Financial advice

Millennials, take charge of your financial future – Part I

We have all read about the financial plight of millennials, who are not only drowning in student loan debt but other loans and expenses as well. They include car payments, rents or mortgages, and credit card bills.

‘Tis season to set yourself good financial goals

This New Year it is also a great time to start making solid financial resolutions that can help get you closer to your money goals, whether it’s increasing your retirement savings or setting enough money aside for a down payment on a house.

The rise of robo-advice in wealth management

The concept of “robot-advice”, the use of automation and digital techniques to build and manage portfolios of exchange-traded funds (ETFs) and other instruments for investors, has gained significant attention within the wealth management industry.

Like Romans, fall on our sword and raise retirement age

The issue of ageing populations and funding retirement schemes is not a modern one - the Romans faced the same political and fiscal problems 2000 years ago.

Get Sorted: KiwiSaver deadline is end of June

14-feb-Kiwisaver-social.jpg

As published in NZ Herald, Hawke's Bay Today.

Deadlines can bring out our best work. Why is that? There's something about being under the pump that makes us rise to the occasion and simply get it done.

We just find a way somehow.

This time of year - before June runs out - is the deadline to get the annual $521 from the government into our KiwiSaver accounts. It would be great if we could all look at our situations - and consider those around us who may be missing out on the practically free money. If they're over 18, we might even help them top up their accounts so they get the most they can.

So many of us get the full amount that it's a shame for anyone to miss out what's due to them. And over the life of someone's experience in KiwiSaver, we calculated the government payments could be worth as much as $36,000. Now there's a chunk of change for you.

How to get your government money this year

The trick is to make sure that we've contributed at least $1,043 into our KiwiSaver account over the past year. (If you joined part-way through or turned 18 during the year, you'll be eligible for some portion of the $521, based on when you did. Everyone else can get the full five hundy.)

If you're an employee and earned at least $34,762 and contributed the minimum of 3%, you'll automatically get it. If you're self-employed and have already put in more than $1,043, you will too. No worries.

But if you haven't yet reached $1,043 this year, now's the time. Before the end of June, you can top up your contributions to that amount so you get the government boost. Simply contact your scheme provider and make it happen. Just in time to make the deadline.

And typically by the middle of August, we'll all see that extra $521 hit our accounts. Sweet.

How to make sure you'll get it next year

If you miss this deadline and don't manage to put in the full amount, you'll still get 50 cents for every dollar you did put in. That's worth something. But let's look ahead to next year.

The KiwiSaver year runs from July to June, so this coming July is a chance to reset our finances to make sure we're on track to for next time. If we set things up right, we can easily be on the money in June 2018.

Over a year, putting in $1,043 works out to slightly more than $20 per week, which is far more manageable than having to come up with the whole amount just before the deadline.

Automatic payments directly into our KiwiSaver accounts are our best friends here, allowing us to forget all about it and let it run on autopilot. Contact your provider to make this happen.

Out of sight, out of mind. And when next year's deadline rolls around, we'll all be ready.

  • Source: New Zealand Herald

A Question of Balance

We, humans, tend to prefer avoiding losses than securing gains. That's why volatile financial markets make us feel so anxious. Helping us to find a balance amid these natural emotions is the mark of a good advisor.

To understand the value of good advice, it helps to reflect on the cost of bad advice. And that has been evident in recent years as millions of people were pushed into strategies incompatible with their needs and risk appetites.

Bad advice means pandering to human emotions by exploiting greed and fear. It means pursuing high returns in the good times with little attention to risk and fleeing from risk in the bad times with no regard for return.

Good advice means taking the emotions out of the equation and showing us what we can and can't control. We can't control the ups and downs of financial markets. We can control the risk in our portfolios through broad diversification, astute asset allocation, and regular rebalancing.

Just having a detailed plan designed for our own risk appetites, lifestyle needs and long-term goals goes a long way to remove the anxiety from the investment process. During volatile markets, knowing that we have a diversified portfolio helps manage our personal tolerance for risk.

Bad advice panders to the view that the best way to invest is to attempt to time our entry and exit points. We are either in or out of the market. Getting that decision right, however, is notoriously difficult — even more so these past two years when risk assets undertook a complete u-turn.

By contrast, good advice stresses the virtues of discipline and patience. And that doesn't mean blindly sticking to a buy-and-hold strategy.

Regular portfolio rebalancing actually gives investors control over the risk in their portfolios. After a run-up in riskier assets, they can legitimately sell down the stronger performing asset classes and rotate into the poorer performers to bring their own intended asset allocation back on track.

Another way of looking at this rebalancing process is that the investor is selling high and buying low. This isn't a timing strategy, by the way, but a means of managing portfolio risk so the investor sticks to the original plan.

The absence of regular rebalancing was evident during the financial crisis when many investors found their portfolios had drifted out to the frontiers of risk without their knowledge or consent. The consequences for their long-term wealth in many cases were disastrous.

But just as a lack of rebalancing can throw a portfolio out of whack and undermine the targets of the original financial plan, too frequent rebalancing can be costly. These costs include fixed costs such as administrative charges and potential platform costs, alongside proportional costs such as buy/sell spreads, broker commissions, and capital gains taxes.

So the decision for advisors about when to rebalance often comes down to a question of balancing the benefits of keeping the portfolio within the investor's risk profile against the costs of changing the asset allocation. This decision is as much an art as a science. As such, there is no one 'right' answer, and the issue often can be dealt with by creating a 'hold' range within the portfolio.

The example in this graphic uses a balanced portfolio with a target ratio of 60% equities. In this case, the advisor has decided to allow a 5% buffer either side of this target to achieve a practical equilibrium between the need to maintain the broad asset allocation while minimising costs.

Jim Parkers' Balance graph

Jim Parkers' Balance graph

 

Aside from setting a non-trading region, another consideration in rebalancing is to use natural cash flows from regular contributions by the investor and cash distributions. That way the advisor reduces the need to sell securities, thus avoiding some of the costs of rebalancing.

Unlike the actual movement of markets, all these decisions are within the control of advisors and their clients. The result is the maintenance of a financial plan that the investor can live within the best of times, the worst of times and all the bits in between.

Markets are unpredictable. We can't change that. But we can build an asset allocation that successfully builds a bridge between our tolerance for volatility and our long-term investment goals.

With occasionally rebalancing to ensure the asset allocation continues to match our risk profiles, we can sleep better at night.

That is the value of good advice.

  • Source: Jim Parker, Outside the Flags