Financial Planning


Nobody Told Me

For the last 30 years, I have had the opportunity to attend great seminars, training courses, conferences, and read many good books and articles.  I very much enjoy my role as a financial adviser, constantly trying to learn more so I can provide better advice.

Jonathan Clements, a long-time personal finance columnist for The Wall Street Journal, is one of my favourite authors. He recently wrote an article on his website reflecting on his learnings and what he wished he had been told in his twenties, or told more loudly so he would have listened.

  1. A smaller home will enable you to save and invest earlier to accrue retirement income-producing assets.
  2. Pay off your mortgage as soon as you can. Your mortgage interest rate will typically be higher than the post-tax return from many investments.
  3. Watching the market doesn’t improve portfolio performance. It’s just a huge time waster.
  4. Nobody knows what the short-term investment performance will be. Clements wrote that one of the downsides of working as a columnist for The Wall Street Journal  was that “…you hear all kinds of smart, articulate experts offering eloquent predictions of plummeting share prices and skyrocketing interest rates that – needless to say – turn out to be hopelessly, pathetically wrong.”[i]
  5. You will end up treasuring almost nothing you buy. Most of the stuff we buy gets thrown away. This is where millennials seem to be wiser than us baby boomers.  They are more focused on experiences than possessions.
  6. Will our future self approve of the decisions we make today? Pondering our future self doesn’t just improve financial decisions. It can also help us make smarter choices about eating, drinking, and exercising.
  7. Relax, things will work out. As I meet with younger lawyers and professionals, I sometimes see a glimpse of the anxiety that I suffered in my 20s and 30s. In the early years of your career there is so much uncertainty. What sort of career, you will have? How will financial markets perform? What misfortunes might come my way? Clements encourages by saying “…if you regularly take the right steps – work hard, save part of every paycheck, resist the siren song of get-rich-quick schemes – good things should happen. It isn’t guaranteed. But it is highly likely. So, for goodness sake, fret less about the distant future, and focus more on doing the right things each and every day.”[ii]

Some great thoughts from Jonathan Clements on the Humble Dollar website.  I trust one or two of his observations resonate with you.

Andrew Nuttall is an Authorised Financial Adviser with Cambridge Partners, a fee only financial advisory practice based in Christchurch.  Andrew’s Disclosure Statement is available free of charge and on demand.  He can be contacted at www.cambridgepartners.co.nz telephone 03 364 9119.

 

[i] https://humbledollar.com/2020/02/nobody-told-me/

[ii] https://humbledollar.com/2020/02/nobody-told-me/


First Quarter Market Summary for 2020

Presented by Scott Rainey CFA, CFPcm, AFA Senior Adviser

Scott wasn’t going to let the lockdown stop him from recording his regular quarterly market update. So this edition has been put together with the help of his daughter Nina.

At the end of March the world was in the midst of the COVID-19 Pandemic, investment markets had experienced rapid declines and governments around the world had responded with large bailout packages. 

While market falls are never comfortable, they are also never permanent.  Cambridge Partners’ Adviser Scott Rainey reviews market returns for the quarter but also puts those numbers in perspective by reviewing returns over longer time periods as well.  Grab a coffee and have a look.

And if you have any questions please feel free to give Scott or any of our Advisers a call on 0800 864 164.


10 Things You Should Do Right Now

From Jacob Wolt, Managing Partner Cambridge Partners

We live in history making times. Feelings of uncertainty, worry and anxiety are understandable. The challenge for us all is to focus on the things we can control and to let go of the things we can’t.

Humanity has been through many difficult periods in the past such as; the Great Depression, Spanish Flu’ pandemic, two world wars  and the global financial crisis. They were all difficult times but the world got through them.

This current crisis too will pass and, thankfully, the seeds of optimism are evolving that there is a way through this.  From an investor’s perspective this period of significant market volatility also will eventually pass.

Every market decline is driven by a slightly different set of circumstances and events, but the best response to each is usually the same.  Here are ten time-proven tips, to help keep things in perspective:

  1. Cambridge Partners has helped you establish a balance between your growth (equity) and defensive (high quality bond) assets to ensure that you can withstand temporary falls in the value of your portfolio. If necessary, we’ll rebalance your portfolio to make sure you have the right level of equities to benefit from future market rises.
  2. Be confident that your defensive assets will come into their own, protecting your portfolio from some of the equity market falls. Be confident that you have many investment eggs held in different baskets.
  3. If you’re taking an income from your portfolio, remember that if equities have fallen in value, you’ll be taking your income from your bonds, not selling equities when they’re down.
  4. Remember that without risk there wouldn’t be any reward. Whilst short term movements in share markets can be unsettling, by holding growth assets you are positioned to reap higher long-term returns.  Remember also that you most likely hold fixed interest bonds in your portfolio, so any decline in your portfolio won’t be as much as headline market falls indicate.
  5. Don’t measure your portfolio’s performance from the top of the market, but over a longer and more sensible time-frame.
  6. Don’t look at your portfolio value too often – get on with more important things. If you’re looking every day, then think about how this behaviour is affecting you, and if it worries you, then stop.
  7. Accept that you cannot time when to be in and out of markets – it’s simply not possible.
  8. If markets have fallen, remember that you still own everything you did before. A fall does not turn into a loss unless you sell your investments. If you don’t need the money, why sell?
  9. Research has found we perhaps feel twice as much pain from losses as we experience pleasure from gains.
  10. Control what you can – financial markets may be volatile, but your financial life doesn’t have to be. There’s so much that you can control including your own emotional response to the market’s turmoil.

 

 

 

 

 


Lessons from History – And Why They Matter Now

By Jacob Wolt, Managing Partner Cambridge Partners

“The only thing in this world is the history you don’t know”. Harry Truman, the 33rd President of the United States had a profound love of history. Truman looked to history for guidance on many of the issues he faced during his presidency, including the establishment of the United Nations, the ending of World War II, the economy, civil rights, the recognition of Israel and the Korean War. Although each of these issues were “new”, in Truman’s view they were also “old”. Truman reflected on history to help make better decisions in the present.

The current Coronavirus pandemic is new, but a crisis having an impact on share markets is not new at all.

The table below shows all the major downturns on the S&P 500 since the start of WWII, and their subsequent recoveries.

Notes:  This table is based on the price only version of the S&P 500 Index and therefore ignores the effects of dividends.  Returns after 12 and 36 months are shown on a total return basis i.e. they have not been annualised.

Given the wealth of historical information, what can we learn?

Here are a few important observations:

  1. In the past we’ve experienced events that have significantly impacted markets on average every five years. If you plan to be an investor over the next 20 years and this average is maintained, you could experience four or more market downturns.
  2. There’s never been a bad time for long term investors to buy into markets. Even if you had the worst timing in the world and bought in at the peak of the market in September 2000, and sold at the low point in December 2018, you would still have more than doubled your money.
  3. Since the end of WWII, approximately 75 years, the market has increased in value about 150 times. You might ask yourself, how could you possibly lose money in this sort of market? Yes, it would be hard, but those that did were probably trying to predict or avoid the downturns. They only succeeded in missing out on too many of the strong gains that occurred on either side of a downturn.
  4. Markets recover fast. Although we can never pick the bottom of the market, based on the data in the table above, the average return for the next 12 months, following a low point, has been positive 35%, and over 3 years it’s positive 61%. These historical recovery rates provide encouragement to all investors to stay in their seats in a crisis.

Investors may ask themselves, “Given all I can see throughout the history of capital markets, how should I respond to this latest drop in prices?”.

History is critical in answering this question; it provides an important basis for making better decisions.  Although a history buff himself, Truman expressed his frustrations of humans often being too slow to learn from the past.

Truman once told the American author and novelist Merle Miller, “the next generation never learns anything from the previous one until it’s brought home with a hammer…. I’ve wondered why the next generation can’t profit from the generation before, but they never do until they get knocked in the head by experience.”

It’s fair to say that many investors have now been ‘knocked in the head’ by experience, and some younger investors are going through this for the first time. But here’s hoping, despite Truman’s scepticism, that we can all profit from the generations before us and use our knowledge of history to help us make better decisions today.

Our thanks to Consilium for helping to supply the original material in this article.

 


Coronavirus Update from Cambridge Partners March 19th 2020

Presented by Richard Austin, Cambridge Partners Managing Partner 

Watch Richard’s video presentation below, or read on for a detailed analysis.

Introduction

These are extraordinary times.  It has been just two weeks since we provided our last update, but a lot has changed.

  • The World Health Organisation officially declared Coronavirus a ‘pandemic’ on 11 March 2020
  • Travel bans have been put in place around the world, schools are being shut and large events cancelled
  • Anyone coming to New Zealand, except those from some Pacific Islands, must go into self-isolation for 14 days
  • In the US the Federal Reserve cut its overnight rate to between 0% and 0.25%
  • Closer to home, the Reserve Bank of NZ has made an emergency cut to the official cash rate this week, from 1.0% to 0.25% (a drop of 0.75%), which will last for at least the next 12 months

 
Governments in NZ and around the world are putting in place financial packages to help support business.  This may help reduce the impact of the slowdown, but it is likely the economic effects of the virus will be widespread for weeks and months to come.
 

What is happening in markets? 
 
Share markets react to new information and reflect general investor sentiment.   As the scale of the effects of the virus have become known, markets have priced in the expected reduction in company earnings and outlook, causing share prices to fall.
 
As we release this update, the fall in the US S&P 500 from its recent peak in February has been around 30%.  While the Dow Jones has fallen 33%. Returns differ depending on each country, but the falls are of a similar magnitude around the world.
 
It’s fair to say that investor sentiment has turned almost 180 degrees from being very positive at the start of 2020, following nearly 10 years of gains, to one of being fearful and full of uncertainty.
 
As we know we know markets are driven by both fear and greed, and we are now seeing a high level of fear return to markets.


 
What effect will the downturn have on my portfolio?
 
New Zealand is a relatively small economy and as a net exporter, we are exposed to events that happen around the world.
 
However, our portfolios contain many thousands of underlying investments to ensure we are not overly exposed to any one specific company, sector of the economy or country.
 
We also have an approach of holding a high proportion of the portfolios in offshore assets.  The benefits of this approach are generally two-fold – our clients receive greater country diversification, but also any losses experienced offshore are dampened if the New Zealand dollar falls.
 
In addition to holding growth assets like shares, our portfolios also hold defensive assets, such as New Zealand and International Fixed Interest.  In times like these, the aim of the defensive assets is to reduce the overall effect of the fall in share prices. 
 
For example, a 50/50 portfolio with 50% in growth assets and 50% in defensive assets is down around 13% from the recent peak in February and around 6% over the past 12 months. 
 
Whilst these are significant falls, and no doubt concerning for investors, its less than the 30% fall that equity markets are experiencing.


 
Should I sell shares and reduce risk?
 
Share prices react very quickly to new information.  A good starting point is to assume that all the information that is currently known about the virus and other events around the world is effectively ‘priced in’.
 
As new information becomes available – markets react.  If the news is negative or worse than previously predicted, markets generally fall, whereas if the news is positive, or not as bad, markets generally rise. 
 
Whilst we cannot predict tomorrow’s news, or events that are yet to happen, we do know that if investors sell in times of market stress such as these, they are much more likely to lose money, than to gain.
 
Not only have you got to predict the best time to sell, you have to predict the best time to buy.  When investors try and do this, or base decisions on the emotions of fear and greed, they sell after markets have fallen, and buy only after markets have gone up.  This is a sure fire way to lose money.

 
As a client of Cambridge Partners, it is also worth remembering the planning process you went through with your adviser, when you initially determined what type of investment strategy was suitable for your needs and objectives. 
 
This strategy was designed knowing that events like this can, and sometimes do, happen.  This means if your plans or objectives haven’t changed, your portfolio may still be appropriate for your long-term objectives.



 How long will it take for things to recover?
 
The short answer is that nobody knows. 
 
However, it looks like the next three months could be rough for the global economy, financial markets and investors.  It’s likely that we’ll see plenty of profit warnings from companies and some economies in recession.
 
But at some point, things will get better.  In the Northern Hemisphere the summer will arrive, which may take some sting out of the virus and, at some point, a vaccine may emerge. 
 
It’s important to bear in mind that no one waves a flag, or blows a whistle, when the markets hit their peaks or come off their lows.  But at some point, markets will recover – and it is normally before we’ve seen hard evidence of the global economy improving. 
 
If we remember the Global Financial Crisis that started in late 2007, the S&P 500 hit its low in March 2009, while the world was still in the depths of recession and investors couldn’t see a way out. 
 
However, six months later the S&P 500 had rallied 53% – anyone who was sitting on the side lines waiting for firm evidence of the improvement, missed out.
 
The message here is that abandoning your longer-term investment strategy and reacting to your fears, may hurt your portfolio’s overall performance.

 
Is there anything I should be doing now?
 
If you are feeling concerned or anxious – that’s OK and perfectly normal.  We encourage you to reach out to your adviser.
 
There is a heightened level of uncertainty and anxiety at present, but what we do know is that, at some point, markets will recover.  However, what we don’t know is exactly when.
 
In interim, there are some practical measures you could consider:

  1. If you are regular taking money out of your portfolio, then consider reducing the amount you are withdrawing, or suspend withdrawals for the next few months.
  2. While it may seem perverse, if you are holding cash in your portfolio, the fall in markets, does represent the opportunity to re-balance into growth assets at these lower prices.
  3. Work with your adviser to review your current investment strategy and objectives against the outlook for your portfolio.

 
We also encourage you not to let fear drive your decisions and sell after markets have fallen. 
 
It is a difficult time right now, but we know from experience that you’re much more likely to lose money than to gain, if you try and time the low and high points in markets.

 
How will the virus affect Cambridge Partners?
 
Last month as part of our Business Continuity Plan we conducted tests on our processes in the event we had an outbreak of Coronavirus in the office. This included how we would communicate with clients and manage the effects within the office, along with maintaining business as usual.
 
We’re pleased to advise that our tests were successful and with laptops, mobile phones and secure internet connections we are confident that we will be able to continue to operate at close to normal capacity if we are required to work elsewhere.
 
We are very conscious of all the health warnings and have advised staff to stay at home if they are feeling at all unwell.
 
Meetings are still being held in the office and we are monitoring the appropriateness of this daily.
 
We aim to continue to provide updates as the situation develops.  But if you have any questions or concerns, please reach out to your adviser or one of the team.

 
 


Suddenly Single – Financial Advice for Women in a Life Transition

It is sobering to think that around 80% of women will die single, compared to only 20% from men.

These statistics reinforce the need for any woman who finds themselves unexpectedly in control of their finances – whether by choice or unhappy circumstances – to have access to unbiased, expert and empathetic financial advice.

In this brief video, Cambridge Partners’ financial adviser, Pip Kean, shares some of the issues faced by women who find themselves suddenly single.


A Market Update on the Effects of the Coronavirus

Presented by Richard Austin, Cambridge Partners Managing Partner 

Watch Richard’s video presentation, or read on for a detailed analysis.

The world is, as we are, watching with concern the spread of Coronavirus (COVID-19).  Uncertainty is being felt around the globe.  It is unsettling on a human level as well as from the perspective of how investment markets will respond.

Market declines can occur when investors are forced to reassess expectations for the future.  The expansion of the outbreak is causing worry amongst governments, companies and individuals about the potential impact on the global economy.  Earlier this week the OECD predicted that global GDP growth could now be 1.5% in 2020, which was half the rate it was predicting before the outbreak.

But what should you do regarding your investments?  As always, we lean into the evidence to determine our advice.
Looking back to recent pandemics, particularly SARS, helps provide context.

There are no definitive timelines for when SARS started and stopped, but broadly speaking the virus was active over an eight month period between November 2002 and July 2003.

It was certainly an unusual time.  For anyone travelling overseas in that period, they may recall individual health screening at country borders.  At the time travellers felt unsettled, but people continued to go on with their lives.  Business and commerce still functioned.

Interestingly, our model portfolios performed well over that eight month period.  Despite SARS and increased global uncertainty, our portfolios were up between 4% and 5% after funds management fees.  One year after SARS was first observed, our model portfolios were up between 6.8% (for an 20/80 portfolio with 20% in growth assets and 80% in cash & fixed income) and 11.6% (for a 98/2 portfolio with 98% in growth assets and 2% in cash).

If investors had chosen to sell out of their investments, it would most likely have been a poor investment decision, given the subsequent performance of markets. 

It may also be worth noting that SARS had a mortality rate of approximately 9.6%.  How is this relevant?  Well, perhaps it isn’t, but the Coronavirus has a mortality rate currently hovering around 2% and doctors are predicting it will ultimately be less than 1%.

Whether that makes it less scary than SARS might be a moot point, but regardless, markets treated investors well through the SARS outbreak and there is no reason that the same won’t happen through the Coronavirus outbreak as well.

As at February 27th, most of our model portfolios had been only modestly impacted by the increased market volatility experienced.  Year to date, the approximate performances of our model portfolios ranged from +0.3% for our lowest risk portfolio (a 20/80 portfolio) to -7.0% for a 98/2 portfolio.  For many, a better indicator may be something closer to a balanced 50/50 portfolio which is currently showing a year to date return of -2.0%.

The media are doing their best to paint a picture that markets are crashing, but these sorts of returns, whether Coronavirus was an issue or not, are not out of the ordinary for portfolios containing allocations to higher risk assets.
Of course, SARS hasn’t been the only global health scare to hit the headlines in the last 20 years. The following table highlights a few of the higher profile pandemics in recent history.  We have identified an estimated start date for each of these pandemics and then looked at the subsequent performance of a balanced 50/50 model portfolio over the next three months, six months and twelve months.

The results may surprise you…

 

 
Start date
Model 50/50 portfolio returns:
After 3 months          After 6 months        After 12 months
SARS November 2002 -2.2%  0.8%  9.0%
Avian Flu June 2006  0.1%  4.3%  7.4%
Swine Flu April 2009  6.9% 11.7% 19.5%
Zika Virus January 2016  4.5%  7.4% 10.2%
Coronavirus Early 2020    ?    ?    ?

 
Source:  Consilium.  A 50/50 Portfolio has 50% allocated to growth assets and 50% allocated to cash and fixed income.
Within the first few months, the performance of markets and portfolios can be mixed.  During SARS, which was the first global pandemic to emerge in quite some time, the early reaction of equity markets was quite negative.  During the Avian Flu outbreak a few years later, it was relatively flat.

What is even more striking is that markets within six and twelve months from the start of each of these outbreaks, regardless of their perceived severity, generally rebounded strongly.

What will happen in the weeks ahead with respect to the Coronavirus outbreak?

The truth is that no-one knows.  Markets today are reflecting heightened uncertainty in the form of lower prices.  As soon as there is new information (good or bad) this will also be priced in.  When the tone of the news flow gradually changes from contagion to containment, and eventually cure, then market risk and uncertainty should reduce, which is likely to be positive for risky assets.

While this heightened uncertainty may be uncomfortable for investors, don’t be surprised if the Coronavirus can be added to the list of issues that might make an investor think about selling, our general response is that it’s unlikely to be a good idea to sell investments.  Although we can’t see into the future, we can observe the past and we have witnessed the best recommendation is to stay focused on the long term and maintain your strategy.
      


Cambridge Welcomes Two New Partners

Congratulations to Pip Kean and James Howard, our newest Partners.

Pip has worked at Cambridge Partners for many years, working initially with our risk management team before moving to wealth management.

James joined us in 2018 after spending eight years at one of the big four accounting firm, and working as a senior manager in their international tax and transfer pricing team.

Everyone at Cambridge Partners is delighted that your hard work and commitment to the company and your clients has been acknowledged in this way.  Congratulations to you both.


What Do I Want My Money to Do For Me?

Most people HATE budgeting.

They hate the idea because it feels restrictive. They hate the process because it makes them afraid to admit where are their money is actually going. And they probably hate the word because budgeting doesn’t sound like something that’s fun to try.

Most people assume budgeting is about saving money but it’s really about how you choose to spend your money. One of the better books on the topic is You Need a Budget by Jesse Meachum, who does a wonderful job of re-framing the budgeting conversation.

He made three points worth highlighting:

  1. Design your financial life around your priorities. There’s an old adage that goes something like this: if you want to know where your priorities lie, take a look at your bank statement and your calendar.

Meachum rightly talks about the importance of prioritizing your spending:

Without a budget you have no way to prioritize your spending and may not even know where your money is truly going. You may stress about not being able to afford what’s important to you while you simultaneously spend on things you’d willingly nix if you could see the trade-offs. A budget lets you see exactly how your spending affects the rest of your life.

  1. Try to make your “emergency fund” obsolete. An emergency fund can often morph into a catch-all savings account that pays for expenses people know are coming, they just don’t know when. Most of the time these are not actual emergencies, but infrequent expenses you can plan ahead for.

Meachum breaks things down by your true expenses:

Whether expenses happen like clockwork (rent), feel impossible to predict (car repairs), or are just far-off dreams (cash for a wedding), they are all part of your true expenses. The key is to prepare a bit at a time by treating them all like monthly expenses.

He recommends adding line items into your monthly budget for these infrequent expenses so you can break them up into more digestible pieces. This turns it from an emergency fund into a more well-thought-out spending plan.

  1. Budgeting is personal. Rules of thumb can help with the decision-making process when there are too many choices but you have to pick your spots with these things, especially with your finances.

There are financial rules of thumb like the one that says you should allocate 50% of your money to necessities, 30% to wants, and 20% to savings or debt payments.  The problem is the percentage approach fails to take into account personal circumstances.

Spending your money in a conscientious way will always require trade-offs. Many of those trade-offs are determined by variables like where you live, your chosen profession, your family situation, your level of savings, and your burn rate.

As Meachum says, “The point is to decide what your priorities are, and then make a plan to meet them.”

Adapted from an article by Ben Carlson of Ritholtz Wealth Management

Cashflow Modelling Explained

Many people struggle to actually ‘see’ what they will need to secure the sort of retirement they hope to enjoy. 

In this short video, Cambridge Partner Andrew Nutttall diagrams the six key variables that you need to consider if you want to enjoy a secure retirement.


Second Quarter Market Update Released

Another three months have flown by, which means it is time for another one of our Adviser Scott Rainey’s much-anticipated quarterly market updates.

In this informative video you’ll learn:

  • Why New Zealand isn’t just a great place to live, but the NZ Sharemarket has also been good place to invest
  • How two record OCR lows in a row may not be the end of interest rate drops
  • Why the last 12 months have been very much a year of two halves, and what this has meant for investors
  • Plus plenty more interesting, informative and useful information

So grab a coffee, take 12 minutes, and have a look.


All The Financial Advice You’ll Ever Need (On One Page)

Here’s another excellent article from our own Andrew Nuttall.  This ran in last month’s local law society publication ‘Canterbury Tales’ and contains the sort of advice we’d love to see taught in High School, but is equally relevant to people of all ages.

Jim Rohn, the author of ‘The Art of Exceptional Living’, once said, “success is nothing more than a few simple disciplines, practised every day”.  Many of the most successful investors aren’t necessarily the smartest, or blessed with amazing talents, but do have the discipline to do the simple things well, and to do them over and over again.

Try following this simple set of rules, repeating them regularly and see how close to achieving your financial goals they will take you.

  • Rule Number 1 – Make your own lunch and drink the boss’s coffee (and save $2,500 + per year).
  • Rule Number 2 – Don’t borrow to buy a car! (or anything that depreciates)
  • Rule Number 3 – The worst advice you can get can come from a well-intentioned friend or your neighbour.
  • Rule Number 4 – Remember that the media is not interested in your financial success (they just want your attention to sell advertising).
  • Rule Number 5 – Too many people spend money they earned…to buy things they don’t want…to impress people they don’t like.
  • Rule Number 6 – Your investments shouldn’t be your entertainment.
  • Rule Number 7 – Contribute to KiwiSaver and make a choice about where you want to invest (don’t just go with the default fund).
  • Rule Number 8 – Save 10% of your income. (i.e. pay yourself first)
  • Rule Number 9 – Pay off your personal debts as soon as you can and your credit card balance in full every month.
  • Rule Number 10 – Insure for what might happen, set aside savings for the inevitable.
  • Rule Number 11 – Remember that thrift is a virtue.
  • Rule Number 12 – Diversification. It is investors only free lunch.
  • Rule Number 13 – Remember that risk and reward are related – if it looks too good to be true it probably is.
  • Rule Number 14 – Stop, think, plan, write it down, act, review.
  • Rule Number 15 – Keep it simple and reduce your clutter to help you clarify your thinking.
  • Rule Number 16 – Remember the above rules.

Please drop Andrew an email on andrew.nuttall@cambridgepartners.co.nz if you have some rule of your own to add and he will put you into a draw for a voucher at one of Christchurch’s new restaurants, The Permit Room in Victoria Square.

 


What’s Your Financial Personality?

Russ Alan Prince, one of the world’s most published authors on the topic of private wealth, has put together this list of nine financial personality types. 

We all fall into one of these categories, regardless of how much we are worth.  But the majority of the seriously rich among us fall into just three of them.

Read through this list of personality types to find out what category you fall into (or ask your nearest and dearest if you dare!).  Then see if you can pick which three belong to the super rich – answer at the end of the article.

21 per cent Family Steward: Focus on taking care of the people they love. They care about education, their children becoming hard-working and successful and passing on an inheritance.

17 per cent Phobic: Doesn’t like investing, doesn’t want to learn about it or understand it. They like to delegate and have trust.

13 per cent Independent: Wants financial freedom and flexibility to do what they want, when they want. Money is just a means to this end.

12 per cent Anonymous: Very private people who don’t like sharing their financial position. Confidentiality is everything.

10 per cent Mogul: Enjoys the power, influence and control that money can give.

8 per cent VIP: Enjoys the possessions and social respect that comes from money. Prestige is important.

8 per cent Accumulator: Saves more than they spend, doesn’t show their wealth and might live below their means as money makes them feel more secure.

6 per cent The Gambler: Wants to beat the market and likes the excitement. It’s all about the returns.

5 per cent The Innovator: Likes things that are technically clever, new funds, and trading methods. They veer to complex strategies.

The three personality types you were looking for were family steward, the phobic and the independent.  But, more importantly, which personality type were you?


Is Your Will Up To Date?

As a regular contributor to the Christchurch law society magazine, one of our Directors, Andrew Nuttall, has recently written a thoughtful article about wills.
Although aimed primarily at the legal profession, there is some great information here for all of us on a topic that, although none of us really want to think about it, is vitally important for us and those we will leave behind.

Over the last 30 years I have met with many prospective clients who do not have an up-to-date will. How much family tension have you seen that could have been avoided if clients had taken more care with their estate planning?

We have all come across people who need a will but are reluctant to contemplate their demise. We are all, however, going to need a will and having a relevant one makes it easier on those left behind. The inability to admit that their death will occur cannot be the only reason many are reluctant to have an up-to-date will. It has to be something more than that.

Historically, some lawyers have often given wills away for nothing – a mistake in my opinion by the way.  Has this created a reluctance to pay for what is a valuable service?  Why is it that people fail to address their estate planning appropriately?

» Have you subconsciously determined the objections to paying for a will are too pronounced to justify spending sufficient time with your clients to help them think carefully about their estate planning?

» Are your clients failing to recognise the value and peace of mind they will gain by having well-drafted wills and estate plans?

» Are you not recognising or underestimating the value and peace of mind you provide your clients by encouraging them to think about their estate planning?

» Has the importance of having an up-to-date and well-drafted will been under-mined by offers of “free” wills?

Wills are one of our most important documents, we are all going to need one.

Below is a list of, what I hope are, helpful suggestions that I have picked up over the years from estate planning lawyers:

» Have your client list their assets and liabilities, family members and any friends or organisations they might want to recognise – this may help them realise quite why they do need a will.

» Ask your client the following question. “If you had passed away yesterday what would you want to see happen to your assets tomorrow?” There is nothing like confronting your own mortality to get us thinking.

» Ask your client who would be the best people to be responsible and ensure their assets ended up in the right hands and their wishes are implemented? The prospect of their incompetent uncle making decisions can create some intent.

» Do not post out a draft will and wait for it to be signed and returned. Many people have neither the ability nor inclination to read a legal document – it ends up sitting on the kitchen bench, unsigned. Why not, at the conclusion of your initial meeting, make a time to meet again – a call to action and a commitment to do something all in one?

» If your client is reluctant to sign the newly-drafted will, urge them to do so as it is likely to be better than their existing, out of date, will or the non-existent one.


The Seven Hats of Financial Advisers

This article is in the next edition Canterbury Tales – our local Law Society publication – and is written by one of our Directors, Andrew Nuttall.  Although aimed at the legal profession, it does a great job of explaining the many ways we help our clients, which go far beyond investment advice.

When people approach us for investment advice at a personal level, or in their capacity as Trustees, they can be inclined to see us as playing just one role – delivering market beating returns year after year. Unfortunately,  we don’t have a crystal ball that allows us to always select the top performing fund or security with-out the benefit of hind-sight. However, helping trustees and other clients make sound decisions about their investments is our core role, and we have found that there are seven hats we aspire to wear without ever having to try and predict the future.

  1. The Expert: Investors need advisors who can provide an objective assessment of the state of their finances and then develop risk aware strategies to help them meet their goals.
  2. The Independent Voice: Our clients value an independent and objective voice in a world that is sadly still dominated by people either promoting their employers’ products or other securities that pay a commission and encouraging clients to buy and sell securities.
  3. The Listener: The emotions triggered by financial uncertainty are real. A good adviser will listen to client’s fears, tease out the issues driving those feelings, and provide practical long-term answers.
  4. The Teacher: Getting beyond the fear and flight phase often is just a matter of teaching investors about; risk and return, diversification, the role of asset allocation, and the virtue of discipline.
  5. The Architect: Once the above lessons are understood, the adviser becomes and architect, building a long-term wealth management strategy that matches each person’s appetites and lifetime goals.
  6. The Coach: Even when the strategy is in place, doubts and fears inevitably rise. At this point, the adviser becomes a coach, reinforcing the first principles and keeping the client on track.
  7. The Guardian: The long-term role of an adviser is that of a light-house keeper who scans the horizon for issues that may affect clients and keeping them informed.

Our industry (I believe that one day it will become a profession) is rapidly moving in a positive direction. The provision of prudent investment advice involves much more than making predictions on tomorrow’s winning asset classes, securities or products.  There needs to be greater emphasis and focus on process, governance and investor outcomes.


Ten Years On From The GFC – What Have We Learnt?

The GFC (Global Financial Crisis) is widely considered by economists to have been the worst financial crisis since the Great Depression. Its effects were so wide-spread and profound that even Queen Elizabeth, whose personal fortune had fallen by more than $50 million, demanded economists explain why they hadn’t seen the crisis coming.
Around the world blame was distributed far and wide – lax regulations, too much regulation, excessive debt, irresponsible lending, complex financial products, compromised ratings agencies, an over-reliance on mathematical models, and just plain old greed were all cited as culprits.
But aside from a temporary seizure in short-term money markets, global share and bond markets performed as you would expect at a time of heightened uncertainty. Prices adjusted lower as investors demanded a higher expected return for the risk of investing.
And it wasn’t long before the markets started to see a reversal – By the end of 2009, the New Zealand market rebounded by more than 19% after a near 34% decline in 2008. Australia’s S&P/ASX 300 index performed even better, returning to almost the same levels as before the GFC.
Emotions are hard to keep in check during a crisis and there can be an overwhelming compulsion among investors to “do something”. But, as it turned out, those who listened to their advisors and stayed disciplined within the asset allocation designed for them have done considerably better than many people who capitulated and went to cash in 2008−2009.
An investor who had begun investing in the New Zealand market at the start of 2008 would still have experienced a 7.6% annualised return by the end of 2017.  Using a global balanced strategy of 60% equity and 40% fixed interest, the return was 5.4%p.a.These results show we can do ourselves a favour, both materially and emotionally, by accepting that volatility is a normal part of investing and by sticking to a well-thought-out investment plan agreed upon in less stressful times.

This blog has been taken from an article by Jim Parker of Dimensional. Read the full story here

Putting the recent market volatility into a longer term context

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 them over the course of three weeks in October. What’s going on?
Let’s remind ourselves how markets work.
Prices went down because some investors decided to sell.  But for every seller there is a willing buyer.  The aim of the buyer wasn’t 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 by finding a price at which they are both willing to trade.
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 fact 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 as investors agreed to purchase 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.
Shares are volatile.  The chart below shows the quarterly return of a portfolio 98% invested in shares.  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 Global Financial Crisis and anything else you want to throw into the last 20 years or so.

The 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 more than they go down, and that consistent exposure to these markets is a key driver of long-term wealth creation.
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.  Give your adviser a call and we’ll be happy to talk through the recent changes to your portfolio in the context of both your short and longer term goals.

Our thanks to Ben Brinkerhoff from our associate company, Consilium, for this great article.


“I’m at the top of my game – and I don’t feel old!”

Here’s a very interesting interview from retirement commissioner, Diane Maxwell, which screened on TV3 this morning. Well worth a read or watch in its entirety, but here are some of the key points:
– Most ‘retirees’ don’t feel old – ‘they are fit, healthy and active and want to get up in the morning and do something’.
– Most kiwis want to retire when they are aged between 68 and 72 NOT 65
– 63% of people don’t believe they will have enough to retire on when the time comes
Diane Maxwell was reluctant to put a figure on just how much any one person needs for retirement as needs and expectations vary.  But she did suggest that one of the key tools to help was to always have a three month buffer – in other words enough money in the bank to tide you over for three months if you weren’t able to earn money during that time.
This was necessary regardless of age because it helped protect against a downward spiral of additional debt which could happen at any time, and seriously compromise long-term savings plans.
And what was the message she was getting back from those she talked to who had either reached or were close to retirement? “Don’t write me off – I’m at the top of my game, and I don’t feel old!”

Read or watch the full interview here

 

 


Now and Then

You are more likely to recognise the stairwell than the person here!  That’s because it’s from the set of The Big Bang Theory – one of the longest-running and most popular sitcoms on our screens today.  Its Executive Producer Dave Goetsch reflects here on how much his attitude to investing has changed in the last ten years.  One of the biggest differences? Finding a good financial adviser.

I haven’t changed because the stock market rebounded. I changed because I learned that there was a different way to think about investing.

Seeing all the recent headlines about the sudden downturn in the stock market has transported me back to February of 2009, when I was close to despair. It’s striking how different I feel now.

In February 2009, the stock market was down around 50% from its high, and everyone seemed to feel like the sky was falling. I was familiar with this state of panic because my relationship to the financial markets was that I didn’t trust them.

They were always going up and down in ways no one could predict, and I couldn’t trust those folks who said that they could anticipate what was going to happen. So when the market went down, I went down with it—sinking into a depression, knowing there was nothing I could do.

What a difference nine years make. I haven’t changed because the stock market rebounded. I changed because I learned that there was a different way to think about investing. I was right not to trust those people who thought they could predict what was going to happen in the markets, but I was wrong in thinking that there was nothing to do. I’ve learned that I can have a great investment experience if I just accept a few simple truths.

I have to understand the uncertainty of the market. The stock market, as measured by the S&P 500 Index, has returned about 10% per year over the last 90 years,1 but there are very few individual years in which it has ever actually returned that amount. In fact, how many of those 90 years do you think the S&P 500 was up more than 20% or down more than 20% for that year? The answer is 40. Astounding, right? I wish somebody had explained that to me decades ago. Then I would have known to look at stock market returns in terms of decades—not years, months, days, or hours. I would understand that so many of those articles and cable news pieces are just noise, designed to keep an audience obsessed and unsettled.

I haven’t changed because the stock market rebounded. I changed because I learned that there was a different way to think about investing.

In order to be a long-term investor, you have to have a long time horizon. This can be hard to remember when you’re being assaulted by noise, but if you can stay strong, the results are stunning. By results, I don’t mean the investment returns, which hopefully are good. The return I’m talking about is how I feel every day. I worry less—not just about the future, but also about the present. Of course, I know that there are no guarantees when it comes to investing, but I feel like I’m going to be okay. I have a plan.

There’s no way I could’ve done this without a financial advisor. I needed someone who could not just talk me through what my asset allocation should be, but also help me work through how I felt about investing and what exactly I could do to change my perspective.

I was a mess nine years ago. Now, my outlook is totally different. The markets haven’t changed; they still go up and down. The difference is, I don’t anymore.

Thanks to our Associates at Dimensional Fund Advisors for the use of this article.

 

 


Welcome to James Howard

We’re delighted to welcome James Howard to Cambridge Partners. A Canterbury local, James received his BCom at University of Canterbury majoring in accounting, finance, management and information systems.

Following his graduation, he joined EY, working in the International Tax and Transfer Pricing department. His involvement with the company spanned almost a decade, and included three years in the Netherlands working in the Operating Model Effectiveness team.

Along with New York, London and Singapore, the Netherlands is one of EY’s key hubs for Operating Model Effectiveness, so this was an excellent opportunity for James to challenge himself and gain valuable professional experience in this area. On a personal level, it provided him and wife Kate with an opportunity to fulfil a dream to see more of the world.

“I had a blast and learnt a lot and, to be honest, if it was a bit closer to home we might have stayed,” he says with a smile. “But ultimately the 26-hour flights home become a bit much for both of us. And, as much as we loved our time overseas, we’re very happy to be back in Christchurch closer to our family and friends.”

After initially returning to EY in Christchurch on his return home, James moved to Otakaro Ltd – the crown-owned entity which is responsible for delivering the anchor projects currently underway as part of the Christchurch rebuild.   Here James provided Commercial and Economic Advisory in the Strategy and Planning team. “It was great learning and a good experience but ultimately not what I was looking for” explains James. “I missed developing relationships with clients and working with those clients to create value and achieve their goals.”

James loves skiing, mountain biking “Basically any outdoor activities. I also used to be an avid rower, however it’s been a few years since I’ve sat in a boat…” He is still involved in the sport though, as he sits on the board of Southern Rowing Performance Centre.


Life is for Living

All the technical talk about investment and superannuation and asset allocation overlooks a few key principles for everyone – life is for living and it’s important to strike a balance in all things, including saving versus spending.  Jim Parker from Dimensional – a highly regarded author and business journalist – has shared these great insights about how to manage the tension between enjoying what you have today and putting money aside for the future.

How Much Do You Need?
Feeling more comfortable about saving for retirement often comes down to setting out in practical terms the kind of lifestyle you want. You also need to consider the costs of aged care and inevitable medical bills. Your Cambridge Advisor will be able to sit down and help you work out how much is enough – and the sooner you can do this, the better.

Finding Your Own Balance
Most people are constantly trying to strike a balance between enjoying life now and ensuring they have the resources to enjoy life later. The good news is there is no ideal balance. It depends on your own goals, needs, resources and expectations. But there are ways of thinking through this challenge.
How do you strike the right balance between saving for the future and enjoying life now? Start by accepting there is no such thing as perfect.

The YOLO Principle
Many people live unnecessarily frugal lives in retirement for fear of running down their principal. But isn’t enjoying the money you’ve saved the entire point? Yes, there is a risk of running out of money. Equally, there is a risk that you never enjoy what you have. Tony Isola recommends the ‘YOLO’ Principle (You Only Live Once).
Which is the bigger worry in retirement – running out of money, or failing to enjoy the money you have saved? Only you can answer that question, but having a clear picture of what you have and how long it will last will definitely help you decide.


Do you know what you are entitled to?

It is the time of year where we begin to reminisce on the year that 2017 has been. A main feature for New Zealand has, as it does recurringly, been the election. As both major parties tried to win over the public, superannuation was one topic that was heavily debated. At the time this all got caught up in the election whirlwind but as the memory of the election starts to dissipate with a government now being formed, the logical question to ask is where will all your income come from once you retire?

For many, that income will be derived from a variety of sources including:

  • New Zealand Superannuation
  • Personally owned investments, e.g. share dividends or property rental
  • Private pensions
  • Government Super Fund (GSF)
  • Any ongoing salary or business income from your own efforts

Since superannuation has been the term thrown around the most in recent times it is important to understand exactly what it means.

It is a relatively simple system, isn’t income or asset tested. A millionaire couple living in a mansion in Herne Bay, Auckland will receive the same amount as a couple living in a cottage in Hokitika. It’s fair to say that retirees in New Zealand have it good!

However, it does require you to be over the age of 65 and must have lived in New Zealand for only 10 years cumulatively since the age of 20, and 5 of those years must have been since the age of 50. We know now this age will not be changing for the next three years at least!

There are some reciprocity rules which do consider time spent as residents in another country as residents, as residence in New Zealand. As of March 2016 these are the current payments that you would then be entitled to:

We said it was simple and it sounds simple. But there are a few things you need to be aware especially for those with only one partner being entitled to the payments, household arrangements, those who have worked overseas and done extended overseas travel.

If any of these circumstances apply to you it is important to discuss with a financial adviser and so you are aware and can be well prepared when you decide it is right to stop working.

The content from this blogpost is from our book ‘So You Think You Are Ready To Retire’ a self-guide book to prepare you for retirement, it can be purchased here:

Buy it here

For a made to measure advice around your retirement contact us.


Work and Retirement: No Longer Oxymoronic?

During the last years before we retire, we may have fleeting thoughts about how nice it would be to not work. Finally, without work there would be time for the activities that we only get a chance to do in the weekends or annual leave. But we must consider work with a glass half full approach. “What is the good stuff?” Or perhaps you could ask yourself, “if you won the lottery and money was no longer salient, would you still work?”

There is always the option of traditional retirement and doing just what the above example explains, completely leaving the workforce and enjoying the golden years, filling time with leisure activities. But there are other choices:

Graduated retirement

This involves arrangements such as working part time or taking, job sharing, or taking on casual consulting roles. This way you can still get the benefits that work provides but you also can take time for more of the leisure activities that traditional retirement is all about.

Semi-retirement

This is similar to gradually retiring but is a strategy used more commonly by those that are self-employed.

Reverse retirement

This is the concept of retiring to the workforce after being out for a long time. Maybe you were a stay at home mother and now while the last child flees the nest you are wanting to stay busy, gain a sense of purpose and social contacts. This is becoming increasingly common and is always an option.

No retirement

The superannuation age of 65 is not the age that you have to retire. You should not feel like your time is up just because of your age, as the old saying goes ‘age is just a number’. If you have more to give and love to be involved, then retirement may not be for you.

Increasingly the term “work” is moving away from what it traditionally was. There is no hierarchy or structure for what it must look like or be. Work in retirement can take form in many different types: volunteering, boutique store assistant or even a second career.

The content from this blogpost is from our book ‘So You Think You Are Ready To Retire’ a self-guide book to prepare you for retirement, it can be purchased here:

For a made to measure advice around your retirement or to purchase our book contact us.


The 8 Different Stages to a Happy Retirement

Although many pre-retirees look forward to retirement as one long (well-earned) vacation, in reality there are often six to eight different phases.

Fantasy

The fantasy stage is those last years of work prior to retirement. The concept of a retirement lifestyle is more fiction than fact, but right now you dream about all of the things you want to do in this next phase of life. Dreams of trips to be taken or toys to be bought mark the fantasy stage. This is what most people think of when they think of no work or responsibilities.

Excitement

The excitement stage is the year prior to retirement. Pre-retirees focus on the retirement date in the same way as we would the start of a holiday or anticipation of a special event. Here you should focus on finalising plans and strategies for the future.

Stress

The stress phase is when reality sets in. Now that retirement has started, it’s common for new retirees in the first year to focus on fears and concerns about this new life. Going from a busy and well-structured life to unstructured time is not as easy as it sounds. Often the routine of work is missed and some struggle to find a replacement.

Honeymoon

The honeymoon phase kicks in one to three years after retirement. Retirees try to do all of the things that they had dreamt of in the fantasy stage. This is the perpetual long weekend.

Routine

The routine stage kicks in around roughly the three-year point. This is after the initial glow wears off, and the fact that retirement is a day-to-day way of living becomes apparent.

Disenchantment

The disenchantment phase commonly occurs between four to six years after retirement. However, it can occur any time. Most often, the disenchantment stage is marked by recognition of your mortality. Depression is common and due to health issues or a bereavement, a retiree’s spirit is often challenged.

Reorientation

A reorientation occurs when a successful retiree makes an adjustment to his or her new reality.

Contentment

The final stage of contentment is reached when the retiree begins to adjust to the new life he or she has created. Those who struggle to accept and adjust to this new way of life are likely to stay in the disenchantment stage.

The content from this blogpost is from our book ‘So You Think You Are Ready To Retire’ a self-guide book to prepare you for retirement, it can be purchased here:

For made to measure advice around your retirement, or to purchase our book contact us.


4 Reasons Why Women Need to Be Invested in Their Families’ Financial Situations

Men are often said to have more familiarity with financial matters, but there is more than a 90% chance that at some point the woman will be the sole financial decision-maker in the household.

Why is this the case?

Women live longer. Women born today are expected to outlive men by almost four years (Statistics New Zealand, 2015). This means they need to save more than men because it is likely they will have more years of retirement to fund. Women represent just over half (51.3%) of the total New Zealand population. However, they represent 54.1% of the overall population above the age of 65, and 64.3% of the population above the age of 85 (Statistics New Zealand, 2014). Therefore, many women will need even more help to handle those extra years, given their prospects for greater longevity.

Women tend to be the major caregivers for elder parents. Caregiving and managing parental assets will affect both men and women, but will probably be more relevant for a woman than a man (Department of Labour, 2011).

Women are more likely to live alone in retirement. Issues such as household budgeting, health care, financial planning, legacy issues and investment management will be increasingly taken on by women.

Women will take an active role in family finances in the future. Increasingly, more women control the family finances. Our advice has always been that the woman in the relationship should be prepared to take over family finances at a moment’s notice.

The content from this blogpost is from our book ‘So You Think You Are Ready To Retire’ a self-guide book to prepare you for retirement, it can be purchased here:

 For made to measure advice around your retirement or to purchase your copy of our book, contact us.