Cranfield Investments - Cranfield Blog

Life Insurance Premiums going Up

2010-06-02T04:13:00Z

As we have mentioned on numerous occasions Life Insurance Premiums are going to be going up on 1st July. The best indication of how much the tax change will affect premiums is by looking at how much Level Life Insurance premiums will be going up.

Asteron and ING have both indicated 20% increases for Level Life Insurance products taken out after 1st July http://www.stuff.co.nz/business/industries/3725208/Asteron-Life-increases-premiums this gives you a good indication of how much the increase in premium will be across the board.

Tower, Sovereign, Fidelity and AIA have also come out with their increases so there are not to many companies left to follow suit.

If you act before the 1st July 2010 you can avoid the increases !

Asteron Kiwisaver closes and recommends Grosvenor

2010-04-29T04:04:00Z

Asteron has closed its $33 million KiwiSaver fund and is recommending its 6200 investors transfer their money to the scheme run by Grosvenor

souced from Good Returns (www.goodreturns.co.nz) Thursday, April 29th 2010, 4:03PM

by David Chaplin

The closure of Asteron's KiwiSaver scheme, flagged by Good Returns a fortnight ago, marks the third provider to shut up shop after the Australian-owned EoSaver and union fund IRIS folded two years ago.

Sean Carroll, Asteron managing director, said the firm has recommended its KiwiSaver members shift to Grosvenor because it has a similar funds profile to the Asteron scheme.

"Grosvenor also ensures KiwiSaver investors deal through advisers," Carroll said.

He said under the terms of the deal, Asteron will receive a payment from Grosvenor for each KiwiSaver client transfer to help recover administration costs.

As well, Asteron members who make the shift to Grosvenor will be given a discounted administration fee for a period. Grosvenor will also pay a slightly higher trail commission to advisers than that offered by Asteron.

Asteron members have until May 31 to choose a new provider or they will be allocated to one of the six default KiwiSaver schemes.

Carroll said the decision to close the Asteron scheme was a "logical" one given the concentrated market.

"If you look at the KiwiSaver market, 95% of members are with the top seven providers," he said. "That leaves 45 or so other providers fighting over 5% in a market with very slim margins. There will be further consolidation."

According to Carroll, while the Asteron scheme, which has accumulated $33 million and about 6,200 clients since launching in 2007, wasn't yet profitable but "we weren't losing much money either".

He said while Asteron remained supportive of KiwiSaver for New Zealand it would now focus on its core life insurance operations.

Asteron's KiwiSaver money was largely managed by Tyndall Investment Management, which is owned by Asteron parent, Australian firm Suncorp.

Life Insurance Premiums increasing because of Tax Changes

2010-03-29T02:08:00Z

Life Insurance Premiums are going up - act now to avoid the increase

As of 1st July 2010, changes to the way Government taxes term life insurance products will be implemented and all insurers have indicated an increase of between 15-20% on life insurance policies.

Article from NZ Herald 15th February 2010 click for further information

So what does this mean to me

Level Premium life insurance policies will be exempt of the tax increase *
Existing Stepped Life Insurance premiums will go up from 1st July 2010**
Any new Life Insurance policy or increase in Life Insurance policy after 1st July 2010 will be subject to the full increase in premums

* As long as the insurance company wording mentions this** These will progressively increase over a 5 year period *** This only applies to Life Insurance all other insurance polices are exempt

Can I avoid the tax increase

Yes you can you need to speak to us TODAY about making your Life Insurance premiums level
Making your Life Insurance premiums level means you avoid the tax change increase in premiums

Do I need to change my Life Insurance policy

If you wish to keep your current Life Insurance policy longer than 5 years then you should consider it
If you only want to keep your current Life Insurance policy for less than 5 years then it is probably not worth changing

So what to do next

If you intend to keep your current life insurance cover for 6 years or more we do recommend getting a quote done to see how the changes will affect you and what money you could save
Dont delay as you need to act before 1st July 2010, once that date passes you will not be able to take advantage of this situation to the same extent
The good news is that to make the necessary changes to all of the above, there are no underwriting requirements so it is a fairly simple process

Stepped and Level Premiums - the Difference

Stepped Premiums or rate for age and go up each year as you get older
Level Premiums remain constant and do not go up as you get older (excluding inflation)

Example of the potential increase

Client Dave

Dave a 47 year old man has a $500,000 Life Insurance policy which has stepped premiums currently he is paying $73 per month
In 10 years time based on current premiums he will be paying $207 per month
Assuming the Tax Law increase is 20% then his premiums will be $248 per month
If Dave changed his policy to Level Premiums his monthly premiums would be $190 per month and the premiums on his current policy woluld exceed this amount in seven years time.
His current premiums will triple over the next ten years without taking into account the tax increase

What should Dave do

If Dave needs his life cover contract for longer than the next six years, he should seriously look at converting this to a level premium contract, which are far more cost-effective in the longer term.
A level premium contract will save him literally thousands of dollars in premiums and his premiums will be locked-in for the life of the contract, GUARANTEED. The only increase to this will be if he chose to increase the cover with CPI each year.

Investing lessons from Golf & Blackjack

2009-10-08T01:26:00Z

Sourced from Financial Alert http://www.financialalert.co.nz

by Robert Huebscher | Monday, 5 October 2009

The Lehman bankruptcy was the nadir of a financial crisis brought on by excessive risk-taking throughout the investment industry. Sometimes, however, the problem is not too much risk, but too little. Indeed, research confirms that individuals are hard-wired to avoid certain risks at crucial times - even when, in so doing, they impose costly economic penalties on themselves.

In other words, at key moments people refuse to take chances that will make them money. Behavioral finance has a term for this - risk intolerance.

And, believe it or not, some of what we know about risk intolerance comes from research into two unlikely topics: the games of blackjack and golf.

One putt too late

The golfing research comes from Devin Pope and Maurice Schweitzer, professors at the University of Pennsylvania, who published a paper earlier this year, "Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes". They showed that golfers make par putts more frequently than they do birdie putts, and that this proclivity costs a top-20 golfer approximately $1.2 million in prize money per year.

(In golf, each hole has a par score - the number of strokes expected to complete the hole. Finishing the hole in one less than par is a birdie and one more than par is a bogey.)

The professors studied putts attempted by 200 golfers between 2004 and 2008 - some 1.6 million putts in all. Using laser technology, they measured the length of each putt and showed that birdie putts were made 3% less frequently than par putts from an equivalent distance.

Of course, the value of a stroke is the same regardless of whether a putt is for birdie or for par.

They ruled out alternative explanations for the effect, such as whether golfers could "learn" from observing putts taken by other golfers before theirs, whether the difference could be explained by player ability, or whether it was due to the ball's position on the green or the player's standing in the tournament. After adjusting for those possibilities and others, golfers exhibit a measurable and costly bias known as loss aversion.

Golfers' fear of making a bogey, the research suggests, carries more weight than the potential benefit of making a birdie. As the New York Times noted when it reported the results of the study, that bias affects how professional golfers play, and many of them acknowledge it.

"When putting for birdie, you realise that, most of the time, it's acceptable to make par," Justin Leonard, one such professional golfer, told the Times. "When you’re putting for par, there's probably a greater sense of urgency, so therefore you're willing to be more aggressive in order not to drop a shot. It makes sense."

Even Tiger Woods, perhaps the greatest golfer and arguably most accurate putter of all time, was just as guilty of loss aversion as his competition.

Holding back in blackjack

Gamblers in high-stakes blackjack games exhibit a similar behaviour. Bruce Carlin, a professor at UCLA, and David Robinson, a professor at Duke University, published a study this summer, "Fear and loathing in Las Vegas: Evidence from blackjack tables". It showed that blackjack players suffer from passive mistakes - failures to act when they should.

The professors studied the results of 4,300 hands played during 1,300 rounds of blackjack at a Las Vegas casino. Tiny RFID chips were implanted into the cards and the betting chips in order to monitor and record play covertly and non-obtrusively. This technology, incidentally, now allows casinos to spot card counters with relative ease.

In blackjack, the players compete against the dealer to get to a combined card count of 21 without going over. Players must decide, for example, whether to be dealt another card or whether to hold. A well-known strategy (the "basic strategy") dictates the optimal choices in all situations (card counting aside).

Players make two kinds of mistakes when deviating from the basic strategy - those of inaction and those of an unnecessary (suboptimal) action. The professors found that errors of inaction occurred four times more often than errors of incorrect action, resulting in the phenomenon of omission bias. Most people persist in being too conservative - failing to take a card, for example, when it is optimal to do so.

The economic cost of this bias was significant. For example, on winning hands players following the basic strategy won approximately 20 times more than those who deviated from the strategy.

As in the golfing study, the professors ruled out alternative explanations. Card counting was not responsible, nor could the effect explained by the skills of individual players or by other alternative theories.

"This profound omission bias occurs in spite of the fact that real economic agents are making real decisions with their own money, reaping the rewards of skill and good luck, suffering the costs of bad luck and mistakes," the authors concluded. "The primary reason for this bias rests on the observation that people experience more regret from actions they have taken than from inaction," Carlin said.

Blackjack players are not a random sample of the population, and instead consist of individuals who are natural risk-takers. The authors note that this self-selection amplifies the omission bias - even those willing to take risks err far more often by failing to act.

Implications for investors

These studies confirm some of the basic precepts of behavioral finance laid out by Daniel Kahneman and Amos Tversky in the early 1980s, work that won them the 2002 Nobel Prize in Economics. Fear of loss outweighs perceived gains. Professional golfers don't putt as accurately when going for a birdie (which they perceive as a gain) as they do when trying to avoid a bogey (which they perceive as a loss).

Investors face many situations involving the possibility of losses and gains, and the fear of loss may lead to conservative asset allocations and investment vehicle selections, or to simply saving too much money. Advisers can use this golfing study - which will resonate well with many high-net worth clients - to counteract the tendency to act too conservatively out of fear.

The blackjack study shows that when we make mistakes, those mistakes are much more likely to be a failure to act than a decision to act that proves incorrect. Individuals may delay retirement planning or may put off rebalancing their asset allocations when such action is called for, as other academic studies have shown.

If those mistakes are prevalent among professional gamblers, who make their living taking risks, we can expect that they are even more pervasive among the general population.

Reproduced with permission from Advisor Perspectives. www.advisorperspectives.com

You will soon be able to transfer your Aussie Super to New Zealand

2009-07-16T08:05:00Z

Australia and New Zealand today signed a memorandum of understanding that paves the way for a new scheme that will allow transfers of retirement saving between certain Australian superannuation funds and New Zealand KiwiSaver funds. The scheme is expected to be in place by mid-2010. Whilst there are differences between the two countries tax treatment on savings and also the age in which you can access your funds alot of investors will only be to glad to bring their money back to NZ. This will also prompt people to track down their lost australian superannuation at the same time.

Media Statement 16th July 2009

Bill English

16 July, 2009

Ministers take single market forward, sign up to trans-Tasman retirement savings portability

Australian Treasurer Wayne Swan and New Zealand Finance Minister Bill English today made significant progress towards a Single Economic Market at their annual bilateral meetings held in Brisbane.

The Ministers discussed the difficult global economic environment both nations are facing and noted that both Australia and New Zealand had taken decisive action to cushion their economies from the worst impacts of the global recession.

The Ministers also discussed the already close economic relationship and significantly progressed ongoing work to further strengthen ties.

The Ministers took a number of steps towards achieving the shared vision of a trans-Tasman Single Economic Market.

Today the Ministers signed a Memorandum of Understanding to establish a trans‑Tasman retirement savings portability scheme. This will enable Australians and New Zealanders to transfer their retirement savings across the Tasman when they move. This will make it easier for people to move freely between the two countries and help to return people's ‘lost' retirement savings.

The bilateral economic relationship was further enhanced by the finalisation of the new Australia-New Zealand tax treaty. These changes will be of benefit to both economies and the treaty is an important further step towards an integrated trans‑Tasman economy.

In addition, the Ministers discussed the work being done toward developing an ‘outcomes' based approach to accelerate regulatory harmonisation to stimulate business and create jobs. The approach will be further developed for consideration by Prime Ministers in August.

The Ministers discussed Australia's membership of the G-20 and noted that it is an important opportunity for both countries to influence the global response to the crisis.

Mr Swan and Mr English also discussed progress towards meeting their Prime Ministers' commitment to conclude an Investment Protocol by the end of 2009 to promote trans-Tasman investment flows.

New Zealand is also currently investigating the merits of establishing a Productivity Commission and in doing so has looked closely at the model provided by the Australian Productivity Commission.

Both parties agreed that if New Zealand establishes a Commission then there should be trans-Tasman cooperation between the two bodies.

This will facilitate the sharing of experiences on what policies work best to improve productivity and competitiveness, and also permit joint studies on opportunities to strengthen the Single Economic Market.

BACKGROUND ON RETIREMENT SAVINGS PORTABILITY

The Trans-Tasman Retirement Savings Portability Scheme Memorandum of Understanding would permit transfers of retirement savings between certain Australian superannuation funds and New Zealand KiwiSaver funds.

Participation in the scheme will be voluntary for eligible funds, as well as for individuals wishing to transfer their retirement savings.

The scheme is consistent with the objective of the two countries of creating a single trans-Tasman economic market, as is enshrined in the Australia‑New Zealand Closer Economic Relations Trade Agreement.

Once enacted it will enhance the movement of labour between the two countries by enabling individuals to streamline and consolidate their retirement savings in their country of residence.

In addition, by reducing individuals' exposure to multiple sets of fees and charges, the scheme is expected to support the growth of individuals' retirement incomes.

It will also help reduce the number of small, uneconomic accounts in the Australian superannuation system, which is consistent with the Rudd Government's focus on enhancing efficiency in the system.

New Zealanders who have returned home after working in Australia but have since lost track of their retirement savings accumulated in Australia should use the Australian Taxation Office.

The approach taken in the memorandum will ensure that the integrity of the Australian and New Zealand retirement savings systems is maintained.

The two countries will now work towards enacting the legislation necessary to give effect to this new regime.

What does Medical Insurance cover - what should it cover ?

2009-07-16T07:54:00Z

People are often confused about what Health Insurance should cover or what they are currently cover for so hopefully this article shed some light upon it for you.

The base option of the current policies offered by the main Health Insurers: AIA, ING, Southern Cross, Sovereign, TOWER provides cover for Hospitalisation for Surgical and Non-Surgical treatments. So what are the main exclusions under a base policy:

Cosmetic surgery, medical costs covered by ACC, Emergency admission to a hospital, AIDS to name the main ones

Something to note is that most base policies cover Specialist costs to a certain level if they are several months either side of a surgical operation in a hospital.

So why take out Medical Insurance ?

You get a greater choice of when, where and how you get treated
No added stress to pay for expensive treatments
Avoid long delays in the public health system
Get cover now for health issues which could arise in the future
Get access to the latest procedures and technology

In most cases if you are admitted to an emergency department of a public hospital they will not allow you to move to a private hospital and nor will the private hospital be ready to cope with your emergency. Generally you have the best doctors and surgeons working in the emergency department keeping their skill levels up. However if you have an operation that you know you need which can be scheduled in then this is where your medical insurance comes into play. Having this cover means you can choose where and when you have the operation done.

Some policies cover doctors, optical and dentist costs . Unfortunately a lot of these coverage levels can be quite limited and really is this the number reason why you would take out medical insurance, would this be waiting lists you wish to skip or access to treatment outside the public system? The average dental cover in New Zealand is around $400 per year so if you needed a tooth capped then you are going to be dipping into your own pocket; likewise the optical coverage offered is not adequate.

You end up paying quite a large portion of your medical insurance towards these add-ons and for example we estimate on average you need to be going to the doctors at least 5 times a year to make it worthwhile having this cover financially. And these days with the discounts offered for children and for adults going to their local doctor it often does not make sense having this cover. Many people complain about the cost of their insurance as this is one sure way to reduce your premiums!

In fact the only option we generally recommend adding to a base policy is the specialist option which allows you to pay for specialist costs if you were referred by a doctor - as the base policy will not pay in this situation.

Pre existing conditions depending on the conditions when you took out your medical insurance you may have pre existing conditions which are not covered, this is quite common and each pre-existing condition not covered needs to be assessed whether it is such a big deal to not be covered. For example if your child had an asthma exclusion, in the event of them suffering an asthma attack they would either use their inhaler or be taken to the emergency department to be administered oxygen.

Pharmac Funding PHARMAC is a crown entity and its objective is to secure for eligible people in need of pharmaceuticals, the best health outcomes that are reasonably achievable from pharmaceutical treatment and from within the funding provided. Medical Insurance policies all will pay for treatment that are on the Pharmac list however if you want treatment outside this then out of the current medial insurance products available only ING will cover non-Pharmac treatment. Herceptin until recently was not on Pharmac's list and this was being used for the treatment of breast cancer.

Another example is a lady whom had cancer in her lymphatic system she applied to her Health Insurer for the drug Rituximab which at the time was not covered by Pharmac and not by her medical insurance, her insurers comment was "the public health system should remain New Zealanders' first port of call for cancer treatment". Please click here for the video and here for the article

Being able to Transfer your Aussie Super to NZ could soon be possible

2009-07-08T09:15:00Z

Talks to free up billions of dollars of New Zealanders' assets tied up in Australian superannuation accounts are set to take place next week.

Finance Minister Bill English will meet Australian Treasurer Wayne Swan in Brisbane on July 16 to discuss the portability of retirement savings between New Zealand and Australia.

Currently when New Zealanders work in Australia and move back across the Tasman their compulsory retirement savings are left behind.

Australia's Tax Office estimated last year it had about $A13 billion ($NZ16.6 billion) in 'lost accounts' in the Australian superannuation system.

"We expect that a considerable amount of this money could belong to New Zealanders who have returned home and portability arrangements would allow these funds to be brought back to New Zealand," Mr English said.

If the talks were successful the changes would also allow New Zealanders moving to Australia to move their retirement savings.

The same would apply to Australians shifting across the Tasman to New Zealand.

"Retirement savings portability is part of the wider single economic market work programme, which will reduce impediments to trade and the free movement of people between our two countries," Mr English said.

"Although details are still to be discussed, this stands to be an important step forward. It would allow New Zealanders and Australians to consolidate their financial affairs in the country in which they live."

It was envisaged the new arrangements would apply to retirement savings held in KiwiSaver accounts and certain Australian complying superannuation funds.

Retirement savings from Australia could be transferred only into KiwiSaver funds in New Zealand.

Mr English's annual meeting with Mr Swan would also cover progress with the single economic market programme, discussions about the two countries' new double tax agreement signed last month, along with global and domestic economic issues.

During a two-day visit, Mr English will speak to the Australian Association of Business Economists in Sydney on July 15 and visit businesses with interests in New Zealand.

He will then travel to Brisbane for the meeting with Mr Swan, a speech to the Trans-Tasman Business Circle and a function with New Zealand and Queensland businesses.

Sourced from www.stuff.co.nz on 8th July 2009

Marcus Cranfield is now a Certified Financial Planner.

2009-06-08T05:37:00Z

Marcus has attained the Certified Financial Planner CFPCM. designation in May 2009 which is an internationally recognised qualification and is seen predominately as the highest education level that someone in our industry can achieve. Currently there are around 400 Certified Financial Planners in New Zealand so this shows what a great achievement this is.

To achieve the (CFP) qualification Marcus had to get a Diploma in Business Studies endorsed in Personal Financial Planning from Massey University and then do 2 years of mentorship with a fellow (CFP) to ensure he was meeting the stringent criteria.

This was also accompanied with him doing a 7 paper course through Adviserlink which is NZQA approved - Certificate in Financial Services - this qualification is expected to be the minimum requirement under the incoming compliance laws for financial planners in New Zealand.

Finally he had to submit a Full Financial Plan to the IFA committee who then vote on his plan and give final approval of Marcus being able to use the credential.

So what does this mean for clients of CII Ltd - well it means that not only can they be confident that they are recieving expert advice based on experience but also now based on the highest education level possible. The standards that the (CFP) credential imposes means that Marcus has to follow a very strict process.

Futher information on the (CFP) credential

Certified Financial Planner (CFP) is the financial planning designation recognized internationally as the highest credential for financial planning worldwide. CFP licensees have complied with a stringent set of eligibility criteria laid down and regularly tested by the international body that controls the CFP mark. Only a CFP designated financial planner has the right to use this globally recognised mark. The CFP and Certified Financial Planner marks distinguish that person as being amongst the most experienced and knowledgeable in their profession. The CFP and Certified Financial Planner designation also requires the holder to pursue a broad-based continuing education programme, which ensures their ability to continue to meet your needs.

Swine flu - pandemic or just another flu pandemonium?

2009-04-30T01:15:00Z

As if investors didn't have enough to worry about, concerns about another flu pandemic - swine flu in this case - are now causing concerns globally following deaths in Mexico and it's spreading to various parts of the world. Global sharemarkets have been rattled by concerns about its economic impact. While a flu pandemic - were it to eventuate - would first and foremost be a human tragedy, the economic and financial market impact would also be significant.This article looks at the risks.

The key points are as follows.

Swine flu deaths in Mexico and the spread of cases around the world have lead to fears of a global flu pandemic.
Coming at a time when the global economy is already weakened, pandemic fears have already caused nervousness in sharemarkets and more weakness is possible.
While there is reason for concern, the experience with SARS and bird flu highlight that worst case pandemic fears don't usually come to pass. The world is also better prepared for a viral pandemic now. The key for investors is to be alert, but not alarmed.

Click here for futher information

How long to fix a mortgage ?

2009-04-01T01:47:00Z

How long to fix a mortgage? The pros and cons

Page 1 of 2 11:45AM Wednesday Apr 01, 2009

ASB bank economists have today published their latest home loan rates report, written before Bollard's announcement this morning.

Future cuts in the Official Cash Rate are expected they say, "but they will be more modest in size." Short-term mortgage rates should remain low through this year..

The trade off to make, they say, is between low floating and short-term rates versus paying up for certainty of long-term rates.

"Financial market developments and the sheer volume of shifts into fixed-rate mortgages have driven long-term wholesale rates dramatically higher in a short space of time, closing the window on attractively-priced long-term rates very abruptly."

Long-term fixed rates still offer a high degree of security, though at a cost relative to very low short-term rates.

"Instead of the clearer option to fix for long terms at low rates borrowers now have to think through several possible options: remain floating in case long-term rates subside to a degree; fix for a medium term (e.g. 2-3 years) at a relatively low rate; take the certainty of a long-term rate even if the rate is no longer as advantageous as it was recently. "

If the RBNZ keeps the OCR low through to mid-2010 (as seems to be indicated by Bollard's comments this morning) then the ASB economics team expects floating rates to "remain at a very low level for the next year or more."

In the short term, there is, says the ASB economists, the possibility that long term rates will fall from their March peaks.

"Our core expectation is short-term interest rates are likely to fall further in coming months. Long-term rates might reverse some of their recent surge, but there are no guarantees."

The report lays out some of the pros and cons of choosing different terms for a mortgage:

Advantages of picking a 1-year rate:

- An immediate saving compared to a floating mortgage, as a 1-year mortgage is typically lower than the floating rate.
- Aside from the 6-month rate it is the lowest rate on offer at present.

Disadvantages of picking a 1-year rate:
- Slightly longer terms will provide the benefit of low rates for much longer, on the assumption the Reserve Bank will look to raise the OCR at some point in 2010.

- Conversely, should rates drop further than the RBNZ's latest outlook suggests, you are locked into a higher rate than otherwise for 12 months.

- There is the potential to borrow at an even lower rate over the coming months if the RBNZ aggressively cuts, particularly if the economic outlook pans out worse than current expectations, and the RBNZ takes the OCR below the current expectation of 2.5 per cent.

interest.co.nz's mortgage rates table

The 1-year fixed rate would suit those who prefer some interest rate certainty, or those who will be repaying their debt over the 12-month timeframe.

Advantages of picking a 2-year fixed rate:
- It is around the average Variable Home Loan rate forecast by ASB for the next 24 months, with the added advantage of surety for a longer period than the shorter-term fixed rates.

Disadvantages of picking a 2-year fixed rate:
- Missed opportunity for lower rates should rates decline over the coming months.
- The risk of higher rates after the fixed term, assuming global economic conditions stabilise in line with expectations.

ASB economists say the 2-year fixed rate would suit those who prefer a degree of interest rate certainty in the near-term at a relatively low rate, or those who will be repaying their debt over the 24-month timeframe.

Advantages of picking a 3-year fixed rate:
- Providing interest rate surety for longer.
- An opportunity to lock in rates which are below average or typical during normal economic conditions.
- The rates available now are well below what we would expect over the next 5 to 10 years.

Disadvantages of picking a 3-year fixed rate:
- Missed opportunity for lower rates should rates decline over the coming months.
- The risk of higher rates after the fixed term, assuming global economic conditions stabilise in line with expectations.

Advantages of a 5- year fixed rate:

- It is around the average Variable Home Loan rate forecast by ASB for the next 60 months, with the added advantage of surety for a much longer period than the shorter-term fixed rates.

- It is also below the average term rate available over the last 10 years, so in this sense, remains relatively reasonable.

Disadvantages of a 5-year fixed rate:

- Missed opportunity for lower rates should rates decline over the coming months.

- It is now significantly higher than the shorter-term rates on offer, and higher than the variable rate.

- At around 7.5 per cent it may no longer be the cheapest option over the next 5 years to shorter terms, in contrast to the case when the 5-year rate was still in the 6 per cent plus range.

"What the 5-year term provides is certainty, particularly if interest rates rise quicker, or to higher levels, than our current forecasts suggest. This certainty now comes at a higher cost than it did."

Longer-term rates would suit those who foresee interest rates returning to normal levels within the next few years, and want to lock in below-average rates now. They also, say the ASB economists, suit those who do not see a need to restructure their finances over the loan term.

"Just remember the only certainty about the future is it is uncertain. Which mortgage rate turns out to be the 'best' will only really be known with hindsight."

Sourced from http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10564647 on 1st April 2009

Grosvenor voted NZ's most exciting superannuation company

2009-03-18T23:55:00Z

Grosvenor has topped the superannuation firms sector in the National Business Review’s Exciting Companies Series Awards, beating out some leading fund managers such as Milford Asset Management, AMP, Fidelity, Fisher Funds, ING and others.

The following factors have lead to Grosvenor being deemed a leading innovator in the superannuation market:

A certified member of Buy New Zealand Made,
Outstanding communication material for members and employers
A socially responsible approach,
Competitive returns,
An informative & educational website
KiwiSaver for Kids
Assisting schools and organisation with fundraising
Helping Kiwis locate their Australian Super using Super Tracker

Did you know that one of the biggest one month rises in the market occurred in April 1930, right in the midst of Great Depression - The market rose 48% in just 30 days

2009-03-10T05:02:00Z

Global Markets

At the beginning of the month investor confidence rose, supported by confirmation of the US economic stimulus plan and other measures being taken to overhaul the US financial system. In addition, optimism was buoyed further by the agreement of US lawmakers to the Obama administration’s US$275 billion plan to forestall housing foreclosures. Stabilising the US housing market is seen as crucial to establishing a sustainable recovery for the US and other economies around the world. However, release of economic data that indicated that the US economy was continuing to slow and the fact that the Chinese government did not announce any additional stimulus measures, weighed on market sentiment over the month. However, the Chinese government indicated that 8% growth for 2009 was achievable and confirms the expectation that China, and the Asian region more generally, will lead the world back to growth over the next 12 months.

NZ and Australian Shares

The NZX50 moved in line with offshore markets as reported earnings for some companies reflected the impact of the global slowdown. However, for companies like Fisher and Paykel Healthcare and Pumpkin Patch, the lower NZD has been supportive and boosted earnings. While the Australian market was down, it performed better than other international markets, and the near 2% fall in the NZ/AUD exchange rate helped to further reduce the impact of the market fall in NZD terms. The Australian economy is still only expected to undergo a mild recession.

Interest rates

In New Zealand, short term Interest rates have continued to fall as expectations have increased that the Reserve Bank of New Zealand will cut the Official Cash Rate (OCR) further in March. The slowing of the world economy, and its ongoing impact on NZ economy, supports a further easing in interest rates. Bank term deposit rates are likely to fall below 4%. The NZD was relatively stable over the month trading around US$0.5050 at month end. The currency is likely to remain under pressure given the outlook for the OCR.

It’s always darkest before the dawn

As stock markets have fallen over the last year the price at which investors can effectively “buy” the market has become very “cheap” by historical standards. This is reflected in market valuation measure such as the Price to Earnings (P/E) ratio. For the US S&P 500 index, the level has fallen to around 12 times the value of earnings versus an historical average of around 19 times. This raises the question: Is it a good time to buy?

If we map the relationship between the level of the P/E ratio at any point in time and performance of the market in subsequent years (see chart below) we can see an answer. Looking at the chart we can see historically that when the market P/E has been at similar levels to the current level (10-15 times range) this has normally heralded a very strong period of performance to come in subsequent years. The chart below shows that in any 10 year period since the 1950’s, where the period began in a year where the market P/E ratio was in that 10-15 times band or lower, the return over the next 10 years were, in most instances, well in excess of 10% p.a. Conversely, when the P/E ratio at the start of a 10 year period has been above 15%, the return in the ensuing 10 year period has tended to be under 10%. Given that the current P/E ratio for the S&P 500 index is around 12 times, the expectation is that over the next few years the average per annum return should be strongly positive. It should also be noted that in all but one 10 year period since 1950, equity returns have been positive. Both these points should provide comfort that, if we take a medium term view, the next few years should be good for investors.

Buying when the market is low

Maintaining your investment discipline during down-turns, no matter how testing, is crucial to long term success of investing. In particular, taking a contrarian view and not following the crowd is the key. The chart below illustrates how many investors make investment decisions. Typically they invest following a strong upward trend developing. The problem with this approach is that by the time the trend is visible, the up phase of the current cycle is likely to be almost complete. This leaves investors only taking action to enter the market somewhere near the top of the current up cycle and missing most of the benefit. Then during the down phase of the cycle they typically hold off selling until the market has fallen substantially and succumb to their emotions and sell near the bottom and lock-in losses. This is the opposite of what is required to be successful.

Accumulating equities as the market falls will maximise gains

Typically this emotionally driven selling is what, in part, forces a market to become over sold. We can see this empirically in the graph below, which compares market cashflows and performance for US equity funds. The chart shows that as performance rises the money flowing into equity funds generally rises (1995 to 2000, 2004 -2007). As the market falls (2000- 2003, 2007-2009) money has generally been withdrawn. This pattern of activity tends to crystallise losses and misses the gains from the recovery. It is important to note that markets do move in cycles and have up periods and down periods in response to economic and political circumstances. However, given that the market over the long term has historically always recovered and gone on to make a new high, down periods should be seen as an opportunity to increase your allocation to equity markets at below average prices rather than reducing your allocation and selling at low prices. By maintaining our investment discipline and using market down-turns to accumulate equity allocations we have the best chance of maximising gains.

Maintaining investment discipline

However, no one can pick precisely when a market will bottom. Therefore in managing your portfolio we have been incrementally increasing your allocation to equities as the markets have fallen. Therefore your allocation to shares has gradually increased as the market has progressed through the cycle. When the cycle turns to the upswing phase your patience will be significant and fast as investors scramble to get in. What we also know is that those already invested in the market will get the full benefit of the upswing while those who wait for the trend to be confirmed will have missed most of it before they invest. The following table represents previous market recoveries and the average gains made in the initial stages of the various market recoveries.

PS: Did you know that one of the biggest one month rises in the market occurred in April 1930, right in the midst of Great Depression - The market rose 48% in just 30 days

Update on US Situation

2008-10-02T03:59:00Z

The experts say it's extremely unlikely that a New Zealand bank or its Australian parent will fail.

"The finance company sector was our sub-prime market - that's the analogy," said Mark Lister, head of research at investment and broking house ABN Amro.

"So we've had that - that low quality part of the banking and lending market has already collapsed."

The BNZ's general manager of strategy and marketing, Blair Vernon, said Australasian banks were in a different league to the US institutions that had run into trouble.

Trading banks here were required to have more capital behind them, and disclose far more financial information.

The need to raise overseas money was where New Zealanders would be hit hardest by the turmoil.

He believed the day was coming when floating mortgage rates would be lower than the traditional Kiwi home loan staple, the fixed rate, because of the cost of obtaining overseas money to back those fixed loans.

But credit generally was going to be expensive and that would affect all types of lending.

"I think it's questionable as to whether further cuts in the official cash rate [by the Reserve Bank] will be reflected ... "

The BNZ was advising homeowners not to fix their mortgages for too long. People were moving from the traditional two-year fixed loan to six-, 12- and 18-month terms, Mr Vernon said.

By that time interest rates would have come down and there would be some resolution to the credit crisis. "sourced from www.stuff.co.nz on 1^st October 2008

International Market Update - US House of Representatives rejection of US Treasury proposal

What has happened?

Overnight international share markets fell in response to the rejection by the US House of Representatives (lower house) of the current version of the legislation allowing the US Treasury to purchase around US$700 billion of mortgage backed securities, held by a number of financial institutions, that may be in a loss situation.
The move is important as globally banks have become increasingly unwilling to lend to each other due to concerns about the extent of such debt held by banks and their creditworthiness.
The US Treasury proposal sought to alleviate such concerns through the US Government effectively taking on the credit risk on such securities in exchange for an equity holding in those banks which elected to be part of the scheme.
With the credit risk effectively underwritten by the US Government, banks globally could confidently resume "normal" lending practices and this would be supportive of growth and equity markets.
The first round rejection of the vote came as a surprise to the market and this has increased the extent of the reaction, with the US S&P 500 index falling around 8% in local terms (this was reduced to 6% in NZD terms given the 2% fall in the NZD/USD exchange rate.
The apparent reasons for the rejection are not about the aim or intent of the legislation per se, but more about the desire to ensure the overall effectiveness, that the right disciplines are placed on the market and to minimise the risk that the US taxpayer is being asked to assume.

Points to note

The rejection of this initial proposal is far from being the end of the matter. All US politicians and authorities have pledged to continue working towards a solution, which ultimately could deliver a better outcome for the market, US Government and economy.

There are a number of alternative proposals being actively discussed which are focussed on ensuring that the institutions impacted take their fair share of the losses with the US taxpayer only topping up the shortfall as and when they materialise.
This alternative solution is aimed at restoring confidence to lending markets and facilitating normal lending resuming based on the knowledge that lenders can rely on the US Government as a backstop should mortgage backed losses impact a particular institution.
This process will see a limited number of institutions being forced to seek private sector solutions but may ultimately prove more sustainable and lead to a stronger financial sector.
We expect ongoing consolidation within the banking sector as banks voluntarily arrange to be taken over or merge to preserve shareholder value e.g. JPMorgan Chase and the purchase of Washington Mutual and Citicorp's purchase of Wachovia.
This will also leave the US Government in a more robust position. In the interim the US treasury, along with all other central banks, are taking the central role in normal interbank money market activities acting as the conduit by taking deposits from banks seeking the safety of government guaranteed investment and providing access to liquidity for those requiring it. In addition central banks globally are injecting more than adequate liquidity into the banking system to ensure all banks have access to cash on a short term basis and extending their term lending facilities.
The vast majority of banks are in a sound overall position and therefore such facilities limit the impact of the current liquidity squeeze, allowing them to keep operating and continuing to lend which is important to maintaining growth. In addition the moves already initiated, such as the purchase of Fannie Mae and Freddie Mac by the US government, are also allowing the retail lending markets to continue normal operations.
European governments and the UK government have been moving decisively to assist their own banking sectors, injecting cash or nationalising institutions which have become subject to the liquidity squeeze.

Impact on portfolios has been limited

The impact from the latest move in the underlying markets has again been mitigated to some extent by the fall in the NZD, which has fallen around 2% overnight, offsetting part of the fall in international markets given the international shares portfolio remains 80% unhedged.
All the MIA profiles contain fixed interest allocations and these sectors will be delivering strong capital gains as the yields on long dated, AAA government backed bonds have fallen substantially.

Portfolio returns month and quarter to date

Overall the impact on the portfolios for the quarter remains relatively modest with the Balanced portfolio achieving a flat return for the quarter, as set out below:

Profile	Defensive	Conservative	Balanced	Growth	High Growth
September MTD	-0.7%	-2.0%	-3.4%	-4.7%	-6.9%
Quarter to date	2.0%	1.0%	0.0%	-1.0%	-2.5%

The limited impact of market movements on the portfolio highlights the effectiveness of the ongoing tactical and strategic asset allocation and risk management decisions including:

Largely unhedged currency exposure which has offset much of the decline in offshore markets and has acted as a strong mitigator of offshore volatility. The portfolio remains 80% unhedged.
Long duration fixed interest positions with the absolute highest credit quality of AAA rated government back bonds have benefited from the flight quality which has pushed down yields and provided capital gains.
Being significantly underweight US financial stocks.
The active managers have also added value reducing the impact on the overall portfolio e.g. Warren Buffet's Berkshire Hathaway fund is up 16% over the month.

The outlook

The US political system and central bank authorities globally are actively looking to deliver a comprehensive and sustainable solution which will ensure that those institutions which took the risk around the lending actually bare the cost of those decisions. At the same time this is being balanced against ensuring that the wider US economy is not materially impacted. It is expected that the US Congress will work continuously to achieve a positive outcome and that an alternative solution will be voted on in early October.

In Europe, collective government action is being taken to ensure that where institutions are impacted by the credit squeeze there is an effective solution through cash injection or nationalisation. The achievement of a solution in the US will have positive impact on markets around the world.

Conclusion

While the current decision-making process in the US may be frustrating, ultimately a comprehensive plan is likely to be adopted. When that is delivered we would expect a substantial improvement in market sentiment and this will support a recovery.

Why you need Income Protection

2008-09-04T20:27:00Z

Rather than I rave on about the need for income protection - have a read of this tragic story. If the father had owned an income protection policy then he most likely could have kept servicing the mortgage and stopped the mortgagee sale of his house. Income protection will pay up to 75% of your salary after a stand down period and up to the age of 70 if you are unable to work due to sickness or injury.................Please read the story

Family face ruin over forced house sale

4:00AM Friday September 05, 2008
By Anne Gibson sourced from NZ Herald www.nzherald.co.nz

The couple forced to sell their home received $445,000 but borrowed $540,000. Photo / Martin Sykes

An Auckland family who borrowed $540,000 for their home now have a month to leave after it was sold at a mortgagee auction for $445,000 yesterday.

Peter Cashmore, a real estate agent at Ray White, said: "It was a good buy at that price but I wouldn't call it a steal."

A young man and his father bought the house with a view to upgrading it.

In addition to repaying the bank loan, the family would also have to pay the bills for marketing the property and the agency commission "so they will end up owing a further $120,000 to $130,000 to the bank", Mr Cashmore said.

The family's options were either to work out a draft repayment schedule with the bank or consider filing for bankruptcy.

The couple who owned the house featured on the front of the Weekend Herald last month as the human face of mortgage misery.

They inherited their Kingsland villa eight years ago with a $200,000 mortgage.

The house had been in the mother's family for more than 40 years and she grew up there.

They borrowed a further $340,000 to re-pile, shift walls, renovate the kitchen and spruce up the place.

That meant their total debt to Westpac was $540,0000.

But when the father of the house suffered heart attacks and a stroke, the family was left without an income.

The house still appeared to need extensive work and was marketed extensively as a renovation purchase.

The mother has now moved to Australia to search for work.

Mr Cashmore said he had also marketed another property which went up for mortgagee auction yesterday. The Symonds St apartment sold for $173,000 but the vendor paid $290,000

Launch of our National financial planning firm Camelot.

2008-08-11T01:01:00Z

Camelot tries for credibility in troubled sector

By ROB STOCK - Sunday Star Times | Sunday, 10 August 2008

With the reputation of financial advisers at an all-time low, a new national advice chain launches this week hoping to convince investors that it embodies the codes of duty and honour of King Arthur's Knights of the Round Table.

Camelot combines 11 financial planning firms dotted around the country with more than 50 advisers and $1 billion of funds under management, putting it in the top five of national financial advice chains, excluding the banks.

Its main equity partner is Wellington-based Grosvenor Financial Services, a low-profile funds management company with more than $700m of New Zealand investors' funds under management.

It won't be easy to win the public's trust, following scandal after scandal fuelled in part by commission-chasing, but Grosvenor chief executive Allan Yeo said the advisers in the Camelot chain draw 95% of their investment income from fees.

That meant they were not under pressure to seek out the biggest commissions, a factor in advisers sinking cash into the worst of the failed finance companies.

"Potential clients have become increasingly cautious, even suspicious and they lack confidence when it comes to seeking financial advice," Yeo said. "In today's investment climate, the good guys need to stand up and be seen."

The prices being paid for investment advisory firms reflect public concern about the value of financial advice. While insurance advisory businesses fetch around 3.5-5 times their trail commission income, financial planners are worth just 1.5-3 times.

Yeo said the aim was to grow the chain into the largest financial planning firm in the country.

New Zealand is not replete with untarnished big-brand, national financial advice chains.

Other than the sharebroking firms, two biggies that have steered clear of the recent finance company collapses are AXA-owned Spicers and independent New Zealand Financial Planning, which both use the same fund manager to provide them with investments.

Firms with a more chequered history include Money Managers, whose reputation has been sullied by repeated investment fund failures.

Financial adviser Vestar lost all credibility after investing clients in a shocking list of finance companies that collapsed. It has sold its clients to Gould Wealth Management, which has about $400m of funds under management and 11 offices around the country.