Ultra rich fare no better than us
Moguls average investment returns on par with KiwiSaver’s.
Imagine the Christmas stockings under the trees of New Zealand’s wealthiest individuals and families. Surely cash spouts effortlessly from their fur tops.
While the rest of New Zealand drip-feed their KiwiSaver funds these people have private jets and access to clever investment opportunities on a silver platter.
Right? Yeah, nah. It’s not quite like that.
Agreed, most of them had a big win at some point and they secured their base wealth by taking risk and developing businesses that wouldn’t pass any textbook diversification test.
However, what you find over the long term is they’re doing no better than the rest of us when it comes to growing their money.
In fact many suffer enormous volatile swings, because they continue to have concentrated risks and have nearly wiped themselves out at times.
The figures from the annual National Business Review Rich List paint a picture.
The Todd and Goodman families are underperforming your average KiwiSaver account on a 10-year basis. Their wealth rose by less than half of the 6.7 per cent annual return on a growth fund and the 5.9 per cent achieved by a balanced fund.
Sir Michael Fay and Douglas Myers did no better with their wealth compounding at about the 3 per cent level.
Graeme Hart had a stunning decade at just over 10 per cent a year, but even that will surprise many people, as public expectations are no doubt higher.
Sir Bob Jones is a long-time property investor and topped the Rich List in 1989 at $320 million. He’s now reportedly worth $750m, but over 28 years that’s compound annual growth of a smidgeon over 3 per cent.
If Sir Bob reads this, I’m sure he’d pour cream sherry on my musings and call them fictional trifle. It’s well known what he thinks of the accuracy of the NBR Rich List numbers.
Even I don’t believe a lifetime of commercial property investment resulted in 3 per cent annual growth. What we must remember is he’s bought his groceries, educated his kids and sunk one or two bottles of red along the way. His wealth creation is net of all that, but it still seems low.
It’s also well-documented that the Jones retirement tip for the average Kiwi is not to bother investing. Stuff it all in your house, downsize and move to Nelson, he says. At that point you can invest the excess.
I live in Nelson and I’m about to downsize, but you can be sure as custard I’ve got a proper investment portfolio.
Bob and I come from opposite ends of the investment spectrum. He thinks fund managers are prone to mishaps and mismanaging money. I think developers have a murky idea of the word ‘‘valuation’’ and trip over their lack of liquidity too often.
We can probably just agree to differ, because a fundie and a developer debating who’s the biggest snake will end up with both of us ducking cream pies.
According to the Rich List of 2017, Sir Bob had a good year in property. His wealth is up 15.3 per cent on 2016. It beats my portfolio, which rose 13.3 per cent.
Mind you, my KiwiSaver account (Booster Asset Class Growth Fund) is up 19.52 per cent in the year to October 31. In the interests of full gloating disclosure I should admit it only has a balance of $5000. The lesson in all this? Murky numbers aside, the wealthy have no secret tricks up their sleeves.
While they have money in high volumes, they are often taking a lot of concentrated risk and failing to keep up with a simple welldiversified portfolio over the long term.
I think developers have a rather murky idea of the word "valuation" and trip over their lack of liquidity too often.
❚ Janine Starks is a financial commentator with expertise in banking, personal finance and
funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.