Article written 12 January 2018
The cryptocurrency bitcoin continues to make the news. What many New Zealanders don't realise is that if they hold loyalty cards like Fly Buys or an air points card, they already own digital currencies.
However, when we read in December of a Wellington waterfront property for sale in bitcoin, and that bitcoin futures recently debuted on Wall Street, the subject of bitcoin and cryptocurrencies warrant consideration as a potential investment option.
What is a cryptocurrency?
Cryptocurrencies are digital currencies which use encryption techniques to regulate the generation of funds and the transfer of funds independently of a central bank.
What is bitcoin?
Bitcoin is one type of cryptocurrency that is produced and stored electronically. It has no intrinsic value – it cannot be redeemed for other commodities like gold – and it has no physical form because it exists only on a network of computers.
Bitcoin is not backed by any government or central bank, it is not regulated by any laws, and it is not universally accepted.
Bitcoin has a high profile because it was the first cryptocurrency. However, because they can be created with ease, as of writing there were more than 1,300* other cryptocurrencies (including ethereum, ripple and litecoin) available on the internet.
Why is bitcoin valuable?
There is a cap on the number of bitcoins that can be created, limiting how much the currency can devalue through inflation. It can be seamlessly transferred between countries. A growing number of people are willing to accept it and to trade with it.
On a more sinister note, Bitcoin also enables crime and terrorist's networks*, like ISIS, because it can be used for transactions that regular banks and governments would not allow.
How does bitcoin stack up as an investment?
Volatile is one of the first characteristics of bitcoin that comes to mind. The US Commodity Futures Trading Commission said in December that investors need to be cautious of an investment that surged more than 1,700% in 2017*. Since the high of December 17, bitcoin was valued at $27,769 New Zealand Dollars. At the writing of this article, bitcoin devalued some 37% to $17,418 NZD on 22 December before going on to ‘recover’ to the current valuation of $20,776 NZD (9 Jan 2018) – still some 25% down on the earlier high**.
Dr Shane Oliver, AMP Capital's Head of Investment Strategy and Chief Economist, labels bitcoin a bubble.
"To me, bitcoin has all the classic hallmarks of a bubble. It started off with some fundamental development, which is favourable, potentially revolutionising the payment system slashing the price of shipping money from around the world.
"But as the price goes higher and higher, investors are buying into it not because of the development but because it's gone up... so it's become very much a speculative bandwagon."***
Other financial speculators are now also drawing parallels to the Tulip Mania that gripped the Netherlands in the 17th Century, when some tulips sold for more than ten times the annual income of a skilled crafts worker, before dramatically collapsing.
What defines a good asset?
Before committing to bitcoin, or any other investment, ensure that it matches the definition of a good asset class. Ask yourself:
1. Does it consistently earn on your behalf? e.g. interest bearing.
2. Is it predictable? e.g. stable, not volatile.
3. Is it widely accepted and in demand?
4. Is it safe? For example, protected by regulation.
5. Is it easy to buy or sell?
If the answer is no to some or all of these questions, talk first to an experienced financial adviser about what investments are best suited to your circumstances.
While investments that don’t have the above characteristics may provide opportunity for positive return, by and large, when dealing with peoples total combined wealth and financial goals, such investments fall more into the speculative and chance category, rather than forming the basis of considered and planned financial planning to meet one’s ultimate goals.
Head of Wealth Management
Tobias Taylor is the Head of Wealth Management for AdviceFirst, a nationwide financial services provider with offices across New Zealand. Based in Hawkes Bay, Tobias is also a practicing Authorised Financial Adviser (AFA) and Certified Financial Planner (CFP).
Your Adviser has a disclosure statement that is available on request and is free of charge. The information in this article is of a general nature only and is no substitute for personalised advice. If you would like advice that takes into account your particular financial situation or goals, please contact your Financial Adviser. The opinions contained in this document are the opinions of the author and are subject to change without notice. Past performance is not indicative of future performance and is not guaranteed by any party. While care has been taken to supply information in this article that is accurate, no entity or person gives any warranty of reliability or accuracy, or accepts any responsibility arising in any way including from any error or omission.
Jacinda Ardern’s announcement of her pregnancy was accompanied by her statement that “I’ll be Prime Minister AND a mum, and Clarke will be ‘first man of fishing’ and stay-at-home dad.” These days, more New Zealanders than ever before have opted to divide the chores. A ‘stay-at-home dad’ or ‘stay-at-home mum’ plays a vital role in family yet, from an insurance perspective, many don’t see it that way.
If the worst should happen to the stay-at-home parent, this would obviously have a profound effect on family life. Maintaining child-care, the home, and providing transport, all these would create some serious personal, financial and logistical challenges. Just consider some of the many important roles the stay-at-home parent may fulfil: cook, cleaner, driver, round-the-clock care for children including when they’re ill, gardener, errand-runner and many more.
What would happen if that person suffered a serious illness or died? While many families believe that the ‘breadwinner’ has adequate life insurance, the other partner is too often overlooked. We believe it’s essential to consider insurance cover for the spouse or partner who keeps the household running smoothly. An insurance benefit payment may help take care of debts, or it could help pay for some of those vital services that a stay-at-home parent performs for the family.
If you’re in this situation with one of you heading to work while the other stays at home to run the household, please be sure to get in touch with your AdviceFirst Adviser as soon as possible. They can discuss options to put together the right plan for you, and your family.
James Polson, an AdviceFirst Client Adviser, recently arranged tailored cover for a couple; the father works while the mother takes care of four young children. “They wanted protection in case the mother became ill with cancer, which is the main concern for a lot of my clients,” says James. “I was able to recommend a range of insurance benefits to suit their situation which has given them the reassurance they wanted.”
James warns “it would be unwise to underestimate the risks of not covering the parent who provides the primary care for a child or children at home.”
For instance, if the stay-at-home parent suffers a serious illness, the financial impact can be huge, especially if the other parent has to stop earning to take over day-to-day household responsibilities and support their ailing partner through treatment and recovery. This is where if the stay-at-home partner had trauma insurance which covered that serious illness, and a claim payment was made, the family would be able to choose how to use that money to help relieve financial pressure.
These days, James spends most of his time helping parents to gain peace of mind by putting a tailored insurance protection plan in place that can help to alleviate the financial burden if the unexpected occurs.
James strongly recommends families get an expert financial adviser to explore the best options that can be tailored to suit each family’s needs. So please be sure to contact your AdviceFirst Adviser.
According to an article in Stuff last year*, KiwiSaver has overtaken the car as most people's second most valuable asset. Average balances are now over $15,000.
And although KiwiSaver is locked away until you reach the age of New Zealand Super, currently 65 years of age, you may be able to withdraw all or part of your savings early including if you're buying your first home, permanently emigrating or suffering financial hardship or serious illness.
But do you really want to have to sacrifice your planned retirement lifestyle?
That same Stuff article stated that in the 12 months to the end of March 2017, $81 million was paid out of KiwiSaver in cases of financial hardship, with 13,790 people drawing out an average of $5,786 to help pay the bills. Another $32m was withdrawn and paid to KiwiSaver members suffering from serious illness.
Sadly, some New Zealander’s may be accessing their KiwiSaver savings early, when suffering from a serious illness, due to having no insurance in place, or a condition which is not covered by insurance, or insufficient levels of insurance. The problem is that this eats into their retirement savings, leaving a lot less in the pot that could be used during retirement.
AdviceFirst Adviser Peter Chote says: “It just shows how important it is to have a well-thought through financial plan in place where life, trauma, health, and temporary disability cover work in conjunction with a retirement savings plan to help you realise a better financial future”.
He adds: “Remember, reviewing your insurance cover regularly is essential. AdviceFirst can help you do that to work out the best plan for your circumstances, simply get in contact with one of our experts.”
"People who want to have choices in retirement will need to have around $100k in their KiwiSaver account by age 30 to be on track, figures from Massey University show.
Numbers crunched by Massey University have revealed how much an individual would need to have in KiwiSaver by age 30, 40, 50 and 60 to afford either a no-frills retirement or more choices."
Click here to read the Herald's full story.
The numbers produced by Massey University have many assumptions about the future. An important thing to do is understand your own situation and if you would like expert financial help with your KiwiSaver account give us a call on 0800 438 238 or send us an email.
To keep you up-to-date with some of the news in the financial markets we've bought you the latest updates from our colleagues at AMP Capital.
Article by Lynette Ball, Authorised Financial Adviser
Many of us dream about the day when we can be free from the 9 to 5 routine. A time when we can do the things that we really want to do, whatever they may be. Suddenly, the day arrives, and, after the office farewell, you retire. So, now what?
Many of us will have wisely planned and worked long and hard to create our financial freedom, and tools such as the Sorted website have helped us reduce debt and build up a decent fund over the years, while KiwiSaver plays its part by topping up savings.
Yet when we finally reach that milestone, we can find ourselves with a new challenge: how to generate an income during retirement. After many years of salary payments reassuringly appearing in our bank account, fortnightly or monthly, this can require a bit of adjustment.
For some, this challenge is further exacerbated by having a higher portion of their overall wealth being invested in the family home. If you’re in this situation, it may mean having to consider some steps to realise some capital to support your lifestyle through retirement.
Then, of course, there are other questions to think about. Although you may have achieved financial freedom, do you actually want to retire? That’s quite a fundamental question.
As a financial adviser, I often hear clients say: “I imagine that the hardest thing about retiring is having nothing to do”. After years of productivity, from school to university to work, a life of meetings and meeting deadlines, it’s easy to see why people become conditioned to a busy work routine. Adjusting to a different pace can be hard.
That’s why some professional people choose to gradually ‘phase’ themselves into retirement, by contracting to their previous employer or taking on a part-time role. It also allows them to delay making any decisions about generating an income.
But sooner or later, it’ll be time to make the call. So what choices do you have if you want to generate an income during retirement, and what are the pros and cons? Here’s a few ideas that spring to mind:
Invest in bank investments
This could include a combination of term deposits and on-call accounts so that you can have your funds in liquid cash to draw from to support yourself. The challenge with this approach is that current interest rates are low, and you will likely see the real spending power of your money go backwards when taking inflation into account.
A large amount of capital can be tied up in a rental property, and the main question to ask yourself is whether the rental property will generate sufficient income to support you during retirement.
Draw-down on capital
Some people need to draw on their capital to maintain their lifestyle. The challenge here is that if the investments are held in growth assets - shares and property - and there is a downturn in the market, you could find yourself realising at an expensive price to support your on-going income. Term deposits can also be a challenge if invested for a longer period with lock-in clauses.
A more strategic approach
Focus on having money available by matching the investment strategy with the timeframe in which cash is required. Funds which aren’t required immediately can be invested in a diversified portfolio such as cash, bonds, listed property, local and global equities, for a higher return. Funds for the short-term can be held in income assets for liquidity. The benefit of this is that it protects the real spending power of the lump sum.
And the strategic approach is my preferred option for the savvy investor who needs to create a regular income in retirement.
To me, the bottom line is to keep an open mind on all investment options. You may discover a better investment match to suit your income requirements. After all, it’s your retirement to enjoy the way you want. That’s the reality.
Many businesses are heavily reliant on the business owners, and if ill-health strikes it can take a toll on the owners, and the business.
Take the story of Rory and Hamish, who jointly own and operate a small business. Some years ago, Rory was unable to work for an extended period of time due to an illness. He had income protection insurance, which financially supported him until he returned to work.
Then the unthinkable happened. AdviceFirst Adviser Peter Chote takes up the story: “Hamish was diagnosed with cancer. Rory was running the business alone, and with the added responsibilities and duties associated with operating the business without Hamish working, Rory became unwell again and unable to work. Both business partners were unfortunately unable to work due to their illnesses for an extended period of time and as they both had income protection cover, they were assisted financially. They eventually returned to work but, in a cruel example of history repeating, Hamish’s cancer returned so he had to take time off for treatment, triggering Rory’s illness.” As you can imagine this has placed growing pressure on the future of their business.
While recovering, Rory, Hamish and their families, received the benefit of their respective insurance cover. The insurance provided vital financial support that helped relieve the financial stress in their respective households during this difficult time.
Peter says “This story shows the importance of thinking about the risks to business and family if illness prevents you from working. It’s also a lesson that it’s essential to keep insurance going over the years – and to review the type of cover and level of cover regularly so that you can make adjustments as life and business change. That’s what these clients had wisely done.”
It’s vital to consider the possible scenarios that may affect you and your business and the impact it would have on your family and business. Understanding the terms and scope of insurance cover available is important too.
Talk to an experienced adviser to put a plan in place, if you haven’t already got a plan, or to review your existing plan if your circumstances have changed.
AdviceFirst’s business clients operate in many industry sectors including manufacturing, software, law, publishing, public relations and various others. Many have chosen us to assist with their business insurance needs, and some of the most common types are listed below.
Let's take a closer look.
This is insurance cover that your business makes available to staff, which may help provide financial support should something happen, and they are prevented from working for an extended period of time, through illness or an accident. There are a number of insurance cover options that may be available to your employees including: life, TPD (total and permanent disability), trauma, income protection insurance, and medical/health insurance.
Group insurance can benefit both your people and your business. For example, an insurance package might be too expensive for an individual employee to pay for themselves, but if you, as the employer, took care of the premiums it may form part of a competitive package that puts your company ahead of other employers who might be only offering a salary to the ideal candidate. It can help you not only attract the right people, but also retain them.
As you know, the most valuable assets for any business aren’t machinery, plant, tools or office equipment. It’s the people. All staff are important, but most businesses will have certain people who are critical to the ongoing viability of the business, including Principals, Directors and senior staff, or those people in specialist roles.
If your business were to lose a key person through illness, injury, or death, the effect on your team and your business could be devastating. Key Person Insurance may help protect your business by providing insurance cover for those employees who are integral to the survival and growth of your business.
Shareholders are absolutely crucial for a business. If you or any of your shareholders were prevented from working in the business for an extended period of time because of illness or injury or death, this can have a significant impact on the ownership structure of your business.
Shareholder insurance could provide financial assistance in the event of a shareholder’s death or disability. A robust shareholder agreement or succession agreement, in conjunction with shareholder insurance are key ingredients for the survival of your business.
Getting the right insurance cover to protect the key risks you face as a business is vital - let us help you navigate the process and ensure you have the right protection in place.
Business Interruption Insurance helps keep your business running when you suffer an unexpected set back.
There are various types of Business Liability Insurance which provide cover for different categories of liability your business may face depending on the nature of the business and who your business interacts with.
The right business property cover can help your business stay on track, even when things aren’t going exactly to plan. Whether for buildings, plant, stock, or other business assets get cover for accidental loss or damage to your business assets.
Your next step…
Let our experienced team of Brokers and Financial Advisers help you sort out your insurance so you can focus on running your business.
Enjoy the benefits of our financial health check, we can identify any gaps and help you get financially on track. Call us today on 0800 438 238 or click here to send our team an email.
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