What have eggs, baskets, advice and the 'missing middle' got in common?

David Boyle shares why diversified funds should be on your supermarket shopping list.

Monday, January 13th 2020, 7:32PM

by Mint Asset Management

David Boyle

Everyone knows the proverb “don’t put all your eggs into one basket”. My mother’s interpretation, when growing up through the depression and war years, was don’t put all your savings into one bank. 

The proverb could have saved many New Zealanders from losing their savings in the 1987 share market crash. Much of that outcome, which was significantly worse in New Zealand compared to other countries, was around lack of regulation, transparency and greed.

More recently, investors were hurt by thinking they had diversified by spreading their savings amongst different finance companies, driven primarily by falling interest rates in banks and cost of living expenses. The return seemed better, however, as we all know, the risks were far higher than the return offered.

It now seems that outside business, residential property and KiwiSaver, those who have built up savings and are nearing retirement are most likely to just leave it in the bank and, on the face of it with all the above, who can blame them?

Going by the Reserve Bank of New Zealand’s website, as at October 2019, household deposits amounted to $183 billion. For many, they see it as the safest place in town. But it can’t protect them from one of the biggest and unseen robbers of wealth, which attacks the investor's future buying power, namely inflation.

So what’s the problem? If we look outside the topic of investments just for a moment and take a more holistic view, the real problem facing New Zealanders is longevity and understanding what impact this has on their financial future.

Going back to my mum’s day they talked about life expectancy being three score years and 10, in other words 70 years of age. I went on Stats NZ website to see how long, on average, I could expect to live and it appears it will be close to 87.

If I was female it gets even better, being 89.4. That's means I would get an additional 17 years or 6,205 days to enjoy life. Which is all well and good as long as I can pay for it.

Living longer is a great thing providing we have our health. Everyone wants to enjoy more time in retirement right? However, the real challenge is to make sure our savings live as long as we do. But you know all of this.

My worry is this growing group of New Zealand investors, which I’m calling the “missing middle”. You might even have some as clients. They have some assets, varying amounts of debt on their own home, KiwiSaver, some savings in the bank and retirement might only be five or 10 years away. 

My fear is this growing group of Kiwis, who have worked hard to get ahead, and can see retirement just around the bend have underestimated their length of life after 65, and could be in for a rude shock.

Compounding their issue are falling bank deposit rates and access to personalised advice, which appears to be far less available than it has been in the past.

There are a number of reasons for this: increased cost of delivery, the declining number of advisers prepared to work with those with under $500,000 in savings, lack of new advisers entering the industry, and would-be investors’ reluctance to pay a fee when they are not fully convinced of the value of advice, all of which have contributed to where we are today.

This is where I see an opportunity for those advisers willing to deliver a level of advice suitable for this "missing middle" and diversified funds could be an attractive option for both you and your clients.

Mint, by way of example, has two diversified funds, the Diversified Income Fund and the Diversified Growth Fund, that allow advisers to simply dial up or down the risk and return depending on the client’s personal circumstances. This means you don’t require a range of different investment options to provide for growth and income needs.

Diversified funds are a great solution to that age-old proverb and, while not suitable for all, they do provide you with a cost-effective way to spread your clients’ eggs, especially for those who don’t require all the complexities of a bespoke approach.


Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement here: www.mintasset.co.nz


Tags: investment Mint Asset Management

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