It is likely there will be many times through your lives that good financial advice will be useful. In over 20 years assisting health professionals, we have seen many different profiles that keep us on our toes, and these are often age related. For our contribution to the first 2021 NZMJ Digest, it may be useful for us to summarise some age-versus-advice profiles in a generalised manner.
Deep in study, you are accruing student debt, working part time to create income when possible and focusing on career opportunities that will become available.
Open a KiwiSaver plan and, if possible, ensure you save a minimum of $1,042 per annum to this account to receive the Government contribution of $521. Complete an investment risk profile questionnaire (available from financial advisers or the KiwiSaver providers online) to understand your tolerance for market ups and downs. If your risk appetite allows, focus on KiwiSaver options with reasonable growth.
If earning capacity allows, consider starting a savings programme in a well-constructed diversified portfolio. This will enhance your understanding of how investments work and help build capital for the next stages of life.
Avoid credit card and hire purchase debt. Though, if already engaged, ensure this is paid monthly and repaid with priority. You will need to understand the difference between “good” and “bad” debt.
You are earning—life has changed! But… the student debt is now understood, and it is large! Get some advice around the advantages of repaying this loan early versus using your income in other ways.
It is likely that you may aspire to buy a home. Consider how your KiwiSaver is invested, and if you intend drawing on this to assist with first home deposit, make sure the investment asset allocation is appropriate (likely low risk, if the purchase is near term).
Budget your income to allow an amount to be regularly saved (no matter how big or small). This will set valuable patterns for future years. Get advice on how different asset allocations are likely to perform and therefore fit your objectives—saving to bank deposit will have far different outcomes to a Sharesies platform of offshore IT shares! Saving for home deposit therefore requires careful consideration.You are young, vibrant, healthy and nothing can go wrong… the perfect time to consider insurance. This is the time to look at options. Your income will be your biggest asset over a lifetime. Does it need to be insured? Where does trauma cover fit in? Should you insure by electing level premiums, or rate for age premiums that increases on annual basis? If a mortgage is in existence, should there be death cover to provide wellbeing for loved ones and dependents? Good recommendations, sourced by looking at all market options, will lead to better decisions and likely save thousands of dollars while also providing all-important peace of mind.
Finance options become important as first home buying occurs or becomes an objective. When you visit your local bank, you will be advised on the options that head office wish their staff to offer. When you use a mortgage broker you will have advice on a plethora of options available that are designed to satisfy your best needs, not the head office.
If indeed specialisation or practice purchase becomes an objective, commercial structuring of loans will be required, which may include backing from existing assets (home) or be predicated on further income. The differences will have significance to you.
The family has arrived. This will impact on income and may impact objectives. An overview of your ability to achieve both short-term and longer-term objectives may be useful for peace of mind (or panic). (Wistful) retirement goals may be coming to the fore, and an early understanding of how this will be shaped provides confidence that, yes, the children do grow up. You will almost certainly need to review insurance cover, and at this stage you could be faced with increasing provisions to take care of the family. The home mortgage (and commercial debt, if any) needs to be in sync with lifestyle, and this may be a time where principal payments are minimised. What effect will this have on repayment timeframe?
Structuring your assets may become important. What are the advantages of a family trust?
KiwiSaver should be re-focused for long-term investment horizon.
Life is following a bit of a pattern. You are comfortable with income cash flow and have a balance between lifestyle and work—well maybe sometimes! It is these times when a good adviser will monitor and measure the strategies you have in place to protect your family, repay debt and save for the golden years.
KiwiSaver should still be focused for long-term investment horizon.
The ability to choose when to retire and support your lifestyle may well be your predominant consideration. If all has gone well, your debt will be repaid in this period, leaving more capacity to spend or invest. What is the best balance that will get you there? Do your investments have the ability to sustain themselves through different market conditions? A decade such as 2000 to 2010, where a net loss was apparent, may prove unrecoverable.
Assets are building and considerations of the implications of buying property versus portfolio investments may need to be made.
Your insurances should be reviewed, although over this period the delight is that often you can reduce cover. Good analysis will provide confidence to do this at a time when, for most, the premiums are becoming their most onerous and expensive.
Are you going to become the Bank of Mum and Dad and help the children? Is the outcome of your largesse measured and understood?
Retirement is a reality! With the help of good advice, you have considerable assets to support you. How should these be structured to provide your needs and defend as necessary against negative (unknown) global events such as we are experiencing at present? Is there a way to take income in our modern low-income world or are other investment options available?
Maybe the complex structures you created to protect against practice risk now need decoupling. Are there tax ramifications that follow? Is your estate planning shipshape? Are Enduring Powers of Attorney and Wills current?
And with your own affairs in control, have your parents got theirs in order, to avoid a future headache for you?
Your adviser should walk beside you in all age categories. Our job is to recommend and then monitor and measure, review and monitor and measure again. There has been independent research advocating that a robust advice process will add up to 4% per annum value over the long term. Hopefully these snapshots have provided a glimmer of thought as to how this may be so.
In future editions of the NZMJ Digest, we will look to break down some of the age group advice points discussed above and share some practical ideas that have served our health professional clients well through the years.
For more information, visit www.nzmafinancialservices.co.nz