Welcome to the February 2025 Manager’s Perspective! Each month, InvestNow invites our investment managers to discuss our monthly theme. This month, we asked Nikko AM and Harbour Asset Management some questions to help you better understand their investment styles, strategies, and perspectives on Retirement Readiness. Read the questions and their responses below.

Q1: The InvestNow Retirement Readiness Index shows that only half of all New Zealanders have a retirement plan they are confident in – what key indicators and tools should investors use to plan for and assess whether they’re on track for a comfortable retirement?

While everyone’s idea of a comfortable retirement is different, it’s safe to say that everyone will want to have as much tucked away at retirement as possible. This means utilising and maximising the tools available to New Zealanders.

KiwiSaver is a solid foundation and excellent tool for retirement savings. If you are a wage or salary earner and are a KiwiSaver member, contributions are deducted directly from your pay before the money hits your account, sent to your chosen Scheme and invested into the funds of your choice. Psychologically, this is a key differentiator to other retirement tools. Since you don’t see the money in your account before it’s invested, you don’t feel like you are losing something you’ve earned that you might like to spend on something else. In addition, because this money is locked up until retirement, you can’t use these funds for things that pop up. Finally, in most situations, because you have a long-term investment horizon, and you are continuously contributing over this time, your investment is quietly compounding over time. This powerful law of compounding interest can be a significant contributor to your retirement fund.

Here’s an example of how this could work: Let’s pretend that you are 30 years old and making $75,000 a year with both you and your employer contributing 3% of your salary to your KiwiSaver. And, because you’ve reached the government minimum contribution of $1,042 a year, you are also entitled to an additional KiwiSaver contribution of $521.43 from the government. If you invest this money into a high-growth fund returning 5.5% annually each year until your retirement, you may potentially have over $650,000 at age 65. (Note: This is a simplified example and assumes your salary is stagnant and does not include ESCT paid by your employer on their contribution, fees, tax on investment earnings, inflation or variations in investment returns.)

Another great tool for Kiwis to utilise is managed funds. Kiwis have access to a plethora of excellent managed funds that are managed by professional portfolio managers who pool investors’ money and invest in the market; typically through shares and bonds. This means that if you want to invest any excess money in the market without it being locked up until age 65, you can hand the decision-making reins over to an investment professional, rather than needing to buy and sell individual shares and bonds yourself. There are a variety of funds available in the market across risk profiles, geographies, investment styles, etc. Most managed funds in NZ are PIE funds which may be more tax-efficient depending on your individual circumstances. Tax is calculated and deducted on your behalf directly out of the investment based on your PIR rate, the maximum rate being 28%. If you are baffled by the choices out there, a good place to start is with diversified funds, which are a blend of asset classes and securities, based on your risk profile, into one investment vehicle.

While it’s obvious that investing for your retirement is a good idea, choosing what to invest in can be a bit trickier. This is when the final tool comes into play…financial advisers. Throughout New Zealand, licensed financial planning professionals are available to help any Kiwi navigate their financial future. Based on your own personal situation, taking into account factors including your risk profile, investment timeframe, personal preferences, etc., financial advisers are able to lead you down a path and help you pick funds that are appropriate to your own financial goals.

It’s important to also consider these factors alongside the tools:

• Savings Rate: How much of your income are you saving? Aim for at least 10-15% of your income to be saved for retirement.
• Outstanding Debt: Should you prioritise paying this down versus investing? Reducing high-interest debt can free up more money for retirement savings.
• Investment Performance: Are your investments performing as expected? Regularly review and adjust your portfolio to ensure it aligns with your goals.
• Time Horizon: How long until you retire? The longer your investment horizon, the more risk you can typically afford to take.
• Risk Tolerance: How much risk are you comfortable with? Your risk tolerance will influence your investment choices and asset allocation.

By understanding these key indicators and utilising the available tools like KiwiSaver, managed funds, and financial advisers, New Zealanders can better plan for and assess their progress towards a comfortable retirement.

Q2: Our survey also found that 41% of the InvestNow customers surveyed review their investments at least once a year. When undertaking this review, how should investors generally approach making adjustments to their investment portfolios as they progress through the various stages of their lives?

It’s important to stay on top of your investments, know what you are invested in and what the markets are doing. It’s also important to recognise that markets are volatile and, if you are investing for the long-term, don’t get bogged down in day-to-day market fluctuations.

Stepping back and looking at the big picture, it’s also key to adjust your investments as you progress through various stages of your life. This is because as your time horizon changes, your risk profile also changes. While everyone’s personal investment profile will differ based on circumstance, here is a general guide:

• Early Career Stage: During the early career stage, individuals typically focus on building their careers, paying off student loans, and saving for short-term goals. At this stage, investors can afford to take on more risk due to their longer investment horizon, and may like to consider a higher allocation to growth-oriented assets like stocks.
• Mid-Career Stage: In the mid-career stage, individuals often concentrate on wealth accumulation, saving for their children’s education, and investing in a home. As responsibilities increase, it’s wise to consider balancing the portfolio with a mix of growth and income-generating assets.
• Late Career Stage: During the late career stage, individuals generally prioritise maximising their retirement savings and paying off any remaining debts. The focus shifts towards preserving capital and reducing risk.
• Retirement Stage: In the retirement stage, the goal is to generate a steady income stream, preserve wealth, and manage assets to last throughout retirement. Investors should focus on income-generating and low-risk investments.

Q3: What common mistakes do you see individual investors make when managing their retirement portfolios, and how can they avoid these pitfalls?

Lack of Diversification: One of the most common mistakes is not diversifying investments. Putting all your money into a single asset class or investment can be risky. Diversification helps spread risk across different asset classes, such as stocks, bonds, and real estate.

Procrastination: Putting off retirement planning is a major mistake. The earlier you start, the more time your investments have to grow. Don’t let life’s other priorities push retirement to the bottom of the list.

Wrong Risk Profile for Their Age: Investors sometimes choose investments that don’t match their risk tolerance or life stage. Younger investors can typically afford to take more risks, while those closer to retirement should focus on preserving capital.

Not Hiring a Financial Adviser: Many investors try to manage their portfolios without professional help. A financial adviser can provide valuable insights and personalised advice based on your financial goals and risk tolerance.

Panicking During Market Downturns: Market volatility can cause investors to panic and make impulsive decisions, such as selling off investments at a loss. It’s important to stay calm and stick to your long-term plan. Historically, markets have recovered over time, so it’s often best to stay the course.

Underestimating Inflation: Inflation can erode the purchasing power of your savings over time. Factor inflation into your retirement projections.

Retirement planning is a marathon, not a sprint. By understanding the key indicators, adopting a disciplined approach to portfolio reviews, and avoiding common pitfalls, Kiwi investors can significantly improve their chances of achieving a comfortable and secure retirement. Start today, even with a small amount. Don’t hesitate to seek professional financial advice if you need help navigating the complexities of retirement planning. Taking control of your financial future is an investment in your peace of mind.

Disclaimer: This material has been prepared by Nikko Asset Management New Zealand Limited, without taking into account a potential investor’s objectives, financial situation or needs and is not intended to constitute financial advice or an offer of financial products and must not be relied on as such. While we believe the information contained in this article is correct at the date of presentation, no warranty of accuracy or reliability is given, and no responsibility is accepted for errors or omissions including where provided by a third party

Q1: The InvestNow Retirement Readiness Index shows that only half of all New Zealanders have a retirement plan they are confident in – what key indicators and tools should investors use to plan for and assess whether they’re on track for a comfortable retirement?

For people in the accumulation phase of their life, KiwiSaver is a great way to build a retirement nest egg and develop confidence in investing. This is especially the case if your employer pays an extra 3% employer contribution into KiwiSaver for you. KiwiSaver funds also have the tax benefits of a PIE fund, with the tax rate capping out at 28% – and you may be eligible for a government contribution too, currently $521.43 per annum.

But while KiwiSaver is a fantastic tool to help investors accumulate wealth, it was not designed to help people with the mechanics of drawing down savings in retirement.

The problem for many Kiwis is when they reach retirement and need to turn their savings into an income stream which funds the gap between NZ Super and a retirement income that matches their lifestyle. Research by New Zealand’s Financial Services Council (FSC) a few years ago showed downsizing your home may only buy an additional three years of comfortable retirement living.

In order for investors to assess their retirement readiness, they need to think about both how much income they require for the retirement lifestyle they want, and how long their retirement might actually be. A 25-year-old woman in 1990 could have expected to live to 86, whereas a 25-year-old woman today can expect to live to 90 – that’s four extra years to save for.

Tools to check out:

• Sorted.org.nz (run by the Retirement Commission) is a great source for retirement planning tools, including budget planners and retirement calculators. They also provide a Smart Investor tool for comparing different managed funds. https://sorted.org.nz/tools/
• Stats New Zealand provides a ‘How long will I live” calculator which gives you an idea of how long a retirement you might expect to need to fund. https://www.stats.govt.nz/tools/how-long-will-i-live/
• MoneyHub (founded by Christopher Walsh) is privately run website containing information and guides on all sorts of financial topics including KiwiSaver, investment basics, buying a house and insurance https://www.moneyhub.co.nz/

Q2: Our survey also found that 41% of the InvestNow customers surveyed review their investments at least once a year. When undertaking this review, how should investors generally approach making adjustments to their investment portfolios as they progress through the various stages of their lives?

Conducting regular reviews is a great way to check that you are still happy with your investment providers and diversification approach, but generally most investors wouldn’t overhaul their portfolio annually.

Investors could consider adjusting their portfolios based on their financial goals, risk tolerance, and life stage. In your early career, often the focus is more on accumulation and growing your wealth – or possibly on buying a home. Approaching your 50s is often a trigger for a more intensive review of your retirement plans.

As mentioned above, one of the big issues is that life expectancy has risen so people may need to plan for a longer retirement than their parents or grandparents. New Zealanders are often still investing in the same things they were decades ago – but they now need their retirement savings to last them longer. That can only be done by saving more while you’re working, or by getting a better return on your savings.

A key thing when reviewing investments is to ensure that behavioural biases are left at the door. For example, if you are reviewing investments after a big share market fall (or gain), you need to ensure this isn’t biasing your outcome around risk taking.

Q3: What common mistakes do you see individual investors make when managing their retirement portfolios, and how can they avoid these pitfalls?

Diversify (and that doesn’t mean a rental property in the next suburb) and keep invested
A favourite kiwi pastime has been to own a rental property and live off the rent in retirement. Sometimes this can lead to geographic concentration as well as asset concentration – a potentially major risk if a natural disaster hits and damages your entire property portfolio. Consideration is also needed to ascertain whether your budget can withstand any major capital expenditure required in retirement – properties requirement constant upkeep in a way that other investment, like managed funds, don’t.

Look, don’t touch
People tend to panic and try to pull their assets out when their investment portfolios shrink, then buy back in when things are doing well. This behavioural trend tends to mean you are left to take the hits from the shrink, but miss out on the growth that follows. Managed funds are built with an investment time frame in mind. It’s important for investors to think carefully about their risk appetite and the longevity of their investments before investing, including how comfortable they would be riding out waves in the investment market.

Is cash at 65 the right strategy?
Reaching the age of 90 isn’t as rare as it used to be, meaning many could easily spend 25 years + in retirement. That’s a substantial number of years to generate an investment income to cover. A common thing we see is people moving to cash at 65, when their risk profile and investment timeframe could lend itself to more of a balanced approach.

Don’t be afraid to ask for advice
There are hundreds of highly qualified financial advisers in New Zealand who can help design a portfolio of investments to suit your life goals. There are also more digital advice options than ever before, making advice for accessible for everyday Kiwis.

Disclaimer: Chris Di Leva is Head of Multi-Asset and Global Investments at Harbour Asset Management Limited. The contents of this publication are the personal views of the author and are not necessarily the views of Harbour Asset Management Limited. This content is not intended as financial advice. Reference to taxation in the provided information does not constitute tax advice. You should consult your tax advisor in order to understand the impact of investment decisions on your tax position.

Disclaimer

The following commentaries represent only the opinions of the authors. Any views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement or inducement to invest. All material presented is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice.

This article is made available by InvestNow Savings and Investment Service Limited (“InvestNow”). The information and any opinions made within this article are those of the named authors and the organisation that they represent as at the date of this article and are subject to change without notice. InvestNow, its directors, officer and employees make no representations or warranties of any kind as to the accuracy or completeness of the information contained in this article and disclaim liability for any loss, damage, cost or expense that may arise from any reliance on the information or any opinions, conclusions or recommendations contained in it, whether that loss or damage is caused by any fault or negligence on the part of InvestNow, or otherwise, except for any statutory liability which cannot be excluded. This disclaimer extends to any entity that may distribute this article. This article is not intended to be financial advice for the purposes of the Financial Markets Conduct Act 2013, as amended by the Financial Services Legislation Amendment Act 2019. In particular, in preparing this document, InvestNow did not take into account the investment objectives, financial situation and particular needs of any person. Professional investment advice from an appropriately qualified adviser is recommended taken before making any investment decision. 

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