Seminar Series: Thinking clearly about investing in a crisis

Barry Coates, founder and CEO of Mindful Money warmly welcomed Mary Holm, financial columnist and author, and congratulated her on her recent award of the Order of NZ Merit. The following is a brief summary of the seminar.

Getting your risk profile is crucial, especially during a crisis. If you are planning on needing your funds in less than three years, you should be in a defensive or conservative fund; within three to ten years, you should be in a moderate or balanced fund; and if you don’t anticipate needing the funds for ten years or more, you should be in a growth or aggressive fund that provides a higher likely return.

The other factor is to be clear about how much risk you are willing to accept. For example, many people have panicked when the share markets went down in March and transferred from a growth fund to a conservative fund. Mary pointed out that most of the losses have subsequently been regained as markets have risen, and people who moved to a lower risk fund missed out on some of those gains.

So you need to think about when you will need your money, how long you want to invest in a KiwiSaver fund, and what risk tolerance you have. There are good tools on the Sorted and Mindful Money websites for working out what risk category is best for you, or use the WOF process on Mary’s website.

1. There has been financial advice during the crisis saying the people shouldn’t panic and should not move their funds to a less risky fund. But Mary pointed out that doesn’t mean you just need to stay in the same fund during a downturn. As shown above, you need to be careful about switching to a more conservative fund that might ‘lock in your losses’, but it is a good time to review your KiwiSaver or investment fund. This is a good time to be looking for the right fund, including looking for an ethical fund. There is no problem with transferring between funds of the same risk category (eg. between growth funds).
2. Mary provided some principles if people are looking for a good investment. They can use Mindful Money’s website to find out what’s in their KiwiSaver fund, and they can look for a Mindful fund using their own preferences and values.
3. When looking for funds, make sure your investments are diversified across different companies and markets; don’t pay too much in fees; don’t assume that past performance is a good guide to the returns a fund will make in future; make regular contributions and invest in steps; don’t assume what happens to the economy will be reflected in share market movements; and don’t try to guess the timing of ups and downs of share markets.
4. Control your money, don’t let it control you. Mary’s recent book, Rich Enough: A laid back guide for every Kiwi offers sound advice about managing your money, but also has the refreshing message that, beyond a certain income level, money itself doesn’t make us happy – it is health, family and relationships that are really satisfying. The book is available on Mary’s website. Barry and Mary welcomed the move towards measures like well-being, instead of relying too much on money-oriented measures like GDP or wealth.
5. In response to a question about KiwiSaver for those over 65 years old, Mary reminded people that longer life expectancy means that people should be planning for funds that they will need to draw on in their 80s and 90s. So they may need a mix of growth funds, as well as more conservative funds for short term income needs.

In response to a question, Mary described her career, primarily as a journalist and freelance writer. She is on a number of Boards, including Financial Services Complaints Limited, which is a free process that can be used by anyone who has a problem with a provider of any financial service.