JUNO Investing

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How money smart are your kids?

L IF E SC AN YC LDE SSTAG E S AG

Why risk might be a good thing Retirement: More expensive than you think Rod Drury’s Business Tips

Your Financial Life Cycle

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Invest Alongside Us AT PIE, OUR STAFF, DIRECTORS, AND SHAREHOLDERS INVEST ALONGSIDE CLIENTS ON THE SAME TERMS.

To download our Product Disclosure Statements and Statement of Investment Policy and Objectives visit www.piefunds.co.nz or www.companiesoffice.govt.nz/disclose. Past performance is not a guarantee of future returns.

No person, including the Directors of Pie Funds Management Limited, guarantees the repayment of units in the funds or any return of units in the funds. Returns can be negative as well as positive and returns over different periods may vary.

MIKE TAYLOR FOUNDER, CEO AND CIO

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PHOTOGRAPHER: Wendy Fenwick

WINTER 17

ISSUE THIRTEEN

“Wealth is about more than driving a smart car, it’s your chosen lifestyle – the country, friends, and family, and developing passions and interests. Hopefully, that’s something that the kids understand and cherish.”

– Nicola Webster Owner of COAST

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CONTENTS YO U R I N VES T I N G PERSONAL FINANCE

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Invest for Your Age

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Calculate Your Risk

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Are You in the Right Fund?

In the world of investing, one size doesn’t fit all. Brenda Ward talks to financial advisers Martin Hawes and Amy Wilkes, financial educator Lisa Dudson, and Kiwibank’s Anthony Huggins about smart money strategies for each stage of your life.

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Risk is a very personal thing, and your needs and the level of risk in an investment may both change as time goes by, writes Caroline Ritchie.

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The KiwiSaver fund you’re in now might not be the best one for your age or financial situation. Binu Paul looks at how your retirement investments should change over your lifetime.

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The Advantages of Financial Life-Planning

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The Three Stages of Retirement

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The Downsize Solution

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How Property’s Performing

Financial planning is vital not only for future wealth but also for your health and wellbeing, as Robbie Gimblett explains.

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Rather than falling, your expenses in retirement start high, drop, and then climb again, reveals Martin Hawes.

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The Three Stages of Retirement

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An alarming number of Kiwis look likely to retire with a mortgage.

Amy Hamilton Chadwick analyses the problem and looks at some solutions to free equity from your home in retirement.

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Residential house prices have dropped over the first quarter of the year, trimming profits and discouraging investors, says Jeremy O’Hanlon.

The Downsize Solution

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How Much Does it Cost to Raise a Child?

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Money Smart: How Financially Capable Is Your Child?

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Five Questions for Wannabe Entrepreneurs

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A Growing Fish in a Big Pond

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Five Minutes with Nick Mowbray

Having children could be one of your biggest investments. How much will it cost you to raise a child? asks Amy Hamilton Chadwick.

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By the time your children leave home, they need to be equipped with the financial skills to live independently. Kendall Flutey looks at what young adults need to learn.

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Rod Drury poses five questions you need to answer before you venture into business.

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Lee Fish is a small-town fishmonger in New Zealand, but it has created a global reputation for delivering the finest fish in the shortest time, to top restaurants around the world. Brenda Ward finds out how they run this global empire.

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Nick Mowbray is the 31-year-old director and co-CEO of Hong Kong-based toy company ZURU, which is on track to reach NZ$500 million in revenue in 2017. He talks to Jake Millar.

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Money Smart Kids

JUNO & Continental Cars Women’s Finance and Wellbeing Seminar

Join us for a light meal, bubbles and empowerment, with three inspirational speakers: Retirement Commissioner Diane Maxwell, life coach Sarah Laurie, and entrepreneur Cecilia Robinson.

YOU R I N VES T I N G M A R K E T I N S I G H T S for the sophisticated investor

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62 Rod Drury’s Tips

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Between the Lines: Migration and House Prices

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Stocks on the Move

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Nick Scali: Sitting Pretty

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Snapshot

Property owners and investors should pay close attention to net migration for clues as to the future direction of house prices, says Mike Taylor.

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Chris Bainbridge provides a backdrop to the rises and falls of four stocks on the Australian and New Zealand exchanges.

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House-proud Australians have pushed up sales for sofa and lounge furniture retailer Nick Scali. The company has a great story of double-digit growth and strong momentum, suggests Mike Ross.

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A glance at events affecting the global economy.

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The Fed: A Peek Inside the US Financial Powerhouse

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Should We Still Expect a ‘Trump Boom’?

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The EU on a Precarious Tightrope

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New Leases on Life

The US Financial Powerhouse

The markets hang on every move the US Federal Reserve makes. Chris Smith offers some insights into Fed operations and the focus of this highly influential financial institution.

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Andrew Kenningham explains that the outlook for the US economy is fairly bright regardless of whether President Trump manages to implement his planned fiscal stimulus. But he also highlights three risks to the US recovery.

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After the relief of the recent election result in France, which saw political youngster Emmanuel Macron voted in as president, Europe braces itself for the German federal elections in September. Mark Devcich investivates.

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There are good finds and great returns to be made in the commercial market, says Brett Whalley.

106 The European Elections

78 Walking the Milford Track is the experience of a lifetime. Jo Hammer takes to this Great Walk like a duck to water.

YOU R LI FES T Y LE I

JUNO Exchange

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What We Like

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A Timely Investment

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One for the Bucket List

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A Recipe for Success

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A review of the autumn event.

A watch tells more than the time. Your timepiece can speak of your style, wealth, and aspirations, but could it also be an investment? asks Sarah Fitzpatrick.

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A Timely Investment

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Brenda Ward has the Mercedes-Benz C200 Cabriolet set to ‘Sport’, and finds it transforms from a cushioned cloud of comfort into a rocket launcher.

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Walking the Milford Track is the experience of a lifetime. Jo Hammer takes to this Great Walk like a duck to water.

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A collaboration between two high-end companies, Akarua Wines & Kitchen by Artisan near Queenstown, is cooking up some serious popularity. Jacqueline Taylor tastes the result.

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Wellbeing

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Essentials: Plush and Blush

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Book Reviews

Enjoy the flavours of winter, boost your immunity with a new vitamin range, use steam and ice to stimulate your blood flow, and save your skin from the chill winds and drying air-conditioning.

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Textural fabrics, rosy pinks, and forest greens bring a fresh new perspective to the season’s interiors.

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Cruise Missile

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Sarah Ell reviews books from both ends of the age spectrum: about creating financially-savvy kids and how to live longer without running out of money.

Akarua & Kitchen by Artisan

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YOUR INVESTING CONTRIBUTORS

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02. K E N D A L L F L U T E Y

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Mark is Head of Research at Pie Funds and has overall responsibility for research and company analysis. He is also the portfolio manager for the Emerging Companies Fund and the Dividend Fund.

Kendall is an ex-accountant turned software developer who now leads Banqer, the financial education software for schools.

Banqer has found its way into more than 1,000 classrooms worldwide.

Robbie Gimblett is the Private Business Market Sector Leader at PwC, where he works with businesses – large and small – as well as individuals across New Zealand.

Amy specialises in property and finance journalism; she has been a writer and editor for almost 20 years. Amy is a former editor of NZ Property Investor magazine and is a registered financial adviser.

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MARK DEVCICH

MARTIN HAWES

ANDREW KENNINGHAM

ROBBIE GIMBLETT

B I N U PA U L

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A M Y H A M I LT O N CHADWICK

CAROLINE RITCHIE

Martin Hawes is the chairman of the Summer KiwiSaver Investment Committee. He is an Authorised Financial Adviser and offers his services throughout New Zealand. He also presents at seminars.

Andrew Kenningham has worked for Capital Economics since 2011.

He was previously an Economic Adviser for the UK Foreign Office and worked for Merrill Lynch in the City of London.

Binu is a fintech entrepreneur and founder of SavvyKiwi, an app that helps users maximise their retirement savings. He’s spent the past 19 years in funds management and investment research. He also organises Finnotec, New Zealand’s only fintech conference series.

Caroline is the owner of Investment Stuff, a share market-based investment coaching service. She has 13 years experience as a sharebroker, fixed interest and portfolio manager and is a weekly finance opinion columnist.

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Mike is an investment analyst at Pie Funds and is responsible for conducting company and portfolio analysis. Before joining Pie Funds in August 2015, he was a financial communications consultant, a financial journalist and editor for an investor news service.

Chris is the General Manager at CMC Markets. He has more than 15 years’ investing experience, with a passion for the financial markets, and global equity, commodity and forex markets.

CHRIS SMITH

M I K E TA Y L O R

Mike is the Founder, CEO and CIO of investment company Pie Funds. He is the joint portfolio manager for Pie Growth, Pie Global, and Pie Growth UK & Europe Funds.

BRETT WHALEY

Brett is CBRE’s National Director of Metropolitan Investments. He has more than 20 years of experience in real estate sales, leasing, advisory and project marketing and was formerly assistant vice-president of First Gulf Bank, Abu Dhabi.

Behind your trade is a world of innovation, research and analysis Tune in to market opportunities with extensive insights from our global analysts and complimentary access to Reuters, Morningstar and our economic calendar.

Find out more at cmcmarkets.co.nz CFDs | FX | Binaries

With derivative products you could lose more than your deposits.

You do not own or have any interest in the underlying assets.

Investing in derivative products carries significant risks. Seek independent advice and consider our PDS at cmcmarkets.co.nz when deciding whether to invest in CMC Markets products. CMC Markets NZ Limited (CN 1705324).

PUBLISHED BY: Jacqueline Taylor JUNO Investing Magazine, Level 1, 1 Byron Avenue, Takapuna, PO Box 33-1079, Auckland 0740

Editor-in-Chief & Publisher Jacqueline Taylor – jacqueline@junoinvesting.co.nz Editor Brenda Ward – brenda@junoinvesting.co.nz Subeditors Sarah Ell Jo Hammer Art Director, Senior Designer & Digital Designer Rachel Lochhead – rachel@junoinvesting.co.nz Advertising Manager Rex Pearce –rex@thevalueexchange.co.nz Digital Communications Alex Beja – alex@junoinvesting.co.nz Designer Ashleigh Whitmore

www.junoinvesting.co.nz JUNO is a financial-investment magazine published quarterly by Jacqueline Taylor. You need JUNO magazine’s written permission to reproduce any part of JUNO. Advertising statements and editorial opinions in JUNO reflect the views of the advertisers and editorial contributors, not JUNO magazine and its staff.

JUNO’s content comes from sources that JUNO magazine considers accurate, but we do not guarantee that the content is accurate. Charts in JUNO are visually indicative only, not exact. The content of JUNO is intended as general information only, and you use it at your own risk: JUNO magazine is not liable to anybody in any way at all.

JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.

Executive Chairman Mike Taylor – mike@junoinvesting.co.nz

JUNO 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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To advertise in JUNO, you must accept JUNO magazine’s advertising terms and conditions. Please contact jacqueline@junoinvesting.com for a copy.

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JUNO is the first name of the Roman goddess Juno Moneta, the protectress of funds. It was in her temple where money was coined for over four centuries in Ancient Rome. Like Juno Moneta, JUNO magazine is here to help improve your financial capability and support your financial decisions.

FROM THE EDITOR-IN-CHIEF DO YOU REMEMBER THE BOOK The Very Hungry Caterpillar by Eric Carle? Of course you do. The classic story was a childhood favourite for many, and still is.

When I worked as a teacher, I had great pleasure in sharing this book with young students, tracing the life cycle of the caterpillar from egg to beautiful butterfly.

The story provides plenty of scientific knowledge for children as they learn how a caterpillar hatches from its tiny egg and continues to munch its way through life. It starts small on one green leaf and goes on to eat a diverse range of food until it’s big, fat, and satisfied. It then takes a rest in its chrysalis and finally emerges as a butterfly, flying away to new-found freedom.

I liken the caterpillar’s journey to our own personal wealth journey. From a young age until retirement we experience a financial life cycle. At different ages and stages in life, our approach to money and management of investments changes.

We hope that during the course of life our personal wealth will grow. When we’re young, we don’t have a lot. This is the time to learn as much about money and investments as we can. Our first job will bring in a few ‘green leaves’; as we grow older and wiser we begin to accumulate assets, take investment risks, and see our portfolio ‘fattening up’.

you are sure to re-emerge and soar to a happy retirement, with a healthy nest egg beneath you.

In this issue of JUNO, we examine financial life cycles and the things you should be thinking about at certain ages and stages.

Whatever point you’re at, this issue will give you guidance on navigating your way through your own financial journey.

Perhaps you’re about to leave school, or you have children in this position. How money-smart are you? What should you know financially before leaving school? Kendall Flutey answers this for you on page 58. Maybe you’re approaching the other end of the scale and ready to retire. Learn about the different stages and costs of retirement in Martin Hawes’ article on page 44. And if you’re currently in midlife, then you’re likely to be considering diversifying your investment portfolio. Should you be taking risks? Caroline Ritchie explains why risk can be a good thing, on page 32.

As always, I hope JUNO’s Winter issue leaves you educated, informed, and empowered, supporting you in making better financial decisions.

Happy investing!

As we near retirement, life begins to slow down and we hope our portfolio is ‘fat’ enough. But you needn’t rest in your cocoon just yet. If you have accumulated wealth on your financial life cycle,

competition winners Congratulations to the following winners: Sheree Duncan, who won a set of Yealands picnic glasses and a rug.

Kristine Caune, Alli Perry, Matt Bruce, Callum Mcleod, Julie Washer and James Docking, who won a pack of Go Healthy Go Sun UV Protect.

Rachael Clearwater and Harriet Lambert, who won double passes to the Pie, Pint and Pinot event in Arrowtown.

We kindly acknowledge OUR PLATINUM SPONSOR

OUR GOLD SPONSORS

OUR SPONSORS & SUPPORTERS

we simplify investing

How money smart are your kids?

Why risk might be a good thing

LI FE SC AN YC LDESS TAG ES AGE

Retirement: More expensive than you think Rod Drury’s Business Tips

Your Financial Life Cycle ARE YOU TAKING THE RIGHT STEPS FOR YOUR STAGE OF LIFE?

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Caroline Ritchie Mike Ross Chris Smith Jacqueline Taylor Mike Taylor Brenda Ward Brett Whalley

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Robbie Gimblett Martin Hawes Jo Hammer Andrew Kenningham Jake Millar Jeremy O’Hanlon Binu Paul

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Chris Bainbridge Mark Devcich Rod Drury Sarah Ell Sarah Fitzpatrick Kendall Flutey Amy Hamilton Chadwick

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Watch Investment • Mercedes Cabriolet • Après-ski Dining

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Business as

Unusual AT JUNO, we know you love the success stories. You tell us you enjoy the features we write about Kiwis going global, building strong businesses, and growing their wealth with investments.

the personal finance stories you love in JUNO. This issue we’ve enlisted their help to bring you a guide to investing at every age, from the child given his first pocket money, to the busy mum and dad, to the globe-trotting retiree.

This issue we have our own success story, and we’re also aligning with a couple of inspirational Kiwi companies.

These new sections will be adding broader insights and helping us reach a wider audience of investors, from those starting on the investment ladder, to more sophisticated investors.

A reader survey last year gave us interesting insights. We found that 26 per cent of readers are self-employed businesspeople or working in administration roles in businesses. We also found that 11 per cent of our readers are in management occupations.

We cover investment, finance, property, and how the economy affects these areas, but in the past we’ve only touched on business and leadership. That’s changing in this issue, as we work with Xero to bring you our new Business section.

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We’re now printing 8 per cent more copies of JUNO than we were a year ago, and we’re getting closer to our goal of getting a copy of JUNO investing magazine on every coffee table in New Zealand, where it can help start conversations about money.

We believe every Kiwi should be able to reach financial freedom – and expanding your knowledge is the best way to start.

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For example, an innovative fishmonger MAY 2017 this issue we feature JUNE 2017 from Leigh who is sending fresh fish to Michelin-starred restaurants around the world.

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Here you can discover Rod Drury’s opinions on entrepreneurship and business matters, read about inspiring Kiwi firms doing exciting things, and tap into the wisdom of some of New Zealand business’s top chief executives.

We’ve also broadened our distribution and now you’ll be able to get JUNO at the supermarket. From this issue, we’re stocked by both selected Countdown and New World stores. And you can still find us at our existing outlets: Whitcoulls, PaperPlus, Mag Nation and airport Relay stores.

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brenda@junoinvesting.co.nz

PROUD PRINTERS OF JUNO MAGAZINE

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THE WEALTH EVENT EXCHANGE

The next JUNO and event will be the JUNO & Continental Cars Women’s event held on 20 June.

WE KINDLY ACKNOWLEDGE

OUR PLATINUM SPONSOR

OUR GOLD SPONSORS

The ageing workforce is creating planning issues for New Zealand’s employers, David Boyle from the Commission for Financial Capability told guests at the autumn JUNO Exchange event, in Takapuna.

After drinks and canapes at the new offices of JUNO’s platinum sponsor, Pie Funds, attendees overflowed the 70-seat auditorium to hear Boyle, Sheldon Slabbert of CMC Markets, and property investor Ron Hoy Fong.

There’s a big trend for Kiwis to remain in work longer than the traditional retirement age of 65, Boyle said. He spoke recently to the owner of a transport company who was shocked to find the average of his drivers was 59.

There needs to be a national conversation, and an attitude change towards older workers, Boyle said. Retraining and career transition support is needed for those over 50.

Boyle also spoke on some changes suggested for KiwiSaver, including allowing those over 65 to join the scheme; increasing employer and employee contributions to 4 per cent, from 3 per cent; automating member-contribution increases; and offering more transparency on fees.

CMC Markets’ Sheldon Slabbert talked about generating wealth from trading in the financial markets.

“Limiting beliefs about trading have kept many away from this specific field of finance,” he said, noting that news reports of volatility fuelled people’s fears.

He outlined the top 10 rules for successful trading, starting with knowing why you’re trading and having a plan, to knowing when it’s time to take a loss and move on.

OUR SPONSORS & SUPPORTERS

Property investor Ron Hoy Fong explained how he became ‘wealthy’ buying houses.

He’s amassed a NZ$22 million portfolio of rental properties by buying them at a good price, making renovations, and holding them for a number of years.

Pie Funds’ chief executive Mike Taylor was the MC for the evening.

He thanked the speakers and pointed out that it was important to take the first step, whatever you decided to invest in.

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SUMMER 2016 / JuNO 17

YO U R LIFE STY L E

HOTEL REL AUNCHES WITH ART Y VIBE Leave the brightness of your room at QT Museum Wellington to walk along a mysterious dark hallway, dimly lit by a subtle romantic glow. Open another door and you’re suddenly in a world of texture, colour, and art, vibrantly luxurious and bohemian, with corners that beckon you on to corridors where paintings wait to surprise and delight.

QT Creativity Art is the theme of this newly refurbished hotel, where the entry, bars, restaurants, and lift lobbies showcase a stunning art collection amassed by its founder, Wellington businessman Chris Parkin. A good-natured Parkin pops into the lobby to fill us in on the stories of how he acquired the many works of art.

Amused by our curiosity, he even invites us into his private suite within the hotel. Here he and his wife slept in their kitchen/studio annexe while actress Cate Blanchett enjoyed their dual-level luxury digs, while in the city for a red-carpet premiere.

This hotel is a contradiction of light and shade. Your quirky, contemporary-styled bedroom or suite may look over Wellington’s busy waterfront life, but the interior walkways are winding adventures with pools of gentle lights beckoning you on. Follow them and you’ll find 18 JuNO / WINTER 2017

your way to the superb Hippopotamus Restaurant and Cocktail Bar. Here we enjoy superb classic cuisine with the highest levels of service, and a high tea of champagne or looseleaf teas, served with delicate cakes and cucumber sandwiches, the next afternoon.

If you have time, ask to see the divine Billiards Room, the ultimate English gentleman’s opium den, papered with lacquered Chinese characters and wood-panelled opulence. Here you could hold the event of your wildest fantasy.

The thrill of the QT Museum Wellington is that you can walk everywhere within the central city, or just stroll across the road to the amazing Te Papa Museum.

– Brenda Ward

W HAT W E LIKE

CRE AM DRE AMS Warm up your winter nights and indulge in Lewis Road Creamery’s delectable new Chocolate Cream Liqueur. Served on ice, with coffee, or even over icecream, this luxurious combination of rich cream, real chocolate and premium spirits is sure to delight any palate.

Well-known for their novel dairy products, Lewis Road Creamery once again surprises with this highquality liqueur. With its intensity of flavours, including hazelnut, white pepper and cacao, this chocolatecream treat certainly rivals some of the world’s best.

Presented in a gold bottle, the liqueur has an air of elegance and class and is the perfect complement to any dinner party. Its push-and-twist cap, a world first for alcoholic beverages, ensures this treat remains adults-only.

WHAT WE

Visit www.lewisroadcreamery.co.nz for cocktail inspiration and Chocolate Cream Liqueur stockists.

– Jacqueline Taylor

LIKE

HAUNTING FACES

When Brad Williams grew up in Tauranga, he just couldn’t keep away from art, roaming the streets with a spray can. But after getting in trouble for his tagging expeditions, he soon channelled his talents instead into painting canvases, under the name Slope.

Now 38, Williams is a full-time artist, whose stunning paintings of women’s faces have made him hot property in the art world. He now exhibits at the Exhibitions Gallery of Fine Art in Auckland and Wellington.

Ron Epskamp of Exhibitions in Wellington says Williams’ distinctive style of painting moves beyond just the aesthetically pleasing.

“There is a confidence to admire, which takes on a sentiment beyond the narrative of a portrait. The drama of his work plays out under different lighting.

“Brad has caught the attention of serious collectors and is one of the gallery’s rising stars.”

His faces are painstakingly executed freehand, in acrylic on canvas, and take 60 to 100 hours to paint, with many layers of colour plus his signature painted graphic overlays. The works range from one metre square to massive canvases that take up most of a wall.

“I’ve been painting faces in this style for seventeen years now,” Williams says.

“I find photos which are the base and then rework and resketch them, changing them to get the composition right.”

Williams works towards presenting one show a year. “Each is its own little grouping in style, where I try different things.”

He has only created portraits from photographs, but does plan to venture into life drawings in the future.

– Brenda Ward

BR AD WILLIAMS, ARTIS T See Williams’ work at www.slope-art.tumblr.com, or watch the artist completing his works in short time-lapse videos on his Facebook page, www.facebook.com/brad.slope.

To buy works, see Exhibitions Gallery of Fine Art, 20 Brandon Street, Wellington, or 19A Osborne St, Newmarket, Auckland.

WINTER 2017 / JuNO 19

WINTER 17

ISSUE THIRTEEN

FINANCIAL LIFE CYCLE

Financial planning is not a one-time event.

It is a dynamic process that changes throughout your lifetime.

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Life Cycle The stage people have reached in their life, from single at home through young parents to solitary retired. www.financial-dictionary.thefreedictionary.com/life+cycle

WINTER 2017 / JuNO 21

PE R S ONAL FINANC E

Invest For Your Age In association with Kiwibank In the world of investing, one size doesn’t fit all. Brenda Ward talks to financial advisers Martin Hawes and Amy Wilkes, financial educator Lisa Dudson, and Kiwibank’s Anthony Huggins about smart money strategies for each stage of your life.

INVESTING IS A LIFELONG PROCESS. Are you

taking the right financial steps for your stage of life?

From the child given his first pocket money to the globetrotting retiree spending her nest-egg, there are sensible financial steps you need to take for each age and stage of your life.

Each person brings their own lifestyle, earnings and money personality to their investment. However there are two broad trends, accumulation and decumulation.

That is, you spend half of your life growing your money and buying assets, and then almost as long in retirement, spending those savings.

Martin Hawes Financial Adviser and Author Martin Hawes is the chairman of the Summer KiwiSaver Investment Committee. He is also an Authorised Financial Adviser throughout New Zealand.

Amy Wilkes, AFA and Director of Wealth Works Wilkes is the founder of this award-winning financial planning firm. She has extensive experience within the financial services industry as an Authorised Financial Adviser.

Investment’s not just about retirement. It’s about having the financial freedom to live the life you want. So, the earlier you start, the better off you’ll be later in life, and the earlier you’ll reach financial freedom.

As a general rule, financial advisers suggest taking on more risk – ‘growth’ assets – early in life, with that level of risk declining by middle age and drastically reduced when you’re no longer working.

It doesn’t matter how little you have to spare; compound interest will help your money magically grow. As American former broker and adviser Tim Maverick says: “Start investing yesterday. Today is already too late.”

Lisa Dudson, Financial educator Investor, author, entrepreneur and seminar speaker, Dudson is recognised as one of New Zealand’s leading businesspeople and educators in the property and financial sector.

Anthony Huggins Kiwibank Wealth Adviser and AFA Huggins has spent almost 20 years in banking, with 17 years in the adviser industry. He enjoys helping people invest to achieve their financial and lifestyle goals.

This article is intended as general information only. It does not take into account your financial situation and goals and is not personal advice. For advice about your particular circumstances please see your financial adviser.

Kiwibank was created to help Kiwis achieve financial independence. No matter where you are on the investment journey, we have products, services and expertise to help.

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The Beginners: 0-18 POCKET MONEY Kids should get into the habit of earning and managing their own money, say our advisers. At 11, financial adviser Amy Wilkes had a monthly allowance, for clothes as well as treats. She suggests linking pocket money to chores. “If they unload the dishwasher, that might be a dollar; or to do the vacuuming, five dollars.”

Financial educator and RFA Lisa Dudson agrees.

“I think money should be tied to work because that’s how the world operates.”

TALK ABOUT MONEY From 14-18, parents should involve children in family financial decisions. Some clients take children to meetings with their financial adviser. “Giving children an awareness of money is very powerful,” says Wilkes. Adds Dudson: “Half the problem with money is that everyone is frightened of discussions about it. You don’t need to sit down and tell your kids what your wealth is, but you should be having conversations about money.”

KIWISAVER KIDS At their first part-time job, consider enrolling children in KiwiSaver, says financial adviser Martin Hawes. There’s no longer a kickstart grant, says Dudson, and they may have to wait to get a contribution from their employer. Bear in mind that they will be charged fees and aren’t eligible for member tax credits until they’re 18. Suggest relatives put money into the kids’ KiwiSaver account, instead of giving them cash, says Wilkes.

EDUCATION IN SCHOOLS The consequences of poor choices are much higher than they were a generation ago, and we can’t afford to leave financial education to chance, says Terry Shubkin, chief executive of Young Enterprise Trust. “Research shows that financial habits are formed at a young age.” A study by Cambridge University and the UK Money Advice Service shows that adult money habits are set by the age of seven.

She says financial education should be taught at all levels in schools, with good reinforcement at home, and regular conversations about managing money.

Kiwibank’s Anthony Huggins says, “Banqer is a great tool for starting conversations about money at home.

“Banqer is an online education programme that’s boosting the financial capability of New Zealand kids. The interactive virtual classroom economy is designed to help kids in years 4-8 practice their money management skills.”

For more info visit banqer.co

Kiwibank was created to help Kiwis achieve financial independence. No matter where you are on the investment journey, we have products, services and expertise to help.

PHOTOGRAPHER: Sarah Horn

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START SAVING “Get children into a lifetime habit of saving. This way they can reap the benefits of compound interest,” says Anthony Huggins from Kiwibank.

When they get their first job, suggest they put 10 per cent of it away into a long-term savings scheme. This is a good time to explain borrowing and compound interest.

He also suggests “to talk about money as you use it – both the good and the bad stuff, and guide them through a budget. Playing money games makes money feel fun.”

REWARD RESTRAINT Financial author Martin Hawes often quotes the Stanford ‘marshmallow experiment’. It found that kids with the willpower to resist eating a marshmallow now when they were promised two later did better throughout life – at school, financially, and in Body Mass Index (BMI). Offer rewards for savings and encourage children to delay gratification.

CASE STUDY: Jack Prenter (13) Unusually for a 13-year-old, Jack Prenter has a clear vision of his future.

The Year 9 Lindisfarne College student is planning on going to an American university on a tennis scholarship. He also wants to buy a car, travel, and play tennis professionally. Later, he’d like to have a family, be able go on holidays with them, and send his children “perhaps” to private schools, and “definitely” to university.

engaged in plenty of conversations about money with the young businessman, and has suggested many creative ways of earning cash.

Along with his brother and sister, Prenter tried his hand at raising bobby calves for sale on the family’s lifestyle block in Havelock North. Although the profits were considerable, he discovered raising calves wasn’t easy money.

He knows good things come at a price, but this doesn’t faze him. At the age of just five, this entrepreneurial kid bought NZ$20 worth of newspapers and sold them around his neighbourhood, doubling the price to account for delivery costs.

And as a teen he already has some strategies in place to generate wealth and secure his financial future.

“We had to work for it, getting up early in the morning to feed them, moving them around to where the grass was.”

“In primary school, everyone had this flash-as gear. I wanted to know how to get that, so I went onto Google and looked up ‘Easy ways for kids to make money’.”

Prenter shows particular interest in the stock market and is keen to start investing in shares.

Prenter doesn’t get a weekly allowance, so any money he’s had, he’s worked hard to earn.

“Mum and Dad taught me pretty quickly that I wouldn’t get anything for doing nothing. So I had to work hard to get paid.”

He’s already saved a significant amount of cash, and he’s always on the look-out for new ways to earn money.

“Last night, I was looking on TradeMe for part-time jobs at KFC. Definitely, when I’m 14, I’m going to start babysitting. And give tennis lessons.”

His dad Dan has played a major role in the student’s profitable ventures. Dan has

Dan has also suggested Prenter buy a tennis racket re-stringer and make a small business out of re-stringing rackets, supplementing his income from giving tennis lessons.

“Dad has said that if I put $5,000 into the share market, in a few years it could be worth $20,000. I want to learn how you can turn $5,000 into $20,000.”

Although Prenter, like any kid, enjoys spending money on new trends, he’s also very clued-up on the dangers of debt.

“Don’t borrow heaps and heaps of money unless you can pay it off, [and] have a plan for how you are going to pay it off. Maybe only borrow a little amount that you can manage and can afford to pay back.”

With his entrepreneurial attitude and grasp of the basic principles of money management, Prenter is well set-up for a sound financial future.

– Jacqueline Taylor

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The Explorers: 18-35 KIWISAVER

FIRST HOME

Work hard to build your KiwiSaver account to help you get into your first home, says the experts.

Dudson suggests hitting it hard, with 8 per cent at that age, which gives you a good basis of savings for your first home. If young people are both paying into their KiwiSaver account balance for retirement and saving for a home at the same time, it’s likely to take them up to five years longer to get into the property market, says Wilkes. After you buy a home, it can take a while to build your KiwiSaver account balance back up again. Make sure you are at least putting in enough to get the annual tax credit, says Dudson.

At some point in their lives, everyone is going to need a roof over their head. Start saving and buy a house as soon as you can afford it, say the experts. If you can’t afford to buy in your city of choice, Wilkes and Dudson say they see young people choosing to rent in big cities, at the same time buying a smaller investment property in another town. Wilkes suggests you calculate your living expenses, so you know what you can afford.

Kiwibank’s Huggins suggests that if you’re the type of person who prefers not to put all their savings into their mortgage you might like to consider an offset mortgage – where you offset the balance of your savings and everyday accounts against your home loan – and only pay interest on the difference.

STUDENT DEBT Many students wonder, should be I be paying off my student loan as soon as I can?

Well no, it’s interest-free, so probably not, says financial adviser and author Martin Hawes, unless they plan to travel overseas, when they’ll have to pay interest. They could even pay off the minimum and put the rest into a savings account to earn interest.

Automatic repayments are 12 per cent of everything you make over NZ$19,084.

RELATIONSHIPS & BABIES Not all relationships last, which is why property relationship agreements (pre-nups) are common now to protect each partner’s existing assets. “It’s about understanding who’s bringing what to the table,” says Wilkes. If there’s no pre-nup, after three years everything could be divided equally in case of a break-up.

Staying home with children is an emotional decision … but also a financial one, says Wilkes. Ask yourself how long one parent will be out of work, and calculate how much you spend each week, so there are no surprises when the baby arrives. Save for that shortfall. Each parent should make a will, saying who will care for the child if you both die.

Kiwibank was created to help Kiwis achieve financial independence. No matter where you are on the investment journey, we have products, services and expertise to help.

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EMERGENCY FUND

What if you lose your phone?

Crash the car? Or lose your job? Our experts recommend setting up an emergency fund or rainy day fund before you invest. Dudson suggests setting aside three to six months of your expenses. “It’s about making your life easy.”

INSURANCES Buy health insurance early, says Dudson.

“It can be hard to get insurance once you’ve had an issue. As soon as you start a job, or a family, buy income protection insurance.

You’d insure a car worth that much, so why not insure your career and earning capacity, which is much more valuable over your lifetime?”

Kiwibank’s Huggins says, “Being young doesn’t make you invincible.

Accidents, illness and redundancy can befall people of any age, and supporting yourself if you can’t work isn’t easy.”

Huggins suggests you consider life insurance when you have a family or are dependent on your income. If you die or suddenly can’t work due to injury, illness or redundancy, life insurance can help cover your costs or provide an income for a period of time.

CASE STUDY: Sam Stutchbury, 26 Sam Stuchbury admits he was ‘a cliché scarfie’ in his student flat in Dunedin.

“We were buying cheap food at the supermarket, and used any spare money going out drinking.”

He’s been in KiwiSaver for three years, has some small shareholdings in New Zealand companies through his bank, holds some equities in other businesses, and has a savings account.

Stuchbury says he doesn’t regret those early, broke years. “They were the best memories I have, but money in those days was just week to week.”

“I use an online bank account for ongoing savings – that’s often the holiday and fun fund, and my emergency fund. I have an automatic payment that goes into that account. It’s a bit of mission to log in, so I’m not going to be doing it standing in a shop, to buy something I’ve just seen.”

However, the hobby he shared with flatmates Alex McManus and Jono de Alwis has changed his life. They turned a few marketing projects into a successful business, and now Stuchbury runs an content and social media agency, Motion Sickness Studio, based in Auckland.

There the friends readily found big clients, such as Jim Beam, Maserati and Canadian Club. “Things started to go crazy from there.

“We were really lucky that when we started for the business, we didn’t borrow any money – we were cash-flow-positive and ran a very lean ship. We drew very little, a few hundred dollars a week from it.

It’s a mentality we’ve stuck with.”

Like many of his generation, he has a student loan, of $45,000, but now gives himself a “proper salary”. Much of the business profits are reinvested, some of it in other businesses, and Stuchbury talks of the future, of giving the business longevity and diversity.

He and partner Hilary live in a rented villa in Mt Eden, but he’s on the lookout to buy a commercial/residential mixed-used property to renovate.

He suggests that others his age get serious about saving. “One thing I’ve found useful as part of my weekly pay is to have money automatically going into savings, before you see it. I don’t miss it.

“Any amount of money that you can put aside – doesn’t matter how small it is – gives you security. If you’re in your twenties, that money can quickly accumulate.

“You don’t want to wake up and realise that you’re thirty years old and you don’t have any savings. I’ve noticed that weeks and months go so quickly. Don’t be shortsighted. It’s better to think about having a financial backup.”

– Brenda Ward

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The Family Years: 35-55 HIT THE MORTGAGE It’s a matter of personal preference how you do it, but no one wants to be retiring at 65 with a mortgage.

Hawes recommends paying off your mortgage as early as you can by increasing payments or paying lump sums if you have a windfall.

DIVERSIFY YOUR INVESTMENTS Wilkes suggests you continue investing over this period of your working life. “If you put everything into the mortgage and only then start investing for retirement, it’s going to be very hard.” Look at a mix of investments, to spread your risk. They could include a rental property, an investment fund, shares, fixed interest, bonds and KiwiSaver. You can still invest in growth assets, but that depends on your comfort level with risk, says Dudson.

Kiwibank’s Huggins says just paying a small amount more than the required payment can take years off your mortgage. Beware the ‘bigger house syndrome’ and don’t keep upgrading to more expensive homes, says Hawes.

Dudson notes that if you’re repaying a 7 per cent mortgage with your after-tax money, you’d have to earn 10 per cent before tax on an investment to be better off.

EDUCATION FUND Whether your child wants to go to university or not, Wilkes suggests you may want to start an education fund, to help them at that expensive stage of their lives. Some people put their funds into shares for the children to take over when they’re older.

Kiwibank’s Huggins says that putting aside a small amount each week from birth can make a big difference to the final balance.

KIDS AT HOME When your child gets their first real job, ask them to start paying board, says Dudson. She suggests a sum of NZ$50 to NZ$150 per week. “If you don’t want to charge them, charge them anyway, but save that money for their first home deposit. It’s not about the money; it’s about the habit,” she says. If young people don’t pay board, chances are, they will just spend that money.

Kiwibank was created to help Kiwis achieve financial independence. No matter where you are on the investment journey, we have products, services and expertise to help.

PHOTOGRAPHER: Wendy Fenwick

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CASE STUDY: Nicola Webster, 43 UPDATE YOUR WILL AND INSURANCES All the experts suggest you review your insurances and your will regularly. When you no longer have kids at home or a mortgage, your needs are different from when you first took out cover.

Nicola Webster just might be a superwoman.

She’s raising four children, including a set of twins, and when she’s not burning the midnight oil in the couple’s business, Coast, you’ll find her at their lifestyle block in Coatesville, north of Auckland, knocking the garden into shape or tending to the animals.

Webster sits back on one of Coast’s outdoor bean bags at their Ponsonby store, and laughs as she confesses her life is “a major juggle” – but she loves it.

Raised on a farm in the South Island, Webster says she soon learnt the value of money, doing chores for her parents and then training and selling ponies to pay for her university studies in commerce.

GET RETIREMENT-READY Once your mortgage is paid off, your needs change, say the experts. Throw any spare money into your KiwiSaver account, invest, and cut spending, if you can. “If you wait until you’re 55 to start saving, you’re never going to make it, or it’s going to be really, really hard,” says Wilkes. “The earlier you start, the easier it can be.” Hawes says it’s not investment return that will count in the long run; it’s how much you put aside each week. To see how you're tracking towards retirement visit kiwiwealth.co.nz and try Future You, an online tool that helps you see the potential gap in your retirement income, and shows you how by making changes now, you could make a big difference in the future.

Kiwibank Limited is a distributor of the Kiwi Wealth KiwiSaver Scheme (Scheme). Kiwibank is not an issuer of the Scheme.

Kiwi Wealth Limited is the Issuer and Manager of the Scheme and is a related company of Kiwibank Limited. The Product Disclosure Statement for the Scheme is available at kiwiwealth.co.nz

“We had an environment where there was a lot of hard work. And that’s what I’ve enjoyed about the lifestyle block [in Coatesville], being outside on the mower, spraying, getting back to riding.”

Webster met her husband Alex on her OE in the Caymans, later moving with him to London and Hong Kong, where she worked for an investment bank. On their return, they got married, bought a house, started the business, and had twins – all in one year.

“If we could survive that, we could survive most things!”

In Hong Kong, they’d been immersed in the hype of the share markets of the early 2000s, and became investors. “In Hong Kong, everyone invested in stocks and shares. At lunchtime, all the secretaries would run out to buy their shares.”

But back in New Zealand, she found that dinner-party conversations were all about

property investing. However, they decided to put building the Coast brand at the top of their list.

They stayed in their small home, where all four children were born, but eventually couldn’t fit any longer so moved into a larger, rented villa while they let out their own house. They moved to Coatesville four years ago.

They’ve invested primarily in their business, which has been “pretty intense” at times, says Webster. She’s also worked right through, despite the house filling with children. “There was a lot of working at night and from home.

“We live within a lifestyle that we’re happy with, that’s not extravagant. We like to put a focus on experiences with our family and practise considered consumerism – which is part of the Coast ethos of buying wellmade products that last.”

Starting a business was quite high-risk, Webster says, “but we’ve been focused and continued to invest in the brand while staying true to our original vision of building a luxury lifestyle brand.”

Retirement feels a long way away now, but Webster expects the couple will sell the business one day. “I think I’ll be working for a long time. I enjoy what I do. If you have your own business, you’ve got to be passionate about it.”

She says she loves giving their children a chance to enjoy the country lifestyle, find out where their food comes from, and experience the outdoors. “Wealth is about more than driving a smart car, it’s your chosen lifestyle – the country, friends, and family, and developing passions and interests. Hopefully, that’s something that the kids understand and cherish.”

– Brenda Ward

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The Enjoyment Years: 55+ EARLY RETIREMENT?

TAKE A RETIREMENT HOLIDAY

Only retire early if you’re 100 per cent certain you’ll have enough money to live on comfortably for your lifetime, says Martin Hawes. Do the sums. “You don’t want to run out of money at 95,” he says. An American Demographics poll showed that 41 per cent of retirees found retirement a difficult adjustment. Some people find it hard to stop work, feel undervalued when they don’t work, or just love working.

Others are forced to work, to make ends meet. The experts say that part-time work will help your savings last.

Do you have a hobby you can monetise? Or a room you could rent to a student? If you don’t work, try volunteering to give you a sense of purpose.

Investopedia.com says you wouldn’t buy a car without a test drive, so why not do a retirement trial run? Some people stop work too early, without enough resources. So, test your figures and your preconceptions. Take a month or more off work and try living in that town you always wanted to retire to, on the money you think you’ll have to live on. Do what you plan to do in retirement. Will you get bored? Will you need to save more?

LIVING OFF YOUR INVESTMENTS People are living longer, so the Commission for Financial Capability says you need to be prepared to support yourself into your 90s, at least. Many people will live on their investments for almost as many years as they’ve worked. It’s usual to invest your savings and draw down some of your capital each year.

Also, see Martin Hawes’ The Three Stages of Retirement, on page 44. Conservative levels of risk are recommended now, because you’ll have no time to recover if there’s a downturn.

YOUR HOME HELP! If you’ve never seen a financial adviser before, now’s the time.

They may find a better return for any investments, or suggest some ideas to help you live within your income. Top-quality investment advice is crucial at this stage of your life and an investment in your future.

You may be able to afford to stay in your home in retirement, but moving into a house with fewer bedrooms and less maintenance may be a good idea. It could free up funds to help your retirement savings. But Hawes warns that new small houses in good areas could be just as expensive as your existing home. See also The Downsize Solution on page 50. There are also reverse annuity mortgages that allow you to withdraw money gradually from your home’s value.

Making the right choices for your investment journey can be daunting. A Kiwibank Wealth Adviser can help get you on the right path, taking the time to get know your goals and your approach to risk and return before making a personalised recommendation. Call free on 0800 529 325 to find out more or to book an appointment.

A disclosure statement required under the Financial Advisers Act 2008 is available, free of charge, from your Kiwibank Wealth Adviser or on request by calling 0800 529 325.

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HEALTH Doctor visits and prescription costs are big expenses for retirees. Wilkes says if you’ve been paying into a health insurance plan, now comes the pay-back.

Try to keep up your policy, although it will be more expensive now.

NATIONAL SUPER National superannuation can be drawn from 65 now, but it’s proposed to rise to 67 for those born after January 1, 1974. It’s currently a fortnightly payment of NZ$900.20 before tax for those living alone; and NZ$681.60 before tax for each partner of a couple. This may be affected by other income you receive. If one partner receives a pension before the other, try to save that pension. Kiwibank’s Huggins suggests that post 65 years old, do not draw out all of your KiwiSaver account balance - leave it in there and continue to earn returns and draw an income.

CASE STUDY: Lindsey Dawson Retirement was a huge life change to make, says author Lindsey Dawson, who founded and edited magazines More and Next. It brought a different pace of life, and a health challenge, but it also brought the joys of being a grandparent and the time to do what she loves.

“People don’t realise that when you retire, the phone stops ringing, the messages slow down, and invitations to office parties stop coming. Until that happens, you don’t realise how much of your social life and self-worth is tied to your job.”

Men often find retirement tougher than women, she says, because they don’t always have the same social networks as women.

Dawson has kept working part-time, writing books, speaking, editing, and mentoring other writers. “It’s minor in the income stakes, but high in job satisfaction,” she says with a smile.

Her health suddenly became an issue last year when she was diagnosed with breast cancer. “You go along thinking things are going to be fine – and then suddenly they’re not.”

WILLS AND LEGACIES Are you going to leave a legacy or spend all your money? The experts suggest you decide now and let the family know what you plan to do, so there are no surprises. Dudson says many people are deciding to just leave their children the house, and spend the rest. Hawes jokes many people want their last cheque, to the funeral home, to bounce.

Dawson says she and husband Pete have used a portfolio manager for many years.

“She’s managed to keep us ahead of the eight-ball, and we have a moderate income – enough to do what we want to do.”

They were also lucky to be able to buy their own home early, she says.

“In our day, people married young and bought homes young,” she says. “We were fortunate in that if you started young, despite a few downturns, with a bit of luck you made a bit of money every time you moved on. No one talked about investment properties. You’d change jobs, buy new places and gain equity at that same time.”

However, there were difficult periods, particularly in the mid-1980s, when mortgage interest rates soared to 18–20 per cent.

She says many people find it hard to know where to put their savings, and the 1987 crash discouraged her generation from investing in the share market.

“But the share market is a really good place to put your money, if you do your homework or your portfolio manager She says she was grateful she’d kept does the investing for you. If you spread up her health insurance, even though it the money around, which we do, if one had become quite expensive. It meant sector goes down, your investment can be treatment was faster, she had the surgeon buoyed up by these other sectors.” and the oncologist of her choice, and And there are benefits to being 71, she appointments were made quickly. Now says. “You’re older, wiser, smarter, less that her lumpectomy and chemotherapy easy to sell to, and not suckered into are behind her, doctors tell her she has a empty consumerism.” very good prognosis.

– Brenda Ward

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PE R S ONAL FINANC E

Calculate Your Risk The higher the risk involved in an investment, the higher your payoff should be, but risk is also a very personal thing, says Caroline Ritchie. Your needs and the level of risk in an investment may both change as time goes by.

WORDS BY Caroline Ritchie Owner of Investment Stuff WINTER 2017 / JuNO 33

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INVESTMENT RISK is often defined as ‘the probability that the actual return is going to be different from the expected return.’

The higher the risk, the greater the chances that the investment might surprise you, by either increasing or decreasing in value more than you expected.

The lower the risk, the better the odds that the investment will perform as promised. The more uncertain an investment outcome, the higher its risk level.

Investors demand to be compensated for putting their money into higher-risk areas, so as the level of risk increases, the bigger the potential pay-off needs to be.

High versus low risk In New Zealand, placing cash into a term deposit with one of our major trading banks is a very stable option.

Barring some enormous global catastrophe, the bank will repay you your initial deposit, plus interest, on the exact date it says it will.

The risk level of this kind of investment is low, because the likelihood that the bank will follow through on its promise is extremely close to 100 per cent.

On the other hand, say you were tempted to buy a single, small gold-mining stock. Imagine the company hasn’t actually found any gold yet, and is operating in the war-torn Third World.

The chances of you getting your money back – or making any money at all – are highly volatile. You may lose all you put in, but you could potentially make 500 per cent or more.

Risk is not static. It’s important to remember that the level of risk in an investment may change as time goes by, either up or down. Your needs, as you move through your life as an investor, will also change.

A central part of successful financial planning is to match up the appropriate risks, at the right times, for each client.

Risk is a personal thing

downs very well and can also withstand higher risk in their financial lives.

If you’re not so open to experience, the idea of hiking up Mt Everest without oxygen or living in a yurt in Mongolia for three months might be horrifying. You might also find that the thought of losing even one dollar too much to take.

So how you feel about risk is a direct result of your personality, which is pretty much set in stone. This isn’t a surprise, but it can be overlooked. Some advisers are tempted to assume everyone of a certain age and stage should have the same risk level.

The risk paradox For most investors, ‘risk’ is going to mean ‘the chance of loss’. And your tolerance to risk will be determined by how you react to these losses.

A typical question advisers ask before placing clients into a portfolio is: “How would you feel if your investment dropped by 10, 20, 30 per cent in one year?” The difficulty for any new investor is that you can never know how you will feel until it actually happens to you, by which time it could be too late.

Even then, your guess is going to be problematic. For example, if your portfolio dropped 20 per cent, but the market as a whole lost 40 per cent, a drop of 20 per cent might look like quite a good result. If the portfolio loses 10 per cent, while the market rises 25 per cent, then that doesn’t look so hot.

Safest and riskiest investments What’s in a fund?

In a typical portfolio, or fund, you will find four major classes of asset. In order from the lowest to the highest risk, they are: cash, fixed interest, listed property and shares.

If you put each of these four assets on a long-term chart over say, 40 years, you will find that shares have the highest total return, followed by property, then fixed interest, then cash.

One of the most important and often overlooked parts of risk is your personality. Psychological research shows we’re born with certain personality traits. The ‘big five’ are our degree of openness to experience, conscientiousness, extraversion, agreeableness, and neuroticism. These don’t change as we age, and influence all aspects of our lives.

It will also turn out that shares have the highest volatility, or swings in value, with cash the lowest volatility. Other special classes, such as derivatives and commodities, also exist in some funds and are up at the highest risk level, along with shares.

‘Openness to experience’ determines how you feel about the level of risk in investments. Individuals who are highly open to experience tend to be the ones who bungy-jump off tall buildings. They also get rich – and go broke – multiple times. They tolerate life’s ups and

An investment manager will put portfolios together with differing proportions of each asset, according to the risk profile of each client. An all-share portfolio is typically called ‘Aggressive’ or ‘Growth’ on the risk scale. All cash and fixed interest would be ‘Defensive.’

34 JuNO / WINTER 2017

Common labels

PE R S ONAL FINANC E

If you’re not open to risk, the idea of hiking up Mt Everest without oxygen or living in a yurt in Mongolia might be horrifying. You might also find the thought of losing even one dollar too much.

WINTER 2017 / JuNO 35

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A portfolio with 50 per cent shares and 20 per cent property, 20 per cent bonds, and 10 per cent cash might be called ‘Moderate’.

This leaves you less open to surprises, such as big crashes, just when you start to need comfort and security.

Different providers have their own labels, but the five or six levels of risk they offer all stem from this idea of blending the asset classes.

How to live with volatility

Why your portfolio should change as you age Even though your inner risk-set might not alter, it pays to shift it around a bit as much as you can, to take advantage of time.

The longer your investment horizon is, the higher risk you can take, at least at the start. This is because over long timeframes, riskier investments, such as shares, for instance, will perform better overall. But in short timeframes of less than 10 years, shares can also substantially move against you.

When you’re young, with 40 years to invest, time will buffer these big fluctuations. As you move closer to retirement, the recommended course of action is to gradually de-risk your savings by trimming the shares and increasing the cash and term deposits.

The biggest challenge any investor will face is watching their savings temporarily decrease in value.

Shares are the most volatile, and can cause investors the most angst. If you’re new to this, you’ll be tempted to look at your portfolio every five minutes. It might even keep you awake at night.

It may be difficult not to feel anxious when you see paper losses. If you are in real distress, you are probably in a risk category that’s too high. However, for most, here are two tips to keep you calm when things don’t go your way: 1) Keep the long goal in mind. The reason you are invested is for retirement. You aren’t selling up now or, in fact, for years.

2) Stop looking! For the same reason as number 1), staring at your shares makes no difference to the outcome. Get off the computer and do something else. Look once a month, if you have to.

Common rules of thumb for age and stage are: Age 20 to 40: Growth/Aggressive – 80 per cent shares, 20 per cent cash and fixed interest Age 40 to 50: Balanced – 60 per cent shares, 40 per cent cash and fixed interest Age 50 to 60: Moderate – 40 per cent shares, 60 per cent cash and fixed interest Age 60 to 70: Conservative – 30 per cent shares, 70 per cent cash and fixed interest Age 70 to 75: Defensive – 20 per cent shares, 80 per cent cash and fixed interest Age 75+: All cash, term deposit and fixed interest.

The longer your investment horizon is, the higher risk you can take, at least at the start. This is because over long timeframes, riskier investments, such as shares, for instance, will perform better overall.

36 JuNO / WINTER 2017

It’s all about you!

Don’t forget that general rules are useful, but you can’t escape your personality! Your goals as an investor also depend on many other things: your health, life expectancy, whether you wish to leave a legacy, and what income you need in retirement.

Some investors can only tolerate term deposits for their whole lives, while others are happy with bundles of shares until they draw their last breath. There’s nothing wrong with either scenario.

The most important point is that there is no one best risk category for everyone at any given moment – it really just depends on you.

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WINTER 2017 / JuNO 37

YO U R INV E STIN G

Are You in the Right Fund?

The KiwiSaver fund you’re in now might not be the best one for your age or financial situation. Binu Paul looks at how your retirement investments should change over your lifetime.

SINCE KIWISAVER LAUNCHED 10 years ago, 2.7 million New Zealanders have signed up as members. The initiative provides Kiwis with a simple means to save for the time they spend in retirement – those years when you don’t want to work as hard (or at all), but still afford the things you want and be able to spend your time doing whatever takes your fancy.

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WORDS BY Binu Paul SavvyKiwi

38 JuNO / WINTER 2017

Given everyone’s financial situation and capability is different, your experience with KiwiSaver will be unique. It will depend on how much commitment you put into making decisions such as: • how much you contribute • what type of KiwiSaver fund you choose, and • which provider you invest with.

PE R S ONAL FINANC E

After all, you can take your pick from more than 220 KiwiSaver funds being offered by the 25 scheme providers. They’re all different.

If you didn’t make a choice, you’re not alone. Around 550,000 Kiwis have savings invested in one of nine so-called ‘default’ funds, chosen at random. If you don’t like how your fund is going, you’re able to transfer to another scheme at any time.

Most of us will be able to withdraw our KiwiSaver savings when we get to the age of NZ Super eligibility (currently 65). Under today’s rules, you’ll be able to withdraw your savings balance as one single lump sum.

The obvious question here is – how do you ensure that the lump sum is the biggest it can be by the time you get to withdraw it? As much as everyone’s situation is different, there are some universal truths that you should be aware of, when it comes to savings and investments.

Time The sooner you start contributing to your KiwiSaver account, the larger your savings balance will be at retirement. All other things being equal, if you started contributing when you were 25 you’d have about $245,000* more to retire with than if you waited till 35.

Commitment The more you contribute, the greater your savings balance will be. Again, all other things being equal, a 30-year old will have about $285,000* more to retire with if they contribute 8 per cent of their salary rather than the minimum 3 per cent.

Fees The fees you pay are a significant drag on your savings balance. Here’s why. In a KiwiSaver fund, your money is invested in a variety of financial assets, for example shares. The value of these assets moves up and down over time. Because the fund owns those assets, the value of the fund (and hence your balance) follows in step.

In some years, your fund may make losses, and in others make gains. Fees are paid out of your account regardless of whether your balance is going up or down.

As long as you’re invested in the fund, the only constant is the fees you pay.

The amount of fees you pay over the years accumulates to a pretty large amount.

A caveat here – this doesn’t mean you should look for the cheapest fund. Look for funds that are value for money. Remember, if you ask for cheap you might

end up getting exactly that. It is very important to understand the quality of your managers, their processes, philosophy, and the assets they have invested in.

Points to consider Your wealth in retirement will depend not only on your KiwiSaver balance but all the other assets you build up over your working years and all the debts you have (hopefully none by this stage). So, when it comes to making decisions about KiwiSaver, you should take the rest of your financial affairs into account as well.

This is why choosing to transfer your KiwiSaver to another provider simply because that provider suggested you sign a form agreeing to it might not work out that well for you. You owe it to yourself to be smarter than that.

While your personal circumstances are a critical factor when making KiwiSaver decisions, some general observations can be made for certain stages in your life: • It’s never about how old or young you are. What is important to consider is how far away you are from needing to withdraw the money (whether it be at retirement at 65, or for a first-home purchase at 25).

• How much you’re able to contribute should depend on how much you can afford and what other investment options you have, as well as your overall financial status. No size fits all.

• A change from a 3 per cent contribution to an 8 per cent contribution may make a substantial difference to your retirement balance. But remember, money that is invested in KiwiSaver may not be accessible till you get to retirement age.

• There is an associated ‘opportunity cost’ with KiwiSaver, in that you might be better off putting that additional contribution into another investment option.

• KiwiSaver funds invest in a range of assets, which may broadly be categorised into ‘income’ type assets (such as term deposits and bonds) and ‘growth’ type assets (such as shares of companies). Typically, funds with a higher proportion of growth assets charge higher fees.

• Starting to save sooner adds significantly to your final outcome, but remember that the fees and costs charged to you also accumulate. The longer you are invested, the greater the dollar amount of fees you pay over time. * On a static annual income of $60,000, contributing 3 per cent and with a current balance of $15,000 in a fund that earns 5 per cent per annum.

WINTER 2017 / JuNO 39

YO U R INV E STIN G

KIWISAVER AND YOUR LIFE STAGE 0-18 Years

18-35 Years

KiwiSaver has some great features. It’s not limited just to the working population. Parents can freely sign up their kids for a KiwiSaver account. Just $20 a week deposited in their account could amount to about $30,000 by the time they turn 18, in a fund that earns 5 per cent a year.

Young people can then use another feature of KiwiSaver that allows them to withdraw their balance to buy their first home.

You still have the benefit of time. At the age of 20, you have another 45 years of saving before you can access your money (assuming you don’t need to withdraw it earlier).

From 18, if they’re in paid employment, they’ll be eligible for the government rebate of up to $521 every year, plus have their employer contribute at least 3 per cent of their earnings.

Young people who have no intention of withdrawing their balance to buy a first home have many years until retirement to accumulate funds. They can afford to be in riskier funds whose performance may vary widely from year to year, but with the potential to produce higher returns over the long term. Most Growth or Aggressive funds fit into this category.

There are two forces at play in this stage. One, this is the time in life when you start accumulating assets, such as a car or a home, and establishing your life. Second, your sources of income are fewer and the amount you earn is typically lower than that of more mature workers because you’ve only just started to establish your career.

Typically, this is when you first start feeling the taste of debt, as your asset accumulation is most likely made possible with borrowed money. With a lower income stream, servicing the debt can be challenging.

Under the circumstances, it may be painful to put aside money into your KiwiSaver account as well. But this largely depends on how much you earn and your lifestyle. If things get tight, you can always use another feature of KiwiSaver that allows you to take a contribution ‘holiday’ for up to five years, after which you can resume your contributions.

But before you rush into taking a break from contributions, remember this: a 30-year-old could miss out on close to $100,000* as a result of taking a five-year contribution holiday. * On a static annual income of $60,000, contributing 3 per cent and with a current balance of $15,000 in a fund that earns 5 per cent per annum.

40 JuNO / WINTER 2017

PE R S ONAL FINANC E

35-55 Years

55+ Years

This stage in life is defined by the years you’re likely to be earning the most income.

As you get closer to retirement, you may continue to expand your asset accumulation, with a steady income that is likely to fall in the near future.

At these levels of income, you’re far better placed to pay down that debt you took on in previous years, plan towards funding your kids’ education, contribute bigger amounts into your KiwiSaver, expand your investment portfolio (into shares, rental property, and so on), and even invest in the services of a professional financial adviser to help manage your affairs.

Given you still have another 10–30 years until retirement, there’s still scope to be less conservative in your KiwiSaver fund choice. You can consider a range of Aggressive, Growth or Balanced funds. Your choice should depend on which end of the age range you are at and your own attitude to risk.

The assets that KiwiSaver funds typically invest into can broadly be split into ‘income’ type (such as term deposits and bonds), or ‘growth’ type (such as shares of companies). Income-type assets tend to provide more predictable returns, while growth-type assets tend to provide higher, yet less predictable, returns over time.

The choice comes down to how much uncertainty of returns you can take versus how much return you want to get.

Aggressive funds will have almost all their investments in growth assets. At the other end of the spectrum, Conservative funds will have most funds invested in income-type assets.

The more you are exposed to growth assets through your KiwiSaver fund, the greater the likelihood that your returns are less predictable. So, it may make sense to transition into more conservative funds. Most Conservative, Capital Stable and Moderate funds fit into this category.

Having said that, the above should not be used as a golden rule. Now you’re close to retirement age, it makes sense to start getting more conservative with your investment choices. But before you rush into switching into Conservative KiwiSaver funds, consider this – it’s highly likely that you’ll need to fund yourself for more than 30 years in retirement.

The eligibility age of 65 is simply an artificial goalpost and should not be confused with your ‘real’ investment timeframe. For instance, should you live to the age of 95, you must ensure that all your assets and potential income streams can help you pay your bills and fund your lifestyle for that long. Remember, if you’re not working, you’re largely dependent on the income your assets can generate.

This article is for education and informational purposes only, without any express or implied warranty of any kind, including fitness for any particular purpose. The information contained in or provided from or through this article is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.

Any views expressed are wholly personal and not a reflection of any of the entities associated with the author. It is general in nature and as such will not be specific to you or anyone else. Please consult with a qualified financial adviser before making financial decisions.

WINTER 2017 / JuNO 41

The Advantages of Financial Life-Planning

SUZE ORMAN, former financial adviser to Merrill Lynch, once gave some free and timely advice, although it’s something many may already know at heart: “If you're not staying on top of your money, you are putting your financial wellbeing at risk.”

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While that’s undoubtedly true, having a plan in place to provide for your future can not only improve the health of your savings account, but can also work wonders for your physical and mental wellbeing.

Financial life-planning is a way to look at various stages of your life and plan your money requirements around them. The trick is to look at as many variables as you can, to paint the most accurate picture of the future as possible.

That’s why PwC decided to invest in the quality of our financial modelling. The model we use today to help our clients was developed with the assistance a world-leading financial modeller – simply because the better the picture you can paint of the future, the more prepared you can be.

Three important answers With planning comes a great deal of power and opportunity. For some, they will find out that they need to increase their savings if they want to one day

WORDS BY Robbie Gimblett PwC

42 JuNO / WINTER 2017

Financial planning is vital not only for future wealth but also for your health and wellbeing, as Robbie Gimblett explains.

meet their goals; for others, they may realise they can retire sooner than they thought. Even finding out you’re tracking along as expected can be a huge relief.

You can’t understate the importance of financial lifeplanning, though there are still plenty of Kiwis who haven’t even glanced into the crystal ball – perhaps unsure of what they might find out. So, let’s look at some vital answers you might get from learning more about your financial future.

1. Can I afford to buy a new house?

There’s a lot of trepidation around New Zealand’s property market, particularly in Auckland, which was named the fifth least affordable city in the world in early 2017. While there are certainly issues of affordability, the market is not always as restrictive as some may imagine.

By looking at your finances, interest-rate trends, house prices, mortgage costs, debt, and other influencers, you can get a more solid understanding of whether you can realistically afford a new home in your current financial position, or if you’ll need to improve your situation to get there.

2. Do I have enough life insurance?

This is quite a specific question, but as an example I worked with a client who, when we looked at her

PE R S ONAL FINANC E

information, didn’t have a comfortable level of life insurance – it certainly wasn’t as complete as she’d hoped.

Should something have happened to her, it would have meant an immediate change in her family’s quality of life. Her husband and children would likely have had to move house and downsize straight away. Instead, she was able to correct her level of coverage before it caused serious problems.

3. What will my finances look like if I live to be 100?

In the past 50 years, New Zealand’s average life expectancy has increased from 71 to 81, according to the World Bank. Thanks to the amazing advantages in healthcare, better aged care and our increased ability to treat medical conditions through technology, the number of Kiwis batting a century will continue to grow.

That could be 20 or 30 years longer than you’ve financially planned for, and people will begin to wonder if they can maintain the quality of life they’re accustomed to decades after retirement.

That’s why financial life-modelling provides best- and worst-case scenarios, so you can gain some valuable insights – even over things that are completely unknowable, such as how long you’ll live.

What does your future hold?

A few surprises in life are a good thing, except when it comes to your finances. In my experience, not one single person who has taken a deep look at their future financial position has regretted it, and it’s very easy to get started.

It always surprises me how diligent people can be in managing the ageing process – whether it’s staying fit at the gym, eating healthier, or sticking to a rigorous, wrinkle-fighting beauty regime – but when it comes to money, they apply a fraction of the same effort.

Financial life-planning isn’t painful, but it is informative. Having that information and taking steps to understand how much money you’ll have and need at different ages and stages of life will determine your future health, wealth, and wellbeing.

How are you growing and protecting your wealth?

Whether you’re thinking about estate planning, retirement or planning for the next generation, we can help.

Visit our Private Business website: privatebusiness.pwc.co.nz Robbie Gimblett E: robbie.gimblett@nz.pwc.com T: +64 9 355 8036

© 2017 PricewaterhouseCoopers New Zealand. All rights reserved. PwC refers to the New Zealand member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

WINTER 2017 / JuNO 43

YO U R INV E STIN G

The Three Stages of Retirement

All Go, Slow Go, No Go...

You may be surprised to know that rather than falling, your expenses in retirement start high, drop, and then climb again, says Martin Hawes – which makes it harder to work out how much you really need.

WORDS BY Martin Hawes AFA, Financial Writer

44 JuNO / WINTER 2017

PE R S ONAL FINANC E

THERE’S A FINANCIAL PLANNING rule of thumb saying that in retirement you’re likely to spend 75 per cent of what you spent before retirement. It works on the basis that many of your before-retirement costs will be significantly lower (such as transport and clothing), and is meant to help you plan the income you need in retirement.

we do before retirement, but this takes no account of the ups and downs of retirement expenditure.

However, in my view, this 75 per cent rule is a blunt instrument that has little use. It takes no account of the different stages of retirement and the spending patterns within each stage. Yes, it may be true that across the whole period of retirement we spend 75 per cent of what

For most people, retirement now lasts for such a long time that it would be quite wrong to think of it as just one phase. In fact, it’s possible to divide retirement into three stages, each with its own planning challenges.

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One hundred years ago, life expectancy was about 50 years. This left little or no time for most people to have any sort of retirement, and certainly not the decades of golden years that we now expect.

WINTER 2017 / JuNO 45

For many, this stage might start in their midseventies, although no one rings a bell at the start – and I know many people who are active well beyond that age.

Those habits which were expensive in the ‘all go’ stage diminish, and expenditure falls accordingly.

From a financial point of view, this is perhaps the easiest stage of retirement. The demands on your cash reserves are lower, and by now you’ve had a bit of investment experience.

No go

In my experience, people often find that their expenditure actually rises when they retire.

All go The first stage of retirement could be called ‘all go’.

This is the time when people have just stopped work and use their new-found freedom to do many things they have longed to do for years. It is a time of activity, as most people in their sixties and seventies have the energy and the health to travel, play sports, socialise and do other things on their bucket list.

This is the most expensive part of retirement. In my experience, people often find that their expenditure actually rises when they retire: far from living costs falling to 75 per cent of what they had previously been, they’re actually greater. These people have time to spend money as they travel and enjoy their leisure.

Although the ‘all go’ stage is an exciting and active time, from a financial point of view it can be difficult.

You may be used to decades of a steady income (a cheque every second Thursday), while in retirement you have to somehow use the capital you have accumulated to generate a reliable income.

That’s never easy – tolerating the volatility of the markets is hard and, especially at this stage of life, you don’t want to make a major investment mistake.

Slow go The second stage of retirement is called ‘slow go’. This is a time when life begins to slow, and sport, travel, and socialising become more difficult.

46 JuNO / WINTER 2017

The third stage of retirement is often called (rather unkindly) ‘no go’.

Activity slows sharply, but from a financial point of view there is little let-up. Some people find that although they spend less money on activities, they spend more on support and care. This can make this stage an expensive time of life.

What to do You can see from these three stages that you will probably need more money at the start than you will in the middle stages of retirement. However, you could well need a good deal in the third stage as well.

You may have some additional income early on in retirement from part-time work. Lots of people now do some paid work in retirement; in fact, 40 per cent of people aged 65–70 are in some kind of paid work. This may be a good way to fund the things you want to do.

Alternatively, many people downsize their house to free up capital. Generally, this should be done in the ‘all go’ stage, when retirement is probably at its most expensive.

Be sure your new house is future-proof – as you get older, you’ll find a two-storey house, with its stairs, more and more difficult to manage. If you can, buy something early that you’ll be able to live in for the duration.

Retirement can be the best years of your life. With good management, it can be a long and satisfying phase – but you do need to think ahead and make a good plan.

Martin Hawes is the chairman of the Summer KiwiSaver Investment Committee. The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd. You can obtain the scheme’s product disclosure statement and further information about the scheme on its website, www.summer.co.nz. Martin is an Authorised Financial Adviser and disclosure statements are available from Martin Hawes on request and free of charge.

INVESTING RESPONSIBLY:

Can you Do Good and Do Well?

Do you want your investments to be ethical and avoid doing harm? If so, you’ll also want good returns. But can investments do good and do well?

Do unethical investments perform?

Let’s look first at how investments that are bad for our health and environment perform. For example, tobacco stocks have had surprisingly good returns – but this is not consistent across all ‘unethical’ sectors. Take this example: A US$232 million fund known as the ‘Vice Fund’ was set up in 2002 to focus on tobacco, alcohol, gaming and weapons companies. Its manager believed that these industries have high barriers to entry and tend to thrive regardless of how the economy performs.

The Vice Fund recently changed its name to the ‘Barrier Fund’ to improve its public image. It has, however, underperformed the S&P500 over one, three, five and 10 years. This result suggests that building a portfolio of ‘unethical stocks’ may not do so well.

Can you do good and do well?

Evidence shows you can both ‘do good’ by investing responsibly and ‘do well’ by outperforming the market.

A report by the Responsible Investment Association of Australasia shows Australian responsible funds (covering Australian equities, international equities and balanced funds) outperform conventional investments in 10 of out of 12 time periods.

Pathfinder Asset Management Limited is the issuer of units in the Pathfinder Global Water Fund.

This is confirmed by a large body of academic and industry studies that show responsible investment does as well as (or better) than the market, without taking on extra risk.

For example, the Morgan Stanley Institute for Sustainable Investing concluded that “investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments”.

So, there is a strong financial (as well as ethical) case for investing responsibly. This has helped responsible investment become a mainstream thought process for investors in offshore markets. Investing responsibly is now also moving into the mainstream for New Zealand investors.

At Pathfinder, we have successfully run our Global Water Fund for more than six years. We’ve combined several responsible investment strategies: • It is sustainably themed (water treatment, distribution, infrastructure and technology) • Revenues from a range of ‘unethical’ activities are excluded • Environmental, social and governance factors are part of the investment process.

The Fund’s average return is 12.2% per annum over the past five years (calculated to 28 April, 2017, after fees and before tax). For more information and a Product Disclosure Statement please visit our website www.path.co.nz or call 0800 PATHFINDER.

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50 JuNO / WINTER 2017

PE R S ONAL FINANC E

THE DOWNSIZE SOLUTION: Ways to release home equity An alarming number of Kiwis look likely to retire with a mortgage.

Amy Hamilton Chadwick analyses the problem and looks at some solutions to free equity from your home in retirement.

WORDS BY Amy Hamilton-Chadwick Freelance writer and registered FA

WINTER 2017 / JuNO 51

YO U R INV E STIN G

ARE YOU ON TRACK to have paid off your mortgage by the time you retire? An increasing number of Kiwis are facing the prospect of retiring with money still owing on their homes – and paying a mortgage when you don’t have an income can put a serious dent in your lifestyle.

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“It used to be that you’d pay off your house, then save for retirement,” says Lynda Moore, ‘The Money Mentalist’, an accountant who has also studied psychology. “Now, by the time you’ve paid off your house you’re potentially retired. We’re in a situation our parents never had to worry about.”

So what can you do to avoid this situation, in the years of work you have left?

Pay off your loan more quickly If you are staring down the barrel of a mortgaged retirement, ideally you need to pay the debt off faster.

That may mean putting more money into repayment, though a smart restructure can be surprisingly effective.

“When you have a few more years up your sleeve, start looking ahead – don’t bury your head in the sand.”

– Lorraine Wetzell

“When you have a few more years up your sleeve, start looking ahead – don’t bury your head in the sand,” says Lorraine Wetzell, Kiwibank mobile mortgage manager and Qualifying Financial Entities Adviser (QFEA).

“Run the numbers. Can you increase your regular repayments to fit the term remaining [if on a fixed term]? Our customers can repay up to 5 per cent extra a year on a fixed loan without penalty, or if you’re not able to do that, make whatever additional lump-sum repayments you can. Then when you come off your fixed term, you can make changes.”

And you get a gold star if you’re also paying as much as you can into KiwiSaver and investing to create some form of passive income, adds Moore.

Strategies for staying put Joint ventures with their children, subdividing and building minor dwellings – retirees are using a range of strategies to generate cash and pay down debt without downsizing. If you’d like to take on this kind of project, think ahead: will you be able to maintain a mortgage once your wages stop?

52 JuNO / WINTER 2017

“Clients plan to subdivide, do a build, then have the option to rent or sell,” says Wetzell. “I ask them: ‘How many more years will you be earning what you’re earning?’ To build a home you can be looking at [borrowing] $450,000 at least. If you are only working for another six years, there are going to be big serviceability questions.”

There are also reverse mortgages, which can be “quite useful or they can be quite scary”, says Moore. “Some are OK; some of them will burn you. If you’re in that situation, look at downsizing – it’s a bitter pill to swallow if you’re living in an area you love, but what are you going to live on?”

Cashing up, moving out Moore’s parents moved from Auckland to Whangamata 20 years ago, and she admits she thought they were making a mistake, “but now Mum’s so busy I have to book a time to have a phone call!”

Moving to an area with more affordable housing can give you a mortgage-free house for life and a substantial chunk of cash to live on.

Wetzell’s clients have downsized their homes several times and moved from Auckland to Northland, Orewa, Hamilton, Tauranga, and beyond. She says some do try to downsize within Auckland but it’s “extremely challenging”. A nearby low-maintenance townhouse may not be worth much less than a more dated family home.

Number-crunching For the enthusiastic planner, buying a rental property that doubles as your future home can be a smart choice.

With 10-plus years in hand, you can rent it out and have it paying for itself while simultaneously making capital gains in your home.

Then you can sell your home and retire to your rental, hopefully with a substantial lump sum left over, says Moore.

“It comes down to a number-crunching exercise and knowing what you’re going to need or want in retirement.”

It’s well worth paying a financial adviser for personalised guidance, Moore says, though she points out that you also have to follow that advice, which is the hard part. And your partner or family will also need to be on board.

“It’s not one-size-fits-all,” Wetzell says. “You need to start talking and having that planning conversation.

It’s not advisable to leave it to the last minute.”

PE R S ONAL FINANC E

The changing face of Kiwi homeownership

Sources:

It’s surprisingly easy to end up retired with a home loan: take out a $500,000 mortgage when you’re 45 on a 30-year term at 5 per cent, and you’d still owe more than $250,000 when you turn 65. A 2015 report found that just under a third of borrowers were forecast to still be in a mortgaged home by the time they turn 65.

MyValocity.co.nz; Parker, Tamsyn (September 1, 2014), ‘Are you too old to get a mortgage?’, NZHerald. co.nz; Statistics NZ; Stock, Rob (October 4, 2015), ‘A third of Kiwis will have a mortgage at 65’, Stuff.co.nz.

DEFINITIONS

This reflects our different housing market and lifestyles compared to past generations: • Housing is less affordable: in 1998, 11 per cent of households spent more than 30 per cent of their disposable income on housing costs. By 2015, that number had risen to 28 per cent of households.

• The average age of a first-time homeowner in 1970 was 25; that is estimated to have risen to the mid-30s.

• Terms are typically longer: just a decade ago, borrowers usually started with a 25-year term. Now they usually start with a 30-year term.

• The number of mortgage-free properties has decreased from 39 per cent to 35 per cent between 2006 and 2016.

D OW N S I ZI N G : Downsizing your home

is most commonly associated with emptynesters and retirees looking for smaller homes to live in after the kids have moved out.

R E V E R S E M O R T GAG E : A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold.

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In building a relationship you can trust in Investors Craig and Philippa Garrett catch-up with sales manager Matt McHardy (right)

For 25 years we’ve been invested in delivering long term sustainability and value for our investors through proactive management and portfolio diversification.

Our hands-on personal approach to property management creates excellent relationships with suppliers and tenants, ultimately delivering greater occupancy, lease terms and valuations.

As for our relationships with our investors - their trust in us is something we take very seriously.

A number have been with us from day one, and now so are their children and grandchildren.

We don’t know of any other property funds managers who can say that.

Our portfolios PACIFIC PROPERTY FUND LIMITED

PMG DIRECT OFFICE FUND

%*

7.20

%*

7.50

Both portfolios are fully subscribed, therefore no money is currently being sought and shares and/or units cannot currently be applied for. When an offer is made, it will be made in accordance with the Financial Markets Conduct Act 2013.

To be in the know on future offers register your interest, obligation free, at www.propertymgr.co.nz or contact our Sales Manager Matt McHardy (pictured) on matt@propertymgr.co.nz or 07 929 7109.

*Target gross distribution returns for the financial year ended 31 March 2018. Target returns are stated net of expenses and before tax, fair value gains/losses, and asset revaluations. The payment of distributions is at the discretion of the Manager and is dependent on a number of factors, including meeting solvency requirements. Distributions, are, therefore not guaranteed.

Tauranga Office Level 2, 46 Spring Street, Tauranga Phone: 07 578 3494

Auckland Office Level 1, 5 Short Street, Newmarket, Auckland Phone: 09 320 4698

www.propertymgr.co.nz/investment

YO U R INV E STIN G

How Property’s Performing Residential house prices have dropped over the first quarter of the year, trimming profits and discouraging investors, says Jeremy O'Hanlon, of homes.co.nz.

THE FIRST QUARTER of 2017 has seen a change in pace for New Zealand property.

It’s a new direction for Auckland in particular, with the data making it clear that prices have dropped over the first quarter. Auckland is down 6.5 per cent against the end of 2016, trimming significant profits and putting a solid dent in speculative buying.

While it’s very hard to talk with conviction about the cause, gaining funds from banks for property investment is clearly much more difficult than at this time last year.

LVR may be having an effect A 40 per cent loan-to-value ratio (LVR) is in full swing, and importantly, the major banks’ ratio of lending to savings is causing a slowdown in their desire to lend to all who come knocking.

Given investors have historically accounted for more than 40 per cent of purchases in hot regions such as Auckland, Hamilton and Tauranga, a slow-down in growth has likely dried up their desire to further leverage themselves.

54 JuNO / WINTER 2017

Auckland grew under one per cent in the last quarter of 2016. Even the new heroes, Hamilton and Tauranga, slowed in quarter 4 2016, with under 2 per cent and 3 per cent growth respectively.

Where to now?

So, what does the crystal ball say about property for the remainder of 2017? Unfortunately, I've lost mine, so feel free to get in touch if you have one.

Immigration pressures certainly don’t seem to be slowing, particularly with new Australian policy making crossing the ditch less and less attractive. Building costs from Statistics NZ show a continuing upward trend, but then the Auckland Unitary Plan is already opening up significantly more land for development.

It’s important to do your research before buying or selling, just as you would in any market.

Homes.co.nz offers a free way for you to do your own property research by exploring sales histories and estimated values for most homes in New Zealand. With 28 million pieces of data now available, it can help you make more informed decisions.

12-month median house price per quarter

PE R S ONAL FINANC E

$1,000,000 $950,000

AUCKLAND

$900,000 $850,000 2016 Q2

2016 Q3

2016 Q4

2017 Q1

$800,000

$600,000 $550,000

HAMILTON

$500,000 $450,000

TAURANGA

2016 Q2

2016 Q3

2016 Q4

2017 Q1

$400,000

$700,000 $650,000 $600,000 $550,000 2016 Q2

2016 Q3

2016 Q4

2017 Q1

$500,000

$800,000 $750,000

WELLINGTON

$700,000 $650,000 2016 Q2

2016 Q3

2016 Q4

2017 Q1

$600,000

$500,000 $450,000

CHRISTCHURCH

$400,000 $350,000 2016 Q2

2016 Q3

2016 Q4

2017 Q1

$300,000

$400,000 $350,000

DUNEDIN

$300,000 $250,000 2016 Q2

2016 Q3

2016 Q4

2017 Q1

$200,000

Source: homes.co.nz Data supplied by homes.co.nz WINTER 2017 / JuNO 55

YO U R INV E STIN G

How Much Does it Cost to Raise a Child?

Having children could be one of your biggest investments, and they certainly come with a significant price tag. How much will it cost you to raise a child?

Amy Hamilton Chadwick explores.

WORDS BY Amy Hamilton-Chadwick Freelance writer and registered FA

56 JuNO / WINTER 2017

PE R S ONAL FINANC E

IT’S OFTEN SAID that it takes a village to raise a child. From a financial perspective, though, you had better hope the village has a solid investment portfolio. Raising children is a costly exercise, and the more you earn, the more you’re likely to spend.

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The hard costs The hard costs are the actual day-to-day expenses incurred by each child, either directly or as part of the family’s total bills: for example, food, clothing, accommodation costs, education, and healthcare.

Australian bank Suncorp found in its 2016 Cost of Kids Report: • The 9 to 11 age range is the most expensive, followed by ages 6 to 8, then 3 to 5, 12 to 14, and 15 to 17. The under threes were the cheapest.

• The first-born wasn’t the most expensive – parents actually spent more on each child as the family expanded, although housing costs didn’t increase much, which helped to offset the higher spending.

• Food is the biggest expense when it comes to your children.

For most Kiwi families, though, the basics are only part of the story. Optional activities like sports and music lessons add up rapidly, as do additional toys, technology, and sports gear. Then there are family holidays, private schooling, and extra tuition. And do you need a bigger house?

Those discretionary decisions are why there’s a big gap between what various households spend: estimates range from about $150–$450 per child per week, depending on your income. That’s a range of $7,800–$23,400 a year or $140,000–$420,000 across 18 years – plus another $12,000–$20,000 per year if your child attends a private school! And, as many parents discover, if your child stops costing you money at the age of 18, you’re in the minority. Plenty of parents are now assisting children in their thirties into first homes.

An extremely rough estimate Obviously, you didn’t have kids to turn a profit. You love the expensive little blighters. But what does the average Kiwi kid cost to keep for a month, in hard costs alone? Here’s a very rough estimate, based on numbers from local and Australian research: Food

$320

Housing and utilities

$215

Education (public)

$40

Activities

$60

Holidays

$95

Clothing

$80

Transport

$75

Entertainment

$70

Healthcare

$60

Pocket money

$35

Communication/technology

$60

Extra and unexpected costs

$50

That’s a total of: $1,160 per month, or $13,920 a year, or $250,560 from birth to age 18.

The ‘Stay-at-Home Parent Penalty’ The biggest hidden cost of parenthood is taking time out of the workforce. This can be extremely expensive over the long term, even if in the short term it can seem like it’s a money saver when you weigh up the costs of childcare, transport, clothing, and so on.

Five years out of the workforce, missing out on all the promotional opportunities and additional KiwiSaver contributions and gains that entails, can result in the loss of hundreds of thousands of dollars in income.

When you go back into the workforce, you’re often earning less money than when you left, too. This penalty will have an impact on whichever parent takes time out, but some research suggests stay-at-home dads are even harder hit than stay-at-home mums.

That’s a total of: $1,160 per month, or $13,920 a year, or $250,560 from birth to age 18.

The good news Holy mackerel, there’s got to be an upside, right? Yes, there is. Parents actually earn more than non-parents in New Zealand, according to Statistics New Zealand.

One or both working parents may benefit financially, although fathers get a bigger boost.

In other good news, a 2015 Melbourne Institute paper found that children “have a very small impact upon wealth accumulation, seemingly at odds with the large ‘costs’ implied from expenditure-based estimates.”

So even if the numbers look huge, over the course of your lifetime, it’s a surprisingly small dent out of your overall wealth.

So, if you are considering having a first child, or adding to your already growing brood, it’s wise to keep the costs in mind – even if the rewards are priceless.

WINTER 2017 / JuNO 57

YO U R INV E STIN G

58 JuNO / WINTER 2017

PE R S ONAL FINANC E

Money Smart: How Financially Capable is Your Child?

By the time your children leave home, they need to be equipped with the financial skills to live independently and successfully. What do young adults need to learn, and how can you support your children’s financial capability? asks Kendall Flutey.

WORDS BY Kendall Flutey Banqer

WINTER 2017 / JuNO 59

YO U R INV E STIN G

PHOTOSYNTHESIS, Pythagoras’ theorem, Pericles: a few things I learned about at school and have subsequently forgotten. Was studying these subjects a good use of my time, or were there more important things I should have been learning?

Lack of time and cultural constraints are just two of the restrictions on monetary lessons taking place in the family home. But perhaps the biggest factor is that parents themselves may be misinformed about financial subjects and pass these misconceptions on, either explicitly or through their behaviour.

As I traverse the minefield that is the personal finance landscape of 2017, I can’t help but think that I should have pleaded with my teachers to throw away the textbooks and teach me about something far more valuable – something that we all need to know, but are never formally taught about: money.

Even more bizarre, it seems many of us are lying to our kids. In one study, 80 per cent of parents surveyed admitted to intentionally being dishonest with their children when it comes to money matters.

Financial education

Assuming you’re in the other 20 per cent of the population, you may be interested in a ‘cheat sheet’ of sorts about what your kids should know before leaving school, and (hopefully) the nest. They should already have forged a proactive, positive relationship with money.

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As it stands, the most common way we learn about personal finances is through trial and error. Given the impact money management has on our lives, this is rather flawed logic. More concerning still, research shows that your level of financial literacy, or how much you know about money management, is tied to your future financial prospects.

If the situation is so black and white, why aren’t we giving our kids the best financial head-start possible?

What your children should know

At a bare minimum, when kids leave school they should feel comfortable and confident when talking about their personal finances. This will ensure they have the assertiveness and ability to articulate their financial position both in good times and in bad.

What we don’t want is young adults getting into financial trouble because they either don’t realise what’s happening, or don’t know how and where to ask for help or are too uncomfortable to do so.

To achieve this, their financial vocabulary should be developing from as soon as they can talk and are old enough to not swallow a 20-cent piece. By the time they leave the house for good and their bedroom is ready to be turned into the home gym, your child’s arsenal of financial terms should include:

By the time our kids leave school, they should have already forged a proactive, positive relationship with money.

60 JuNO / WINTER 2017

• INTEREST • DEBT • MORTGAGE • PREMIUM • BUDGET • CREDIT SCORE • OVERDRAFT, AND • KIWISAVER. They don’t need know about everything the financial world will throw at them, but should be prepared for

PE R S ONAL FINANC E

what they’re already engaging with as a consumer or is coming up. And, of course, they should know how to access any other information they might need. This simple stance will ensure they’re making sound daily decisions, tracking and forecasting their position and are not financially misled at any stage.

Your kids are going to be looking to you to learn this behaviour, so you might need to brush up on your financial knowledge yourself.

Money talks

Make the most of any ‘financial firsts’, like a first bank account or a first EFTPOS card. Every ‘first’ that kids encounter is a potential learning opportunity.

Just as you really should have ‘that talk’ before your child goes on their first date, you should be having money conversations before each financial milestone.

It’s your job to remove the ‘magic’ from money. A bank account shouldn’t just magically appear one day. Take them to the branch, let them talk to the teller, and let the whole experience be the catalyst for a greater conversation at home.

As a parent, the easiest way to do your part is to bring your child into the financial fold. Many young adults don’t have a clue what their family’s financial position is simply because their parents never let them in on the details of the household finances.

Enlist the support of others. Schools are a great place to start. Financial capability is in the New Zealand curriculum, and there is no excuse for schools not to incorporate it. As a parent, it’s your right to ask for your child to be taught this.

Age-appropriate inclusion into your family’s financial affairs is the best way to grow a financially healthy young adult. But to avoid your salary or mortgage payments innocently becoming the talk of the classroom, have an upfront conversation around privacy first.

So, when your child comes home and requests your help with an essay about the role ambition played in Macbéth, perhaps you could also discuss the role ambition played in the market crash of 2008. This will bring them one step closer to financial capability – and you one step closer to that home gym.

Men, women & money:

Build the life you want!

Financial success is about more than numbers.

If changing your spending or saving habits was just about maths and budgets, life would be simple. But it’s not. Because we attach emotions to money.

Finding Financial success is 80% psychological and 20% practical.

We are Money Mentors that understand the psychology of money as well as the numbers.

Our money coaching and behavioural change expertise will help you make the right choices. We offer life-changing money mentor programmes that will help you re-write your money story and set you on the path to financial success.

Let Money Mentalist show you how to build a positive financial future for you and your family.

Phone 09 236 0082 Email hello@moneymentalist.com www.moneymentalist.com

THOUGHT-LEADER

Five Questions for Wannabe Entrepreneurs The best entrepreneurs formulate a plan before they launch their next project. Rod Drury poses five questions you need to answer before you venture into business.

Previously published in Fortune magazine

ENTREPRENEURS ARE A SPECIAL BREED. We like the thrill of the chase. We’re usually highly competitive, goal-oriented, and driven to come up with solutions that make the world a better place.

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1. How big is the opportunity?

You may have an idea, but without defining the opportunity, sizing up the potential market, and putting some numbers around that idea, it can be very difficult to execute.

But before you dive deep into your next venture, you need to know that the best entrepreneurs formulate a plan. They think about the numbers, identify the market and its needs, and test acceptance of their solution.

When I launched Xero nearly 10 years ago, we wanted to get every small-business owner and accountant out of spreadsheets, off desktop software, and into the cloud, so that they could work together using a single set of data that’s updated in real time.

Here are five questions every entrepreneur needs to answer before launching their next business:

That opportunity to modernise the way the world’s small businesses are run is the biggest in technology

62 JuNO / WINTER 2017

X E RO BU S INE S S

right now. Millions of small businesses and accountants are yet to transition their operations to the cloud, which makes it an incredible green-fields opportunity that has the potential to seriously impact the global economy.

When sizing up the opportunity, it’s also important to look at the macro environment. For Xero, we saw that small businesses are the largest job-generators in the world – they’re the biggest contributors to gross domestic product (GDP). By enabling them to be more productive and arming them with the right information to make better business decisions, you can improve the health of the entire economy.

Our opportunity gave us a purpose to make every business decision around.

2. What is the competitor landscape and industry history?

Figuring out who your competitors are and how you’re going to be different is important to an idea’s success.

Some companies may be direct competitors, while others will just be in your space. Map it out so you can understand what a customer’s options are. It’ll help you understand what your product roadmap should look like, what your competitive advantage is, and how you should position yourself.

For Xero, we were born in the cloud. We didn’t have any desktop legacy to contend with. It’s been what has defined us as a cloud-accounting platform, enabled us to take on the incumbents across the world, and given small-business owners and their financial advisers a technology tool to better run their businesses.

3. What is the sales model to address the opportunity?

“Mapping out how you will monetise your idea and how you will reach your market is key to transforming an idea into a business.”

4. What is the funding plan?

Launching a new venture requires capital. You’re usually lacking sales in the early stage, so you’ll need to figure out how to bankroll your workforce, overheads, and development costs until revenue receipts start to kick in.

The deciding factor on how you fund a new venture will depend on how capital-intensive the execution of your idea will be. Xero did its initial public offering (IPO) in its first year, as it was one of the only ways we could fund the development of a platform that’s cost more than $200 million to build.

That strategy won’t work for many companies, but there are other options.

Consider seed funding from investors who understand and are passionate about your venture. There’s the friends and family option, the high-net worths who like to dabble in early-stage start-up investing, and the more conventional institutional investors.

It’s one thing to come up with an idea. But without sales or customers, it’s not a business. Mapping out how you will monetise your idea and how you will reach your market is key to transforming an idea into a business.

But regardless of the method, make sure the money you take is the right capital. Taking on investment will fundamentally change the structure of your company, especially as you need to be accountable to investors.

• Will you have a process that allows customers to just sign up online?

5. Who’s going to be in your winning team?

• Will you use a sales force to knock on doors and call down potential customer lists?

• Will it be a mixture of both?

• Can you encourage others in your industry to sell the product on your behalf?

Whichever method you choose, you need to ensure the numbers are right. Using the wrong sales method means you risk spending too much time and money acquiring customers or attracting the wrong customers.

Once you’ve figured out the market opportunity, the competitors you’ll need to muscle up against, how you’re going to sell your idea, and who is going to fund the execution, you need to build a winning team.

Figure out who your A team is and start pitching to them.

Without the right leadership and talent, a business will struggle to gain the momentum it requires to expand. The team is the defining point between a thriving enterprise and one that is doomed to be just a blip on the radar.

WINTER 2017 / JuNO 63

XERO BUSINESS

A Growing Fish in a

Big Pond Lee Fish is a small-town fishmonger in New Zealand, but the company has created a global reputation for delivering the finest fish in the shortest time, to top restaurants around the world.

AT MICHELIN-STARRED restaurants around the world today, chefs will be opening packaging to reveal fish from New Zealand waters, delivered from Rodney-based Lee Fish.

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With clear eyes and pink gills, these fish look and taste no different from those freshly caught and delivered on plates that evening to Auckland or Christchurch diners.

Using a series of innovative preservation techniques and quick turnaround times, Lee Fish ensures that a chef in Los Angeles can be preparing a fish caught in New Zealand in under 24 hours.

Says Lee Fish chief executive Greg Bishop: “The fish we take is of very high quality, taking as little from Tangaroa as we can. Our values are sustainability, respect, loyalty, family. That comes through in how we treat our people, catch, handle, and sell our products.

“A dozen Michelin-starred restaurants use our fish.

For the fish [species] that we catch, ours are the best in the world.”

Lee Fish prides itself on its sustainable fishing practices and century-old traditions, using long lines and ‘iki-jime’, a process which kills the fish instantly, preserving freshness and taste.

“Kaitaiki is about guardianship and how we care for this country and our resources. This is the most environmental way of taking fish.”

Los Angeles restaurant Leona, one of the LA Times’ 101 Best Restaurants of 2017, is supplied by Lee Fish.

64 JuNO / WINTER 2017

Chef Nyesha Arrington says: “I have a clear vision of how I want something, what’s the most respectful way to care for a product, a piece of fish.

“With Lee Fish products, I know exactly what I’m going to get – impeccable fish every single time. It inspires me to create. My responsibility is to celebrate that life.”

Lee Fish has a head office in Leigh, north of Auckland, and offices in Auckland, Switzerland, California, and Singapore. It’s a great example of how a global platform is important to the international success of a small business.

The demands of running this complex global business from New Zealand meant Lee Fish chose to use Xero’s cloud technology and real-time data, which ensures that every fish can be tracked back to who caught it, which boat it was caught on, where it was packaged, and how it travelled.

“We’re racing the clock, to get that fish across the world and on a plate as quickly as we can. We need accounting software that can keep up with that,” says Bishop.

“We’re all just completely and deeply passionate about what we do and that’s why we like to use Xero to run our business.”

– Brenda Ward www.leefish.com www.xero.com

WINTER 2017 / JuNO 65

YO U R INV E STIN G

GA ME C H A NGER S ERI E S WITH JAK E M I LLAR

FIVE MINUTES WITH

Nick Mowbray

Nick Mowbray is the 31-year-old director and co-CEO of Hong Kong-based toy company ZURU, which is on track to reach NZ$500 million in revenue in 2017.

ZURU was started by siblings Nick, Mat, and Anna Mowbray in 2004, and today employs 3,000 staff (13,000 including outsourced manufacturing), and distributes to 121 countries. It has achieved this without raising any outside capital or taking on any significant debt.

Originally from Cambridge, Nick and his brother Mat moved to China when Nick was just 18 years old, sleeping in bushes outside an airport for the first few nights to save money and stay lean.

After several years of hard slog, they had their first success in the form of Robofish, a robotic fish that swims in water. Robofish was the fastest selling toy globally in 2013, and has sold over 30 million units to date.

In 2016, ZURU produced the best-selling toy of the year in the United States, the famous Bunch O Balloons, which have sold over 4 billion individual balloons so far.

Jake Millar interviews Nick Mowbray for Unfiltered. This is an edited extract from the video.

For the full interview visit unfiltered.co.nz

66 JuNO / WINTER 2017

FIVE MINU T E S W IT H

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1. When you first moved to China at 18, what did your daily schedule look like, and how hard did you have to work?

We worked really hard. The first years in China were crazy because there weren’t really any other Westerners around. We were going a little bit crazy because it was just me, Mat, and a little bit later on Anna, and it was just this weird vibe. All we did was wake up and work.

I remember in the apartment, my bedroom was my office and the lounge was our company office at the time. I’d push my mattress up into the window edge every day and then behind that were my clothes. Then at night, I’d just drop the mattress down and sleep there and I had a little desk in the corner and then I’d just sit there and hammer potential customers every day for I don't know how many hours a day. Because of the time zones, I’d ring the US, I’d ring Walmart, I’d ring Target, I’d ring Toys R Us, I’d ring all these retailers cold at 12 a.m. or sometimes 1 a.m. or 2 a.m.

I’d just sit there and email and phone as many people as possible to try to break down some barriers.

2. You’ve been growing at 70 per cent year on year for the past few years, and you haven’t ever raised outside capital or relied on large bank loans. How have you managed to grow so fast without raising money?

I think, first of all, we did it pretty tough those first few years. We really didn’t spend any money whatsoever. I think we lived on a couple of dollars a day in terms of food and not much more than that on rent every month. So we essentially lived in the factory. I lived in my showroom. We really saved and scrimped every penny.

I think as well as that, our model’s really unique in that we looked at China not only for manufacturing but to build the whole core of our business. So design, engineering, QC, QA, merchandising, finance, creative, the whole nine yards, we’re doing out of China. This gives us this huge competitive advantage, because our base cost to bring product to market is so much less than a lot of our competitors that have their main bases in Western countries.

So that’s a massive advantage in terms of the company’s profitability. We also have a very directto-retail model globally. So we’re always thinking of Return On Investment (ROI). From the beginning we drove a very low-cost model on our side but we drove for profit very early on, and that allowed us to grow so quickly as well and self-finance the whole business.

3. What business leader in the world do you look up to the most, and why?

That’s an interesting one. I like looking at someone like Steve Jobs, of course, because of the business of simplicity – the fact that he tried to make complex simple, and I think there’s a lot of lessons that can be learned from that. The hardest thing in any business is “How do you make it more simple, how do you make it more streamlined?”, because we have a tendency to make things more complicated, and it’s a tendency for business as you get bigger to get more complicated.

So I've taken a lot of learnings from him in terms of “How do we make our business simple?”

I think another one is someone like Sir Richard Branson, in terms of how he’s built a brand and how he’s done that through marketing. I look at other people like Howard Schultz from Starbucks – I always say that anyone can go and open a corner coffee shop but not many people can build Starbucks. How he’s made a simple concept what it is today, and how he’s taken an essentially very simple, formulaic business model and built that in such a big way.

4. What is your best piece of advice for the world of business, entrepreneurship and making things happen?

I think be hungry. Be hungrier than everyone else.

Just absolutely be relentless in whatever you do.

Choose your path and decide you want to be the best at it and then set that big vision. Think big, be hungrier than everyone else, and push harder than anyone else to really make it happen. Nothing happens without hard work and a certain degree of relentlessness. So that would be my advice: think as big as you possibly can. Always play in the top tier and not down here.

In 2016, ZURU produced the best-selling toy of the year in the United States, the famous Bunch O Balloons, which have sold over 4 billion individual balloons so far.

WINTER 2017 / JuNO 67

Be in to win a Pianegonda necklace in silver and 18-karat rose gold from Orsini (worth $795).

M AGA ZINE

and invite you to attend the

Women’s Finance and Wellbeing Seminar

DIANE MAXWELL

SARAH LAURIE

CECILIA ROBINSON

WOMEN & MONEY

WOMEN’S WELLBEING

WOMEN IN LEADERSHIP

Diane Maxwell is the Retirement Commissioner at the Commission for Financial Capability. Her goal is to build the financial capability of New Zealanders of all ages, with an increased focus on low-income and vulnerable groups. She also reviews the retirement income policies and has a monitoring role for the Retirement Villages Sector.

Sarah Laurie is an inspirational life-coach, and best-selling author. She’s a highly-regarded lifestyle expert and her work is featured on television, and in magazines and newspapers internationally. She turns scientific research from around the globe into practical resources that help you live a beautiful life.

Cecilia Robinson is one of the founders – and Group Co-CEO – of My Food Bag. A successful businesswoman and serial entrepreneur, Cecilia has an extensive background in business management, and was a co-founder of Au Pair Link. She’s a former winner of the EY Young Entrepreneur of the Year awards among several others.

Also be in to win a 60-minute RockMe Hot Stone Massage at Forme Spa & Wellbeing.

A portion of your ticket price will go to our chosen charity, Banqer.

Banqer is an interactive financial learning tool used in classrooms.

And some amazing spot prizes on the night from Continental Cars.

D AT E

TUESDAY 20 JUNE, 2017 TIME

6.30PM – 8.30PM VENUE

CONTINENTAL CARS AUDI SHOWROOM 42 GREAT SOUTH ROAD, NEWMARKET, AUCKLAND INVESTMENT

$30 PER TICKET Ticket includes a light meal, a glass of bubbles and a goodie bag.

TICKETS ARE LIMITED

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SUPPORTED BY

YO U R LIFE STY L E

70 JuNO / WINTER 2017

INT INTEERREESSTT

A T i m e ly investment A watch tells more than the time. Your timepiece can speak of your style, wealth, and aspirations, but could it also be an investment? asks Sarah Fitzpatrick.

WINTER 2017 / JuNO 71

YO U R LIFE STY L E

YOUR MOBILE PHONE displays the correct time for any time zone, can self-adjust to daylight saving, and is always with you – but watch makers aren’t worried. A watch is more than something you use to tell the time, and can be a good investment.

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amazing watch” to invest in. It certainly ticks the boxes: only 18 of this model were made, so it’s rare; and the movement is hugely complex, including a function with interchangeable dials, showing the time and date on one and a chronograph on the other.

The Knight Frank Wealth Report 2017 luxury investment index shows that rather than declining, watch-buying has increased by 66 per cent over the last 10 years, and figures are up 4 per cent in the past year.

Baudinet believes these factors will put the Metamorphosis II firmly in the sights of collectors.

At NZ$535,000, it is a big-ticket item, but unfortunately this turns out to be another useful investment gauge: cheaper watches aren’t likely to hold their value, let alone achieve good returns.

This looks extremely healthy next to the 0.04 per cent increase in sales of coloured diamonds in 2016, although it is still way behind wine and cars for growth in liquid assets.

Big spenders get an added bonus. Serious buyers are flown to collect their watch, and see the hand-madewatch factory in Villeret, Switzerland, which has been in production since 1858.

As with any potential investment, there are good and bad choices.

Partridge adds that well-known brands are also more likely to hold their value. Rolex, for example, are in short supply and world demand is high.

Most valuable brands

“Many of them are very tradeable, so when the first owner wants to change their current timepiece for a new model, they achieve excellent retained value.”

Luxury watch sales are driven by three main brands: Patek Philippe, Cartier, and Rolex.

A rare, stainless steel, 1941 Patek Philippe reference 1518 perpetual calendar chronograph with moon phases became the most expensive wristwatch sold at auction in the world last year. It went under the hammer in Geneva and realised just over US$11 million, smashing its guide price.

This amount of money might seem mind-boggling for a watch made simply of stainless steel, with no precious metals or jewels, but this shows how highly fine watches are valued.

The most expensive watches sold at auction are not jewel-encrusted, and are often made by Patek Philippe.

Their complex mechanisms have been produced by highly skilled horologists, and they’re rare – the 1518 sold above was one of only four ever made.

As Grant Partridge of Partridge Jewellers says: “With many brands, such as Patek Philippe and Rolex, it isn’t just the aesthetics and the outside of the watch where the value lies. A significant amount of the value is in the precision and technical craftsmanship of the internal movement of the timepiece.”

What to look for Montblanc’s Neil Baudinet says, as an investment, luxury watches should perform like high-end cars. “In the short term, they won’t make money and may lose, but in the long term, careful investments are likely to perform positively.”

He picks the limited-edition Montblanc Metamorphosis II, released in 2014, as a “super72 JuNO / WINTER 2017

Scarcity adds to the value of Patek Philippe watches.

Some of the quantities produced are so small, New Zealand is lucky if it receives even one of a model for the entire country.

“Take the release of the new platinum World Time – we’ve received many requests for it, but we may only have one fortunate customer this year,” says Partridge.

Provenance In a 1996 New York sale, a triple string of fake pearls worth perhaps US$65, but with a guide price of US$500, was sold for a staggering US$211,500.

Pushing up the price was the fact they had belonged to former First Lady Jackie Kennedy. Such is the power of provenance, driving price far beyond intrinsic value.

Value by association has spawned a lucrative business in product placement, and is working today for watches. The fictional character James Bond was created by writer Ian Fleming with a Rolex on his wrist. In Casino Royale, he wrote: “It had to be a Rolex . . . a gentleman’s choice of timepiece says as much about him as does his Saville Row suit.”

Fleming himself wore a Rolex Oyster Perpetual Explorer, the same model that accompanied Sir Edmund Hillary on his expeditions. The brand is a byword for luxury watches, and part of their appeal is that they are also rugged enough to be worn by adventurers.

But times change. In 1995, Omega signed a deal to be Bond’s new timing partner, and one of the classic

INT E R E S T

“First impressions last, and one of the easiest ways to get the measure of any man is to look at his wrist.”

– Murray Crane

WINTER 2017 / JuNO 73

Murray Crane knows good style and has a “soft spot” for Rolex.

He says though trading watches is no meal ticket, the right pieces hold their value well and collecting can become a passion.

Seamaster range has been at his cuff on screen ever since.

ticket, the right pieces hold their value well and collecting can become a passion.

What’s hot right now

“The vintage resale market is very buoyant, but buying new is fine if you don’t want to resell.”

Baudinet says he sees trends come and go. “Yellow gold is taking a back seat for now, with rose gold on top, and black strong on the sports side for men.”

However, he points out that buying a fine watch is a long-term ownership proposition, so trends don’t always apply to investments.

In the ladies’ market, Partridge finds that many women today are choosing traditionally man’s-size watches: “They make more of a statement.”

He says the most important thing to remember, however, is to please yourself. Watches are not just a way to tell the time, but to emphasise your personal style.

“We don’t sell watches as investments; [they’re] to give pleasure and joy.”

Murray Crane of sharp contemporary tailors Crane Brothers knows good style and has a “soft spot” for Rolex. He says though trading watches is no meal

74 JuNO / WINTER 2017

However, their most significant investment value may be in your personal style because, as Crane says: “First impressions last, and one of the easiest ways to get the measure of any man is to look at his wrist – and his shoes, but that’s another story!”

DEFINITIONS H O R O LO G I S T: A clock- and watch-maker.

C H R O N O G R A P H : A stopwatch time-

recorder.

M OV E M E N T: The clockwork mechanism inside a watch or clock.

P R OV E N A N C E : A history and record of

ownership of a work of art or object. A famous owner can boost an item’s value.

YO U R LIFE STY L E

Cruise Missile

ENGINE

1,999 1cc, 4-cylinder, Direct-injection, Turbocharged

POWER 135KW TORQUE

300Nm

#0-100KM/H 8.2 sec COMBINED CYCLE FUEL CONSUMPTION DRIVE

6.8 Litres / 100km

Rear wheel drive, ECO start/stop

TRANSMISSION 9G-TRONIC WHEELS AND TYRES

AMG 19 inch 14-Spoke Wheels

MANUFACTURERS LIST PRICE

NZ$89,900

C AR R E VIE W

A GENTLE BREEZE ruffles my hair, the murmur of the motor is a background symphony, and the twisting road stretches like a ribbon through the winding Puhoi River valley.

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I have the Mercedes-Benz C200 Cabriolet set to ‘Sport’, and it’s transformed from a cushioned cloud of comfort into a cruise missile.

This car is effortless, nosing around the bends, responsive and elegant. At the passing lanes, when cars in front see that star rapidly approaching in the rear-vision mirror, they politely move aside.

The air is fresh and fragrant and the last autumn leaves dance from the trees. The ‘scarf’ of warm air generated by the headrest stops the first chills of the season creeping in, and I sit back and ease into the warmth.

I’m a serial convertible driver, starting out in a Triumph Spitfire and owning seven cabriolets since. My favourite by far was a Mercedes-Benz 350SL, a wide, luxurious

tourer which ate up the miles on my frequent journeys from Auckland to Hawke’s Bay. That was an ’80s icon, but this C200 cabriolet is its evolution: today’s luxury convertible is designed for commuters and weekend road-trippers, with a dazzling array of safety and comfort features.

The next day, on my 45-minute motorway and suburban commute, the Merc is mannered on the motorway stretches. It reminds me of my speed on its ‘heads-up’ display projected on the inside of the windscreen. It alerts me to following distances if I stray too close, with a warning triangle. Another appears on the rear-view mirror when a vehicle is passing in the next lane. It’s like driving with a backseat driver, but you learn to use it, not resent it.

The car looks wide, but feels slender once you’re in the driver’s seat. I forget how wide it is until I come to park in my garage, where it fits in by only a whisker.

Fortunately, it has 360-degree cameras – on the mirrors, sides, bumper, and popping from the rear Mercedes badge. They work both in reverse and forward at low speed, so I creep into the garage and find I have inches to spare.

The engine stop/start of the Eco mode takes a bit of getting used to, so I switch to Sport and feel the suspension hunker down and the seat tense for business.

I’m driving the standard model, but this is still a lot of leather-clad car for NZ$89,900 (or, including the Warmth Comfort package, NZ$92,290 including GST but excluding on-road costs).

Instead, it feels like a million-dollar investment in your driving pleasure.

– Brenda Ward

WINTER 2017 / JuNO 77

YO U R LIFE STY L E

ONE for the BUCKET LIST 78 JuNO / WINTER 2017

T R AVE L

Walking the Milford Track is the experience of a lifetime. Jo Hammer takes to this Great Walk like a duck to water.

WINTER 2017 / JuNO 79

The day before our walk departure, we are fully briefed and kitted out with raincoats and backpacks.

The next day, we’re bussed from Queenstown to Te Anau Downs, for a boat trip across Lake Te Anau to the start of the walk.

THE RAIN FELL. Hour upon hour, it came down in buckets, relentlessly. And yet we couldn't have been happier. Who would have guessed that eight hours in a deluge could be so uplifting?

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The rain shouldn’t have come as a surprise. The Milford Track is in Fiordland National Park, located in the wettest region of New Zealand. The worldrenowned four-day walk starts and finishes on the water, connecting Lake Te Anau and Milford Sound, a distance of around 55 km (33 miles).

And water defines the experience in this pristine environment. Walkers can drink it directly and refill their bottles from the streams and creeks. They can watch trout darting far below in the crystal-clear rivers, marvel at the spectacle of the cascading waterfalls and drink in the beauty of the dripping vegetation in the lush beech forest.

Into the wilderness We were two couples, belatedly celebrating a significant birthday. We had chosen to walk with Ultimate Hikes, the only private-guiding company with a permit to operate on the Milford Track. The track can also be walked independently, staying overnight at Department of Conservation huts.

80 JuNO / WINTER 2017

We leave cell-phone reception and other distractions of modern-day life far behind. As the surrounding mountains become closer, the realisation that we are entering a wilderness area hits us.

The walk to Glade House, the first lodge on the track, is just 1 km long. The rain has started to fall steadily, but that doesn’t deter our four guides from then leading us on a nature walk through the native forest to a small waterfall – a taster and, in retrospect, a test of what’s to come in the following three days.

Back at the lodge, there’s time to look at the fascinating display of accessories and artefacts belonging to early Milford Track walkers. We socialise over drinks and nibbles with our fellow walkers, most of whom are overseas tourists. Then begins the nightly routine of delicious three-course dinners and slide shows, with our guides telling us about the next day’s walking and tempting us with menu choices for when the hard yards are done.

The senses come alive We enter the Clinton Valley, crossing a large swing bridge, for our first full day of walking. We are in beech forest, carpeted by the greenest of moss, tramping alongside the Clinton River for large sections. At the lunch shelter we tuck into our packed lunches and sip hot drinks prepared by our guides, looking out onto the Hirere Falls.

From there, as we emerge from the forest, waterfalls tumble from the rock faces all around us. We walk slowly to take in the spectacle, little robins playfully darting about on the track in front of us.

Prairie Lake was marked on our maps as a swimming hole ‘for the brave’. I am the only one to take the plunge, the freshness of the water matched only by the wind chill. My impromptu dip delights the Japanese contingent, however. It proves to be a literal icebreaker, my perceived ‘bravery’ breaking down the language barriers.

I don’t need to worry about my wet clothes. Our well-appointed lodges all have hot showers, laundry facilities and drying rooms, so we can start each day with clean and dry gear.

As we emerge from the forest, waterfalls tumble from the rock faces all around us. We walk slowly to take in the spectacle, little robins playfully darting about on the track.

Ups and downs The journey over the famous Mackinnon Pass begins with an ascent through beautiful forest, punctuated by ‘no stopping’ signs warning of avalanche risk. As we exit the tree line, the prettiest of mountain flowers flank the route.

The path becomes a series of switchbacks, as we climb our way higher towards the monument to Quinton McKinnon, the Scottish explorer who blazed the track in 1888. At the monument, one of our guides is waiting with steaming mugs of hot chocolate.

After the exertion of the climb, we need to don more layers to stay warm in the blustery conditions as we make our way to the 1154 metre summit. We snatch intermittent, spectacular views of the valleys below, as the swirling clouds envelop us and then disappear just as quickly.

The descent into the Arthur Valley is arguably the most difficult part of the track, but the scenery more than compensates for the knee-crunching downhill trek. In bright sunshine, we pass towering cliffs and walk into verdant forest, shuffling down the torturous metal steps alongside the stunning Cascades. For those with the energy and mental fortitude, at the end of the day is a side walk to the spectacular Sutherland Falls. Or you just can sit and relax with a glass of your favourite tipple and toast your achievements.

Saving the best until last The final section of the track is a flat walk, and should be straightforward. The forecast rain is steady at first, and we set off jumping over the puddles. As the intensity of the rain increases, so too does the depth of water on the track, from ankle- to shin-deep. Our guides are stationed at key points to supervise us and help us safely across the swollen creeks.

The lunch stop, landmarks and photo opportunities highlighted in the previous night’s slide show are awash, and the river is a raging torrent. We are sprayed as we cross bridges over swirling cauldrons of water, and the noise is deafening. And it’s not just the power of the water that’s extraordinary, but the waterfalls appearing all around us.

It isn’t until afterwards that we find out the river had risen to near-evacuation levels. Yet our guides remain calm, patient, and professional throughout.

Soaked but exhilarated, we reach the aptly named Sandfly Point, the end of the track. We warm up with hot drinks in the shelter while waiting for the boat to transport us to Milford Sound.

It’s more than the finish to a walk – it’s the end of our wilderness adventure. This had been Mother Nature’s show, and we were privileged to have been granted ringside tickets to such a demonstration of primal force and beauty.

WINTER 2017 / JuNO 81

YO U R LIFE STY L E

A Recipe for Success

A collaboration between two high-end companies, serving the goodness of fine New Zealand cuisine and wine in an authentic Central Otago environment, Akarua Wines & Kitchen by Artisan near Queenstown is cooking up some serious popularity. Jacqueline Taylor tastes the result.

If you’re looking for the perfect recipe for an après-ski long lunch, or a quick bite while shopping, then this is undoubtedly the best.

Gather up your ski suit or your winter coat and create a memorable dining experience that will leave you with a lasting sense of difference.

Ingredients First, you’ll need two long-standing and premium Central Otago brands, Akarua Wines and Artisan Catering.

Form a collaboration between the two, include a large serving of two highly-talented and creative chefs, John Pickens and Dirk Stark, and deliver high-quality gastronomy and wine to the public showcasing the unique experiences and quality interactions Central Otago offers.

and sunshine, bean bags, and a cluster of braziers. Add a pinch of mulled wine, and a bucket-load of winter fondues and artisan platters.

Fill the cottage with comfort, character, and plenty of social goodness. Decorate with an eclectic mix of rustic, industrial furniture, add a modern marquée, adorn with festoon lights, and scatter in some olive trees for a Tuscan flavour. Fire up the wood-fired pizza oven, and let the entertainment begin.

Add several handfuls of high-quality produce from the South Island, including Wakanui beef, merino lamb, Mount Cook alpine salmon and some Cloudy Bay clams. Slow-cook meats for 12 hours. Blend seasonality with Central Otago flavours and mix in locally-foraged watercress and saffron. Garnish with home-grown thyme and oregano, and a significant bunch of quality and class.

Finish with a bang by combining sweet and savoury in all dishes with layers of texture and crunch.

In a separate container, pour in the minerality and acidity of Bannockburn, add some layers of complexity and hints of oak, and allow for some ageing on the lees. Open the cellar door and pair a glass of powerful, yet elegant pinot noir and a flute of award-winning méthode traditionelle with your favourite fare.

Combine all components and deliver with high-calibre service, sensational presentation, and a passion for all things wonderful that the South Island terroir offers.

Method

Bon appétit!

Take a short drive from Queenstown, beyond the shores of Lake Hayes en route to Arrowtown.

akaruaandartisan.co.nz

Stop at the majestic walnut tree by the historic Walnut Cottage. Line the courtyard garden with plenty of clear skies 82 JuNO / WINTER 2017

www.akarua.com www.artisancatering.co.nz

PHOTOGRAPHER: Michael Thomas

CENTRAL OTAGO MERINO LAMB OYSTER SHOULDER 20gm peeled garlic cloves 5gm rosemary leaves 100ml canola oil 1 Silere Merino lamb oyster shoulder (1.2kg) 1 bottle Akarua pinot noir 2 litres lamb or chicken stock 1kg mirepoix (roughly chopped onions, carrot, leek, thyme) 10gm mint leaves In a small pot, place the garlic cloves, canola oil, and confit on the stove at the lowest heat for 30 mins without colouring the cloves. Once cool add the rosemary and blitz with a hand blender.

Akarua Wines & Kitchen

by Artisan Executive Chef John Pickens

Rub the blended mixture over the oyster shoulder and leave overnight.

Any leftover rub will keep for several days in a container, just pour over a little oil to help preserve it.

John spent nearly a decade overseas as a chef in private villas and super yachts. Six years ago he returned to New Zealand and started Artisan Catering with his wife Deb after seeing a gap in the market for highend events, private functions and weddings. John is delighted to create innovative menus for both Kitchen by Artisan and Artisan Catering.

Pre-heat your oven to 130° C. Find an oven proof dish with high sides that fits the lamb snugly. Add the mirepoix then the lamb on top followed by the stock and wine.

Place some baking paper on top of the lamb then tightly wrap the top with foil. Slow cook for 6 hours.

Remove the lamb and keep warm under foil. Reduce the stock and add the mint leaves.

Serve with caramelised onion jam, black garlic salt and minted lamb jus.

WINTER 2017 / JuNO 83

YO U R LIFE STY L E

THE FLAVOURS OF Winter

When the days become shorter and the wind rattles the window pane, it’s time to wrap up and get ready for winter chills and viruses. A good multi-vitamin will help, but also eat well to boost your immunity.

When the weather’s turning bleak, a feast of healthy flavours can brighten up the dullest of days – and winter produce is among the healthiest.

First gather some dark, leafy greens to help build resistance to colds. Kale contains large amounts of Vitamins A, K and C, and kids love curly kale leaves rubbed in olive oil and roasted on an oven tray to tasty, crunchy kale crisps.

Broccoli is rich in Vitamin C, protein, fibre and calcium – and contains very few calories. If you don’t have a garden, buy it as fresh as you can.

Those who find broccoli has a strong smell should only eat vegetables that are freshly picked, which have very little odour. However, there is a flip-side. What gives the vegetable its smell is the sulphur compounds which offer antiinflammatory benefits.

Toss chunks of potato, kumara, pumpkin and multi-coloured carrots in olive oil, with some unskinned garlic cloves and fresh rosemary leaves for a tasty and filling feast to accompany roasted meats and lean steaks.

BOOST YOUR IMMUNITY We all need a little extra TLC during the months when the temperature drops and winter lurgies start to spread, says Janeen Howard of GO Healthy.

“Your immune system is one of the most important weapons you can support and work with to combat and defend against dreaded ills and chills.”

Howards says several natural ingredients can help to build a strong immunity army, boost its fighting power, and guard your body against attacks from invaders. GO Healthy’s Vir-Defence has combined these ingredients in an easy-totake, one-stop product.

ECHINACEA. This herb has been well studied and is renowned worldwide as a powerful natural tool for strengthening the body’s natural defenses.

GARLIC. This pungent herb is one of nature’s best antiseptics, which in the past was applied to wounds to prevent infection. Garlic is packed

with nutrients and compounds that reinforce immunity, helping to prepare the body for when those nasties hit.

ZINC. Critical for optimal functioning of the immune system, this important mineral is lacking in New Zealand soils. The body requires zinc to develop and support T-cell activity, an important player in the immune system. Several studies have shown that even mild deficiencies can impair the body’s immunity.

OLIVE LEAF. This helps to naturally support immunity by working at a cellular level to strengthen the immune response. It also has strong antibacterial properties that help keep the body’s natural defences strong against invaders.

ELDERBERRY. This herb has been used for hundreds of years for its immune benefits.

Elderberry supports recovery and is especially effective on the upper respiratory tract, helping to clear congestion.

Steam AND DREAM Mist drifts in lazy clouds across the dim lighting in Chuan Spa’s steam room as I start to relax and breathe in the moist, fragrant air. Soon my skin is slick and I can feel my pores opening as I breathe in the humid air.

Steam is the perfect way to de-stress and detoxify as you escape winter’s chill. I’ve come to The Langham today to meet Chuan Spa director Victoria Stewart and learn about this ancient method of improving wellbeing.

“Compared to a sauna, the steam room is what I call a wet heat,” says Stewart. “It’s very good for the lungs and particularly for those with bronchial problems.

“In winter, the cold can be very drying.

When you breathe in dry air, the body has to compensate by using moisture. If the air is humid, you don’t have to moisten the air that you’re breathing.”

W E LLBE ING

In Scandinavia, heat and cold are used alternately to stimulate the body, she explains.

At The Langham, the steam room can be paired with the ice experience, rubbing the body with handfuls of fresh ice shards which replicates the freezing-water plunge often used in northern countries to close the pores.

“You use steam to warm up, and then apply the ice directly to your body,” she says. “It constricts the blood vessels, so you get a rush of blood to the organs.”

The steam room’s fragrance is a herbal blend of chrysanthemum, cloves and peppermint, which also has therapeutic effects. Sitting and steaming, you find yourself relaxing, moving into a more mindful state.

The stone-clad Chuan Spa at The Langham has had close to 50,000 people through its doors since it opened in 2009. Its name means ‘water flowing’, as at the zen-style entry, in the spa, and by the heated pool.

– Brenda Ward www.chuanspa.co.nz

SKINCARE RESCUE When you head into harsh winter weather with your skin already suffering from the effects of sun damage, you need to seriously replenish and revive, says Lucy Vincent.

Seasonal change brings challenges for your skin, says Lucy Vincent, founder of Sans [ceuticals].

“Sun damage can leave your skin dry, flaky, and feeling coarse. Without the essential oils and moisture that plump it up, even younger skin can look prematurely wrinkled.”

So, when winter starts, it’s even more important to encourage cell renewal, repair UV damage and prepare skin for cold, wind, and also dry, overheated indoor environments.

“At the start of winter, you need Vitamin A to keep wayward cells in check and maintain hydration levels,” she says. “You need to repair the damage and use antioxidants to protect and regenerate.”

THE THREE STEPS YOU NEED ARE: REPAIR: Vitamin A helps keep skin plump and cells healthy. Vincent recommends Sans [ceuticals] Activator 7 Body + Hair + Face Oil, which contains potent levels of Vitamin A.

REMOVE: Exfoliation will slough off dead and dull cells, to reveal fresh skin layers beneath.

Vincent suggests using Sans [ceuticals] Bio Active Body Exfoliant, a super-fine exfoliating system loaded with ginseng, to help skin adjust to environmental stresses, minimise pores, and help firm overall texture.

BOOST: Add moisture and nourishment. Sans [ceuticals] pH Perfect Body + Hand Wash is a pH-balanced cleanser which contains lychee extract to repair UV damage and leave your winter skin smooth, soft and healthy.

YO U R LIFE STY L E

PLUSH & BLUSH

As clouds mass in winter skies, retreat inside to a lush world of texture in the season’s hot hues.

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1. M oosh Merino Chunky Knit throw in Dark Grey mooshmerino.co.nz 2. 2 4 Bottles Thermo bottle in Formal Grey 24bottles.com 3. M arkantonia Dried Beauty prints markantonia.com 4.

itta Herringbone men's C dressing gown cittadesign.com

5. J ab Anstoetz Polo chair in Jab Amica davidshaw.co.nz 6.

Deadly Ponies Mr Teddy Crocotile handbag in Nightshade Bovine deadlyponies.com 7. A llbirds Wool Loungers in Kotare Pine allbirds.co.nz

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E S S E NT IALS

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Kowtow No End scarf in Dark Oatmeal kowtowclothing.com 9.

Hakanoa Hand-made Ginger, Lemon and Pure Manuka Honey syrup hakanoa-handmade.co.nz

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Juliette Hogan Colin coat juliettehogan.com 11.

Ashley & Co. Soft Locks Balanced Conditioner in Peppy & Lucent ashleyandco.co.nz 12.

Crane Brothers Nappa glove in Mocca crane-brothers.com 13.

Crane Brothers Titas bow tie crane-brothers.com 14.

Monmouth Glass Studio Dome Pendant in Tea monmouthglassstudio.com 15. H arney & Sons Hot Cinnamon Spice black tea harneyteas.co.nz 16.

BoConcept velvet cushion in Purple Plum boconcept.com

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WINTER 2017 / JuNO 87

YO U R LIFE STY L E

BOOK REVIEWER Sarah Ell

Age-Proof pools the knowledge of doctor Michael Roizen, a ‘wellness expert’ at US hospital the Cleveland Clinic, and the insights of financial commentator and writer Jean Chatzky, who appears on NBC’s Today show.

AG EPRO O F: L I V IN G LO N G ER W I T H O U T RU N N IN G O U T O F M O N E Y O R B RE A K IN G A H IP

BY J E A N C H AT ZK Y A N D M I C H A EL F. RO IZEN

Hachette, NZ$49.99 (hardback)

This book has a simple premise: there’s no point in living to a ripe old age if you don’t have any money.

Nor is it any use having lots of dough but dying young, or being too sick or infirm to enjoy your cash.

How can you do both: have a happy and healthy retirement with plenty of reserves to fund your twilight years?

AgeProof pools the knowledge of doctor Mike Roizen, a ‘wellness expert’ at US hospital the Cleveland Clinic, and the insights of financial commentator and writer Jean Chatzky, who appears on NBC’s Today show.

The Chatzky-Roizen double act explains how to ‘age-proof’ your life, enabling you to “age so that you are in control of your destiny”.

AgeProof is structured around eight key health behaviours and eight finance strategies.

88 JuNO / WINTER 2017

It starts with physical and fiscal ‘system checks’. Use these to get a snapshot of your overall health in both areas, before looking at solutions and suggestions.

The book cleverly combines personal and financial wellbeing in a chatty, accessible style. ‘AgeProof Essentials’ at the end of each chapter help to summarise the main points and act as reminders.

AgeProof has some US-specific content – with talk of American-style 401(k) pensions and medical plans. But much of the advice and information is also relevant to a New Zealand audience. As a nation, we might not be quite as overweight or broke as our American counterparts, but we’re not far off.

Whether it’s your waistline, your wallet, or both that concern you, it’s never too late (until you’re six feet under) to get the body or bank account you want – or so say the authors.

BOOK R E VIE WS

This readable guide covers all ages and stages: from five to nine, when the basics of how money works need to be laid down; the pre-teen and teen years, when money starts to have real-world applications; through to leaving school, going into higher education, getting a job, and starting to grow wealth.

P O C K E T M O N E Y TO PRO PER T Y: H OW TO C RE AT E FIN A N C I A L LY IN D EPEN D EN T K ID S

BY H A N N A H M C Q U EEN

Allen & Unwin NZ, NZ$29.99 (Paperback)

It’s that other ‘big talk’ parents dread – some people would rather do almost anything other than talk to their kids about money.

the pre-teen and teen years, when money starts to have realworld applications; through to leaving school, going into higher education, getting a job, and starting to grow wealth.

Attitudes to money and problems relating to it are being swept under the carpet. This wall of silence is causing more and more financial stress for Kiwis. And many young people are suffering ‘failure to launch’, even into their ’20s and ’30s – unable to become financially independent adults and live away from the family home and the Bank of Mum and Dad.

In a world of easy credit, cashless spending, social media pressure, and global financial instability, it is harder than ever for today’s young people to succeed financially. It’s no longer enough, McQueen says, to tick all the ‘right’ boxes of education, working, saving, and paying off a mortgage to guarantee a comfortable retirement.

Hannah McQueen is a no-nonsense financial personal trainer.

She says the number one barrier between many of her clients and financial freedom is their kids. And she’s got a plan to deal with it, starting young and increasing the amount of financial education and exposure kids receive, until they are able to control their own purse strings.

Pocket Money to Property is full of practical strategies and ideas for making money conversations easier, and instilling good habits. It covers the big topics such as debt, leverage and savings, career choices, and the special financial challenges facing girls and young women.

This readable guide covers all ages and stages: from five to nine, when the basics of how money works need to be laid down;

McQueen’s advice, if you can’t face talking to your family about money, is to find someone who will – or you’ll leave home before your kids do.

WINTER 2017 / JuNO 89

Market Insights FOR THE SOPHISTICATED INVESTOR

90 JuNO / WINTER 2017

CHART REVIEW

Between the Lines Migration and House Prices

Mike Taylor CEO/CIO, Pie Funds

NEW MIGRANTS are often blamed for the appreciation of house prices. It’s clear from the below chart that historically there’s been a very strong relationship between net migration and changes in house prices. Therefore, there is sound justification for pointing the finger at New Zealand’s migration policy as a reason for our rampant housing market.

An interesting aspect of the below chart is that the apparent breakdown between migration and house prices from 2013 coincides with when the Reserve Bank of New Zealand (RBNZ) started implementing tighter mortgage lending standards (October 2013).

At a very simple level, you could say that if the RBNZ hadn’t acted, house-price inflation could have shot up to 25 per cent.

This is a function of supply and demand: the more people arriving in the country, the greater the demand for accommodation. There are, of course, other factors that influence house prices, such as interest rates, economic growth, and supply of housing stock, but migration is a very significant factor.

Despite this, and looking forward, property owners and investors should pay close attention to net migration for clues as to the future direction of house prices. If net migration were to fall back to zero, as it did in 2012, it could have a very significant negative effect on house prices, especially if combined with higher interest rates or an economic shock (given how much house prices have risen).

Looking forward, property owners and investors should pay close attention to net migration for clues as to the future direction of house prices.

FIGURE The relationship between house prices and net migration in New Zealand FIGURE X.1.Title 7

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2004

2008

2012

2016

Source: Capital Economics Source: Capital Economics The opinions expressed by Mike Taylor in this Chart Review are his own and not those of Pie Funds and should not be attributed to Pie Funds.

WINTER 2017 / JuNO 91

STOCKS ON THE MOVE Chris Bainbridge provides a backdrop to the rises and falls of four stocks on the Australian and New Zealand exchanges.

SMALL CAP

MID CAP

Gentrack Limited [ASX:GTK / NZX:GTK]

The a2 Milk Company Limited [NZX:ATM]

Business description

Business description

Gentrack designs, develops, implements, and supports ‘mission critical’ software solutions for utility billing and airport operational systems.

The a2 Milk Company commercialises a2MC-brand milk and related products.

Movement On 4 January 2017, GTK closed at NZ$3.57. Since then its price has risen 29 per cent to close at NZ$4.63 on 5 May 2017.

What’s happened?

Movement A2M’s share price has increased 64 per cent since 4 January 2017 (as recorded 5 May 2017).

What’s happened?

In the past two months, Gentrack has made three acquisitions, in both the utilities and airport spaces.

a2 reported nine-month revenue of NZ$388.5 million and said it expects to record revenue of NZ$525 million in FY17, 2.7 per cent above consensus.

It announced in March that it had acquired Junifer Systems in the United Kingdom for £42 million, or 10x forecast FY17 EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation). Junifer was established in 2012 and has grown rapidly to establish itself as the leading billing solution for start-up energy utilities in Britain.

The NZ$132.5 million revenue figure for the third quarter highlights an acceleration in the monthly run rate to NZ$44.2 million from the NZ$42.7 million recorded in the first half of 2017. a2’s revenue was expected to have a seasonal skew to the first half, due to three major Chinese sales events (Singles Day, Chinese New Year and 12/12).

The Junifer acquisition adds 25 smaller utilities to Gentrack’s British customer base. Combined, the group will have a market-leading 32 out of 50 British energy utilities as customers.

Stronger-than-expected demand through the second half suggests that the maturity of the a2 growth profile may have been overestimated.

Smaller utilities have been rapidly taking share from the ‘Big Six’ in the UK in recent years, with market share of connections increasing from 0 per cent in 2012 to 15 per cent in 2016. This trend is expected to continue, with small utilities forecast to expand their market share to 30 per cent by 2020.

In April, Gentrack announced the acquisition of two more companies: Blip Systems and CA Plus Limited, for NZ$8.4 million and NZ$11.4 million respectively.

The deal enhances Gentrack’s airport software product suite, which can be offered to the group’s new and existing worldwide customers.

What next?

Gentrack reports its interim result on 25 May 2017. It has given pre-guidance of 20 per cent revenue growth (on the previous corresponding period) and 30 per cent margin.

What next?

The next question is whether there will be another upgrade at its 2017 financial year results. Guidance implies fourth-quarter revenues will be essentially flat on those of the third quarter (NZ$136 million compared to NZ$132 million). But if it is able to get the supply growth online in the fourth quarter that it hopes to, that’s looking conservative, especially considering the quarter-on-quarter growth over the past couple of years.

SMALL CAP

SMALL CAP

RCG Corporation Limited [ASX:RCG]

Select Harvests Limited [ASX:SHV]

Business description

Business description

RCG owns and operates footwear and apparel stores in Australia and New Zealand. The company’s The Athlete's Foot segment franchises and retails general sports footwear. Its RCG Brands segment acts as a wholesaler and retailer of brands such as Caterpillar.

The company’s Accent Group segment operates as a wholesaler and retailer of brands such as Skechers, Vans, and Dr Martens.

Select Harvests engages in the processing, packaging, marketing, and distributing of nuts, dried fruits, seeds, and a range of natural health foods in Australia.

Movement RCG has dropped 57 per cent since 4 January 2017 (as recorded 5 May 2017)

What’s happened?

RCG provided a trading update on 1 May 2017, with weak like-for-like (LFL) sales continuing due to challenging retail conditions.

The 2017 financial year’s underlying EBITDA was revised downwards to AU$74–80 million, versus previous guidance of AU$85–88 million.

While Accent and Hype improved after the first-half trading update, they did not meet the management’s expectations.

The trading update was an improvement on the first seven weeks (particularly in Accent and Hype), but both Accent and Hype were cycling strong comparables for the first seven weeks of the second half of 2017.

Movement On 4 January 2017 SHV closed at AU$6.67. Since then SHV has declined 25 per cent to AU$4.98 on 5 May 2017.

What’s happened?

Select has lowered its 2017 financial year crop estimate by 5 to 10 per cent. While not conclusive at this stage, Select says most of the lower-thanexpected yields are due to a higher percentage of ‘blank’ nuts – empty shells.

It’s possible that the below-average temperatures during spring had an adverse effect on the early stages of nut development. There’s no evidence to suggest the issue will be ongoing.

What next?

The current share price appears to reflect the risks of balancing an expanding productive asset base for Select Harvests over the next nine years, against the prospect of continued subdued near-term almond prices, as an expanded Californian acreage matures.

What next?

Despite the severe share-price reaction since the firsthalf result and discounted multiple, investors may wish to see a return to positive momentum in like-for-like sales growth before being comfortable making an investment in the company.

M ARK E T CAPITALISATION

AU S TR AL I A/ N EW Z EAL AN D

U N I TED S TATES

NANO CAP

Less than AU$25 million

Less than US$50 million

M ICRO CAP

AU$25 million–AU$150 million

US$50 million–US$300 million

SM ALL CAP

AU$150 million–AU$1 billion

US$300 million–US$2 billion

M ID CAP

AU$1 billion–AU$5 billion

US$2 billion–US$10 billion

L ARGE CAP

AU$5 billion–AU$50 billion

US$10 billion–US$100 billion

M E GA CAP

Greater than AU$50 billion

Greater than US$100 billion

WINTER 2017 / JuNO 93

YO U R INV E STIN G

STOCK REVIEW

Nick Scali: Sitting Pretty for Now Mike Ross

Investment Analyst, Pie Funds

House-proud Australians have pushed up sales for sofa- and lounge-furniture retailer Nick Scali. The company has a great story of double-digit growth and the business is currently experiencing strong momentum, writes Mike Ross.

NICK SCALI is a company that ticks a lot of boxes for investors looking for solid fundamentals. The company has consistently grown earnings per share for the best part of a decade, and has achieved a long-term return on equity in excess of 30 per cent.

Double-digit earnings growth is forecast over the next few years and the company has a solid balance sheet. The stock does not look too expensive on a price-to-earnings ratio in the midteens. However, it’s also important to consider that Nick Scali has been a beneficiary of the booming housing market for some time. Its seemingly modest valuation may be due to concerns around the sustainability of this trend.

The business Nick Scali is a furniture retailer in Australia with 50 stores across all states. The company’s namesake offering is positioned at the upper end of the mid-market, comprising 45 of its 50 stores and its customers are generally second, third or fourth home buyers as opposed to first home buyers. The remaining five stores are branded Sofas2GO and are positioned at the low end of the market.

The business model is capital-light, with low inventory risk for a retailer because its stores are effectively showrooms where the customer places an order, putting down a deposit. There’s a ten-week turnaround for the product to be sourced from the company’s manufacturers in China, Malaysia and Vietnam, then delivered to the customer. The ten-week sales order cycle means the company has good visibility to future revenue.

Nick Scali has managed its marketing spend to a fixed percentage of revenue so, as the company has grown, a larger marketing budget has been effective in driving increased foot traffic into its 94 JuNO / WINTER 2017

SRF NCKPRICE PRICE

NZ$TBC AU$7.21 As at 16 As November at 5 May 2017 2015

SRF NCKMARKET MARKETCAP CAP

AU$584M NZ$TBC As at 16 As November at 5 May 2017 2015

stores. This has proven particularly effective in the Australian furniture industry because of its fragmented nature. There are many smaller operators who naturally have much smaller marketing budgets than Nick Scali.

The growth Increased market share has helped drive like-forlike store sales at Nick Scali’s stores. The company recorded like-for-like sales growth of 10.1 per cent for the six months to December 31 2016 after achieving 11.1 per cent in the year to June 2016.

The company recently confirmed that double-digit same-store sales growth had continued to the end of April and that it was on track to grow net profit after tax by around 40 per cent in the 2017 financial year.

Looking ahead to the 2018 financial year, the company will also benefit from the ramp-up of a store roll-out program. The company will open five stores this financial year, with plans to open another seven next year. This year, the company is not cycling many new stores previously opened, so profit growth has largely come from strong same-store sales and keeping costs under control.

New stores will underpin the company’s growth next year so it is less reliant on same-store sales growth to grow profits.

Expanding the range Nick Scali has also focused on increasing sales of non-lounge items, such as rugs and casegoods.

In addition to driving same-store sales growth, these items tend to have higher gross margins than lounges.

A new distribution centre in New South Wales should also help introduce efficiencies, as the previous centre was running over capacity.

S TOC K R E VIE W

Double-digit earnings growth is forecast over the next few years and the company has a solid balance sheet.

YO U R INV E STIN G

The company is highly cash-generative and with its solid net-cash balance sheet, it could consider acquisitions to continue growth. Management has identified Britain and New Zealand as attractive growth markets with similar characteristics to Australia.

The company is also considering the future of its Sofas2Go brand, which has not been expanded for some time. The lower end of the furniture market is more commoditised, so I expect management to discontinue this part of the business.

Management with skin in the game Most investors place a lot of value on high management ownership as it means the interests of those driving the business are aligned with minority shareholders. Nick Scali fits this bill. Chief executive Anthony Scali owns 27 per cent of the business, having increased his stake from 16.7 per cent in 2016 after buying shares from family at AU$3.80 per share.

The shares are now hovering around AU$7.20.

The risks The key risk for Nick Scali is the Australian housing market and how a drop, or a slowing of growth, might affect consumer spending. The talent of its management should not be discounted, but there’s no

96 JuNO / WINTER 2017

question that the company’s success since the global financial crisis has been pushed along by the housing boom.

The wealth effect of consumers sitting on paper or realised housing profits helps all discretionary retailers, but particularly those selling products to go into those homes.

The other housing-market-related risk is housing turnover – the rate at which homes are bought and sold. Theoretically, a company like Nick Scali should sell more products when people are buying more houses. However, the company has managed to outperform in recent times even though listing volumes in Australia are at their lowest levels in a long time. The fact that Nick Scali has been able to generate such high sales growth in this environment supports the view it’s taking market share from its competitors.

The other risk to consider is the shift to online sales.

Amazon’s recent confirmation of its entry into the Australian market has led to declines in the share prices of many retailers. Furniture should be less exposed to this risk because shipping costs are higher for heavier, bulkier items. Online retail sales thrive on the ability to return products at a reasonable cost to the retailer. For higher-value goods, consumers also place more importance on the ability to try, see and feel before they buy.

J U NO P ROMOT ION

Investing in Our Children An innovative new fund is aiming to help the government reach its ambitious targets for early childhood education.

FORTY YEARS AGO, American jazz legend George Benson penned the lyrics of The Greatest Love of All, later made famous by Whitney Houston.

+

Today, those New Zealanders who heard that song when it was first released, with its opening line about children being the future, are now parents themselves, and its message still rings true.

Kiwi parents today continue to firmly believe that growing a successful future for their kids means providing top-quality education opportunities for them, from even the earliest age.

Government target In 2012, the New Zealand government set itself the goal of ensuring 98 per cent of all children between the ages of three and five would attend a quality early learning centre prior to starting primary school.

It committed NZ$80 million over four years to achieve this, which included giving subsidies to early learning centres to ensure their fees were affordable.

In response to this ever-growing need for more early learning centres, Property Managers Group has entered into a partnership with a specialised early learning centre planner and developer to set up quality childcare properties across New Zealand, says Scott McKenzie, its chief executive.

Early learning fund McKenzie says the company is creating a dedicated early learning fund to help build multiple centres across New Zealand.

“Early learning centres reinforce what children are learning at home and in the community. They provide experiences in numeracy, literacy and science, but through the child’s preferences and choices in free play,” he says.

Recent data shows the percentage of new entrants starting school during the year ending 30 June 2015, who had attended an early learning centre was

96.2 per cent, an increase of 0.3 per cent over the year ending 30 June 2014.

This increase is not hugely significant, but it’s putting pressure on existing childcare facilities, particularly in main centres, says McKenzie. “Many parents have to place their children on long waiting lists before they can start at a childcare centre.”

Pressure on facilities There has been steady growth in the sector, he says, but there remains the need to continue to invest in growing capacity, which presents an ongoing investment opportunity.

The new fund supports the government’s goal in a very concrete way, says McKenzie.

“We’re pleased to provide an alternative investment choice for our investors, as well as the opportunity for them to contribute to the education of young New Zealanders – a cause so many of us are very passionate about.”

Experienced operators The PMG Direct Childcare Fund is part of PMG’s investment diversification strategy, and will be underpinned by experienced childcare operators on long-term lease contracts to provide secure and stable income for investors, he says.

“Our partners are experts in connecting existing operators with suitable sites for early childhood education, and project and development management.

For PMG, this is all a part of helping to support the welfare, education and prosperity of New Zealanders in the longer term,” says McKenzie.

“The fund is also part of a wider PMG initiative to use the skills that we have, as property professionals, to help tackle issues in the community.”

For further information about PMG Direct Childcare Fund and to learn how you can help kids get a better start to life, please contact Matt McHardy at PMG’s Tauranga office. www.propertymgr.co.nz WINTER 2017 / JuNO 97

SNAP

A glance at events affecting the global economy (as at 8 May 2017)

UK – Prime minister Theresa May announces a snap general election for 8 June 2017, to help secure a greater Conservative Party majority and strengthen the UK’s position in Brexit negotiations.

US – Donald Trump announces ‘phenomenal’ tax cut proposals, including a drop in the corporate tax rate from 35 per cent to 15 per cent.

Peru – The World Bank projects 3.7 per cent economic growth for Peru in 2017, the fastest-growing economy in South America.

98 JuNO / WINTER 2017

France – Former investment banker and centrist leader Emmanuel Macron beats anti-EU far-right Front National leader Marine Le Pen in the French presidential election on 7 May.

North Korea – The US is putting pressure on China to rein in neighbouring North Korea and enforce sanctions, or otherwise suffer on future trade deals.

New Zealand – Net Migration reaches another new peak of 71,932 in the year to 31 March 2017. Five years earlier it was near zero.

Japan – Bank of Japan raises economic forecasts but the country is still only growing at 1.6 per cent per annum and is struggling to accelerate inflation.

Australia – Labor Shadow Treasurer Chris Bowen says Australian housing market poses an economic risk if prices fall, due to the record levels of mortgage debt.

WINTER 2017 / JuNO 99

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YO U R INV E STIN G

MARKET INSIGHTS

KEVIN MORGAN

The Fed: A Peek Inside the US Financial Powerhouse

Title

The markets hang on every move the US Federal Reserve makes.

Chris Smith offers some insights into Fed operations and the focus of this highly influential financial institution.

Chris Smith CMC Markets

THE UNITED STATES Federal Reserve System is arguably the most powerful central bank in the world. Yet it is known in the financial world simply as ‘The Fed’.

The FOMC is made up of the governors of the Federal Reserve board plus five regional Reserve Bank presidents. It meets eight times a year to decide on US monetary policy.

The financial markets are obsessed with the decisions made by its Federal Open Market Committee (FOMC) – which manages open-market operations and the buying and selling of government securities – and other policies the bank implements, because these can affect individuals and businesses around the world.

The 12 regional banks all opened on 16 November 1914 and are named after the locations of their headquarters – Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St Louis, Minneapolis, Kansas City, Dallas, and San Francisco.

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Origins of the Fed The Federal Reserve (Fed) dates back to 1910, when a group of politicians and businessmen gathered for a secret meeting on Jekyll Island, off the coast of southern Georgia.

The group met to map out plans for a central banking body. This eventually became the US Federal Reserve, when President Woodrow Wilson enacted the Federal Reserve Act on 23 December 1913. Although the bank has ‘Federal’ in its title, in fact it isn’t a government entity and it’s privately owned by its members.

The Fed was originally granted control over managing the purchasing power of the US dollar and credit available within the US financial system, and maintaining stability in the economy.

During the 100 years since, the powers of the Fed have expanded dramatically and it has become a powerful force in the financial world. In 1994, Paul Volcker, chair of the Fed from 1979 to 1987, summed up its influence: “The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.”

The decision-makers The Fed was designed to operate independently of government and political pressure.

The chair of the board of governors delivers a press conference after four of the eight scheduled meetings and the regional members at the FOMC meetings rotate each year. However, the president of the Federal Reserve Bank of New York has a permanent voting seat.

Yellen in charge Janet Yellen became instantly recognisable in the financial community when she took over the role of Chair of the Board of Governors of the Federal Reserve System in 2014. She succeeded the outspoken and highprofile former chairs Ben Bernanke (to whom Yellen was vice-chair) and Alan Greenspan. The powerful trio have all been on the cover of TIME magazine over the years.

Dr Yellen, an economist, is the first woman to head the Fed and has dedicated her working life to academia and the central bank. Interestingly, the Fed hires more PhD economists than most institutions in the world, with more than 300 on the payroll.

Dr Yellen previously served as president of the Federal Reserve Bank of San Francisco between 2004 and 2010, over an important period of boom and bust in the state of California.

She’s also the first Democrat since Paul Volcker to lead the Fed and is very much considered a ‘dove’ (someone who supports low interest rates) by Wall Street.

WINTER 2017 / JuNO 101

YO U R INV E STIN G

More than setting interest rates The Fed is best known for moving and maintaining its benchmark US short-term interest rates (effectively, the price of money). But it has other important functions too.

The FOMC has two main objectives: maximising employment and keeping prices stable at an inflation rate of around 2 per cent.

To do that, Fed officials can raise and lower interest rates and buy up treasuries and other government bonds. Following various acts of Congress in 2008, the Fed now has the authority to buy and hold all sorts of assets on its balance sheet.

Fed district banks also publish regular economic data and research reports, and supervise and regulate banking members to ensure the financial system stays robust.

The unexpected and unconventional The Fed does not physically print money, as many people believe. (The US Treasury is responsible for this.) But it does have the ability to create credit in the system as the ‘banker’ for banks (its members).

Unconventional policies, such as Quantitative Easing (QE), hit the headlines in 2008. Initially, this was a response to the dangers posed to financial system by the fallout from the US sub-prime mortgage crisis. At the time, the Fed purchased government bonds outright from member banks to add liquidity to capital markets, stimulate lending, cover collateral requirements, and reduce counter-party risks.

Fed up with the Fed The Fed’s 2 per cent inflation target was set relatively recently. Critics from within have questioned the policy, among them, Volcker, who asked in a Wall Street Journal interview: “Why do we want prices to double every generation?” No sound case can be made for central bank-created inflation in an economy, he argued.

Volcker also commented on the Fed’s decision to provide long-term economic forecasts with greater frequency and in more detail. “The fate of the Fed cannot depend on forecasts it makes, and simply demonstrates to the public more frequently that forecasts are not that accurate.”

The Fed has overseen one crisis after another, the scale of which has increased each time. They include the share market crash of 1987, the collapse of hedge fund management firm Long Term Capital Management in 1998, the Dotcom bust of 2000 and the sub-prime mortgage crisis of 2007.

102 JuNO / WINTER 2017

This has left many questioning the models the Fed uses to steer the economy and whether these are now outdated, and asking if the Fed is in need of an overhaul.

Some critics of the Fed also focus on the supervision errors that have led to too many financial crises that could have been foreseen and prevented. They point to the possible conflict of interest the Fed has in regulating institutions and member banks that have an ownership interest in it. Calls have been made for more transparency and regular audits of the Fed, which have also led to robust discussion in Congress, led by former Texas congressman Dr Ron Paul.

Trump and the Fed: Friction ahead The Trump administration and the Fed may soon be facing off. The Fed wants to normalise interest rates and gradually reduce its record US$4.5 trilliondollar balance sheet (see Figure 1). But the Trump administration’s policies look likely instead to create more debt. These policies, such as tax cuts, could further increase an already-stretched national debt that has now ballooned to more than US$20 trillion, a legacy of previous administrations.

The growing size of the US national debt is already soaking up more and more taxation revenue and there is a practical limit to how much the Fed can raise interest rates and continue to service the debt.

Janet Yellen’s term as Fed chair is coming to an end in January 2018, and the decision on whether she gets reappointed will be in President Trump’s hands. The world will be watching to see what happens.

DEFINITIONS D OV E : A policymaker who promotes monetary policies involving low interest rates, based on the belief that low interest rates increase employment.

H AW K : A policymaker who generally favours relatively high

interest rates, in order to keep inflation in check.

M O N E TA RY P O L I C Y: The process through which a central bank controls the supply of money, using mechanisms such as inflation and interest rates.

O P E N - M A R K E T O P E R AT I O N S : The trading of government securities in the open market in order to control the amount of money in the banking system.

Q UA N T I TAT I V E E A S I N G (Q E ): A method of stimulating a national economy, by lowering interest rates and increasing the supply of money.

T R E A S U R I E S : An investment offered by the US Department of the Treasury, such as government bonds.

MAR KE T INS IGHT S

The growing size of the US national debt is already soaking up more and more taxation revenue and there is a practical limit to how much the Fed can raise interest rates and continue to service the debt.

FIGURE 1. US Federal Reserve: value of total assets FIGURE X. All Federal Reserve Banks Total Assets 5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0 2003

2005

2007

2009

2011

2013

2015

2017

Source: Fred Economic Research, St Louis Fed Source: Fred Economic Research St Louis Fed WINTER 2017 / JuNO 103

YO U R INV E STIN G

MARKET INSIGHTS

Should We Still Expect a ‘Trump Boom’?

Andrew Kenningham explains that the outlook for the US economy is fairly bright regardless of whether President Trump manages to implement his planned fiscal stimulus. But he also highlights three risks to the US recovery.

Andrew Kenningham Capital Economics

A FEW HOURS after Donald Trump’s election victory last November, US equity markets and Treasury yields began to rise, and they continued on an upward trend until early 2017. Investors appeared to be optimistic that Trump’s plans for tax cuts and deregulation would help to boost economic growth, and that this in turn would lead to higher inflation.

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Since Trump’s inauguration, the euphoria has faded, but equity markets have held onto most of their gains, and Treasury yields have remained much higher than they were before the election.

So are investors right to expect a Trump boom?

Tax cuts and deregulation It now looks as if any fiscal stimulus will be much smaller than originally expected. The White House’s conflict with Congress over issues such as healthcare reform and funding for the Mexican border wall suggest that Trump will find it difficult to get agreement on his tax cuts and infrastructure investment plans.

Having promised something ‘phenomenal’ on tax policy, all he's delivered is a 250-word summary of his plans. Tax cuts will probably be smaller than hoped, and are unlikely to be passed until 2018.

Deregulation will probably not help the economy much either. Trump promised to repeal the DoddFrank bill that set higher capital and liquidity requirements for the banking system. But there is little evidence that these regulations are holding back bank lending, so repealing them would not greatly boost investment or consumption.

Economics trumps politics Fortunately, the outlook for the US economy is fairly bright, regardless of Trump’s policies.

104 JuNO / WINTER 2017

US growth stalled in the first three months of 2017, but that seems to reflect temporary factors, including some unusual weather conditions, rather than being the start of a lasting downturn.

Business and household surveys point to a rebound in the second quarter.

Both the main drivers of economic activity – household consumption and investment – look set to rise steadily.

Households have good reason to increase their spending because the economy has continued to create large numbers of new jobs, reducing the unemployment rate to its lowest level since 2007.

The combination of steady economic growth and exceptionally low interest rates is encouraging businesses to step up their investment.

After a couple of tough years, the shale oil industry has bounced back. There has also been a sharp pick-up in residential investment due to the improved economic outlook and backlog of demand for new properties.

Overall, the US looks set for economic growth of around 2.5 per cent this year and next. While that is not as fast as the pace reached in the late 1990s, it is above the 1.5 per cent rate achieved last year.

Three potential risks Needless to say, there are risks to this relatively rosy outlook. I would like to highlight three.

1. Will the Fed spoil the party?

The first is that monetary policy tightening by the Federal Reserve may choke off the recovery.

Interest rates have been at rock-bottom levels since the end of 2008, but the Fed has now begun to raise them.

MAR KE T INS IGHT S

Members of its policy-setting committee, the FOMC, have said that they expect to raise their key policy rate from below 1 per cent at present to nearly 3 per cent by the end of 2019.

However, my assessment is that this risk is not too worrying at present. Interest rates would still be low by past standards. And both household and corporate debt burdens are much lower than they were a few years ago, meaning the cost of servicing these debts should be manageable. What’s more, if the recovery stalled, policy-makers would postpone or scale back their interest-rate hikes.

2. Protectionist threat The second threat is that one of Trump’s key policies actually damages economic prospects. So far, proposals to label China a currency manipulator, to walk away from NAFTA (North American Free Trade agreement), and to impose huge tariffs on imports from emerging economies have come to nothing. Instead, the US has limited itself to measures targeted at sectors such as steel, aluminium, and lumber, which have limited implications for the wider economy.

Looking ahead, if Trump’s approval ratings (and the economy) slump, he may dust off his campaign promises ahead of the 2020 presidential elections and pursue a much more protectionist agenda. And if other governments retaliate, the result would be a global economic slowdown, which would drag the US down with it. So this risk – although not particularly likely – is definitely worth keeping an eye on.

3. An external shock The third risk is an external shock. One of the reasons for US economic prospects being relatively bright in 2017 and 2018 is that the rest of the world economy is recovering. Business surveys and official GDP data show that growth has picked up even in the euro-zone and Japan, which were previously struggling. Fears of deflation have largely passed. And even world trade volumes have been picking up.

Nonetheless, a problem in the rest of the world could yet derail the US recovery. Among other things, the euro-zone crisis could flare up again, fears of a Chinese devaluation could resurface, or a geopolitical crisis in the Middle East could lead to a sharp rise in oil prices. My assessment is that these external risks are the most likely cause of a downturn in the US in the next year or two.

The big picture still bright Overall, the outlook for the US economy looks fairly bright – despite, rather than because of, Trump. The global financial crisis, which began in the US property market 10 years ago, is largely over; public and private debt burdens have been reduced; and the labour market is almost back to full employment. Against this backdrop it is likely that the US economy will expand at a steady pace and both inflation and interest rates will rise, but only gradually.

While there are always risks to keep investors awake at night, they look like less of a concern today than they have during most of the past few years.

WINTER 2017 / JuNO 105

YO U R INV E STIN G

MARKET INSIGHTS

The EU on a Precarious Tightrope Mark Devcich Pie Funds

After the relief of the recent election result in France, which saw political youngster Emmanuel Macron voted in as president, Europe braces itself for the German federal elections in September. Mark Devcich looks at the political movements that are worrying the financial markets.

AFTER TWO UNEXPECTED election results last year – the Brexit referendum on European Union (EU) membership and Donald Trump winning the United States presidential race – the financial markets are bracing themselves for elections in Europe this year and the potential for unexpected outcomes.

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The concern for the markets is that a groundswell of anti-immigration and anti-EU feeling could grow and sweep across Europe. Given the current fragility of the EU, if this movement gathers support in one country, it could create a domino effect, causing ructions further afield.

Europe goes to the polls First, the Dutch parliamentary election in March went as expected and financial markets breathed a sigh of relief as the anti-establishment populist candidate Geert Wilders failed to gain enough support and the People's Party won again, by a decisive margin.

Now, the markets are relieved about an even more important election result – far-right lawyer Marine Le Pen failed to win the French presidential election.

And at the time of writing, the result of the UK general election on 8 June is unknown. Incumbent prime minister Theresa May called an early election to gain a stronger political mandate ahead of Brexit negotiations and take advantage of the disarray her opponents, especially the Labour Party, are experiencing.

However, the most important vote in Europe this year is still to come – the German federal election on 24 September. For the financial markets, it’s 106 JuNO / WINTER 2017

crucial that the new ruling coalition is supportive of the EU. The alternative may lead to extreme uncertainty and a potential dismantling of the EU, especially if a key member such as Germany were to change its position on Europe.

If Le Pen had won in France, the EU would have been in crisis mode as her party, the Front National, is far right, anti-EU and was looking to make France more protectionist.

Historic French election Instead it was a landslide victory for centrist, and former economy minister and investment banker Emmanuel Macron, who ran as an independent.

Macron won the first round of voting on 23 April with 24 per cent of votes, ahead of Le Pen, who took 22 per cent. In the second round on 7 May, when it was down to just the two leading candidates, Macron won by a landslide 65 per cent to Le Pen’s 35 per cent.

Macron was an interesting candidate, much for his relative youth, which at the age of 39 makes him France’s youngest president. But he also attracted a lot of headlines because of his wife, who is 25 years older than him.

Macron has liberal economic inclinations, but is left-leaning socially. He campaigned on cutting public spending and taxes, relaxing labour laws, and reforming the unemployment system.

What made the race more intriguing was that it was the first time in many years that the traditional left and right parties both failed to progress beyond the first round of voting.

The other feature of the French elections was the relative accuracy of the polls leading into

MAR KE T INS IGHT S

The financial markets are bracing themselves for elections in Europe this year and the potential for unexpected outcomes.

WINTER 2017 / JuNO 107

YO U R INV E STIN G

the elections, especially compared to the Brexit referendum and the US elections. This meant there were likely to be fewer surprises that could upset financial markets.

The polls had Macron as the clear favourite to win the second round of voting, and that prediction turned out to be spot on. This accuracy may be explained by typically higher voter participation in France, which means fewer hidden voters, although the turnout this time was one of the lowest for many elections.

The single national vote is also easier to model than results of the 650 individual elections for the UK Parliament or the 50 state contests that decide the US presidency.

All eyes on Germany Chancellor Angela Merkel, Europe’s most powerful politician, still commands about 35 per cent support within Germany. However, like the incumbent People’s Party in the Netherlands, Merkel’s centreright Christian Democrats will be under strong attack from far-right populist movements, such as the Alternative for Germany (AFD) party, which was formed in 2013.

Any result that saw Merkel toppled would send shockwaves through Europe. However, the initial polling suggests that Merkel has a strong lead over the challenging parties, with the AFD polling between 108 JuNO / WINTER 2017

10 and 15 per cent. Her main rivals, the German Social Democrats (SPD), have seen their popularity fall below 30 per cent, in comparison.

Merkel’s position is stronger than the polling suggests, especially as the AFD would struggle to form a coalition with other parties, even if it took a substantial portion of the vote.

Support for populism The rise of populism is great for newspaper headlines.

But in reality it is difficult to see the extreme far-right parties holding the balance of power in Germany. This situation is likely to placate the markets until they find the next reason to worry.

Longer term though, the composition of the EU seems to be more difficult to justify in its current state, because of the vastly differing outcomes for its members.

The countries that are seeing the most advantage from the EU seem to be larger, richer ones, such as Germany, because they benefit from a weakened currency and a cheap supply of labour.

When elections come around in the EU’s less-wealthy member countries, they may unveil more populist support for an anti-EU agenda than is being found in France and Germany.

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Earn Your Reward for Saying it Plainly Plain English Awards 2017 Be recognised as a clear communicator If you’re a JUNO reader or contributor, clear writing is important to you. New Zealand’s annual Plain English Awards are a great opportunity to be recognised for your efforts to write financial and other information plainly.

A grand prize worth NZ$5,000 and an awards category to suit your organisation If your whole organisation is committed to plain English, you’ll be a contender for the premier award – Plain English Champion: Best Organisation. This award comes with a prize worth NZ$5,000! You’ll probably also have suitable entries for Best Project, and Best Individual or Team, along with Best Annual Report.

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If you’re rushed for time, even a humble sentence can win you a trophy. Find a terrible sentence at your place (they’re lurking everywhere), rewrite it plainly and enter the Best Plain English Sentence Transformation.

W RI T T EN BY G REG O RY FO R T U I N

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You can enter any document or website (other than your own) that has the potential to frustrate or confuse, or doesn’t do the job it should do.

Or, if you find a praiseworthy document or website that deserves a bouquet, you can enter it in the People’s Choice – Best Communication category.

Entries are open now It’s time to enter. To find out more, go to the website: plainenglishawards.org.nz.

The Plain English Awards, now in their 12th year, are organised and hosted by the WriteMark Plain English Awards Trust.

YO U R INV E STIN G

MARKET INSIGHTS

New Leases on Life Brett Whalley CBRE

Investing in offices, shops, and factories is not at the top of everyone’s list, says Brett Whalley – and that’s a good thing. It means there are good finds and great returns to be made in the ever-growing commercial market.

Time is right

SO, YOU’RE CONSIDERING commercial property as an investment. Good on you. You’re one step ahead of the mass of Kiwis trying to secure their own residential investment property or ‘renter’.

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Now is a great time to invest in commercial property. A supportive business environment, strong population growth, and a vibrant economy strongly underpin the market. And New Zealand’s doing well compared to its peers overseas.

You’ll also be dipping your toes into a market which is now particularly buoyant – and all indications are that this will continue. Plus, who can dispute the satisfaction of knowing you are the proud owner of a piece of main-street real estate, when commerce and business activity drive the economic engine of the nation?

When we compare returns around the world’s developed economies, the New Zealand commercial property market has offered the second-best total return performance over the last 16 years (after Hong Kong).

The last three years have been especially strong, well ahead of pre-global financial crisis (GFC) levels.

But first, let’s define what exactly we’re talking about. There are three main classes or sectors of commercial property: offices, retail, and Industrial.

FIGURE X. Average total property market returns per year (2000-2016) Source: IPD/MSCI

FIGURE 1. Annual average total property market returns 2000-2016

11%

Europe

9% North America

11% 9%

110 JuNO / WINTER 2017

Canada USA

France Norway Poland Ireland UK Sweden

8%

Denmark Portugal

7%

Netherlands Spain Finland

6%

Switzerland Belgium Austria

5%

Italy Hungary

4%

Germany

p.a.

Asia

13% 9% 5%

Hong Kong

Korea Singapore China Taiwan

Australasia

11% New Zealand 10% Australia

Japan

New Zealand has the second highest average annual return for property investments.

Source: IPD/MSCI

MAR KE T INS IGHT S

There are three words you need to know:

location, tenant and lease.

Offices

Major retailers are increasingly seeing shop-fronts as complementing their e-commerce channels, promoting brands and enhancing customer experience.

Offices are the sector most associated with commercial real estate. The office sector and its yields have been performing strongly.

The arrival in New Zealand last year of global brands such as H&M and Zara shows there is confidence in the New Zealand market, and this is expected to increase significantly over the coming years.

Offices can be located in towns and cities, or in satellite commercial hubs, such as office parks.

Retail

Industrial

The retail sector is experiencing a sustained period of activity. You might have heard that more customers are shopping online, but that’s only part of the story.

Industrial property has also seen a resurgence, as manufacturing grows.

FIGURE 2. Six-monthly total investment sales in New Zealand 2005-2016 ($5m +) FIGURE X. Number of commercial property sales vs. sales 150

$4.75b

120

$3.80b

90

$2.85b

60

$1.90b

30

$0.95b

0

2005

2006

2007

Source: CBRE Research

2008

2009

2010

2011

2012

2013

2014

2015

2016

$0

Time (First half and second half )

WINTER 2017 / JuNO 111

YO U R INV E STIN G

The rise of e-commerce is also creating greater demand for warehouse space, where companies can store and dispatch their products.

What to look for, and where When considering the sort of commercial property to invest in, there are three words you need to know: location, tenant, and lease.

As in the residential market, location is key for commercial properties. But the difference with commercial is that it’s all about high profile and connectivity. Factors to consider include road frontage, car parking, pedestrian and vehicle access, public transport routes, nearby amenities and surrounding sites, and other brands neighbouring the property.

As a rule of thumb, look to new infrastructure as a signal of where to invest. In Auckland, sites along the City Rail Link are a good place to start. Look also for opportunities along the Southwestern Motorway.

The Waterview Connection, which opens this year, will completely transform how people get around the city, and better connect suburbs along that route.

Traditionally, commercial properties – especially main-street retail or offices – are held by long-term investors who rarely sell. This makes this latest planning-regime change an extremely exciting opportunity to move into commercial property.

It’s not just isolated to Auckland. In Christchurch, for example, new commercial space and retail properties are being built to support the new residential subdivisions in the outlying suburbs – places like Lincoln and Halswell.

Queenstown is positively exploding as infrastructure and amenities catch up with recent population growth.

So, now is a good time to get into commercial property – although it’s important you get solid advice across the life-cycle of the asset. Make sure you do your due diligence with valuation and building-condition reports, and seek advice on the purchase and the all-important factors of lease creation and tenancy management, which covers rent reviews.

Commercial vs Residential

The right tenant is the key to a successful commercial investment. Tenants usually stay for the long term and are usually responsible for paying outgoings such as utilities, insurance, rates, and management expenses.

ANOTHER BASKET FOR YOUR EGGS: Commercial property offers an alternative asset as part of a diversified investment portfolio. It will provide you with a good, steady income stream.

The main aspects of the lease are quite simple. The key elements are the current level of rent, timing of future rent reviews and renewals, upkeep, the tenant’s responsibilities, and any ‘make-good clause’ for when the lease ends. A good starting point is the Auckland District Law Society’s pro-forma lease agreement, which is generally accepted by most New Zealand businesses.

BETTER TENANT BENEFITS: Tenants often spend their own money on the property, especially in the case of retail properties, and the right industrial tenant can be quite self-sufficient.

Future trends The big commercial property story we’re seeing in greater Auckland is the rise of the suburban nodes and business parks due to favourable changes in the Unitary Plan. These have created a whole raft of mixed-use and commercial zones, to help drive growth around transport hubs.

This is a huge thing for commercial property investors, as it will mean they have better ability to buy into the market and more choice, as new satellite urban centres from Albany to the airport take shape.

112 JuNO / WINTER 2017

GOOD RETURNS: Residential property investments are hard-pressed to produce a greater than 4 per cent gross income yield, especially in Auckland, but many commercial and industrial investments can produce income yields greater than 5 per cent. And, importantly, this is measured on the net rental.

SMALLER POOL TO PLAY IN: Prices for commercial properties are higher, and banks are taking a more conservative approach to lending, so the pool of commercial investors is a lot smaller than in the residential market. This can mean less competition for good-quality commercial properties.

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To download our Product Disclosure Statements and Statement of Investment Policy and Objectives visit www.piefunds.co.nz or www.companiesoffice.govt.nz/disclose. Past performance is not a guarantee of future returns. No person, including the Directors of Pie Funds Management Limited, guarantees the repayment of units in the funds or any return of units in the funds. Returns can be negative as well as positive and returns over different periods may vary.

15.6% TOTAL RETURN SINCE INCEPTION

NOV 2016 TO 28 APR 2017