I haven't written any "Weekend reading" articles recently. This hasn't stopped me from collecting a pile of clippings and links. I'll have missed many good articles, but some that are on my pile/list from recent weeks include:
- An interesting article by Rob Stock about how voluntary euthanasia law might impact life insurance. We will see, but if euthanasia is a response to a terminal illness, then it's likely that cover will still be provided.
- Stock also asks the question: "Household effects are getting cheaper, so why aren't we paying less for our insurance?" In short: because we're filling our houses with more stuff. (An interesting aside: if you're using an insurance calculator, consider who has prepared the calculator and whether their incentives are for you to under- or over-insure...)
- Shamubeel Eaqub, author of Generation Rent, explains that he recently bought a house. "The fundamental reason why we paid such an eye-watering amount of money for a house is security." He notes that New Zealand's policy settings could be different, and provide this type of security for renters, if we followed the lead of other countries such as Germany and Switzerland.
- Martin Hawes has been on a good run:
- He says you should "Scrap the fund manager performance fees". He explains that "I like performance but I do not like performance fees". The idea of charging a performance fee for aligning the interests of investment managers and investors "needs to be exposed for the nonsense it is". In short, like everyone else, fund managers should do their job, and shouldn't be paid extra for doing it to the highest of their ability. I couldn't agree more.
- He discusses Claire Matthews' recent study, which indicates that Kiwis need $486k of savings to fund a "comfortable" lifestyle in a big city. He acknowledges that "You need to be careful about all these studies and figures: they are averages and contain a lot of assumptions which may or may not apply to you. We all live differently before retirement - and in retirement we continue to live differently." He points out an important axiom, that "the savings rate usually beats the investment rate". And even if you aren't going to get to $486k, don't give up. Every cent helps.
- Hawes also reminds us that plenty of people work even when they don't need to. In particular, he refers to 2013 Census data indicating that 40% of people over 65 work. It's unclear how many of these people do it because they need to, or because they want to. This is something I've been thinking about A LOT and will return to in this blog at a later point.
- Janine Starks explains that it's not just first home buyers who are going to the Bank of Mum and Dad - it's also "second steppers" who are looking to upsize. (I have to add: if you're looking at helping your kids to buy a home, look at your financial situation to see if you can really afford it. I've seen people do it and really compromise their retirement outcomes by doing so. Also, seek legal advice. If you don't structure it right, your money could end up with your child's ex-partner or you may find that you need residential care but don't have the funds to pay for it.)
- Susan Edmunds continued to be prolific. I'll have missed many of her articles, but some of her articles included:
- Talking about the somewhat paradoxical view that "KiwiSaver members are being told what they really need is a good downturn". While a downturn can reduce your balance, it also means that your regular contributions are buying a greater number of shares and/or units in investments for your money.
- Recent research indicating that many health insurance policies do not provide much cover for mental illness. It's another illustration that not all policies are alike. It's tempting to compare policies on the basis of price, but there are many cases where it's worth paying extra for a higher quality product.
- KiwiSaver providers charging performance fees. She quotes Sam Stubbs (of Simplicity), who quite rightly states that "If some investors knew how much they had paid, they could be quite angry."
- KiwiSaver funds investing in unlisted funds. It's probably not super interesting for many people, except for the fact that she quotes Sonnie Bailey of Fairhaven Wealth (me)!
- Mary Holm continues to educate:
- In her most recent column, she quotes a reader who makes a distinction between types of fee-only advisers. (In the interest of full disclosure, the letter writer was me):
"When it comes to advisers, a characteristic that I think will become increasingly relevant is whether the adviser charges asset-based fees or not (that is, a percentage of the funds under advice).
"Asset-based fees are better than commission, but they still create conflicts of interest. For example, if a client receives a windfall, it makes it harder for the adviser to recommend paying off the mortgage (where they won't receive any ongoing remuneration) rather than investing in financial assets (where they will be remunerated).
"I'm also not convinced that advising someone with a portfolio of $800,000 is four times as hard, time-consuming, or risky, compared with advising someone with a portfolio of $200,000, and that the client should therefore be charged four times the amount.
"Asset-based fees also create a situation where even if advisers don't advertise a minimum initial investment, they are going to be far less interested in a young couple with $50,000 or a retiree with $150,000 than someone who has a lot more money (and might arguably get less marginal benefit from receiving quality advice)."
- The week before, Holm included a letter from a reader who contacted eight advisers from the list of advisers she collates on her website. She emphasised that "it's really worth putting time into finding the best adviser for you". I couldn't agree more.
- At the start of July, Holm gave some sound recommendations to readers about KiwiSaver.