Informed Investor - Spring 2022 - Money Mindset - BUY

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ISSN 2744-6085

4-DAY WORK WEEK Let’s work less and get the balance back

FOMO TO FOOP The property market rollercoaster

BUY HAPPINESS Which spending makes you happier?

1st-time property investors kickstart their portfolio

Why did you start investing in property?

Our parents never thought about what their retirement would look like, so now their lifestyle is restricted to what the Govt pension allows them to live. We don’t want that to happen to us.

How is property investment going to help you achieve your goal?

Based on the plan we created with Stevie (a financial adviser from Opes Partners), if we bought two growth properties combined with Kiwisaver & Super… We would be on track to build a $105K passive income.

though we had to make a sacrifice and take “Even on some risks, at least know we are on track to hit our goals. It will pay off in the long run. ” What’s the reason you chose the passive income strategy?

We want to be the first generation to start building generational wealth.

If we use the passive income strategy (Golden Goose), we don’t have to sell our assets when we retire.

What’s the biggest challenge you’ve faced?

The hardest thing is stomaching the top-up needed for the properties and the inherent risk that comes with any kind of investment.

How did you feel once you went unconditional on your two investment properties?

Once we went unconditional, we were excited and proud that we had done something. Although we are nervous, we are more excited than anything.

What’s your biggest takeaway from becoming an investor?

Even though we had to make a sacrifice and take on some risks, at least know we are on track to hit our goals. It will pay off in the long run.

Helping Kiwis invest in property and retire on real estate.

Contents IN THIS ISSUE

12.

What We Like

52.

We find the hottest products, services, and places.

20.

When You Set Goals, You Set Yourself Apart

56.

Let’s Make Money Fun

60. Were Tech Stocks Overvalued?

Technology stocks have fallen dramatically this year - what could lead to a turnaround?

Why not reclaim the fun side of spending, asks Money Mentalist Lynda Moore.

28.

32.

From FOMO to FOOP: The Psychology of the Property Market

64.

How do emotions play into the real estate cycle – Andrew Nicol talks market cycles.

68.

Don’t Let Poor Estate Planning Tear Your Family Apart Radical reshaping of our inheritance law is underway, writes Andrew Watkins.

34.

36.

I Quit! How to Switch From Salary to Freelance Goodbye regular income and paid holidays – could freelancing give you the lifestyle you want?

44.

How We Can All Help Grow Women’s Financial Wellbeing There are actions we can all take to help improve women’s financial wellbeing.

46.

I bought my first investment property at twenty-one

71.

Battling the Bear: What Should You do in a Downtrend Market?

With the market down 20 per cent, what can investors do to protect themselves?

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Property-Backed Investments Provide Tangible Returns in Volatile Times When it’s hard to find good returns, Zagga provides another option in challenging market times.

72.

How do you Handle a Crash in the Game of Life?

Life sometimes throws us curveballs, writes Kris Ballantyne.

74.

No More 9 to 5: A Closer Look at the Flexi- Work Revolution Is the standard work week becoming obsolete? Ben Tutty considers the four-day week.

78.

The Art of Picking an Investment How do the professionals choose what their fund invests in?

Chris Westbury explains.

80.

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

81.

Hollie McLachlan says property investors can start much younger than they think.

48.

Don’t Panic Scary economic headlines dominate the news, but the risks are already priced in.

40. How to Buy Happiness More money doesn’t necessarily mean more happiness – can you spend to increase satisfaction?

The Money Mindset of Debt in Retirement Debt can be a burden, but it’s also a tool, even in retirement.

Where Are You on the Wealth Ladder?

The ‘wealth ladder’ can give you a new perspective on your spending.

Your Guide to KiwiSaver Dave Copson provides a guide to help you make your money last after 65.

Martin Hawes has seen first-hand the power of setting specific goals.

24.

Mortgage Mindset: IO vs P&I Principal and interest, or interest only? Peter Norris considers your options.

Thinking of Cancelling Your Insurance?

Get Advice First.

Reviewing your outgoings? There are some important considerations when it comes to Insurance.

82.

From Tiny Acorns, Mighty Oak Trees Grow Liz Bennett has bootstrapped her part-time neighbourhood gardening gig into a thriving business.

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Contents 84. Can Your Sustainable Investing Really Make a Difference?

Does responsible investing even matter? It definitely does, says Victoria Harris of Devon Funds.

86. Making an Income From Forex – It’s Not For the Faint-Hearted Self-described risk-taker Peter Gensch has been forex trading for more than 10 years.

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88.

My uncle inspired me to start property investment Alan Henderson: from buying his first ‘ugly’ Auckland house to syndicating massive commercial properties.

89. Industrial Sector a Winner for Silverfin Capital Investors Excellent returns, strong tenant demand and lower volatility – industrial investment is a crowd-pleaser.

90.

Looking Beyond the Numbers – How to Buy a Profitable Business Four vital factors to consider when choosing a business that will turn a profit.

94.

108

Commercial Property is Alive and Kicking Despite the current climate, commercial property is thriving for investors, says Scott McKenzie.

96.

Reality Starts to Bite for Sellers Surging supply of property is giving buyers the upper hand, writes Jen Baird.

98.

Six Simple Ways to Save Laine Moger’s top tips for saving money.

100. A Bold Spring Take inspiration for your home as the season changes.

102.

Can You Cut Someone Out of Your Will?

It’s surprisingly difficult to completely cut individual family members out of your estate.

104.

Book Reviews Sarah Ell reviews two of the latest hot reads.

110

106.

Spring Fling As the weather starts to warm up, say hello to pops of colour.

108.

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

110.

The DAO: the Greatest Crypto Tale Ever Told How Christoph Jentzsch’s US$150 million investment fund changed the course of Ethereum.

114.

Snapshot: Innovations The latest innovations that could have an impact on your future – and your investments.

116.

A Much Brighter Second Half The first half of the year was all dark clouds, but there could be sunshine ahead.

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118.

Can Europe Keep the Lights On? The energy crisis threatens to cause a recession in Europe.

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EDITOR’S LET TER

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

You Can Change Your Money Mindset Our money mindset is an important part of our financial success – and it’s something you can change, writes guest editor Amy Hamilton Chadwick.

This issue marks a turning point for Informed Investor. Editor Brenda Ward led the magazine from its inception in 2014 to its change of ownership in 2020 and then right through the pandemic. Brenda has now stepped into a senior role at BusinessDesk, and I’m holding the fort just for this issue.

As someone who specialises in financial writing, I spend arguably too much time thinking and talking about money. Money mindset is fascinating, because everybody has a unique approach to their finances, and their decision-making can have a huge impact on their long-term wealth. From the popular but counterproductive ‘head in the sand’ approach, to the big spenders, to the frankly terrifying ‘extreme couponing’ crowd, your money mindset can inform your entire life.

Your money mindset is shaped by your personality, your childhood, your genetics and your experiences. But money mindset isn’t set in stone. I don’t believe you are born a ‘saver’ or a ‘spender’; this is something you can control and change.

have now. I know that when my husband and I were ‘double income no kids yet’, I would spend a few hundred dollars on a new pair of sunglasses each year. Then I had a baby who liked grabbing and pulling sunglasses apart. Add to that several houses, a GFC and a pandemic later, and I would now find it physically painful to spend more than $50 on a pair of sunglasses. On the upside, though, all those decades of difficult financial decisions (and a massive helping of good luck thanks to the housing market) and our financial future looks a lot brighter than it did when we were a couple of stupid 20-somethings in a rental in Glen Innes.

With the cost of living rising and the value of many investments falling, this is the perfect time to give your money mindset a tweak, and hopefully this issue can give you some pointers in the right direction.

You can probably remember a time when you had a different attitude to money than you

Amy Hamilton Chadwick Informed Investor Editor

Editor Amy Hamilton Chadwick

Resident economist Ed McKnight

Art Director Mark Glover

Printer Crucial Colour

Account Manager Stephanie Bryant – 021 165 8018

Retail Distributor Are Direct

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

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

Cover photo: wayhomestudio S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 8

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Informed Investor is an investment magazine published quarterly by Opes Media. You need Informed Investor’s written permission to reproduce any part of the magazine.

Advertising statements and editorial opinions in Informed Investor reflect the views of the advertisers and editorial contributors, not Informed Investor and its staff.

Informed Investor’s content comes from sources that Informed Investor considers accurate, but we don’t guarantee its accuracy.

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

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

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PRINT ISSN 2744-6085 DIGITAL ISSN 2744-6093

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Meet Some of Our Contributors CAMERON BAGRIE

JEN BAIRD

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

Jen Baird is the CEO of the REINZ. She was previously the general manager of city growth at Hamilton City Council and led the marketing team at Barfoot & Thompson for nearly a decade.

CLARISSA HIRST

ANDREW KENNINGHAM

Clarissa is the Financial Services Council’s (FSC’s) Head of Content, Communications and Marketing, leading the Council’s consumer strategy, diversity and inclusion initiatives, and research programme, and led national It Starts With Action campaign to grow women’s financial wellbeing.

Andrew is the chief Europe economist for Capital Economics.

He was previously an economic adviser for the United Kingdom Foreign Exchange.

ANDREW NICOL

MIKE TAYLOR

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

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

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VICTORIA HARRIS

MARTIN HAWES

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

Martin is the chairman of the Summer KiwiSaver Investment Committee.

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

ED MCKNIGHT

LYNDA MOORE

Ed McKnight is Informed Investor’s economist.

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

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

TINA TENG

BEN TUTTY

Tina Teng is Market Analyst for CMC Markets covering the APAC region. She has been featured in Reuters, Stuff, BusinessDesk, AFR, Bloomberg and the BBC. Prior to her current role, she was CMC Markets’ Sales and Client Education Executive.

Ben is an Auckland-based but not Auckland-bound property investor and freelance writer. He’s travelled and worked across Asia, Europe, and Australasia, writing for some of the biggest names in property and finance.

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REGULARS

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

An Organised Life x The Curve Finance Investment Planner An Organised Life and The Curve collaborate on a well-designed and highly functional dateless planner to make financial planning and investing more accessible. Ask anyone in finance, having a financial plan and sticking to it creates a far more successful path to wealth than randomly picking stocks, having a good ‘gut instinct,’ or trying to time the market. With this in mind, Victoria Harris and Sophie Hallwright of financial education platform The Curve have teamed up with An Organised Life founder Beck Wadworth to launch a finance and investment planner to make achieving money goals more straightforward.

It includes an education section with an investing glossary, guidance on budgeting, financial planning and goal setting, and monthly trackers to help you hit your targets. As a dateless planner, it can be used any time to suit your needs, allowing for both flexibility and structure in planning.

Win

This issue we’re giving away a prize package that includes the Investment Planner, the Curve Tote Bag and an Organised Life pen. To enter go to: informedinvestor.co.nz/win

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W H AT W E L I K E

Spring bling Add some sparkle to your spring – or choose a Christmas present early – with these fresh jewellery designs for 2023.

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1. Green Cushion Tourmaline Ring – $17,150 This stunning dress ring is crafted in 18ct white gold and features a cushion cut tourmaline claw set in the centre and small round brilliant diamonds set into the shoulders.

2. Chopard Ice Cube Diamond Bracelet – $4,000 An elegant white gold bracelet from the Chopard Ice Cube collection. Composed of a rectangle bar with ten 18ct golden cubes, five decorated with 0.10-carats of diamonds.

5.

3. Roberto Coin Love in Verona Diamond and Sapphire Earrings – $8,550 From the Roberto Coin Love in Verona collection, these small hoop earrings are crafted in 18ct white gold and feature pavé diamonds and small blue sapphire flowers.

4. Ruby Top Drops – $8,175 These ruby earrings feature two oval rubies totalling 2.86 carats with a halo of brilliant round diamonds and two emerald cut diamonds at the top.

3.

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5. ASHOKA® Bloom Earrings – $19,200 These flower-shaped 18ct white gold drop earrings are crafted with unique ASHOKA® cut diamonds in the centre and feature a diamond grain set hook.

Clever thinking at a sharp price What we should like best about the new ŠKODA Fabia Monte Carlo is its fuel efficiency, its use of space, and its best-in-segment aerodynamics. But it turns out that we’re more interested in the creature comforts, so what we actually like best are the smartphone storage pockets, the cupholders, the USB-C socket, the storage compartments, and the removable sun visor. And we just love the umbrella that pops out of the door and the windscreen ice scraper that’s tucked into the fuel flap.

We’re also rather taken with the multimedia system which comes as standard. It has an eight-inch colour touchscreen, a Bluetooth hands-free system with wireless phone charging, six speakers with surround sound, and smartphone connectivity via cable for SmartLink with Android Auto or Apple CarPlay.

Obviously, we should take some time to appreciate all the safety features, and the Fabia is chock-full of airbags and safety systems, including Lane Assist, Adaptive Cruise Control, Manoeuvre Assist and the optional Travel Assist and Park Assist.

With its rally car pedigree, the Fabia is always a delight to drive. Nippy, powerful and practical, it’s a great value, small European car at $39,990 plus on-road costs, and it’s eligible for a NZ Government Clean Car rebate of $2181. Hmm, that red colour does look very Christmassy…

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S A FA R I G R O U P

A Commercial Investment With a View – And a Free Holiday Safari Group is leading the charge for mixed-use hotel developments across New Zealand. But its authority in the residential space often leaves its commercial opportunities overlooked.

Most investors hear ‘commercial investment’ and think of big retail spaces, Safari Group director Simon Taylor explains. But what many don’t realise is that a hotel room could be the perfect entrylevel foothold into the commercial market.

The potential cherry-on-top is the 10 nights of free accommodation every year that comes with each room. This allows investors to check in on their investment and enjoy a luxurious free holiday stay at the same time.

This is exactly what Safari Group has to offer. Its local commercial hotels feature both hotel rooms and private residential apartments, side by side. Both are for sale as investment opportunities.

Augustus Park, Auckland Safari Group’s Augustus Park, in Auckland, is well advertised for residential two and one bedroom apartments. What’s less well known is the first three floors are hotel rooms, ready to be bought for commercial investment.

Safari Group is top of the game for its new build, mixed-use hotel developments across New Zealand – in Auckland, Wellington and Queenstown.

These blended developments are what makes Safari Group unique. Generally, developers pick either 100 per cent residential or 100 per cent commercial – Safari Group chose both. Yet because Safari is mostly known for its name in the residential space, its hotel units are often overlooked.

“Just because they are in the same building doesn’t mean they are the same product,” Taylor says. “One of our hotel units is a perfectly approachable first step towards owning commercial property.”

These commercial freehold properties are hotel units that come with a lease in place and are already tenanted by a hotel operator.

“With the tenant in place, the owner receives a guaranteed monthly income in accordance with the lease agreement,” says Taylor.

“There are 54 hotel rooms in Parnell.

These rooms will be operated by Safari Hotels. We sell them to companies and individuals,” says Taylor. “It’s a totally different agreement to a residential property. You can’t live there, because the hotel needs them for its business.”

Units return start from $17,819 annually, with an estimated gross return of 6 per cent and estimated outgoings of $3500 a year.

“It’s based on return,” Taylor says. “If you want to sell it in year five [five years after purchase], you’ll already have a two times 2 per cent increase. You can resell it. But it’s normally the cashflow buyers are looking for.”

Income and returns vary depending on the type of hotel room purchased and its geographical location.

“Prices and returns vary depending of the type and size of the unit. Each unit is fully furnished.”

Also, because residential law does not apply, hotel units aren’t limited to just New Zealand buyers. This means people living overseas can get a fixed-income return on their investment, as well as enjoy 10 free days’ accommodation on their next Kiwi holiday.

“Units are popular with French-Polynesian and singaporean buyers.”

Hotel rooms vs residential apartments Switching to a commercial investment can be a big mental shift for a seasoned property investor. For example, it can require a 50 per cent deposit and, comparative to a residential property, doesn’t offer as much capital growth.

But, says Taylor, units offer a fixed monthly return, which is market reviewed every five. Rent starts to increase in year three and continue to grow 2 per cent every year thereafter.

He says these investments suit people who have capital available and want a way to put it to work for them.

“Think of it a bit like a residential apartment except prices start at $255K and you get a free holiday too,” he says. “You don’t need to worry about finding a tenant or managing the property, it’s all sorted. You sit back and enjoy a passive income.”

Available now Currently hotel units are available in Auckland and Wellington. Augustus Park Parnell is due to be completed in 2023.

Interested in a hotel unit?

Contact Safari Group for more information.

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“Investing is seasonal.

We navigate the seasons, aiming for long-term growth.”

MIKE TAYLOR Founder & CEO

Our investment team has experienced many market cycles, or seasons, over the years. Pie Funds CEO and Founder Mike Taylor was at the helm through the 2008 Global Financial Crisis (GFC), and he knows how to navigate through challenging times.

Make no mistake, bear market investing is hard, even for professionals. But having been through rough times before means our team has experience to navigate the investing seasons.

Pie Funds was founded over 14 years ago, just before the GFC, and today has $2.0 billion1 under management. We are active management specialists aiming for above-average returns and to generate long-term wealth for our clients. Our team has experience looking beyond the short-term rise and fall of markets to focus on sectors and companies with strong growth potential over the long term.

Our focus is on stock picking

We’ve been through tough times before and the investment team is focused on stock picking. We want to select companies we think are robust and that have strong balance sheets to weather any storm. In particular, we want to invest in businesses we think will do well over the long term, especially when better times return.

We’ve repositioned the portfolios

Mike Taylor says in his experience, the best returns have sometimes been achieved roughly 12 months after a bear market ends. He says his best year was coming out of the GFC. As it was then, Pie’s focus now is to position the portfolios to benefit if a similar recovery occurs.

Pie Funds is a boutique investment manager that has generated over $360m of wealth for our clients since 2007.2

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

PIEFUNDS.CO.NZ

1. As at 30 June 2022, including JUNO KiwiSaver Scheme | 2. Based on Scheme's net profit before tax in the period to 30 June 2022 Past performance is not a reliable indicator of future performance. Returns can be negative as well as positive and returns over different periods may vary. View the Product Disclosure Statement plus our duties and complaints process and how disputes are resolved at www.piefunds.co.nz. Information is current as at July 2022. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you.

Mindset mynd-set (noun)

A habitual or characteristic mental attitude that determines how you will interpret and respond to situations.

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All riches have their origin in mind.

Wealth is in ideas – not money.

– Norman Vincent Peale

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YO U R I NVE STI N G

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PERSONAL FINANCE

When You Set Goals, You Set Yourself Apart Throughout his a career as a financial adviser, Martin Hawes has seen first-hand the power of setting specific goals.

The people who do best with money are those who have goals. After decades of working as a financial adviser and advising hundreds of families, my experience is that people who know where they are going are more likely to get there.

There is a well-worn path for this, and that path takes the form of SMARTI goals.

SMARTI goals are ones that are Specific, Measurable, Achievable. Relevant, Time Bound and In Writing: •

Specific – you know exactly what the goal is (it will probably be a number – for example, we will have a mortgage-free house and $1m of savings in 2035)

“I have a goal: get rich!”

Sometimes people think that they have goals: “I want to be wealthy” or, perhaps, “I’m planning to get rid of the mortgage a bit faster”. In their minds, these are sort of nice-to-haves, things that you might think about one day. However, there is nothing defined about them – and, as such, there is no commitment. They are little better than wishful thinking.

•

Measurable – you will know whether you have achieved it or not

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Achievable – you have a means of achieving it (i.e. it may be a stretch, but it should not be pie in the sky)

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Relevant – it is something that is important to you and your life

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Time bound – you are able to give a time for when it will be achieved

Instead, you should get smart and define what you want and when you want it.

•

In writing – you have written it down in a way that you cannot fudge

I no longer work as a financial adviser and, looking back at my career and the people I have helped, I know that setting goals works.

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YO U R I NVE STI N G

Money in itself is not important – it is the way money gives you lifestyle that is the critical thing.

Goals drive commitment Having a goal that is clearly defined like this drives commitment. You cannot fudge a goal that is so definite, you cannot waffle about whether you have achieved it: a goal which is SMARTI is either achieved (success) or not achieved (failure). And by putting it in writing with a time for when you will achieve it means that you will have a high level of commitment. As such, you are most likely to achieve it.

I am greatly in favour of goals like this – time and again I have seen that people who commit to goals achieve them.

I think this is most important for your Freedom Figure. Your Freedom Figure is the amount of money that you would need to have the life of your dreams. It’s the amount that would give you freedom to work less and live more, and, maybe, retire.

When I worked as a financial adviser, my practice often involved a discussion with clients so that I could calculate their Freedom Figure. This is because an honest discussion on what you want and how you want to live in the future breaks new ground for a lot of people – getting out of the daily drivel to have such a discussion about what we want to do with our lives is rare.

What’s your Freedom Figure?

Money in itself is not important – it is the way money gives you lifestyle that is the critical thing. The trick is to think about your future lifestyle and then set a goal for how you will resource it.

To find your Freedom Figure, first you have to make some choices about what you want your life to look like in the future.

•

Where do you want to live?

•

What do you want to do?

•

What do you want to have?

•

What, if any, work will you do?

These are all important questions – and you cannot hope to work out how much money you will need if you are not very clear on lifestyle questions. Money resources lifestyle; decide how you want to live and then you can set your Freedom Figure.

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The younger you are, the bigger you can dream For most people the Freedom Figure will be quite a large number – perhaps a mortgagefree house and $1m or more. This may seem impossible and, for older people who have made only a little financial progress, it may indeed be impossible. You may not be able to achieve a fantasy lifestyle in a few years; you’ll need to be realistic with your Freedom Figure.

However, younger people can (and should) be quite ambitious. If you have 30 or 40 years to build wealth, you bring the wonder of compound interest into play. That may build wealth much faster than you imagine.

Whether it is for your house deposit or, further off, for your Freedom Figure, get yourself a goal. It should be a big goal, one that is concrete and definitive. Write it down so that you cannot wriggle out of it, and keep it somewhere so that you can see it often.

That goal should give purpose to your investment and money management.

Commit to it and your older self will be very glad you did.

The information contained in this article is general in nature and is not intended to be personalised financial advice.

Before making any financial decisions, you should consult a professional financial adviser. Nothing in this publication is, or should be taken as, an offer, invitation or recommendation to buy, sell or retain a regulated financial product.

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PERSONAL FINANCE

Let’s Make Money Fun If money just feels like a source of anxiety, maybe it’s time to reclaim the fun side of spending, says Money Mentalist Lynda Moore.

Like many Kiwi families, when I was growing up, we would go camping every summer holidays. In the evenings we played games, and Monopoly was our favourite.

Somehow Dad always seemed to win, but that didn’t stop the whole family having a great time, with lots of fun and laughter as we went in and out of jail, bought and sold property, paid rent, and collected $200 as we passed Go. That was my first introduction to money, and even though I knew it wasn’t real, it was fun.

When does money stop being fun?

Maybe it’s when we have to start paying for our own cost of living, and learning how far (or not) money goes. I can still remember getting my first pay from my full-time job as a 17-year-old: a brown paper envelope with cash in it. I tipped it out on my desk, counted it and off I went to buy a lovely white sheepskin rug I had had my eye on for quite some time. That was definitely fun!

Then reality hit when I got home: Mum was less impressed with the rug, since I’d spent my board money on it.

For so many years as a young adult it was a chore to manage my money. Money was a source of angst, occasionally a touch of excitement, but the fun was gone.

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Stop being scared of money, of not understanding how to manage it, not having enough of it, and worrying about it constantly.

Are you taking money too seriously?

As we mature, life compels us to get serious about money. Mental accounting kicks in, and we tuck our money away into little buckets in our mind: the mortgage or rent; the bills; the kids; and, if you’re lucky, retirement. There’s often nothing left for the fun bucket.

We start to hear more about the B word (budget), we are told what we should and shouldn’t do with our money to get a loan.

We are told we need to be frugal to get ahead financially.

Let’s make money fun again. Let’s reclaim the fun bucket. Stop being scared of money, of not understanding how to manage it, not having enough of it, and worrying about it constantly. Going on holiday is fun, but can you make paying the power bill fun, too?

Being grateful for everything you buy How do you make day-to-day essential spending fun? By practising gratitude! I learned this from Kate Northrup, and I share it with all my clients. Be grateful when you are paying for something. Let’s take power as an example. We all complain about our power bill; let’s flip that. What if we didn’t have power? We wouldn’t be able to turn on the light to read this magazine for starters or watch Netflix! Be grateful for that. Whatever you do with your money, be grateful for what it enables you to do for yourself and others.

In Ken Honda’s book, Happy Money, he explains that part of making money fun is being able to receive money, enjoy money and share it. Paying a restaurant bill for a meal you ate on your own, for example, is not as much fun as paying for dinner with your best friend, even if it costs twice as much.

Giving, sharing or splurging The idea of being happy about spending money often makes my clients feel a little guilty. We know there are a lot of families struggling. But finding a way to share your wealth can be one of the best parts of having money. I support a number of local charities and each year they phone me and say, ‘Thank you for your donation of $X last year – can you help with the same this year?’. ‘No,’ I say, ‘I can help you with more.’

One of my fun buckets is giving back.

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Think about which spending brings you the most joy. It might be buying possessions, but it’s probably not. A more lasting source of joy could be a kayaking trip with your family. Or a night out with your friends where you don’t think too hard about how much the cocktails cost. It could be donating money, or gift giving.

Setting aside some guilt-free fun money Having some guilt-free spending money can help even if you’re trying to save. Being on a very restrictive spending diet can make you burn out quickly or feel guilty even buying necessities like trips to the doctor.

A little bit of fun can help keep you on track with your spending and saving goals. Here’s a way to get started: 1. Look at what you are currently spending, and find one thing you can change, by reducing what you spend.

2. Open a ‘My fun money account’ and pop the money in there. You might start with just $5 a week.

3. When you say no to something because you don’t really want it, pop that money into your fun money account.

4. At the end of the month, have a look in that account and see how much is there.

5. Decide on something you want to do with it that is going make you feel good and be fun. Maybe it is buying yourself a treat, giving it away, or rolling it over to the next month so you can put it towards a holiday. There is no judgement on what you choose to do.

Practise gratitude, practise conscious spending, practise sharing and, before you know it, you will have made money fun!

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From FOMO to FOOP: The Psychology of the Property Market How do emotions play into the real estate cycle – and how can you try to keep a level head? Andrew Nicol looks at some of the features of each stage of the market cycle.

Humans are terrible investors.

While we should base our decisions on facts, figures and insight, too often we get hot under the collar and make rash emotional decisions.

That’s one of the main reasons house prices continually rise and fall in cycles.

Some investors decide to buy or sell a property based on market sentiment (what everyone else feels). When property prices are booming, they pile in, stoking demand and increasing prices further. Then, when prices are heading the other way, they sell or sit on their hands.

This change in demand and supply is based on feelings rather than fundamental economic shifts.

And this can cause property booms to be frothier and slumps to be deeper and more prolonged.

So let’s analyse the four main parts of the property cycle and dig into the psychology. That way, you can understand whether you’re making your decisions based on facts or feelings.

Boom The first stage of the property cycle is the boom.

Here, property prices are rising, and investors feel it’s a great time to be in the market.

In the hope of making a quick buck, others join in or they bring forward their purchasing decision.

By that, I mean they buy properties today that, in other circumstances, they would have purchased a few years into the future.

This increases demand in today’s market, causing house prices to rise further. Since it takes time to build more houses, supply can’t catch up straight away, and prices continue to climb.

This creates FOMO (fear of missing out) and causes some property investors and homebuyers to overpay for a property – just so they get one.

Investors who get into the market early in the boom will do well. Investors who get in too late risk paying higher prices than if they had waited.

Peak At the peak of the market, most investors are elated. They can’t believe how well they have done. And a good number of people are still buying, which helps prices to remain high.

But then FOMO begins to be replaced with FOOP (the fear of overpaying) – and investors worry that prices are too high and will fall in the future.

This causes some property buyers to pull back from the market.

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RECOVERY

BOOM

DOWNTURN

TROUGH

Peak

Seller’s Market

Seller’s Market

Buyer’s Market

Buyer’s Market

Properties starting to sell above valuation

Properties regularly selling for more than valuation

Properties usually selling at valuation

Properties often selling below valuation

Developers starting to build more houses

Lots of new houses being built

Fewer houses being built

Housing development projects falling over

Buyers are starting to compete with each other

Buyers are fighting over houses

FOOP starting to wear off

FOMO: fear of missing out

Buyers have increasing negotiating power FOMO wearing off, FOOP starting to set in

And the people who pulled their property purchases forward have now satisfied their demand. They don’t need to buy again.

hold off compared to the peak. I’ve often said that property is the only thing most people don’t buy more of when prices fall.

The worry of falling prices causes a selffulfilling prophecy. People are worried about falling property prices, so they hold back from the market, this decreases demand, and prices start to fall.

At this point, sophisticated investors enter the market searching for a property bargain. They’ll negotiate hard, especially with panic sellers who are more emotionally driven.

Downturn In the downturn phase, prices fall firmly.

FOMO has gone, and FOOP is entrenched.

Initially, some investors will deny that prices are falling, thinking it is just a blip.

For others, that feeling of “I’m going to be rich” turns into “I’m an idiot”.

The herd mentality comes back where some investors panic and sell. Then others follow, thinking that they need to get out, too.

Today, the property market is in a downturn and has yet to hit the trough.

Trough Once in the trough, property prices have bottomed out.

This decrease in demand and increase in supply causes house prices to fall, and the self-fulfilling prophecy is proved true again.

Despite it being one of the best times to buy – since prices are at their lowest – some people think “only suckers are buying at this point”. Others will think “property prices aren’t ever going to increase again”.

Although prices are now lower, people

At some point, an economic event will kick-

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Buyers have maximum negotiating power FOOP: fear of over-paying

start a new boom, and the whole cycle will begin again.

How do I manage my emotions and make a good investing decision?

Making an investment decision is as much about managing your emotions as it is about managing the numbers. There are two steps investors should take: 1. Identify which part of the property cycle you’re in Once you see which part of the property cycle you’re in, you’ll understand the emotions you (and other property buyers) are likely to feel.

Today, the property market is in a downturn and has yet to hit the trough. So investors are nervous, and most people will think it’s the wrong time to buy an investment property.

2. Consider the contrarian view Then, consider the directly opposite view – the contrarian one.

Take the example of the downturn. While most people might think it’s the wrong time to buy, a contrarian investor might say the downturn is the best time to negotiate and get a deal.

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Don’t Let Poor Estate Planning Tear Your Family Apart Radical reshaping of our inheritance law is under way – so it’s the perfect time to consider what will happen to your assets after your death, writes Andrew Watkins, Partner at Wynn Williams.

Two things are certain in life: death and taxes. You probably spend a considerable amount of time setting up your tax situation to your best advantage, but have you put as much thought into what happens to your money and assets on your death?

Estate planning has never been more important or complicated. How do you balance the needs of first partners against subsequent partners, natural children against stepchildren and whether to pass on inherited family wealth or spend it? Death without a well-thought-out succession plan can throw your entire family into disarray, causing arguments and resentments that can tear apart those left behind.

A recent Law Commission report concluded that New Zealand’s current succession law is outdated, confusing and difficult to navigate.

It recommended over 140 changes including: • Simplification of legislation The Law Commission recommends replacing the Family Protection Act (FPA), Law Reform (Testamentary Promises) Act and the death provisions of the Property (Relationships) Act (PRA) with one brand new act: the Inheritance (Claims Against Estates) Act (the proposed Act). This will simplify the law, make it more consistent, easier to find, and easier to understand.

• ‘Topping up’ payments to settle relationship property claims Currently under the PRA, if your spouse or partner dies you can choose to either take your entitlement under the will or elect to apply to the Court for an equal share of relationship property. The proposed Act

will simplify the process by allowing you to receive your entitlement under the will and a “top up” from the estate to meet your relationship property entitlement.

• Family provision awards Currently spouses, children and grandchildren may generally bring claims under the FPA for further provision from the deceased’s personal estate.

Controversially, the proposed Act may stop certain family members of the deceased from applying for a ‘family provision award’.

Death without a well-thoughtout succession plan can throw your entire family into disarray, causing arguments and resentments that can tear apart those left behind.

There are two alternative proposals: either all children and grandchildren should be able to apply for a ‘family provision award’, as they can now, or only children under 25 years and disabled children would be able to apply. The proposed Act would set out a number of relevant considerations to assist the resolution of family provision claims where the claimant has insufficient resources to maintain a reasonable, independent standard of living.

• Anti-avoidance mechanisms Currently awards under the FPA can only

be made against the deceased’s personally owned assets. Assets (such as houses) in joint names pass to the survivor and are therefore not part of the estate. Trust assets are also not included.

The proposed Act would allow a clawing back into the estate of any property which has been disposed of with intent to defeat an entitlement or claim under the Act, or any property interest owned as a joint tenant.

This is a significant change to the existing law and would cover the situation where a house owned by one party is put into joint names and then fully passes to the surviving partner on death, leaving the deceased’s estate without assets to pass on to his or her children.

• Contracting out agreements for family provision claims Couples who enter into contracting out agreements dealing with the division of relationship property currently can’t contract out of their moral obligations under the FPA. Under the proposed Act, partners would be able to contract out of the PRA and also family provision claims.

You would need independent legal advice about the written agreement, and it would have to be signed and certified by a lawyer to be valid. Such agreements could only be set aside if they were or became ‘seriously unjust’.

What you should do A radical reshaping of the law is under way.

Take these potential changes as a reminder to carefully consider how you would like your property to be distributed on death.

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Where Are You on the Wealth Ladder?

From struggling to pay the bills all the way to mega-rich, thinking about the ‘wealth ladder’ can give you a new perspective on your spending, writes Jared Wooff of Zagga.

Lotto advertisements are fantastic at selling you the dream of $50 million worth of wealth. Sometimes they talk about quitting work, taking holidays, buying houses. Or it’s something less cliché, like chartering a pirate ship for your kid, or bonding with your colleagues in Antarctica. But what really sells the dream is not the pirate ship or southern borealis … it’s the freedom. That’s the real attraction of being wealthy: freedom.

There are lots of ways to think about levels of wealth, and one is by considering the six stages of wealth freedom, as set out in this blog by finance writer Nick Maggiulli. Each one is a considerable jump from the next – in both money and freedom. And the jumps get larger as you move up the ladder.

Most of us start out at stage 1 and, with a bit of luck and some good planning, should reach stage 2 or 3; very few people ever make it to stage 5 or 6.

Which stage are you at now – and which stages have you left behind?

Stage 3 Restaurant freedom When you are comfortably earning more than you spend every month, you reach the point of being able to go to a restaurant and choose anything off the menu without worrying about the price. Whether it’s a $42 steak or a $200 bottle of wine, you know your meal will not set you back financially.

Stage 1 Nothing to spare – very little wealth freedom You spend as much as you earn, or more, and you have negative or very low net worth. Maybe you’ve just started working, or you’re studying, or perhaps you have high levels of personal debt. As a result, your financial freedom is low and you must watch every dollar you spend.

Stage 2 Supermarket freedom When you no longer spend everything you earn, you gradually reach the stage of supermarket freedom. This is where you can make more choices when you shop.

You can pay more for free-range eggs or fairtrade coffee without worrying that it will put a dent in your finances.

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Stage 5 House freedom You’re wealthy enough to buy the house you want in the area of your choice – another million or ten isn’t going to make much difference. You can buy some other houses, too, if you like. Why not? You’re always looking for somewhere to put your money. It’s not like you can spend it all.

Stage 6 Philanthropic freedom Now you have so much money that you can give it away and it can dramatically change other people’s lives for the better. There’s no way you could spend all your money within your lifetime, so your main issue is planning how best to pass it to the next generation and how much good you can do with it.

Stage 4 Travel freedom Once you’re earning considerably more than you’re spending, and you know your money will keep rolling in, you no longer need to worry about taking affordable holidays. Now you can travel wherever you like, fly business class, stay in whatever hotel takes your fancy, and do whatever activities you like while you’re there.

You’re free to spend like that, knowing your wealth will remain undiminished.

Moving between stages If you’re aiming to move up the stages, it’s important to spend appropriately for your level of wealth. If you’re in stage 1 and you spend like you’re in stage 3, you’re only going to keep going backwards into negative wealth territory. You also need to invest appropriately, balancing your risk profile with how much you can afford to lose.

Once you do reach a new stage, though, why not spend more and take a few investment risks? Although lifestyle creep is often seen as a problem, if you’ve moved from stage 2 to stage 3, it’s your choice to enjoy a nice bottle of wine with a restaurant meal.

Spending more once you can afford it could make your life more enjoyable – and allow you to share some of your good fortune with the people you love.

This story originally appeared on the Zagga blog and is reproduced here with permission.

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I Quit! How to Switch From Salary to Freelance Goodbye regular income and paid holidays – hello flexibility and autonomy.

Could freelancing give you the lifestyle you want?

“I really don’t like my job.”

Five years ago I said those words in a tiny, sterile meeting room 17 floors up a high-rise building on Albert Street. My performance review wasn’t off to a great start.

After that out-of-the-blue realisation an idea formed in my head. What if I could do my job but without the stuff I don’t like?

No more office, no more commute, no nine to five, no awkward conversations in grey meeting rooms – in other words, complete freedom.

You can’t spell freelance without free Two months after my impromptu confession I had arranged a contract with the content marketing agency I was working at, and my career as a freelance writer began. Bonza.

Back in 2019 around 144,000 people like me were working as freelancers in New Zealand, but trends suggest that the COVID pandemic has increased that proportion considerably. Why did I make the change and why have so many others done the same thing? There are a few good reasons.

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first six months I was in South-East Asia and I now work remotely from Wanaka.

You can also set your own hours – if you’re a night owl you’re free to sleep in as much as you like. If you’re successful you may also earn more than a wage earner with comparable experience because you can set your own rates and have fewer overheads.

What’s more, you can choose what work to accept, which means you can work on stuff that truly interests you.

Most importantly, as a freelancer you’re in charge of every hour of your day, which improves your work-life balance. You also save a couple of hours per day not commuting, which you can spend however you like (I usually walk my dog or sleep in).

It’s not all roses Freelancing can be incredible but it can also be really, really hard. Dan Percival, head of supply chain, procurement and operations at TribeRecruit, found that out back when he was working on his own as a recruiter.

“The grass isn’t necessarily greener, it’s just different. The market’s very competitive and you’ve got to work harder than you did before.

“For one, you don’t have a big team behind the scenes, or a marketing budget, or much support at all. In the meantime your

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income might drop to zero some months, which is tough if you have a family to support or a mortgage to pay.”

After a while working as a freelancer Percival lost a few clients and missed the social environment in the office so he went back to salaried work (where he’s clearly thriving).

Percival says he enjoyed his time as a freelancer and that most people could make it work if they wanted to.

“Anyone can do it. But it’s a risk. So it depends what stage of life you’re at, and whether you can handle that risk. There may be a month or two when you don’t have a contract at all.”

Progress over perfection Auckland branding expert and web designer Leah Jones had a similar journey to mine. She scored a job at an agency after a nine-month graphic design course where she learnt the ins and outs of the industry.

“I soaked up everything and learnt as much as possible while I was there. But then a year later I got itchy feet and my partner and I went travelling.”

While Jones was overseas her dad and brother started a business and asked her to help with branding and website.

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That’s when she realised she could do this freelance thing as a career.

“I just started and decided I’d figure it out.

And I’m still figuring it out, to be honest.”

Jones’s approach clearly worked because her business, Leah Sylvia Creative, now books out months in advance, with dozens of businesses lining up for help with their websites and branding. She says the key to her success was pretty simple.

“I always wanted to do something on my own, so this is exactly where I want to be.

Once I made the decision to go freelance I never looked back.”

“It’s all about progress over perfection. Just do something, you don’t have to be elite straight away. Even if no one’s looking at your website, if no one’s following you, just keep putting your work out there.”

Building a career as a freelancer If you’re interested in trying out freelancing you don’t have to dive right in. Jones says you can dip your toes in to test the waters first.

“Start as a side gig. Work on the weekends or get a part-time job and do freelance stuff the rest of the time. Ease into it – that’s a great way to learn without the financial stress.”

She adds that it’s worth taking time to think about who your ideal clients might be and then hunting them down methodically – a bit like a freelancer version of Liam Neeson in Taken.

“Where are your dream clients hanging out? Find them on social media or the internet, start commenting, interacting and networking.

“Talk to other freelancers and ask about their experiences. Find a mentor who’s done it all before and learn from them.”

Exactly where you need to be Freelancing isn’t right for everyone. It’s hard work, it’s extremely risky, and it can be isolating. But if you fancy a bit of extra independence it could be the change you need to kickstart a career you love.

It worked for me and Jones says it’s working for her, too: “I always wanted to do something on my own, so this is exactly where I want to be.

Once I made the decision to go freelance I never looked back.”

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How to Buy Happiness More money doesn’t necessarily mean more happiness – how can you spend your money to actually increase your life satisfaction?

Amy Hamilton Chadwick considers what we know about the relationship between money and happiness.

If you can’t meet your basic expenses, having more money makes a life-changing difference. But once you’re no longer struggling to pay for food, housing and healthcare, the relationship between money and happiness begins to break down.

There’s no evidence that billionaires are happier than people who are simply financially comfortable. It’s quite possible that you’re happier than Jeff Bezos. If money doesn’t provide us with the future happiness we imagine it will, how should we spend to maximise our wellbeing?

What types of spending increase happiness?

Buying yourself more time Being stressed out and overworked is obviously detrimental to your happiness.

Spending money on services that free up your time can really help. Options such as a meal kit service, a cleaner or a mowing service are all good ways to buy yourself more free time. Canadian research has shown that paying for ‘time-saving services’ led to greater reported happiness than a material purchase.

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Experiences, particularly those shared with friends or family, tend to deliver much more long-lasting happiness than any purchases of possessions.

Finding flow Flow is the state of engagement with a task, that sense of being fully absorbed and finding that the time just flies by. The state of flow is highly correlated with happiness, so you should give yourself permission to spend money on any hobby that you find engaging, whether it’s biking, baking or basket-weaving. Similarly, taking a pay cut to work in a job that gives you flow could be well worth it for your long-term happiness.

Building relationships Good social relationships are better than a high income when it comes to creating happiness.

In a paper called ‘Good social relationships are the most consistent predictor of a happy life’, researchers found that social connections are associated not only with happiness, but also with better health and a longer life.

Giving – and giving back One study found that spending as little as $5 a day on someone else led to ‘demonstrable increases in happiness’. Volunteering is also connected to happiness over time, and it has a positive impact on your mental health, according to a 2020 UK study, and those with the lowest level of wellbeing seemed to get the biggest benefits.

What spending delivers less than we might expect?

Luxury cars People imagine that driving a luxury car will make them feel happier. But a 2011 survey conducted in the US found that ‘luxury car ownership does not make people happier than frugal car ownership’. Having a car, the researchers noted, was immensely helpful to people’s lives. However, in general, luxury vehicles do not make people happier, for three reasons: 1. A frugal car fulfils our basic needs just as well as a luxury car.

2. We quickly adapt to our new cars and the excitement goes away.

3. When your brother-in-law gets an even better car, that diminishes your satisfaction in your own luxury car.

Material items in general Experiences, particularly those shared with friends or family, tend to deliver much more long-lasting happiness than any purchases of possessions. Buying something new will tend to provide a temporary boost of positive feelings, but that boost will soon wear off as the item loses its novelty and becomes mundane.

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Simple pleasures come with big benefits Even lottery winners get the most happiness from some of the least expensive pleasures in life. In a 2007 study of UK lottery jackpot winners and a control group, researchers found the lottery winners rated listening to music, reading a book, or enjoying a bottle of wine as the things that made them happiest on any given day. And the happiest people in the study – lottery winners or not – liked to reward themselves with free experiences such as long baths, playing games and swimming.

“While buying sports cars, giving up work, and going on exotic holidays is out of reach for most of us, there are small lessons we can learn from society’s happiest people to help improve our quality of life,” said study author Dr Richard Tunney. “Cost-free pleasures are the ones that make the difference — even when you can afford anything that you want.”

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How We Can All Help Grow Women’s Financial Wellbeing Research shows women rate their financial wellbeing, retirement preparedness, literacy and confidence lower than men do. But things are changing, and there are actions we can all take to help improve this, writes Clarissa Hirst.

What’s the problem?

Sixty-two per cent of Kiwi women do not feel prepared for retirement. What’s more, around 80 per cent of us rate our financial wellbeing as moderate, low or very low, according to Financial Services Council research.

Female-led financial platforms, projects and content are gaining momentum.

Now, you could put some of this down to our perceptions of our own financial wellbeing, but there is real hard data that suggests more is at play here.

The same research that revealed we rate our financial wellbeing quite low also shows we’re investing, saving and taking an active role in our finances. Some of Aotearoa’s most innovative fintech platforms such as Sharesies and Banqer were founded by women who have been leading the charge in creating financial education that is accessible to all.

The statistics about women and money in New Zealand are sobering. Forgive me if you’ve heard all this before, but just in case you haven’t, let’s take a look at a few of them:

Girls That Invest, founded by two Kiwi women of colour, made it to the #1 business podcast in the US, was featured in Vogue, has over 3000 Masterclass students in over 60 countries, and 161K Instagram followers.

1. Women earn 9 per cent less than men (and the gender pay gap is greater for Asian, Māori and Pasifika women).

On a more anecdotal level, I used to only talk about money stuff with my dad, partner, brother and male friends, but I’m now regularly chatting about personal finance with other women.

2. On average, women retire with 20 per cent less in KiwiSaver than men.

3. The cost of motherhood on our retirement savings balances is as much as $318,000.

When we’re not employed, our work as carers, child-bearers and mothers does not warrant employer or government contributions towards our KiwiSaver.

When we are working, we’re paid less. We may have come a long way, but we’re still missing out.

What’s changing?

The good news is that more women are starting to take charge of their finances.

I also recently finished up leading a three-month, pan-sector campaign for the Financial Services Council called It Starts With Action, which sought to grow women’s financial wellbeing. Events and activities were held all over the country; conversations about money were had in workplaces, communities and homes; and at the time of writing we’d managed to reach over 1.6 million New Zealanders with empowering messages about women and money.

Clearly, women aren’t uninterested; we’ve just been left behind. The examples above

show that we’re definitely starting to catch up, but there’s still more to be done to close the gaps that exist.

What can you do?

Now, you might think solving the gender pay gap or retirement inequity are too big for one person to tackle. But small actions can compound, and the more individuals do their bit to empower each other, the more financially confident women we’ll have who eventually (and hopefully) will be living in a world where everyone has the same opportunities.

Here are some ways you can do your bit: 1. Talk to your daughter, niece or granddaughter about money and help her get into good money habits.

2. Sit down with your partner and talk about your financial goals.

3. Ask a friend who’s expecting how she’s preparing for an addition to the whānau.

4. Recommend a personal finance podcast to a woman in your life. My personal favourites are Cooking the Books, It’s No Secret and The OneUp Project.

5. Put your money where the wāhine are. Just as you can choose to invest in funds or companies that are leaders in sustainability, so too can you put your money into funds or companies that support women, that put women in leadership roles, and that have women actively involved in making investment decisions.

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‘I bought my first investment property at twenty-one’ Hollie McLachlan says property investors can start much younger than they think, but there isn’t enough education around how to get your foot in the door.

Hollie doubted her decision to buy a house at 21, many, many times. While overseas in London, there were plenty of times when she thought she’d have to come home to sort out problems with her rental, rather than partying hard in her early 20s.

“I was absolutely stressed and thinking I had to stop my OE and come home for a bathroom,” McLachlan says. It’s the challenge of those ‘What the hell have I done?’ moments that makes investing hard sometimes, she adds.

But she persevered, and owned three properties – a sell, a flip and a buy-and-hold – all by the time she was 26.

last October. Her $290,000 purchase was sold for $405,000, a lot more than Hollie expected: “a crazy amount”.

Having now done both, Hollie says she prefers the buy-and-hold strategy over flipping.

Her interest in property investment began during her first year of university, when her brother bought her Rich Dad, Poor Dad. It helped that her eldest brother was a property investor too.

“At that time there were four other properties for sale in Temuka,” she says.

“Compare that to now, when there are 25 houses on the market.”

“With the flipping you get the money straight away,” she says. “But for flipping you need those cash reserves and the bank to help. Ideally, that’s why the next one will be a buy-and-hold too.”

With her degree finished, Hollie got a job with Fonterra and saved “hard” for 10 months. Before a year was up, she’d bought her first house – a $265,000 villa in Temuka.

She was 21.

For her deposit, she took her $30,000 savings and $10,000 from KiwiSaver, and added those to $12,000 she borrowed from her parents’ equity: “The bank of Mum and Dad!” she says. When the time came to sell the property four years later, Hollie rallied together some friends and family for a working bee to spruce up the 1910 property.

“There were days spent just sanding, and painting windowsills,” she says. The house sold in 10 days, at the peak of the market S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 4 6

The money earned from that sale was put towards a three-bedroom standalone house in Spreydon, which she co-owns with her brother. The pair are currently living in the property, but plan to hold it over the long term.

“We are going to start renovating soon,” she says.

In addition, shortly after signing the contract on this house, she bought a two-bedroom unit and flipped it within four weeks. Hollie, now 26, paid $300,000 for it, spent $30,000 renovating it, and it sold for $465,000.

“There was no way the banks would have lent me the money, so I used a nonbank lender to get my finances approved,” she said.

Hollie has a degree in tourism and accounting, but says she learned everything she knows about property investing from her brother: “My older brother told me everything. I wouldn’t have known any of this without him.”

Hollie reckons lack of education might be a barrier to younger investors getting started.

“A lot of my friends don’t know what equity is.”

“It’s so important to get that knowledge out to others. Because everyone can do this,” she says. “Being a property investor sounds scary, but anyone can do it.”

ham

REAL PEOPLE, REAL HOMES Unlocking the value of your land could be easier than you think.

When Chris and Andrea’s children left home, they discovered subdividing their section and building a second home was an ideal way to unlock the value of their land and get what they wanted in a new home.

“When the kids left home, we decided we should do something with our extra land. We got a real estate agent, weighed up our options, and decided it was by far best to build a second home on the site rather than sell the section. It had to be a nice house, that would complement our old home to keep the value of both of them. GJ’s helped us with all our boundaries, plans and daylight angles, and dealt with all of the contractors and services. It was a complex job made simple with GJ’s. In the end it’s going to be a really good investment. We’ve got two really nice homes.”

– Watch Chris & Andrea’s full story gjgardner.co.nz

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PERSONAL FINANCE

Battling the Bear: What Should You do in a Downtrend Market?

With the market down 20 per cent since January, what should savvy investors do to protect themselves? Tina Teng, Market Analyst at CMC Markets, provides some guidance on taking a defensive stance in a downturn.

The US stock markets ended the worst first half in over 50 years in June, pushing the S&P 500 into a bear market, having dropped more than 20 per cent from the January high. Meanwhile, the ASX 200 took the last but hardest hit from the central bank’s ‘front-loading’ rate hikes, plunging more than 10 per cent in one month.

Locally, the New Zealand benchmark index, the NZX 50, tumbled 20 per cent in the first half of the year.

It’s certainly a difficult time for investors who hold a bunch of losing positions, and

panic selling often happens when the stock market drops. Eventually the markets will bounce back, so this panic selling can lead to unnecessary losses. What tools could you consider as hedges for your current losing positions?

The defensive instruments If the risky assets account for a large percentage of your portfolio, you could consider increasing your proportion of safehaven assets. The traditional safe-haven asset is gold, and the price of gold usually increases when there is a market crash

or during uncertain events. Physical gold can have a high storage fee, so gold-related ETFs are good alternative investment. Gold-related exchangetraded funds (ETFs) such as SPDR Gold Shares (NYSEMKT: GLD) and iShares Gold Trust (NYSEMKT: IAU) are easy to manage and have low transaction fees.

As shown in the chart below, gold held its value when the SPX 500 crashed during the Global Financial Crisis (GFC), the US-China trade war, and Covid-19.

SPDR Gold Trust and SPX 500 since 2005 300.00%

SPDR Gold Trust

220.00% 220.00% 180.00% 140.00% 100.00% 60.00%

SPX 500

20.00% -20.00% -60.00%

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

Source: TradingView as of 8 July 2022 S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 4 9

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Utilities and consumer staples tend to be less volatile In the stock markets, defensive sectors are usually more stable during market turbulence. The typical defensive stocks are in the utilities and consumer staples sectors: businesses in these categories usually endure an economic downfall better as they’re consumer essentials.

ETFs you could consider are the XLU Utilities Select Sector SPDR Fund (XLU) and Consumer Staples Select Sector SPDR Fund (XLP). Both the XLU and XLP outperformed the SPX 500 with the least volatility in the year to date.

Gauging the risks of the market The CBOE Volatility Index (VIX), which S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 5 0

is the index to gauge the risks of the market, is a useful tool for investors to hedge market downturns. The VIX surges when investors show concerns and worry, especially in a market crash. The VIX skyrocketed to above 80 in both March

In the stock markets, defensive sectors are usually more stable during market turbulence.

2020, when a pandemic-induced sell-off happened, and in October 2008 during the GFC. On the flip side, the VIX is usually below 30 when the market sentiment is relatively calmer. It’s also an indicator for investors to assess the market risks.

The instruments to hedge long positions There are some instruments providing the reverse trending against the mainstream stock markets, too. These products are going inversely with the hedging instruments, such as PSQ or SQQQ to hedge QQQ, SH to hedge S&P 500, SARK to hedge ARK, and BetaShares BBOZ to hedge ASX. However, these EFTs are not buy-andhold investment instruments, which are usually for one-day hedging purposes. Also, some of the reverse EFTs provide leverage in the pricing movement which, in turn, increases risks when markets rebound. Two of the most popular hedging ETFs are as follows: •

ProShares Short QQQ ETF (PSQ), an exchange-traded fund that tracks the

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inverse of the Nasdaq-100 index ETF (QQQ) daily. ProShares UltraPro Short QQQ (SQQQ) is a three-times leveraged inverse ETF that tracks Nasdaq 100.

•

ProShares Short S&P500 (SH) goes inversely to the S&P 500, which is good to hedge a bear market daily.

ProShares UltraPro Short S&P 500 ETF (SPXU) is times inverse of the S&P 500 performance, also for a one-day hedge.

CFD short sell Contracts for difference (CFDs) are derivative products that enable you to trade on the price movement of underlying financial assets, which allows both buy- and sell-side trades. Essentially, placing a sell position in a downtrend market can bring

the same return as a buy trade in a market rally. For example, you can place a short sell trade for any shares that you hold when they are plunging, to hedge the losses, which is the beauty of having a CFD trading account. When the price falls, a short

You can place a short sell trade for any shares that you hold when they are plunging, to hedge the losses. position will bring gains for the same amount as the falling prices.

However, this requires a personal decision regarding the proportion of your portfolio that needs to be hedged, and the timing of when the hedging positions need to be

closed. In a bear market, the short positions usually need to be closed toward the bottom. Traders may sometimes refer to option markets to decide the CFD closing prices. When using a CFD account, you need to manage the leverage risk to avoid a margin call.

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

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E X P E R T O P I N I O N | C ATA LY S T F I N A N C I A L

Mortgage Mindset: IO vs P&I Should you pay down debt using principal and interest, or boost your cashflow with interest only? Peter Norris considers your options.

Should you pay interest only on your lending or should you pay principal and interest? Cashflow investors and long-term growth investors have been having this argument for decades.

Property experts debate this furiously while I sit on the fence. My view is that the most tax in-efficient debt should be on principal and interest (P&I), leaving the more efficient debt – the tax-deductible debt – on interest only. Generally speaking, if you have lending on your own home then you would have that on P&I and your investment properties would be on interest only.

Recent tax changes have shifted this slightly, given that borrowing against existing investment properties is now also inefficient.

The comparison between interest only and principal and interest is one that usually only occurs for property investors. Banks these days are hugely reluctant to put debt that is secured by your owner-occupied home on interest only. Even the alternative lenders don’t like it. This is because they want to see you getting that debt against your home gone and ensure that you aren’t left with a big mortgage when you retire.

I’m in complete agreement with this.

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Believe it or not, having your lending on interest only will decrease the amount you can borrow.

The exception to this rule is when you’re building a new owner-occupied home.

Generally, you’d keep your loan payments on interest only during the build to mitigate cashflow issues if you are renting or paying an existing mortgage at the same time. Once the build is finished though, the bank will move you back to P&I. For investors, the debate is less clear-cut.

So, what are the differences?

Interest only This is pretty straightforward. Interest only is where you pay only the interest amount each month and make no principal reduction. With the main banks, the interest only terms can be for a maximum of five years. At the end of that term, your loan balance will be the same as when it started. Interest only payments typically have to be paid monthly.

Principal and Interest (P&I) This again is pretty straightforward. P&I is where you make a set repayment every week, fortnight or month. Interest is calculated daily – based on the balancing owing – and charged monthly. Because of this, paying weekly or fortnightly will save you interest in the long run and help you pay the lending off faster.

With P&I, you have a minimum repayment which is determined by your loan term, for example, 30 years. In the early days, your payment is weighted heavily towards interest rather than principal, so it can feel like the loan isn’t going down. It takes roughly 15 years before the weighting shifts in favour of principal! However, there are ways you can structure your lending to ensure you get ahead and get that loan paid down faster. For example, you can increase your minimum payment slightly, or make additional lump sum payments. Or, you can use a revolving credit facility to minimise the interest you’re paying.

How can it affect your borrowing?

What doesn’t get talked about a lot is the impact that interest only has on your S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 5 4

borrowing ability. Believe it or not, having your lending on interest only will decrease the amount you can borrow! This is because it reduces the term that the bank tests your affordability against.

For example, in almost all cases, when you apply for lending, the bank will test your affordability over a 30-year P&I term, using their test rate – which is currently around 7.85 per cent. However, if you want to put that lending on interest only for five years, then the bank will test your affordability using the term remaining after your interest only period finishes (25 years). Using the bank’s test rate, a $500,000 loan would cost $3616 per month over 30 years, whereas over 25 years that loan would cost $3809 per month.

Therefore, you need to demonstrate a higher level of servicing to get that same loan on interest only.

As an investor, understanding how this works can help you in your quest to borrow more. You could remove the interest only term altogether, or you could reduce it down to two or three years. In this case, you’d need to understand that, when that term is up, you need to re-apply for interest only or move onto P&I. Like I said at the start, interest only versus P&I is a long-standing debate. Regardless of this, structuring your lending to suit your personal situation is important, and having a mortgage advisor who understands what you’re trying to achieve is essential.

We lease, we sell, we manage, and we know how to increase the value of your Commercial property When results matter, you’ll want to talk to our specialist Commercial team.

0800 367 5263 | pb.co.nz/commercial

Commercial Real Estate

Property Brokers Ltd Licensed REAA 2008 PB057378

KIWI SAVE R GU I D E | BO O STE R

PART FOUR: Strategies in Retirement

Your Guide to KiwiSaver Once you reach 65, what should you do with your KiwiSaver savings?

Dave Copson, Head of Growth at Booster, provides a guide to help you make your money last.

FIVE WAYS YOU’LL SAVE MONEY WHEN YOU’RE NO LONGER WORKING I’ve had a few conversations with clients over the years where they say, “I need to earn the same amount that I earn now, because that’s what I live off now and it’s a struggle.” Luckily, the situation isn’t as bad as they’re expecting. Usually, these clients haven’t thought about all the ways they’ll spend less once they retire from working. Here are five of the most significant ways you’ll save: 1. Housing. Hopefully your home loan is paid off by the time you retire, which will mean no more mortgage payments.

2. Transport. You won’t be driving to work every day or taking public transport, so your spending on travel decreases. Once you turn 65, you’re also eligible for a SuperGold card, which gives you free off-peak public transport travel, as well as other savings and discounts.

THE FIRST CHALLENGE IS CHANGING YOUR MINDSET During your working life, your entire mindset is focused on accumulation. Building up your retirement funds, growing your KiwiSaver savings, developing your career, spending less, earning more. Then you retire, and suddenly you have to flip the switch on that mindset.

You’re no longer bringing in an income. All your income is based on your investments and superannuation.

You’re no longer accumulating – you’re decumulating. It can be really difficult to get your head around making this switch.

I know that there’s an important story to tell about the many Kiwis who haven’t saved enough for retirement, and I don’t in any way want to diminish their struggles. But there is also a sizeable chunk of the retired population who are financially comfortable and yet feel conflicted or guilty about spending anything. Many of my previous clients, and even my own parents, are probably not enjoying their retirement enough.

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3. Clothing and food. If you buy your lunch and coffees during your workday, you’ll save a lot when you’re eating at home – it’ll be lockdown food spending again.

When it comes to clothing, you’ll also save on work attire, which can be a decent sum if you’re expected to dress smartly in an office job.

4. Insurance. Review your insurances with an advisor. Your requirements change as you get older. Chances are, you can reduce or cut some of those costs when you’re no longer working.

5. Entertainment. Fewer post-work social events usually mean a little less spending on food, alcohol and entertainment.

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USE RETIREMENT SPENDING ‘BUCKETS’ I think about retirement decumulation in terms of buckets: •

A five-year bucket for more immediate spending. This bucket would be invested conservatively, and it should include some cash in the bank for emergencies.

•

A 10- to 15-year bucket that can be invested with some growth in mind, but with a balanced view. This bucket would replenish the 5-year bucket when required.

•

A 15-year+ bucket for long-term spending, which can be invested in higher-growth assets. This bucket in turn replenishes the 10-15-year bucket when required, and so on.

Not only will you spend less in retirement compared to your working years, but you’ll also spend much less in late retirement than early retirement. In your late 60s and 70s, you might spend plenty, for instance on travel, while you’re still in excellent health.

Once you reach your 80s, you will find you slow down a bit and your spending slows down accordingly.

CONSIDER KEEPING YOUR MONEY IN KIWISAVER Over the past four or five years, I think retirees have started to take KiwiSaver more seriously as an investment vehicle. Where people would often pull out all their savings and put it in the bank, now more retirees are leaving their KiwiSaver savings in place and even contributing to it.

As a retirement savings vehicle, the fees are low, you get expert management and you can split your buckets of money across various types of funds.

I suggest you speak to a financial advisor, or even start by talking to your fund provider. Our team is always chatting with clients about how to manage their KiwiSaver savings to make them last the distance.

Booster is Kiwi-owned and operated. We’ve been looking after New Zealandersʼ money for over 20 years.

With Booster you can manage your whole financial universe with the mybooster app. mybooster lets you track your total wealth and create the future you want by giving you a joined-up view of your bank accounts, investments, property, assets, and debts.

On www.booster.co.nz you’ll find the Booster KiwiSaver Scheme, mybudgetpal, and mymoneymap, which helps you plan how long your KiwiSaver savings and other investments will last.

Join the Booster KiwiSaver Scheme now. www.booster.co.nz

Booster Investment Management Limited is the manager and issuer of the Booster KiwiSaver Scheme (Scheme). The Scheme’s at | I N F O R MStatements S P R I N GProduct 2 0 2 2 Disclosure E D I N V E S Tare O R available 57 www.booster.co.nz

KIWI SAVE R GU I D E | BO O STE R

27%

of over 65-year-olds are still working for pay.

1 in 5 Kiwis Retire Early 20% of those aged 55 to 64 have already retired.

40%

of those aged 55 to 64 haven’t yet given retirement and asset management much thought.

6 Out of 10

ARE YOU SPENDING ENOUGH? There are two main reasons for retirees spending too little. The first reason is that they feel obligated to leave a ‘legacy’ of money for their children. That’s a personal choice, but in most cases their children are approaching their own retirement by the time they inherit and their financial situation is already sorted.

THE REALITY IS BETTER THAN YOU MIGHT EXPECT Older New Zealanders are more confident than those aged 55 to 64, according to a report by Te Ara Ahunga Ora, Retirement Commission. That’s encouraging, because it shows retirement is a worrying prospect, but the reality is more manageable than we might be anticipating. The research found that the most important drivers for confidence in retirement savings are (in order): •

Owning your home

•

Having savings

•

Having investments

•

Having self-funded retirement income

•

Being retired

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The second reason is that retirees are worried about running out of money. This may be a legitimate concern, but in many cases I have found that clients haven’t actually run the numbers. Even if they know how much they have at that moment in time, they don’t really have a sense of how long it might last or what their future cashflow might look like.

60% of those aged 65 to 69 haven’t yet made any KiwiSaver withdrawals.

Retirement is a worrying prospect, but the reality is more manageable than we might be anticipating.

SURPRISING SPENDING Kiwi investors expect to spend their KiwiSaver on living costs and adding to their savings.

However, funds are often spent on either debt reduction or fulfilling a dream.

•

KiwiSaver funds were spent on ‘something I’ve always wanted’ for 21% of those aged 65 to 69 and for 33% of those aged 70-plus.

•

Funds went to paying off the mortgage or reducing debt for 16% of 65- to 69-year-olds and 19% of those 70-plus.

Source: Asset drawdown (decumulation) and Paid Work Profile of Pre-and Post-Retirees, Te Ara Ahunga Ora Retirement Commission, 2021.

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Were Tech Stocks Overvalued?

Household name technology stocks have fallen dramatically this year. Pie Funds founder and CEO Mike Taylor explains what could lead to a turnaround in this popular equities sector.

I’m writing this article from 18,000 feet up, on a regional flight within New Zealand.

Why do I mention that? Well, often, to gain some perspective on a situation, it’s good to get a view from above.

Starting at the end of 2021 and accelerating into 2022, tech stocks have fallen precipitously as rising interest rates and a slowing global economy have wrought havoc for investors. And there has been nowhere to hide, with even the popular FAANGM (Facebook, Apple, Amazon, Netflix, Google and Microsoft) all falling, some over 50 per cent.

The Nasdaq Composite stock market index, heavily weighted in technology stocks, was down around 30% by July 2022.

You may have investments in these companies yourself, so know first-hand. Or maybe your KiwiSaver provider, managed fund, or index funds invest in them.

But, before we get to the recovery, it’s worth understanding if tech stocks were overvalued in the first place.

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Covid-19 drove a surge After a decade of strong performance, when the Covid-19 pandemic hit, tech companies’ profitability was turbocharged. This was driven by consumers and businesses forced to work from home and shop online. You’ll probably recognise this from your own behaviour. You might have been using Microsoft Teams or Zoom programs for the first time, and quickly these became part of everyday life. Bricks-and-mortar retail stores may have quickly set up online shops using technology. At-home entertainment surged – who wasn’t watching increased hours of Netflix?

The market bid up valuations on the assumption we were in a new paradigm.

Unfortunately, just as interest rates started to rise, so did the realisation that, although we’d shifted some of our behaviour, society as a whole wanted to get back to ‘normal’.

Three signs of a turnaround Fast forward to July 2022. We now know that although shopping online and Zoom meetings are great, we don’t want to spend our whole lives online.

The good news is that prices have now adjusted, valuations have returned to earth and, in many cases, tech stocks are relatively cheap.

So what am I looking for to signal the allclear and return to investing in the tech sector?

•

First, a peak in inflation and for central banks to say rate hikes are over for now.

These will ease pressure on valuations.

•

Second, I want to see how earnings are tracking in an environment that’s tough for the consumer. If tech earnings hold up as I think they might, then that’s a big tick.

•

Finally, I want to see a washout in sentiment towards the sector. And for this, I think we are already there. Tech has fallen so much that I’m seeing plenty of opportunities.

Therefore, while I’m still cautious, I think prices for the sector could well be higher in six to 12 months, although it will be bumpy along the way. For long-term investors, it might be time to start nibbling away at your favourite beaten-up names.

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

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RETIREMENT | HEARTLAND

The Money Mindset of Debt in Retirement Debt can be a burden, but it’s also a tool, even in retirement, writes Andrew Ford, General Manager – Retail & Reverse Mortgages at Heartland Bank.

It’s human nature to judge. Often our judgements are based on our own experiences, values, perceptions and standards. That’s why when someone talks about borrowing in retirement, it’s natural that most of us treat this with caution – and some with outright disapproval.

One in five retirees have a mortgage The reality is that indebtedness in retirement is on the rise. According to credit reporting bureau Centrix, the number of mortgage holders aged 65 and over increased by 17.2 per cent between 2017 and 2022, with nearly one in five Kiwi pensioners managing a mortgage into retirement in 2021.

While the numbers don’t lie, what they don’t tell us is whether this is a bad thing or not – this is where the psychology of money comes into play. While the number of mortgageholding retirees has increased significantly, so typically has the value of their property and other assets, meaning their net position may have actually improved. Going back a couple of decades, retiring with a mortgagefree house worth $250k and a small amount of savings may have been the fruits of a productive working life. Now, with the average property price in New Zealand being approximately $1m, homeowners may be in a stronger position comparatively, despite having some debt.

Borrowing to fund a better lifestyle There is also the dilemma of whether borrowing in retirement is frivolous and irresponsible, or a great way to do the things you enjoy and deserve. Take this example.

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Joan and Paul are in their early 70s and have a home worth $750,000, along with $200,000 in savings. They have always dreamed of travelling across the United States on Route 66, and they’ve decided to spend $50,000 of their savings to tick this off their bucket list. I think most people would say, ‘Good on you, Joan and Paul!’

On the other hand, let’s say Joan and Paul didn’t have much in the way of cash savings but did have a house worth $1m. If they decided to borrow $50k via a reverse mortgage in order to fund their dream holiday, would the response be the same?

different, provided it’s lent and borrowed in a responsible manner?

Most people don’t want debt. Families don’t want a mortgage, they want a home.

Individuals don’t want a car loan, but they may need a car or want one that is safer and more efficient. Business owners don’t want credit, but they need capital to grow and prosper. Is debt in retirement any

many people in their late 60s to mid-70s have children who are independent and are making their own way in the world without wanting or needing support. Often children would prefer their parents enjoyed their retirement, rather than leave it all behind.

For many, it’s even become commonplace

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What about the inheritance?

Another consideration around borrowing in retirement is the impact on inheritance.

This is a valid concern for many – however,

Often children would prefer their parents enjoyed their retirement, rather than leave it all behind.

to pay out inheritances upfront through higher education costs and support through young adulthood.

In saying this, many reverse mortgage customers choose to use some of their funds to support their future generations. Helping with the deposit for a house, educating grandkids or creating memories with an amazing intergenerational holiday are common.

We have one customer who gave each of her grandchildren money for a car, on the condition they use it to visit her. She wanted to see their joy while she was alive rather than them benefitting after she was gone.

It’s natural to make judgements based on our experiences and what society has taught us – but the world is changing, and so is the way we approach debt. Having options available, as well as making informed decisions, with input from friends and family, is more important than judgement.

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PERSONAL FINANCE

Don’t Panic Scary economic headlines dominate the news, but by the time you read them, the risks are already priced in, explains economist Ed McKnight.

It seems like there is bad news for investors and the economy everywhere you look.

Business confidence is approaching record lows, house prices are falling, and consumers are wary of spending more.

And the bleak headlines will likely continue for some time. Despite this, there are four reasons why investors should not base their investment decisions on what the mainstream media reports.

1. Markets are forward-looking Sometimes you read a scary headline, and the impact on the market is exactly nil. That’s because markets already price in known and likely events. If a scary news headline re-states what was already known, then there is no impact.

Take the example of rising interest rates. Soon there will be headlines stating that the Reserve Bank has increased the OCR (again).

When inflation is next reported, there will be articles about how prices have risen far outside the Reserve Bank’s target band of between 1 per cent and 3 per cent.

This would usually suggest that mortgage interest rates are likely to increase further.

They won’t. And that’s because the increase in the OCR is already factored in. Banks have already set their interest rates with a rising OCR in mind.

The Reserve Bank knows this. When asked at a recent press conference what impact a rise in the OCR would have on mortgage interest rates, the Reserve Bank Governor Adrian Orr played down the effect.

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YO U R I NVE STI N G

You tend to want to make changes when things aren’t going your way. But the pain currently being experienced by investors is normal and expected.

“We are just confirming what market pricing had already got to,” Orr said. When speaking about future OCR increases, he added, “Mortgage interest rates are already pricing in that forward look for us.”

The danger for many investors is they are caught up in today’s headlines – and the state of today’s economy – as opposed to considering where the economy will go in the future. Be careful, the news contained within those headlines may already be priced in.

2. Economic forecasts are often wrong No economist puts out a forecast expecting it to be 100 per cent right. (I can say that. I am one.)

We know that time will prove our forecasts wrong. That’s because unexpected and unknowable economic events will shake asset markets. And if we didn’t know about an event … it won’t have been included in the projections.

When you read a news story quoting an economist with a solid-sounding forecast, think of it more as a technical projection.

It’s a scenario based on current known factors, not a reliable forecast you should use to inform your investment strategy.

Economists can only hope to get in the right ballpark. They’re never exactly correct and are often proved wrong. As the former Reserve Bank Chief Economist Young Ha said, “Asset prices are notoriously hard to predict.”

3. News articles are short-term focused News articles are often based on what happened last year or what may happen over the next year. However, investors tend to have longer time horizons than just a year or two.

It doesn’t matter whether share prices are up or down today. What matters is the longterm trajectory. You’re investing for five, 10, or 15-plus years. News journalists don’t know your financial goals or investment time horizon. Their job is to report current changes.

Let me give you an example. Since the start of 2022, the S&P 500, a popular stock market index, has been down 18.7 per cent.

You can imagine the headlines: “Stock S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 7 0

market down almost 20 per cent. ‘It’s a bloodbath,’ experts say.”

But why should that concern you if you are a long-term investor? You should only be concerned about the ultimate trajectory of your portfolio and its value at the time you sell your position.

A more useful – but less attentiongrabbing – headline would be: ‘S&P 500 up 7.1 per cent per year over the last 20 years.’

Short-term blips don’t matter – assuming you’ve purchased the right assets.

4. There’s little alternative to investing While you could invest in many things, there is little alternative to investing (as a whole). That’s because most Kiwis need to grow their wealth for their retirement, their family and themselves. And over the long term, investors make more money from the compound impact of investing rather than savings alone.

Say you put $100 a week into a stock index fund. Then the market increases by 7.1 per cent each year*, as it has done for the last 20 years. After two decades you would have made more from the market going up in value ($129,750) than you’d made from putting money into buying the shares ($104,000).

Put simply, the price of not investing is that you are poorer than you would otherwise be.

The trade-off, however, is that you must weather the ups and downs of the markets.

Short-term pain, long-term gain You tend to want to make changes when things aren’t going your way. But the pain currently being experienced by investors is normal and expected.

There is a real danger in making a knee-jerk reaction and changing your investment strategy based on news headlines and negative market sentiment alone. *excluding fees

Property-Backed Investments Provide Tangible Returns in Volatile Times With stock markets down, crypto declines, high inflation and low term deposits – Zagga provides another option in challenging market times.

Finding reliable returns at an acceptable risk level is always a challenge, but right now it’s more difficult than ever. Share markets have been in decline, term deposit rates remain modest and inflation is eroding the value of savings – so this is a great time to look around at other investment options, and Zagga should definitely be on your list for consideration.

Zagga provides strong returns, backed by property. Because it has a relatively short timeframe and fixed returns, a Zagga investment can balance out long-term asset classes like shares – and add diversification to your portfolio.

How do Zagga investments work?

Zagga is an online platform that matches up investors with creditworthy borrowers.

Borrowers apply for a property or commercial loan, and Zagga investors who like the look of the loan each contribute to funding it: from as little as $1000 up to the full loan amount, across any number of available loans. Every loan is secured by a first mortgage over the borrower’s property, either residential or commercial. This is the same type of security a bank would hold, giving investors a tangible asset to recover funds in the case of any default by a borrower.

Each loan/investment is also fully transparent, meaning a summary, full credit checks, and valuations and information on the security is available on every loan.

“Our clients like the fact that the underlying security of the loans is property or land,”

says Stephen Crerar, CEO at Zagga. “The average LVR on these properties is 54 per cent, with returns of around 8 to 10 per cent per annum on current investment opportunities. The timeframe is comparable to a term deposit, from six months up to two years but with higher returns.”

Zagga investments can work well as part of a diversified portfolio. They are a short-term financial product, matched by strong reliable returns. With monthly interest payments, Zagga works well for those investors looking to generate or supplement an income.

New secondary market launched Zagga has also recently launched a secondary market, so investors can have more control over their funds if they suddenly need their cash out. An investor who has put money into a Zagga investment can now ‘sell’ their investment early in the term to another investor via the Zagga platform’s new secondary market.

“Now that we have this secondary market, giving investors additional liquidity, we’ve added increased flexibility and confidence for investors,” says Stephen. Although, he adds, the company’s track record is already very strong: “Zagga has loaned more than $130 million to date, and so far no investor has yet lost any principal – I think that track record should help give investors some confidence.”

For more detailed information visit us at www.zagga.co.nz S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 7 1

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PA R T N E R S L I F E

How do you Handle a Crash in the Game of Life?

Life sometimes throws us curveballs - but with the right strategies in place, you can take the financial stress out of insurable events, writes Kris Ballantyne of Partners Life.

Playing the game of life is not straightforward: there are highs and lows, twists and turns and sometimes there can be things that bring the game to a screeching halt, either temporarily or permanently.

Are you and your loved ones prepared for a crash in the game of life?

There are a variety of things that may interrupt your life and as a result, your bank account. So, it’s important to think of ways you can safeguard your money for when those interruptions occur.

Insurance can be one of those ways you can protect yourself from the costly effects of those interruptions.

What would happen if your earning capacity was lost or diminished?

Let’s paint a picture for you…

You’re an adult now and have built yourself a full life.

You may even have kids or someone looking to you to help provide for them; being needed comes with its own set of responsibilities. Some of you may not have anyone relying on you, but that doesn’t mean you’re excluded from this conversation.

What would happen if you couldn’t earn an income?

Who would take over the responsibility of looking after you and/or your family? We’re not invincible.

Could you honestly say that you have enough funds to cover your living costs while you recover? With the cost of living on the rise, are you confident that you have enough in savings to cover any interruptions to your life?

Taking the financial stress out of the equation This is where personal risk insurance can enter the conversation. Having insurance in place can help take the stress out of things, whether it be supplementing any missed income or helping to pay for life-saving treatments so you can focus on getting back to being 100%.

Life and health insurance companies have a wide range of products you can choose from that will suit you and your financial needs whilst ensuring the best protection is in place to help soften any bumps in the road of life. In addition to popular personal risk products like life and medical insurance, there are other products that can help soften the blows and prevent your life crashing to a halt.

Beyond just life and medical insurance Different insurance products that can be fit for different purposes, and it’s helpful to know about these when considering the types of risk that may need to be covered.

Monthly disability products like income protection can help cater for short-term disruptions to your lifestyle. For example, if you’ve been in an accident or been given a medical diagnosis that means you have to take time off from work. An insurance product like this can help supplement any lost income for a period, taking the stress away of who will pay for the living costs so you can focus on your recovery.

Products like trauma or total permanent disability insurance, on diagnosis of a condition, pay you a lump sum which you can use to fund treatments you may need, or for any unexpected costs that come up because you’re not able to work for a longer period of time.

Unexpected events are never predictable!

In the insurance industry we hear and see countless events that can bring major disruptions to people’s lives. While you may not always see the value over having insurance compared to spending your money on things that can give you instant gratification in that moment, a small sacrifice now means being protected from any interruptions. You never know when a crash will occur but sorting out ways to help soften them will have ‘future you’ thanking your past self for looking out for them.

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YO U R I NVE STI N G

No More 9 to 5: A Closer Look at the Flexi-Work Revolution Is the standard work week becoming obsolete? Ben Tutty considers how the four-day week could improve our lives without sacrificing productivity.

Way back in 1930 one of the most renowned economists of all time, John Maynard Keynes, forecast we’d eventually only need to work 15-hour weeks. He predicted technological change and productivity improvements would mean we could produce enough to meet all our needs in the two-day work week, leaving us with more leisure time – a five-day weekend, to be exact.

Fast forward to 2022.

The length of the average American work week (38.8 hours) has increased by an hour since 1970, while the average Kiwi work (37.8 hours) week has stayed roughly the same. As I sit here typing on a Friday, I’m wondering – what happened to five-day weekends? And how did Keynes get it so wrong?

Why aren’t we working less?

Keynes was right about one part of his prediction: technology did cause a productivity boom across most sectors.

Office workers, for example, are nearly five times more productive than they were in the 1970s. The primary industries and many other sectors have experienced similar gains, and yet here we are working 40-hour weeks.

The problem is that most of the rewards from these productivity gains have gone to the top. In the US, for example, real CEO pay increased by 937 per cent from 1978 to 2013, while worker pay only increased by 10.2 per cent. In other words, we’re S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 7 4

producing way more economic value but the rewards aren’t being shared evenly.

What’s more, the 40-hour work week is baked into our culture, despite the fact that it hasn’t really evolved as a concept since the early 1900s. What’s the alternative?

Introducing the four-day work week Perpetual Guardian famously switched to four-day weeks back in 2018 while continuing to pay their staff a full-time wage – several years later the trial is still going strong. Kirsten Kilian-Taylor, Manager, Perpetual Guardian Foundation, says that it’s all about trusting employees.

“The most winning highlight of this change is that we’re giving power to our people. Our CEO has essentially said, ‘you can own your destiny – as long as you achieve, it’s all good.’”

She says there’s more to the initiative than working one day less per week.

“Our research showed that most people were only really productive for two days a week. So this change was about activating ourselves more meaningfully for a shorter period of time and being rewarded for it.”

Kilian-Taylor adds that their approach to the work week is continually evolving, but it’s been a great change for employee wellbeing.

In fact, research shows that staff have had more time to participate in family life, train and study, while seeking out new travel, leisure and volunteering activities they normally wouldn’t have had the time for.

PERSONAL FINANCE

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YO U R I NVE STI N G

Life > work As a freelance writer with an enduring passion for afternoon naps, I’ve always believed that life should come before work, and over the years I’ve learnt that it’s possible to have a meaningful, productive career without showing up in an office for 40-plus hours a week.

These ideas are quickly becoming more mainstream. In fact, 19 per cent of New Zealand business decision-makers surveyed

by HR Director NZ said they believed advertising flexible working arrangements is the best way to attract good talent.

Some have taken it upon themselves to create their own flexi-work arrangements, like Petrinah Darrah, a travel journalist who recently left her job to start a freelance writing career.

She reckons 9-5 is unrealistic for most.

“I just genuinely don’t think I can use my brain for 40 hours a week. I have a few good bursts in a day, usually early in the morning, and other than that I’m mostly only good for admin. Yet the traditional work structure sets up the expectation we can consistently use our brains for eight hours a day, five days a week.”

Just because she doesn’t want to work 40 hours a week that doesn’t mean she’s not S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 7 6

motivated – building a freelance business from the ground up shows she is. But working flexibly gives her the time to pursue other things while working on stuff she cares about.

“One of my big goals with going freelance was to take back control of my time,” says Darrah, “and have more free time to spend travelling, exploring, hiking, surfing, or doing anything else I’m passionate about.

Most Kiwis want to work less, but the question remains – is it really possible to produce the same in four days as we would in five?

four-day work weeks are delivered as part of a wider set of initiatives.

“We shouldn’t look at the number of days spent in the office in isolation.

Something like a four-day work week has to be delivered as part of a package to improve productivity. Other elements might include a clear management expectation of deliveries during those four days. Training and development, career advancement, and a switch to a focus on outcomes – not just being present.”

He says investment is the key – spending on better infrastructure, technology, equipment and training will ultimately lead to productivity and employee engagement gains (perhaps even enough to make up for skipping a day of work).

“I am a lot happier being able to just put work down when I feel stressed, without the pressure of digital presenteeism. I’m really excited to have the power to shape my own work-life balance.”

Raj adds that we’ve been completing more total hours of work over the past few decades by adding more people into the workforce. That’s led to economic growth but not productivity or wellbeing growth.

Solving the productivity problem Most Kiwis want to work less, but the question remains – is it really possible to produce the same in four days as we would in five? Ganesh Raj, NZ Productivity Commissioner, says it could be, as long as

“Working more hours hasn’t made us better off. That’s why it’s a good time to experiment with other options. Looking after our people better, while investing in new tech and ways of working may help lift New Zealand’s low productivity.”

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To find out more, talk to your financial adviser today. To find an adviser visit nib.co.nz/adviser-plans Terms and conditions and eligibility criteria apply. Offer ends 31 October 2022. Reward available upon payment of the first premium.

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F U N D R E V I E W | B O O S T E R TA H I F U N D

The Art of Picking an Investment How do the professionals choose what their fund invests in? Chris Westbury explains how the Booster team makes decisions on new investments for the Tahi fund - and his insights could help you identify new opportunities.

Choosing the right investment is always a challenge, particularly when your decisions shape the success of a major fund.

Booster’s Tahi fund looks for the kind of investments that are typically difficult for the average person to access – it invests in private companies that are only normally accessible to the super-wealthy. The total portfolio value is around $150 million, and although you can’t buy into Tahi directly unless you qualify as a wholesale investor, Booster’s KiwiSaver funds are the biggest investor.

With KiwiSaver members’ money on the line, the stakes are high. So how does the team at Booster choose which businesses to invest in?

Associate director Chris Westbury provides some insights – which give you a window into the top-level thinking that can help any investor make smart choices.

Does it have a sustainable competitive advantage?

Consider your potential investment in its sector. How easy would it be for a competitor to come along and knock it off its perch?

Warren Buffett calls this an ‘economic moat’: the company’s ability to maintain its competitive advantage.

“We like to invest in areas that New Zealand does well at,” Westbury says. The Tahi fund invests in wine, dairy and horticulture as major parts of its portfolio. “We’ve found a happy hunting ground in the primary industries, because we Kiwis are good at it.

The world’s population is growing, and there’s increasing demand for high-quality protein, food and drink.”

Is your potential investment run by great people?

Successful private equity investment has a lot to do with relationships, so meeting the people in charge of a potential opportunity is vital, says Westbury.

Is it taking IP to the global stage?

A business doesn’t need to be huge to be valuable. It can simply be producing something unique that dominates a small market by adding massive value. That’s the case for Dodson Motorsport, which specialises in double-clutch gearboxes for racing cars.

“One of the very first decision points when we’re presenting a potential investment is, ‘Who are our partners?’ We want to know what drives them – do they share our values, and do they have the same long-term strategic horizon? That’s very important because this is about long-term investing, not a quick win.”

“Nobody is replicating this type of product or manufacturing,” says Westbury. “You can see that because nearly all its product gets exported. We don’t see it as simply a motorsport business, but also as a precision engineering business. It isn’t high volume, but it’s high value-add.”

Is it profitable?

Tahi only invests in profitable companies, and typically they are in a growth phase where there needs to be a clear road to a goal of sustainable cash earnings. Most of the companies Tahi invests in are producing strong earnings from the outset.

Similarly, Zeal Creamery is taking grass-fed A2 milk to the global stage, capitalising on New Zealand’s reputation and skills in the dairy sector. “We produce milk with half the emissions of the global average, which is indicative of New Zealand’s industry-leading position in dairy.”

“Ideally, we never exit our holdings; we’re working on building in value and creating sustainable cashflow,” Westbury says. “That’s our key test: can this company produce sustainable long-term cashflow for our investors?

You’ll never hear us talk about multiples of revenue, it’s always multiples of earnings.”

Is there still room to add value?

Consider the future for your potential investment – if it’s a small business it must be scalable, and it must continue to be profitable for many years. Think about how it could get even better at what it does, or apply its strategic advantage to either another slice

of its sector, or step into a new sector.

Westbury says every Tahi fund investment has room to add more value.

“The easiest dollar to invest is into a company you already know, so we look for follow-on, value-add opportunities in our portfolio.

That can provide our investors with high incremental returns on capital, with the opportunity for growth and expansion.”

Have you done your research?

There’s a huge amount of due diligence that goes into researching a new investment for the team at Booster. From the time they identify a potential investment, to the time the fund buys into it, is never less than four months and the process can take up to a year. The opportunity must be researched, analysed and weighed up against the fund’s criteria. It must be presented to the investment committee and thoroughly interrogated.

“You have to roll up your sleeves and do the work,” Westbury says. “Doing your own research is essential, right from the beginning. Read everything you can, talk to people if possible. Rate them against your criteria – are they a good fit?”

For the team at Booster, each investment made by the Tahi fund is like a business partnership, where they typically hold a minority stake but trust in the operator’s speciality expertise. Perhaps every investor should approach each share they buy with the same approach.

Booster Investment Management Limited is the manager and issuer of the Booster KiwiSaver Scheme. Some Booster KiwiSaver Scheme funds invest into the Booster Tahi fund. A Booster KiwiSaver Scheme Product Disclosure Statement is available at www.booster.co.nz

S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 7 9

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Informed Investor magazine is a New Zealand luxury investment and lifestyle magazine which explains in plain English your financial options and how to build wealth.

It covers the share market, property investment, KiwiSaver, personal finance, the economy, books, travel, and all the good things in life you can buy when you invest wisely.

Subscribe now and recieve a one-year subscription (4 issues) for $29 or a two-year subscription (8 issues) for $49 Go to: www.informedinvestor.co.nz/subscribe

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

ASTE RO N L I F E

Thinking of Cancelling Your Insurance?

Get Advice First.

If you’re reviewing your outgoings, there are some important considerations when it comes to Insurance, says Grant Willis, Head of Asteron Life.

With the cost of living rising, you may be reviewing all your regular outgoings.

When it comes to insurance, you might be wondering how much do you really need.

Can you cancel or reduce your cover, and what insurances are ‘nice to have’?

This is a really difficult topic for the average Kiwi to navigate. On one hand, life insurance might be starting to look like a luxury you don’t need. But if you’ve had the cover in place for years, it can be difficult to give up the ‘security blanket’ of your insurance – or you might feel like you’re placing yourself or your family’s financial future at risk.

Insurance is complex, so how can you keep what you need and eliminate anything extra? The best way is to talk to an adviser, for three reasons: 1. An adviser can identify if cancelling could cause problems Cancelling a life insurance policy can cause surprising issues down the track – for example, if you need to take out cover

again, and you’ve had medical issues in the meantime, you might be facing higher premiums and more limited options. An adviser can explain how cancelling your insurance might affect you in future.

2. They can future-proof your strategy Retiring, paying down debt or kids leaving home should all trigger a life insurance review – do you still need the same cover?

An independent financial adviser can talk to you about your plans, assess your current needs, and plot out a plan for the future.

be able to find ways to cut your premiums without cancelling your cover. They can talk to you about reducing it, increasing wait times or restructuring your policies.

Cancelling your life insurance can be a big decision in your life and sometimes signals an exciting milestone. But whatever your circumstances, it’s always great to get personalised help. Talk to an insurance adviser for advice that’s tailored precisely to your situation.

For example, if your kids have left home you might feel you don’t need much life cover – but if you’ve still got mortgage or business debt you might feel you’re better off keeping your existing cover in place.

Bouncing your plans off an adviser can help you feel confident that whatever decision you’re making is the right one now, and in the foreseeable future.

An adviser will be on your side Asteron Life won the Life Insurance Company of the Year award in 2021, and we work with some of the best advisers in the industry. If you don’t have an insurance adviser yet, we can help you find one in your area. There’s no direct cost to working with an adviser, and they can support you in choosing insurance and if you need to make a claim.

3. An adviser can help you save money If you’re reviewing your insurance in the hopes of saving money, an adviser might

To find an adviser near you, go to: www.asteronlife.co.nz S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 8 1

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From Tiny Acorns, Mighty Oak Trees Grow Liz Bennett has bootstrapped her part-time neighbourhood gardening gig into a thriving business.

At 27, Liz Bennett had just resigned after 10 years in the UK police force, and she wasn’t quite sure what to do. But she’d always liked gardening, so she did a degree in landscape architecture, which she managed to work around having her two sons. As a full-time mum, she occasionally did some garden design work while focusing most of her energy on raising the kids.

It all started with an ad on Neighbourly Then in 2016, she wanted to start working again, and began looking for a part-time job with plenty of flexibility to fit around school pick-ups and sports events – with no luck. Instead, Liz posted an advertisement on Neighbourly. It said something like, ‘I love gardening but I live in a rental and I have no tools. If anyone wants me to do some gardening for them, I’ll do it for $25 an hour.’

The advertisement got four responses, and Liz started doing weeding and planting around the neighbourhood. That ticked over nicely until she hurt her back doing too much digging, and her friend, also a stay-at-home-mum, offered to step in for her. As soon as Liz’s back healed, they S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 8 2

worked together, which allowed them scope to take on a few more clients.

“It got insanely busy really quickly through word of mouth,” she says. “For two reasons, I think. First, we always turned up, and we did what we said we’d do. Second, we fitted into a niche – there are mowing companies, and hedge-trimming companies, but we didn’t have a mower or a hedge trimmer, so we did basic gardening. We were on our hands and knees getting the weeds out, with just secateurs and trowels.”

Expanding the team Soon Liz needed more people, so she started asking around for other mums who wanted some super-flexible work. Plenty of

people were happy to take her up on the offer of $30 an hour for weeding, and Liz was able to start buying a few more tools.

By expanding her workforce to include some younger and stronger full-time employees, Busy Lizzy Gardens was able to offer services like hedge trimming and stump grinding. She was also able to spend up large at the Stihl shop on tools that would last for years, not just months.

During this period Liz often worked 17hour days, sometimes seven days a week.

“It really just mushroomed,” says Liz. “Now I have 18 staff, including two landscape architects and a designer, and I took on my first licensed builder in February, with another one starting next

month. At our core we’re still planting people, but we can also do more designing and building.”

Debt-free, 100% bootstrapped with reinvestment The business has been completely bootstrapped, funded through its own profits, with Liz paying herself less so she could keep funnelling profits into vehicles, tools and staff.

“I earned $5,000 the first year, and $50,000 the second year. The growth was exponential; between year two and year three, the revenue increased by 820%.”

Despite never having imagined herself as a business owner, Liz loves running her team and providing outstanding customer service.

She’s proud to be able to give her workers flexible schedules and time off to look after their health or their kids – and says they repay her in spades with loyalty and hard work.

“I’m trying to build a business that’s slightly different from other landscape gardeners,” she explains. “We pick up a lot of new customers from our competitors.

People are left dissatisfied when prices are very expensive and they get a different guy each week, or a 17-year-old who spends all day staring at his phone. We aim for a very high level of customer service, and I hire five managers to deliver this; the model must work because our clients keep coming back.”

Financial independence might be the best return Over the next few years, Liz plans to keep growing the business, without taking on any debt. She’s recently had a buy-out offer, but she turned it down. The income from Busy Lizzy Gardens has meant that she’s been able to buy a house and be financially independent – which would likely have been impossible if she’d been working as a landscape gardener for someone else.

“The only reason this business exists is because I couldn’t find a job that would let me pick up the kids each day,” she says, with a laugh. “I never thought I would love it, but I do. It’s paid me back for all the time and money I’ve invested in it.”

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YO U R I NVE STI N G

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ES G I NVESTO R | D EVO N F U N D S

Can Your Sustainable Investing Really Make a Difference?

Your KiwiSaver or managed fund is only a tiny drop in an ocean of global investment – so does responsible investing even matter? It definitely does, says Victoria Harris of Devon Funds.

Businesses live or die on their ability to generate funds. They’re like plants: feed them cash and they’ll grow, extend in new directions and produce more fruit. Starve companies of cash and they remain smaller.

They can’t launch into new regions, develop new products or attract the best people.

Your investments have the power to make this change – you’re part of the big picture.

By investing in the types of businesses that align with your personal values, you’re encouraging them to succeed. And you can ensure your money is not invested in companies that sell weapons, pollute the environment or (directly or indirectly) rely on modern slavery and child labour.

Even though you might only have $30,000 in KiwiSaver, it does count. Your choices contribute to investor demand, which is the force that’s shaping how funds invest. If enough investors demand higher standards from their funds, those funds will be compelled to invest in more sustainable companies. Globally, sustainable investing assets have grown by more than 50 per cent since 2016, now totalling over $35 trillion, according to AMG research.

Check your KiwiSaver fund: there could be some nasty surprises In June this year, Mindful Money released numbers showing that $190 million in KiwiSaver funds was invested in companies involved in manufacturing

weapons including firearms, missiles and ammunition. Their survey found that 81 per cent of Kiwis don’t want to invest in these types of companies, yet 88 separate providers were involved.

You might also find big name brands that, when you think more deeply about them, are not necessarily aligned with your values. Coca Cola, for instance, produces a lot of plastic, while Estee Lauder does some testing on animals.

When I talk to New Zealanders about their KiwiSaver, my experience is that most people assume their fund is investing responsibly, but they don’t really know for certain. There are some ESG rules for default KiwiSaver funds, which providers often apply more broadly. But outside the default schemes, funds can pretty much invest in any legal company. Also, the ESG rules remain fairly lenient, which is how a small proportion of less ethical investments can still manage to be included in default funds.

Your feedback can drive change You can use the Mindful Money website to look at your KiwiSaver fund and see how much is invested in ‘issues of concern’ as well as comparing it to other funds. If you do find that your fund is invested in a way that doesn’t align with your values, you can choose to move your money.

But don’t miss the opportunity to let the

fund manager know why you are moving.

Feedback from everyday consumers is causing a massive shift in the way superannuation funds invest, and across the globe these massive super funds are some of the biggest institutional investors around. When they move their strategy, even just a nudge, it has the power to shape markets. So don’t just vote with your dollars, also let the fund know why you’ve moved away.

An easy way to make a difference It’s not always easy to make a difference in the world – there might be reasons you still need to drive an ICE vehicle; maybe you wrap your leftovers in clingfilm; maybe you feel a little guilty about those air miles.

You probably know where you should make changes, but it can be difficult. Switching your investment into an ethical fund is such a simple and easy step to make a tiny, but measurable, difference in the world.

Even though you might only be investing your $30,000 KiwiSaver fund, when you do that there’s another 100 million people behind you, and together you’re changing the world. Remember, ‘It’s only one plastic straw, said 100 million people’. You’re supporting the way these businesses operate and how they’re run, encouraging them to grow, and sharing in their success.

You’re driving sustainable innovation and productivity, which raises the standard of living for everyone around the globe.

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YO U R I NVE STI N G

Making an Income From Forex – It’s Not For the Faint-Hearted Self-described risk-taker Peter Gensch has been forex trading for more than 10 years, and loves both the challenge, and the community.

Five nights a week, Peter Gensch goes to bed at 5pm and gets up again at midnight. That way he can be ready in front of his computer when the New York Stock Exchange opens at 1.30am. For three hours, both the London and New York markets are open concurrently, and that’s when all the action happens for the serious foreign exchange (forex) trader.

English. His first job was working at a Mobil station in Warkworth, earning just $9.50 an hour. But he was always ambitious, and quickly found a sales job selling top-quality wrought iron gates. The job sent him all over the world building relationships with clients – improving his English, his sales ability and his people skills.

“Forex trading is a way to create an alternative income, but it isn’t as easy as people think because the markets can be wild,” Peter explains. “But if you know what you’re doing – if you’re sensible, stick to your principles, and do the hard work – it can create an income.”

A few years later, in the mid-1990s, when he heard that the telecommunications (telco) sector would be deregulated, Peter decided to start his own business; he describes himself as an entrepreneur at heart. He had been using various services to access cheaper calling back to Germany, so he already had some familiarity with telco services. He moved into the telco sector, running his own call centres, setting up

From petrol station attendant to business owner Peter arrived in New Zealand from Germany in 1989 as a 24-year-old with very little S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 8 6

and selling several telco businesses over many years.

Returns of between five and 10 per cent each month It was a telco business associate who introduced Peter to the idea of forex about 10 years ago. It’s a fast-moving, daily trading strategy, where you make money by trading pairs of currencies at the right time. A thorough and up-to-date understanding of global economics is part of the job and traders become part of a huge international community of enthusiasts.

“I’m a risk taker, obviously, and I thought, ‘This seems to be easy’. I put money in and lost it straight away. Lesson learned,” he laughs. “I discovered more and did my research, and now it is a big part of my life.”

Forex differs from other types of trading because there’s no advantage to holding your buys for the longer term: “You make your money every day and I like that, because you have control of your destiny.

The pairs move every day, by the minute, and there are so many pairs you can trade.”

Peter has now been a forex trader for a decade and he says it’s a volatile way to make a living, as well as a lot of hard work.

He expects to make a five to 10 per cent return each month, which is achievable “if you really put your mind to it and focus and learn”. However, unexpected global events will test your mettle: “Some nights it is better not to trade due to event risk.

There are days that are untradeable, in my view.”

Getting started in forex Peter believes that anyone can have a go at forex trading, but the number one rule is to start with a demo account, and then move onto very small trades. The demo account will give you the chance to learn the technicalities of forex before you actually put your own money on the line.

Peter has tried various trading platforms, but prefers locally based BlackBull Markets, which avoids the added risk of sending his money offshore, “and I like the idea that I can talk to them, or even drive to the office if I wanted to”.

that haven’t worked, like “algorithm robots, and they’re a waste of time; analysts who couldn’t be more wrong; and specialists who just made me more confused. You really can’t learn from a course. You have to learn by doing.”

He also warns of the inordinate number of scammers and scam services targeting forex traders: “It’s very unfortunate and it takes time to separate the good ones from the bad ones.” He’s tried lots of strategies

“It is very fascinating,” says Peter. “Imagine it! You sit there in the middle of the night, with your two big screens, in your warm house, and you make money with just your internet connection.”

Solitary, but worthwhile Peter says the only downside is that it’s a bit solitary, so to make up for that, he still dabbles in business; he really enjoys the interaction with other people. But he wouldn’t swap forex trading for any other type of investment and he says it’s a fantastic way to create an income.

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YO U R I NVE STI N G

‘My uncle inspired me to start property investment’ Alan Henderson's love of property has taken him from buying his first 'ugly' Auckland house to syndicating massive commercial properties.

Sitting on a bench at Long Bay 40 years ago with his uncle, being regaled with stories about deals he did while building a small property investment empire, inspired Alan Henderson to eventually follow in his footsteps.

While his uncle left school without School Certificate, Henderson got an education, moved into corporate life and did the obligatory OE in London. He returned with about $60,000 in his pocket, and decided residential real estate was the easiest way to get into the property investment world as it needed the smallest deposit, while he still worked in the corporate environment.

Henderson found a Lockwood home in Auckland’s Mission Bay as his first buy.

“It was ugly – salmon-coloured carpet, wooden walls, tiled ceilings, but it got me going. I lived in the house for about a year then rented it out and bought something else.”

After building a small portfolio he got the bug, left corporate life in 2000 and started property trading in South Auckland with a friend.

“Those were the days before property investment seminars and coaches. We did plenty of deals, but I got frustrated because my goal was to build a portfolio and I was selling everything I bought.”

So Henderson stopped trading and started an accounting practice so he had cashflow.

That allowed him to buy and hold. He married during that time, so “for about four years that’s what my wife and I did”. The accounting practice provided a solid income, but Henderson had always dreamed of building a property business.

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“With a second child on the way and undertaking a renovation, I sold my share of the accounting practice and my wife and I started a buyer agency called Erskine + Owen. I’d had a lot of accounting clients ask me for advice on property investment. After I showed them how easy it was and gave some of my examples, they asked me to do it for them. That was the catalyst. I assured my wife we’d have the business cranking within a few short months and that there was nothing to worry about.”

When Henderson decided accounting wasn’t for him, he and his wife sat around the table discussing what type of business they should do.

That was in April 2007. Two months later the GFC hit in earnest and Henderson says things suddenly looked tricky, to say the least. Just over 15 years on and Henderson’s business has helped many people to achieve their financial goals by building their investment portfolios.

It has been rewarding financially for the couple, but the greatest reward, says Henderson, has been helping people take their first step into property investment and, 15 years on, seeing them achieving their wealth goals and being able to live without having to work. “That is more rewarding than the money,” he says.

“We started just doing residential then incorporated commercial, after that property management, mortgage broking and, finally, property syndication.”

Erskine + Owen manages 600 residential properties, and on the commercial side the company now has two syndicate funds underway for daycare and healthcare centres, with a minimum investment of $50,000 for wholesale investors.

“We have always invested in the areas and types of property we recommend to our clients.”

“Lisa challenged me and asked me what I really wanted to do. I loved property and I could see a need to help buyers – I really thought we could use our experience to help them.”

They married the two up – helping others by doing what they loved – buying property.

The business has grown from Henderson in a back office with no windows to 20plus team members.

For the business it is about opening doors for others to have the freedom to use their talents to help move the company towards its goals – and see investors prosper.

“And personally, we still love looking for that next great addition to the portfolio.

These days it’s less about building for ourselves and more about building for our children and others.”

S I LV E R F I N C A P I TA L

Industrial Sector a Winner for Silverfin Capital Investors Excellent returns, strong tenant demand and lower volatility – industrial investment continues to be a crowd-pleaser.

When it comes to investing in commercial property, the industrial sector has always been a crowd-pleaser. It has provided excellent returns, with strong tenant demand and less volatility than retail or office spaces. One of the barriers to investing in the industrial sector is ‘lot size,’ or quantum of the purchase price.

That’s where syndication comes in: it offers exposure to high quality commercial property, allowing investors to diversify their portfolio without the large price tag.

Spotting growth potential in Wiri For property syndication specialists Silverfin Capital, an industrial property was the perfect place to start building a portfolio. In 2016, Silverfin purchased 21 Hobill Avenue in Wiri, Auckland – a 15,000m2 warehouse. The team looked at the property and found a lot to like: •

An excellent location in an established industrial precinct

•

Minor vacancies that could be filled to immediately add value

•

Below-market leases meant the opportunity to boost income

Silverfin paid $22.34 million for the property and it was syndicated among 30 individual investors. They were paid a distribution of 8% per annum (pretax) over six years. Distributions were paid monthly, even throughout multiple lockdowns and the impacts of COVID19.

Selling the property at a high point The Hobill Avenue warehouse was sold in February 2022, making it the first of Silverfin’s syndication schemes to go through the full syndication life cycle.

“Towards the end of last year we believe that the industrial market was close to its peak,” says Miles Brown, CEO. “We recommended to our investors that they should consider selling the property. The recommendation was put to a vote and 100% of investors were in favour.”

The property proved popular in the market and sold for $42.1 million – an 88% increase on the purchase price.

A 22% annual return The final return to those 30 investors in the Hobill Avenue property was 22% per annum over six years; “In comparison, the

NZX delivered an annual return of 7.4% over a parallel five-year period,” Brown notes. “But although this scheme delivered a very solid return, not all syndications schemes perform equally, and the outcome depends on the strength of the underlying real estate.”

Silverfin Capital have completed 25 syndication schemes to date and have $615 million in property under management.

Investors can apply to be part of a new syndicate, or purchase units in existing syndicates on the secondary market.

Silverfin is fully licenced by the FMA to offer both retail and wholesale syndication investments.

To learn more, visit www.silverfin.nz S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 8 9

BARKER BUSINESS

Looking Beyond the Numbers – How to Buy a Profitable Business There are four vital factors to consider when choosing a business that will turn a profit, writes Neil Barker, Managing Director of Barker Business Brokerage.

Owning and running a business is probably one of the most rewarding and at the same time challenging endeavours that an aspiring individual may engage in. To buy a business successfully, a prospective buyer needs to evaluate many factors.

Furthermore, a business venture is not just something that can be expressed in asset value or revenue streams – it also has a soul, an idea behind it. Consequently, you would often need to look beyond the numbers when deciding to buy a business.

This is not as complicated as it may seem – here are four of the biggest considerations: 1. Experience What is your professional and personal experience with the business you’re looking at buying? An entrepreneur should be interested in the business he or she runs – and be good at it. However, if operations of a particular business establishment are outside your area of experience, this does not necessarily mean that you should not buy a business in that field – but if there is a lack of experience, you should at least make efforts to retain the key employees or hire suitable replacements. Ultimately, this will translate into higher profits.

2. Location Will there be enough demand for your services in this particular area or is the business selling online to a much larger audience? Will this demand change in the future? In addition, the future vision of the business will likely be developed. Is there

scope to grow the business and will you have the working capital to expand it if this is your goal?

3. Advice A purchaser will want answers to such questions as, “What kind of business should I buy?” and “How do I know it’s a good price?” Additional concerns arise once the reality of buying a business starts to sink in. Then buyers will want to know, “How much money do I need to operate the business properly?” and “When will I start to show a profit?” The novice may not even know which questions to ask, not to mention having a clue about the answers. In this situation, free advice is both available and worthwhile. Even the cost of paying for such advice is nominal, therefore getting advice from professionals is essential.

4. Value There is not a single best method to determine the precise value of a business – the recommended approach depends on the venture and industry. However, it is essential in all cases to learn the history and way of operation of a particular business. To evaluate and then buy a business for maximum profit, it is also recommended to use the services of an experienced business broker, such as Barker Business Brokerage, as you and the seller of the business will probably have a different opinion and perspective on many issues. A good business broker will be able to offer you very valuable guidance in this area.

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BARKER BUSINESS

Brokers are a good source of free information as to which businesses are available to buy.

Advice on buying a business There are many resources available to prospective business owners; here are some places to start: Online - There is a huge amount of advice online, but caution must be exercised: is the advice is in your best interest?

Business brokers - Business brokers match up business sellers with business buyers. Brokers are a good source of free information as to which businesses are available to buy, but keep in mind they will usually try to steer you to companies which they have for sale. Here at Barker Business Brokerage, we are happy to give you free advice.

Lending institutions - Bankers have their fingers on the financial pulse of a community. By going to a banker for advice, you begin the process of creating a firmly entrenched professional relationship that could also open the doors to funding your purchase.

Professionals – Primarily accountants and solicitors. Both fields attract business-type thinkers, and their level of general knowledge on how to buy a business is nearly invaluable. Buying a few hours of their time is money well spent.

Business advisors – There are many available to give you advice for a fee.

Here at Barker Business Brokerage, we’ve been matching quality business with great buyers for years and understand the highs and lows of the process. Because it’s what we specialise in, we’re here to make the transition as smooth as possible for you as you enter business ownership.

Whether you’re a first-time buyer or seasoned in business ownership – we’d love to hear from you and assist you with your journey.

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Top 5 industries for profit growth in 2022 Stats NZ has released its March 2022 quarterly business results, showing actual operating profit values for each industry and how it compares to the same quarter in 2021. Here are the top five:

1.

Food, beverage, and tobacco product manufacturing: up 86.2%

2.

Transport, postal, and warehousing: up 39.6%

3.

Wood and paper products manufacturing: up 36%

4.

Wholesale trade: up 22.3%

5.

Professional, scientific, and technical services: up 18.5%

Would you rather be working or living?

BUSINESS SALES FROM $500,000 TO $500 MILLION

FREEPHONE: 0800 SELLBIZ EMAIL: info@barkerbusiness.co.nz

www.barkerbusiness.co.nz

YO U R I NVE STI N G

Commercial Property is Alive and Kicking Despite the current climate, commercial property is thriving for investors, says Scott McKenzie, CEO of PMG Funds, where the flagship Pacific Property Fund Limited is about to buy three more industrial properties.

It has certainly been a disruptive few years for New Zealanders as we’ve contended with a global pandemic as well as increasing interest and inflation rates. However, it’s during these times that many of us will be thinking about the future and how to protect your hard-earned wealth. One of the ways we can do that as investors is through commercial property, which continues to thrive as a defensive asset class throughout inflationary times.

At PMG, we own over $900 million in quality commercial property across our five well-established funds, from retail to office to industrial buildings, located from Whangārei to Invercargill. Our occupancy rate is 99% across our portfolio, returns remain strong, and rents are on the rise.

Industrial sector is booming Right now, some of the most defensive assets can be found in the industrial and logistics sectors. That’s why we’re undertaking a capital raise for Pacific Property Fund which currently owns 20 properties around Aotearoa, with 64 tenants, and which is currently valued at $437 million. The raise will see us buy three more properties, located in Hamilton and Whangārei. All three are leased to Keith Andrews Trucks, S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 9 4

which sells vehicles to the logistics sector.

Logistics has been one of the fastestgrowing industries since the start of the pandemic in 2020, with no sign of slowing down as online spending gathers momentum.

To buy these three properties, and reduce the fund’s proportion of borrowing, we’re looking to raise up to $85 million. That will help us further strengthen the fund’s resiliency during the current high inflation and high interest rate environment. Our forecasts predict returns of 5.3% annually, after expenses but before tax, for the next few years – although of course these are not guaranteed.

Tangible assets like property have

traditionally been defensive against inflation, and that remains true in this economic cycle.

And as a PIE fund, this fund continues to be an appealing option for high-earning investors.

The office is alive and kicking There will always be demand for high quality office space for people to connect and collaborate, and the office is facing a bright future. Most metro areas have vacancy levels below 3% for prime and A-grade office spaces.

Wellington is strong, Christchurch is solid, and Auckland’s vacancies are focused on a few specific buildings.

Humans are innately social creatures. Working from home is an important trend and it will continue to have an impact on demand for

PMG FUNDS

4 Ruffell Road, Te Rapa, Hamilton. One of the three acquisition properties in the current investment offer that will join the Pacific Property Fund assuming the successful completion of the current raise.

offices. But ultimately that just means the owners of office buildings need to evolve to meet the desire for new ways of working.

We’ve been proactive in making our spaces work for tenants, particularly through sustainability initiatives, including showers so people can cycle to work, EV chargers and improved waste efficiency. Our office buildings are 99% occupied and there has been no subletting by our tenants, which is a good indicator that the spaces are working for them.

Large-format retail remains buoyant Our retail tenants have been encouragingly positive, perhaps because they’re longestablished brands that have been through

many economic cycles before. For example, we own several properties leased to Farmers department stores, which has strong balance sheets and is effectively pivoting to become an online giant as well as a trusted bricks-and-mortar brand.

advantages of investing in solid, wellmanaged assets. With that long-term approach and by embracing diversity, you will get growth. You must have your eye on the future and not be distracted by reports of short-term market movements.

There will be challenges for smaller retailers, particularly when it comes to staffing and supply chain issues, but for now the big players seem to be weathering the storm successfully.

Spring is soon here, the sun will come out again.

Look through the headwinds and out the other side The current challenges are a natural part of the ups and downs of investing – it’s vital that you look through the shortterm headwinds and see the long-term

If you’re interested in investing in a diversified commercial property fund, Pacific Property Fund Limited’s share offer is now live and you can visit www.pmgfunds.co.nz/invest for more information and a copy of our Product Disclosure Statement now. This article is not, and none of Pacific Property Fund Limited, its related entities, or their personnel provide, financial or investment advice.

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YO U R I NVE STI N G

Reality Starts to Bite for Sellers Surging supply of property is giving buyers the upper hand, but it’s all part of the market cycle, writes Jen Baird, Chief Executive at REINZ.

These are interesting times in the property market. In 2021, we saw the market go from strength to strength, riding an unprecedented boost through Covid-19, which reached its peak in November 2021.

New Zealand wasn’t the only country to see pandemic-driven activity.

Markets are cyclical and towards the end of 2021 we started to enter a new phase.

Through 2020 and 2021, the Government started to implement measures to ease upward pressure — such as the March 2021 tax changes and the reintroduction of LVRs — and more recently inflation and OCR increases. These factors combined to shift sentiment and change market dynamics.

What’s happening in the market?

Our June property report showed the New Zealand median price for residential property continued to edge upwards – increasing 4.2 per cent annually, from $816,000 in June 2021 to $850,000 in June 2022.

Six months into this phase of the cycle the market is balancing out at a more moderate pace, with variations across the country.

Canterbury and Waikato saw steady increases in the year-on-year median price, up 22.1 per cent and 14.3 per cent respectively. Auckland regained positive movement after an annual decrease in May – recording a 0.5 per cent annual increase in the median price compared to June last year, from $1,150,000 to $1,156,000.

In contrast, four regions showed an annual decrease in median price. Wellington S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 9 6

was down 4.2 per cent, Hawke’s Bay was down 1.4 per cent, the median price in Manawatu/Whanganui decreased 1.1 per cent, and Taranaki saw a marginal decrease of 0.2 per cent over the same period.

Nationally, sales counts decreased by 38.1 per cent and the number of homes available for sale increased significantly – up 89.5 per cent compared with June 2021. New listings were up 1.6 per cent compared to June last year, so the total stock level is up because properties are taking longer to sell – the median days to sell was 44 in June 2022.

This is simple economics in play: supply versus demand. More supply means buyers now take their time, undertake their due diligence without last year’s rush, and find the right property for their stage in life. All in all, the upward pressure on prices has eased.

A matter of perspective We are often asked, ‘Is it a good time to buy?’. The right time is when its right for you and your particular needs, life stage, investment approach. For the majority of investors, property is a long-term investment. Some see this phase of the cycle as a time to consolidate; others see it as a time to grow.

Reports from real estate professionals across the country suggest owner occupiers are – and have been over the past months – a dominant force on the market as first home buyers and investors stepped back.

These are people who have built up equity in their home over the years and now have a strong financial base from which to make their next move.

Our June survey indicates the reemergence of first home buyers – perhaps buoyed by a sense of easing prices or by the Government’s May Budget announcement, which increased the cap on the price of property eligible for a First Home Grant and the removal of caps for First Home Loans. These buyers are yet to make their presence felt in sales numbers.

The reality for buyers and sellers Despite the price growth easing, affordability remains an issue. Factors such as tighter lending criteria, rising interest rates, global uncertainty and increased housing supply are adding to the quieter market cycle winter usually brings; buyers are acting with caution.

And while those selling properties are beginning to adjust their expectations to meet the market, understandably, they want the best prices possible in an uncertain market. We are seeing much more negotiation by real estate professionals between buyers and vendors.

We have also seen a fall in the number of properties for sale by auction. This seems natural when there is less competition for buyers, but auctions remain an excellent way to sell.

In a changing market, an unconditional sale is very attractive to sellers. From a buyer’s perspective, if you can be unconditional, you are in a much stronger position.

Sellers are aware property is taking longer to sell, so a contract conditional on the sale of another home adds risk to the sale process. This means they may be more likely to sell at auction, and certainly more likely to accept a cleaner contract during negotiations following the auction.

If we look at historical data, we know prices are sticky on the way down. While we may be seeing what some term ‘a correction’ right now, the market is cyclical; the likelihood is that prices will dip and soften then return to growth.

PROPERTY

Median House Prices Month-on-month June 2022

Northland

$700,000

Bay Of Plenty

$900,000

Auckland

$1,156,000

Gisborne

Waikato

$620,000

$840,000

Taranaki

$575,000 Mananawatu/Wanganui

Hawke’s Bay

$575,000

$690,000

Tasman

$860,000

Wellington

$848,000 Nelson

$785,000 Marlborough

$720,250

West Coast

$295,500

Canterbury

$690,000 Southland

$446,500 Otago

$750,000

National Median Price

Up 1.2% $850,000

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YO U R I NVE STI N G

Six Simple Ways to Save We’d all like to be richer but spending can erode our personal wealth. Here are Laine Moger’s tips for saving money.

1.

Save your credit card for emergencies Freezing your credit card in a block of ice (literally) is how 2% of surveyed Kiwis are managing to keep their spending under control. This method might be at the more extreme end of the scale, but the sentiment of reducing credit card debt is widely felt. According to Finder’s stats, more than half of the 2 million people surveyed are taking steps to curb their credit card use.

However, there are much less drastic options available.

Outside of being stricter with a budget, consider lowering your limit or switching to a low-interest account to make monthly payments more manageable.

2.

Stop some streaming subscriptions It’s a bad habit some of us have got into – NZ$12.99 Disney+ for the kids, NZ$11.99 Netflix for Big Bang Theory, and NZ$15.99 for NEON for Game of Thrones.

While relatively cheap by themselves, added together they can add hundreds to your yearly expenses. (Netflix is NZ$143.88 a year). So, if you’re not actively using your subscription on a regular basis, it may be a good idea to downsize your streaming service catalogue.

Opt for keeping only one service you use the most or cancel the lot and take more advantage of free services like TVNZ on Demand and ThreeNow. Alternatively, you could team up with the people you live with. Make a deal that one of you pays for Netflix while the other pays for NEON.

3.

WFH to save on petrol Covid got a lot of us realising we can cope with working from home when we have to. Petrol bills were noticeably absent from out bank accounts while we were housebound during level 4. Stats NZ reckons the average Kiwi used to spend just under NZ$50 a week on petrol in 2019, way back when petrol was NZ$2.13 a litre. Three years later, the price per litre is at least NZ$2.90.

By reducing your commuting time, you could be making quite a hefty contribution to your savings account.

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PROPERTY

For the price of one cafe coffee you can enjoy the entire bag’s worth for a week. It’s kinda a no brainer, and you still get the caffeine rush.

4.

Pack your own lunch It can be an extra hassle to pile on top of your already frantic morning but taking lunch to work instead of buying out every day can make an enormous difference to your discretionary spending.

A daily Big Mac Combo at NZ$11.90 from McDonald’s is NZ$59.50 a week. The cheapest sandwich at Coffee Club (A BLT Ciabatta) is NZ$20. And you’d be lucky to find a sandwich at a bakery or coffee shop for under NZ$5.

Instead, spend less than NZ$5 for a loaf of bread and bring sandwiches. Or, if that’s way too boring, make a little extra at dinner to set some aside for leftovers the next day.

5.

Restrict food shopping to once a week Making just one trip to the supermarket a week can save a lot of money on impulse buying. A daily trip runs the risk of the person thinking: “Oh, just while I’m here I’ll get …”

With the rising price of groceries, an impromptu trip to the supermarket to buy bread, milk, eggs, and chocolate can cost between NZ$15 and NZ$25.

6.

Cut your coffees

Instead, commit to a weekly shopping day and make a list.

Be strict with yourself too. It might mean getting a bit creative with dinner on days six and seven, but that’s all part of the challenge. This way you’ll end up making use of that extra bag of pasta you seem to keep doubling up on each week.

As heaven-sent as a barista-made flat white is, at around NZ$5.50 a day it can be an expensive habit. A coffee a day, for every day you’re at work, could mean you’re spending NZ$110 a month just on coffee.

Instead, opt for a bag of espresso coffee beans or plunger coffee and make your cup at home to takeaway. A bag will be anywhere from NZ$5 to NZ$12 (depending on how fancy you go). So, for the price of one cafe coffee you can enjoy the entire bag’s worth for a week. It’s kinda a no brainer, and you still get the caffeine rush.

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YO U R I NVE STI N G

A Bold Spring

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Take inspiration for your home as the season changes.

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Texture Meets Colour

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YO U R I NVE STI N G

Can You Cut Someone Out of Your Will?

It’s surprisingly difficult to completely cut individual family members out of your estate, as the team at Morrison Kent explains.

You may be surprised to learn that it is very hard to completely write certain family members out of your will under New Zealand law. Testamentary freedom is not what people think it is.

There are several grounds on which an estate can be contested, but the key ones are: •

Under relationship property law (Property (Relationships) Act) a surviving spouse or partner can apply for a division of relationship property if they are not satisfied with what they have been left under the will.

•

The Family Protection Act allows certain family members who have not been adequately provided for under a will to seek further provision from an estate.

•

The Law Reform (Testamentary Promises) Act provides a mechanism for people to seek provision from an estate if the deceased promised to reward them from their estate for a service undertaken while they were alive, but failed to record this in their will.

It’s essential that you seek early advice when challenging a will or estate. There are time limits to consider and several ways to settle these issues without recourse to court proceedings.

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Partner claims on an estate: Relationship property law A spouse or de facto partner of the deceased may make a claim under this Act – sometimes more than one claim at once. The effect of a successful relationship property claim is that the surviving spouse’s share of the property comes out of the estate completely, leaving less to be divided between the beneficiaries of the will.

If the claimant had been in a de facto relationship with the deceased for three years or more, the general rule is that they are entitled to an equal share of all relationship property – with special carveouts for the family home (the main house

the claimant and the deceased lived in together) and the family chattels (anything from household furniture to pets and vehicles).

On the death of the spouse or partner, the claimant may decide to take up their entitlements based on a will left by the deceased or make a separate claim under the Property (Relationship) Act. There is a time limit on making this election, so it is important you have a chat with a lawyer as soon as possible.

This also cuts both ways – it is possible the executors of an estate can make a claim against the surviving partner to bring further assets into the estate under

MORRISON KENT

It is almost impossible to completely write your son or daughter out of your estate.

relationship property laws. However, the focus of relationship property laws is on protecting the surviving spouse, so executors have to ask the court’s permission before they can bring a claim.

Family member claims: the Family Protection Act This Act provides a basis for a claim if a family member feels the deceased has inadequately provided for them in their will. Notably, family members include spouses and partners and children (including adopted children but not whāngai).

Parents, grandchildren and stepchildren can also make a claim – but only if

the deceased was looking after them immediately before their death.

look at the circumstances of your family when exercising its discretion.

If provision for the proper maintenance and support of the applicant family member hasn’t been made from the estate under the deceased’s will (or the rules of intestacy if they do not have a will), the court has the discretion to order provision.

It is almost impossible to cut your children out of your estate It is almost impossible to completely write your son or daughter out of your estate. A child’s conduct has to have been fairly extreme for a Family Protection Act claim to be completely unsuccessful – defrauding or murdering the deceased party being some of the more serious examples. That said, to the extent a court is willing to disturb the terms of a will, in most cases, it will only be minimal.

The phrase ‘proper maintenance and support’ has a specific legal meaning.

It obviously includes financial support, but can also include recognition of belonging to a family and of having been an important part of the overall life of the deceased. Tikanga Māori can also be relevant. Fundamentally, the court will

To find out more, you can read the full story at www.informedinvestor.co.nz

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REGULARS

Book Reviews Reviewed by Sarah Ell

The Female Investor: Creating Wealth, Security & Freedom Through Property

Property Quadrants: The Passive Income Formula

Nicola McDougall and Kate Hill Wiley, $31.99

Nichole Lewis Best Seller Publishing, $29.95

It’s an unfortunate fact that women often get the short end of the stick when it comes to financial security. The gender pay gap, taking time off work or working part-time to raise a family, and relationship break-ups can mean women find themselves facing their retirement years a lot worse off than many men of their age. Fortunately, it doesn’t have to be this way, with a bit of strategic thinking and careful planning.

On the subject of generating wealth through property investment, Kiwi Nichole Lewis has a few tricks up her sleeve. Lewis is the CEO of The Property Lifestyle, which aims to show investors how to secure their financial future through active property investment. Through her experiences of making – and losing – money this way, she has developed a model of the four different ways property investment works, or ‘quadrants’, which she outlines in this book.

Author Nicola McDougall was born in New Zealand but is now based in Australia, working as a property and finance journalist. For this book she has paired with investment advisor and property mentor Kate Hill to write a guide to help women looking at investing in property, to give themselves great financial independence.

Quadrants one and two cover ‘cash-poor’ property (the family home, and a second home or bach), for which the mortgages have to be paid out of your wages.

Lewis’s theory is investors need to maximise investing in ‘cash-rich’ properties in quadrants three and four, generating cashflow through ‘flipping’ and investing in specific properties to generate passive income to pay off properties in quadrants one and two.

While some information in the book is Australia-specific, there’s plenty of good stuff here for Kiwis. The authors believe in arming women with information so they can create an investment solution that works for them, and this is a good place to start. Case studies of women Kate has worked with and real-life examples from the authors’ own portfolios bring investment scenarios to life. And it’s not all roses – the book talks about what to do when times get tough and markets are unsteady, too. It’s a useful read for women at any stage of life who are looking to dip their toe in the property investment pool.

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It’s an assertive approach and not for the faint-hearted, and even if you’re not ready to go the whole hog, there are some useful ideas on getting the best value out of renovating and selling, what to look for in investment properties to maximise returns, and ways to make property deals even if you feel like you don’t have enough money to get started. Lewis is honest about mistakes she has made, and provides plenty of advice, tips and checklists. As she explains, property can either be your biggest cost in life or your biggest asset.

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YO U R I NVE STI N G

Spring Fling

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YO U R I NVE STI N G

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

Stating the obvious No longer a one-way bet From the new Chief Economist of the Reserve Bank in his first speech. “For several decades,

we have traded houses among ourselves at ever-increasing prices in the belief that we were creating prosperity. But the tide may well have turned against housing being a one-way bet for a generation of Kiwis.”

The Chief Economist’s statements are hardly surprising when you consider that interest rates are higher than they were in 2017 (and house prices are still around 45 per cent above 2017 levels), and migration is now a net outflow, not an inflow. We are consenting a lot of houses such that supply is exceeding population-based demand. Credit conditions are tighter and the tax regime less friendly.

What goes up…

House prices continue to retreat. The REINZ might still be reporting annual growth in house prices, but house prices have fallen considerably after peaking in November 2021. Since that peak, house prices nationally are down 9 per cent and in Auckland they have dropped 13 per cent.

Following the trail of debt When interest rates rise, you follow the trail of debt.

Household debt has risen $88 billion in the past four years. Around $165 billion of mortgage debt is due to refinance in the coming 12 months. A one-year fixed rate has gone from 2.2 per cent to 5.5 per cent. Ouch.

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The nadir The annual rate of inflation looks to have peaked at 7.3 per cent.

Now, the focus is on how quickly it can come back down. That is the real challenge. Many economists, including myself, expect inflation to be stickier, and difficult to get back to 2 per cent consistently.

Reasons include a modest reversal of globalisation (think outsourcing to China); worker shortages and wage increases exceeding productivity growth; climate change costs; a rising presence of government; and ongoing supply shocks.

MARKET INSIGHTS

Inflation proves destructive

Accentuate the positive Out of the economic gloom and talk of a recession, there will be some positives. Investors will be reintroduced to Mr and Mrs C Ash, investments that make money and are not dependent on capital gain. Rising interest rates bring back risk. Investors now need to take real risk to make real money. Both sound sensible outcomes, and their reinstatement signifies how out of whack investing became with ridiculously low interest rates and turbo-charged capital gains.

We have the lowest unemployment rate in more than 30 years, and the same for consumer confidence. A strong labour market amidst consumer despair signifies the destructive impact inflation is having on households. Households do not like inflation. They do not like the bitter medicine to contain it either.

Counting some numbers The maths on higher borrowing costs goes something like this: say you have borrowed $500,000 and your interest rate has risen from 2.2 per cent to 5.5 per cent, this means $11,500 additional borrowing costs. Remember that is an after-tax number. You need more than $15,000 of pre-tax income.

Inflation is the #1 concern

The attrition rate Around 51,000 residential building consents have been issued in the past year. Odds are a lot will not make it to first inspection.

Construction costs are up almost 20 per cent and house prices are falling. The scrum is screwing towards buying existing stock. The construction sector can only build 35,000 houses a year anyway.

Inflation/cost of living remains the top concern to households, for the second quarter running. Housing is number two.

Housing previously held the top spot for numerous years. Law and order is now number five and of rising concern.

Eyes on the labour market Education underinvestment?

Gross New Zealand superannuation expenditure is projected to exceed education expenditure in the upcoming fiscal year ($19.5 billion versus $18.6 billion). Welfare needs are surpassing the most critical investment we can make in our future.

While Bagrie Economics uses all reasonable endeavours in producing reports to ensure the information is as accurate as practicable, Bagrie Economics shall not be liable for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage. Data and information have been gathered from sources Bagrie Economics believes to be reliable. The content does not constitute advice.

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Correct as at 28 July 2022.

According to the Reserve Bank we are exceeding maximum sustainable employment, a fancy way of saying we have too few workers relative to the jobs on offer, and an unemployment rate that is too low.

Falling house prices are one piece of the bitter medicine to get on top of inflation.

Another is a rise in the unemployment rate.

This could get politically sensitive!

YO U R I NVE STI N G

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MARKET INSIGHTS

The DAO: the Greatest Crypto Tale Ever Told Jenny Rudd tells the story of how a German theoretical physicist called Christoph Jentzsch set up a US$150 million investment fund and how it changed the course of Ethereum.

In November 2015, Christoph Jentzsch put a kettle on stage and showed the assembled developers how he could use his phone to make a transaction on the Ethereum network which unlocked a smart lock on the kettle, turning it on. Steam filled the air. The crowd was impressed.

Jentzsch was the co-founder at Slock.it, which created Slocks (smart locks) which would be locked and unlocked by making transactions on Ethereum. You could Slock your house, car or bike and rent them out. All the profit would go to the owners of the asset, and not to a centralised body acting as the marketplace, like Airbnb.

A decentralised investment fund The Slock.it team crowdfunded to raise capital for their start-up. As superfans of decentralisation, they built the first ever decentralised investment fund, so that Slock.it and the many other start-ups cropping up in the ecosystem could apply for funding. All the financial transactions and rules were encoded on the Ethereum blockchain and enacted by smart contracts. It was a decentralised autonomous organisation: the DAO. Investors would ether the smart contract address to buy DAO tokens. The tokens would allow the investor to vote on projects and start-ups. Successful applicants would have funds released to them via the smart contracts. And the investors would benefit from the rewards if the projects returned a profit. The DAO itself would just store the ether and make transfers.

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YO U R I NVE STI N G

Christoph Jentzsch, co-founder at Slock.it

The Slock.it team thought that, all going well, the fund would raise a few million dollars. But on its release in 2016, it went mental. Millions of dollars were pouring into the DAO’s smart contract every day. When the crowdsale ended, the DAO had US$150 million worth of ether in its smart contract: 14 per cent of all ether in existence.

immutability of smart contracts. It would go against everything blockchain stood for. It would mean that Ethereum was not censorship resistant, the smart contracts would not be immutable as had been claimed, and that stepping in to give the money back went against the core values of Ethereum.

An attack – and an ethical dilemma Then things went horribly wrong. A few months after the event day, a weakness was found in the DAO code that was exploited, allowing the attacker to drain ether from the main DAO into their own ‘child’ DAO account.

Then there were others who felt the ether thief shouldn’t get away with it and that the investors should get their money back. Suggestions were varied, like a soft fork where miners wouldn’t process transactions from the DAO, or a replica attack where funds would be drained from the DAO by ethical hackers, giving the investors’ funds back. These people were concerned that Ethereum might fail if the DAO failed, and that it felt wrong to allow the attacker to steal everyone’s money.

The core Ethereum team was hastily assembled alongside the DAO’s team to solve the problem, and the community was consulted on a response to the attack. The attacker couldn’t withdraw funds from the child DAO for 28 days, so the team had that time to decide.

The response of the community was polarised. There were the code-is-law group of hardcore decentralists. Their view was that the attacker hadn’t done anything wrong. They had acted on the code, and that any attempt to interfere or change the code in any way undermined the DAO’s premise of decentralisation and S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 1 1 2

There was no easy solution.

Crypto is so much more than just headlines about scams The attacker suddenly stopped after they had drained about a third of the ether in the fund. No-one’s sure why. After consultation with the network, a group of ethical hackers decided to return the ether to its rightful owners. An online poll was held, and although only holders of 5 per cent

of total ether voted, 80 per cent wanted a hard fork. On 20 July 2016, a new Ethereum blockchain started, and all the DAO funds were restored to their owners.

A few hours later, developers were amazed to see the old blockchain, after lying dormant, had blocks added to it. Miners were using their own money and time, with no rewards, to keep mining. The hardcore decentralists were determined to prove that the machine was unstoppable. The coins from this ‘old’ blockchain were renamed Ethereum Classic, and its value today is around $15.

This story should start some great conversations about centralisation versus decentralisation and the benefits of both.

What it also highlights to me is that there is such a disparity between the image of cryptocurrency that’s reported in the press, with words like scam, Ponzi scheme and money laundering in headlines, and the reality of people working in it. Jentzsch, his brother and friends were motivated to make things fairer in the investment industry by trying something new. I’m with Jentzsch.

Jenny Rudd is an investor and analyst who is passionate about using business to create equality for women.aimsure.co.nz

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YO U R I NVE STI N G

Snapshot: Innovations What are the latest innovations that could have an impact on your future – and your investment decisions?

US, CALIFORNIA

Solar panels go 24/7 Researchers at Stanford University have constructed a photovoltaic cell that captures energy at night as well as during the day. Once the sun goes down, the cell harvests energy from the warmth of the earth.

These cells are affordable and could, in principle, be used almost anywhere.

UK

MOROCCO

Covid research technology could help cure heart attacks

Algae could capture huge amounts of carbon

The RNA technology that is behind the Covid vaccines could potentially cure heart attacks, according to researchers from King’s College London. Using virus vectors similar to those in the vaccines, they have delivered RNA to damaged pig hearts, and this has sparked the growth of new cardiac muscle cells.

Directly capturing carbon from the air would help us slow climate change, and one London start-up thinks it has a simple solution.

Brilliant Planet has created algal blooms in its Moroccan facility that it believes show this could be an affordable, scalable way to capture and sequester up to two gigatons of carbon each year.

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NETHERLANDS

World’s first superconductor could make computers 400 times faster The first-ever, one-way superconductor has been demonstrated by a team of researchers from Delft University of Technology. This has the potential to make computers up to 400 times faster, while also reducing energy losses.

Correct at 23 June 2022.

MARKET INSIGHTS

JAPAN

PORTUGAL

AUSTRALIA

SOUTH KOREA

Massive robots could take over on construction sites

Massive floating solar park launches

Faster, cheaper: seed-planting drones fight deforestation

Quantum batteries could charge an EV in nine seconds

Enormous humanoid construction robots have been developed in Japan, each one operated via a VR headset. This is just one of many advancements in construction robotics that look set to completely transform the industry, making it much safer and more efficient.

Europe’s largest floating solar park has just launched in Portugal’s Alqueva reservoir – a huge array the size of four football pitches, and made up of 12,000 solar panels. It will supply 1500 families with power.

An Australian start-up is using autonomous drones to plant over 40,000 seed pods per day – 25 times faster and 80 per cent more cheaply than traditional methods. They’re using it to fight deforestation, but it also has applications for forestry and agriculture.

A new quantum battery that will make it possible to charge an EV in nine seconds has been proven to work, according to scientists in South Korea.

Researchers at the Institute for Basic Science say quantum charging could work on a range of devices including consumer electronics.

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MARKET INSIGHTS

A Much Brighter Second Half The first half of the year was all dark clouds, but there could be some sunshine breaking through, writes Greg Smith of Devon Funds.

After a traumatic first half of the year for stock markets, the second six months of 2022 started off on a much brighter note.

The NZX50 index lost more than 16% in the six months to June but rallied 5.7% in July.

This was the strongest gain since the bounce from the ‘pandemic crash’ in April 2020.

It was a similar story for other markets around the world, including the US where the S&P500 benchmark surged 9%, the best July for the broader index since 1939. The massive rebound brought relief to investors following the worst start to a year in over five decades.

Doom and gloom – then a reset Early on in 2022, all the ‘market’ messages were mainly about economic ‘doom and gloom.’ The cost of living skyrocketed, exacerbated by the war in Ukraine. Inflation was running hot. The RBNZ lifted interest rates, putting pressure on many mortgage holders, whose confidence was already dented by falling house prices.

Emotive headlines always garner attention, so it was no surprise that when Kiwi shares went into a ‘bear market’ in June (falling 20% from last year’s peak), it was widely reported.

So, what happened in July?

The market’s performance had the hallmarks of a ‘reset’ by investors after so much bad news had been priced in. Intertwined concerns around inflation, interest rates and the economy remained, but the idea grew that the worst-case outcomes might be avoided. Comments from the US Federal Reserve that fears over a “real” recession were overblown, and that interest rates rises might be “moderated”, also helped sentiment. Robust labour markets were also supportive, with the US economy creating nearly 528,000 jobs in June.

The reporting season from US corporates (including many multinational names) highlighted that the world economy wasn’t in that bad a place. Most S&P500 companies which reported beat earnings expectations. Revenues were generally pushing higher; outlook statements were often optimistic and companies with pricing power were combatting inflation by passing on cost increases to consumers.

Investors will be looking out for similar signals in the New Zealand earnings season which gets underway in mid-August.

Is New Zealand heading for a recession?

Many have been quick to suggest that New Zealand is in or heading for a recession, and – with a rising cost of living and higher interest rates – consumer spending will fall off a cliff. The annual CPI to June was at a 32-year high of 7.3%, higher than expected.

However, the market largely took this in its stride when reported in July.

Signs have also emerged that inflation could be peaking. Oil prices fell below US$90 a barrel, cutting the price of petrol, helped by the Government’s extension of fuel tax cuts. Shipping costs, while still elevated, have been coming down. Some supply chains are starting to free up, despite the continuation of the war.

Not that you would know it from the weekly grocery shop, but food prices have every reason to be coming down.

Soft commodity prices have fallen from their recent peaks. The price of wheat has dropped by more than a third in recent months. So, are markets now finally pricing in the narrative that inflation might not be quite as entrenched as some are thinking?

Price moves for oil, food and other commodities will be under scrutiny during the coming quarter.

Meanwhile, the local jobs market is buoyant. Our June quarter unemployment rate was 3.3%, up slightly on the previous quarter but still close to historic lows.

The borders also opened fully from August (and cruise ships are allowed back in!). The influx of tourists can have a meaningful positive impact on the economy, with a weak Kiwi dollar increasing the allure for travellers. More workers will be arriving too, which should help sectors experiencing labour shortages.

Time will tell whether New Zealand avoids a technical recession. June quarter GDP numbers are due in mid-September, but there is cause to believe that, just like the US, we are not facing a ‘real’ recession, and certainly not to the extent seen in the GFC. Stock markets will regard such an outcome favourably. Also in focus will be the RBNZ strategy: will it see the potential for reining back the pace of rate increases while still getting inflation under control?

A game of two halves?

Will 2022 prove to be a game of two halves for markets? Will the worst fears priced into markets in the first six months of the year fail to transpire? We will know a lot more, but not all, by the end of the third quarter.

The stock market rally in July was encouraging. But many challenges remain, and there is no guarantee that a rising tide (market) will lift all boats. At Devon, the investment team’s emphasis remains on seeking out high-quality companies with strong growth prospects at a reasonable price. Many companies in this camp appear to remain good value despite the rebound we have seen at the start of the current quarter.

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MARKET INSIGHTS

Can Europe Keep the Lights On? Andrew Kenningham, of Capital Economics, considers how the energy crisis triggered by the economic conflict with Russia threatens to cause a recession in Europe.

Economic war Prospects for Europe were looking reasonably bright at the beginning of this year. The pandemic was finally fading and Europeans were looking forward to socialising and travelling again, and to spending some of the savings they had accumulated while they were stuck in lockdowns.

But those hopes suffered a setback when Russia launched a full-blown invasion of Ukraine in February. The consequences were not immediately obvious but measures of consumer confidence slumped as people sensed that the war spelt trouble for the economy.

Those fears have proved to be well founded.

Energy price shock The war has had a number of unexpected consequences. For example, it turned out that some vital components used in Germany’s powerful auto sector came from Ukraine. And Ukraine was a major producer of sunflower oil, phosphates (used in fertilisers) and nickel.

But the biggest problem is with energy.

Russia has long been a crucial source of oil and gas for Western Europe. Oil can be obtained from other countries as it is easily transported by ship, but that is not true of gas, which is mostly transported in huge pipelines. Much of Europe’s industrial infrastructure was set up on the assumption that there would be a reliable and plentiful supply. This had not been a problem until recently because the Soviet Union, and Russia after the fall of communism, had always kept the oil and gas flowing – even at the height of the Cold War. S P R I N G 2 0 2 2 | I N F O R M E D I NVESTO R 1 1 9

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A recession looks unavoidable even if the gas keeps flowing. If the gas tap is turned off, a major downturn is now on the cards.

Turning off the taps Now, though, there is a risk that Russia will cut Europe off from all its gas exports. In late March, President Putin passed a decree demanding that “unfriendly” governments should pay for gas in rubles. A month later Russia simply stopped exporting gas to Poland and Bulgaria. And in the past few weeks, Gazprom, the Russian gas producer, has cut the volume of gas flowing through its main pipeline to only a fifth of its normal level.

If Russia permanently turns off the tap, European governments would be in a tricky situation. Essentially, they would have three options.

The first, which they have already been doing, is to look for alternative sources of energy. Governments have bought more liquified natural gas (LNG) on the global market, and Germany’s coalition government has re-started coal-fired power stations and extended the life of its nuclear power stations. But there is a limit to how much more energy they can source from to replace Russian gas.

The second option is to use less gas. Some progress has been made on that front too.

A number of aluminium and steel smelters have been closed or reduced their output because of the cost of energy. More recently governments have turned off the neon lights on their public buildings and the hot showers in public swimming pools. Some households have been buying hot water bottles and small electric heaters to prepare for a chilly winter.

But there is a limit to how much energy use will be reduced on a voluntary basis.

Rationing: a wartime response That leaves the third option: rationing.

Outside of wartime, it is rare for governments to ration any product. After all, governments do not like to choose how people spend their money. And economists prefer to use high prices to limit demand.

However, the rationing of gas now looks a distinct possibility.

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Picking winners (and losers) Germany has been working on a plan to ration gas for some time now. It intends to prioritise essential services such as hospitals and the army followed by households (who use a lot of gas to heat their homes). That leaves businesses to take the brunt of the cuts.

Within business, every factory owner argues that their own needs are greatest or that it is not possible to stop and re-start production at short notice. But ultimately, it is likely that the most energy-intensive factories will have to make the biggest cuts, and particularly those that use a lot of gas as an input to production. That means metal and chemical firms, glassmakers and paper manufacturers are likely to face the biggest cuts.

The upshot is that there may be a big fall in manufacturing output. Even without actual rationing, we think a recession is likely as a result of higher energy prices as well as rising interest rates. Rationing of gas would make any downturn more severe. The damage would be greater for countries such as Germany and Italy, where the economy could shrink by 3 to 4 per cent, than countries such as France and Spain, where rationing is less likely.

Europe struggling Either way, the short-term prospects for Europe are not bright. A recession looks unavoidable even if the gas keeps flowing. If the gas tap is turned off, a major downturn is now on the cards. None of this will be helpful for European equity markets, bonds or indeed the euro.

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