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Falling deposit rates hurt retired investors
 
Q             My wife and I worked hard for many years to accumulate a nest egg (this was before the days of KiwiSaver).  When we first retired we were earning around 8% p.a. which supplemented our NZ Super, but now that interest rates are in the toilet our incomes are dwindling.  We have cash in bank term deposits, plus we have a rental property.  We’re not into the share market as we think that’s too risky for us, and we’re thinking of selling our rental as our returns on it are even lower than our bank deposits.  We were stung with the Hanover Finance debacle, so we’re very gun shy.  Can you tell us where to look for some better options?
 
A.         I have decided to answer your question in this column even though it is not strictly speaking a KiwiSaver question but it is a problem facing thousands of retired folk as interest rates plummet. As you mention, in the past New Zealanders have enjoyed generous bank deposit rates, and we saw not only locals but overseas investors flocking to take advantage. Since the Global Financial Crisis interest rates have fallen and we can expect low rates to continue for some time. Some commentators are warning that rates could fall further, to levels not since the 1960s.

So do you adjust your budget to manage on a lower income, or look for alternative investments? The latter course of action will mean taking on higher risk than a bank deposit. You therefore need to work out your risk tolerance - try the online tool at Sorted. If you are a conservative investor, you may be able to tolerate around 20% of your investments in shares. The key is to be widely diversified. To achieve this, I would suggest that you seek advice as going it alone could lead you to make investment decisions that you later regret. 
 
Only Authorised Financial Advisers (AFA) are qualified to give the sort of personalised advice on investments that you are seeking. If you go to the website of the Financial Markets Authority you will find useful information for consumers such as “How to choose an adviser” and “Tips for working with a financial adviser”.

Finding an AFA is not as easy as it sounds, as the search function on the Companies Office website does not have the capacity to find AFAs in your area. At this stage your best bet may be looking under “Investment Services” in the Yellow Pages. Allow plenty of time for this process. Find an adviser that you are comfortable with and meet with two or three before making a decision. Be upfront and tell them that you are ‘shopping around’. Use the FMA’s “Questions to ask your new financial adviser” which include “How long have you been giving advice?” and “How are you paid?”
 
Most clients of investments advisers have decided to get advice because like you they would like to get ‘better than bank’ returns and are prepared to pay someone to help them achieve that. While rogue advisers like David Ross get more than their share of the headlines, there are nearly 2000 AFAs around New Zealand working diligently to help ordinary New Zealanders with their investment decisions. All AFAs have to abide by a Code of Professional Conduct, the first of which is placing the interests of the client first, and acting with integrity. These obligations are paramount.
 
For readers in KiwiSaver who are approaching the age of eligibility, think hard before closing your account. As long as you keep your account open, you can move between funds. Find a KiwiSaver fund suited to your risk profile from the dozens of funds currently available. Most conservative funds are widely diversified and aim for a ‘better than bank’ return with low fees. They allow for regular withdrawals to your bank account and you can track the value of your savings online.
 
Bank deposits will still have their place so remember - don’t put all your eggs in one basket.

As published in the Hawkes Bay Today 3 August 2015
 

Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 06-8703838 or go to www.peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to
shelley.hanna@peak.net.nz