What have eggs, baskets, advice and the missing middle got in common?

“Why Diversified Funds need to be on the investment supermarket shopping list”

Everyone knows the proverb “don’t put all your eggs into one basket”.  My mother’s interpretation, when growing up through the depression and war years, was don’t put all your savings into one bank.

The proverb, could have saved many New Zealanders from losing their savings in the 1987 Share Market Crash.  Much of that outcome (which was significantly worse in New Zealand compared to other countries) was around lack of regulation, transparency and greed.

More recently, investors were hurt by thinking diversification was spreading their savings amongst different finance companies, driven primarily by falling interest rates in banks and cost of living expenses. The return seemed better, however, as we all know, the risks were far higher than the return offered.

This led to the establishment of the Financial Markets Authority (FMA) back on the 1^st of May 2011. Their vision is “to promote and facilitate the development of fair, efficient and transparent financial markets”. In other words, they are the Sherriff of the Financial Services Industry and while not inclined to shoot first and ask questions later, they can bring the guns out when they need to.

It now seems that outside business, residential property and KiwiSaver, those who have built up savings for retirement are most likely to just leave it in the bank and, on the face of it with all the above, who can blame them?

Going by the Reserve Bank of New Zealand’s website, as at October 2019, Household Deposits amounted to $183bn. For many, they see it as the safest place in town.  But it can’t protect you from one of the biggest and unseen robbers of wealth, which attacks the investor’s future buying power, namely inflation.

So what’s the problem?  If we look outside the topic of investments just for a moment and take a more holistic view, the real problem facing New Zealanders is longevity and understanding what impact this has on our financial future.  Going back to mum’s day they talked about life expectancy being three score years and ten, in other words 70 years of age. .  I went on Stats NZ website to see how long, on average, I could expect to live and it appears it will be close to 87. If I was female it gets even better, being 89.4. That’s means I would get an additional 17 years or 6,205 days to enjoy life. Which is all well and good as long as I can pay for it.

Living longer is a great thing as long as you have your health. We all want to enjoy more time in retirement or at least do the things we want to do, right? However, the challenge is to make sure our savings (or income) live as long as we do.

Compounding the issue is access to personalised advice, especially for those who need it most, and it appears to be far less available than it has been in the past.  There are a number of reasons for this: increased cost of delivery, the falling number of advisers, lack of new advisers entering the industry, and would-be investor’s reluctance to pay a fee when they are not fully convinced of the value of advice, which has all contributed to where we are today.

My worry is this growing group of New Zealand investors, which I call the “missing middle”.

You might even know one of them.  They have some assets, varying amounts of debt, (including good and bad debt) KiwiSaver and some savings in the bank.

My fear is this growing group of Kiwis, who have worked hard to get ahead, and can see retirement just around the bend have underestimated their length of life after 65, and could be in for a rude shock.

So whether we like it or not we do need to take on a little more investment risk that will allow, over time, a greater return depending on your personal circumstances.

That’s why the evolution of diversified funds that offer flexibility, invest in a range of different assets here in New Zealand and abroad, allow for the ability to dial up or down growth and income easily, and you can access at any time, need to be considered as an item for your investment supermarket shopping list.

Mint, by way of example, has a Diversified Income Fund and, with the launch of its Diversified Growth Fund (10^th of December 2018), advisers and investors can simply dial up or down the risk depending on their personal circumstances.    It does however need to fit in an overall investment/life plan.  I bet that more Kiwis spend more time and effort planning their next holiday than they do thinking or doing anything about their retirement years. You know I’m right!

Diversified funds are a great solution to that age-old proverb and, while not suitable for all, they do provide a cost-effective way to spread your eggs out, especially for those New Zealanders who don’t require all the complexities of a bespoke approach.  But please, if you can, get some advice as well or at least go to the Sorted Website before looking at the next travel brochure.

To learn more about Mint and their Investments click here

Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement here

David Boyle

Mint Asset Management