Two Bay of Plenty financial advisers say there are steps people can take to improve their personal wealth as the cost of living continues to swell and the threat of a recession looms.
Annual inflation remains unchanged at 7.2 per cent, with the main drivers continuing to be household costs, such as rent and maintenance, higher food prices and building costs.
Food prices jumped 1.1 per cent in December and were 11.3 per cent higher than a year earlier — the biggest annual food price increase in 32 years, Stats NZ said last month.
Meanwhile, nearly half of New Zealand’s mortgage debt is due to be refixed between October 2022 and September 2023, and some borrowers are likely to see big hikes in their repayments, including one Rotorua first-home buyer whose monthly payments had climbed from $1500 a month to about $2000.
Forsyth Barr Tauranga investment adviser and manager David McConnochie said the current investment period was a bear market — where the market has fallen from its peak by more than 20 per cent.
He said one of the benefits of investing when the market was down was good-quality assets could be found for much cheaper than at normal market prices.
The rapid rise in interest rates could also reset valuations and provide a better rate of return for investors over the long term and help savers in lower-risk investments like term deposits over the short term.
McConnochie said investors could take proactive steps through this period.
“The investment decisions made during these periods can be some of the most important that people will make through their lifetime, which is where it is wise to seek advice from an investment adviser.
“They can give guidance based upon the client’s long-term investment objectives and overall goals for the future. Whether that’s to buy a house, increase savings into KiwiSaver or make long-term growth decisions.”
Saving and investing are intertwined, and the best piece of wisdom McConnochie could give any investor during this period was that it’s “time in the market, not timing of the market”.
In other words, investors should create and follow a long-term savings and investment plan that reflects risk tolerance, the investment horizon and long-term goals.
“Sticking with this plan can help you prevent panic selling when markets are challenging.
“It’s important to remember investors benefit from owning shares in good businesses which grow their underlying value over the long term. Today’s good businesses have not only endured previous bear markets, but have flourished on the other side.”
McConnochie said it “remains uncertain” as to whether New Zealand will avoid recession.
“It has been a turbulent few years for the global economy and markets.
“We are now in an environment where interest rates have risen 4 per cent over the last 12 months, the fastest in New Zealand’s history, and a negative yield curve now exists.”
A negative yield curve is when short-term interest rates were higher than longer-term rates, a dynamic that normally precedes a recession.
Despite volatility in the market and the uncertain economic outlook, consumer spending and the performance of the companies Forsyth Barr invests in have, so far, largely been “better than expected”, McConnochie said.
The majority of company results came in last quarter ahead of expectation, fuelled by strong sales growth, but higher costs meant profit growth had been restrained.
“This uncertain backdrop is challenging for investors. If inflation continues to moderate and economic activity remains resilient, we expect equity markets will be robust.
“Conversely, if we see a significant recession, it would have a material impact on corporate earnings and put renewed pressure on stock prices.”
Wealth Health financial adviser Craig Coupland said there were a few key steps to getting started investing.
The first was looking over fixed financial commitments, or what Coupland called core expenses - those that need to be paid no matter what, like accommodation, food, utilities, healthcare and transport.
Next, discretionary spending or “items that you’d like to have, rather than need to have” need to be examined with an eagle eye - things such as takeaways, movies, paid TV or subscriptions and going out.
“Rather than cutting discretionary expenses completely, give yourself an allowance each week so you don’t feel like you are trudging on a never-ending treadmill of fiscal responsibility.
“A few years ago, we did this when the kids were little. We had budgeted right down to the last $0.50c each week.
“I’ll tell you, not being able to go out and buy a pie if you want one really is quite depressing, so make sure you build in some ‘pie money’ — it could be coffee, or whatever.”
Other than investments, Coupland suggested trying to boost income, considering downsizing vehicles, structuring affairs more tax-efficiently for those self-employed, checking Government benefit options and not buying Lotto tickets.
He was also a “big fan” of studying, and despite not being “good at school”, he got his life together after the final bell and studied through Massey University by correspondence, doing one paper per year while juggling work and family life.
“The result was a diploma, a better-paying job, and a career I was actually interested in ... Just do the mahi. You only have to do the study once, and then you’ve got your ticket.
“It was hard, and sometimes I wanted to chuck it in, but remember that if you do, then you may not achieve your goals.
“The study and the subsequent job led me to have a 12-year career in the bank, where I learned even more, then I went on to start my own financial advice practice, which is nearly eight years old.”
Coupland preferred taking a long-term approach to investing so that ups and downs were averaged out.
If people were looking to invest in shares, he encouraged people to think about how stable the company was and whether they would be trading in 15 years’ time.
Things like supermarkets and infrastructure - roading, phones, power - were core things that would be around for a long time because people had a need for them.
He said one of the best things people could do was to get professional help.
“Basically, get advice if you don’t have the skills yourself. Honestly, it will save you time and possibly money by not investing in the wrong things, even though you have to pay the professional to do it.”
“Try to ignore your emotions. It’s too easy to make an emotionally backed investment decision. A professional adviser is detached from you personally and can approach and advise things logically.
“A financial adviser is probably going to come up with solutions to issues you didn’t know existed which will benefit you financially, and provide you with solutions that are customised for you and suitable to your attitudes towards taking risks.”
The views and opinions in the article should not be regarded as financial advice, with McConnochie and Coupland suggesting people speak with a financial adviser to discuss investment opportunities.
People aged 60-plus accounted for 55% of all house fire deaths over the past 5 years.