By Sophie Parish
A panel of financial “heavy weights” discussed and debated investment options and financial risk, and answered questions from a crowd of 150 people at Auckland's St Mathews’ Church in the City in a Money Week event on Thursday night.
Key topics were risk management, the role and advantages of KiwiSaver, how to navigate volatile markets and come out on top with wise investment choices.
Short question and answer segments played during the presentation with ‘man on the street’ videos revealing many kiwis are not financially literate about investments and are still unsure where to invest.
FMA chief executive Rob Everett, finance writer Mary Holm, ANZ wealth managing director John Body, and authorised financial adviser Martin Hawes did their best to answer some of the questions and encourage kiwis to look at various investments and seek advice about where to put their money. Broadcaster and chairman for the debate, Wallace Chapman, brought some humour and important questions to the table.
“The first thing to think about when investing is to figure out what it is you are trying to do and the risks involved," Everett said.
When people were asked on the street about return on investments only one woman could answer the question correctly. Chapman said, “Well that’s a bombshell, only one person knows there is no guarantee on any of those investments on the table, KiwiSaver, supers, shares, bonds and term deposits.”
He asked the panel if that was a surprise.
Holm responded by saying that it is not a surprise but it is a worry. “It is a concern, they might take more risks with KiwiSaver, for example, thinking that if things go wrong the government will bail them out, in fact the government has not said it will.”
High Verses Low Risk Investments
Many kiwis see residential property as low risk. Hawes emphasised; “Residential property is in fact high risk…It's highly concentrated, just the one property in one asset class…Where you are getting high reward and you have been in property in Auckland, not in other areas of the country by the way, but certainly here in Auckland you have been. Then that almost tells you that it is high risk. It has very little income and it is a very opaque investment. My guess is that residential volatility, the ups and downs is probably every bit as much as shares. It’s just not put to the test every day like shares are…”
Holm said there is another point about property where people tend to borrow to invest in property but don’t borrow to invest in shares like they did in the 1980’s. “Once you borrow to invest in anything you raise the risk a lot. The more you borrow the higher the risk.”
KiwiSaver and deposits
Everett said KiwiSaver is relatively new and he is constantly surprised by the lack of understanding about what KiwiSaver does and doesn’t do, and people think the government is standing behind them.
“Bank deposits are a little bit tricky. Obviously there was a period in NZ, not that long ago that …some of the deposits were guaranteed.And other countries deposits are guaranteed up to a certain amount. I think there is an element of confusion that governments are going to back up term deposits and people need to understand that it may be a relatively low risk, safe place to put your money in, but it doesn’t mean the government is going to hand you a check if the bank in question falls down.”
A show of hands in audience revealed most have a KiwiSaver account. Among the people who have opted out of KiwiSaver were fund managers, and an investment advisor who said; “I’ve got my own personal superannuation fund which I manage myself rather than the KiwiSaver plan.”
Body said; “No fund is the right solution for all New Zealanders.Everyone needs to think about their savings, their aspirations, their goals…We don’t believe that conservative is the right default. We think that you should default into an age appropriate group as allocated.”
He said there are many ways to get advice, like speaking to a financial advisor at the bank and using finance tools on the bank’s website. Holm added the KiwiSaver fund finder on the website is a good tool to help investors find out which KiwiSaver fund and provider is best for the investor.
There’s a basic rule, Hawes said that any spare money or capital, money should go to repay debt first. He said KiwiSaver is an exception for people who have mortgages or other debts because the subsidies are good and returns are much better. Holm agreed with Hawes. She recommended putting 3 percent of your pay into KiwiSaver and allocating excess money into the mortgage.
“That’s the smart thing to do,” she said.
Navigating Volatile Markets
Responding to Chapman’s question about confidence levels for investors after the finance companies collapse, Hawes said the most important thing is deciding how to invest.
“There is an old investment saying that your first return needs to be the return of your capital…there is nothing really saving any of us from the odd instance of basically criminal behaviour… I started investing back in the early 80’s through the 80’s boom I suffered the 1987 crash and I have invested all the way since then. In 2011 our financial advisor regulations came in and I sensed the public was starting to gather some trust, and then David Ross came along…I think the public’s trust in the financial services industry took another big hit with that.”
Everett said; “…You can never be sure that you are not going to be ripped off. So you should spend time properly researching what you put money into. More broadly, post-finance company crisis and starting before the finance companies started to go down, the regulatory set up in NZ has been completely overhauled . The FMA as the regulator came out of that, the Financial Markets Conduct Act came out of that, which as it sounds has a significant focus on conduct and the behaviour of people offering financial products.”
A statement made by an audience member at the end of the discussion was the majority of kiwis who need the information were not present, and the people attending the debate were from the finance sector or have a keen interest in investment. Hawes said, “Yes, we are preaching to the converted.”
Money Week is a way to try and reach kiwis and educate them on finance. The panel agreed schools need to be the first source of financial education for young New Zealanders who will become future investors.