension could access their whole fund at age 55 – this is known as ‘pension flexibility’. Prior to this, only a 25% tax free lump sum could have been taken and the balance of the fund had to provide some form of income, either by way of purchasing an annuity or taking drawdowns from the fund. The 2015 legislation means that 100% can now be withdrawn as a lump sum. However, 75% of it is taxable at the member’s marginal rate.
Those of us providing expert advice on the pros and cons of transferring UK pensions, have been patiently waiting since then for this rule apply to Recognised Overseas Pensions Schemes (ROPS), where UK pension fund money has already been transferred to a ROPS.
On 9th March 2017, the UK Chancellor announced this rule can now apply to ROPS and so providers and advisers have been gearing up to provide the advice clients need.
So, what does this mean for anyone with a ROPS who is aged 55 and over?
It means that we can now look to potentially withdraw your total ROPS fund. There are a few caveats to this of course, so we will attempt to explain the detail.
Up until now, anyone with UK pension funds in a ROPS, has been able to take between 25%-30% of their fund at age 55, with the balance having to provide an ‘income for life’ – like the old UK rules before 2015.
For clients who have already transferred their UK pension funds to a ROPS, we can now check if the ROPS provider has amended the Superannuation Scheme Trust Deed, to allow full access to the member’s fund from age 55. Some have amended their Deed whilst others have set up a new ROPS, to allow this ‘pension flexibility’ option.
The ROPS may have penalties for withdrawing the whole fund at age 55, particularly if the transferred funds have only just arrived from the UK, and this is understandable. It takes a lot of time, effort and expertise to set-up, run and monitor a ROPS from a provider’s perspective. It is therefore not fair if a client were to use the provider’s scheme just as a conduit to transfer their UK pension funds to the scheme, only to immediately cash it in, when there is a lot of administration, costs and compliance involved. Penalties differ between providers and so it is important that these are considered.
It does mean however, that for those over age 55 access to the whole fund will allow the release of funds previously tied in for life, to be used for other retirement planning goals and to help reduce a layer of costs that are part of the ROPS process.
Encashing your UK Pension at age 55 – instead of transferring to a ROPS
One area of advice we provide, is to consider whether someone who is already aged 55 and over would be best to encash their UK pension whilst it is still in the UK, rather than transfer to a ROPS.
The advice is purely on a client by client basis as everyone’s circumstances are different. However, from a general perspective, if the client is a non-UK tax resident and is living and residing here in New Zealand for example, it is important to weigh up the process of encashing the pension in the UK, potentially paying any emergency tax (40%) on the 75% balance of the fund (after the 25% tax free lump sum), and then reclaim or offsett the tax paid against any tax liability due here.
With this process, the money is no longer in a pension product so the cash balance can provide flexibility going forward depending on the individual’s circumstances
If a transfer were to proceed without this advice, the client would potentially be setting up a ROPS here in New Zealand, paying some advisers up to 5% of the transfer value for just organising the transfer (some without advice I might add!) and paying fees associated with the ROPS product.
The client’s tax position also needs to be taken in consideration. For example, if they are a transitional resident in New Zealand for tax purposes, there would be no tax to pay in New Zealand on worldwide income for their first 4 years of residing in NZ. Criteria applies to meeting the transitional residency test which I won’t go into here, however, advice on encashing or transfer during or after this 4 year period is very worthwhile obtaining.
- It is vital that anyone, especially those 55 years and over, with a UK pension still in the UKor anyone with a ROPS which has been established from a previous pension transfer, seek independent advice. Ideally your personal financial situation should be taken in consideration and advice tailored to what is in your longer term best interest sought
- Remember, the pension ‘pot’ was established to help build wealth for your retirement years, to provide a passive income when you choose to stop earning through work. If the ‘pot’ is encashed and spent, nothing will be left to support the retirement years and you will need to ask yourself “how am I going to replace what I have just spent, especially now I am getting closer to those retirement years?”
- When it is in a client’s best interest to fully encash the pension from age 55 onwards, we encourage our clients to still ‘earmark’ the funds as their retirement ‘pot’ and reinvest the money. Reinvesting it just means placing the funds into an appropriate investment portfolio (that may match what they had in the ROPS), but outside of the ROPS product itself. This means the money is no-longer subject to UK HMRC legislation and is no longer a Superannuation fund here in NZ, saving on fees and protecting it from any future legislation rulings – it is now a totally separate investment fund
- Of course, some clients may wish to use some of the encashed funds to repay mortgages early and this may be best advice. If the client is still working however, the advantages and disadvantages need to be considered. Perhaps redirecting the monthly mortgage payments that are no longer needed, to a regular savings plan would be a smart move to continue to build wealth
This new ‘pension flexibility’ rule does NOT mean that one size fits all and every angle needs to be considered. It is important to understand your choices and learn whatever is going to be in your best interest. Therefore, although we are bias of course, we believe professional independent financial planning advice is crucial, so that you can make an informed decision having been presented with all the facts and options.
Please do be prepared to pay for this expert advice. Just like we engage medical specialists, architects, engineers, lawyers, accountants and any business whose services we require, quality impartial financial planning and UK pension advice should be paid for too.
Charlene Overell – G3 Financial Freedom Ltd
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Don’t Get Beaten Up!
Everyone wants to beat the market, but the fact is most people who set out to do so end up getting beaten up by the market. Even one of the world’s most famous hedge fund managers reckons the best advice for most people is to diversify, across asset classes, within asset classes and across markets, countries and currencies.
Tony Robbins talks about his new book “Unshakeable” where he interviewed some of the most brilliant investment minds to uncover how best to invest in the markets. Check out this article in Business Insider Australia:Click here
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Ten Misconceptions about Retirement
Transitioning to retirement is not just about ensuring we have enough money to last, understanding the emotions we’ll experience and being prepared with the right mindset and behaviours are arguably just as important. For many, their jobs and careers define who they are. When they stop work what is left? The stress of the unknown creeps in – who are they? what do they do? do they add value to anyone anymore? Check out these misconceptions and take action to being prepared
- Retirement is a destination rather than a transition. Many New Zealanders are clear about what they are retiring from, but not clear about what they are retiring to. They often feel that retirement is this new life phase that is an extended holiday or a 30-year-long weekend.
- Retirement could be the longest single phase of your life. People believe retirement is a new life, the Third Age. In fact, you will go through six to eight distinct phases in your retirement, driven by either your health or the health of those you care about (spouse or partner). It is a multi-phase journey. Also, remember that time isn’t always your friend—getting older means doing as much as you can as quickly as you can. (Never put anything off!)
- Retirement happiness is directly tied to how much money you have. In fact, good health is probably the biggest key to a successful retirement. Happiness in retirement is a function of having a positive outlook, engagement in life, nurturing relationships, life meaning and a sense of accomplishment.
- Retirement spending will be the same throughout retirement . Some tend to spend like “drunken sailors” in the first few years of retirement before settling into a pattern. As time goes forward, spending tends to move more to family and health. Travel patterns tend to move toward less stressful travel and almost no travel in later years.
- Three hundred rounds of golf a year are always a good thing (if you like to golf). In retirement, as in all phases of life, too much of a good thing is often too much of a good thing.
- A life full of leisure must also be a good thing. We like our holidays and weekends when we are working, so imagine if that were now our lives. Consider the paradox of leisure: we like leisure because it is a break from work. If we had leisure seven days a week for 30 years, where is the break?
- Retirement is a ‘couples’ issue. In fact, it is more likely to be a single woman’s issue. The average age that a woman first becomes a widow in Canada, the US and Australia(if she is going to be a widow) is 59. Sixty per cent of Kiwi women over age 65 are single, widowed or divorced.
- The goal of financial planning for retirement is to “reach your number.” There are issues that you will have to deal with during retirement such as income, tax and estate. Financial planning doesn’t stop at retirement. Just because you have financial security doesn’t guarantee retirement success. You still have relationship problems, health issues, happiness and sadness.
- You can put things off in retirement. In fact, you want to do as much as you can as quickly as you can. You never put anything off in retirement. Do it now and hope that you can do it for 30-plus years!
- Retirement is a time to do new things. It is, but as we age we actually have increased difficulty doing new things. Remember that you are who you are and that generally if you didn’t do something before retirement, you will be less likely to do it after retirement. Since the retired “you” is no different than the working “you,” ask yourself whether you are comfortable doing new things now. If not, you will have to create the positive strategies to do new things rather than assuming that time is the only variable.
Source: Barry LaValley, Retirement Lifestyle Center
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How many times do investors think that they or their advisers know which funds or stocks to pick and when to pick them? This is known as the active approach to investing however, it doesn’t work over the longer term. Why pay unnecessary fees for ‘active’ when they don’t add value? Check out this proof showing how many of these active funds have been outperformed by benchmarks. Click here
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How to avoid money problems in our middle years
Spending more money than we earn
It is often during our middle years, that we are nearing, or are at, our highest earning ability where we bring in more money to the household and feel we have the freedom to enjoy our hard-earned cash, spending more on travel, newer vehicles, a boat and a bigger home to accommodate a growing family. It’s important not to be caught by instant gratification and take a step back to think before we buy. For a 40 year old who can save an extra $400 per month and have this invested into a good quality investment portfolio, this could grow to around $300,000 by the time they retire, based upon a return of approximately 7% p.a.
Not taking care of the emergencies
When we are young, in our 20’s and single, a few thousand dollars was able to pay for the financial ‘curve balls’ that came our way. With a family and more responsibility on our shoulders, we need to adjust our emergency fund and look to have around 6 months’ expenditure at least, tucked away in a bank cash account, that is readily accessible for unforeseen ad-hoc expenses. Emergency funds also help fund any excesses on personal medical cover and home and contents cover, helping to keep these premiums affordable
Using the mortgage account as a bank account
As the value of our homes increase, instead of using credit cards or personal loans (in themselves not a great idea) there is a temptation to top-up our mortgage when we want money for other things such as a family holiday, buy a new car or even leverage it to buy an investment property. Short term gratification of cars and travel are effectively spending tomorrow’s dollars today, so although it may seem to make sense to make use of the low mortgage interest rates, all we are doing is increasing our debt. Leveraging to buy an investment property may be gearing to buy a growth asset, however, whatever the money is being used for, other implications come into play, such as do we have enough life, trauma and disability income insurance to cover the increased repayments if we are unable to work due to illness or injury or if we die prematurely – leaving our young family with such a financial catastrophe will add stress, anxiety and potentially repossession of the family home. Just don’t do it, unless you have all the ‘what ifs’ covered.
Not taking the value your home and contents seriously
Many people sigh when the renewal of the house and contents insurance comes around, wishing the premiums hadn’t increased. The tendency is to just pay whatever is due without giving a second thought to the actual value of our personal belongings or the structure of our home, should we lose everything in a fire, flood or as is common in New Zealand, an earthquake. If you take the time to consider what it would cost to replace everything you own – your furniture, clothes, kitchen equipment, computers, paintings and picture frames, everything in our garages and workshops, valuable heirlooms and jewelry, most of us would not have enough cover in place. To add to that, should we lose our home to an earthquake and need to rebuild, the cost of not only rebuilding the property is needed, but the clearing of the site, rebuilding any retaining walls, and looking at the costs involved by the construction company to access your property is wise too. Getting a structural valuation every few years to check on the rebuild costs is worth it, as if you think about it, paying what is effectively a small cost each year to receive hundreds of thousands of dollars in insurance cover, is great peace of mind and enables us to sleep well at night knowing we will always have a home for our family.
Expecting the government to support us in old age
We are fortunate in New Zealand, to have a government superannuation fund however, it will not provide enough for most of us to live in retirement, especially not covering the luxuries of life. KiwiSaver has been great to get into the habit of investing for our futures, however, for most of us in our middle years now, what will be available when we retire, will just not ‘cut it’. Albert Einstein was reported to have said that “compound interest is the eighth wonder of the world” so making our money grow and work for us, needs to be one of our financial planning goals in our middle years. Paying ourselves first is one way to look at trying to budget well, to try to create surplus over our income versus expenses and investing this money in robust investment portfolios, where dividends and interest are reinvested for growth. Starting now means we have a good 15-25 years ahead of us before we need to access the money for a passive income in retirement. The question is whether we want to be in control of our financial future and live the life we choose, or be at the mercy of whatever government support is available at the time (if any) and just exist financially.
Spending our retirement funds on the kids
This is more common these days, when we find most of our children wishing to go to university and as they get a little older, wanting financial assistance to buy a house. Our children have a long time horizon to build their own financial futures and repay student loans, so we must not neglect our own retirement needs for theirs, as it will be much more difficult to make up any money we have gifted away and be harder to catch-up. We must factor these goals into our own retirement planning goals and ensure we take our own futures seriously and not feel guilty about putting ourselves first in this regard.
Putting all our eggs in one basket
Of course, we’ve heard this before – another phrase for diversification. Owning a broad spectrum of growth and defensive assets is much less risky and likely to produce more consistent returns over the longer, especially if we diversify in assets worldwide. Owning 3 finance company stocks, or owning one or two rental properties solely (which is based in one city and in one country) is not diversification!
Don’t panic when share markets fall
Seeing our investment portfolio and funds in KiwiSaver fall, gives some of us an empty feeling and we panic about what to do. It is important to effectively do nothing! Once invested in a good quality robust portfolio, staying disciplined is the key – jumping in and out of shares and trying to time the market is fruitless and will potentially do more harm. Moving out of the share market when markets fall will only find us missing out on the upturn when it happens and there’s plenty of evidence to support this. We just need to make sure we have the best type of investment portfolio in the first place and importantly have an adviser who will educate us, helps us stay focused on our longer-term goals, and be there to coach us when the going gets tough. When share markets fall, this is the best time to buy – just like anything else we want to purchase in life – buy when the sales are on, when prices are cheap. Remember Warren Buffet’s words – “be fearful when others are greedy and greedy when others are fearful”.
Being too cautious with our investments
Just think about it – when we are 50 years of age, we could have another 30-40 years of life ahead of us based upon the modern mortality rates. If we have an investment portfolio that is overly conservative, we won’t achieve the growth we need to keep pace with inflation and grow by more than the rate of cash interest. Having a combination of various assets, for growth whilst we don’t need the money to live on, and then a mixture of growth and defensive assets, will give us the best shot to help us grow our wealth. Our investment time horizon should not stop when we give up work to retire, as we then have the longest holiday of our lives to look forward to. Having an investment portfolio that can fund our retirement goals for passive income and ad-hoc financial ‘treats’ is the way to go.
Being forgetful about our health
We all know that medical treatments and operations are becoming less invasive with the advances in medical science however, the cost of these continue to increase far greater than inflation and as we grow older, the need for medical assistance of some kind increases too. We focus so much on running our businesses, working long hours at our jobs, spending time with our families and generally getting on with the day to day hustle and bustle of life, that some of us forget to invest in ourselves with a good diet and exercise regime. Looking after our physical health, alongside our financial health, can help to have our mind, body and soul on the same page. We all know the saying “the mind is willing but the body isn’t” don’t we!
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Is the Kiwi love affair with Trusts over?
We regularly get asked “Is it worth me having a Trust anymore?”
As you would expect from a Lawyer, the answer is “Well that depends”.
There is no doubt that the baby boom generation have loved Trusts. The love affair has changed the previous use of Trusts away from the intergenerational protection and transfer of assets, to one of the protection of assets for the individual.
About twenty years ago Trusts exploded into use. The use of Trusts blossomed at the time of the ill‑fated attempt to means test what is now National Superannuation. Trusts were used to turn income into capital. At the same time they became popular to protect against rest home subsidies. Trusts suddenly became popular to massage marginal tax rates, manage creditor obligations, and avoid relationship responsibility. Without a Trust you were somehow unworthy.
Many liked the idea of a Trust but didn’t like the cost of formation and management. Trusts then became a bit like do it yourself Will kits. Anyone with a computer could produce one. Like do it yourself Wills, poorly constructed Trusts can be a disaster.
Trusts became like Japanese motor vehicle imports; they were everywhere and of dubious quality.
Recently, the “Empire” has been “striking back” and eroding some of the previous gains achieved. First, in the rest home space, there was the decision in B v Chief Executive of Ministry of Social Welfare  NZCA 410. This adjusted the gifting clawback in cases where assets had been sold to a Trust and progressively gifted off. Unexpected clawbacks have resulted by use of the Deprivation of Income and Assets provisions in the legislation. While there is still value in a Trust in this area, there is also now a distinct disadvantage for a couple where only one needs care when the home is owned in Trust. It would be dangerous to assume the rest home protection with Trust scenario will continue. The concept that one should be able to divert assets to a Trust to pass care costs onto the taxpayer, will not be acceptable for much longer.
The Penny v Hooper  NZSC 95 case addressed the use of Trusts to arbitrage income tax rates through use of a Trust. This decision has gone on to create considerable uncertainty in the tax avoidance area.
Regal Castings v Lightbody  NZSC 87, involved the use of a Trust for creditor protection. The decision resulted in a movement of the goal posts in terms of protection. The transfer of assets to Trust now has to satisfy both an intent to defeat (the accepted position until that case) to also having the effect of defeating creditors.
More recently, Clayton v Clayton  NZSC 30, (a bitter and prolonged argument about whether the use of a Trust created separate property in a relationship property context) was a body blow to many Trust purists.
In each of these cases, there appears to be in the exercise of judicial discretion, a presiding sense of a need to introduce ‘fairness’.
In our view, the Clayton case has been a body blow to Trusts. A decision to right the wrongs in a relationship property situation by adjusting long held Trust principles can be expected to flow over into other areas of law.
The difficulty with many of these decisions and others like them, is that the law has made decisions where the boundaries of perceived fairness may have been pushed arising from poor drafting in the first place.
So, to answer the opening question, the answer is YES, it is still worth having a Trust, but some basic principles need to be followed:
- Check what the Trust Deed actually says. Our review of a number of Trust Deeds recently has identified a number of defects, both from a legal and practical perspective. These are often due to poor drafting and poor understanding on the part of both client and advisor. Poor drafting can lead to unintended consequences.
Excessive control is a risk. Clayton’s case was a “cake and eat it too” matter. A Trust is called a Trust, because you have to trust someone else with your assets. It does not mean to almost trust and using drafting mechanisms to retain control. Clayton has made it clear this circular control process is not acceptable.
- Management and supervision. The rules are not overly onerous in terms of management and governance, but there does need to be some simple and clear separation between personal and Trust assets. Because, quite properly, there are more onerous requirements with respect to the management of Trusts and because many people don’t really want to trust their assets to someone else, the practice of using an Independent Trustees has fallen away. However, an Independent Trustee can be extremely valuable if they properly discharge their responsibilities arising out of the role.
For good and sensible reasons, we suspect the number of Trusts now being created is reducing. Trusts do, however, remain a key tool in any business protection and the management of intergenerational asset transfer when operated in the right hands.
However, if you are not prepared to invest in the ongoing cost of running the Trust properly, you really cannot afford to have one.
Poorly managing a Trust is like having an expensive car and never servicing it. It will breakdown eventually and usually at the most inconvenient time.
If you have a Trust, and many of you do, we strongly suggest that you get an objective review of the Trust Deed by someone with expertise to see if it remains “fit for purpose”. Check who will end up with the keys when you are no longer able to drive it. Make sure your Wills and Trust are properly integrated and work together. Have regular formal meetings to discuss the beneficiaries’ requirements and expectations and make sure these are documented.
Most Trusts hold significant assets. It is worth looking after them properly.
This article was kindly provided by local firm, Mackenzie Elvin – find out more here
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Is your Family Trust still relevant?
Has your family trust passed its use by date? After all, there have been some big ones challenged through the courts where everything has fallen apart. You might be thinking that it’s not worth the hassle any more.
The problem isn’t that your family trust don’t work. More likely is that your family trust is misused, misunderstood and not properly maintained. Trusts have been around for hundreds of years because they offer protection that can’t be achieved through any other structure.
It is important to know why you would set up a family trust in the first place.
Trusts are particularly useful for;
Ensuring inheritance is passed onto your children, not their partners
Protecting assets from a future partner/spouse
Protecting assets from a former partner/spouse
Protecting the family home from the potential failure of a business venture
Making special provision for someone who is incapacitated or unable to manage their own affairs
When looking to protect your assets in a relationship, it is wise to seek advice from an expert lawyer, as you will potentially benefit from arranging relationship property agreements too.
For a Trust to work effectively, it is crucial everyone involved understands their role and responsibility.
Settlor – the person/s or company that creates the trust.
Trustees – the people who manage the trust. The Settlor can also be trustee. It is good practice to appoint an independent trustee like a lawyer, accountant or a professional trustee company.
Beneficiaries – the people who benefit from the assets of the trust.
One of the most common reasons trusts fail is a lack of discipline, for example:
No annual meetings
No recorded minutes or record of decisions
Mixing of personal assets with Trust assets
Spouses acting as sole trustees
A lack of understanding of the Trust deed
Making a memorandum of wishes is a good idea to ensure that the trustees understand how the trust is to be managed once you have gone. It is like a Will for your trust. The memorandum might state who the funds are to go to and when. A clear memorandum of wishes helps everyone to know what you want to happen, including your children.
If you are still wondering if your family trust is relevant seek some professional advice to discuss it objectively and sort through and resolve why you set it up and how to operate it going forward. There is also a cost in dismantling a Trust.
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Low/No inflation & negative interest rates
Low/No inflation and negative interest rates sound like good news (especially if you are a bank borrower) but things may not be as they seem. This could create a whole new topsy-turvy world.
The European Central bank, as well as central banks in Japan, Switzerland, Sweden and Denmark, have all given negative interest rates on the money deposited with them by commercial banks in recent times. This means banks are paying to deposit their money there overnight. How does a central bank actually impose the negative rate? It simply makes the electronic balances in those accounts shrink. A deposit of €10,000 at the European Central Bank today is €9,999.92 tomorrow, for example. The idea is to disincentivise savings and encourage spending which in turn should lift inflation expectations.
Surely all banks will do is pass on the cost to us their customers you might be thinking. Borrowers on one side and depositors on the other. It seems that banks have been reluctant to force negative rates on to their depositors so the banks have been absorbing this cost themselves. After all, if you were being charged to keep your money in the bank why would you keep it there? Why not simply stash it under the mattress? There are of course many who are so focused on keeping the capital safe rather than getting a return on their money that they are indeed willing to pay a bank to look after it. But for most of us, a term deposit where you are paying the bank just does not sound right. Consequently it is not hard to envisage a return to a cash environment rather than the electronic one we are so used to.
As well as the negative interest rates from some central banks, government bond yields in a few countries have also been below zero. Again, any demand for a negative bond yield tends to reflect the investor emphasis on capital preservation rather than growth.
So what does this mean for our investors? Well certainly global diversity is again proved to be the prudent key to investing – there are many countries where rates are positive including USA, UK, Canada and NZ with Australia having cash rates among the highest in the world at present.
Regardless of the interest rate cycle, bonds and fixed interest investments still play a diversification role in a portfolio composed of multiple asset classes, i.e. cash, bonds, equities and property, because they behave differently to other assets. Within our portfolios we see the fixed interest and cash allocations representing the wings on an aeroplane – providing stability and smoothing the bumpiness of the ride during turbulence (this being volatility in the context of share markets).
On the day to day front, the lower interest rate environment we are experiencing now means that those with debt can benefit from any mortgage overpayments making more of a dent in the balanced owed. For those with cash in the bank, it can be said that low interest rates coupled with low inflation rates is not such a bad thing. However, we are all aware that prices on some things always seem to go up, regardless of inflation rates! The difficulty in a low interest environment is when the income you need to live on from your cash balances is coming more from the capital than any income generated, resulting in your capital being used up quicker than you had planned.
Having a well-diversified portfolio optimises the long term returns from all the asset classes – and as our clients are aware, this can be achieved without any risk of permanent loss of your money.
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Rollercoasters also go down (the reality of investing)
If you want to get really high returns from investing, you have to find the best stocks – well, that’s the theory at least. For the sake of argument, let’s assume that you were considering holding a concentrated investment portfolio – just a handful of truly elite companies. Perhaps you would look at ones like Apple Inc, whose share price rocketed up from US$10 to over $100 in just 10 years. Maybe you’d look to local superstars like Xero, whose share price rose from $1 to over $40 within seven years.
The company you select may perform well, and hopefully it will. However you have to acknowledge the chance that it won’t. The question is what can a badly performing share look like? If a well diversified fund returning 5% less than the market can be considered a poor result, what about a single share?
Looking at 2015, some of the worst performing shares were in the energy sector. Given the low oil price, this is quite logical. An example is Chesapeake Energy, one of the largest oil and natural gas producers in the US: at the start of 2015 you could buy a share for roughly NZ$25. By the end of 2015, that share would be worth NZ$6, a decline of three-quarters.
Another example could be Wynn Resorts, a hotel and casino operator. A Chinese crackdown on gambling affected Wynn’s Macau casinos, and its share price fell from nearly NZ$200 at the start of the year to around NZ$100.
While holding a concentrated position in these companies would be bad enough, there are worse scenarios – consider how companies like Bear Sterns, Lehman Brothers and Enron no longer exist.
This is just a function of the relationship between risk and reward – if you can potentially earn high returns, there is usually a high possibility of loss. You may be willing to accept the potential for high returns in exchange for the possibility of loss, but should you?
The first point to note is people react differently to winning and losing money. In general, losses hurt twice as much as gains.
Secondly, consider how a significant gain affects an investor compared to a catastrophic loss, especially if they are saving for their retirement. If that investor’s portfolio doubles in size, it will be highly appreciated and will probably allow the investor to significantly improve their lifestyle. Maybe this would take the form of a better car, a larger house and/or longer holidays.
If that investor has the misfortune to suffer a catastrophic loss instead, the investor will be facing a very bleak retirement. It could be the inability to own their own house, pay for suitable medical care or help their family.
The upside of such an investment (e.g. a better car or house, which could be classed as a “nice to have”) is not comparable to the downside (e.g. losing their house or being unable to afford medical care, which could be described as an essential goal). What investors need to focus on is their ability to achieve their essential or primary goals, and only then look at other goals that have a lower priority.
So if this being the case, are you focused on your goals? Do you know if you can achieve them? If not, you should be talking to your financial adviser.
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5 common investing myths
There are many myths surrounding investing. Below are 5 of the most common ones we encounter at G3: (more…)
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Buyer Beware, use an adviser for insurance
We seem to be hearing more and more in the media these days, of dissatisfied customers when it comes (more…)
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A lesson in listening to the so called experts & picking hot stocks
On April 6, 2015, CNBC host and best-selling author Jim Cramer wrote an article: “Jim Cramer’s Picks — (more…)
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A long term lesson in residential property as an investment
Download the pdf to read:
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The Hierarchy of Investor Needs
One step at a time.
One summer in college I interned at an investment bank. It was the worst job I ever had. A co-worker and I survived our days by bonding over a mutual interest in the stock market.
My co-worker was brilliant. Scary brilliant. The kind of guy you feel bad hanging out with because he makes you realize how dumb you are. He could dissect a company’s balance sheet and analyse business strategies like no one else I knew or have known since. He was the smartest investor I ever met.
He went to an Ivy League school, and after college he landed a high-paying gig at an investment firm. He went on to produce some of the worst investment results you can imagine, with an uncanny ability to pile into whatever asset was about to lose half its value.
This guy is a genius on paper. But he didn’t have the disposition to be a successful investor. He had a gambling mentality and couldn’t grasp that his book intelligence didn’t translate into investing intelligence, which made him wildly overconfident. His textbook investing brilliance didn’t matter. His emotional faults led him to be a terrible investor.
He’s a great example of a powerful investing truth: You can be brilliant on one hand but still fail miserably because of what you lack on the other.
There is a hierarchy of investor needs, in other words. Some investing skills have to be mastered before any other skills matter at all.
Here’s a pyramid I made to show what I mean. The most important investing topic is at the bottom. Each topic has to be mastered before the one above it matters:
Every one of these topics is incredibly important. None should be belittled.
But you can be the best stock-picker in the world, yet if you buy high and sell low – the epitome of bad investing behavior – none of it will matter. You will fail as an investor.
You can be a great stock-picker, but if you only have 20% of your assets in stocks – a poor asset allocation for most investors – you’re not going to move the needle.
You can be a super-tax-efficient investor. But if your stock selection is poor, you’re not going to have many capital gains to pay taxes on in the first place. And if you’re paying too much for advice, tax savings can be irrelevant.
A common problem for any investor to stumble on is the temptation to solve one problem without first mastering a more fundamental one. It can drive you crazy, because if you’ve gotten the hang of an advanced topic, you might think that you’re on the road to success, but something more basic like investor behavior or asset allocation could still put you on a road to ruin. Just like my old co-worker.
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Investing for success
A recent article I read reminded me of the importance of investors understanding the crucial factors (more…)
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How do I choose my advisory team?
“The best time to make friends is before you need them”. Ethel Barrymore.
Your advisory team will include some or all of the following people:
- Financial Planner
- Life Coach
- Business Mentor
- Budget Coach
When choosing your Advisory team you will be looking for people who can demonstrate the following:
- Are trustworthy
- You enjoy working with them
- You are not afraid to ask for explanations that you can understand
- They do what they say they will do
- Work in your best interests not their own
- Are suitably qualified
- Can work together when required
- Provide you with accurate advice
- Provide you with timely advice
- Charge appropriately
Take your time to choose your professional team and interview a few candidates. Be honest that you are shopping around. Each may allow you a complimentary half hour to an hour of their time to allow you to determine if you can work together.
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Why plan for your retirement now?
“I am living so far beyond my income that we may almost be said to be living apart”. E.E.Cummings.
Why do you think we save for retirement and particularly when it seems so far away? When we first start in the work force, still wet behind the ears, is this something we should be thinking about? Obviously in most cases we do not think of this first.
We face two main risks in life. The first is that we may not make retirement so we take life cover out to protect our families against this possibility. We may also reach retirement in poor health or have suffered a major illness, which has impacted upon our ability to earn an income before then. Again, we insure to minimise the impact of this.
The other risk we face is that we retire and live too long! That is, we outlive our savings. As none of us know when we will die, we must guess and begin planning to save for our retirement income as soon as possible. It is not very likely we will all win Lotto. The odds of winning Powerball are less than 1 in 38 million. You could be waiting 730 years before it’s your turn. As far as us getting a pension in retirement goes, how likely do you think this is? We have what is known as an ageing population so there will be less people in the work force in twenty years time than there are now, per retired person. We need these people paying taxes which will provide for our healthcare and government pensions in the future. The government determines the age of eligibility for such pensions (currently 65) and who is eligible to receive them. At present the retirement income for a couple is approximately $25,000 p.a. after tax. Do you think you would like to manage on this? Why not plan for the sort of retirement you want rather than the sort you are dished out?
It makes sense to start investing as early as possible to take maximum advantage of the time effect – Right? Yes, that’s right. Below is an example of the effect of investing $10,000 per year for ten years, twenty years and thirty years. We have assumed a real rate of return of 6%. This assumes no adjustment for inflation is made.
Ten years investing $10,000 p.a. at 6% = $139,716
Twenty years investing $10,000 p.a. at 6% = $389,927
Thirty years investing $10,000 p.a. at 6% = $838,016
Obviously, every ten years you are investing a further $100,000 but the effect of compounding cannot be ignored.
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Common Beliefs about insurance
- I never claim so why do I need cover? If you never claim then you are one of the lucky ones. Insurance is effectively a group of people who each pay a little to provide for the unlucky few who may suffer a large loss.
- I like having Doctor’s cover in my medical so that I can claim back all my premiums each year? How sustainable do you think this modus operandi is? Why do you require insurance for something you can afford? This merely becomes a dollar swapping exercise between you and the insurer. The cost in administration will be taken into account when premiums are reviewed!
- Insurance companies don’t want to pay claims – This is simply not true. Unfortunately the cases we all hear about on TV are often cases where claimants may have not fully disclosed all information about their health or circumstances initially, or they may have believed they were covered for something they weren’t. It is extremely important to ensure you read your policy documents. Your Adviser will familiarise you with the terms of your policy.
- It’s too expensive – Compare the cost of the premiums to the cost of replacing the assets you should cover. It is important to prioritise your insurance needs and use larger excesses where possible to keep the costs down but DON’T risk a lot for a little and use those emergency funds to self-insure as much of the smaller risks as possible.
- Why should I cover my income when I pay ACC levies? ACC only covers you for accidents and not illnesses. You are more likely to suffer an illness which will interrupt your ability to work, than you are to have an accident.
- I have house cover and that’s all I need – You don’t question insuring your house which is potentially a lot less valuable than your income. See the example:Let’s say the average house is worth $500,000.00. Now, you are 30 years old and earn an income of $70,000.00 p.a. and you think you will retire at age 65. Without any adjustments for inflation your income is potentially worth $2.1 million until you retire.