Informed Investor - Autumn 2022 - Money & Relationships

STOP CHEATING How tiny lies can kill your relationship

END THE SPEND Netflix could scupper your home loan

GET THAT HOUSE Buying with your friends and family

Money & Relationships Are you a team or could it all go wrong?

When should we merge our money?

How to make your baby a millionaire

What to do if one partner earns more

Could you cohabit with your parents?

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ISSN 2744-6085

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Why Kiwi houses are getting smaller

How to make money out of an Airbnb

Inflation: Will you be a winner or a loser?

Turbocharge your KiwiSaver account

Will your properties still be profitable after the tax changes? opespartners.co.nz

The government tax changes will significantly impact property investors who own existing properties.

From 1st October, the government’s interest deductibility tax changes started to come into effect. Investors will pay more tax on some properties, and this new reality will change the types of properties Kiwi investors choose to buy.

Here’s what that means for you as a property investor.

Any properties within your portfolio will gradually start to pay more tax. Once fully implemented, a property with a $600,000 mortgage will be about $5,000 worse off per year.

While your properties might be cashflow positive now – providing a small passive income – you may soon need to top-up their bank accounts.

But there are strategies you can use to avoid being punished by the new changes.

Government announcements suggest that New Builds will not be impacted by these changes. With no extra tax paid, newly built rental properties will soon have a significant tax advantage compared to other properties on the market.

This may make New Builds a more practical investment for you if you want to get ahead and earn the flexibility to live life on your terms.

Opes Partners’ Finds New Builds Properties For Investors You can view New Build investment opportunities from developers around New Zealand when using Opes to find your next investment property. This includes projects from developers with a national brand name and smaller organisations that only the locals know.

• Investment properties sourced from 47 different developers • 63 projects currently under construction • We find investment opportunities across the country • Investment recommendations based on solid economic analysis • The New Build-finding service is provided complimentary. We are paid by the developer when we find the right investment property for you.

The simplest way to become a property investor.

Go to www.opespartners.co.nz to learn about our New Build finding service.

Contents IN THIS ISSUE

REGULARS

42. Living together: Money apart

10. Subscribe to Informed Investor

Subscribe to Informed Investor for just NZ$29 for 4 issues at www.informedinvestor.co.nz.

12. What we Like

We find the hottest products, services, and places.

103. Junior Investor

Get your kids learning about money with our fun page to help improve their financial skills.

102. Book Reviews

Sarah Ell reviews two of the latest finance reads.

Should you and your partner merge your money? Ben Tutty looks at the pros and cons.

44. IPOs in 2021: Hits and misses

Fresh faces on the share market are injecting new life into it, but some IPOs are struggling, says Chris Smith of CMC Markets.

48. Fund Review: Booster Geared Growth Fund

Looking for an aggressive KiwiSaver approach? You might like the Booster Geared Growth KiwiSaver fund.

50. Mythbusters: Fibs that stop you investing Heard bad stories about investing? Don’t believe them. Amy Hamilton Chadwick exposes lies that stop us growing our wealth.

54. Plan for performance

Pie Funds CEO Mike Taylor looks back at what worked last year and looks forward to strategies to help your portfolio perform.

PERSONAL FINANCE

18. Are family trusts still worth It?

Many people set up family trusts. Martin Hawes says they can still be useful but might not always be effective.

22. Stop! Are you cheating on your partner?

Financial infidelity is likely to destroy your relationship, says Money Mentalist, Lynda Moore.

24. Mini-me to millionaire

Even in their prams, some babies have portfolios to envy. Clarissa Hirst looks at Baby’s first investments and starting young.

28. The winners and losers of inflation

Rising inflation will affect us all differently, says Informed Investor economist Ed McKnight. Will you be better or worse off?

32. Treats that kill your chances of a mortgage If you’re looking for a home loan, you might want to slash that spending, says mortgage broker Peter Norris of Catalyst.

36. Splitsville: Who gets the house?

When you split with your partner, how do you separate your property assets? Amy Hamilton Chadwick finds out how.

40. More drama than Netflix

Investors are falling out of love with tech stocks. Milford portfolio managers Mark Riggall and Felix Fok analyse the trends.

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56. Buying a property with friends and family

It’s hard to buy your first property alone these days, but you have options. Michael Vincent of Lighthouse Financial looks at joint venture property investments.

60. Do you carry a credit-card balance?

Is a credit card a temptation to go into debt? There are many misconceptions about credit cards. Diana Clement explains.

64. Life is risky, regardless of your age

Partners Life is investing in boosting the financial capability of young Kiwis, says Naomi Ballantyne.

66. When one partner earns more

How do you navigate a relationship when one partner contributes more to the family finances? Ben Tutty looks at strategies.

68. Let’s do the right thing

Social policies can make a big difference in how Kiwis view and trust businesses, says Victoria Harris of Devon Funds.

70. Your Guide to KiwiSaver

The higher your KiwiSaver balance grows, the better off you’ll be.

Here’s how to turbocharge your balance.

73. How to Protect Your Kids

If something happens to you, can you still protect your children?

Grant Willis, of Asteron Life, says you can.

74. Case Studies

Four real-life stories of investing and business success.

Available exclusively at:

crane-brothers.com

PROPERTY

78. Quieter auctions and open homes Buyer sentiment is beginning to shift, says Rowan Dixon, acting chief executive at REINZ.

80. Full house Sharing a property with family is becoming more popular. Amy Hamilton Chadwick investigates.

84. The risks you may not see The FMA is looking at wholesale investment schemes. Brenda Ward asks PMG’s Matt McHardy why this is.

86

86. When a builder wants more money You’ve put down a deposit but your builder needs more money.

Andrew Nicol explains what to do.

90. The optimal renter’s kitchen You don’t want renovation costs to break your budget. Ilse Wolfe explains how to nail the a renter’s kitchen.

92. The incredible shrinking house Once bigger was better but now the average Kiwi home is getting smaller, reports Ben Tutty.

95. Business Vision Kiwis coming up with innovative business solutions.

96. How to set up an Airbnb Some property investors are turning to short-term rentals. They can be profitable, says Diana Clement.

100. How to use a property lawyer

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Specialist property lawyers can save you thousands. Annabel Sheppard explains what they can do for you.

LIFESTYLE

104. Essentials Stylish ideas for your home and colours to go with them.

106. Yoga at sunrise An escape to Parohe Island Retreat feels like an adventure – and a chance to reset, says Brenda Ward.

108. Review: VW Caddy California The Volkswagen Caddy California is a camper for the explorer in all of us, bringing fun back into weekends.

108

110. What to Wear: Weddings Simple and elegant outfits set the style for wedding guests.

MARKET INSIGHTS

112. Going Up, Going Down Economist Cameron Bagrie takes a good, hard look at New Zealand and how we are going as a nation.

114. Snapshot We take a look at some of the events around the world affecting the global economy.

116. Devon Greg Smith of Devon Funds analyses the quarter in the market and finds Omicron and supply chain pressures are having an impact.

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118. Will rate rises cause a crash?

Some of the world’s biggest financial crises were sparked by rising interest rates, says Andrew Kenningham.

EDITOR’S LETTER

Published by: Opes Media Informed Investor Level M, 17 Albert Street, Auckland Central, Auckland. www.informedinvestor.co.nz

A Life in Cycling Are you at the front of the pack, or dawdling behind?

It doesn’t matter, says Brenda Ward.

Over my career, my partner and I swapped being the higher earner many times.

One year, a short-term contract for one would boost the bank balance. Then a new job would see the other’s salary grow.

When kids arrived, our income halved – as first one and then the other of us would take off a year or two to care for our baby and toddler.

Sometimes one of us would work part-time through the chaos to keep the household ticking over while the other put in long hours at work.

In our house, we like to call this ‘drafting’.

In cycling terms, drafting is a way for the pack to move faster. Riders take turns in the lead before dropping back and tucking onto the back of the pack.

Using this technique you can cut wind resistance, reducing the energy you expend by close to 30 per cent – and it works in just the same way in a relationship.

One can be the leader while one comes along for the ride.

People are complex In this issue, we look at the complex world of relationships: ones that work and ones that don’t.

You’ll find tips on how to navigate a relationship when one is earning more, or one isn’t working at all.

You’ll discover that what seems like tiny lies can undermine your partnership. And why trusts are hardly ever the right way to hide your wealth from a straying partner.

Then, if it all goes pear-shaped, find out who gets the house if you divorce – and how to lessen the long-term impact.

We explain why, if you can, it’s worth setting up investments for your new-born, if you want them to become a ‘mini-me millionaire’.

Relationships are complex, so it’s worth looking at yours to see how you can make it better.

The key thing for couples to remember is that you’re a team against the world. You have someone by your side as you work towards the future of your dreams.

There’s no shame in dropping back when it feels right. If you work as a team there should be enough to pay the bills and hopefully some to put aside for investing.

Brenda Ward Informed Investor Editor

Editor Brenda Ward – brenda@informedinvestor.co.nz

Resident economist Ed McKnight

Art Director Mark Glover

Printer Ovato Print

Senior Writer Laine Moger

Distributor Ovato Distribution

This magazine is subject to NZ Media Council procedures. A complaint must first be directed in writing, within one month of publication, to the editor’s email address, brenda@informedinvestor.co.nz.

If not satisfied with the response, the complaint may be referred to the Media Council PO Box 10-879, The Terrace, Wellington 6143; info@mediacouncil.org.nz. Or use the online complaint form at www.mediacouncil.org.nz. Please include copies of the article and all correspondence with the publication.

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Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk: Informed Investor magazine is not liable to anybody in any way at all. Informed Investor does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.

Informed Investor magazine does not give any representation regarding the quality, accuracy, completeness or merchantability of the information in this publication or that it is fit for any purpose.

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The magazine is recyclable.

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Asteron Life.

Supporters for life.

Life insurance that’s here for you when it really matters.

To find an adviser, visit asteronlife.co.nz

Meet Some of Our Contributors

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CAMERON BAGRIE

ROWAN DIXON

Cameron is the managing director of Bagrie Economics, a boutique research firm. He was previously chief economist at ANZ, a position he held for over 11 years.

Rowan is Chief Financial Officer at REINZ, where he leads strategic finance and business management outcomes. He previously worked in the finance sector, and for top Kiwi companies.

ANDREW KENNINGHAM

ED MCKNIGHT

Andrew is the chief Europe economist for Capital Economics.He was previously an economic adviser for the United Kingdom Foreign Exchange.

Ed McKnight is Informed Investor’s economist.

After working for the Auckland Philharmonia and Hatch, he now crunches data for Opes Partners.

ANNABEL SHEPPARD

CHRIS SMITH

Annabel is a Partner at law firm, Wynn Williams and has specialised in property law for more than 25 years, advising clients on the sale and purchase of property, trusts and estates.

Chris is the general manager at CMC Markets. He has more than 15 years’ investing experience in financial markets, global equity, commodity, and forex markets.

AUTUMN 2022

VICTORIA HARRIS

MARTIN HAWES

Victoria is a Portfolio Manager at Devon Funds. She has over 10 years’ experience in financial markets, across a broad range of markets, specialising in ESG.

Martin is the chairman of the Summer KiwiSaver Investment Committee.

He’s an authorised financial adviser and offers his services throughout New Zealand.

LYNDA MOORE

ANDREW NICOL

Lynda Moore spent 20 years in her own accounting practice before co-founding Money Mentalist. She blends psychology and neuroscience with money coaching.

Andrew is an authorised financial adviser and the managing partner of Opes Partners. He has more than 15 years’ experience in banking, finance, and property.

MIKE TAYLOR

ILSE WOLFE

Mike is the founder and CEO of Pie Funds. He’s also Portfolio Manager of the Pie Funds Chairman's, Global Growth 2 and Conservative Funds.

Ilse is the director of Opes Accelerate, a renovation coaching company, and is a property investment coach.

She started investing at 23 and has an $11 million portfolio.

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Terms & Conditions 1. All prices for magazine subscriptions include free New Zealand delivery. 2. Please allow up to 10-13 weeks for your first delivery. 3. Your subscription will begin with the next available issue in late May 2022, and in most cases your magazine will be in your hands before it goes on sale in the shops. 4. Informed Investor magazine is published by Opes Media Limited, which handles delivery and stipulates the lead time shown above. 5. Offer expires on 20 May 2022. 6. Offer available to New Zealand postal addresses only.

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REGULARS

What We Like

A showcase of the hottest products and places that are the talk of the town.

Hair we go Well-styled hair is part of every man’s grooming – for work or play.

Maybe you’re a crew-cut guy, or prefer a classic lop. Maybe you like to relax with a deliberate bed-head, or slick sides. Or are you a fan of bold quiffs?

Whatever style you choose, how do you make it easy in as little time as possible?

That’s the issue new men’s grooming brand Moosehead has tackled, creating a product fit for any hairstyle.

The new range of hair styling products has been engineered for the urban man, with formulas that do what they say on the tin, tackling masculine hair head-on.

Moosehead launches with seven products, including wax, putty, pomade, clay and paste.

Luxury with a Conscience Monarc jewellery looks good and is kind to the planet, too.

Recycling and a commitment to sustainable raw materials are at the heart of this stunning range of jewellery created by a Kiwi former model living in London.

Ella Drake is originally from Mount Maunganui but moved to Italy to model, and studied in Florence at the Gemological Institute of America.

“This equipped me with a strong foundation of jewellery knowledge, however my real industry education began when I joined a global production company.”

After co-designing and managing European accounts for a jewellery manufacturing house, she felt ready to start Monarc in 2017, a ready-to-wear collection of reimagined jewellery classics.

Each item is crafted from recycled and certified precious metals, including silver, gold and platinum, all sustainably sourced.

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“I make jewellery that is luxurious and practical, beautifully created and reasonably priced, so that each piece will become your own: jewellery made to be worn, shared, given, received, and above all, cherished,” she says.

“I believe every decision I make for Monarc should be rooted in good intention, from the design to choosing carefully procured and considered materials, right along the whole production process.”

Drake plans to return to New Zealand this year for several months and says despite living overseas for the best part of 14 years, she still calls the Mount home.

“It’s where my family live. It is an anchoring place and one to which I always return.

“My love for the beach lifestyle inspires me the most; a slower, more peaceful, coastal existence.”

Drake’s pieces are still available online at www.monarcjewellery.com but if you’d like to try before you buy, the range is now stocked in Kowtow stores across New Zealand.

The products are vegan and crueltyfree, made with a blend of earthy and spicy scents like Black Pepper, Bergamot, Sandalwood and Cypress.

The product names are a bit of fun, too.

They include Grubby Putty, Gritty Clay, Shaping Clay, Defining Paste, Forming Fibre, Max Wax and Slick Pomade.

The company says its Grubby Putty is a bestseller among those wanting a natural, ‘messy’ matte look. It has a medium hold with a low shine.

And Gritty Clay’s grainy texture creates a textured and ‘choppy’ look with medium hold, low shine and a matte finish.

Moosehead products are available at Chemist Warehouse and Bargain Chemist stores, and selected pharmacies. www.moosehead.co.nz

W H AT W E L I K E

The height of luxury

finishes. Some of the new rooms and suites have kitchenettes.

The Cordis Auckland has launched a swanky new accommodation tower, which makes it New Zealand’s biggest hotel by room count.

Art curators Coupland Cormack have curated a collection of 46 innovative commissions by nine contemporary artists.

There are 244 new rooms in the new 17-storey Pinnacle Tower, including the signature Cordis Pinnacle Tower suites.

On the top floor you’ll find the Chairman Suite, one of the city’s largest luxury offerings, designed for visiting dignitaries.

Franz Mascarenhas, the hotel’s managing director, said: “We are looking forward to welcoming guests to the Pinnacle Tower, where they can revel in spectacular city skyline and Waitematā Harbour views.”

A plush new Cordis Club Lounge on the 14th floor offers complimentary afternoon tea, cocktails and canapés, and a live breakfast station.

The new tower offers 360-degree views from the Harbour Bridge to One Tree Hill, taking in Rangitoto Island, Mount Eden and the Sky Tower.

Designed by Jasmax and Space Studio, the interiors are sleek and streamlined and luxurious yet minimalist, with contemporary

Two new event spaces have also been built as part of the extension, the Jade Room, a 400-square-metre events space, and the new state-of-the art Boardroom.

A new bar at the front of the hotel, named Our Land Is Alive, exclusively showcases New Zealand food, and beverages with a local twist.

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“ If you fail to plan, you are planning to fail.

The same applies to investing.”

MIKE TAYLOR Founder & CEO

Boutique. Bespoke. For you.

Contact us on 09 486 1701 to find out how we can help you.

PIEFUNDS.CO.NZ

Despite vaccines being deployed globally, 2021 was once again dominated by Covid and the economic effects – inflation, supply chain constraints, and labour shortages. So, what do I think will happen this year?

US tech will struggle with Fed policy and rates normalisation, but will present trading opportunities for specific stocks that get thrown out with the bathwater. Commodities will stay strong and oil will break US$100 a barrel as we recover from Covid. Inflation will come off its high but remain above 2%. Equity performance will be split. US tech will continue its current sell-off until valuations become more reasonable. But value, and Covid recovery names linked to services, will do well. Finance and energy should outperform.

So how, as an investor, can you plan for performance in 2022? Be adaptable, because no two situations are the same. History rhymes, it doesn’t repeat. Have a strategy and a plan. Enlist a qualified expert to help if you need to. Be prepared for market volatility, but remember that investing is for the long term so try to keep a level head. Ensure your portfolio is diversified and its risk level matches your risk tolerance. The start of the new year is a great time to review, to help you stay on track to reach your goals.

Our award-winning Australasian Dividend Growth Fund could be part of your strategy for 2022 and beyond. Its portfolio favours companies exposed to structural growth tailwinds, led by founders or management with skin in the game. The fund has a risk rating of 5 out of 7 (high risk). It also recently won Research IP’s Australasian Equities Fund of the Year, an achievement we are very proud of.

Pie’s award-winning Australasian Dividend Growth Fund: + Aims for long-term capital growth + Makes six-monthly distribution payments + Invests in hand-picked smaller high growth Australasian companies + Has been one of Pie’s best performing funds

Past performance is not a reliable indicator of future performance. Returns can be negative as well as positive and returns over different periods may vary. View the Product Disclosure Statement (including details of the risks associated with this fund), plus our duties and complaints process and how disputes are resolved at www.piefunds.co.nz. Figures are after fees and before tax as at 31 December 2021, showing the fund’s annualised 10-year return of 19.6%. The market index return for the same period is 5.7%. Market index used is XSOAI S&P/ASX Small Ordinaries Accumulation Index (NZD). Information is current as at 31 December 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. Pie’s Australasian Dividend Growth Fund has been named the winner of Research IP’s Australasian Equities Fund of the Year. Fund Manager of the Year Awards were announced by Research IP on 2 December 2021. These awards should not be read as a recommendation by Research IP. For further advice on the relevance of this award to your personal situation, please consult your financial adviser, or visit research-ip.com.

YO U R I N V E S T I N G

ISSUE 32

AUTUMN 2022

Relationship ri-ˈlā-shən-ˌship

The way in which two or more people, groups, countries, etc, talk to, behave towards, and deal with each other.

– Cambridge English Dictionary

“

Marriage is a partnership, and couples can’t win with money unless they budget as a team.

”

– Dave Ramsey, personal finance personality, US radio show host

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PERSONAL FINANCE

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PERSONAL FINANCE

Are Family Trusts Still Worth It? Many people set up family trusts – and sometimes for the wrong reasons.

Martin Hawes says they can still be useful but might not always be effective.

Family trusts have been called the coward’s prenuptial agreement.

The basic idea of this is that instead of having to go through all the trouble – and possible embarrassment – of agreeing to and executing a prenup, you can simply swipe your assets off sideways into a family trust and forgo the angst.

I love you forever, but...

There are many people who’ve thought that a trust will save a lot of trouble.

When one relationship ends and a new one starts, the new partners can often have quite different amount of wealth and the standard (and correct) advice is that they ought to enter into a contracting-out agreement, often known as a prenup.

The problem with these agreements is that the couple, hopelessly in love, perceive a conflict between the love they feel for each other and signing an agreement which has a purpose of setting out who owns what when they break up: “I will love you forever, darling, but just in case I don’t, could you please sign this agreement and initial each page.”

Contracting-out agreements are also quite involved and can be expensive. They can also provoke conflict.

Each partner has to get independent legal advice, and the lawyers advising often give advice to advance their client’s position, which is what they are required to do.

That can conflict with what the couple has thought they agreed.

And so, rather than go through the trouble, expense, and risk of conflict, wealthier partners often decide to protect what they have by putting all of their assets into a family trust.

The trust-busters The thinking is that if a trust owns the assets, they cannot become relationship property and so, if the relationship fails or one partner dies, they are not available to the other.

Unfortunately for such people trying to take this family trust route, it’s not so easy.

This can be a very technical area of law and there are many instances of people who’ve managed to get assets out of their partners’ trusts when they’ve separated.

For example, imagine that someone had a house in a trust. The other partner may well be able to have the value of that house counted as part of a separation division if they’d contributed to the mortgage or to improvements to the house.

This is an area where there have been plenty of “trust-busting” cases. Lawyers have gone to court for clients and attacked trusts, so that the trust assets are shared.

These attacks in the courts are frequently aimed at showing that a trust is a sham. If a trust can be shown to be only the person who originally settled it, the trust asset may be available for sharing in the event of a separation.

These attacks on trusts have become more frequent in the last couple of decades and a good bit of this increased scrutiny has come through the Property (Relationships) Act. Other benefits Most experts would say that it is not enough to put assets into a family trust and expect that will protect your assets if your relationship fails.

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YO U R I N V E S T I N G

It’s a far better thing to be brave, talk through with a new partner what would happen in a separation, and sign a contracting-out agreement.

Even though family trusts are not the easy fix for relationship property issues that some people think, they can have other benefits: •

Asset protection for those who want to protect certain assets if there’s a business failure or insolvency.

•

There are some tax benefits, which may be particularly relevant for those on the highest tax rate. The top tax rate in New Zealand is currently 39 cents in the dollar, while the trust rate is 33 cents.

•

Succession, particularly for those with large or more complicated assets, like farms.

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•

Trusts can keep the things that you own confidential to your own family.

•

Residential care subsidies may be available for some people who have gifted most of their assets to a trust. However, Work and Income NZ applies rules to this and it’s an area where you need to be well advised.

Run your trust well Good management is key to a good trust.

The Trusts Act came into force in January 2021 and sets out very clearly the duties of trustees and the things that they need to do to manage the trust well.

Partners and spouses may attack a trust in relationship property disputes, but that’s just one risk.

The Inland Revenue Department may also become involved in the case of income

tax, WINZ in the case of residential care subsidies, the Official Assignee in the case of insolvency, and beneficiaries if they feel forgotten when distributions are being made.

The Trusts Act, along with an increase in legal battles, has raised the bar for what is required in trust management.

Trusts can still be useful arrangements for some people, but they frequently come under attack. They have to comply with trust law, and they need to be well managed.

The information contained in this article is general in nature and is not intended to be personalised financial advice. Before making any financial decisions, you should consult a professional financial adviser. Nothing in this publication is, or should be taken as, an offer, invitation or recommendation to buy, sell, or retain a regulated financial product. Martin Hawes’ disclosure document can be found at www.martinhawes.com.

Invest like an expert (without having to be one)

Join an Investment Fund to invest with confidence $1,000 & you’re in Claudine, 27 — Digital Marketer Invests with Milford Past performance is not a reliable indicator of future performance. Please read the Milford Investment Funds Product Disclosure Statement as issued by Milford Funds Limited at milfordasset.com. Before investing you may wish to seek financial advice. For more information about our financial advice services please visit milfordasset.com/getting-advice.

YO U R I N V E S T I N G

STOP!

Are You Cheating On Your Partner?

It might be just a few dollars here or there – or a huge secret stash, but you need to know that financial infidelity is likely to destroy your relationship, says Money Mentalist, Lynda Moore.

Is financial infidelity as destructive to your relationship as a sexual affair? When radio listeners were polled on this question the response was about 50:50.

•

Continuing to financially support an ex-partner without telling your current partner.

•

Mortgaging the house without your partner knowing. Fortunately, this is a lot harder to do under our current financial and banking rules.

But from what I have seen, both these forms of cheating can damage a relationship beyond repair.

They’re both a major breach of trust, but with financial infidelity you have the financial fallout to deal with as well, and this can take years to recover from, whether you remain together or not.

Financial infidelity can seem harmless enough, say buying something that you really know you shouldn’t and hiding it away.

You bring it out, saying breezily: “I’ve had this for ages.” Both men and women do this.

For many couples, financial infidelity stops there. But, for others, it can escalate to real financial harm and relationship breakdown.

Little (or big) lies Here are a few other common examples of financial infidelity: •

A secret credit card that your partner knows nothing about.

•

Inflating the weekly cash grocery spend by withdrawing cash to buy yourself ‘stuff’ that your partner doesn’t know about.

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•

•

You’re unsure about the relationship and want an ‘escape fund’.

•

You might feel that your partner is too controlling with the money.

•

It can also arise from a feeling of entitlement: “It’s my money, I’ll spend it how I want.” This attitude is more about power and control and not feeling the need to share financial decisions with your partner.

•

Or you might be totally unaware you are doing it.

Racking up debt to cover a gambling (or some other) addiction.

Where the line is for you comes down to your personal values. And it is only when you have experienced it can you really answer that question.

Where on the financial infidelity scale is this? And can my relationship survive it?

What is financial infidelity?

It is making and then hiding financial decisions when you’re in a relationship. It isn’t just the making of the decision so much, or even the hiding of it. It is the two together that is the breach of trust and when the infidelity occurs.

Consider this scenario: Your teenager Sam has spent all his allowance and despite knowing the bank of Mum and Dad is closed, he really wants to head out with friends.

Sam decides, as teenagers do, to ‘wheedle the money out of Mum’. On this day, however, Mum is feeling strong, and says no.

As with any infidelity, it is the hurtful breach of trust that is the hardest part to work through and get over.

So, Sam goes to Dad, who is tired at the end of the day and for the sake of peace, hands Sam the cash and jokingly says, “Just don’t tell Mum.”

What causes financial infidelity?

• Maybe you’re concerned about the family finances and want to ‘tuck money away’ just in case.

Sam happily heads out with friends, leaving Mum and Dad at home. A bit later in the evening, Mum asks Dad curiously, “Did you give Sam some money?”

PERSONAL FINANCE

At this point Dad has two choices: 1. Come clean and confess he did, and put up with a growling from his wife.

2. Tell a little white lie and say, no it wasn’t him and guess that Sam borrowed the money from a mate.

If Dad chooses option 2, that’s financial infidelity right there.

What’s the message?

I can hear you all saying, “So, what? We do this all the time.” And you’re right, in the scheme of things this is low on the financial infidelity scale.

But what message is Sam getting? If this only happens once or twice, it isn’t likely to have much impact on him.

But consider the situation where the children are constantly hearing from both sides: “Don’t tell Mum” or “Don’t tell Dad.” That can have serious ramifications for them as they enter their own relationships.

They may enter a relationship with the belief that it’s normal to hide money and secrets from their partner.

This could lead them to believe that it’s typical behaviour to have secret credit cards or money tucked away in secret bank accounts.

How to nip it in the bud?

Here are five things you can do:

you don’t feel the need to hide purchases, or feel guilty if you indulge yourself a little.

The Money Conversation: Have ‘the money conversation’ early in your relationship. Set some financial boundaries.

Talk about different scenarios and how you feel about them. For example, is it OK to lend money to friends and family? What levels of debt and savings are you bringing to the relationship? What are your financial expectations?

Date night: Have regular financial date nights where you talk about your finances.

Are you on track to meet your longterm financial goals? How are you going compared to your money plan? What are some short-term savings goals you’re working towards?

The household banker: This is the person who’s responsible for managing the household finances. They make sure all the bills get paid, the savings plan is implemented, and your financial goals are reached. You can swap this role around and it doesn’t always have to be the same person.

Know what’s what: Don’t delegate your financial responsibilities totally to your partner. You may not be ‘good with money’, but you still need to know what is going on, have access to joint bank accounts and to look at credit card balances, for example.

Play money: It’s important that each of you have your own money that doesn’t have to be accounted for. This can be any amount that you’ve agreed upon. It could be as little as $25 a week, or as much as $1,000 – it really depends on your financial circumstances. By having your own money,

Suspicious?

If you’re concerned that financial infidelity might be going on, you need to deal with it sooner rather than later.

Talk to your partner, not in an accusing or argumentative way; although it is very difficult not to get emotional about your finances.

If you feel you can’t raise it yourself, get some help from a professional who can help you have the conversation and deal with the consequences.

As with any type of infidelity, the main point not to let it fester. It’s like ripping off a Band-Aid. The sooner you deal with financial infidelity the better and the less the financial harm.

If your relationship is strong, with good communication and some processes in place for the future, you’ll make it out the other side.

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PERSONAL FINANCE

Mini-Me to Millionaire Even in their prams, some babies have portfolios to envy. Clarissa Hirst looks at first investments for babies, and the benefits of starting young.

Some Kiwi adults have no interest in investing and have very little money saved.

But some tiny tots already have thousands of dollars in investments, thanks to the foresight of the adults who love them.

When you give your child the gift of investing early, you could be setting them up for life.

Investing for your child could help ready them for their retirement in later life, but also get them set for university, a first home, or other big-ticket items, like a car or a trip overseas.

But take care. If you give a child NZ$100,000 before they leave school, you might be raising a trust-fund baby who spends thoughtlessly and never gets the hang of fending for themselves.

The key is balance, and getting your child involved in the process, to help them learn valuable lessons about money, say the experts.

The earlier, the better The power of compound interest means the earlier we start investing, the better off we’re likely to be.

If you invest NZ$2,040 when your baby’s in the crib, based on average annual returns of 10 per cent, they could be a millionaire by the time they’re 65, according to share platform Hatch’s calculations.

Some KiwiSaver and online investment

platforms also offer incentives if you invest for your kids, like reduced fees. JUNO KiwiSaver fees, for example, are free for kids under 13.

However, KiwiSaver money is locked in until age 65 or a first-home purchase. That might seem like a big commitment to lock in for an unknown future.

Should you invest for your kids?

Investing for your kids shouldn’t come at the detriment of your ability to meet your family’s basic needs.

But the fact that it is locked in is something 38-year-old Financial Adviser Sam de Court sees as a big advantage of the scheme.

If you’re paying off consumer debt like credit cards or car loans, or saving for your first home, focus on these things first.

This is where other family members, such as grandparents, can help out.

Anita Flowers’ daughter is a young parent to her four-year-old son, Emmett.

Her tight financial situation means she’s focused on the day-to-day needs of the family, so Anita helps out by contributing NZ$10 to NZ$20 every pay day to a savings account for her grandson.

Anita and her daughter recently started talking about how they can help set up Emmett for the future by investing.

Says Anita: “We’ve talked about KiwiSaver and the fact that we really need to get him into KiwiSaver as early as possible, so that when it does get to buying a house or his retirement, he’s set up the best he possibly can be.”

What are your options?

A popular choice is a KiwiSaver account.

He and his partner put NZ$1,000 every year towards each of their two daughters’ KiwiSaver accounts.

Once the girls turn 18, they’ll start working and be eligible for the government contribution, which will add to their existing balances.

Hopefully that will give them enough for a house deposit by the time they’re 30, says de Court.

“Young people can be more impatient with investments, and they want to make money now … they often chop and change,” he says.

“Obviously, the most powerful thing with KiwiSaver is you can’t do that, so you’re forced to stay the course.”

More flexibility However, if you’d prefer more flexibility for your child, there are alternatives.

Investing in managed funds through a fund manager, the NZ Stock Exchange or online investing platforms allows your child to access the money for other things in life.

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Online investing platforms can offer exchange-traded funds (ETFs) and shares, and several offer options for kids: •

Sharesies Kids’ Accounts: 8000+ companies and ETFs listed in New Zealand, Australia and the United States, plus managed funds. There’s a NZ$0.50 transaction fee, no minimum investment and you don’t need to be the child’s parent to open an account.

•

Hatch Kids’ Accounts: Companies and ETFs in the US markets. There’s a US$0.50 transaction fee, no minimum investment. At the time of writing, you need to be the child’s parent to open an account.

•

InvestNow Children’s Accounts: 150+ managed funds, no transaction fees. Invest through one-off deposits (minimum NZ$250) or a regular investment plan (minimum NZ$50).

Different options will suit different families, so it’s important to do your research.

“Had I been a little bit smarter about it, I think I would have invested at least a large portion of it and then enjoyed just some of it,” Government educational website Sorted, www.sorted.org.nz, has a great Investor Kickstarter tool, or use a financial adviser to help you work through your options.

What are the risks?

All investment involves risk, but there’s also the fact that your child might make poor decisions with the money, despite your good intentions.

Christine Jensen, marketing manager at Kernel and co-host of the “It’s No Secret” podcast, received a lump sum of around NZ$20,000 from her family when she finished high school.

She spent it on holidays and personal development overseas, including a uni exchange in Canada.

“Had I been a little bit smarter about it, I think I would have invested at least a large portion of it and then enjoyed just some of it,” she says.

Jensen says she’d do things differently with her own kids, giving them some control over their finances earlier, “so they can learn what it’s like to manage money and do that in a healthy way”.

If you do use their investments to teach your kids about good money management as Jensen suggests, imagine what financially capable adults they’ll be.

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PERSONAL FINANCE

The Winners and Losers of Inflation Inflation is rising rapidly but it’ll affect us all differently, says Informed Investor economist Ed McKnight. Find out if you’ll be better or worse off.

Prices are rising faster in New Zealand than at any time since 1990.

Like most economic events, this will create winners and losers. Some will make money. Others will lose it.

Their income and the value of their assets won’t have increased at the same rate as price increases. They are made worse off.

Here’s a summary of the main winners and losers.

Say a retiree invested NZ$100,000 into a term deposit at 2 per cent. After a year, they would receive NZ$2,000 in interest.

Winners – Borrowers When inflation is high, money loses its value. You need more money to buy the same amount of stuff.

A retiree living on the pension would then pay NZ$350 in tax, meaning their after-tax return was NZ$1,650. They then have NZ$101,650.

This devaluing of money applies both to savings and to debt. So, if you’ve borrowed money, inflation will cause the real value of that debt to decrease.

However, with inflation at 5.9 per cent, that NZ$101,650 is only worth NZ$95,987 after adjusting for inflation.

Inflation effectively transfers wealth away from savers and towards borrowers. Rising interest rates usually balance this out. The Reserve Bank typically increases the Official Cash Rate, which raises the interest rates that borrowers pay.

So, putting their money in a term deposit resulted in a loss of NZ$4,013, in real terms.

However, even with the Governor of the Reserve Bank acting against inflation, real interest rates are still negative.

A borrower might pay 4 per cent interest on their mortgage, but since inflation is 5.9 per cent, their inflation-adjusted interest rate is -1.9%.

That effectively means you are being paid to borrow money, in real terms.

Losers – Savers Savers, on the other hand, are hammered by high inflation. That’s because their money has stayed the same, but everything has a higher price, so they can’t buy as much.

Retirees who have their money squirrelled away in low-risk, low-return funds are made poorer through inflation.

Winners – Some shareholders The traditional thinking is that inflation hurts shareholder returns. However, the story is more complicated than that.

Whether a business (and its shareholders) wins or loses depends on whether they can pass on the rising costs that the business faces to their customers.

If a company operates in a market with low competition and loyal customers, it can pass on cost increases. This helps maintain profit margins.

Similarly, if interest rates rise rapidly in response to inflation, companies with low debt will be able to ride out the inflation storm better than debt-laden companies.

Losers – Some shareholders On the other hand, let’s say a company’s suppliers are increasing their prices. If that company can’t then pass on those cost increases to their consumers, profit margins will suffer. This lowers returns to shareholders.

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Companies that can’t pass on cost increases tend to operate in markets where customers are fickle and can switch products easily.

For instance, if wages rise, it’s easy for mobile phone providers to pass on this cost to consumers. It takes effort for a customer to switch their mobile phone provider, and there are few options.

Whereas if the price of cocoa beans increases, chocolate manufacturers will face higher costs.

However, it’s harder to pass on this cost to consumers since it’s easy for customers to pop a cheaper block in their supermarket trolley.

Winners – Some Workers The labour market is tight. Unemployment just hit a record low of 3.2 per cent and NZIER’s Quarterly Survey of Business Opinion shows that a net 73 per cent of businesses can’t find the skilled workers they want.

There are many job opportunities but few workers to fill them. And wages are increasing in response.

According to Statistics NZ, wage rates (for all workers) went up 4.2 per cent from a year earlier.

Skilled workers will face higher living costs, but they can negotiate higher pay to combat rising prices.

Losers – Beneficiaries Inflation makes beneficiaries worse off for two reasons.

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Firstly, their incomes are lower, so they spend a high proportion of their income. As prices rise, there is less room for them to absorb extra costs. This causes financial stress.

Secondly, increases in benefits lag behind inflation.

Some workers can negotiate pay quickly, but a beneficiary’s income increases only once a year, on 1 April.

This happens through the Annual General Adjustment, where the government adjusts benefits for inflation or the average wage increase. However, this increase only comes into effect after costs have already gone up.

When inflation is high, and prices increase quickly, people receiving benefits will have to cut back more than workers.

Will Inflation Help or Harm You? My key point here is that inflation is like any other economic event. Some people will benefit; others will be hurt but can cope, and some will struggle altogether.

Inflation does not have an equal impact on everyone. Whether you should be worried about it or not depends on which of these categories you fall within.

Inflation does not have an equal impact on everyone. Whether you should be worried about it or not depends on which of these categories you fall within.

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The Treats Killing Your Chances of a Mortgage Got Neon, Netflix, and a subscription to Les Mills? If you’re looking for a mortgage, you might want to slash that spending, says mortgage broker Peter Norris of Catalyst.

It’s mayhem for borrowers out there.

Debt-to-income ratios (DTIs), the Responsible Lending Code (CCCFA) and hiking interest rates are all causing issues for borrowers.

In all honesty, it’s causing mayhem for the banks as well, because these changes to lending policy are, in a lot of cases, enforced by the regulator, and the banks are simply doing what they’re told.

Let’s ignore interest rate increases for now.

That’s for another day. Here’s the problem.

Rigid bank lending rules – specifically due to the lending code – are being clenched to the extreme, and I believe it’s gone beyond a reasonable level.

Changes to the Responsible Lending Code came into effect on 1 December, tightening the rules banks must play by when considering if you’re fit for a mortgage.

This means that banks need to prove, more than ever, that the person borrowing from them can afford to.

Fair enough. That seems responsible to me and, in its simplest form, I support that change. But not what’s happening now.

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It’s judging you on how you spend your nights and weekends, how often you buy takeout coffee, and whether you shop at Pak ‘N Save or New World. You get the idea.

Before the changes, when if you were applying for lending, you’d have to declare a rough overview of monthly living expenses, which would be accompanied by bank statements.

As long as your spending was realistic, chances are you’d be fine.

However, across the board banks now run your bank statements through software that scans every line, working out an average of what is spent in absolutely every aspect of your life.

It’s judging you on how you spend your nights and weekends, how often you buy takeout coffee, and whether you shop at Pak ‘N Save or New World. You get the idea.

Those of you who put comical references into your transaction details when you’re transferring money to friends might want to stop … that’s the level of detail the banks are now going to when they work out how you spend your money.

It’s my strong view that these changes will be wound back a bit when the bankers at the top realise that productivity through their business has gone through the floor, but for now, it’s having a big impact.

So, you should know some ways to deal with it. Think about these borrowing strategies before you apply.

Keep your accounts squeaky clean When you apply for lending, the bank will ask you for three months’ worth of bank statements from your accounts.

So, the most obvious thing to do before you apply is to focus on your account conduct and keep really good habits.

This doesn’t mean eating baked beans and being a hermit crab for three months, but it does mean keeping things tight.

Live as if you already have a mortgage Think about how much that lending is going to cost you and then add things like rates, insurance, and potential maintenance costs.

Take that amount (less your current rent) and put it into a savings account so you can clearly show the bank you can afford the lending.

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If you want to be really clever, work out that mortgage cost based on the bank’s test rate (6 per cent to 7 per cent), rather than actual rates.

Pause those subscriptions Then have a look at all those subscriptions that you forgot you even had. Are there any that you can live without?

Do you really need them all – Netflix, Sky, Neon, Amazon, Spark Sport and Disney+?

These subscriptions add up pretty quickly, and the banks now count every single one of them.

You can always resume binge-watching after you get the tick from your lender.

You’re not alone Don’t feel that your bank is picking on you. This new level of scrutiny is affecting everyone’s attempts to get a mortgage, from both sides of the pay scale.

This isn’t unique to low-income earners, by the way.

Even someone who could comfortably afford the mortgage, like someone earning NZ$400,000, is being turned away because in the bank’s eyes – they can’t afford it.

The good news is that borrowing hasn’t completely halted. The banks are still lending, and they will continue to do so.

Pay now, not later It’s also worth stopping Afterpay for a few months.

As a borrower, though, you need to be aware of what they’re looking for and work out what to do to put you in the best possible position.

Do buy something if you really want it. But buy it only if you can afford it now, rather than borrowing from the future.

These changes will make this year really interesting to watch (that’s an overly positive way to put how I really feel).

Your Afterpay limit will need to be disclosed to the bank and carrying a balance suggests that you’re living beyond your means.

However, my view remains firmly that the regulators have gone too far, and I’m optimistic that common sense will prevail.

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PERSONAL FINANCE

Splitsville: Who Gets the House?

When you split with your partner, how do you separate your property assets? Amy Hamilton Chadwick finds out how to divorce amicably.

Choosing to separate is a big decision, but the tough choices don’t end there.

Once you and your partner have decided to separate, you need to start the tricky process of untangling your shared financial life.

The longer you’ve been a couple, and the more assets you have, the harder it can be to divide your property.

Talk to your lawyer first Caroline Hickman, chair of the Family Law Section of the New Zealand Law Society, says the first step is to get legal advice as soon as possible.

Then you should talk to your partner early, if you can, sitting down and discussing what you want to achieve.

“For some people, it’s really important to leave with dignity, for an outcome to be fair to everyone, to preserve relationships for the sake of the children or any number of other factors.

“This isn’t LA Law, where everybody heads off to court for a divorce suit. There are lots of ways to solve problems short of court proceedings, like mediation and collaborative law.”

In fact, most cases are resolved without going to court, she says. “Although if your partner is determined on a particular course, or they’re obstructive with disclosure, you will probably end up there.”

The presumption of equal sharing applies to all relationships lasting over three years, but if you can work it out together, you can often come up with creative solutions on how to split your property.

Dealing with the family home For the average Kiwi couple, the family home is the largest asset – although even for couples with businesses and huge investment portfolios, the same principles apply.

Hickman says you should look for a lawyer who’ll work the way you’d like them to, for example by helping you get through the process as quickly and amicably as possible.

The most common ways to deal with the family home are to either sell and split the proceeds, or for one person to buy out the other.

“People often have a range of concerns other than the dollar figure to consider in a separation,” she says.

Usually, says Hickman, the aim is to ensure that both people remain on the property ladder, if possible.

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Separation in New Zealand According to the 2019 New Zealand Relationship Property Survey: • The most common reasons given for separation are ‘Growing apart/falling out of love’ (cited in 75% of breakups), followed by ‘Extramarital affair’ (57%).

• Relationships of between 10 and 20 years’ duration are the most likely to be seeking a separation.

• Those aged 40 to 49 are the most likely to be separating.

• The most common value for relationship property in a separation is NZ$500,000 to NZ$1 million.

• Over half – 58% – of family lawyers charge NZ$301 to NZ$400 an hour; 25% of lawyers charge less and 16% charge more (1% preferred not to say).

“For example, mum and the kids might stay, and in some cases, there might be an acceptance of something less than an equal share to allow one party to remain in the home.

“While the law is clear about equal sharing, that doesn’t stop parties agreeing on something they consider fair, provided they’ve had full disclosure of all the assets and liabilities, and they’re given good advice.”

If the partner who remains in the house earns significantly less, they might get compensation for that economic disparity.

There may also be a claim and payment for ‘spousal maintenance’, which is where one partner helps the other to fill the gap between their earnings and expenses, after the relationship breaks down.

That should help even the financial playing field so the lower-earning partner can pay the mortgage.

Challenges with rising values The rapidly increasing home values of the past year have created extra headaches for family lawyers.

The partners may come to an agreement after many months of work, only for one of the parties to demand a revaluation at the eleventh hour.

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And then at least one of the parties needs to buy in what could be a fast-rising market.

“Staying on the property ladder is usually a goal for both people, but at the moment the rungs are moving as they’re trying to climb,” says Hickman.

Another issue is the growth of the ‘silver splitters’ – the rate of separations for those aged over 60 has risen in recent years. They face an extra challenge: banks typically won’t approve home loans for those who are either retired or close to retirement.

What’s in – and out It’s worth noting that unless you’ve opted out, your KiwiSaver account is relationship property.

It might feel like it’s all your own, but in fact it’s the fruits of the relationship.

“It can be traumatic for older couples who suddenly don’t have a home and they don’t have the capacity to take on a mortgage each,” says Hickman. “It’s really hard.”

On the other hand, any inheritance or gift you receive is your separate property – unless you intermingle it with other relationship property.

Be prepared next time Once you’ve separated and split your property, you may meet someone new.

Keep it cleanly separated and don’t transfer it into an account with any other shared money.

If you do, Hickman has one piece of advice: “For goodness’ sake, get a section 21 agreement – a prenup – especially with second and subsequent relationships.

Take legal advice about any changes in your financial situation (including any inheritance), so that you can make decisions and control what happens, rather than relying on presumptions of what is fair if you split up.

“I wish I had a dollar for everyone who says, ‘My partner said they’d never take my nest egg!’, but then found that they did.

“An agreement is the best insurance policy against a claim against separate property wealth.”

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More Drama Than Netflix Investors are falling out of love with tech stocks. Why are the shares plummeting – and will it continue? Milford portfolio managers Mark Riggall and Felix Fok analyse the trends.

The start of 2022 has brought an abrupt shift in the status quo for share market investors that surprised many.

High-flying technology companies that have been the darlings of the investment world for the past two years have suddenly lost some of their lustre.

The technology-heavy Nasdaq index fell by nearly 15 per cent by late January, the biggest drop since March 2020. What’s changed – and do these companies still represent good investments?

What’s happening Over the past two years, central banks have put an unprecedented amount of support into financial markets.

They’ve held interest rates close to zero, bought trillions of dollars of bonds via ‘quantitative easing’ (QE) programmes, and concerns over rapidly rising inflation have been ignored.

In a remarkably abrupt change of tone, runaway inflation has suddenly become a focus.

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selling bonds back to the market.

This turnaround has led to a significant tightening of financial conditions from central banks around the world.

Why the Nasdaq’s affected So, what does this have to do with the Nasdaq?

Extraordinarily easy monetary policy has reduced the cost of borrowing for businesses, households and governments.

Governments have spent trillions of dollars handing out wage subsidies to households, in particular the US government.

A lot of this money has found its way into investments, and household investors are chasing ever more speculative assets.

It’s no surprise that cryptocurrencies, unprofitable growth companies and memestocks exploded in value in the past two years – they were all fuelled by an excess of liquidity in the financial system.

The tide is going out As Warren Buffet might say, a rising tide floats all boats. But now the tide is going out.

Buyers of speculative assets are running

out of bullets and are turning into sellers.

Previously loved high-growth companies have been hit hardest.

But the selloff is not limited to highly speculative stocks.

Huge technology companies did well out of the covid pandemic because online activity has accelerated.

Profits have boomed and share prices have boomed even more – and investors have assumed this profit growth will continue.

This has left many of these companies looking expensive on traditional valuation metrics. In a bull market, investors tend to focus on the growth and ignore the valuation – no price is too high for any company that could be defined solely by the size of the opportunity.

But long-run favourable investment outcomes are often determined not by what you buy but what you pay for it.

High valuations leave little margin for error and the growth path is very rarely linear.

The switch flicks on Netflix Take streaming subscription service Netflix, for example.

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Subscribers leapt from 167 million in 2019 (pre-pandemic) to 222 million in 2021, adding 37 million in the first year of the pandemic and then a further 18 million paying users in the year.

The shares doubled in value over two years to the end of 2021.

However, Netflix’s latest outlook targets only 2.5 million new subscribers in the first three months this year, dampening the trajectory for the rest of the year.

On the day this was announced, the shares fell 20 per cent and in early February were still about 40 per cent off their highs from November 2021.

This sharp turnaround in sentiment was possible because Netflix traded on high current valuation multiples, and growth started to slow down, which led to it expecting a lesser result.

The change in the interest-rate outlook made the drop in valuation worse.

Investors had overestimated how it would perform, because they looked at 2020, which was a growth year when it benefited from lockdowns, stay-at-home orders, and one-off stimulus cheques, so it was condemned to miss expectations.

Still, optimists might argue that the 202022 episode was just a hump (first up and then down) in the context of the long-term growth in streaming demand.

There are still good buys Broadly speaking, many high-growth company shares still look expensive when compared to the past.

That may well be the case, and time will tell. We just might see more twists in its share price than its drama shows for a while.

We are also early in the cycle, interest rates will continue to rise, and economic growth will slow, potentially having an impact on profits.

But not all shares that trade on high (current) valuations should be put in the same bucket.

As the world normalises, we don’t yet know what the long-run growth rate for different companies might look like.

The key, ultimately, is future earnings and, by extension, valuation over time.

On the positive side, there are many highquality, strong growth companies that have valuation metrics that look reasonable.

Payment networks buck the trend Payment networks Visa and Mastercard are examples of large technology companies that trade on high current valuations but are set to see earnings improve as economies reopen.

High-value international travel spending on flights and hotels plummeted in 2020 and has yet to recover fully. This category is now improving too.

Despite the wider selloff in markets, shares of Visa and Mastercard are both up this year. There are opportunities for stock-pickers.

Despite the headwinds, good investments still exist. A good story is essential, just don’t forget to assess whether the price already reflects that.

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as investment or financial advice. Before making any financial decisions, you may wish to seek financial advice. For more information about our financial advice services visit milfordasset.com/getting-advice. Please note past performance is not a reliable indicator of future performance. Please read the relevant Milford Product Disclosure Statement as issued by Milford Funds Limited at milfordasset.com before investing.

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Living Together: Money Apart Should you and your partner merge your money? Ben Tutty looks at the pros and cons of an issue that can lead to friction in relationships.

In the early days of my relationship with my partner, I was self-conscious about money.

I chose a career as a freelance writer (and nap enthusiast) and she chose to be an accountant, so as you’d expect, she brought home a little more bacon than me.

Because of my insecurity over that and because we kept our money separate, I became obsessed with paying 50 per cent of everything and devised a way to make sure I did – a gigantic spreadsheet recording all our joint spending.

This sounds like a spectacularly awful idea, because that’s exactly what it was.

All of a sudden, after never having a single financial disagreement, my partner and I were constantly bickering about money.

What’s your spreadsheet?

After a couple of years of painstakingly recording every transaction in that dreaded spreadsheet, my partner deleted the document without warning.

Afterwards, we talked it over and since then we’ve barely had a single fight about our finances.

This problem isn’t unique to my relationship – in fact, most couples have one niggly financial issue that tends to incite arguments. Their very own spreadsheet, if you will.

different attitudes towards money.

How can we navigate these problems in a relationship to avoid a spreadsheet debacle?

And when’s the right time to merge your money with your partner’s?

To merge or not to merge Lynda Moore (The Money Mentalist), a financial adviser who helps couples and individuals understand and improve their relationships with money, says having joint money in a relationship isn’t essential.

Chances are many of those issues arise for similar reasons, around merging money, overspending and paying a fair share for joint expenditure.

“Merging your money isn’t something you have to do and it certainly isn’t something that you want to rush into. If it’s early in your relationship, a good place to start is to just have one joint account that you both deposit into for spending when you go out together.”

These problems might be exacerbated if one partner earns less or if a couple have

The key, according to Moore, is to start small and get to know each other’s money

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behaviours before you think about merging money. That way you can be sure that you won’t get a nasty surprise a few years down the track.

Moore adds that even when you do merge your money, it’s vital that both partners still have guilt-free spending money.

“One couple I spoke to had fully merged their money. She’d spend more than him and he’d get grumpy about it.

“To fix the problems, we created separate spending accounts for both partners and since he couldn’t see her expenditure, he stopped caring.”

With that said, Moore reckons if you want to keep your money separate that’s fine, as long as there’s trust in the relationship.

“If you apply for a mortgage or a loan, chances are you’ll find out all about your partner’s financial situation anyway.

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“I’ve met a lot of people who discovered during a mortgage application that their partner has a car loan or a credit card that they didn’t know about.”

Different financial strokes for different folks Every couple is different and has unique priorities when it comes to money, so naturally every couple should have a different approach to how they manage their joint (or separate) finances.

For example, my partner and I have no separate accounts and it’s worked fine for almost seven years now (ever since we deleted that nightmare spreadsheet).

Aucklanders Jason and Abby have done the opposite, just as successfully. They’ve been together for six years, travelled, bought a house and adopted a dog – all while keeping their money separate.

“With the exception of mortgage payments our finances are completely separate. This is because we both have jobs and earn our own income and haven’t felt the need to merge money,” Jason said.

Since Jason earns a bit more he typically pays for holidays and work required around the house. This way of managing money has all evolved organically, and according to Jason it’s never been a problem.

Others, like Albert and Carol, a Kiwi couple living in Amsterdam, have a different, more flexible, approach.

“We have independent accounts which our respective earnings are paid into, and we have a shared account, which we deposit equal amounts into, to cover things like bills, rent and other shared expenses,” Albert said.

Carol says they’re pretty relaxed and tend to take an easy-going approach to keeping things fair.

“I would also add that for stuff like going out for dinner or grabbing a coffee we just alternate who pays. We don’t police it that much.”

They both agree that they almost never argue about money.

“Nothing’s really that hard. Other than food and travel, we’re not big spenders. Things are pretty simple because we’re so aligned.”

Date nights are sacred Unlike Albert, Carol, Jason and Abby many couples struggle when figuring out how to manage their money together, and that’s fair enough.

Moore says each partner brings unique ideas and priorities about money into a relationship and if they don’t align that can be tough to reconcile.

“I’ve worked with a lot of couples who have an amazing relationship but really struggle with money.”

Moore adds that the key to working out what’s right for you and your partner is taking it slow, talking and not allowing money worries to take over.

“The most important thing is communication. If something’s on your mind, approach the topic gently with your partner and avoid getting into an argument.

“Oh, and never turn a date night into a financial planning session*.” *Sorry, Barefoot Investor.

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PERSONAL FINANCE

IPOs in 2021: Hits and Misses Fresh faces on the share market are injecting new life into it, but some IPOs are struggling.

Chris Smith of CMC Markets looks at how last year’s initial public offerings are going.

Last year was a big year for stock markets.

New listings came to the market in record numbers in 2021, because central banks were stimulating economies, pandemic restrictions were easing, and shares were soaring to historical highs.

An IPO or initial public offering is where a business becomes a public company by selling shares on the share market.

To grow, share markets need new blood, so it’s a good sign when more companies ‘list’ on the stock exchange to get funds to invest in their firms.

These keen new entrants tend to make a splash in the market when they arrive, because publicity drives their share price higher.

The number of new IPOs worldwide in 2021 increased by 64 per cent year-on-year to 2,388, says Ernst & Young. Moneywise, global IPO issues grew by 67 per cent to US$453 billion.

Locally, we’ve seen the same. It’s been a a busy year for company IPOs on the New Zealand Stock Exchange (NZX), and a few New Zealand-founded businesses have listed on US stock exchanges.

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Sexy tech shares It’s been a record year for new companies entering the market but, frankly, the performance of these companies has been hit and miss.

We haven’t seen too many winners in terms of performance unless you bought and sold very quickly in the technology arena.

More than 50 US tech companies went public this year through an IPO, SPAC (special-purpose acquisition company) or direct listing, but only one is less than 20 per cent below its high stock price.

More than 20 of them lost half their value.

Winners Robinhood: As one of the winners from the trading boom, Robinhood Markets was one of the most hotly anticipated IPOs of the year.

The US share broker app, similar in style to Kiwi company Sharesies, was key to the wild moves in GameStop and AMC Entertainment in January 2021 which burnt a whole lot of short sellers.

Many investors were optimistic it had resolved its early liquidity problems, which caught the attention of US authorities.

On its debut, shares began trading at US$38, reaching US$84, but fell below US$20 as the trading mania from early 2021 waned, losing 70 per cent of their value near the end of 2021.

Its total revenue for the third quarter of the financial year was US$364.9 million, well short of US$423.9m estimates.

Rivian: Electric vehicle startup Rivian Automotive was the most notable IPO of the year, beating the market caps of Ford and Volkswagen.

Without any discernible revenue, the company managed to get a US$179 IPO price from an initial $US78 in the first week of trading.

The price has dropped marginally since then, but Rivian has a market capitalisation of $US100b.

For a company that has yet to earn any money, and is a long way from making a profit, buying shares in it is a big gamble on its future. Most shareholders are locked in until mid-2022.

Allbirds: Kiwis are avidly watching this IPO, which had its debut on the Nasdaq exchange in November, because Allbirds was cofounded by former All Whites captain Tim Brown.

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closed at US$28.64, making a market capitalisation of US$4.1 billion. It raised more than US$300 million in its IPO, but the cost of opening stores has dragged heavily on its profit margins.

It has yet to return a profit, making a loss of US$13.8 million in earnings for the third quarter of the financial year. As investors cashed out, its share price plunged by 75 per cent to US$16.

That said, its sales have grown from the previous year by 33 per cent, to US$62.7 million. It may be a while before the team can lift the stock to more buoyant levels, but its sights are on the long term, investing in new materials and building a sustainable supply chain.

Losers Didi Chuxing: This ride-hailing giant became the second largest Chinese company to IPO in the US, behind Alibaba.

The company’s stock closed at US$14.14 on its first day of trading, with a market capitalisation of US$67.8 billion. Just two days later, the Cyberspace Administration of China (CAC) launched an investigation into Didi over violations of data privacy and national security laws and its share price plunged over 20 per cent to US$12.55.

More recently, Chinese regulators ordered Didi to delist from US stocks. It’s now poised to deliver the worst performance in initial months of trading for any major Chinese listing, with shares down by 44 per cent since in June.

Rocket Lab: Another company keenly watched by Kiwis, Rocket Lab was founded

by Peter Beck in 2006. It successfully closed a SPAC merger with Vector Acquisition and made its debut on the Nasdaq in August.

It was valued at US$4.8 billion in equity and received US$777 million in gross proceeds.

PERSONAL FINANCE

The IPO price was US$11.58, and it closed at US$10.43 with a 9.9 per cent loss on its first day of trading.

a net profit of $NZ9.4 million in the six months to September. Shares were trading around NZ$1.2 in early December.

In December 2021, it made its fourth major deal in the past 12 months by acquiring SolAero, a New Mexico maker of solar components for space, for US$80 million.

Waiting in the wings With central banks planning on tightening monetary policy, and the Chinese overhauling their regulations on tech stocks, this year may be quieter for new listings. Locally, there are murmurs of a few companies listing, but time will tell whether these go ahead.

It has bold ambitions to compete with Elon Musk’s SpaceX and grow its rocket launching business revenue to US$915 million by 2027.

My Food Bag: The Kiwi meal subscription service became the biggest company to list on the NZX in seven years, when it made its debut in May. Shares started trading at NZ$1.85 and closed at NZ$1.7, raising NZ$315 million.

Ahead of the NZX listing, it was valued at NZ$450 million.

Its first-half profit jumped 25 per cent, with

2degrees: The telco said last year it was considering listing on both the NZX and ASX. It’s owned by American firm, Trilogy International Partners, and is listed on the Toronto Stock Exchange.

At the end of last year, there was a potential merger with Orcon on the cards, so its IPO plans are on hold.

Trade Me: The digital marketplace site was

acquired by UK private equity firm Apax Partners for NZ$2.56 billion in May 2019.

After a three-year absence, it is considering taking the company public again this year with a more than NZ$3 billion float on the ASX and NZX. Reddit: The platform that helped fuel the meme-stock frenzy has confidentially filed for an IPO expected to be over US$10b market cap.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The author does own shares in some of the securities mentioned.

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FUND REVIEW

Booster Geared Growth Fund Looking for an aggressive KiwiSaver approach? If you’re comfortable with higher risk in the pursuit of higher reward, you might like the Booster KiwiSaver Scheme’s Geared Growth Fund, which borrows money to magnify its returns.

How does geared growth work?

The way to get the most out of KiwiSaver is to choose a fund that suits you in two respects: your timeframe and your risk tolerance.

Conservative funds are ideal for those who need their money soon or can’t tolerate market volatility, or both.

On the other end of the spectrum, for those who won’t be accessing their money for a decade or more, and who have a high tolerance for market ups and downs, aggressive funds can be the right choice.

These funds aim to maximise returns and take more risks to achieve these results.

Even within aggressive funds, there’s a considerable range of approaches.

One of the less common strategies is gearing, where the fund borrows money and invests that borrowed money in addition to the invested funds.

By gearing (or leveraging) that borrowed money, the returns are higher when the fund does well, while the losses are amplified if the fund takes a dip.

The Booster Geared Growth Fund is one of the only leveraged KiwiSaver funds on offer and it aims to return at least 5.5 per cent over inflation per year, over any 15year period.

The target gearing ratio is 35 per cent, so each $1 invested has $1.35 of buying power.

The fees on the Geared Growth Fund are higher than many other types of funds, because there’s interest to be paid on the borrowed money; returns have averaged 11.6 per cent since inception.

“New Zealanders know the power of borrowing to invest for the long-term – anyone with a mortgage will be well aware of that,” says Nic Craven, Booster’s chief investment officer.

“We created the Geared Growth Fund so they can apply the same principle to their retirement funds.”

The Geared Growth Fund is worth considering for investors who have at least 15 years before they need access to all their funds, says Craven.

“It’s there for people to maximise their potential if they have a decade or two before retirement and they’re not going to be fazed by ups and downs along the way.”

He adds that it’s also been popular with people who have just bought their first home.

Often these new homeowners have withdrawn almost all their accumulated funds to use as a deposit.

If they have 30 or more years before they retire, a Geared Growth Fund can be an option if they want to accelerate their gains from a smaller balance.

Risks and returns The risk with the Geared Growth Fund is that the drops, as well as the gains, are magnified by borrowing.

The actual assets held by the fund are the same as the Booster growth funds – almost entirely Australasian and global equities and property.

“The fund doesn’t take any different type of underlying market risk, we’re just investing a bit more and the risk comes with the extra volatility – it drops quicker and comes up a bit quicker,” says David Copson, head of growth at Booster.

“Since its inception eight years ago, the geared fund has grown 25 per cent faster than the standard growth fund. But to give you a sense of the volatility aspect, in the first lockdowns of 2020 it fell 36 per cent compared to 25 per cent for the [nongeared] growth fund, though both funds ended up with solid returns for the year as a whole.”

This volatility shouldn’t be taken lightly.

You could see a significant fall in the value of your KiwiSaver fund over any single year so if a 25 per cent drop is going to make you panic, this isn’t the fund for you.

There’s also the risk of rising interest rates outpacing returns, which could potentially increase costs and diminish total returns.

There are other general investment risks too – always read the product disclosure statement before you invest.

“The gearing does make people nervous, but if you’re comfortable with a home loan, that’s a good framework for what you can expect,” says Copson.

“A lot of our investors come through their financial advisers, but for those who come direct we have internal advisers who can talk to you and make sure you understand the fund and the risk profile.

“It’s an exciting and unique fund, and a real point of difference for us – word of mouth has been our biggest marketing tool.”

FUND FACTS: GEARED GROWTH FUND Fund size: Around $275 million.

Asset allocation: 99% growth assets (shares and property), 1% cash.

Fund fees: Around 1.75% per annum (including estimated gearing fee); NZ$36 annual member fee.

Return: 7.9% expected long-term (after fees, before tax).

Product Disclosure Statement online at www.booster.co.nz/ documents-and-forms.

Booster Investment Management Limited is the manager and issuer of the Booster KiwiSaver Scheme. Product Disclosure Statements are available at www.booster.co.nz

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PERSONAL FINANCE

Mythbusters: The Fibs That Stop People Investing Heard all those bad stories about investing? Don’t believe them. Amy Hamilton Chadwick exposes the lies that stop Kiwis growing our wealth.

Common misconceptions about investing can really do some damage – they can put us off investing by making us feel like it’s too risky, we’re too poor or we’ll never get the timing right.

These myths are attractively simple and persuasive, when in fact they’re usually hiding the truth.

Here are four investment myths that you should stop believing in right now.

Myth 1: The share market is just too risky Saying the share market is risky is like saying that sex is risky: it really depends a lot on what you’re into.

You can avoid it to protect yourself from any risks, but you’re potentially missing out on some fun and rewarding experiences.

At the risky end is buying individual shares in a new company in a foreign country with few regulations.

You could gain a lot if it succeeds wildly or lose it all if the founder takes your money and absconds to the Caymans, for instance.

If you have a KiwiSaver account, you’re already invested in the share market, and you have a sense of the kind of ups and downs that are involved.

There is always some risk, but you need to offset that against having all your money sitting in a bank account or term deposit earning an interest rate that may not keep up with inflation. After tax, it’s likely you’ll be going backwards.

There’s something for all tastes when it comes to shares, with risk levels ranging from conservative to nail-bitingly scary.

As investment author Robert G Allen puts it: “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”

At the vanilla end of the investment spectrum, money invested in an index fund tracking the S&P 500 (shares in the top 500 US companies) is pretty low-risk – it’s hard to imagine a scenario where you could lose all your money.

Myth 2: Financial advice is only for wealthy people Wealthy people stay that way because they spend money to protect what they have.

That means financial advice, insurance, accountants, lawyers, trusts, and more.

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Unfortunately, if you’re on a tight budget, these can seem like luxury items.

A 2020 Financial Services Council (FSC) survey found 65.2 per cent of Kiwis felt they weren’t wealthy enough to warrant financial advice, while 62.5 per cent felt it was too expensive.

But the right financial advice should pay for itself. “The good news is, the value of advice does clearly outweigh the cost,” said Richard Klipin, chief executive of the council, when the survey was released.

“Those who are advised are delivered a 4 per cent increase in investment returns, about 52 per cent more in their KiwiSaver and save 3.7 per cent more for their retirement than those who are unadvised.”

Myth 3: You can’t assume superannuation will be there when you retire You’ll hear this from people trying to scare you into buying whatever investment they’re selling.

Surely, they don’t really believe that New Zealand would become one of the only countries in the world to eliminate superannuation? Even the world’s poorest nation, the Democratic Republic of the Congo, has a pension scheme.

Maybe people who say this believe the age of superannuation might rise. That’s likely, but we’d get plenty of notice.

Perhaps they mean that superannuation could be means-tested in future, so you’d be given less if you have more wealth.

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If so, you might not get superannuation, but you’d only fail to qualify if you met the threshold for assets or income, so you’d already be comfortably off. You certainly wouldn’t be left destitute.

Could we run out of money? Not likely.

The NZ Super Fund (which is only designed to partly cover NZ Super) is performing extremely well, with $58.2 billion in assets and average annual returns of 10.6 per cent since inception.

The truth is that markets are impossible to predict, and ‘good timing’ is often a matter of simple luck.

NZ Super Fund chief executive Matt Whineray says it’s “well-positioned to tackle the challenges of the next 20 years and beyond, and to continue making a significant contribution to the nation’s wealth”.

Myth 4: You’ve got to get the timing right The most entertaining stories of financial success usually involve an element of good timing.

Your friend who bought Xero shares at NZ$20, or your mate who got into Bitcoin in 2015, or that guy whose classic car has doubled in value.

When the same people get the timing wrong, they’ll keep that information to themselves.

Timing in the housing market is always a hot topic.

When the market booms, it’s common to hear that it’s a bubble that will burst at any moment. The implication is that if you bought at this point, you’d be incredibly stupid.

When the market is flat, it’s not the right time to buy either, because property isn’t performing as an investment.

Taking into account the stories and the warnings, it’s easy to feel as though timing is everything – and you’ve somehow missed the boat. It’s enough to keep you too nervous to invest in anything.

The truth is that markets are impossible to predict, and ‘good timing’ is often a matter of simple luck.

You can’t tell whether you’re buying at the peak or the trough – it’s only in hindsight that the high and low points can be spotted. The only way to invest is to take a long-term perspective.

“Do you know what investing for the long run but listening to market news every day is like?” asked the late financial journalist Alan Abelson.

“It’s like a man walking up a big hill with a yo-yo and keeping his eyes fixed on the yo-yo instead of the hill.”

EXPERT OPINION | PIE FUNDS

Plan for Performance Pie Funds CEO Mike Taylor looks back at what worked last year and looks forward to strategies to help your portfolio perform this year.

The new year is under way, and this is a great time to review your investment goals.

With market volatility still a part of the journey this year, it’s good to remind yourself how to stay rational in times of ups and downs and stay on track with your long-term strategy.

Despite vaccines being deployed globally, 2021 was once again dominated by Covid-19 and its economic effects – inflation, supply chain constraints and labour shortages.

For investors in the 21st century dealing with the second year of a pandemic, the most fruitful strategy was being underweight in bonds and overweight in US mega cap tech stocks, like Tesla and Apple.

What didn’t work? Any exposure to Asian equities, particularly Chinese stocks; trying to time the market around Covid news; and sticking with some of the 2020 Covid winners, especially hardware beneficiaries like Peloton or JB HiFi. Also, after September, high-growth tech companies like Salesforce, Afterpay, Square or Docusign – many of which have fallen 50 per cent from their 2020 highs.

So, what will happen in 2022?

What we know Short-term interest rates have already moved in New Zealand, but still have a way to go in the US. In New Zealand, two-year rates are over 2 per cent now but the US is still catching up, at around 0.85 per cent in early February.

Tech valuations will likely continue to struggle under a rising rate environment.

Cryptocurrency will again be volatile and provide plenty of headline-grabbing opportunities. The Dow Jones will probably outperform the Nasdaq.

What we don’t know How far can US (and global) interest rates go before the pain kicks in?

Will the Omicron strain be the last meaningful Covid variant that effectively ends the pandemic by the end of March and officially (from the World Health Organisation) by June 2022?

Will the Federal Reserve make a policy mistake or manage to thread the needle?

The Fed is not the oracle and history shows it is like an amateur rally driver constantly over-correcting.

My view for 2022 is that US tech will struggle with Fed policy and rates normalisation but will present trading opportunities for specific stocks that get thrown out with the bathwater.

Commodities will stay strong, and oil will break US$100 a barrel as we recover from Covid.

I remain an oil bull because I think the compound effect of a lack of exploration investment in the last five years, Covid recovery, and a slow switch to alternative energy could drive oil prices significantly higher, until they reach a price point which forces change.

Inflation will come off its high but remain above 2 per cent.

Equity performance will be split. US tech will continue its current selloff until valuations become more reasonable. But value, and Covid recovery names linked to services, will do well. Finance and energy should outperform.

At Pie, we have been managing our funds for over a decade and during that time investment markets have navigated all kinds of scenarios, such as the European debt crisis, trade wars and Covid-19, to name a few.

As investment managers, when in work

mode we are realists more than optimists. We let the numbers and the data do the talking.

So, what does all this mean for investors?

How can you plan for performance in 2022?

Be adaptable, because no two situations are the same. History rhymes, it doesn’t repeat.

Have a strategy and a plan.

Review regularly The start of the new year is a great time to do a review and check everything still aligns, to help you stay on track. Do you have new goals you’d like to achieve this year? What are your short and long-term goals? Are you still on target to meet any current goals?

Enlist a qualified expert to help if you need to Experts can help get you on track to reach your goals in the first instance. After that, they can provide insights and ongoing support when there’s volatility in your investments. If there’s a market downturn, having an expert on your side can really help.

Be a rational investor It’s hard to stay calm sometimes if your investments fall. But having a calm, longterm approach to your investment can help you. Stay up to date but avoid getting caught up in attention-grabbing headlines and online speculation. Be prepared for ongoing volatility as the pandemic continues.

Focus on the long term Be prepared for market highs and lows but remember that investing is for the long term.

Ensure your portfolio is diversified and its risk level matches your risk tolerance. Remind yourself of your long-term goals and how your strategy can help you achieve these.

Correct as at 20 January 2022. Mike Taylor is the CEO and Founder of Pie Funds Management Limited. You can view our disclosure documents on the Pie Funds website. For personalised financial advice, please speak to a financial adviser.

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Buying a Property With Friends and Family It’s hard to buy your first property alone these days, but there are options, says Michael Vincent, of Lighthouse Financial. He looks at joint venture property investments.

There are a lot of barriers to entry to the property market, so it’s smart to explore some different ways to buy a property. One is joint ventures with others.

If you’re priced out of the market and want to get on to the housing ladder as quickly as possible, buying with a friend or family member can be a good way to purchase sooner rather than later.

Common reasons for going into a joint venture are: •

Where someone can’t get a foot onto the property ladder and a friend or family member offers to help them out.

•

Where one person has more deposit than the other, but not sufficient income to buy alone.

•

Or individually, both parties have a good deposit and income, but still need more to buy.

We see a lot of these arrangements, between parents and adult children, brothers and sisters, friends and flatmates, and we always give the same advice.

Upfront conversations First, you need to have some upfront conversations.

Money and family can be like oil and water – and arrangements like this can cause rifts, so think hard about this option before diving in.

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An important factor is the timeline to hold the investment property or the house.

What happens if someone loses their job and can’t contribute any more?

If a younger person is going in with parents, they probably have different time horizons.

See a lawyer There needs to be an agreement in writing about how the investment or property purchase is to be handled.

The parents might want to hang on to the property for a passive income in retirement, but the younger person might want to sell it after five years to use the capital gain for a property of their own.

It can get muddy when one person tries to buy the other out. Someone approaching retirement might not be able to get a home loan to buy the younger person out.

Or single siblings who buy a house together at 25 might find one wants to go on an OE and doesn’t want to contribute any longer.

Or the other might get a partner and need the equity out of the shared house to buy a home.

It’s important to discuss all these scenarios and have a clear picture on what each party wants from the investment.

Who will be living in the property and will there be flatmates to help pay the costs?

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It should be reviewed by a solicitor, even if you are very close to the other party to the joint venture.

An important issue to agree upfront is how will you value the property if one party wants to buy the other out. If it’s not decided beforehand, this can become a point of contention.

Finally, the mortgage Some banks and lenders will treat a mortgage application differently if it involves two parties that aren’t related or in a relationship.

Some will treat the two parties as one set of financials and assess the affordability of the loans jointly.

Others will treat both buyers as separate

parties on the same application. This won’t be much help if you can’t afford all of the loans on your own, so make sure you have a thorough discussion with your mortgage broker about your bank or lender.

Lastly, keep in mind that going in with someone on a property now can have an impact on your ability to borrow later.

Most banks’ default position is to look at the debt that each sibling has on the half-owned property as needing to be 100 per cent serviced by their income, when in reality two people service the debt.

How will you divide costs?

Remember that unequal inputs usually mean unequal outputs in an investment.

You should agree upfront on the share split at the start and what the profit split at the end of the investment will be. If you make a loss, the costs need to be passed on in the same way.

Michael Vincent is a financial adviser at Lighthouse Financial. Contact him at michael@ lighthousefinancial.co.nz, phone (021) 037 9572.

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PERSONAL FINANCE

Do you Carry a Credit-card Balance?

Is a credit card a convenience of modern life, or a temptation to go into debt? There are many misconceptions about credit cards.

Diana Clement explains.

Are you carrying a balance on your credit card? That means you’re not paying it off in full each month. Perhaps you only pay the 2 per cent or 5 per cent minimum, or roll some of the debt over.

Doesn’t everyone carry a balance? you ask. Marketers have worked long and hard to convince us that carrying a balance is normal. Even the words “carrying a balance” mask the reality, which is “being in debt”.

Kiwis paid NZ$546 million in credit card interest in the year to September 2021, according to the Reserve Bank of New Zealand. That’s $146 for every adult – and a lot of wasted money.

Plenty of people, both young and old, don’t carry a balance. Most either don’t have credit cards at all or pay off the balance on time every month.

They’re saving themselves hundreds or sometimes thousands of dollars in interest each year which, invested wisely, could be growing in their favour.

Yes, credit cards can be useful for true emergencies. Everyday spending classed as “emergencies” leads to debt, however.

Fake money A credit card limit isn’t savings. It’s fake money that comes at a cost.

“These days, there’s a sense that your credit limit is your money,” says Te Ara Ahunga Ora Retirement Commission personal finance lead Tom Hartmann.

That mentality keeps people in debt.

Credit cards were originally designed to take a larger purchase and spread it out over a number of smaller payments, says Hartmann.

“What credit cards effectively do is, little by little, ratchet up the amount of debt you’re carrying.”

That means your debt snowballs.

Every month an unpaid balance gets bigger and bigger because of the interest charge added to the balance. Invested instead, that money could be growing in your favour.

Carrying a balance translates into paying an average of 18.2 per cent interest more than everyone else for whatever you’re buying. It takes over a year to pay the money back, the cost continues growing. It’s an expensive way to live and not wise, financially.

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YO U R I N V E S T I N G

If you want to get ahead, the reality is that you need to ditch all consumer debt, including ‘buy now, pay later’, which still encourages us to buy non-essential goods and services.

Start budgeting and find a way to live without credit.

Don’t be sucked in by points Some New Zealanders like Airpoints or other rewards schemes on their credit cards. They figure that it’s free money and flights.

The first fish hook is that these schemes come with an annual fee that has to be recouped before the points are of any value.

Then, if you miss paying your balance off in full once or twice in the year you’ve almost certainly paid for your own points.

The other catch is that even those people who pay their credit card bills in full end up spending more than they would have otherwise.

Academic research has shown time and again that we spend more with plastic than we do if we have to hand over cash.

Our brains don’t like the latter at all.

It’s harder to track spending against a current account if you’re using a credit card, and also tempting to add “just this 62 INFORMED INVESTOR |

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one little purchase”. We’ve all done it.

At least with EFTPOS or a debit card you’re only spending your own money, not going into debt.

Not even plastic Our debit and credit cards aren’t even plastic any more. They’re invisible, says Hartmann.

“Carrying a balance translates into paying an average of 18.2 per cent interest more than everyone else for whatever you’re buying.”

We have the numbers pre-loaded into our favourite ecommerce sites, or know them off by heart, which is dangerous indeed.

Even emergency spending on credit cards isn’t great for people who want to be better with money.

Building up a small emergency fund that allows you to cover emergencies from savings means paying no interest at all.

Or, if it’s really necessary, there are lower

interest ways of borrowing, including personal loans and, if appropriate, ‘buy now, pay later’ purchases limited to a few weeks.

Turn it to your advantage Quit paying interest by kicking the balancecarrying habit. Put the interest you would pay into savings and watch it snowball in your favour.

With historically low interest rates, savers may need to invest in growth assets such as shares and funds rather than term deposits.

Either way, what was once an interest payment can build real wealth.

Finally, think twice before refinancing creditcard debt onto the mortgage.

It’s a bad habit to get into because it disguises bad debt (consumer spending) as good debt (mortgage).

If you really have to refinance a credit-card balance onto the mortgage, make sure that portion of the debt is paid off over a five-year term, not 25 or 30 years.

Otherwise, it will end up costing you more.

For example, $10,000 added to the mortgage at 4 per cent compounded daily will cost $12,213 over five years. Over 25 years, you’ll pay $27,181 in total on that $10,000 loan.

Finally, successful investors learn not to overspend in the first place.

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B U S I N E S S V I S I O N | PA R T N E R S L I F E

Life is Risky, Regardless of Your Age Partners Life is investing in boosting the financial capability of young Kiwis, says Naomi Ballantyne.

Kiwi kids need help to grow up with a good understanding of money and how to manage it well.

Research shows that early financial education at school improves a child’s life after school.

Partners Life’s experts worked with the Banqer team to make sure the new expansion contains the latest and most accurate specialist information available in this space.

The personal risk insurance expansion adds to other expansions covering: •

Banking

•

Careers

•

Income

•

Savings

•

KiwiSaver

•

Budgeting

•

Flatting

•

Buying property

•

General insurance

•

Investing on the Banqer High Stock Exchange

Since its launch in 2020, Banqer High has been used by more than 22,000 Kiwi secondary students nationwide.

That’s why Partners Life is supporting the learning platform Banqer.

Another 170,000 younger students use the primary and intermediate Banqer platform across Australia and New Zealand.

Banqer is an interactive learning tool that helps develop financial literacy and capability in primary and secondary school students across New Zealand.

Why do we support it?

Partners Life was founded with a core focus of closing a gaping underinsurance gap in New Zealand.

Using Banqer High, over 22,000 New Zealand high school students have experienced applying for a job and earning classroom income, paying taxes, exploring the property market, enrolling in KiwiSaver, buying insurance, and more, as they practice how to manage their money.

Over the past year we’ve reviewed our sponsorships to make sure they align with the purpose of reducing the gap – and one of the best ways we can do this is by starting with young Kiwi.

Exploring Banqer enables students to experience real-life situations where they make their own assessments and decisions, and are responsible for the outcomes.

The goal is that they become inspired to be curious, creative, and confident with money.

With the help of Partners Life, the Banqer High platform for secondary school students has recently expanded to include a personal risk insurance expansion.

It introduces students to private medical and income protection as a way of managing personal risk.

As students move through the expansion, the platform will generate random events with varying levels of risk. Students are then able to see the impact of their decision to purchase personal risk insurance… or not.

Increasing financial literacy and awareness of risk at a young age will help inspire students to be confident with money.

We hope this knowledge will be passed on through families so we can create generational change.

The Partners Life sponsorship pays for an extra 750 students to access the platform at no cost.

WHAT ABOUT YOUR SCHOOL? Is your school currently using Banqer as a tool to help kids increase their confidence with money?

It’s easy to refer a teacher to Banqer High. Just go to https://high.banqer.co/nz/partners-life and fill in the form.

CASE STUDY: Cashmere High School, Christchurch The great value of Banqer is that it pulls together essential life skills, says Joe Eccleton, Principal of Cashmere High School.

“The feedback we’ve had from our staff, our students and our parents has been overwhelmingly positive,” says Eccleton.

Head of Social Studies Blair Sang says financial literacy is a problem in New Zealand.

“Not everyone has got the skills, even the basics, so we just wanted to start them thinking about retirement, even though they’re really young.

“Are you thinking about buying a house, saving up for a mortgage? What are the things you have to think about there? What about if you’re going out flatting?”

“There’s a lot of life skills there, stuff we take for granted that we don’t always teach.”

To the students, it feels like a gaming platform, says Matt Benassi, a teacher in the Commerce department.

He says it gives them a bank account, increases their banking skills and their career possibilities. It also looks at how they can grow their wealth through expansions like the Banqer High Stock Exchange.

One or two teachers at Cashmere High were using the free trial. When they realised how successful it was, Sang then contacted Banqer, who facilitated the transition and brought Banqer High into the full Year 10 cohort.

It was easy to get started and teachers didn’t need any special financial skills, says Benassi.

“It’s all set up and it’s really easy to use.”

YO U R I N V E S T I N G

When One Partner Earns More How do you navigate a relationship when one partner contributes significantly more to the family finances? Ben Tutty finds it could be an accident waiting to happen.

Money is a significant source of stress in many relationships.

It may be unpaid but does that mean it’s any less valuable?

studying alone. He said what I was doing was more important than money.”

In fact, a recent survey of 3,000 Kiwis found that one in five couples have relationship problems because of their finances.

The United Nations estimates that unpaid work (such as these examples) would make up 10 to 39 per cent of global GDP if it were fairly compensated.

Without it, the world would grind to a halt.

Since then, Sarah has been getting straight A’s and has almost completed her masters’ degree. Despite the success, she says she still feels bad.

That said, when one partner is doing unpaid work while the other brings home the bread, it can still be a source of tension in a relationship.

“I always think I can’t spend money because I don’t make it, but Jessie tells me not to worry.

That number can be even higher when partners contribute unequally to the joint coffers or when they have different attitudes about money, for example, when one partner’s a saver and the other’s a spender – or when one partner earns more than the other.

While money is definitely important (this is an investment magazine, after all), surely our relationships should be the priority?

Why do these differences cause us so much trouble and what can we do about it?

Why money isn’t everything Unpaid labour comprises a huge proportion of the work we all do, from looking after children and disabled family members to housework, studying and training.

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At least it is for Sarah*, a 32-year-old psychotherapist from West Auckland who took a break to study while her partner continued to work.

“My partner, Jessie, who runs his own business, could see I was burning out working and studying six to seven days a week.

“He wanted me to be more present, so he suggested that I stop working and focus on

“I feel uncomfortable, like I’m not contributing.

“Our mortgage broker keeps asking when I’m going to get a job and I know buying a home would be easier if we had two incomes.”

Sarah feels incredibly lucky to be able to live on her partner’s salary and realises that isn’t possible for many people.

“Jessie is great every time we talk about it and that’s mind-blowing to me. I’ve come to think of it like we’re a team, I contribute in other ways and if we had money troubles, I would 100 per cent go back to earning.”

PERSONAL FINANCE

Laying a financial foundation Many couples aren’t as lucky as Jessie and Sarah, who navigated a financial and lifestyle change without running into relationship trouble.

Angela Rennie is an Auckland counsellor behind Intimacy Counselling, a practice in Auckland (and online) which focuses on enhancing and improving clients’ relationships. She says money problems like these are extremely common.

“Money is one of the top five conflict areas I encounter in relationships.

In most cases the stress and power struggles over spending or managing money come down to underlying anxieties,” said Rennie.

“That may be an underlying anxiety about your financial position, or your beliefs about money.”

Rennie adds that (within reason) having conflict about money isn’t necessarily even a bad thing.

“Most conflicts never get fully resolved, so it’s about learning techniques for healthy dialogue. From conflict comes growth and compromise.

“The key is not to fight and get angry because, when that happens, a gridlock can occur, where neither partner will budge.”

Honey, let’s talk about money Conflict can be constructive, but it’s not always necessary.

Lynda Moore (The Money Mentalist), a financial adviser and ex-accountant with a postgraduate diploma in psychology, says simply talking to your partner gently and honestly can be a great way to reconcile differences and anxieties about money.

“Ease in gently and prepare them for the fact that you want to talk.

“Never talk about your relationship at first, distance yourself from the conversation and keep it light.”

Moore adds that understanding your

partner’s money behaviours early in a relationship can set a healthy financial foundation for a relationship.

“If you see or hear behaviours that make you uncomfortable, whatever they are, talk about it right away. Then you can decide whether it’s a non-negotiable.”

Talking about money is vital to ensure it doesn’t become a problem in any relationship, especially when one partner earns more or has different financial priorities.

Change perspective But by the sounds of Sarah’s experience, a change in your perspective can be what it takes to put relationships first and tackle money problems as a team.

“I always thought that since I finished school, earning as much money as possible was the only way to live.

“Then I got older and realised that being happy and healthy and having good relationships is far more important.”

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YO U R I N V E S T I N G

Let’s Do the Right Thing Social policies can make a big difference in how Kiwis view and trust businesses, says Victoria Harris of Devon Funds.

ESG INVESTOR | DEVON FUNDS

Social change used to be on the margins.

Now it’s mainstream.

We’re seeing a renewed focus on environmental, social and governance (ESG) issues in the financial markets.

The urgent demands of climate change and the need for better boards highlighted by the 2008 global financial crash has led to much of today’s focus being on the ‘E’ and ‘G’ factors.

proof that their views have been considered in boardroom decisions about a company’s growth strategy.

Social factors have become among the most pressing issues for companies around the world.

Take the use of the word ‘furlough’, which used to be largely confined to the airline industry during the boom-bust of their economic cycle.

Social factors (the ‘S’) haven’t been given the same attention – until now.

Over the past two years it has become commonplace across many industries.

The unequal impact of the Covid-19 pandemic, the Black Lives Matter protests, and the #MeToo movement have each been powerful drivers for an increased recognition of the need for social change.

Over lockdowns, some boards and executives did the right thing, ‘sharing the pain’ alongside their employees or continuing to pay staff full wages despite significantly reduced revenue.

Factors which fall within the ‘S’ – like customer or product quality issues, data security, community engagement, and supply-chain issues – commonly have a huge impact on businesses and can destroy shareholder value.

Entire sectors of the economy, and not just the weakest players, have collapsed or are still facing a stark and uncertain future.

Social’s ‘middle child’ label may have been an accurate description until the world changed in early 2020.

Since then, the ‘S’ has quickly moved to front of mind for investors and is high on the agenda for company stakeholders and society.

Businesses are interconnected We’ve seen the scope of ‘S’ progressively widened over the past few decades, reflecting the evolving business environment of the 21st century now that businesses and markets are more interconnected and interdependent.

Social issues used to be just about human rights, labour issues, workplace health and safety, and product safety and quality, but ‘S’ factors now also include the impact of modern supply-chain systems and even how we use technology.

Take the 2015 Volkswagen emissions scandal in which the company admitted cheating US emissions tests.

Some people would argue that it was more of an ‘S’ issue than an environmental one, because a company’s culture dictates behaviour.

Companies have, for a long time, understood how important it is to engage with their suppliers, customers, employees, and partners.

However, now it’s not simply enough to engage with those stakeholders – you need

In a Covid-19 environment, ‘S’ has been dragged into the spotlight and will now attract significantly greater attention from investors than ever before.

As we look forward, I believe that a company’s reputation will be based on how it engaged with and managed its stakeholders through the pandemic.

Microsoft: A social star There are some companies that excel in social change. A recent survey by the Drucker Institute says Microsoft scored the highest out of 800 US companies for social responsibility.

In 2019, the company donated over US$1.4 billion to not-for-profit organisations, provided computer science education to more than 12 million young people in 54 countries and spent above $3 billion to help businesses owned by minorities, the disabled, veterans, the LGBTQ community, and women.

This, as well as its stellar financial performance, has led to Microsoft delivering significant shareholder value over the long term. Its share price has

appreciated nearly 500 per cent in the last five years.

Difficult to define There’s been a progressive increase in emphasis on ESG in recent years – by companies, investors, and wider society.

Companies have made significant progress in disclosing their environmental impact and governance standards, but the same can’t be said of social impact and performance.

Many market participants have struggled to grasp precisely what role the ‘S’ should play in company frameworks and how to integrate it into investment decisions.

This is perhaps unsurprising – good governance practice transcends sectors, and an organisation’s impact on the environment can be measured against widely accepted criteria. But what about social issues?

A 2019 global ESG survey by BNP Paribas revealed that nearly half of investors surveyed found the ‘S’ to be the most difficult to analyse and embed in investment strategies.

A lack of consensus in the industry on what the ‘S’ is makes it harder to work into investment strategies, compared to both the ‘E’ and ‘G’. There’s a lack of social reporting from companies, which adds another layer of complexity.

Into the spotlight In a Covid-19 environment, ‘S’ has been dragged into the spotlight and will now attract significantly greater attention from investors than ever before.

It will also get significant scrutiny from regulators, government, customers, and employees.

There was little focus on and reporting of the ‘S’ in the past, but it will now clearly be an element of the corporate story and a big pillar of a company’s ESG credentials.

It’s crucial for companies to grasp the meaning and implications of a strong social policy and communicate it to all stakeholders.

We could see what used to be an investor focus on reporting issues around diversity, equity, and inclusion become governmentmandated reporting.

It’s no surprise that there’s an increasing focus on the environment and climate change, but I predict that social factors will increasingly head to the top of companies’ agendas.

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K I W I S AV E R G U I D E | B O O S T E R

PART TWO: Turbocharge your returns

Your Guide to KiwiSaver

PUT IN A LUMP SUM

The higher your KiwiSaver balance grows, the better off you’ll be for two important life goals: buying your first home or enjoying a good retirement.

Here’s how to turbocharge your balance.

TAKE A GOOD LOOK

$

•

Could I put in more of my earnings?

You can’t keep on track unless you know what your account balance is.

•

Do I have extra savings that I could put into the account as a lump sum?

Your provider will send you an update once a year, with a handy retirement estimate in it.

•

Could I cope with a higher level of risk to potentially get better returns?

It’s a good idea to check your KiwiSaver account balance at least a couple of times a year to make sure you’re on track.

•

When will I need the money? If it’s not soon, could I move into a more aggressive fund: from Conservative to Balanced, or from Balanced to Growth?

•

Am I putting in enough to get free money from the government, known as the government contribution?

But there’s no need to check it every day or every week. It’s the long-term direction that counts.

If your balance hasn’t gone up as quickly as you’d like, ask yourself Let’s talk about each of those options. these quick questions:

HOW MUCH ARE YOU PUTTING IN EACH PAY? The first step is to work out how much is going into your account each pay. Take a look at your pay slip.

There will be two KiwiSaver amounts in it.

One will be the percentage of your salary you’re contributing.

The other will be the amount your employer puts in, 3%. Tax is deducted from this amount.

To be in KiwiSaver, the smallest amount you can put in is 3% of your before-tax pay, but in 2019 the percentages you can put in changed to give you more choice. Now you can choose to put in: 3%, 4%, 6%, 8% or even 10%.

There’s a big difference between putting in the minimum 3 per cent and putting in more money each pay.

Someone on an average salary who puts in 10 per cent of their salary over a lifetime of working will be $229,000 richer at 65 than those putting in 3 per cent, says the Retirement Commission’s website Sorted.org.nz.

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If you’re working hard towards a goal like a first home or you’re nearing retirement, lump sums thrown into your KiwiSaver account can make a huge difference to your balance.

You could have a work bonus, a gift, the cash from things you’ve sold on TradeMe, a legacy, or just money you’ve saved up over lockdown.

If you leave big sums in your bank account, it’s too tempting to spend it.

And you’ll get next to no return on it in the bank.

Maybe you’ve set and stuck to a budget to work out where you could save some extra money.

Booster has a free app that helps you work out where your money is being spent. mybudgetpal connects directly to your bank accounts, sorting your spending and showing where your money is going. And it’s free!

Tip: Before you lock money into KiwiSaver, it’s good to have several months of living expenses sitting in an account for emergencies.

Remember, you can only draw money from KiwiSaver for specific reasons, including to buy your first house or for retirement.

But the beauty of investing any spare money into your KiwiSaver account is that it should grow over time with the power of compounding returns.

THE MAGIC OF COMPOUNDING RETURNS You can think of compounding returns as returns on returns.

When you invest, you get returns, made up of dividends, plus the growth of the value of your funds’ assets. This can be thought of as ‘simple returns’.

But if you never take out your returns, they’ll add to your total where they earn returns too and ‘compound’ so you’ll get returns on that money as well.

This effect looks quite small in one to three years, but by the time your investment has been generating returns for eight years or more, the growth accelerates and gives your investment an amazing boost.

HERE’S HOW IT WORKS

Each time you and your employer make a contribution, that’s added to your total and this new total then grows. If you started investing in KiwiSaver at age 20, had a starting salary of $70,000 and chose a balanced fund, here is how your balance could grow (based on employee contributions of either 3% or 10% p.a.).

Age

3%

10%

20

$0.0

$0.0

25

$21,748.00

$48,293

30

$45,788.00

$101,867.00

35

$73,328.00

$163,783.00

40

$104,552.00

$234,447.00

45

$139,099.00

$313,006.00

50

$178,559.00

$403,171.00

55

$223,655.00

$506,620.00

60

$272,013.00

$617,810.00

65

$319,496.00

$727,094.00

Source: www.sorted.org.nz

For table assumptions: https://sorted.org.nz/how-these-calculators-work#kiwisaver-calculator

FREE MONEY! Don’t miss out on free money.

Once a year, the government will put its contribution into your account – 50 cents for every dollar you put in, up to $521 each year.

You don’t have to do anything, because your provider does it for you.

Just make sure you’re contributing at least $1043 each year to get the free government money.

The government contribution is based on what you put in before 30 June each year.

Booster is Kiwi-owned and operated. We’ve been looking after New Zealandersʼ money for over 20 years.

With Booster you can manage your whole financial universe with the mybooster app. mybooster lets you track your total wealth and create the future you want by giving you a joined-up view of your bank accounts, investments, property, assets, and debts.

On www.booster.co.nz you’ll find the Booster KiwiSaver Scheme, mybudgetpal, and mymoneymap, which helps you plan how long your KiwiSaver and Investments will last.

Join the Booster KiwiSaver Scheme now. www.booster.co.nz

If you didn’t put in the whole $1043, you’ll still get some money, but only a proportion of it.

If you’re self-employed or don’t earn a lot, it’s a good idea to put in a lump sum to bring up your contributions to $1043. Just do it before 30 June to qualify.

Booster Investment Management Limited is the manager and issuer of the Booster KiwiSaver Scheme (Scheme). The Scheme’s Product Disclosure Statements are available at www.booster.co.nz

K I W I S AV E R G U I D E | B O O S T E R

ARE YOU IN THE RIGHT FUND FOR BETTER RETURNS? Being in a higher growth fund generally offers you the chance of better returns.

Growth funds have a larger proportion of shares than either Balanced or Conservative funds but are more volatile; that is, you’ll sometimes see your balance drop.

If you don’t need your money soon, and you’re comfortable with some ups and downs in your balance, you usually find that Growth funds simply grow faster over the long term.

HOW MUCH WILL YOU NEED? If you’re buying your first home, you’ll have a reasonable idea of how much you’ll need in your account to get a 10 or 20 per cent deposit on a house.

It’s easy to switch to a higher growth fund with your provider, usually on their app or by making a phone call.

PICK THE RIGHT PROVIDER There are several things to look for in a provider.

They are: •

The fees you pay represent good value for the overall service you receive, including returns, benefits like free insurances and digital tools.

•

That your values align.

Even if the returns are good, you may not feel good about investing in a fund that jars with your values, say for sustainability.

•

Their app or website is simple and easy to use.

•

They educate you about investing, with advice, support, and good customer service.

And they tell you how they invest and what’s going on in the markets.

But retirement can be a big unknown. How long will you live? How much does it cost to live every year?

That’s where calculators can keep you on track. www.sorted.org.nz is run by the Retirement Commission. It has tools to work out how much money you’ll need to have invested to retire on the weekly amount you’d like.

GET YOUR TAX RATE RIGHT Don’t pay too much tax. Get it right, because you won’t get a refund – but mess it up and you might get a bill.

The tax you pay on a managed fund like KiwiSaver is called a PIR, a prescribed investor rate.

Your rate depends on your income, from 10.5 per cent, say for a retiree only getting NZ Super, to 28 per cent tax, the rate most of us pay if you earn a fulltime salary.

GET ADVICE Finally, the best money you ever spend could be on a financial adviser – and some will give you a basic plan for free.

The Financial Services Council has run the numbers and found that over a Kiwi’s working career, you could be a million dollars better off if you use an adviser.

Advisers closely watch all the KiwiSaver providers and their returns. They’ll recommend the right fund for your personal risk profile and goals.

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If you stop working and your income drops, your PIR should, too, leaving more money in your KiwiSaver account.

But if you earn more money from all sources one year, you might need to let your provider know to put you on a higher rate.

To find out if you’re paying the right tax, go to the IRD’s Find My Prescribed Investor Rate section.

To compare providers and fund performance, check the Financial Markets Authority’s KiwiSaver Tracker or the Sorted Smart Investor website, www.smartinvestor. sorted.org.nz.

EXPERT OPINION | ASTERON LIFE

How to Protect Your Kids When you have a baby, you try to save them from hazards and hardships. But if something happens to you, can you still protect your children? Grant Willis, of Asteron Life, says you can.

When you become a parent, your child depends on you to keep them safe and make sure they have everything they need to live a happy and healthy life.

You might be busy navigating a host of important decisions and responsibilities in your new role as parent, and one of them might be considering whether it’s time to get life insurance – or reviewing your existing policy.

Why life insurance?

Life insurance can help your family stay afloat financially and help ensure your children are taken care of, if you are no longer there to support them.

If you pass away, it pays a lump sum to your family or estate, which can ease the burden of paying expenses like rent or mortgage, living costs and childcare.

Many parents get real peace of mind from knowing there’s a plan for how their young children will be taken care of if they pass away.

A financial adviser can talk to you about how to use life insurance so your children would be taken care of if you were no longer around.

Policies to fit most budgets Having kids can bring a lot of new financial pressures into your life, so you might be worrying about how to fit insurance into your budget.

A financial adviser can help you balance the cost, the amount of cover you want and how to structure it in the most effective way for your situation.

They’ll consider any debts you have, bills and living expenses you’d leave behind, and how you’d want your kids cared for and educated.

Other types of cover If a stay-at-home parent were to pass away, life insurance cover can help your family settle debts, boost savings, or pay for future expenses like your children’s education.

But if a parent is injured or becomes ill, your family could still face major unbudgeted costs.

Income protection, mortgage and living or trauma cover can all offer some protection to help you meet expenses like paying for unfunded medical treatment, modifying your home or cover bills.

Which parent to insure?

Often new parents will be reduced to one income if one parent chooses to stay home and care for the new addition to the family.

If your family is fully dependent on the income of a sole working parent, it may make sense to insure the working parent.

But it’s also important to consider how losing a caregiver would affect your family.

Being a stay-at-home parent is a full time gig. As a teacher, counsellor,

chef, housekeeper, and more, they’re contributing tens of thousands of dollars of unpaid work to your family every year.

Would someone else need or want to stop working to take care of your child?

Would you have family support, or would you need to pay for childcare, transport, housekeeping and more?

Your family’s expenses may go up to pay for the work they normally do, or your income might go down if you need to take time off work to help around the house or care for the stay-at-home parent.

Without cover on the non-working parent, some families might find it challenging to meet those expenses.

Getting life insurance when both parents are young and healthy gives your family financial certainty but also gives you peace of mind that you’ll both be covered if any future medical issues arise.

There are lots of life insurance options, so it can be helpful to get personalised advice. You can find an insurance adviser through the Asteron Life website, www.asteronlife.co.nz.

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‘I didn’t want to struggle like my parents’ Dani Paim decided to invest in property so she’d always have a safe place to live.

Dani Paim says she always wanted to make sure she had enough money to live well, after watching her parents struggle financially when she lived at home in Brazil.

“We had a lot of hardship when I was a kid. I decided I didn’t want to go through the same experience myself,” says Paim, now 27.

She read the classic investing book Rich Dad, Poor Dad and says it opened her mind to the possibility of buying property.

“I started working at 16, then started working at Dell when I was 18,” she says. “I was saving pretty much my whole salary and I started researching how I was going to buy property.

“I got my first house, in Brazil, when I was 19.”

She didn’t have much money saved, but a government support scheme for low-income earners through CaixaBank was offering an incentive to help with the deposit.

“It’s really unbelievable because in Brazil, getting a property is really hard, even if you’re an adult, but I managed to do it.

“It wasn’t just good for me, but for my family as well. Whatever happened to me, I would have a safe place to live.”

Paim soon realised she would need to speak English to move up in the corporate world, so she came to New Zealand to learn the language.

“When I got here, I realised how much I didn’t know about different cultures, but I was passionate about learning more about other people.

“I realised if I worked hard, I could have a much better life in New Zealand and be able to provide for my family, which I would never be able to do if I lived in Brazil.”

When she first arrived, she worked in hospitality.

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“In the beginning it was frustrating because I did not understand a lot and I couldn’t communicate. People were asking: ‘Can I have a cuppa?’ And I would say: ‘What’s – cuppa?’

She sleeps in the basement of the two-storey house and rents out the other bedrooms.

“I would go home and write down every new word. I was struggling and learning.”

“It’s just in the meantime because I want to continue purchasing and hopefully one day, I’ll have a nice house that’s fully decorated.”

After a year her English improved, and she was able to get a better-paid office job.

She soon worked out most of her income was going to pay rent, so she refurnished the house she was renting in Mount Albert and let it out to flatmates by the room.

“It’s not as nice downstairs, so it’s a bit of a sacrifice and it doesn’t have a kitchen down there, but I love it.

She’s started renovating it and plans to turn it into a legal home and income.

She is also buying a new build in Mangere, which will be her fourth property.

“I was the head tenant for more than three years before I got my own house, and I still do that to this day. I have tenants in my house to help pay the mortgage.”

“But what I’m really passionate about is buying properties to renovate them. I would like to buy good quality houses that are not liveable and transform them into places where families can live.”

Using savings, she invested in a second house in Brazil, a new-build, but now has permanent residency in New Zealand and recently bought a house here.

Paim has recently started in a new role at Accelerate, helping investors renovate for profit – and she’s saving to buy more properties.

“I was working around 120 hours a fortnight and, with my partner, saved $180,000. After looking for six months, we were able to buy my first property here in June last year.

“I would love to have $100,000 a year passive income by the time I’m 30, which would be enough to support my family.

“It was pretty much a dream come true, because of how expensive properties are here. I’m still amazed. I just look at the house I bought, and say, ‘It’s mine!’.”

“My father is old and getting sick and the rest of my family has been affected

by Covid. I like having the peace of mind that whatever happens to my job, I have an income coming in to support them and won’t have to struggle.”

‘I have the guts of my portfolio in shares and I dabble with the fun stuff’ After working for a hedge fund, Frank Aarts returned to New Zealand to live off his investments.

Frank Aarts is proof that smart share market investing pays off. He’s living in sunny Northland, working from home, and enjoying a swim between phone calls.

He returned to New Zealand after living in the Caribbean working for a hedge fund.

Since becoming a professional share trader, he now has the flexibility to trade from anywhere in the world.

After shortlisting several countries, he and his family ultimately gravitated right back to the community where he grew up, One Tree Point.

After 20 years in the financial services industry, Aarts wants to help other Kiwis succeed with their own investing. He has recently set up his own financial advice business, My Frank Advice.

“The share market has historically been the place to go, and to me it just makes sense.

Some people are threatened by the idea of it, but all you’re doing is taking partial ownership in big businesses.”

Index funds are his main investment vehicle, because they tend to outperform active share funds over time, and because they offer unparalleled diversification.

He’s in the enviable position of not needing to rely on commissions to pay his bills, so he’s excited about offering advice to people just starting out on their investment journey.

“It’s impossible to replicate that diversity yourself. You’d be chewed up and spat out with trading fees so, mathematically, index funds make sense.”

“I’d like to try to work with people when they’re starting out and put things in place so they can achieve in this game,” says Aarts.

He invests directly through Kernel and SmartShares, using passive funds to give him a wide exposure to industries and economies. He picked Kernel after doing a lot of research, he says.

“People tend to leave it a bit late. They wait until they’re in their fifties, then say, ‘Oh no, I can see retirement coming on the horizon’.

“I’d like to help younger people set themselves up, without upselling anyone into products they don’t need.”

“I really gravitated towards them because they’re Kiwi-based and very clear on what they’re doing, and I like the suite of funds they have available,” he says.

The share market ‘just makes sense’ Aarts admits he made a few risky investments when he was younger, but he says he’s learned the value of a slow-and-steady approach.

“My core investment portfolio is made up of Kernel index funds, which I really like, and three or four SmartShares ETFs [exchangetraded funds] which complement what I hold with Kernel.

He says the share market is an obvious choice for strong, reliable returns over the long term.

“With the guts of my portfolio in passive index funds, I can then dabble around the

side with the fun, speculative stuff like crypto and NFTs [non-fungible tokens].

That keeps it a bit exciting.”

Little tweaks can add up to big success He talks of a Warren Buffett analogy to show how selective focus is vital.

If you had a ticket with only 20 slots in it so that you had 20 punches representing all the investments of a lifetime, you’d really think carefully about what you did.

Aarts says one or more punches should be in a big passive share market fund filled with blue-chip stocks.

Aarts believes you shouldn’t invest too heavily in KiwiSaver because your money is locked in.

“People don’t realise you can expose yourself to the same investment vehicle in other ways and add diversification to your portfolio.”

Aarts believes anyone can start small and slowly build up an excellent portfolio.

“Your financial health is a long-term project and it takes long-term effort,” he says.

“It’s the same as your physical health – making small incremental lifestyle changes early on sets you up for life.”

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‘I started my own crypto app to make investing easy’ Bette Chen sees her own cryptocurrency app as a second chance to become a creator of the new internet age.

Software engineer Bette Chen says you need to look at Bitcoin as a bit like the calculator.

“It’s cool, but it only does one thing,” she says.

But crypto has now transformed from a calculator to a mainframe computer, which means you can start building and connecting the whole world.

This is what Chen did with her new business Acala.

Chen describes the way Acala works as a ‘decentralised monetary reserve’.

Acala is a new and improved way to invest digitally. It works within an entire ‘ecosystem’ of cryptocurrency, using blockchain technology, says Chen.

“Acala works a bit like the Reserve Bank but is native to the blockchain,” she says.

If you’re shaky about the technology behind cryptocurrencies, Blockchain works as the ledger that records transactions and tracks assets on the crypto business network.

But it’s decentralised and it’s not run by a third party.

“If the internet empowered corporations, the blockchain world empowers the individual,” says Chen.

In simple terms, Acala offers the tools people need to use and participate in the new world of investing in crypto assets.

The application uses Polkadot, an improved crypto, which connects all the blockchains together.

Chen admits it’s a difficult technology to use, but it creates a lot of opportunity to build wealth, mainly because it works to merge previously incompatible networks of currency.

Despite thinking in a whole new dimension, it’s still working with people, she says.

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For example, in the real world, investors can use collateral from a house to borrow cash, which may be used to buy more property or increase the property’s value through renovation.

“We are able to do this in real-time, on the blockchain, without using third parties,” says Chen.

But instead of using your property as collateral, you use digital gold like Bitcoin.

It’s the same process, but with no bank, no lending criteria, and no paperwork. Acala serves as one open store for investing in crypto assets.

“The environment we created on the blockchain is more transparent and rates are better,” Chen says.

Once you have a digital dollar you can reinvest it for a higher return relative to risk.

For example, the return ranges from 15 to 30 per cent, from low risk to high.

Chen started working on the concept of

Acala almost three years ago. Before that, she was putting her degree in engineering software to use in the financial services industry.

She and her team were early Polkadot builders, looking for a stablecoin.

Inevitably, Chen crossed paths with other early builders of the same technology. That’s how Acala was born.

Chen describes her business as her “second chance”.

Chen started with Bitcoin as just a personal interest but after a few years of research and dabbling in the crypto world, she took to it professionally.

She says she felt like she might have missed the first boat of crypto. But this new generation of crypto is her second chance to be one of its pioneers.

“How many people have the opportunity to have a second chance at the internet age and try to become one of the creators?” she says.

“For us, Acala is like that,” she says.

“We get to be part of it and building it.

We may not get everything right, but we want to be a part of it and build our future.”

PERSONAL FINANCE

‘I want to retire early to spend more time with the kids’ Starting his own business was a gamble but one that paid off for Rhys Dilks.

Seven years ago, when he was in his early 40s, Rhys Dilks came to a crossroads.

He was working long hours in management at a major telecommunications business when the company offered redundancy payouts to anyone who wanted to leave.

He enjoyed his job, but the offer prompted him to think seriously about the direction he wanted his life to take.

“It was almost a mid-life crisis,” he laughs.

“When you’re on the corporate ladder, you get caught up in endless goals but you never get there. My wife Claire and I decided to create some personal goals and figure out what we needed to achieve those. We wanted to set ourselves up so we could retire earlier, have more freedom to choose how we live and spend more time with the kids.”

A 30 per cent return on investment Dilks knew that running his own business could deliver on several of those goals – if he could get it right.

Trained as an electrician, he had moved into IT, and was familiar with managing customers and corporate clients, so he knew that a home automation business would be a perfect fit.

Dilks used his payout to launch Digihome, which provides smart home systems that allow you to control security, sound, lighting, and any connected device through a central hub on your phone or tablet.

“I think small business ownership could be a big risk factor for mental health issues.”

But the business was a success. From a one-man band, Digihome grew to a team of technology specialists.

business was to be mortgage-free in 20 years,” he says. “Now, even with a newly rebuilt home and a beach house, we’ll manage to achieve that 10 years earlier than we originally planned.

“From the second year I was back at my corporate salary, and then from year three onwards I was earning double that.

“And it’s not just about the money; we’re investing in our quality of life and having more time together as a family.”

“We invested a lot in the business right from the start, keeping three months’ running costs at all times, which allowed us to make it through Covid successfully and remain debt-free.”

Unfortunately, he does spend long hours away from home.

“The biggest single thing that I haven’t succeeded on is having more free time with the family,” he admits.

Dilks believes starting a business has been outstanding as an investment. He estimates he’s seen a 30 per cent return on funds reinvested into growth.

“For the first year or two, yeah, I did, but since then absolutely not – it’s probably worse than when I was working in the corporate world.

“I could be even more aggressive and take riskier strategies but I want Digihome to be a solid business with a trusted brand.”

It was tough. That first year he took a 50 per cent pay cut. Claire went back to work parttime to help offset the lost income.

Hitting those goals The profits from the business have exceeded Dilks’ expectations, and in that respect the business is delivering on his goals of financial freedom.

“It was a gamble at the start – if I hadn’t made it work after the first year it would have been a very expensive failure,” Dilks admits, “and it’s a pretty lonely place when you’re starting out.

“One of our goals before I started the

A home renovation has helped their house grow with their three children and they’re building a beach house.

“One of my goals for this year and next is to try to build that family time.”

Stepping back – or starting again The long-term aim is for Dilks to step back from running everyday operations. Or he might sell if the right offer came along.

One thing is certain – he’ll never go back to a corporate job.

He loves running his own business and all the rewards that have come with it. “Even if I sold the business, I wouldn’t go back to working for the man. I’d just rub a couple of sticks together and start again.”

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YO U R I N V E S T I N G

Quieter Auction Houses and Open Homes Buyer sentiment is beginning to shift, says Rowan Dixon, acting chief executive at REINZ. He explains what’s behind the trends.

We saw a year of remarkable growth in the New Zealand property market in 2021. There was persistently strong demand which, matched with low stock levels, led to a year of records and rapid price growth across the country, with percentage increases sitting comfortably in double digits.

For the three months ending December 2021, the median price for residential property across New Zealand was NZ$907,000.

Change and challenge It was also a year of change and challenge.

We’ve closely watched gathering headwinds and their impact on the market.

Rising interest rates, the reintroduction of loan-to-value ratios (LVRs), tighter lending criteria and changes to investor taxation restrictions are starting to shift dynamics and, in December, we noted signs of a deceleration in annual price growth compared to previous months.

Reports from agents around the country suggest that buyer sentiment is beginning to shift too, noting quieter auction rooms and open homes, and a decrease in firsttime buyers and investors in the market more generally.

Also, they say that some buyers are less willing, and unable to pay current asking prices.

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Echoing these sentiments, a survey conducted at the end of January by economist Tony Alexander in collaboration with REINZ, found that the predominant concern is no longer availability of stock, rather it is access to finance, exacerbated by changes introduced in December to the Credit Contracts and Consumer Finance Act (CCCFA) — currently under review.

means more choice, attracting more buyers and leads to more competitive pricing.

First-home buyers will be hit hardest The greatest impact will largely be felt by first-time buyers.

To stabilise house prices will require supply to meet demand.

Property prices, inflation, interest rates and lending criteria combine to make it difficult for people in this buyer segment to get their foot on the property ladder.

That said, investors too will be feeling the same pressures and coping with the regulations introduced in March last year.

There has been a relative increase in investors looking to sell their properties, but many are holding on to their investments as the rental market continues to thrive – as demand outweighs supply.

We also experienced a long-awaited surge in new listings through November and into December.

The total number of properties available for sale nationally increased 29.7 per cent annually in December — from 12,932 in 2020 to 16,773 in 2021.

More properties coming on the market

Given the current appetite for property, the market remains competitive. However, if stock levels continue to increase, we may see a shift in the supply versus demand balance, alleviating upward price pressure – though following a long-term supply deficit, it may take time to really tip the scales noticeably.

Initiatives have been introduced to deliver on this, such as the bipartisan mediumdensity housing bill, but these changes will take time to effect change and bring choice.

But to say all of this undermines the fact that the property market in New Zealand retains its underlying value.

The REINZ House Price Index (HPI), which measures the changing value of property in the market, showed an annual percentage increase of 23.2 per cent in December – down 1.0 per cent from its peak in November.

So, while we may see residential property price growth soften over the coming months, it’s wise to remember it comes off the back of a significant high.

We would expect the market to slow as per the usual autumn trends. However, over the coming months, we will see if current headwinds have a further impact on the pace of growth.

EXPERT OPINION

Median House Prices Month-on-month Dec 2021

|

REINZ

Northland

$760,000

Bay Of Plenty

$920,000

Auckland

$1,290,000

Gisborne

Waikato

$695,000

$850,000

Taranaki

$590,000 Mananawatu/Wanganui

Hawke’s Bay

$647,000

$820,000

Tasman

$920,000

Wellington

$1,000,000 Nelson

$830,000 Marlborough

$700,000

West Coast

$355,000

Canterbury

$680,000 Southland

$455,000 Otago

$721,000

National Median Price

Down 1.6% $905,000 AUTUMN 2022

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YO U R I N V E S T I N G

Full House As first-home buyers save and parents struggle in retirement, sharing a property with family is becoming more popular. What are the advantages – and pitfalls? Amy Hamilton Chadwick finds out.

A 20 per cent deposit on the average-priced Kiwi house is around NZ$200,000 – not an easy amount to save up.

First-home buyers who live at home with their parents have a major advantage, because their reduced living costs help them save faster.

This new trend of adult children sharing a home with midlife parents is a challenge for both generations, but with a shared goal of home ownership for the children, compromises can be found.

“It’s really hard to imagine how anyone could come up with a deposit when they’re still paying rent,” says Conal*, 34, an electrician.

Conal and his fiancée Nina live with his parents in the family home in Auckland.

His two older siblings have already moved out and bought houses with their own partners, and he and Nina are hoping to do the same.

“Obviously we’d rather have our own place,” says Conal, “and obviously Mum and Dad would rather we had our own place too. But they’ve been great.

“They know there’s no way we can save as fast as prices go up, and then pay another $700 a week in rent on top of that.

“Nina and I pay $300 a week and that covers a lot of our food, too, so it’s a great deal for us.”

Extended family living on the rise Overall, New Zealand’s household size is diminishing. The average number of people in a household has dropped from a high of 5.2 (in 1886) to the current low of 2.7, unchanged since 2006.

But that static average hides two big trends: a rise in both smaller, one-person households, and a rise in multi-generational living.

They’ve been looking at houses for about five years, and in hindsight Conal wishes they’d bought at the first opportunity – but each time they’ve come close, something hasn’t been right.

They offset each other; the rise in the number of single-person households often makes the headlines, when a lot more people live in extended family households than in single-person ones.

Happily, it’s been five years of relatively stress-free cohabitation with Conal’s parents, even if they’re all hoping the young people get a step onto the housing ladder soon.

In total, the number of multi-generational households has risen 30 per cent between 2006 and 2018, according to Census data:

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Number of extended family households 120,000 100,000 80,000 60,000 40,000 20,000 0 2006

2013

2018

A 2015 University of Auckland research paper on multi-generational households found both financial necessity and economic strategies were among the major reasons for living with family – and financial benefits were the number one advantage of the situation.

Other advantages included shared care of children or older people, shared housework and strong family relationships.

On the downside were issues like privacy, a lack of freedom and constant disruptions.

Noise and visitors can be an issue, along with interference, particularly with child-rearing.

Conal says that his living situation is made easier because there’s plenty of room in the house for all four adults, although admits he doesn’t often invite friends to his parents’ home, instead catching up at cafes or at their homes.

Homes for multi-generational living Extended families who want to cohabit can overcome the problems of privacy and space with a house specifically designed for multi-generational living.

This might include a minor dwelling, or a ‘home within a home’ with dual access and separate kitchens.

Ten years ago, Generation Homes didn’t have any plans specifically for this type

of buyer, says chief executive Kevin Atkinson. Now, though, there’s a whole plan book for extended family living.

“This type of living is on the rise, because it has to be,” he says.

“It’s a reflection of Western society catching up with other societies – but it’s mainly being driven by economics.”

He says it’s not only a short-term solution where young people move home to save for a deposit.

It’s also a permanent way for families to pool their buying power to produce a better living situation for everyone, and an appealing alternative to retirement village living for an older generation.

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INFORMED INVESTOR 81

YO U R I N V E S T I N G

“The numbers really stack up. Recently we had the grandparents spend $600,000, then their children put in another $700,000 to build a home where three generations lived together,” says Atkinson.

“Otherwise, the grandparents would have spent $700,000 on a right-to-occupy home in a retirement village, and the parents would have needed another $1 million for their own home.

“This way everybody has a lower mortgage, the grandparents have security of tenure, and they can share the rates bill.”

Benefits outweigh the risks Atkinson says, with space for everyone and the legal agreements around extended family living now well established,

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”Multi-generational households found both financial necessity and economic strategies were among the major reasons for living with family"

It’s certainly been a good strategy for Conal, who admits that living with his parents has been, if anything, perhaps too enjoyable – if they hadn’t all got along so well, he and Nina might have moved out by now.

a lot of the risk has been taken out of co-ownership.

“That sounds like a lot, but it doesn’t really go that far in Auckland. At least there seems to be a lot of investors out of the market now, so maybe 2022 will be the year it finally happens.

No, there’s no way to remove the relationship risks of interfering parents, ungrateful children or nosy grandparents, but the strong financial upsides mean that this way of living is likely to keep increasing in popularity.

But he’s optimistic that this is his year.

“We’ve saved up about $120,000, plus we have about $95,000 between us in KiwiSaver.

“I hope so, anyway.” *Names withheld.

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YO U R I N V E S T I N G

The Risks You May Not See The Financial Market Authority (FMA) is turning its attention to wholesale investment schemes which might be enticing inexperienced investors.

Brenda Ward talks to PMG’s Matt McHardy about why this is.

There’s a lot of confusion among investors about ‘wholesale’ investments and what they are, says PMG Funds’ GM of Investor Relationships, Matt McHardy.

He believes many Kiwis don’t understand the risks they’re taking when they invest their savings with unlicensed managers or in wholesale schemes.

Many don’t understand the differences between ‘retail’ and ‘wholesale’ schemes.

•

•

Retail schemes are open to the public, regardless of experience or wealth.

They’re typically issued by licensed managers and are regulated and monitored by the Financial Markets Authority. These schemes must comply with prescribed disclosure requirements, so investors receive comprehensive information about how the schemes work and the risks associated with investing into a particular scheme. This also allows investors to make comparisons between similar schemes.

Wholesale schemes are only intended for skilled professionals and investors like

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fund managers, institutional investors, and high-net-worth individuals who fully understand the risks.

Some are moving their life savings into wholesale schemes to get a better return, he says.

McHardy says PMG Funds offers both retail and wholesale schemes, but the wholesale schemes are offered only to a small and targeted proportion of their clients that qualify.

Lately, the FMA, the country’s financial products and services regulatory body, has been closely watching wholesale schemes after the high-profile failure of one wholesale scheme, which resulted in significant loss of investor capital.

“Many investors I speak to confuse our funds, which are licensed retail investment schemes, as owning only retail property, which is incorrect. In fact, most of the property held across PMG’s funds is industrial or prime office space.

“These terms are confusing for many investors, who go into these wholesale schemes without understanding the risks.”

He is certain low returns on fixed interest products such as term deposits are driving investors to seek higher returns.

They’re looking at retail investment offers issued by licensed managers with returns of 5.5 per cent and comparing them to wholesale schemes, where returns may be higher, but so are the risks.

It has also issued warnings to unlicensed mortgage fund issuers for their advertising of wholesale schemes through social media.

McHardy states: “You have to ask, is Facebook really the place you’ll find investors with several million dollars to invest in your scheme. Or are they really just targeting everyday Kiwis who should be investing in retail schemes with greater protection?”

He believes these cases were the catalyst for the FMA’s recent review of wholesale schemes and how they’re being advertised.

PMG Funds made a submission to the review, along with many others in the industry. “We’ve been saying for a long

EXPERT OPINION | PMG FUNDS

time that we don’t think the differences between the two types of schemes are being made transparent and that many investors don’t truly appreciate the risks they might be agreeing to.”

Regulated versus unregulated A good first step would be changing the terminology used in the market, he suggests.

“Like others in the industry, we’re pushing for calling them ‘regulated’ versus ‘unregulated’ schemes.”

He says scheme managers for regulated schemes are subject to additional compliance obligations and will have invested heavily into their risk management and compliance processes to ensure investor capital is better protected.

While unregulated wholesale schemes may have fewer compliance costs, the risk may be higher, with fewer legal protections for investors. Eligible investors need to decide if the return is sufficient for the risk.

Many investors could qualify as a wholesale investor if a lawyer or accountant certifies

them as ‘eligible’, says McHardy.

They have to certify that their client can demonstrate the skills and experience to understand the merits of the transaction, their client’s own information needs in relation to the investment, and the adequacy of the information provided about the investment.

But by signing an eligible investor certificate, you risk not receiving all material information needed in order to make an informed investment decision.

Even more of a concern is that it’s also possible for certain high net worth clients to self-certify that they are a wholesale investor.

“We see all too often examples where investors might be a wholesale client by wealth but lack the experience and knowledge to understand the risks and should be a retail client.”

The process to become a licensed manager may be expensive, long, and complicated, but it aims to protect the investor, says McHardy.

“It provides comfort that the documents made available to investors should contain all the relevant information you’ll need to make a fully informed investment decision, as determined by the FMA. With a wholesale offer, there’s none of that.”

McHardy says it’s encouraging to see the FMA finally looking at wholesale schemes.

He says there’s still a place for wholesale schemes and unregulated operators.

In conclusion, investors should understand the risks and if they have legal protection.

“Investment managers doing the right thing by investors will generally always result in long-term success.”

Information is correct as of 5/2/2022 and contains the opinions of Matt McHardy, and general commentary and views from PMG. Any information provided in this article is for information purposes only, is not intended to be relied upon, and should not be construed as financial advice.

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PROPERTY

OPES PROPERTY ACADEMY

When Your Developer Asks for More Money So, you’ve put down a deposit and you’re waiting for your newbuild to take shape. But then your developer gets in touch with bad news. Andrew Nicol of Opes Partners explains what to do.

Developers are creating a bad name for themselves.

Every day I read in the news that developers are putting up the price of properties for both first-home buyers and property investors.

This sometimes happens even when the purchaser seemingly has a water-tight deal after signing a fixed-price contract.

But how can a developer increase the price when the price is meant to be locked in? Let’s take a look at the fine print.

There are two types of contracts in New Zealand: ‘build’ and ‘turn-key’ contracts.

Build Contracts When you use a build contract, you hire a builder or developer to construct the house for you. You own the land during construction and pay them for their service.

It’s typically easier for a developer to increase the price using this type of contract. That’s because they are allowed to pass on increases in the cost of building materials under the standard agreements used in New Zealand.

For instance, under the standard MasterBuild contract, a builder doesn’t even need to give you evidence that material costs have increased before raising the price.

Unfortunately, in this case, you can’t get out of the contract and generally must accept the price increase. The alternative is to negotiate or pursue a legal challenge.

Turn-key Contracts On the other hand, turn-key contracts mean investors and first home buyers purchase a finished property from a developer. It just hasn’t been built yet.

While these contracts are receiving the most media attention right now, it’s actually harder for the developer to increase the price using this contract.

That’s because you don’t own the land until construction has finished. And no clause allows the builder to pass on increases in the cost of materials.

So, how do some developers put up the price anyway?

When you sign a turn-key contract, you’ll eventually go unconditional. That means you’re locked in to buy the property and can’t cancel.

However, that doesn’t mean the developer is unconditional. They might still be able to cancel the contract.

If you go unconditional in January, the developer might have another six months to get their resource consent applications through the local council.

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If they can’t get this how they want, they have the right to cancel.

Some developers will use this clause to cancel the contract and ask you to re-sign at a higher price.

However, a turn-key contract has this benefit: you don’t have to accept the price rise. You can say ‘no’ and walk away.

Should I accept a price increase?

So, should you accept the increase? The answer isn’t cut and dried.

If you accept the price increase, you’re paying more money. But, if you walk away, you could miss out on what is still a good deal.

One of the property investors using our services at Opes Partners purchased a newbuild in July 2020 for NZ$649,500. By the time the property was due to settle in November 2021, it was worth NZ$840,000.

However, the developer threatened to cancel the contract using a sunset clause if the purchaser wouldn’t agree to increase the price to NZ$700,000.

In this situation, the developer claimed that multiple Covid-19 lockdowns and the higher price of building materials meant he was losing money.

What are the options What were the investor’s options?

If they disagreed, the developer would cancel the contract and re-sell it to someone else.

If they chose not to accept the higher price, they could get their deposit back from the developer and start looking around for another property.

But, in walking away from the deal, they would also walk away from significant equity increases.

By continuing to buy the property, they’d pay NZ$700,000 for a property that was now worth NZ$840,000. That’s NZ$140,000 worth of equity gained just in settling this property.

This investor decided to pay the higher price.

They knew that property prices everywhere had gone up. So, if they got their deposit back and looked at other investments, they would pay a higher price anyway.

Foreseeing sticky situations While building property comes with benefits

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– especially with current government incentives – there are also risks. And while you can’t avoid them altogether, you can be prepared.

If you’re using a turn-key contract, ask your solicitor a) for all the different ways the developer could cancel the contract and b) when the developer could do it. That lets you know the risk you are taking on.

Next, start to negotiate with the developer (through your solicitor).

If there’s a sunset clause, can you make it so only you can use it? Could you make it so the developer can’t use that clause to sell the property at a higher price?

While there will always be some risk, a thorough understanding of contracts can help you prepare for it.

If you accept the price increase, you’re paying more money. But, if you walk away, you could miss out on what is still a good deal.

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YO U R I N V E S T I N G

The Optimal Renter’s Kitchen A fresh kitchen is a big selling point for any potential tenant. But you don’t want the renovation costs to break your budget. Ilse Wolfe explains how to nail the optimal renter’s kitchen.

A grotty-looking kitchen isn’t going to pop out to any potential tenant.

As the social hub of the home, tenants place a high value stake on it – long before they start arguing over who gets which bedroom or where the couches will go in the lounge.

Ilse Wolfe, a property investment coach at Opes Accelerate, says it’s worthwhile making sure your renovation plan includes a rock-solid kitchen set-up.

“It’s where people come together to share breakfast or a glass of wine,” Wolfe says.

“Just because it’s a high-use area of the house doesn’t mean tenants want it to look like it’s well used.”

Hiring third-party labour will generally cost $60 to $110 per hour, but there is the option to do it yourself.

Wolfe says landlords need to remember that this is a renter’s kitchen, not the kitchen of their own dreams.

“Elbow grease combined with a specialist tile paint, such as the Dulux Renovation Range Tiles and Benchtops, can completely rejuvenate the most impactful aspects of a kitchen,” she says.

This means the final product might be different to what you initially planned.

DIYers can expect materials to cost around NZ$100 to NZ$200, for this option.

Here are a few things to consider to get you started.

Avoid custom-made cabinetry If you decide to a replace the kitchen, it can be very tempting to retrofit a perfect custom design, but remember, it’s a rental, so you should stick to available modular products.

A DIY spruce-up can go a long way Salvaging existing elements of a kitchen can go a long way to maintaining parts of the history or personality of the house.

Wolfe says it’s important to make sure whatever surfaces you are going to ‘buff up’ will have an impact on the value of your investment, not just cost a ton in labour to complete.

For landlords constrained by a budget, a good revitalisation of existing cabinetry, Formica benchtops and stainless-steel benches can offer a low-cost but high-impact solution.

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Custom joinery can add four to six weeks to the manufacture timeline.

If you stretch out the time your renovation takes, you’ll increase your mortgage holding costs and delay occupancy which will hit your rental cash flow.

Be wary of flat-pack kitchens At first glance, a flat-pack kitchen can appear the best value, but this isn’t always the case, especially if the installation goes wrong or takes longer than expected.

Wolfe says, in her experience, the most efficient new kitchen solution is to order direct from the kitchen manufacturer, at wholesale price, and select from their standard product range and colours.

“Just because this is the kitchen you want, doesn’t mean it’s suitable for your investment,” Wolfe says.

Even better, use their installers for manufacturer end-to-end accountability of the finished product.

Instead, stay in the correct lane and choose standardised cabinetry colours, materials and finishes that are readily available.

“Make sure it’s at a fixed price, including installation, too,” she adds.

“You’ll want to avoid any custom cabinet sizes or amends that add unnecessary cost and time to the production.”

Typically, Wolfe finds a fully equipped kitchen with a 30mm pre-cut stone benchtop sits in the range of NZ$5000 to NZ$7000 including delivery, with

PROPERTY

installation from final design within two and three weeks.

it has a quality finish. Even better, look at installed examples as evidence.”

variations in price for the essentials versus the nice-to-have conveniences.

“I’m yet to see this scenario beaten,” Wolfe says.

It’s a similar juggle for cabinetry. Melamine is the most commonly used coating to go around the inside particle board, and it can be from 16mm to 18mm thick.

“Never include a pull-out bin drawer in a rental kitchen. It’s never a big enough capacity, especially when there are lots of bedrooms. Tenants will get a large standalone council bin.

Weigh your materials by strength and price There are a few materials to look out for to increase the longevity of your kitchen.

Remember, kitchens are a high-use room and because you can’t foresee what your future tenants’ knife-wielding skills through an onion will be, you’re going to need to ensure your surfaces are prepared in advance.

For benchtops, common materials are natural bamboo, Formica, and engineered stone.

A bamboo top will not withstand direct knife use well, making it more susceptible to mould and ageing. But the champion for this – the engineered stone top – will still suffer the effects of a red wine spill.

“It’s very much a ‘get what you paid-for’ situation,” Wolfe says.

“Whichever material you opt for, ensure

Wolfe says quotes can vary by several hundred dollars between the two sizes, so review them closely.

An 18mm board might have more of the mettle to stand up to ongoing tenancies, so it could be worth the extra dollars.

Be a diligent landlord By their nature, kitchens have to withstand a lot of water abuse, and this can cause premature ageing.

“Be religious with pre- and post-tenancy inspection photos to manage any damage that needs replacement due to negligence,” Wolfe says.

“You’re looking for swelling in finishings and cracks in the seals.”

Wolfe says her final advice would be to critically scour the price list when designing a new kitchen and note the

“Lean towards non-mechanical accessories to reduce ongoing maintenance.”

It’s up to the investor to find the right balance between materials versus cost, and materials versus tenant. This will be unique to each investment.

“Don’t be afraid to design function around price and choose lower-cost shelving or cupboards over higher-cost drawer stacks, to keep the overall design cost down,” Wolfe says.

The bottom line: This is a renter’s kitchen – not yours.

“Be wary of falling into the trap of projecting your own wishes into this kitchen,” Wolfe says.

“Think about who your future tenant is going to be, and then kit it out accordingly.”

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The Incredible Shrinking House There was a time when bigger was better but now the walls are closing in, reports Ben Tutty. He looks at why the average Kiwi home is getting smaller.

New Zealand used to be a land of quarteracre sections and airy four bedroom bungalows. But house prices, shifting demographics and changing lifestyles have brought an end to those dreamy days for all but the wealthy (or those lucky enough to have bought years ago).

We’re living in increasingly smaller homes and townhouses, while terraces and apartments now make up a much larger proportion of our housing stock.

Why the change? Does smaller mean worse?

And do these smaller homes perform well as investment properties?

New Zealand’s shrinking housing stock In 2010, the average New Zealand home had a floor area of 200 square metres, according to Statistics NZ. Just nine years later, that average had shrunk to 158 square metres.

That rapid change can be explained by a few key shifts in the way Kiwis live and how our property market functions.

For one, we’re having kids four to five years later than we were in 1980, so we can get away with having fewer bedrooms.

We’re also getting married eight-to-nine years later, and one-person households are now the fastest growing type of household in the country.

In fact, Statistics NZ forecasts the number of single-person households will increase from 390,000 in 2013 to 580,000 in 2038, eventually accounting for 27 per cent of all homes.

House prices are a big one too. Back in 2010, the median home in New Zealand would set you back NZ$350,000, so why wouldn’t you buy a four-bedroom home on a quarter acre?

Today, the median home in NZ costs NZ$795,000, and NZ$1.15 million in Auckland. One beddies are starting to look pretty good to me.

Last but not least, population growth is a major driver behind our shrinking floor plans – we’re simply running out of room to put people near our major centres.

When smaller means better In many ways, smaller homes can offer a better, simpler, more affordable lifestyle.

Nigel King sells apartments for a living through his company Uptown Apartments – and he knows a thing or two about the benefits of living smaller.

“If you’re busy, an apartment’s much better. There’s almost no maintenance, everything’s done for you by the body corp, and the building manager takes care of all your problems,” King says.

King isn’t just selling apartments either, he lives in an apartment development in Eden Terrace called Citizen. He reckons it comes down to location.

“You try buying a big home in a location where you can walk to everything you need and you’ll spend millions.

“With an apartment, even first-home buyers can buy in those city fringe suburbs where everyone wants to be.”

If you buy a new apartment, townhouse or terraced home by a quality developer, you’ll also have the benefit of brand new appliances, immaculate finishing and excellent acoustics and insulation.

That means a warmer, quieter home that’s easier to live in – for less.

Smaller home, bigger returns?

Lifestyle and comfort are important when buying a house, but so is money. After all, for most people, their home is the biggest purchase they’ll ever make.

With that in mind, do smaller homes make good investments?

Westpac analysed CoreLogic data and found that apartments made less capital gains than units and small homes in Auckland and Wellington:

Price increase of two-bedroom properties 2001-21 in Auckland 50-79 sqm

80-119 sqm

Houses

527%

551%

Units

425%

364%

Apartments

157%

170%

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The type of property you buy may influence your capital gain, but Ed McKnight, Informed Investor’s property economist, says the size of the section won’t neccesarily affect it.

“There’s no statistically significant evidence that land size influences capital growth. Whether it’s 800 sqm or 200 sqm doesn’t necessarily matter.”

On the other hand, smaller homes, apartments and townhouses generally have better rental returns compared to large properties, he says.

“Tenants tend to value things like bedrooms and location, but not necessarily outdoor areas.

“You may pay a few hundred thousand more to get a larger section, for example, but you won’t necessarily get much more rent.”

This makes smaller properties easier to hold long term because their rental income will usually cover a larger proportion of the

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mortgage than larger properties.

There are some drawbacks, though, says McKnight.

“The ability to renovate and add value is usually less in townhouses and apartments.

And you’ve got other costs to consider, such as body corporates.”

That said, McKnight reckons with a little due diligence and forward thinking, you can reduce the impact of these factors.

“When you’re buying, watch out for things like gyms, pools, and other additional services. These can significantly increase the cost of body corporate, but tenants won’t necessarily pay more rent to have them.

He suggests you have your lawyer take a close look at the body corporate’s minutes.

“Look for evidence that any remedial or structural work needs to be done in the future. This can be expensive.

“You also want to make sure the body corp

has a good sinking fund in place in case work does need to be done – if it doesn’t, you may have to pay.”

When good things come in small floorplans Whether or not you like smaller homes – apartments, terraces and little twobedroom standalones – they’re here to stay.

In fact, McKnight says with Auckland’s population set to grow by 33 per cent in the next 10 years, this trend will only continue.

“Walk down the street in Auckland and imagine for every third car and person, there will be another one. Auckland is already sprawling, we simply need to see more intensification to keep up.”

Other Kiwi cities are growing and intensifying at a slower pace, but they’re all heading in the same direction.

It’s looking like the homes of the future in New Zealand are only going to continue shrinking – do we really need all this space, anyway?

BUSINESS

Business Vision Kiwi companies are coming up with some innovative solutions. Informed Investor showcases some that are working smarter to bring you business that inspires.

YOUR OWN PRIVATE CHEF Q: What do you buy the person who has everything?

A: A private dining experience fit for a millionaire.

Being in the little black books of some of the world’s wealthiest people is nothing new for chef Komal Swamy and her business Koko and Chai.

The Fijian-born Kiwi has cooked for high-profile Kiwi politicians and businesspeople, but she also has clients from the US and Hong Kong who always call her when they’re in New Zealand.

They’ll sometimes fly her to their private yacht to prepare three-course meals for them and their families.

Swamy jokes she’s become the ‘undercover chef’, flying under the radar to prepare catering for weddings, events, and cocktail parties.

An award-winning, classically trained chef, she was the head chef at one of Melbourne’s hottest restaurants but found the hospitality industry didn’t push her buttons.

Her favourite gig is what she does now, running her own business preparing healthy, fresh food with love.

Through her website, www.kokoandchai.com, she and her sister Sonali run a personalised food delivery service Auckland-wide.

They make fresh and nutritious meals to order, delivered from Warkworth in the north to Papakura in the south.

But she’s still on speed-dial for people wanting to hire their own private chef for that special night.

Despite cooking for many millionaires, Swamy says one of the most memorable occasions was a ‘cute’ 68-year wedding anniversary dinner that moved her to tears.

“I was so happy to cater for them and their family.

It reminds me why I do what I do.”

Top: Salmon sashimi with pickled cauliflower, chilli jam créme fraiche, coriander and walnut crumb, finished with a tamari dressing.

Above: Teriyaki eggplant with grilled maple and miso-glazed kumara, served with slightly pickled cucumber, pea tendrils and orange finished with a yuzu dressing.

Right: Komal Swamy, chef to the rich and famous.

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PROPERTY

How to Set Up an Airbnb Strict new rules on tenants are driving some property investors towards short-term rentals. Yes, they can be more profitable, says Diana Clement, but there are also fish hooks.

There’s money to be made from hosting guests in Airbnbs. And short-term guests are often a lot lighter on a property than regular tenants.

And investors sometimes buy properties or repurpose them from the long-term rental pool, furnish them and turn them into Airbnbs.

It can be lucrative. Landlords who have turned their properties into short-term rentals can double their net yield from, say, 2 per cent to 4 per cent, depending on their location, says Matthew Harris, managing director of Lighthouse Financial.

The property doesn’t need to be in a high traffic tourist location. Guests have all sorts of reasons to stay in suburbia or small towns. They might be located near an airport or a large employer.

But short-term rentals may not always be a licence to print money.

Running an Airbnb is hard work. A single hair left in the bathtub between guests can lead to a negative review – and Airbnbs live or die on their reviews, says Stefan Nikolic, who runs Zodiak, a property management company just for short-term rentals.

“Between stays the property must be perfect. Cleanliness is very important in terms of getting good reviews.”

Your property Short-term guests can be handy for certain types of property. Airbnb hosts often let out sleepouts, baches, or other property that either isn’t permitted for long-term tenants or would otherwise be used by their family.

An example of a busy Airbnb in suburbia is this listing, “Entire residential home hosted

by Andrea” in Burnside, Christchurch, near the airport.

At NZ$130 a night, the home is almost always booked, says Airbnb. The median weekly rent in Burnside is NZ$493, says Tenancy Services market rent data.

It’s even possible to make money with Airbnbs without actually owning the property, known as arbitrage. A tenant can rent a suitable property and then sublet it with the landlord’s permission to Airbnb guests.

But if they do it without written permission, the landlord can claim back the tenant’s profit through the courts.

Set it up Unless it’s a Kiwiana-style bach, short-term

rental guests often expect a high level of furnishing and amenities – and consumables such as tea, coffee, shampoo and conditioner.

Between guests, these need to be replaced and the property cleaned to within an inch of its life.

As for facilities, guests might just want a comfortable bed for the night.

In other locations, a pool or spa might make it more appealing for a relaxing getaway or a family holiday.

Regardless of whether you are renting out a bargain-basement room or top-end apartment, both communication and housekeeping need to be perfect. Sometimes it pays to outsource this.

Nikolic says his clients want a totally handsfree experience, using Zodiak to arrange bookings, manage all communications, screen out undesirable clients, clean the property, remake the beds, freshen the towels, and top up the guest amenities.

How to advertise Here’s the rub. The Airbnb hosts who do the best advertise across a variety of platforms including Holidayhouses.co.nz, Booking.com, Bookabach, Expedia, and often through local i-SITE offices.

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Despite the hard work and the risks, many Kiwis make good money letting rooms, sleepouts, and standalone dwellings on the short-term rental market.

Guests have different preferences when it comes to the booking sites they use.

It’s better for business to use multiple platforms. It’s also safer.

Many an Airbnb host has found themselves removed from the platform thanks to unproven claims from disgruntled guests, even claims of undisclosed cameras on the property.

When you’re advertising on multiple platforms it’s pretty much essential to use an online property management app such as Guesty or Lodgify that syncs your calendars, closing the others off when a booking comes in.

Tax You do have to pay tax on all short-term rental income. Even if it’s just a room in a house you’re letting out, it doesn’t come under rules intended for a tax-free “boarding” situation.

For self-contained rentals, your tax position will be different depending on whether the unit or house is let exclusively to guests or used by family and friends for some of the year.

This comes under the Mixed Use Asset Rules, says Harris. Also, if a host earns more than NZ$60,000 a year from a shortterm rental, they must register for GST. What about insurance?

One in seven Airbnb hosts experience property damage or theft, says AA Insurance.

Airbnb has now launched a new free insurance cover called AirCover for hosts, but the details are sketchy.

guests, such as intentional damage if a wild group of teenagers holds an unsanctioned party.

sneak in pets, or deliberately damage properties. Some attempt to scam the owner for a free stay.

In any case, if owners are letting their property on more than one platform, they’ll need their own cover in New Zealand with access to local dispute resolution services.

It will also cover the resulting loss of rent from a valid claim.

There is also regulatory risk. The government or councils could crack down on unpermitted properties being let to guests, which could make the business uneconomic for hosts.

Let your insurer know you’re letting the property short term, says Rene Swindley, co-founder of Initio insurance.

Nikolic says Zodiak handles hundreds of bookings a year and says problems are rare.

Usually the bookings are made by “decent” people who confess if they’ve broken anything.

Be aware that regular home insurance or landlord cover doesn’t protect against all the risks of short-term rental homes.

If things should go awry, Zodiak can help during the Airbnb insurance claims process.

A specialist holiday home insurance policy such as Initio’s will cover all the usual risks to a home as well as damage or theft by

There are risks The list of risks of owning a short-term rental are lengthy. Tenants can host parties,

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Despite the hard work and the risks, many Kiwis make good money letting rooms, sleepouts, and standalone dwellings on the short-term rental market.

But being informed is key. Anyone who is considering becoming a host should sign up to hosting groups on Facebook and other platforms so they can learn from experienced members.

EXPERT OPINION | ZODIAK

Investors Head into Short-Term Rentals Tougher tenancy rules and an extreme demand for short-term accommodation are driving more investors to set up Airbnb rentals, says Stefan Nikolic of Zodiak Management.

Demand for Airbnb listings is running at an all-time high, says Stefan Nikolic, the managing director of Zodiak Management.

“With much less choice for guests than before Covid-19, nightly rates for accommodation are higher than average,” he says.

“Furthermore, a lot of hotels have closed their doors for good recently, putting more pressure on a lack of accommodation supply that existed even before we closed our borders.”

Nikolic says becoming an Airbnb landlord has turned into a great option for traditional property investors facing a raft of new regulations.

“It could be a very wise move for property investors this year. The worst Covid-19 restrictions are now behind us, and we have the reopening of international borders to look forward to.”

Pent-up demand Nikolic says New Zealand has made headline news around the world with our response to Covid-19 over the past two years, putting us at the top of tourists’ list for places to visit as the world begins to return to normal.

“Many people will be eager to travel to a country that has a great reputation for Covid-19 response, and this will become a key guiding factor for tourists in coming years.

“Global tourism has completely been put on hold for two years now, so the surge in demand for international travel will be enormous when people are finally able to go overseas.”

He says over the past couple of years some landlords locked in long-term tenants instead of doing Airbnb rentals.

“The security of a signed tenancy agreement gave these landlords certainty at a time when

this was greatly lacking, but it has resulted in “We do everything – and the owners get their payment after all expenses at the start a lack of Airbnb listings available this year.” of every month for the previous months’ No longer a hassle reservations.”

Now the times are changing and Nikolic Nikolic suggests that demand after Covid says running an Airbnb doesn’t have to be a will only grow. hassle. It can be a hands-free investment.

His company, Zodiak Management, does everything from taking bookings and any communications to housekeeping, supplying fresh linen and topping up guest amenities.

“Hotels that have switched to becoming MIQ facilities just to survive will most likely suffer some stigma for quite a while, even after they revert back to being regular hotels.

Nikolic founded Zodiak four years ago after struggling to find a short-term rental management company for his own Airbnb property and he’s since become a leading expert in the industry.

“This means even less supply in a market that is already severely undersupplied.”

He sets high standards to get valuable top reviews. “The property is perfect for the next guest.”

There’s even a 24/7 email service in case guests are locked out late at night. And any maintenance is dealt with rapidly.

“We take care of all the payments, and inspect the property between stays. If there’s any damage there’s a million dollars’ worth of insurance protection available from Airbnb and we can help apply for any claims.”

This is rarely needed, he adds.

ZODIAK IS AN AUCKLAND AIRBNB MANAGEMENT SPECIALIST.

It offers: • Listings • Check-ins • Cleaning • Laundry • Client vetting • Support To see if short-term rentals will work for you, go to www.zodiak.co.nz, phone 0800 333 325, or email sales@zodiak.co.nz.

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How to Use a Property Lawyer Specialist property lawyers can save you thousands – or help you get out of a sticky situation.

Annabel Sheppard of Wynn Williams explains what they do.

Property law is a complicated game.

Annabel Sheppard says, over her 30 years’ experience, the documentation needed and the hoops to jump through have been constantly changing.

New-build and turnkey contracts are more commonplace than they were 15 years ago.

Increasingly, first-home buyers are the ones signing new build contracts because they’re missing out at auction to more experienced buyers.

The contract puzzle This means, for a high percentage of the market, their first foray into the property world doesn’t mean buying a house – it means buying a drawing and a stack of clauses written in near-indecipherable jargon.

Despite new-builds being in an abundance, Sheppard says contracts are anything but a “one-size-fits-all”.

This is where a specialist property lawyer can be an invaluable asset to your team.

Every property is different, and the same goes for contracts.

“Contracts are loaded with needless jargon that becomes second nature to someone who’s reading them day-in and day-out,” she says.

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It can be a barrier to buying a smart investment property, but it doesn’t need to be.

A lawyer will help you negotiate the jargon fodder, says Sheppard, they’ll explain the ins and outs, and help advise you of any sticky clauses you might not know to look out for.

Make clauses work for you Where possible, your lawyer will assist with changing any clause necessary to make the contract work better for you.

developer, and they have a lot more arguing power when it comes to negotiation.

Of course, there’s no guarantee any developer will agree to the changes you make, but that’s OK. “The most important thing here is the buyer is fully informed of everything they’re signing up for,” says Sheppard.

“You’ve got to have the right information,” she says. “It’s about not getting any surprises.”

“A lawyer can help you redraft certain clauses so you’re not trapped into a property or signing up for a contract that will be cancelled on you,” Sheppard says.

At settlement time Come settlement time, your lawyer will make sure you’ve had all the correct property inspections to check you’re actually getting what you signed up for – before handing over the final sum.

A lawyer is the go-between for communications between you and the

Big sums of money need to be handled with care, and lawyers can make sure

EXPERT ADVICE | WYNN WILLIAMS

the transaction between accounts is seamless.

money, which can take all the excitement out of your purchase.

off paying more now to avoid a gross error down the line.

The usefulness of a good property lawyer is even across the board for all types of properties: existing, land, renovationsbased and new-builds.

Other times, it means you’re paying out extra money for unforeseen repairs or coming up against restrictions in the title which halt any renovation plans.

In that scenario, the extra funds might be better spent upfront.

Existing properties come with their fair share of contractual problems, and they can also come laden with potential structural issues, too.

If it all goes wrong here, you could walk into a property with expensive problems.

This is a big factor for renovations-based investors, who rely on being able to transform a property so they can ratchet up the rent and boost equity.

Sheppard says sometimes the worst-case scenario is feeling like you’ve paid too much

What about cost?

Cost-wise, in “some situations” the choice to use a specialised lawyer, as opposed to your run-of-the-mill lawyer, might leave you facing a higher bill, Sheppard says.

But that will depend on the extra due diligence or work that needs to be done.

“If you go for the cheapest option, you aren’t going to get the same product,” she says.

At the end of the day, you might be better

“Property is a huge asset,” says Sheppard.

“If you’re spending that sort of money, why wouldn’t you want to make sure the product is fit for purpose and that you’re fully informed?”

What to ask Annabel’s top questions you shouldn’t be afraid to ask your lawyer: •

How much experience do you have?

•

What team do you have working with you?

•

How available are you?

•

Ask for an estimate for costs. (There will be a range.)

AUTUMN 2022

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INFORMED INVESTOR 101

REGULARS

Book Reviews Reviewed by Sarah Ell

Your Money, Your Future

Step into the Spotlight

Frances Cook Random House NZ, $35

Russell Pickering TPG, $29.95

With the property market continuing to run hot, high inflation and the ongoing uncertainty of the global pandemic, the idea of being able to afford to retire comfortably might seem increasingly out of reach.

Many of us wish we had the ability to get up in front of a room full of people and speak eloquently and comfortably, getting our message across in a persuasive and believable way. Yet not everyone seems to have that skill.

Take a deep breath and calm down, financial journalist and podcaster Frances Cook says: by fronting up to thinking about money and taking charge of it, you can attain ‘financial freedom’.

In this book, Kiwi communication consultant and author Russell Pickering outlines his belief that in fact, we all have it in us — we just need to harness our own power and find the confidence to speak up.

She’s an advocate of FIRE: Financial Independence/Retire Early, whether that means you actually do kick the job into touch before 65, or just have more money to do what you actually want to do, for longer.

“The old ways of creating financial security don’t work any more,” Cook writes. “The world of work is broken, and we have to adapt.”

Taking a realistic, up-to-the-minute view of what’s happening in the local and world economy at the moment, Cook runs through the financial basics, focusing on maximising income and reducing spending rather than investment techniques.

After all, you can’t invest money if you don’t have it!

She encourages readers to change their money mindset to achieve their goals, acknowledging that not everyone has the same idea of what financial independence looks like, or what their ideal retirement might be.

This readable and accessible book could be the first step towards a whole new future.

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He says: “Far too many promising careers stall, and great ideas fail to connect because of poor presentation skills.

What’s more, far too many bad ideas get adopted … because of our bias toward displays of confidence.”

Pickering has worked with many organisations across New Zealand and Australia for more than 15 years, helping thousands of people become better presenters in a business setting.

Here he has distilled his knowledge into a step-by-step process to guide people out of the shadows and into the spotlight, ensuring they present with impact, improve their business presentation skills and inspire confidence.

The book deals with in-person presentation as well as the all-important ‘virtual’ setting such as Zoom and other online environments which have come to dominate our work lives.

Pickering writes with humour and uses real-life examples to show where issues arise and how to overcome them.

It could be a powerful tool to help you take your presentations to the next level in 2022.

Are you ready to get a job?

Getting your first job is a great way to gain independence and to start saving. Before you start looking for work, make sure you’re prepared.

TOP TIPS

1.

Get an IRD number Employers will need this to pay you and the correct amount of tax. You can find out more on the Inland Revenue website.

2.

Put together a Curriculum Vitae (CV) As well as your name, age, and contact details and school year, list your skills, interests and any jobs you’ve had at home or school that show you’re responsible.

3.

Look into KiwiSaver funds and enrol with a provider The earlier you start saving, the more you’ll earn thanks to compound interest. You can choose to save 3, 4, 6, 8 or 10% of your wage. Once you’re 18, your employer will contribute 3% and if you save at least $1043 in a year, the government will contribute $521. You can withdraw from KiwiSaver when you buy a house or you retire.

4.

Tell people you know you’re looking for work or ask at local businesses

Life Education provide the SMART$ programme in secondary schools. SMART$ is a theatre-in-education programme designed to provoke thinking and conversation about the everyday financial decisions impacting young people. Thanks to support from the Reserve Bank of New Zealand, Booster and PMG Charitable Trust, the programme is free of charge to schools and students.

GOOD LUCK !

YO U R I N V E S T I N G

Autumn inspiration

1

Ease into the season with muted colours and simple, clean lines for your home.

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4

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5

1. Crush tote mini stingray - deadlyponies.com, 2. This is Incense - Wearemindfulstore.com, 3. Prada sunglasses in amber crystal and dark grey - Sunglasshut.com, 4. Penhaligon's Portraits The Blazing Mr Sam EDP 75ml - worldbrand.co.nz, 5. Neko vase - superette.co.nz, 6. Botanic gardens candle discovery set - superette.co.nz, 7. Eva Solo green tool burger press - Fatherrabbit.com 104 INFORMED INVESTOR |

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Colours to fall for.

8

9

Resene Pioneer Red

10

Resene Jurassic

11

Resene Inside Back

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13

Resene Karry

Visit your local Resene ColorShop for more colour ideas and inspiration.

8. Woodwall 2 Seater Sofa - Target.co.nz, 9. The wild spirit velvet cushion 43cm - fatherrabbit.com, 10. Ginori 1735 Il Viaggio Di Nettuno Mug in Blue - faradays.store, 11. Mikado' oak side table 50cm - indiehomecollective.com, 12. Aubrey chair in Royal Blue - Target.co.nz, 13. Travel wallet - deadlyponies.com

resene.co.nz/colorshops

YO U R I N V E S T I N G

Yoga at Sunrise An escape to Parohe Island Retreat feels like an adventure – and a chance to reset, says Brenda Ward.

The magic of an island is its isolation – and the journey you take to reach it.

At Parohe Island Retreat, the isolation from the mainland is a welcome break from my day-to-day routine.

The water taxi ride to Kawau Island is also the first part of another journey, one to health and wellness, calm and serenity.

This brand-new retreat is close to Auckland, a quick boat ride from the marina at Sandspit to 20 hectares of native bush nestled among the gentle, rolling slopes of Kawau Island.

If ever there were a place to reset yourself and refresh your intentions to live in a more connected way, this is it.

The retreat offers two, three and five-day wellness packages, with the most popular being the Refresh yoga retreat I attended.

Longer packages include cooking classes and boat tours to surrounding areas, says Rawinia Buchanan, general manager at Parohe Island Retreat.

On a yoga retreat, you’ll start your experience with a cacao ceremony, where you set your intentions and form a bond with your fellow attendees.

Each day, you’ll greet the morning with an energising power yoga lesson on the dock overlooking the water and the bush-clad bay, as the sun rises.

Spend the days either relaxing or getting physical.

Hike along the trails to a waterfall, try kayaking or archery, or swim in the pool.

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T R AV E L

Opposite page: Water views from the property.

Above: Cabin interior.

Left: Parohe Island Retreat spreads from the dock to high up on a ridge.

Bottom: Outdoor fireplaces look inviting.

Lower left: Yoga by the sea. Credit: Jess Winkle Wellness.

from Parohe’s organic gardens and designed by a consultant chef in collaboration with an in-house naturopath.”

For breakfast, try a chia bowl with fresh strawberries or overnight oats.

A main meal could be a roasted vegetable tart with homemade cashew feta and local balsamic vinegar, a raw energy salad of beetroot, carrot, celery, apple and ginger, and a celery, fennel, and orange salad with citrus vinaigrette.

Just when you think you’ve eaten more than enough, a delicious dessert appears to tempt you, adorned with seasonal fruit.

Feeling peckish? There’s always a carrot cake or a bliss ball waiting by the kitchen.

Or if you need a treat, just unwind with a relaxing massage, spend time in the sauna, or while away the evening with bamboo and birdsong in an outdoor bath by a pond.

At The Enchantment central hub, gather on the tropical-styled open veranda and socialise around the outdoor fireplace, or eat nourishing meals. In a modern, airy studio, teachers offer yoga, meditation, and mindfulness sessions.

Wholefood vegetarian meals include breakfast, lunch, dinner, snacks, and non-alcoholic beverages.

Says general manager Rawinia Buchanan: “Food is delicious, healthy fare, featuring ingredients

Wind down with an evening candle-lit yin yoga session and then head to your accommodation in brand-new luxury cabins and cabanas, a short wander from The Enchantment. Sliding doors open each room to the bush, even the shower.

The retreat also hosts couples retreats and corporate away days. It has been designed as a multi-purpose event space, for hire for corporate events or weddings, using other buildings on the land.

The Honeymoon Cottage is a charming old building near the dock. Once home to Governor Grey’s lady ‘friend’, it has a cosy interior and a fireplace.

And a three-bedroom designer home high above the property is available for family groups.

Property development company Equinox is the brains behind this passion project. It’s a retreat that’s world-class – but also completely New Zealand.

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LIFESTYLE

Overnight Adventurer The Volkswagen Caddy California is a camper for the explorer in all of us, bringing the fun back into weekend getaways, says Brenda Ward.

I’m sitting in a deckchair with a glass of wine in the sun, looking out over Rangitoto Island.

Behind me, past the open hatch, is my bed, my kitchen, and enough clothes for a beachy weekend for two in Takapuna.

Somehow all these things and both of us fit into this vehicle, which turns out to be the Swiss army knife of the VW family, the Caddy California camper.

It is fairly small, but when you think about it, a small camper has its uses.

You know that music festival you wanted to go to, or that friend’s wedding at the other end of the island? Or that day that you just felt like heading to Piha for a surf?

These are the days you don’t want to pay for a hotel room for the night, but you’d like to have a drink and walk back from the event, rather than get an Uber.

If this is you, I’ve found just the vehicle.

It’s not quite a car, not quite a van, not quite campervan, but a whole lot more than a tent.

Volkswagen’s newest camper is the baby of the California camper series, the one without all the bells and whistles.

The biggest in the series is a giant known as the Grand California, fully self-contained with a toilet and shower. The mid-size camper is reminiscent of the Kombi beloved by a certain generation who lived in one on their OE. But this vehicle is an overnighter that’s a heap cheaper, at NZ$65,500 plus on road costs.

You’re not going to love living in it for weeks at a time but it’s super for couples on a weekend break, or for buddies who like to go places and don’t mind getting up close and personal.

The Caddy California is based on the longer wheelbase of VW’s popular Caddy workhorse, a van that drives like a car but has room for everything a tradie might want.

Add the optional pull-out kitchen and a well-sprung double bed and you have the Caddy California.

Okay, you can’t sit up when you’re in the bed and your knees often meet those of your partner, but it’s cosy and it’s quaint and it sure turned a lot of heads when we set it up at the Takapuna Beach Campground over lockdown.

There’s a place for everything. The soft paniers clipped to either side are amazing, with a Tardis-like ability to stow your clothes lengthwise with hardly a crease, taking even shoes and my toilet bag.

The bags unclip when you want to pack or unpack, but we found everything was readily accessible on the go.

There’s not a heap of space for pots, pans, and plates, but this camper was equipped with the clever aftermarket kitchen that unfolds from an alcove beneath the bed.

At first fold the bench emerges, then the double-burner cooktop, then out comes the flexible sink, which pops out complete with a drainer and plug.

Full disclosure: the kitchen was very cool, but we didn’t cook because we were heading out for a meal at Regatta bistro, overlooking Takapuna beach.

And that’s where the Caddy proved its worth and how most people will use it, I’d suggest.

After dinner and a couple of wines we simply strolled down to the beach and walked to the campground.

There we’d left our Caddy with the bed made up, and its window curtains all neatly magnetically clipped into place for privacy.

The cabin’s comfortable and a multifunction steering wheel gives you access to a range of menu functions.

Airplay quickly connected my iPhone for music and navigation.

It’s equipped with Forward Collision Warning with pedestrian and cyclist monitoring, Lane Assist and Adaptative Cruise Control.

The only downside was the ventilation.

Two lightweight vents can be clipped onto the front windows, but on a balmy summer evening, there wasn’t enough throughflow.

But when the heat became stifling, we simply tossed open one of the two sliding doors.

You might pay up to $220,000 for a full campervan with all the amenities, but I’d guess that most Kiwis mainly use their camper to pop away for a couple of days, and that makes the Caddy a real steal.

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What to Wear:

Weddings

1.

2.

Simple and elegant outfits set the style for wedding guests.

9.

8.

7.

3.

5.

6.

4.

1. Comfort Craftsman boot - www.rmwilliams.com.au/nz, 2. Shacket - www.cosstores.com, 3. Talbot pant - www.rmwilliams.com.au/nz 4. Grant sunglasses - www.ahlemeyewear.com, 5. Randwick boots - www.rmwilliams.com.au/nz, 6. Troubadour sunglasses - www.ahlemeyewear.com, 7. Collins shirt - www.rmwilliams.com.au/nz, 8. Wool coat - www.cosstores.com, 9. Suit and shirt - www.crane-brothers.com.

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LIFESTYLE

3.

1.

2.

9.

8.

7.

4.

5.

6.

1. Harris vest - www.nz.camillaandmarc.com, 2. Cassie heel - www.kathrynwilson.com, 3. Coppola shirt dress - www.nz.camillaandmarc.com, 4. Lahti sunglasses - www.mykita.com, 5. Jacqui heel - www.kathrynwilson.com, 6. Mr Minimese bag - www.deadlyponies.com, 7. Samba skirt - www.nz.camillaandmarc.com, 8. Esbo sunglasses - www.mykita.com, 9. Twenty-Seven Names suit - www.twentysevennames.co.nz.

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YO U R I N V E S T I N G

Going Up, Going Down Economist Cameron Bagrie takes a good, hard look at New Zealand and how we are going as a nation.

The houses we’re building There were 48,899 new homes consented in the year ended December 2021.

Auckland led with more than 20,000 new homes consented over the year, driven by multi-unit homes such as townhouses, apartments, and flats.

What we buy Inflation has risen to 5.9 per cent and doesn’t yet look to have peaked. The finger is being pointed at Covid-19 and global aspects, but that doesn’t cut it.

Non-tradable or domestic inflation is 5.3 per cent, reflecting an economy that has excess demand relative to supply and too hot to trot.

What we pay for mortgages Surging inflation means higher interest rates.

The Reserve Bank has hiked interest rates 50 basis points so far and financial markets are saying the Official Cash Rate could go 200 basis points higher to 2.75 per cent, meaning one-year fixed lending rates of around 5 per cent could be just around the corner.

With around $170 billion of mortgages set to refix in the next 12 months, some borrowers are in for a rude shock.

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There are fewer of us Population growth has taken a massive hit and there are repercussions we’ll face.

Growth has slowed from 90,000 extra people a year pre-Covid to less than 30,000.

The latest net migration figures report a small outflow.

It concerns me that building consents are massively outstripping population growth.

Much slower population growth and rapidly rising building consents, if sustained, equals what for housing shortages and prices?

Well, you be the judge.

MARKET INSIGHTS

$

$ A tight squeeze Credit conditions have tightened, and lending growth has slowed.

New home loan commitments fell below levels seen in 2020 for the last four months of 2021.

New monthly mortgage commitments were $7.9 billion in December 2021, down on the prior month of $9.1 billion.

There were $1.7 billion fewer new loans in December 2021 than there were in December 2020.

The exit door Auckland saw a small population loss in the past year. There was a natural increase, but it was offset by people exiting into the regions.

This exit is nothing new. It’s been happening for years, but Auckland’s population growth was masked by strong gains in external migration from offshore. With borders shut, the mask has been ripped off.

Expect the push into regions to speed up.

Covid is one reason, but affordable (or should we say less unaffordable) housing is another.

Pointing the finger Slowing loan approvals have been blamed on the Credit Contracts and Consumer Finance Act (CCCFA) and banks’ knee-jerk reaction to it. I agree that the criticism is fair. The legislation needs to be changed.

But we should look at the bigger picture.

Interest rates are higher, loan-to-value ratio restrictions are being applied, some banks are hitting borrowers with debt-to-income restrictions, and the banks’ appetite for risk has dropped.

Housing credit growth of just under 11 per cent in a year is not normal. Housing debt has risen NZ$31.5 billion in the past year, at an average of NZ$2.6 billion a month.

That sort of borrowing hike is not sustainable, amid 5 to 6 per cent income growth, and rising interest rates.

Credit growth is shifting to a slower lane.

Going in all directions The unemployment rate is 3.2 per cent.

Firms are desperate for staff. Surveys report acute staff shortages. Wages are on the up, sharply.

So why is it we’ve seen a 50,000 rise in the number of working-age people on a benefit in the past two years, and one in nine people of working age are now on a benefit?

Some hard questions need to be asked.

A rocky start Asset prices have had a rocky start to 2022.

Interest rates worked their magic lifting asset prices when interest rates declined.

Taming inflation is not growth-friendly and central banks have a big job ahead of them.

Do the maths Here’s a quote from the OECD Economic Survey of New Zealand: “Improve mathematics and science teaching in primary schools.” The OECD offered a list of recommendations. Here’s hoping we act on some of them.

While Bagrie Economics uses all reasonable endeavours in producing reports to ensure the information is as accurate as practicable, Bagrie Economics shall not be liable for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage. Data and information have been gathered from sources Bagrie Economics believes to be reliable. The content does not constitute advice.

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Correct as at 2 Feb 2022.

The cause? Inflation and expectations of higher interest rates from some key central banks such as the US Federal Reserve.

Snapshot We take a look at some of the events around the world affecting the global economy. From the Americas, through Europe, and then Asia, find out the latest from around the globe this quarter.

UK

USA US Federal safety regulators are considering a probe into Tesla’s automatic braking feature after owners complained their cars were stopping for no reason.

UK Prime Minister Boris Johnson is under fire after a report by Sue Gray pointed to failures of leadership and judgment over lockdownbreaching gatherings at Downing Street.

Germany

Colombia Dissident militant factions on the Colombia-Venezuela border competing for control of drug routes have killed at least 23 people in violent clashes.

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The oil industry in Germany, Belgium and the Netherlands has been hit by cyber-attacks on IT systems, which have had an impact on oil storage and transport around the world.

MARKET INSIGHTS

Ukraine Russian troops have advanced at several locations in Belarus.

There are fears that the Kremlin is planning an incursion into Ukrainian territory.

India The Indian government is planning to bring in a state-backed ‘digital rupee’ and impose a 30 per cent tax on profits from cryptocurrencies.

Tonga Still reeling from an underwater volcanic eruption and resulting tsunami, Tonga has now been hit by community cases of Covid-19, and has gone into lockdown.

Australia

Correct at 7 Feb 2022.

Google has told a US government department reviewing US media laws that Australia’s news media bargaining code will be unworkable and harm democracy.

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YO U R I N V E S T I N G

Rates Generating More Than a Little Interest Greg Smith of Devon Funds analyses the quarter in the market and finds Omicron, supply chain pressures, OCR rate hikes and inflation are all having an impact.

The December 2021 quarter promised much, but for the NZX50 index of top Kiwi companies, it was something of a damp squib.

Following a 4.9 per cent gain in the September quarter, the index lost 1.8 per cent despite positivity across many parts of the corporate sector.

Economic data prints were also better than expected, even as Auckland only emerged from a 107-day lockdown in early December, and with restrictions enduring in many other parts of the country during the quarter.

Some of this underperformance can be put down to the Reserve Bank ‘going early’ in terms of increases in the Official Cash Rate, with two rate hikes during the quarter.

That said, a seasonally typical bout of strength in late December helped the broader Kiwi share market finish 2021 effectively flat (-0.44 per cent).

Covid-19 and associated lockdowns were dominant themes in recent months.

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economic contraction in the September quarter, but at minus 3.7 per cent, the result was better than feared. On an annual basis, GDP rose by 4.9 per cent, while the unemployment rate hit a record low of 3.4 per cent.

We will see the impact on the December quarter GDP at the next release.

Hiring intentions and consumer sentiment remained stoic late in the year, despite the protracted stay-at-home orders which were all set to end with the government’s move to a ‘traffic light’ system.

A strong housing market helped the mood, with national average prices rising 27 per cent during the year and building consents at record levels.

Pandemic ‘beneficiaries’ have emerged during Covid. In New Zealand, examples have included Mainfreight and Freightways, and these companies continued to enjoy fertile conditions towards late 2021.

Travel companies were less upbeat, with one example being Air New Zealand, which delayed a capital raise and restructured

its government support package.

The arrival of Omicron only compounded uncertainties around border reopening.

Omicron’s tendency to be a milder, yet more transmissible, version than Delta also weighed on the retirement care stocks, which have been at the ‘pointy’ end of the pandemic.

To give a sense of the sometimes-stark contrast in fortunes for companies over the last 12 months, rubber boots and gloves manufacturer Skellerup was the top riser on the NZX with a gain of more than 70 per cent during 2021. At the other end, shares in A2 Milk lost more than half their value.

The Reserve Bank raising rates proved something of an Achilles heel for the New Zealand market in the December quarter.

The need to tighten monetary policy to combat multi-decade highs in inflation has, however, become much more of a global theme, and we’re likely to see more examples of other central banks raising rates during 2022.

It has also been one of the most volatile

EXPERT OPINION

starts to a year on record globally, with the catalyst for investor angst not Omicron (or Russia-Ukraine tensions or China concerns) but fears over rising interest rates.

The era of ‘cheap’ money is coming to an end as central banks have pivoted away from the idea that pandemic driven inflation is temporary.

This has given rise to some concerns over share market valuations, because interest rates are used in financial models to value companies based on their future cash flows.

Elevated valuations have been most evident in the technology sector. The ‘bar of expectation’ has effectively risen, and in the US, companies which have delivered a negative surprise (among them Netflix and Meta Platforms) have been severely punished.

The Reserve Bank meets this month and in focus will be guidance on the expected pace of future rate rises after annual CPI inflation hit 5.9 per cent in the December quarter.

Many parts of the economy are doing well, with December quarter unemployment hitting a record low of 3.2 per cent.

On the other side, the overheated housing market appears to be cooling as lending has been tightened up and the ability of highly geared mortgage holders to withstand a number of rate rises comes into question.

Consumer wallets are also under pressure with rising food and petrol prices.

Border plans have been pushed out, and self-isolation requirements will not be very attractive to most overseas travellers.

Adding to the sense of uncertainty is the fact that Omicron has also been slower to arrive on these shores than other countries.

This all makes for a delicate balancing act for the Reserve Bank.

Key to our economic fortunes in the next few months will be how the Omicron situation develops.

So far in early 2022, pandemic performers have continued to do well with Skellerup, Mainfreight, and Briscoes

|

DEVON FUNDS

all having had strong updates.

The dairy industry is also in a great spot, with Fonterra lifting its forecast farmgate milk price range for 2021-22.

A host of companies reporting through to the end of March are expected to give us a fuller picture of how a cross-section of the economy is handling the latest variant.

In focus will be whether inflation-driving supply chain pressures are easing as the world reopens, as some big US corporates have communicated.

Key, though, will be how the world’s central banks communicate their rate-tightening plans.

If investors tilt more towards companies with strong value propositions, this could augur well for the relative appeal of many NZX50 constituents, with a weaker New Zealand dollar already appearing to be making life easier for some.

Greg Smith is the Head of Retail at Devon Funds Management www.devonfunds.co.nz.

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MARKET INSIGHTS

Will Interest Rate Rises Cause a Crash?

Some of the world’s biggest financial crises were sparked by the Fed raising interest rates. It’s planning rate rises, so we asked Capital Economics’ Andrew Kenningham whether we could see an economic downturn.

The US Federal Reserve is the world’s most powerful central bank. Known as the ‘Fed’, it sets monetary policy for the United States, but its actions can set unintended effects rippling throughout the world.

Some the biggest financial crises in history have taken place shortly after the Fed raised interest rates, including these huge worldwide upheavals: •

The 1929 Wall Street Crash

•

The dotcom crash of 2001

•

The Global Financial Crisis (GFC).

Fed officials have made it plain they will tighten monetary policy this year, so it’s no wonder that some investors are worried.

But how concerned should we be?

Knock-on effects The most obvious worry is that higher interest rates in the US can directly cause problems for other countries.

This is particularly true of countries which find their currencies weakening against the dollar, or which have pegged their currencies to the dollar or borrowed in dollars.

These problems are more common in emerging economies – and there are fewer countries now pegging their currencies to the dollar than in the past.

Synchronised tightening cycle Another concern is that the Fed will not be the only central bank raising interest rates this year.

In most countries, the rebound from the pandemic has been stronger than many people expected. That’s clearly welcome, but it’s pushed inflation up almost everywhere, and led to supply problems in countries which have been hit by the pandemic.

In response, many central banks in the emerging world have already raised interest rates and a growing number in advanced economies have followed suit – including the Reserve Bank of New Zealand.

So, I predict global monetary conditions will get tighter, potentially slowing the economy.

Global debt at all-time high Another worry is that debt is now much higher than it was before the pandemic.

The International Monetary Fund estimates that 2020 saw the largest ever one-year surge in global debt.

It reached a mind-boggling $226 trillion or over 250 per cent of world gross domestic product (GDP). GDP is a measure of a country’s market value and covers all the goods and services produced over a year.

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With the pandemic dragging on last year (2021), the debt burden increased further.

During the pandemic this wasn’t too big a problem, precisely because debtors have been helped by the very low level of interest rates and because central banks have stepped up and bought a lot of government bonds.

But as interest rates rise, this debt will become more expensive to service.

Difficult transition The upshot is that the world is starting a difficult transition from a period of ultralow interest rates to one in which rates are a bit higher.

This change could cause problems in some countries and it could cause asset prices to fall.

The US stock market has often declined during periods of rising interest rates and there are risks to property prices in countries which see the biggest interest rate increases, or where prices are unusually high, like New Zealand.

Reasons for cautious optimism But I would say it’s not inevitable that slightly higher interest rates in the US, or elsewhere, will lead to a major economic downturn.

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And in some respects the world is better placed now to cope with rising interest rates than it was before previous crises.

Three points are worth emphasising.

Interest rates are rising from a very low level First, the Fed’s key interest rate is currently close to zero and in other economies – including Japan and the euro-zone – interest rates are actually negative.

Although total debt has risen since the start of the pandemic, most of the increase has been in public sector debt.

So rates could go up a bit without reaching levels which are unaffordable.

For example, Fed officials think they’re likely to raise rates to only 2 per cent in the coming years, which is below the previous peaks of 2.5 per cent in 2019 or over 5 per cent in 2007.

Central banks need to raise rates Second, some major central banks will not be raising rates significantly.

The European Central Bank and Bank of Japan, for example, are likely to leave their interest rates at or below zero this year, and the People’s Bank of China, which is worrying about its weakening property sector, will probably reduce its interest rates.

The situation would be more worrying if these central banks were also planning to put their foot on the brake.

Household and corporate debt not so high And third, although total debt has risen since the start of the pandemic, most of the increase has been in public sector debt.

This is reassuring because the public sector has the deepest pockets and is best able to service high debt burdens, not least because it has the power to electronically “print money”.

Also, central banks (which are part of the state) own a lot of this debt so, in a sense, the state owes the money to itself.

All in all, the coming period of higher interest rates may cause problems in some countries, but there are good reasons to think that the major economies are quite well placed to cope with higher borrowing costs – as long as they do not go too high.

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