Term deposit rates
I don't think anyone can say or write more about the decline of term deposit interest rates. Record low interest rates in New Zealand are tempting yield-seeking investors into investments with obscured risks. On the surface, high yield can look attractive, but investors always must ask what lies beneath. And the truth is higher yield does not come free.
Of course, not all these advertised products are inherently bad. But it's worth talking through with your adviser about whether they are appropriate for you, given your circumstances, goals and risk appetite.
Trust law changes
January 30, 2021 was an important date in the land of trusts in New Zealand. That was the date the Trust Act 2019 came into force. It is the first significant trust law reform in New Zealand in 70 years.
The new act has a significant impact on the administration of trust assets, and seeking financial advice was thrust into the spotlight. A financial adviser with a fiduciary responsibility will review trust assets, its objectives and can employ various approaches to manage the assets proactively. It helps trustees to focus on emotional, ethical, and functional aspects of the trusts.
House prices
The latest news that got everyone talking is the Government's new set of measures to confront the housing crisis in New Zealand, which stems from speculating with debt on capital growth without a buffer because collective wisdom says property only goes up.
It has been toxic to the collective financial wellbeing of New Zealand and pushed the debt levels to record heights – we have the world's eighth highest household debt to GDP ratio.
I admit to having no idea where any market will go, residential property included. Property is a necessity because we all need to put a roof over our head. But trying to get rich placing a roof over someone else's head? That's not for everyone. Diversifying across asset classes is by far the most popular form of investing and it helps limit exposure to loss in any one investment or type of investments.
Birth rate & NZ Super
New Zealand's total fertility rate in 2020 was down to 1.61 births per woman, its lowest recorded level, and well below the population replacement rate of 2.1.
On the other hand, we had fewer deaths. Stats NZ reported 32,613 deaths for 2020 – a 5 per cent drop compared to the previous year. And it is estimated that the number of people aged over 65 will hit 1.2 million within the next 10 years, from 600,000 in 2013. And by 2032, it is expected that 20-22 per cent of New Zealanders will be aged 65+.
The biggest pitfall with fewer births and an ageing population is who will pay taxes and bolster up the workforce to keep the NZ Super going? Our superannuation structure is solely reliant on future workers' tax contributions, both born and unborn. It's a pay as you go – not save as you go – scheme.
Retirement for those born after 1974 may be the game that moves as you play. Want to live on your terms? Long-term investing will win over time.
Sustainability
Reusable bags, paper straws and recycling are great initiatives, but many have elevated their thinking to sustainable investing. Kiwis are increasingly interested in making their investment decisions in accord with their views about human rights, climate change and environmental sustainability. But where does one start? An excellent first step is to define goals around sustainable investing.
This is where a financial adviser who understands your goals, risk appetites and values can be valuable. An adviser can help you achieve the dual purpose of efficiently considering sustainability and social considerations while building robust investment solutions to grow savings for future consumption.
Before closing this article, I want to take a moment to convey heartfelt appreciation to the readers of this column. In the past three plus years, so many of you have reached out to me with questions on financial matters, and some of you have sent your gratitude for this column. Thank you for your support. Feel free to write me at nick@stewartgroup.co.nz.
•Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
•The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
