Every few months, the folks over at Morningstar, who eat, breathe and live investment stuff, put together a report on KiwiSaver. The newest one just came out for the period ending June 30, 2023. 
Now, not everyone's heard of Morningstar outside of the finance world, but if you're curious about how different funds and their managers are doing, this report is a treasure trove of info that's hard to resist.
The exciting part is that more investors are catching onto Morningstar and finding these reports super handy.
What to expect
The report starts with a general overview of what went down in the markets, what factors played a role, which sectors did well, or not, and why and highlights the best and not-so-great-performing funds during that time.
Quick heads-up, though: remember the old saying that "past performance doesn't predict future outcomes"? Yeah, that's worth keeping in mind before diving into the nitty-gritty.
There's a good reason for that. If you're always chasing the highest earner every quarter by constantly switching funds, you might actually end up in a worse spot than if you just stuck with a steady, middle-of-the-road fund manager. 
Here's another one: "This year's superstar might be next year's dog." Yup, trends can change quickly in the investing world, so don't get too caught up in short-term wins and losses.
Morningstar keeps hammering home the point that long-term results are what truly matter. That's why their report gives you the lowdown on performance spanning from three months to 10 years. It's like seeing the big picture of how things are going down the line.
And remember, KiwiSaver is all about the long haul. It's like the vehicle that's gonna give you a smooth ride to financial awesomeness when you retire. Well, that's the hope anyway.
Believe it or not, KiwiSaver isn't that ancient. It kicked off in 2007, just around the time of the Global Financial Crisis. It might seem like old news in New Zealand, but compared to other countries with way more history in retirement savings, it's basically a blink of an eye.
Don't expect a 16-year performance history in Morningstar's report. Lots of the KiwiSaver funds you see today weren't even a thing when KiwiSaver first started.
Now, if you're itching to check out how your fund's been doing since day one, most fund manager websites have that info. Just look for the performance since inception bit.
Morningstar breaks down fund performance into different timeframes like three months, one year, three years, five years, and even a decade. Plus, they group funds by types, like default funds, peer averages, and then go all-in with the risk categories: Conservative, Moderate, Balanced, Growth, and Aggressive.
The numbers they dish out are after fees but before taxes.
They even rank the funds within each group so you can compare your fund against the others. 
Zoom out from the research and it's important to make sure you have the basics in place when it comes to KiwiSaver:

1) Know your provider
2) Know your fund type
3) Understand how you're tracking for retirement or that first home deposit
4) Review your PIR and contribution rates
5) Hold the course

It never fails to shock me how little people understand about their investment, even those people who you think have it sorted. i.e. changing KiwiSaver providers to support your mate's kid because Jessie just started working there? Not a great idea. Changing again five times for other reasons?! Nooooo. 
That's not to say you won't end up with a decent provider, or outcome, but it's not exactly the way you want to manage what could be the most significant investment of your retirement future. 

Comparisons between New Zealand and Australia usually don't end well. It's the same with those involving the United States and Canada. Feelings get hurt. Conversation descends quickly.

Here's hoping the end justify the means; in this case super comparisons with our Antipodean neighbour sparks positive change.

I was originally going to write about the growing drift between the balances of men and women in KiwiSaver, based on recent reports the increase jumped from 20% to 25% in one year. When I looked a little closer at the actual balance differences by age, I became triggered.  Then doubly so after seeing how the numbers stack up across the Tasman.

For Kiwi men aged 18-25, the average is $8,694 compared to $7,099 for women. That was in 2022. 
The difference is bigger yet again between 31-35; $21,535 for men and $16,985 for women and by their early 40s, $36,114  vs $27,269.

The Retirement Commission, who contracted the KiwiSaver data mining, said it had ruled out hardship withdrawals, savings suspensions and first home withdrawals from the equation. The inference was that contribution rates differences (which it doesn't have clear transparency over) are behind the yawning gap. The other obvious explanations are more women than men work in part-time jobs, pay inequity across many sectors, and women taking time out of the workforce to raise families. All that combined serves to pull down our balances, compared to men.

Bridging the gap 

The superannuation gender gap is increasingly getting the attention of policy makers both here and across the Tasman. During its most recent Budget announcement, the NZ Government announced an employer KiwiSaver contribution top-up to Paid Parental Leave. It'll help at the margins but it certainly won't fix the problem.

Whether you're male or female, the savings are still well below what retirement experts predict you'll need to retire comfortably. By 65, even a no-frills retirement, assuming you want to live in either Wellington, Chch or Auckland, will require around $300k in your KiwiSaver. The average balance in 2022, for those over 65 in KiwiSaver, was only $51k.

Ozzie, Ozzie 

When you compare balances with our Aussie counterparts, there's a continental divide.

According to research by Deloitte, for Australia Super, the average balances of Aussie men, age 45-49 is north of $224k (AUD).

Women, comparatively, are left in the dust at around $146k. 

Similar factors explain the gender super gap in Australia, according to government policy papers on the subject. 

The shock and horror isn't so much around the gender balance differences, although I admit, it does not thrill me.

What is more stupefying is just how much bigger average balances are in Australia.

Before taking into account currency differences, Australian women in their mid 40s, have almost 4.5 x as much in their Superannuation accounts as Kiwi women. 

I doubt our Australian sisters are happy they're lagging so far behind their male counterparts, but if they saw our puny balances here they'd been feeling very rich indeed. KiwiSaver balances for women aged 41-45 are $27,269.

Let's clarify a few things.

Australians have been at this savings game a lot longer than New Zealanders.

The Superannuation Guarantee (Administration) Act came into force around 1992, forcing employers by law to contribute into their employees schemes. KiwiSaver was only introduced in 2007.

To be fair (to us), Australians have had a huge head start  in terms of education, savings and retirement planning psychology. It's also compulsory. 

In New Zealand, employees are auto-enrolled into KiwiSaver when they start their first job. If they don't want to commit, they can opt-out within three months.

In Australia, employers make contributions to their employees’ accounts as a proportion of wages or salaries. The contribution rate increased from 10.5% to 11% (of wages/salaries) on 1 July 2023, and is scheduled to rise by a further 0.5% each year until it reaches 12% (on 1 July 2025)

You can see the full rates chart here at the Australia Taxation Office. 

Compare that to New Zealand where there is a minimum 3% paid by employees and a minimum 3% by the employer. The Retirement Commission found that 2/3 of KiwiSavers still only pay the minimum of 3%. Also of note, is that 41% of the 2.9 million KiwiSavers have balances worth $10,000 or less!

It's no secret that many jobs in Australia pay more than they do in New Zealand so that also accounts for higher balances over time. Unlike New Zealand, you can't use your savings in Australia as a deposit on a first home. Not yet anyway.
It's all quite depressing I admit but I've never known Kiwis to let Australian comparisons get the better of them, for anything.

Take action 

1. Start by checking what your actual balance is. If you don't even know who your provider is, contact the IRD and they'll let you know.
2. Check your projected balance at age 65. You'll find this on your last annual member statement. It will be based on certain assumptions like your current contribution rate, your fund type, inflation etc.  Read the assumptions!

Ask yourself if you have the ability to contribute a higher amount. Use Sorted.org.nz's KiwiSaver calculator to see what a difference a 4, 6, 8, or 10% contribution rate could make over time. 

If you're a woman, make sure you're being paid equitably for your work and take salary negotiations more seriously.

On a somewhat happier note, women who end up living into their 80s, will finally overtake men in the KiwiSaver department. The same data set quoted above found that females age 86+, had average balances of close to $227k, compared to men with half that. 

I'm guessing this has to do with the fact that they outlive men on average, and are usually the beneficiaries of a deceased spouse's wealth, including their KiwiSaver. 
​
Still, I'm not counting on the long game. You?

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I was asked recently how I defined success?
It was harder to answer than I expected because my definition of success seems to change with every milestone I achieve. 
I don't think I'm unique in this regard.
Life is dynamic and we move through ages and stages over a lifetime. Our perception, expectations and definitions of success inevitably evolve
I have read countless profiles of accomplished actors and other professionals who've made their 'fortune' and fame who say if they had their time again, they'd focus more on their families and friends. That is to say, they define success as having good relationships with those closest to them. Hindsight is a wonder, ain't it?
It's easy to have perfect vision once you've scaled the highest mountain.
Success, in a classical sense, is marked by wealth, fame, power and status. It is usually hard won and takes years to accomplish. Hence the sacrifices, and the revisionism later on about what success is.
In the interim, those focussed purely on money, need to ask themselves how much?
If we can learn from those who've made a lot of it, it is helpful to understand money in the context of what it can and can't buy.  
If we accept, that after a certain amount, more money is not going to add to your happiness threshold, it's best to know when to stop pursuing it so aggressively. Because to do so, (chasing it for the sake of it) is often at the detriment of one's health, or personal relationships. 
Having a goal or a number in mind, and a plan to get there, is a pragmatic wealth creation strategy. It removes the fuzzy fantasy of happily ever after once you've banked a million bucks.
I think it is better by far to flip the equation and actively explore and pursue what it is that makes you happy, occupationally and otherwise, then set up a financial plan that is congruent with your goals. It's also more realistic for the masses.
This approach is not without its own hazards because it forces one to dig deep. Let's be honest; sometimes it's easier to follow others peoples' expectations of us, or follow the road we happen to have landed on, rather than search our soul.
Sometimes we fall into a trap of what is convenient at the time, rather than what is truly meaningful and important. 
It's understandable too. We are not taught to follow our bliss. I know I wasn't anyway. 
Life doesn't follow a simple, linear path.  It is usually through struggle, disappointment, conflict and resistance that we are forced to confront those deeper, scarier questions in life.
The reward for doing so can be both liberating and meaningful.
So, you wanna be rich?
Great! Before you seek your riches, make sure you understand why and try to quantify that wealth too.
The pursuit of it will be all the easier. Or perhaps just a few less regrets will come of it.
​

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This week on SmartMoney with NewstalkZB host Tim Beveridge, we talked about borrowing money to invest and whether it is a bad idea.  Intuitively you'll know the answer I imagine.

The topic followed hot on the heals of Auckland City Council's highly contested decision to sell some of its shares in Auckland Airport to avoid passing on hair raising increases to rate payers. 
See NewstalkZB story June 10, 2023 for more. 

Two key points before I dive in:

1) I am not a financial advisor and do not provide personalised financial advise. I prefer to share information and the benefit of my knowledge after working in this space over 15 years. 

2) It is important to distinguish between personal finances and government accounts.

Unlike Governments which can borrow cheaply and squeeze taxpayers tighter if they need to, in order to raise capital, most regular folk do not have that luxury. 

For the purposes of what follows below,  and pretty much all content on this website, I'm referencing personal financial matters.

So...on the original question posed by Tim B; "Is it a bad idea to borrow money to invest in the share market?" my personal view, in a nutshell, is "Hell yeah."  

It's a bad idea for a number of reasons which I will outline below:

• Borrowing money today is expensive. Imagine you took out an advance on your credit card at 19% to take a punt on the share market. This is not what I would call investing. This would be speculating with durations that are way out of whack. Borrowed money needs quick repayment, unless you want to go broke. Shares, typically, take time to grow in value, unless you have extremely good timing, or insider information, which is illegal. You're effectively borrowing money at a high rate of interest, that becomes incredibly expensive the longer you take to pay it back, hoping that your investment will pay off. You'd have to hope that it pays out more than what you are paying to borrowing money, WITH INTEREST, plus a decent return to cover your risk of a heart attack if it all goes wrong.  A sound investor invests with well considered time horizons, in line with their overall financial capability, with a good understanding of the risks they are taking.
• Opportunity cost. Irrespective of the source of funds for your investment, it's important to ask yourself about the opportunity cost. In other words, is there a potentially better use of the funds that may have an ever better return or pay off for you? Some examples of this may be: paying off your mortgage faster, developing skills or advancing your education levels so you could improve your income earning ability or work satisfaction levels.
• What if it all goes wrong? It is always good to run an exercise in your mind, and on paper too, to look at the consequences of things not going accordingly to plan. For example, if your investment took a sharp drop in value beyond what you paid for it, but you're under pressure to repay the money to borrowed, where will that leave you? Plenty of people learned this lesson the hard with buying crypto currency and the like during lock down, only to have their dodge coin turn south and their financial obligations amplify. 

Where to begin?

The days of cheap and easy credit look to be fast fading. As interest rates rise, including the cost of living, it is important to consider your overall net position and intelligently assess your financial position and wellbeing ahead of investing in something you don't understand.

If you have debt, figure out how much it is costing you and how you may get that money off your back faster.
If you're already invested in KiwiSaver, and in full-time or paid part-time work, remember that you are already an investor. You're making regular contributions into your account in line with the pay cycle at work. This is a good start. 

If you're debt-free, and still have a heavy mortgage, you may want to consider increasing the frequency of your payments or else making (penalty free lump sum repayments)* to reduce your debt. 

If you're saving for a house, and you have a KiwiSaver account, you may want to fast track your savings there by increasing your contribution levels.

Just be clear you're invested in a fund that is well-suited to your time frame to buying a home. I've seen many disappointed investors see their balances fall by 10-30% right at the time they needed their money because they were in high-growth, high risk funds, trying to max out long-term projected returns.  As tempting as it may be to choose the fund that dangles that highest long-term return rate, you must understand that on some years, because of market vagaries and other external factors, it can go south. First time home savers need to adjust for this risk.

If you're not saving for a first home, or carrying debt, and you're keen to grow your wealth, then this is a good time to explore investment options outside of KiwiSaver. In the last five years, we've seen an explosion of choices and providers offering alternatives in terms of investment platforms.

A decade ago, or so, you needed a minimum of $25,000 to invest and you had to do it through a financial advisor or a broker. Those thresholds have all but disappeared, which has reduced the barriers to entry for investors. 
That's been great for would be investors with smaller wallets but it's also be created hazardous conditions for those folks who don't know much about investing and the risks. 

Sure, you can invest with as little as $1 now on some platforms. Whether it makes sense to do so, is another matter!

Investing in line with your goals, your time horizons, your risk tolerance and financial ability will all help to minimise disappointments. 


*Ahead of reducing debt on your mortgage, make sure you understand if there is a cost to doing so. On a floating rate mortgage this usually isn't the case but fixed mortgages can lock you in with repayments made on a complex bank-biased formula. 

Last week, the Labour Government announced a new proposal to help close the gender gap in KiwiSaver  balances.
For qualifying individuals taking Paid Parental Leaving AND contributing from that 3% into their KiwiSaver, Government will match the 'employer' contribution that you would normally get at work, for up to 26 weeks. 
T&Cs apply so be sure to read the eligibility requirements here for PPL.
The cost to Government has been estimated at around $19.6 million p.a. 
The value to the mums (and dads) who take up this nugget?
It depends on your pre-baby income.
According to Employment NZ, paid parental leave payments equal the greater of:

• an applicant's ordinary weekly pay, or
• an applicant's average weekly income 

up to the maximum weekly amount of $662.12 gross. So that's before tax and ESCT (Employer Superannuation Contribution Tax). 
Quick back of the envelope, your new combined KiwiSaver contribution via PPL, works out to around $40 a week (max). This is before regular tax and ESCT but that roughly $1,032.90. 
To be eligible to receive the full regular Government contribution of $521 a year, you have to paid $1,043 into your KiwiSaver account between July 1st and June 30th each year.  That's out of your own ledger so this portion alone won't get you all the way there.
I don't have any stats on hand on the average time out of the workforce women (or men) take to raise families and this baby bump in KiwiSaver is only for 26 week period but it's a good start. especially if it gets women who wouldn't otherwise qualify over the line for getting the $521 additional. 
Ideally, you should try to maintain the same level of contribution you were making working full-time but I know this will seem a preposterous suggestion during a cost of living crisis, where mortgage repayment increases and falling house prices are putting people into serious financial distress.
Having kids, just like having pets, is a financial liability but hey that's not why we do it. 
This is coming from a mother of two and pet owner of 3, well now 2 sadly. 
Not everything is about money, but it sure can feel like it in this country.
For context, when I moved here from Canada in 2007, Paid Parental Leave was a scant 12 weeks and KiwiSaver was only just introduced. By comparison, maternity leave in Canada is one year. You get, or used to 50% of your gross average earnings for a whole glorious year, which is a great head start for baby.  Other workplace retirement schemes and Government incentives to have you save for retirement have been around for decades. 
Even so, women there and elsewhere till face a retirement saving shortfall relative to their male counterparts.
I call it the "baby premium."

A few ways the fairer sex is disadvantaged:

1. Loss of income: when a woman takes time off work to raise a child. This loss can be particularly pronounced if she had a well-paying job or a promising career trajectory.
2. Reduced retirement savings
3. Limited career progression: Extended breaks from the workforce can hinder career progression. Women may miss out on promotions, salary increases, and valuable work experience during their time away, which can have long-term financial consequences.
4. Wage gap and gender discrimination: Women who re-enter the workforce after a career break may face challenges in negotiating higher salaries or may be offered lower-paying positions due to biases and stereotypes.
5. Dependent on partner's income: Taking time off work can make women financially dependent on their partners or spouses, potentially creating an imbalance in financial decision-making and reducing their financial autonomy.
6. Higher childcare expenses: While not directly related to the financial disadvantage of taking time off, it is worth noting that women may face increased childcare expenses when they return to work. This can further impact their financial situation.

Men also face some of these issues if they decide to be the primary caregiver and to be fair, we do see more of them entering this space.  
Still, the data shows a clear picture. 
According to research by the Retirement Commission, women in their 40s have balances 30% lower than men in KiwiSaver. That gap increases to 32% in the following decade, just around the time that many marriages start splitting up!
All the more reason to keep up those KiwiSaver contributions and to celebrate this Wellbeing Baby Bump,  small as it is.

Before exiting this blog or questioning its relevance, my flexibility and the madness entangled in the pose above, consider this: 
The body that formed that shape (which, by the way, is called Mermaid pose or eka pada rajakapotasana in Sanskrit) started contorting, training and shaping at age 6 and continued to do so for decades; it is a pose that even some veterans yogis will never master because their anatomy simply won't allow it; and truth be told, it isn't a very relaxing one to hold. Not at least for any period of time. 
Just as the underlying work that required me to arrive at that particular pose was over a long period and through regular practice as a professionally trained dancer and later yogi, personal finance goals are only achieved after some time. The personal finance equivalent of master poses i.e. getting that first home deposit together, paying off the mortgage, and building a $1 million portfolio, are the product of systematic, consistently applied behaviours and strategies over time.  
In yoga philosophy, Sadhana is considered essential.
Effectively, this is a daily spiritual practice. It isn't just asana (that's the physical practice of yoga); but includes other spokes that turn the wheel of progress.  It would include meditation, journalling, nature walks, affirmations, breathing exercises, and gratitude.
Many people assume that yoga (at least the Western face) is all about the downward-facing dogs and, more recently, the yoga pants and, Instagram shots in the lycra. However, the physical practice is really just a warm-up for the deeper stuff, like pranayama and meditation.
So you may be thinking at this stage, "I think I've come to the wrong place; I just want to make more money."
Listen, you don't need to do yoga to become rich, although I wholeheartedly advocate it for all its benefits. 
My point is that building financial well-being requires a similar process and habit as what yoga guru prescribes for their students in Sadhana.  It requires a daily practice of mindfulness and habits.
Meditation is a good start,  if you want to crib a page from the yoga handbook.
Not so you can meditate your way to a new Mercedes but to clear the clutter and maybe even the delusion that you'll be happier driving one, although maybe you will?
Only you know your mind. One thing is for sure though, meditation will help you to get to know it better, your mind, that is. 
Don't be deterred or daunted if you're a beginner or have never tried it. It can feel incredibly frustrating until you get a little more established. The benefits are worth enduring.  Do it for a minimum of 3-5 minutes a day for a month, and see for yourself what changes take place.
For encouragement and or research sake, I recommend watching Stanford University Professor Andrew Huberman's YouTube talk on the neuroscience of meditation here. In five months, it has had almost 2 million views.  There are some great learnings there. 
Meditation helps tame the crazy in us all and, over time, helps to get traffic flowing more freely in the brain's neural networks. That can lead to clarity, creativity, inspiration and a pleasant escape from the chatter.
All of that is good in personal finance or any other sphere of your life, I reckon. 
Knowing what you want to accomplish and why, how you'll get there, tracking your goals and insights as you reach them, and or understanding what is standing in the way or sabotaging your progress is part of that.
A financial Sadhana could include those things in the form of journals, reflections, checks and balances and a higher rate of engagement with some of your apps or financial obligations. 
Having those cornerstone habits will set you up for success. Again, it doesn't have to be huge. Start small and build up your base. Whatever that base is.

Extra Reading and Resources:

Best Meditation Apps reviewed: New York Times

Billionaire Ray Dalio credits his success to 40 minutes of meditation a day, CNBC

10 Best Books on Mindfulness: Business Insider 

Mind over Money: Yoga & Meditation help this money manager remain mentally fit: The Economic Times. 

Meditating on Money: The Tricycle: The Buddhist Review 

Charity is a core pillar in the world of personal finance.
Many famous personal finance gurus, including Tony Robbins, Robert Kiyosaki of Rich Dad, Poor. Dad fame and Dave Ramsey follow a tithing system, where they give away 10% of their wealth.  Some religious organisations suggest you should do this too but in this case their charity is self-directed, so not pointed at a religious institution. 
If you can afford to give away 10% of your annual income, which goes to a good cause(s),  great.
If you can do more, even better. If you can't, well that's okay too. 
​As I write in my book, generosity comes in many forms. 
You can gift your time, talent, knowledge, unused assets, patience and kindness. Heck, you can even donate your body to science when you die.  What else are you going to do with it?
For over a decade now, I have been gifting regularly, giving money each month to three different charities in addition to many one-offs. My dear dad has adopted a diversified gifting strategy and donates to 52 other charities, one for each week of the year.  Dad has great karma.
I give in other ways as a volunteer and through my KiwiSaver investments with Simplicity KiwiSaver.  The latter isn't much on an individual basis, but as an aggregate, the 140k plus members have donated more than $5 million, which shows all those dollars and cents add up when bundled together. 
But enough with the virtue signalling, and down to business.
If you donate to charity,  it is now easier than ever to claim a Government rebate on a portion of it.
As long as you give to a registered charity, you're eligible to get 33.33% of it back. You can regift that portion to the charity, or another one, or to someone who could use it more than you i.e your kids!
It used to be much more complicated process.
You had to download paper forms, print them, and return to via post to Lower Hutt with all those paper receipts, assuming you kept them.
I've blogged about the process before but here's another recap if you missed it.
​
Step 1

Filter through your email by date and find all the electronic tax receipts from the tax year April 1, 2022 - March 31, 2023. If you didn't get one in by email, you might have to request one from the charity or take a photo of the one you received in the post.

Step 2
Login MyIR. If you still need an account, create one immediately. This is how those cost of living cheques found people and their bank accounts. You can have one registered against your account.

Step 3

At the top of the summary page, you'll see a section called Donation Tax Credit.  Click Enter Donation Tax Receipts. That will take you through uploading the Tax Receipts for each charity.  You'll have to enter the charity name, amount and GST# or registered charity number, but all of that should be on the receipts you dug up.

Step 4

Instruct IRD whether to regift those amounts you have claimed or add your bank details to get it back in your account. Only one person in the family can claim the rebate, so don't double dip here.

Tips:
Remember that school donations also count, so get that paperwork from your school. 
Every little bit counts, now more than ever.

The crazy thing about retirement is that the best time to think, and plan for it, is when you're young.
Ironically, when you're young, you think you're going to live forever and the very idea of 'retiring' is repugnant because it's another word for getting old. As a consequence, most people fail to plan when they should and therefore lose the opportunity to get on top of it when they are in their 20s and 30s.
If we hope to get a future generation ready for retirement, I think we need another word for retirement that encapsulates a far more attractive idea.
I also think we also need to de-stigmatise ageing by portraying more positive images and stories of people past retirement age because increasingly many choose to work past 65 because they want to, not need to.
This past week on Smart Money we talked retirement readiness and heard plenty of good examples.
One caller worked as a chef his whole life but returned to the kitchen to earn a bit of cash washing dishes. Having worked in a restaurant myself back in high school, I know the pecking order of this business and washing up was the least glamorous position of all. So going from being the chef to chief  bottle washer must come with a fair bit of humility. You could tell this fellow was egoless in that regard.
As well as getting him out of the house, he enjoyed the socialising with younger folks, the residual health benefits of being more active.  The payment was almost a bonus. 
Another was a retired teacher who went back to do some relief teaching. He said it afforded him trips back home annually to the United States but you could also sense the buzz he got from being around younger people and being useful.
Another chap, who drove a truck for a living, came back out of retirement to earn a bit of money after having suffered a stroke. He'd conceived a plan to sell the family home and retire more affordably, in Thailand! How awesome is that?
These kind of stories may come as a relief to those in their 50s or 60s who are panic stricken about their lack of prepardedness. Sure, retirement seems the best thing in the world when you hate your job but if you find something you enjoy doing, and get a lot  back from it, not dropping tools at 65 to stay home may seem less daunting.
On the other hand, if you are determined to stop trading your time for money by age 50, or earlier so you can travel the world, you're going to need a shrewd plan to get there. The FIRE (financial independence retire early movement) was all the rage a decade ago and still has a strong following. It was popularised by the Canadian-born engineer turned blogger Mr Money Moustache, who extolled the benefits of biking, fixing and making your own stuff and eschewed consumerism and wasting money.
His no-nonsense methods put him on the path of early retirement and inspired of personal finance fans to follow suit.
He was/is a talented writer and his methodology a sound one too. Mr Money Moustached proved that you don't have to be born-rich, a tech-entrepreneur-turned billionaire, or an early adopter of Bitcoin to stop paid employment. 
If you're a determined individual, with discipline, a plan and some consistency, you can move mountains in most area of your life.
Where money is concerned, the vast majority of people are simply not awake to what it is they want to achieve, and how their daily habits and choices are shaping their reality. Unfortunately, the wake up call comes some time around 40 or later when you start feeling weary and then turn your mind to the retirement issue. 
At that stage, if you haven't planned, it can be ugly. All the more so with interest rates being so high, and the cost of living too!
A simple plan to avoiding this horror is doing some basic work early on. 


Step one

Decide when you would like to give up paid employment and calculate how much you think you would need to live off.  Run two sets of number; one that includes NZ Super or your government pension if  you are domiciled in another country and one that doesn't. Factor in inflation too. 


Step two
Look at current savings balance in KiwiSaver, or with whatever investments you currently have. If you don't have a workplace retirement savings investment, consider opening one smartly. Most providers have projection tools which show you how much you're on track to have by retirement age. Read the assumptions because they are also important. They include things like; your fund type, your tax rate, your level of contribution and time frame. Most of these tools tell you what you can expect to have per week as a result of your current investment strategy from age of retirement till 90 or so.

Step three
In most instances, the exercise above will elicit gasps of horror when you realise how far you have to go to bridge the gap. DON'T panic.  If you have any wiggle room in your budget, consider increasingly your contribution rate and see what impact that will have on the 'terminal' amount. You can also think about cutting back on other expenses to increase your savings, take on other types of work (side hussles), reinvest in yourself to study or train at something you may enjoy better or earns you more money, both preferably. 
Take comfort from the true stories of some of the folks above who are working in their '70s and getting a lot more out of it than simply money.  

The latest financial blow-up involving Silicon Valley Bank (SVB), and the contagion of Credit Suisse, have likely had one of two responses: “SVB who?”,  Or :”Which one is next and am I invested in it?"

If your reaction was the first, read Matt Levin’s excellent piece here in Bloomberg. If the latter, read on. 

Levels of panic depend on whether you're a depositor or a shareholder in the banks that go bust or are at risk of going bust.

To stem a full-on banking sector melt-down, Governments are leaning in with guarantees that retail deposits are safe, well to a certain amount anyway.  They do this to comfort retail investors who have comfortable size term deposits and the like to prevent a mass exodus. The greater fear lies with shareholders who aren't likely to benefit from any Government bail-out.

​Before you heave a sigh of relief about not being a shareholder in any  American banks, or Credit Suisse, take a beat. 

If you’re a New Zealander, chances are you have a KiwiSaver account. More than 3 million people do.  The majority are invested in Growth funds, which tend to have a broader exposure to sharemarkets around the world, including Switzerland and of course America.

​So despite being at the bottom of the world, when it comes to diversified share portfolios, it is a small world indeed. There is a good chance you do have exposure to both SVB and Credit Suisse.

The good news is, it's not likely much.

The average balance in KiwiSaver is around $30k. And when you breakdown all the investments you hold around the world, your exposure to any single stock (unless it is in the Top 10 holdings) is likely to be miniscule.

On a balance of $30k if you're invested in the S&P500, its around $11.

​On a balance of $100k for example, it's around $36.  In other words, it is not going to throw off your retirement.  This is the benefit of being invested in a wide range of companies, across a wide range of countries. 

The lesson here for investors is to start caring, more, about what they're invested in.

​I will hazard a guess that 98% wouldn't have a clue. 

It’s a bit harsh but consider the fact that close to 40% of savers don't make regular contributions into their accounts. KiwiSaver is an  investment vehicle engineered specifically for your retirement. You need to make regular contributions to optimise what you'll have for retirement.

Step by Step 

Before we go forward, let's take a step back.

If you want to understand better what you’re invested in, firstly you need to know your fund type.

If you don’t already know, log into your KiwiSaver account. If you're invested in other funds outside of KiwiSaver, I expect your understanding (overall) will be better.  If you don’t who your provider is,  phone Inland Revenue or  try logging into your MyIR account online. You'll find it under the KiwiSaver tab.

Once you know with whom and what fund you’re invested in, you can look at the composition of that fund on your provider’s website. Regardless of who you’re invested with, all of them will have a Fund Update page, usually it is alongside the Fund type you’re in.

This is an example below with reference to Simplicity KiwiSaver.

Risk 

Navigate to the page that outlines the different fund types and find your fund. There will find a risk indicator rating.

This indicates the level of risk you face given your fund type with 7 being the highest and 1 being the lowest.

Generally speaking, the more shares you have in your fund, the higher the risk.

The risk is higher because the share market has a lot of volatility.

Regardless of your level of expertise, you’ll have some appreciation for this after all the covid aftershocks and the rise and fall of your balance.

Underneath the fund’s description, you’ll see the first year return. Don’t panic if you see a negative numbers. It has been a horrible year in the markets and most providers will be posting a negative one year return at this stage. To cheer yourself up, look at the return p.a. since inception. There you will see a happier story, unless you only joined KiwiSaver recently.

Underneath the return, you’ll see a pie chart. This breaks down the types of assets you’re invested in. 
In this case it breakdown as follows:

• International shares
• NZ Shares
• International fixed interest
• NZ Fixed interest
• Australian Shares
• Cash

The key difference between a Conservative Fund and a Growth Fund is the ratio of income assets (cash and fixed interest) to growth assets (shares and increasingly other assets like Private Equity holdings - more on that in a later blog).)

Fund Updates

These are great documents to read. It’ll explain all of the above in greater detail.

It’ll also show you how your fund fared, compared to the benchmark that it uses to compare performance.

“The market index annual return is a composite index, calculated using the return of each asset class index the fund invests in, weighted by the fund’s benchmark asset allocation."

Okay so these are broad brush strokes.

For the real juicy details, i.e. are you invested in Credit Suisse or SVB, you’ll need to look at the holdings of your fund. The fund update will show you a provide of the top 10, but you’ll want to go deeper than that for the rest.  With Simplicity's diversified funds, you're invested in 3,000 shares spread across 23 countries so SVB won't be in the Top 10. If it was, you'd be worried.

You can find the entire holdings on the Companies Offices disclose register.  Search your provider and fund type.

Your fund manager, if asked, should provide you with the complete holdings. It may also be on their website if you did a big of digging.

With Simplicity, you have total transparency via a cool tool called Where in the World is My Money. If you enter your balanced and the fund type you’re in, you can find out to the dollar what shares, bonds and other assets you own.

Users will be reassure how well diversified they are.

It is an age old adage, but diversification really is one of the best ways to mitigate risk when it comes to investment. Imagine you were only invested in US bank stocks for instance and there was a huge run on banks there. As an investor, you'd be in shocked.

Property is another good example where diversification should be considered. Let's take Christchurch as an example. Say you were only invested in property located in Christchurch in 2010. I'm willing to bet many investors learned the hard way, not to put all their eggs in the property basket after that year.

Risk is all around us. Understanding what the risks are with your investments means you can either sleep better at night or potentially enjoy a higher standard of living in retirement. Of course there are no guarantees, but it pays to know either way. 


The information contained above is purely informational and should not be construed as personalised financial advice. For personalised advice, I recommend you seek a fee charging financial advisor. 
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