Wairarapa News : April 17th 2013
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Phone: (06) 377 4165 Email: email@example.com 5312458AA LIFE BEGINS AT 60 5314377AAInvestment for grey Kiwis Piggy bank it: The grey brigade in other countries have more choice and less risk than those in New Zealand. By JANINE STARKS Grey wealth is everywhere: supping wine mid-week, wearing lycra, driving a shrunken BMW and visiting the grandchildren in foreign lands. Where does their income come from? Not the New Zealand Super obviously. Surely they are all in some secret club where an investment guru is giving them the latest tips on generating a juicy income. Unfortunately the answer to the elusive income question is masked by ''the old grey elephant in the room''. No-one admits to our retirees that they are hunting for something that doesn't exist here. If you've never lived outside New Zealand, you're not even aware large chunks of the financial market are missing. You have less choice and more risk than the grey brigade in other countries. We don't have any breadth to our bond market. We don't have unit trusts that invest in local bonds to spread risk for retail investors. We don't have an array of international bond funds hedged into local currency. We don't have funds that specialise in high-yield shares. And the term ''equity income fund'' is met with a blank stare. As for annuities, is there a Kiwi who knows what one is? While I could weep over the lack of choice, we must still be practical and make do with what we've got. But before we get practical, we need to have some perspective so we understand that our risks are often higher than elsewhere. Watch out for barbed wire At a base level, we have the humble term deposit. You stick your lump sum in the bank, ask for quarterly interest if you are retired and wait for the trickle of income. Aren't term deposits the same the world over? Afraid not. We live in a country that allows its banks to write covered bonds, giving big institutions priority over cash if a bank collapses (even Kiwibank has been at it). This isn't allowed in other countries. We also live in a country whose government has failed to put in place a deposit protection scheme. We had a scheme for a brief period in the last crisis but it was removed after bailing out South Canterbury Finance. In all our Kiwi wisdom, we see fit to have no protection and bail out dubious institutions on an ad hoc basis. So even the lowest-risk income-producing deposits in New Zealand have a couple of added layers of risk that retail investors in other countries don't face. And that sets the tone for the rest of the market. Everything comes with an extra bit of barbed wire to catch your knickers on. Bonds, dividends and interest We have a collection of pretty good stockbrokers in New Zealand. They can put together a bond portfolio or a bespoke collection of high-yield shares for those looking for income. Unfortunately they are working in a thin market and having to add currency risk to branch out into Australian alternatives. Is that a sensible solution for a 70-year-old woman with $100,000 who will need regular draw-downs and who is uncomfortable with risk? Probably not, in my view. But it's a question each retiree has to sit down and decide with their adviser or stockbroker. In other countries you could be offered a range of bond or equity- income funds, diversifying risk over hundreds of companies. Plus there might be a tax-free wrapper available and a regular income option built into the fund. While there is no point wailing over options we don't have, the perspective is important. No-one ever eyeballs the elephant in the room and tells 70-year-old men and women that the solutions available in New Zealand really only suit people with a higher-risk profile and quite a lot more money. The devil you know I would fully encourage you to visit a couple of financial advisers and weigh up the investment options they give you. But don't be afraid to pull back to the obvious solution of fixed-rate deposits. You can ask for quarterly interest. You can stagger your deposits, so there is money maturing each year. The grey brigade now accept it is normal and necessary to spend their savings. A lucky someone is going to inherit your newly built house one day. Do they really need your savings, too? You should enjoy your money in the next 10 years, while your health is at its best. Make sure you hold back a good chunk of your savings on call for emergencies and take a look at the more inventive ''bonus accounts'' that are around. Rabo, Westpac, ANZ and BNZ all run them. So long as you top up the account by $20-$50 a month, you can earn gross interest of 4 to 4.25 per cent. Pretty good, when you've got access to your money. This sort of account might be a suitable home for your capital during the building project. Janine Starks is co-managing director of Liontamer Investments. Opinions in this column represent her personal views and are not made on behalf of Liontamer.
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