Do you have a financial adviser?
If you don’t, you may want to look into meeting with one. They have the ability to offer you personal advice on how you can manage your wealth responsibly…based on your current situation and future goals.
Where they often fall short, however, is actually making you money.
You see, there are two sides of the wealth management coin: wealth preservation and wealth accumulation.
In other words, making money and making sure you don’t lose your money.
Financial advisers do a great job of offering wealth preservation solutions like low-risk funds…or blue-chip stocks and bonds. The kind of products you might also find in your KiwiSaver; your normal leave-and-forget kind of account.
But, as Interest’s David Chaston reported last year, the annual returns can be disappointing. Chaston looked at the various KiwiSaver funds available…and worked out their effect three-year return.
He found that the top dog was Generate’s Focus Fund at 10.1% annual return. The worst was QuayStreet Asset Management’s 5.0% annual return.
At first glance, you might say that you’d be overjoyed at a 10.1% return.
But you’ve got to consider the three thieves that cut into that number: management fees, service fees, and inflation.
According to Trading Economics, New Zealand experiences about a 1.5% inflation rate each year. That means a $50 note buys 1.5% less stuff at the end of the year, than it did at the beginning. And your portfolio? Same thing — worth 1.5% less than at the beginning.
So you can cut that from your annual return: 10.1% is now 8.6%.
Then consider service fees. These are the slow, typically fixed fees you pay the company to give you an account. Often under $100 per year.
Obviously, accounts with less wealth will feel these fees harder than your big-money players…but it’s something to consider as well.
And lastly, the big chunk goes to your management fees. These are often a percentage of your account balance.
It’s where your financial adviser can claim his cut of your money, even if you don’t make anything that year.
That’s right. This actually happens pretty often. A money manager will fail to beat the market…and sometimes even generate negative returns for the year.
But they still claim their percentage fee…and since it’s based on your account balance, it can be significant chunk.
Fisher Funds just got in a bit of hot water over this…as they charged their investors up to 8.34% annually for their Fisher Funds FuturePlan scheme.
National Business Review was dead on in calling those ‘nosebleed’ fees. It’s going to be darn near impossible to clock in a profit with that sort of burden on your shoulders.
Even that being said, I’d still recommend you meet with a financial adviser. [openx slug=inpost]
For one, lots of them are decent guys in decent businesses that won’t take your firstborn to hold on to your wealth.
And secondly, they’re reliable at preserving your wealth.
So forget gains for a second. Maybe you’ve worked hard for 40 years and you just want to make sure your nest egg gets you through retirement. You’re not as interested in growing that number. You simply need it to last.
In that case, it seems that your top priority is wealth preservation…and a financial adviser could sort you out nicely.
On the other hand, if you’re after a bit of growth, I’d recommend considering managing some of your wealth on your own.
You see, investing isn’t that hard. You don’t need to go to university to learn how. You don’t need to hire a consultant. If you’ve got a bank account with a major NZ bank, you can get up and running in a matter of minutes.
First, you need what’s called a brokerage account. Most banks offer them to their clients. The banks make money by charging a brokerage fee on each trade, but it’s going to be a heck of a lot less than what a money manager would charge.
Plus, once you’ve got your brokerage account, you can begin trading…and you’re able to invest in stocks that would perhaps be too small or too ‘out there’ for your money manager to buy. That’s where the real profit potential lies.
For example, Small-Cap Speculator subscribers have enjoyed a pretty good run since we launched in December. Our portfolio is up 16%+ on average.
That’s double what your average KiwiSaver account would generate over an entire year.
We did it in a month and a half — with two weeks of that time being one of the worst global downslides in recent months. And that’s with subscribers managing those investments themselves in their own brokerage accounts.
When you consider the savings that subscribers are getting by investing that money themselves, instead of through a wealth manager, that 16% number becomes even more impressive.
But here’s the twist — I recommend a bit of both. Diversify; moderate and mitigate; preserve and grow your wealth. If things go bad on the market, at least your preservation holdings will keep you from falling too far.
If things go well, your growth portfolio could rack up some hefty gains.
And if you’re strongly against financial advisers or money managers, consider gold as a time-tested preservation vessel for your wealth.
Perhaps you have property. More than likely, property would fall under a preservation investment (even though I believe there’s a lot of risk to NZ property right now that could jeopardise its ‘preservation’ status).
Personally, I have funds in all three: growth, preservation and gold. Plus, some liquid funds as cash.
If you’re thinking about your own portfolio and you’re realising that you’re all preservation, you’re probably not alone. That’s the simplest route…and the one most people take, especially in NZ.
Consider balancing yourself out with some growth holdings too.
If you don’t know where to start, I’ll shamelessly plug my own research service — Small-Cap Speculator. It’s designed to make investing simple…and I’ll help you discover some of the top opportunities for wealth growth available on the NZX and ASX.
Editor, Money Morning New Zealand
PS: We don’t have any affiliation with any banks or asset managers or anything like that. Neither do we handle any money ourselves. Our goal is to provide you with the best advice we can muster so that you can make the best decisions with your money as possible. If anything, major financial institutions don’t like us because we’re helping folks take charge of their wealth, instead of relying on finance guys to do it for them.