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W & K

Financial Security –A Fact or A Feeling

When it comes to your financial security it is important to be real. You either have sufficient accumulated wealth which is a fact, or you may think that you are alright. That is just a feeling. Ideally your feeling should be backed up by fact. There is nothing wrong with feeling financially secure. Being financially secure is much better. And, of course, there are ways to reduce the risk along the way.

Throughout life we all go through different stages. Unless you expect to inherit significant amounts of assets, the chances are you will have to work to accumulate your financial assets. One of the problems with inheritances, is that you seldom or ever know when you will receive them, nor necessarily the quantum amount.

It is very important to know your numbers. So, when you are building your wealth consider how much you could save per year compared to how much you save. How are your investment assets allocated? If there is non-tax deductible debt, it is normally more prudent to pay this off as quickly as possible. What is the state of your health and what about your parents? Certain illnesses are strongly correlated between generations. Realistically what age do you expect to live to? What is your current age? What age do you expect to retire?

When you are two to five years away from retirement it can be prudent to preserve your wealth by taking a more conservative investment approach. We need to remember that once retired, there can be many years of future funding required. This can mean that there will be a need for a relatively high percentage of growth investments (predominantly shares).

The past decade has seen a dramatic change in the relative importance of the various asset classes. Interest rates were high, with lower quality fixed interest investments several percent high. Often there was a tendency to chase interest rates. The GFC (Global Financial Crisis) struck, low quality fixed interest investments collapsed. Many countries were in recession. Interest rates were actively lowered by Reserve Banks. Investors who took advantage of investing at the early stages of the economic recovery have done well. If they had high quality bonds such as longer dated government bonds they tended to do well.

Currently we still have low interest rates. Share markets are at high levels. There is a risk that should interest rates increase quickly, bond values will decline. Share values could also decline. It should be a time to be very selective in what to invest, and how much risk to take. It may prove be very prudent to seek advice from an experienced financial adviser, especially in these unpredictable times.


Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.