KiwiSaver and Investment Diversification: Because Putting All Your Eggs in One Basket is for Omelet Lovers

I hope this email finds you in good financial shape and with an appetite for some financial wisdom served with a side of humour.

Today, we're going to tackle a topic that's as important as knowing the difference between a kiwi bird and a kiwifruit. Yes, you guessed it—investment diversification!

Now, I know what you're thinking. "Investment diversification? That sounds about as exciting as watching paint dry on a white wall." But fear not! I promise to make this journey through the land of diversification as entertaining as an All Blacks haka dance.

Let's start with the basics. KiwiSaver is like a Kiwi's best friend, always looking out for us and helping us save for retirement. But here's the thing: just like eating only pineapple lumps can lead to serious sugar cravings, relying solely on one investment option can leave you feeling a bit deflated.

Imagine your KiwiSaver as a basket filled with delicious treats. Now, if you only have one type of treat in that basket, like chocolate fish, you're putting all your hopes for retirement on a single sweet treat. What if it melts in the sun? What if your neighbour's dog snatches it? Disaster! That's why we need diversification—to spread our investment eggs across different baskets.

But wait, before you start filling your basket with an assortment of odd items like jandals, pavlova, and sheep, let me guide you through the art of achieving diversification in your KiwiSaver. Here are some tips to ensure your financial future is as solid as a DIY pavlova in the hands of a master baker:

1. Mix it up like a Pavlova Party: Just like a good pavlova needs the right combination of egg whites, sugar, and a dash of lemon juice, your KiwiSaver portfolio needs a mix of different investment types. Think of it as creating the perfect balance between conservative and aggressive options. Bonds, shares, cash and commodities - they're all invited to the pavlova party!

2. Don't put all your money in Hobbit Holes: While we Kiwis love our Hobbiton, investing all your funds in a single asset class is riskier than wearing a sheep costume to a rugby match. Remember the old saying, "Don't keep all your money in one Hobbit hole." Okay, maybe I just made that up, but you get the idea.

3. Embrace the All Blacks' Team Spirit: The All Blacks are renowned for their teamwork, and your investment strategy should follow suit. Look for a KiwiSaver fund that spreads its investments across different companies, industries, and even countries. Just like the All Blacks draw strength from their diverse team, your investments can benefit from a similar approach.

4. Keep an Eye on the KiwiSaver Menu: Just like you'd check out the menu before ordering at your favourite fish and chip shop, make sure you review your KiwiSaver provider's investment options. Check if they offer a range of funds that suit your risk appetite and goals. Think of it as finding the perfect combination of fish, chips, and the right amount of tomato sauce.

5. Time Travel with Dollar-Cost Averaging: If you have superpowers like Doctor Strange and can predict the future movements of the markets, please let me know! For the rest of us mere mortals, the technique of dollar-cost averaging can be a lifesaver. Invest a fixed amount regularly, regardless of market ups and downs, to average out your returns over time. It's like time travelling without the cool cloak.

6. Resist the Urge to Chase Unicorns: We all know that one person who's always chasing the latest trend, whether it's unicorn onesies or the latest investment fad. But when it comes to your KiwiSaver, avoid the temptation to chase after the mythical "unicorn investments" that promise sky-high returns with no risk. Remember, unicorns only exist in fairy tales, not in the financial world.

7. Keep Calm and HODL: In the crypto world, "HODL" stands for "Hold On for Dear Life." While we're not suggesting you invest all your KiwiSaver funds in Bitcoin, the principle of holding on to your investments through market fluctuations applies. Don't panic and sell everything when the market takes a dip. Stay calm and trust in the long-term growth of your diversified portfolio.

8. Learn from Rugby Legends: As proud Kiwis, we can draw inspiration from our rugby legends on and off the field. Just as Richie McCaw knows the importance of teamwork, discipline, and resilience, apply those lessons to your investment strategy. Stay disciplined, keep learning, and adapt to changing circumstances like a true rugby champ.

9. Seek Professional Advice: If you find yourself swimming in investment jargon and feeling as confused as a sheep trying to navigate a maze, don't hesitate to seek professional advice. A qualified financial advisor can guide you through the intricacies of investment diversification and help you make informed decisions.

So, my fellow KiwiSaver aficionado, remember that investment diversification is not only important but can also be as fun and quirky as a flightless bird doing the haka. Spread your investments, mix up your asset classes, and embrace the wisdom of our rugby legends.

Together, let's build a solid financial future that's as delightful as a perfectly baked pavlova. Because when it comes to our KiwiSaver, putting all our eggs in one basket is strictly for omelette lovers.

Stay diversified, stay quirky, and keep saving like the true Kiwis we are!

Cheers,

Chris George

P.S. Just a reminder: This email blog is intended for entertainment purposes only. Always do your own research and consult with a financial advisor before making any investment decisions. And please, resist the urge to wear a sheep costume to a rugby match. Trust me, it's not a good idea.

How to get out of debt!

Debt causes stress, loss of sleep, illness and marriages to fail. And it simply doesn’t allow you to ever get ahead. Here are 6+1 things to do to get yourself out of debt.

1. Decide that you really want to. And your partner must agree to work with you on this.

2. Create an emergency fund of $1,000 as fast as you can. This is important or you won’t do step

3. Cut up or freeze your credit card since you now have an emergency fund. Why run up more debt?!

4. Pay cash for weekly living. Each week take out an amount for groceries, petrol and an allowance for you and your partner. Then you can never overspend. This will save you THOUSANDS!

5. Pay off debt smallest to biggest Ignore interest rates. List all your debts in order of size and pay them off smallest to biggest. This allows you to cross them off and gives incentive to keep going.

6. Sell stuff. Use Trademe and garage sales to sell anything you can find. Use this to pay off debt.

7. And the extra 1? That is to give your family a backup in case something strikes you health wise before it’s all paid off. This is life and disability cover so all debts can be paid for your family if you are not able to work or you die.

Define a family

What a huge difference 40 years has made to our lives!

In 1971, 8,700 teen girls (defined as girls under 20) got married – this was 32% of all brides. 40 years later in 2011, just 513 teen girls got married, being just 3% of all brides.

The average marriage age for boys in 1971 was 22, but is now just on 30 (for girls it is 28). Adding to changing trends is that de facto relationships are blossoming. 40% of those in cohabiting relationships now are not legally married. There are around 20,000 marriages in NZ annually and 10,000 divorces!

When you think of a “family”, the idea of two parents and dependent children comes to mind. However, this is about 40% of family households. Another 40% have no children either by choice, or the kids have left home. The final 20% is single parent families.

Recent law changes now mean same-sex marriages are possible and this can be expected to be a growing “family” group.

Things have certainly changed and the changes are accelerating. We are living longer, so time living post-kids will be decades now and those living by themselves is expected to grow to 30% of all households in the next 15 years. This is due to the death of a spouse and the survivor living much longer.

So what does this all mean to you living right now?

From a financial perspective it means there is no one-size-fits-all way to manage and protect your finances. And depending on how you define your own “family”, you must review your debt, budgeting and insurances over time and through life’s stages to suit the specific circumstances.

It means ensuring the ownership structures of your policies are correct as your circumstances change. It means checking the premium type is correct if you need your cover for more than 5-10 years. It means putting the correct long-term strategies into place now so you don’t get caught out later.

Reviewing regularly, every 2-3 years is a rule of thumb we go by at Bridge Financial. Please contact me to do so.

How life insurance has been around since 100 BC!

Life insurance started way back to 100 B.C., when Caius Marius, a Roman military leader, created a burial club among his troops.

When one died, other members would pay for the funeral expenses. Similar clubs followed suit, as Romans believed improper burials led to unhappy ghosts. Eventually, the clubs included a benefit for the survivors of the deceased.

After the Roman Empire fell, life insurance disappeared until 1662, when Londoner John Graunt saw predictable patterns of longevity in a defined group of people.

In 1693, astronomer Edmond Halley made the first mortality table to provide a link between life premiums and life spans.

In 1759, the Presbyterian Synod of Philadelphia set up the first life insurance corporation in America for the benefit of Presbyterian ministers and their dependent’s.

After that, life insurance took off to where it is today – an essential component of the financial well-being of any family.

A Smarter Way

When you receive your insurance statement every year, have you ever wondered whether your insurances are a smart investment?

When these covers are purchased with the stepped premium type which increases every year with age, it's easy to eventually find yourself wondering if it is a smart investment.

Buying insurances is not just about choosing a bank or insurer, then working out what covers you need and how much of each type of cover you need. There is a third factor that is commonly forgotten and that is: 'How long do you need it for?'.

‘How long you need it for’ is a crucial question to consider when setting up a plan to catch you if you fall.

It's important to not only focus on 'today's cost', but also focus on the 'total cost' of the insurance. We tend to focus only on the cost today when buying so we end up comparing offers across multiple insurers or banks, aiming for cheaper premiums with top of the the best policy definitions.

While cheaper premiums and quality policy definitions are certainly a factor when you buy, they shouldn't be the only factor if you are wanting some of your cover to remain affordable long-term.

Level life insurance premiums can be utilised for the portions of cover you need longer term like income protection, trauma or a portion of your life and disability cover. The cost will stay affordable and you will save substantially with peace of mind.

ACC can’t help you!

What if you suffered a heart attack, stroke or cancer? ACC will NOT pay out on medical issues, even though you may have to take a year off work to recover.

As you know, while ACC pays a percentage of your income during the time you are off work due to an INJURY, but NO such payment is made for time off due to illness. This is why an insurance policy called ‘Trauma’ was created. It pays out a lump sum if you can’t work due to a major medical issue.

The amount it pays out is up to you. Many clients nominate an amount equal to a year’s income, some adding extra to pay for non-funded drugs.

The premium can be chosen at a level (fixed) rate until age 65 or 70 to keep it affordable long-term. The lump sum payment can be used wherever necessary...medical treatment, help paying the mortgage or putting food on the table.

What can you recall about ’71?

A lot has changed since then and most changes may not have been apparent. A UK survey* compared our lifestyles in 1971 to 2011 – a 40 year gap and this is their findings.

One-parent families nearly tripled in the 40 years from 8% to 22%. And the proportion of adults living alone almost doubled in this time from 9% to 16%. The proportion of one-child families has risen from 18% in 1971 to 26% in 2011. 

The proportion of women aged 18 to 49 who were married has fallen from 74% to fewer than half at 47%, while the number who were cohabiting with a partner but not married tripled in that time from 11% to 34%. The number of women who are single (never married) which has risen from 18% 43% in that time.

The point here is that while “families” have changed and you may not have children or may not be married, the reasons for insurance, savings and financial management don’t change.

The same unfortunate things can happen, property can still be lost due to an inability to service debt and surviving family will still suffer financially. I have clients in all the categories listed.

*UK Office of National Statistics www.ons.gov.uk

Big mortgages mean it’s critical that you have the right insurances

You buy a house for $750,000 with a large mortgage. Your neighbour buys the house next door for the exact same price and with the same sized mortgage.

But while you took out relevant insurances, your neighbour just took out enough life cover to match the exact amount of his mortgage.

Without warning, both of you have severe heart issues on the same day that result in having to take six months off to recuperate.

Your neighbour has his lender agree to relax the repayments while he was off work. You on the other hand kept paying the mortgage and didn’t notice the difference.

The end result is that your neighbour’s mortgage was extended in its repayment years and total interest. Yours actually came down quite substantially due to making a lump sum payment on it from your insurance pay-out. (No, you don’t have to die to collect insurance)

If something goes wrong, the bank will either want their money back or to come to an arrangement that adds years to your mortgage.

It is easy to simply agree with the lender on insuring your mortgage, but it may be that you have the wrong sort of insurances for your personal circumstances. I can review your insurances for free, so why not ask. It could save your house.

Seven common mistakes that busy people often make. You can avoid them – contact us today to find out how. We’re here to help.

1.     Paying for an annually increasing premium for covers you need long term. It is very important that you can afford your covers through the years when you need it the most and are not forced into cancelling early. Level premiums that don’t go up with age are available.

2.     Insuring the last and least likely event to occur before the age of 65 (death), but neglecting to cover the traumatic events that are far more likely to impact your lifestyle.

3.     Neglecting to insure your most valuable asset – your ability to earn an income.

4.     Paying more than you need to for your health insurance. Competitive options are now available that provide affordable protection against the medical costs that really matter – specialist’s fees, surgery and hospital expenses.

5.     Not structuring the ownership of your covers correctly. This can lead to a drawn out probate process, leaving the intended beneficiary waiting for the money they need.

6.     Not reviewing your insurance policies on a regular basis to ensure that they are still relevant and value for money. You can have a no obligation, independent review of your existing insurance free of charge.

7.     Trying to do it yourself, rather than tapping into the expertise and experience of a qualified, independent advisor who can identify the best options to suit your needs.

8.     An adviser stands in for you at claim time and knows the contracts. A good adviser is the most important part of your plan.

When money isn’t real, we spend it!

We’ve all played Monopoly with its instantly recognisable fake money.

It’s fun to throw $500 notes around and pay rents of $1,000 and buy everything we land on. But what if it was real money. Well researcher Adam Carroll did exactly that. He withdrew $10,000 in real notes and gave it to his kids to play monopoly with.

What happened? The kids gave a lot more thought to what they bought, which properties they put houses on and each transaction they made in general.

Carroll concluded that, “Kids today are being raised in a world where money is no longer real. It is an illusion but it has very real consequences.”

Getting credit is too easy and wanting the $700,000 house and not the affordable $500,000 home is how many young ones look at life now.

Payments are now mostly made through EFTPOS, credit cards, Paypal and other electronic methods. Only 4% of money used for transactions today is in coin or notes, so it’s not real.

Dunn and Bradstreet found that “people spend 12-18% more when using credit cards instead of cash.” Educating our kids on how to earn, spend and the true value of money is critical to not having them end up debt-ridden for years.

Go to Youtube.com and search for “When money isn’t real: the $10,000 experiment. Adam Carroll” to watch the full video on the Monopoly experiment using real money. It’s quite a sobering exercise.

All quotes and facts presented in this article are taken from the Youtube video.