Cooking the Books yields wealth of wisdom over course of year
Podcast host shares highlights from talks with money experts
They say that if you can’t do, teach. That’s why as a money novice I’ve spent the past year talking to personal finance experts for the podcast series Cooking the Books.
As the host I’ve tracked down and interviewed these experts about a new money problem each week, often opening up about my own financial mistakes along the way, and pulling out the tips that help average people like you and me do better.
Here are the highlights from the top interviews this year. For the full episodes, check out the Cooking the
Books podcast on the Apple app or I Heart Radio. Don’t forget to subscribe for 2018’s new episodes.
The rookie investor’s guide to the sharemarket NZX head of funds management Aaron Jenkins
Even if you’re a good saver, you need to be thinking about investments if you want to make it to retirement — even if you’re in your 20s like me.
But it can be overwhelming at first, especially if you didn’t grow up in a family that talked of finances.
Jenkins said new investors would find three main fund types.
“Managed funds, as the name sug- gests, are where somebody’s managing that fund portfolio for you. Because of that extra research and analysis ... they typically [have] higher fees.
“An index fund ... just invests on a set of rules.” An example is the New Zealand Dividend Fund. “That’s just a set of rules that says that fund will invest in the 25 highest dividend paying companies in New Zealand over the last year.”
The third one is exchange traded funds, or ETFs. They could be a managed fund or an index fund.
“The benefit of ETFs is that they are quoted on the NZX, so you can see the price of them every day, and you can buy or sell them exactly the same way as you would buy shares in a listed company.”
He said shares were best for those who were thinking about their money over the long haul. But the downside is they are likely to be more volatile.
“So the benefit a fund provides is helping with diversification.”
It was also easier than something like property, where you’d have to sell the entire house if circumstances changed and you needed money.
The New Zealand Top 50 fund launched in 2004 and has since had an average return of 7.5 per cent a year, after fees and taxes were taken.
The false security of KiwiSaver Commission for Financial Capability personal finance editor Tom Hartmann
If your KiwiSaver is in a default scheme you’re throwing money away. You’re going without, saving some money each pay day, but could still be in hard times when you finally retire.
And yet, for the sake of a few clicks at your computer, you could have made the exact same savings and had a cushy retirement.
It’s extremely worrying that 445,000 people are in default KiwiSaver accounts.
The default schemes were never supposed to be permanent. They’re conservative, meaning your money is safe as houses, but you will also likely get very little return.
If you’re in your 20s, you’re possibly throwing away hundreds of thousands of dollars.
Hartmann ran the numbers on me, a 29-year-old on fairly average pay.
If I made the minimum KiwiSaver payments, a best-case scenario for a conservative fund was around $285,000 when I retired. But in a growth fund that leapt by $200,000, to a total of $485,000 when I retired.
Sorted’s Fund Finder makes it embarrassingly easy to sort out the right fund. It asks you a couple of questions, ranks your options, and should have you pointed in the right direction within minutes. Just Google it, it will pop right up.
Hartmann said the single biggest difference you can make for your future is actively picking a conservative, growth, or aggressive fund. It outweighs all the other factors.
Since this episode played, the FMA has also released a helpful tool.
Its KiwiSaver Tracker weighs up fees, risk, and the return you’re likely to get with those factors taken into account. If you Google “FMA KiwiSaver Tracker”, it pops right up.
Becoming an investor for $5 Brooke Anderson and Sonya Williams, two Sharesies founders
I’m personally a huge fan of the share market, especially for young people.
It’s riskier, but that’s good when you’ve lots of time, as you can ride the waves to a bigger eventual return.
But even if you know this, investing when you’re young isn’t so easy.
When you’re young is also when you’re broke. You’re still low on the job ladder, trying to pay off student loans, maybe save up a house deposit, and having a life would be nice too.
So the founders of Sharesies came up with a plan to let people invest for as little as $5.
The platform works on the idea of investing a little bit, often. They give you access to index funds, and let you track how you’re going.
One of the founders, Brooke Anderson, said they knew there was a gap where some people needed easier access to investing.
“With home ownership becoming more and more unobtainable, we needed to help with an alternative way for people to grow their wealth.
“It costs $30 annually to sign up to Sharesies, and that allows you to buy and sell as much as you like.
“For each of the investments on our platform, the minimum is $5.”
Co-founder Sonya Williams said they did six months of customer validation before launch to make sure they got it right.
“What we found is that there was a stigma around investing and the types of people who invest.
“People didn’t know how to get started, they wouldn’t even know where to look, and they were priced out because the minimum buy-ins were too high.”
Since this episode aired Sharesies has continued going from strength to strength. In November they hit over 8400 customers, with $5 million invested through their app.
What to do when the bubble bursts Craigs Investment Partners head of private wealth research Mark Lister
It’s the age-old advice: shares are a great investment for building up personal wealth, as long as you can stomach the risk.
Over 10 years, you’re likely to get a sizeable return. But within that decade, be prepared to grit your teeth through some years where your money goes backwards.
Lister said any investor, whether professional or just starting out, needed to be prepared for this.
“Over the short term, markets are completely unpredictable.
“No one has a crystal ball that works perfectly. If anyone tells you they do or thinks they do, that’s probably the first sign to run a mile.”
Luckily, Lister said, the secret to success wasn’t about trying to game the market in that way.
Playing the long game, and making sure your investments were spread across different industries, was the way to insulate yourself from shocks.
When the podcast was released on July 26, the sharemarket was “up 10 per cent year to date. [But] Fletcher Building’s down 30 per cent.
“So the lesson is, whenever you’re investing in shares, you’ve got to make sure you’ve got a portfolio of companies,” Lister said.
“You don’t want to own just one, or two, or five. You want to own 10 or 15. You want to have a good spread of exposures to different industries.
“Not just the building and construction industry [but] some healthcare, some utilities, some infrastructure, some tech.” Ideally you want some shares in other parts of the world too.
If the value of some of your shares took a dive, Lister said it was important not to panic. “You want to ask yourself questions about ‘ why did I buy this in the first place’, ‘ has the story or the investment case changed’, and ‘ would I still buy it today if I didn’t already own it’.
But for those who hoped a market crash might mean bargains to be had, Lister had further words of caution.
“You don’t know whether they’re going to keep going down further or whether you’ve hit the bottom.
“A good way to do it is just that instalment investing. Steady investment, every week, every month, every quarter, whatever. When you take the guesswork out of it, you end up picking up some bargains.
“The more we overthink things and try to pick where markets are going, the more we run the risk of making bad decisions.”