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Property tax: sticks and carrots
Herald on Sunday 16 May 2010
I am sure that this week’s budget will be tough on residential property investors. All the signs point to stopping the ability to claim depreciation and, possibly the ring fencing of property tax losses so that they cannot be offset against other income. This will hit property investors: their cash flow will be diminished and much of the investment case for residential property will have been removed.
I am sure that there are good economic reasons for doing this - as Bill English said to me some years ago: we won’t get rich as a country selling houses to each other. It’s hard to argue with that.
However, there is a problem: one of the reasons that people go into residential property is that they have no other investment ideas. Quite simply, they think that they know and understand residential property (and it always goes up in value, doesn’t it?) and they do not understand any of the other investment options. There are thousands of other investment alternatives: from commercial property to international shares; hedge funds to emerging markets - the list is nearly endless.
The trouble is, Kiwis do not understand these things. As a nation we are expert at buying and renting houses – there are many courses, books, seminars magazines and web sites available to teach you how to speculate on residential property but virtually nothing on the alternatives. Where are the courses on shares? How do you learn about bonds? Who is promoting the case for investing in emerging markets? The paltry response to these questions shows that it is not easy to find a way to learn about anything financial.
It will be hard to encourage Kiwis into investments outside residential property. For a start, there is not a lot of knowledge about the basic principles of investment which means that instead of looking for solid investments with good yields, many speculate on residential property price increases. Second, specific investment options (emerging markets, listed property trusts etc) are not well known and discussed. Third, Kiwis do not trust many investments which involve other people looking after their money. This distrust has some justification – the finance company debacle and some of the weak boards of directors would make anyone start to think about bricks and mortar.
When it comes to education and winning hearts and minds, the real estate industry has beaten the financial industry all ends up.
Government will wave the big tax stick in the budget but that is only part of the job. The Government and other agencies like the NZX have to tell and sell the story of the many very good alternatives to buying and selling houses - there needs to be a major effort to educate the investing public. Residential property is deeply ingrained in the Kiwi psych and to shift behavior, government and the financial services industry will have to point out the carrot as well as threaten with a stick.
KASH your way to wealth
Herald on Sunday 9 May 2010
There are people who spend a lot of time up skilling themselves on the technical side of money management and investment: things like P:E ratios, discounted cash flows, swaps, net present value etc. It is important to know some of this stuff but it is a big mistake to think that financial success is solely about having a good grasp of the hard skills: I know many people who know finance and who are very well informed on the state of the markets but who have not been able to translate that knowledge into wealth.
When it comes to money and wealth, the soft skills of finance are just as important as the hard skills. I have been in the financial advice industry for twenty five years and my experience is that things like discipline, habits, persistence and vision are what make the difference between success and failure. Having the hard skills – technical knowledge – is a prerequisite for wealth but you need the soft skills as well.
A good way of thinking about this is KASH – knowledge, attitude, skills and habits. To create wealth, you need all four.
Knowledge and skills in finance are fairly straight forward – there is nothing terribly difficult about personal finance. Mostly it is about a little bit of arithmetic and learning some jargon. This jargon sometimes seems like a foreign language – Swahili? – but you can take some comfort that it is not an extensive vocabulary and you do not have to be fluent.
It is the “attitude” and “habit” part of KASH which stop people from becoming wealthy – or to be more accurate it is having the wrong attitude or some bad habits.
Our attitudes cover our ideas, beliefs and mindsets and usually come from our upbringing. They guide and drive our behaviors and will stop us from managing our money well if they are negative or defeatist. The book “Think and grow Rich” by Napoleon Hill was first published in 1937 and has sold perhaps 30 million copies. It is a book that mostly concerns attitude and, even though it is now over seventy years old, it is a book that I often recommend to my clients.
However, it is our habits that make or break us – we are, after all, what we repeatedly do. And some of us repeatedly do things that work against our success. This may mean always doing the easy stuff first instead of eating frogs (doing the hard stuff) or perhaps an inability to finish one task before moving on to the next.
In finance, perhaps the best example of the importance of attitude and habits is budgeting. It is not hard to write a budget - the only knowledge and skill that you need is being able to add and subtract. However, the attitude to live within your means is less common and in some groups the habit of spending less than you earn is now quite rare.
It is not usually the knowledge and skills that are hard - ask yourself: what are the attitudes and habits which hold you back from success?
Fixed or floating?
Herald on Sunday
21 March 2010
This is the big question that exercises just about everyone with a home loan.
There are two ways of looking at the fixed or floating question: one way says that you try to profit as much as you can, consistently trying to pick the cheapest rates to save as much money as possible. The second way is about risk reduction, using fixed rates for certainty and to make sure that you never have a cash flow crisis.
You cannot achieve both these objectives at the moment. now has a positive yield curve meaning that short dated money is cheaper than longer dated. For years, ’s yield curve was negative and so longer dated fixed rate money was cheaper than short dated. This meant that you could get certainty (minimum risk) at the best price; taking a two or three year term for the mortgage was a no-brainer. No longer – our positive yield curve means that you can not have your cake and eat it too. Now you have to make a choice.
That choice ought to largely revolve around your own particular financial position – you have to be very clear about what is important to you.
Those who have some fat in their budgets may want to try to profit by picking the best rates. That will mean at the moment they take a floating rate, running the risk of a sudden spike in interest rates which could catch them out (that’s why they need some fat in the budget). Taking a floating rate means profiting right now but you have to plan to leap into a fixed rate before a spike in rates.
This is not easy – when the money markets move, they can move very quickly. Timing is important and if you get it wrong, you could be stranded. Trying to profit is not something for everyone – the risk is high and you have to back yourself to move just at the right time.
If the budget is tight, you should fix. Even though I think that interest rates will stay low for a while yet, when they move it could be that they move a long way and very quickly. If this would make your life difficult, you should fix your rate now – you may profit by waiting but you might also come unstuck – and those with a tight budget can’t run that risk.
I think that most people should be biting the bullet and fixing now. This is not so much a view on where interest rates are heading but instead on most people’s risk profile. In fixing, you should take a ladder approach: split your loan so that some is on 1 year, some on two years and some on three years. Having rates across the yield curve like this means that you are re-fixing a part of your loan every year.
The key is to decide whether you are in a position to try to save money on your mortgage by floating; or whether you are risk averse and need therefore to fix. Don’t try to have split objectives – that just does not work anymore.
Rental Property Depreciation
Herald on
The politicians are not saying so yet, but it looks fairly certain that quite soon property investors will not be able to claim depreciation. There is a national debate on this already – some of it not terribly well informed – and I thought that maybe it was a good idea to remind ourselves why depreciation is important to property investors.
Property investors are deemed to be in business. When you buy an investment property, you buy three things: the land, the building and chattels (carpet, drapes, appliances etc). The building and the chattels are depreciated at different rates and for a property investor, the total claims can add up to many thousands of dollars.
Property investors’ biggest problem for the last few years has been cash flow or, more accurately, the lack of cash flow. The investor usually has a cash deficit on the property – interest and other expenses are greater than rent. However, when depreciation is claimed the loss for tax purposes can be huge and this loss is offset against other income (e.g. salary) resulting in a large tax refund. This tax refund often means that the rental property cash deficit turns into a cash surplus.
I have never properly understood why property investors are so keen on making a loss. Sure there is a tax refund but my basic rule is that you are better to make a profit and pay some tax than make a loss and pay no tax.
In reality, most property investors are so desperate for cash flow that they do not think about long-term value. In many cases, depreciation is real enough and although the tax refund for being able to claim depreciation on the carpet may help cash flow and pay loan costs, the carpet does indeed deteriorate and will need to be replaced sooner or later. Claiming depreciation is therefore only a temporary cash flow fix not a permanent solution to investment difficulties.
This is particularly so when you remember that any depreciation that is claimed that turns out not to be real has to be repaid to the IRD when the property is sold. In this respect, the investor gets a temporary cash flow advantage but the positive cash flow is often not a genuine profit.
Property investors need to remember that one day either the carpet (or other assets) will need to be replaced or the depreciation will have to be repaid – depreciation claims and tax refunds are not a permanent solution to cash flow difficulties.
Property investors will rail against the elimination of deductible depreciation but in the long-term it just may turn out to be a very good thing for them. Investment 101 says that tax should never be a reason for an investment because the rules can change. When depreciation on property is abolished, investors will have to look at the real numbers behind their investments (especially rental yields) not the fake temporary ones that have been produced by tax refunds. That ought to make them more astute investors.
The real problem with residential property is that it is currently not a good investment –rental income is too low. A tax refund from depreciation may mask that problem, but it does not turn a poor investment into a good one.
Asset Allocation
Herald on
Managed funds are continually in the news now – and with over a million people in KiwiSaver, this will be the case for the foreseeable future. This is a good thing – I always thought that one of the positive effects of KiwiSaver was likely to be that with so many people invested in managed funds, we would think (and talk) about them a lot more. Kiwis do need to learn about investments other than property!
I have noticed that my mail box has had more and more questions asking about what is a good fund and what is not – and , of course, which funds investors should be in and what they ought to leave alone.
There are a lot of factors that should determine the fund you invest in: cost, reputation and skill of the manager, etc. However, there is one thing that stands head and shoulders above all others: the kind of things that the fund invests in.
This is called asset allocation and is by far the biggest determinant of the performance your fund. Occasionally, a manager may have an eccentric investment strategy – for example, Huljich invests 13 % of its fund in a small company called New Image – but assuming that the manager stays fairly well in the main stream, returns will be mostly determined by asset allocation.
Asset allocation is the proportion that goes into the main asset classes. The main asset classes are shares, property and bonds/deposits and it is the way that these are apportioned that you as an investor need to think about more than any other. A fund which is 50% bonds and 50% shares is likely to give completely different performance (risk and return) than one which has, say 80% in bonds and 20% in shares (again, assuming that the manager has not done something seriously strange).
Each of the asset classes has different risk/returns characteristics and it is the way that you mix and match them that will make the difference. You should think of the asset classes as the big building blocks of the portfolio that you are constructing – whatever else that you do (specific investments or timing) are mostly just fine tuning.
So, someone investing for a long period of time (say, a thirty year old investing for retirement in 35 Years) would look first for a fund which has a high proportion in shares and property and only then consider other factors. However, a 22 year old who is going to access her KiwiSaver account to buy her first house in five years, does not want volatility so should only look at funds which invests in cash and bonds.
It is the asset allocation of the fund that makes the greatest difference and it is this that you should worry about more than anything else. No matter how brilliant, a fund manager invested mostly in shares will experience a lot of volatility – and even the best fund manager who is only in bonds cannot get better long-term returns than an average share fund.
Huljich
Herald on Sunday
28 February 2010
KiwiSaver is important to this country – the scheme’s integrity and ultimate success are vital. It is important because it could provide a large investment pool for this country, many people are depending on it for their retirement and, most importantly, if the funds are well managed, it may give much needed trust to the financial services and fund management industries. Many people distrust these industries with some justification (this is one of the reasons that property investment has been so popular) and with over one million people now invested in a KiwiSaver scheme, there is a real opportunity for fund managers to show that they deserve the public’s trust.
I am disappointed, therefore, to read of what has gone on in the Huljich KiwiSaver funds.
Huljich is NZ’s largest KiwiSaver fund - but I wonder how many of its 70,000 members realize it is basically a type of hedge fund, looking for absolute returns regardless of the direction of the markets.
Huljich’s prospectus says it uses an absolute return investment strategy – i.e. it does not measure itself against any commonly accepted benchmark or index. This is clearly spelt out in the prospectus but I do not think that many people would realize that absolute returns funds are completely dependant on the skill of the fund manager.
Hulich Board members (Peter Hulich, Don Brash and John Banks) are all very successful people in their own fields; however as far as I know, none has a background in fund management or investment expertise. I wonder what their governance and investment processes are like – are they using best practice in looking after other people’s money?
Two things are disquieting:
First, Huljich sold privately owned assets into the fund cheaply to try to make up for the losses that the funds had taken. Huljich claims that this transfer was made with all the right intentions (Peter Hulich felt morally responsible) but the effect made the returns on the fund look better than what they actually were – encouragement for people considering which scheme to join to sign up with Hulich.
The second thing is even more worrisome: according to media reports, Huljich has a huge 13% of its KiwiSaver funds invested in just one asset. It may not be so bad if this asset was a big, well established and stable company; however, the asset that makes up such a large part of the fund is shares in something called New Image – a small company whose shares are not easily traded.
The Huljich Investment Statement says that when markets are volatile, they will weather such storms by going to cash. They will really struggle to go to cash with their New Image holding.
There are only about 230m shares on issue in New Image and most of these are locked up in a few hands. Huljich would not find it easy to sell its holdings if that became necessary. This New Image investment may or may not be successful for Hulich and its investors - the way that these particular dice fall will make a big different to the profit or loss the funds make.
Investing other peoples’ money is not the same as investing your own: I may take an oversized punt on something like New Image (in fact, I probably wouldn’t) but to do it with other people’s money which is in trust is reckless to the point of negligence. In managing the public’s money as is the case in a KiwiSaver fund, a prudent person would have no more than 5% (maybe less) of the fund in a single asset. By any standards, 13% of a very small company is way out of line.
Investment markets only work properly when the rules are clear and applied consistently. KiwiSaver funds have no government guarantees and with so much of the public’s money likely to be invested in them, they should be tightly regulated and those regulations strictly enforced. If that means closing down a fund or two, let’s do just that. There will always be investment failures and losses – but KiwiSaver is far too important to further these expected losses by allowing governance and regulatory failures.
Don’t buy shares
Herald on Sunday
21 February 2010
I don’t think that investors should ever buy “shares”. Thinking of buying some sort of commodity called “shares” is misguided and puts you in danger of forgetting what you are really doing – which is buying into a business.
It is a strange thing about Kiwis: we are adverse to buying shares but as a nation we go into business as readily as almost any people I know. We are frightened of shares mostly because the sharemarket crash of 1987 lives on in our collective memory. Nearly every family has someone who was badly affected and has a patriarch or matriarch who still warns everyone who will listen against shares.
And yet, Kiwis have no problem with setting up their own businesses – if anyone losses a job, gets sick of their manager or has a bright idea, they are off to their bank manager for an overdraft and to the Companies Office to set up a company as quick as you can say “I’ll be my own boss”.
Kiwis have to start to think differently about shares. Instead of thinking of them as some commodity called “shares”, we need to think of them as a business. Shares are simply a vehicle to buy a part (or a share) of a business. Certainly you are buying into a big business, and you do not have the control that you have if you had started a small business yourself, nevertheless the drivers for success are just the same.
The volatility of shares frightens many people. However, although the share price may fluctuate a lot, the value of the underlying business that you have bought into usually maintains its worth regardless of what has happened. The share price may gyrate as the reef fish which make the market flee in terror or swarm with greed but the actual business carries on much the same. A couple of bad years, especially if caused by a recession that will end sooner or later, ought not affect the long-term health of the business itself.
I think that it is always a good idea for share market investors to assess the companies that they are buying as if they were buying the entire enterprise. Of course few people reading this would have the $3.7 billion necessary to buy all of Contact Energy but it is a good exercise to ask yourself whether that is what you would do with your money if you had it. If you decide that this is not a business that you would buy in its entirety, then you should not invest your $5,000; however, if you would buy the whole business, then it is worth buying a share in it.
People are right to fear the volatility of shares and to remember the share market crash of 1987. However, bear in mind that shares are simply ownership of a business and that governance, management and regulation are much better than they were 20 years ago (even though they are still not perfect). Provided you are a long-term investor, you can largely afford to ignore the volatility and collect the high returns that shares give.
Managed Funds performance
Herald on
The answer to Mr. Taylor’s question is that Kiwis do not trust managed funds. Part of this is certainly that some funds have given poor returns, however these poor returns are by no means universal – some fund managers have given excellent returns: Mr. Taylor is not alone in making good money for investors, there are many funds that have done very well over long periods of time. It is quite unfair – and a bit stupid – to tar all fund managers with the same brush.
The thing that many investors do not understand is that investment returns and investment risk come from two sources: first from the market average return and second from fund managers trying to beat that average. The average risk and return from the market is called Beta and the performance of the manager is called Alpha.
Most investment returns and losses come from Beta – i.e. the market performs at a certain level and this dictates most investment performance. You can neither give credit nor blame to the fund manager for this; it is just the way that the market performs. There are lots of managed funds, passive index trackers, which duplicate the market average - getting Beta is as easy as buying into the passive index trackers that represents your market of choice (equities, property, emerging markets etc)
However, actively managed funds try to get Alpha – i.e. the managers try to beat the market to give returns that are better than average. You can certainly give blame or credit for how the fund deviates from the market average. Some are stunningly successful – Mr. Taylor’s fund is very successful (albeit with no long track record as yet) however, there are also plenty that under perform the market and cause investors a lot of grief.
In my experience, Kiwis do not seem to distinguish between alpha and beta – they judge managed funds on the basis of absolute performance without reference to the index (i.e. the market’s average performance).
And this is the nub of Mr. Taylor’s problem- he is providing investors with plenty of Alpha and so can’t understand why his fund is so poorly subscribed. However, Kiwis have seen market slumps and poor fund management performance and lum
As investors, we have to be very careful to compare fund managers’ performance by looking at how they have done against their benchmarks – and then trust the ones who do well while rejecting the rest.
(Herald on
There is now little doubt that there will be changes to the taxation rules for residential property investment and that this country is not going to see another residential property boom for a good while. With rental yields so low and little prospect of capital gain, many smart investors have already reduced their exposure to housing and have started looking for better investments.
I am sure that the housing market will wobble around a bit in the coming years – there will be some ups and downs but mostly it will probably just go sideways. Speculators and traders may make a bit of money but serious investors know that the current shortage of listings is a good time to leave the markets (if they haven’t already). There simply are not good enough returns in this asset class and there are far better things to invest in.
It is time for investors to start to learn about some of the other investments. In the past our default setting has been to invest in “easy” investments like finance companies and residential property. These investments have been easy in the sense that they are not hard to understand: finance companies were simply small banks and residential property investment is just like our own homes. It took a crash to teach us that small, unregulated banks which only pay a little more interest than a proper bank was not a good idea. And many people are about to learn that the low yields with no capital growth make housing a pale imitation of real property investment which is commercial property.
So, what investment areas should Kiwis be learning to invest in? My answer to that is that we should join the rest of the world and invest in commercial property and in businesses via the share market.
It is unknown whether commercial property will be brought into the same tax rules as residential property investment – I would guess that it will be treated differently but I don’t really know. In any event, taxed more heavily or not, commercial property works quite differently from residential property and makes a much better and more profitable investment: it has much higher yields and it is generally bought and sold on the basis of those yields rather than whim and fashion as is often the case with housing. Management of commercial property is easier and tenants on the whole better to deal with.
The trouble with commercial property is that they often require so much money – many of us cannot but into good quality commercial property by ourselves. The solution to this problem is to buy into Property Trusts, many of which are excellent investments and, thanks to the PIE regime, tax efficient.
It is harder to convince many Kiwis of the virtues of share investment – the 1987 Crash is still a painful memory. However, the conditions and lack of regulation that led to the crash are no longer with us.
It is true that shares will always be a volatile investment. However, for long term investment, even with the ups and downs, it is hard to beat buying into a business. And that is how we have to see share investing: we are buying a business (albeit only a share in a business). Sure the price of the shares may jump around, but the value of good businesses generally stays fairly constant.
I think that there may well be considerable volatility of share markets this year: smart investors will view that as a good opportunity to buy into some good businesses.
Kiwis need to take a fresh look at their investment habits and re-learn some of them. The easy, default option of buying residential property does not look like a good deal anymore.
(Herald on
For years I have known that New Years resolutions are a waste of time – even as a small child I knew that such resolutions were soon abandoned and forgotten. And yet I have long set goals for myself and known well that they are very powerful for achieving things that are important.
The difference between resolutions and goals is that one is statement of what you are going to do (the resolution) while the other is your desired outcome (the goal). Thus a statement like “I will spend less and live to a budget” is quite negative and will not be as successful as “I will have $5,000 in the bank by the need of the year”. The goal is worded positively – a statement of where you want to be and what you want to have is a far greater motivator. Sure, you are still going to have to live to a budget to have the $5,000 but keeping that attractive outcome firmly in your sights is much more likely to be effective.
We all need help to do the hard stuff. Whether it is the diet, to get fit or have better finances, the best help that you can have is a goal that is framed in a positive way. A bald, negative statement of what you will not do does not give the motivation of a clear and desire able outcome.
When I am helping clients with their finances there are many things to consider – investments, insurances, debt reduction etc. However, I think that the most important and valuable thing that I do is to establish their long term goals to give them a focus for what it is that they are trying to achieve.
This may be something like: “we will have a net worth of $750,000 by 2015” or “we will have a mortgage free house by the time we are 45”.
Goals have to be specific and measurable – they are numeric and so a hard and fast reflection of whatever it is that you want. They also have to be achievable: there is no point in having a goal that is arbitrarily plucked out of the air. Goals need to be relevant to the things you want in life and should have a time limit for when they will be achieved.
However, most importantly, goals should be in writing. A goal that is committed to paper cannot be fudged – you cannot fib to yourself about whether or not you achieved a written goal. You know that you will have either achieved it or not – the written goal is unambiguous and there is no middle ground - and for most of us this will mean that we will do whatever is necessary is necessary to realise our ambition.
Resolutions (what you will do or not do) simply don't work. Decide on the result that you want whether it is to be healthier, slimmer, have a happy retirement or have more money. Put it in a form that you will know whether or not you have achieved it, write it down and keep it somewhere so that you can see it regularly.
Predictions for 2010
(Herald on Sunday December 2009)
I hate those reviews and previews that are so prevalent in the media at this time of year. So it is with some apprehension that I sit down to write just such a piece. For the most part I will not review the last year – I can fairly safely assume that you were there so hopefully will remember what happened.
Let’s think then about the coming year and (most dangerously) make some predictions for what might happen. I think that we should think about three things:
First, there will be no boom in house prices – in fact, if anything the risk is on the downside for house prices and they could finish 2010 at lower levels than they started the year.
Government will simply not allow house prices to rip away again. Already there is talk of taxing the housing sector more heavily and any sustained increase in house prices is bound to be met with strong action on interest rates and with new taxes. I expect new taxes to be targeted mostly at rental properties however it is possible that owner-occupied housing may also be included. Moreover, housing is over-valued on most fundamentals and astute investors have been sitting on the sidelines refusing to buy knowing that there are better investments available. Increased interest rates and new taxes on housing will mean that sophisticated investors remain as spectators for longer yet.
My second prediction is that share markets around the world will take a big hit. This could be sooner rather than later and may be precipitated by another wider economic slump. The global economy is quite fragile and there is still a great deal of toxic debt that had not yet been resolved.
Share valuations seem to me to have got ahead of the insipid economic recovery that we have had and if the recovery does not gather pace, shares will drop sharply. This is especially so in where shares seem particularly overvalued and vulnerable. I have always liked emerging markets as investments but the high returns that they offer come with a lot of volatility.
I think that smart investors will keep their powder dry at the moment but use the slump when it comes as a wonderful opportunity to buy good companies at bargain prices.
Finally, in expect some new bond issues. It is still not easy for businesses to borrow from banks and our bigger corporates will solve this problem by going direct to the public and issuing bonds. (With the finance company sector effectively gone, smaller businesses will continue to go hungry).
There is an expectation of higher interest rates next year, and so bond issuers will need to offer decent rates to attract investors: I expect rates above 8% for good corporate bond issues.
The last year has not been good but do not expect to go back to “normality” – not, at least, if your idea of “normality is the consumer binge that we had in the lead up to the recession. The next year will be hard scrabble for many although savvy investors who are patient should do very well.
I do not think that it will be very long before commissions paid for the sale of investments will be banned in this country. In the last few months there has been a sea change and the tide is now running very strongly away from those who sell investments on a commission basis. Financial advisers would be well advised to take note and start to think about the business models that they have.
In July of last year I wrote a column in which I said that financial advisers would never win the respect of the public or be regarded as a true profession until they changed the way that they were paid. At the time, there were not very many people in financial advice industry who agreed with me.
Now there seem to be several moves afoot which will bring change: in , a Parliamentary enquiry recommended consultation to cease payments from investment ‘product manufacturers’ to financial advisers. Here in it is clear that the Securities Commission and the financial advisers’ Code Committee are looking closely at commissions and with a strong desire to align NZ and ’s regulations on Financial Advisers, it is most likely that we will follow fairly closely in this area.
The Australian enquiry also recommended that advisers should operate under an explicit fiduciary duty – that they should put the interests of their clients before their own. Two weeks ago, the Code Committee released a discussion paper on adviser ethics which had as its first objective that financial advisers should place their clients’ interests first and that they should be independent and objective.
I do not think that putting your clients’ interests first and being independent and objective are compatible with selling a fund manager’s products on commission. Individual advisers are often ethical but the commission method of payment will always leave a suspicion of surrender to a conflict of interest.
This is really important for investors many of whom have been badly hit in the last few years – money has been lost and lives wrecked by the collapse of some very poor finance companies. As much as 25% of finance company came through financial advisers – that represents a lot of money. If we had had better regulations in place and financial advisers had not been paid generous commissions by the finance companies, I do not think that they would have been so keen to recommend Bridgecorp and the likes to their clients.
I do not think that the difficulties over the last few years were caused by financial advisers’ incompetence so much as a desperate scramble for commissions. The company that paid the highest rate of commission won (until it went broke).
The Code Committee has done some excellent work on financial adviser ethics and we may soon have an industry that the public will trust and make use of to a greater extent than they do now. If this positive trend continues, in a few years time financial advice will come not from an industry that is the sales channel of fund managers but from a group of professionals who are respected and trusted by their clients. That has to be good for everyone – clients and advisers.
The I word
Herald on Sunday
22 November 2009
Over the last year or so there has been a global debate regarding inflation. On the one hand, some people say that high inflation is inevitable – high government spending means printing more money which will see increased prices. On the other hand there are those who would say that deflation is the bigger risk and Central Banks will manage money supply perfectly well as the economy recovers.
I do not really know which side is right – my crystal ball is cloudy on this one. However, what I can say is that there is a significant risk that inflation will get away again and that you would be mad to ignore the possibility.
Inflation robs those with savings (especially those who have not invested well) and benefits those who have borrowed to buy things like property and businesses. This transfer of wealth from savers to borrowers can devastate the finances of the unwary.
Let me give you an example: in 1974 I borrowed $6,000 to buy my first house. This seems a very small amount today but using the Reserve Bank’s inflation calculator, you can see that this $6,000 in 1973 was equivalent to around $65,000 today. A good way to think of this is that I had borrowed $65,000 and that without paying anything off the loan it has been reduced over 35 years to $6,000.
This inflation induced reduction in my real indebtedness was greatly to my benefit but if the lender had simply taken the interest payments that I had made, his or her wealth would have greatly decreased in real terms.
Inflation really is a scourge for those who can’t manage it (deflation is not much fun either but that is a whole other story).
Whatever your circumstances, you need to be alert to the risk of inflation and be ready to act. Those investing for income – mainly retired people – must give up the comfort of investing all of their money in bank deposits and bonds. These things do not give income growth and are ravaged by high inflation. You will have no choice but to get a good proportion of your money into property trusts and shares both of which tend to give growth which at least matches inflation.
Younger people with debts need to be ready to fix their mortgages. There are many people enjoying low floating mortgages at the moment but you must recognize that you are carrying a big risk by doing so. Conventional financial wisdom says that you should match a long term asset (your house) with long term borrowings (a fixed rate mortgage) and trying to profit from lower floating rates may backfire. It is quite likely that New Zealand will continue to have a positive yield curve (where short term money is cheaper than long term) - if rates do rise, fixed rates will rise with floating ones.
I hope that the menace that is high inflation will not return - but that will not stop me from being ready for it.
At the moment, houses make poor investments; however, apartments are even worse. That’s why developers and promoters of apartment blocks have to use some slick marketing to sell units.
One of the techniques which seems to have be around again is the offer of guaranteed returns. I notice advertisements offering apartments for sale with returns guaranteed for two or three years at 6%. This is a fairly obvious marketing technique but it does seem to work. I guess that some people are hoping that by the time that two or three years are up, the apartment will be getting sufficient rent to make that sort of return. For some people, no doubt, the guarantee period will also make their financing easier.
However, if a property needs to have a rental guarantee, it is unlikely to stack up properly and you probably don’t want a bar of it.
Rental guarantees come out of the developers marketing budget. To me they are a sign of low confidence in the property’s ability to generate income – a desperation to sell.
My advice would always be to ignore such guarantees – they are only as good as the developer granting it (plenty of them go broke) and two years comes around quickly enough. As an investor you need to be assessing the quality of the property in the long-term and not be swayed by a promise in the short-term.
In any event, I do not think that most apartments make good long term investments. It may be that some apartment markets have fallen so far that they are finally getting a bit of a bounce (like the fabled dead cat). However, most apartments will not see good long term growth.
This is for two main reasons: first, in the last two property booms that we have had, it has been the land that has risen most in value. The trouble with apartments is that you have only a very small financial interest in the land.
Second, it is very easy for developers to quickly increase the supply of apartments. This is not as true with up market units in top locations but is certainly true of the more average stuff.
Both of these factors are in addition to the usual difficulties that people find with apartments – high maintenance and body corporate costs and a general lack of control.
Apartments may be fine to live in but as an investor you should be demanding significantly higher yields for apartments than for houses. While a net rental return of 7% may be sufficient to warrant buying a house, I would want to see at least a 10% net return before buying an apartment.
And, of course, those figures are well away from any guarantee that a developer might offer.
To anyone interested in the world of finance, the last couple of years have been fascinating. A major credit crunch, bank collapses, government interventions, volatile markets and the world on edge - it will be talked about for decades.
While all this was going on, I was writing a book: Letters to Aston – Lesson learned from a Lifetime of Investment. Aston is my 3 year old grandson and the book is 30 letters on hat I have learn of investment. I was not bothered by the latest tax rates or insurance products – I want Aston (when he grows up) to know the fundamental truths of investment so that when he faces his own booms and busts as an adult he will know what is happening and what to do.
It was a fun book to write. Giving my grandson something enduring that will help him throughout his life was good enough but writing it against the backdrop of financial turmoil helped sharpen the writing.
Having suffered the economic roller coaster of recent times, there are many people who think that there are no financial certainties – that the world of money has no constancy. In fact, if you read economic history you will know that events like the Great Recession of 2009 have happened many times before. Whether it is the Tulip mania of the 17th Century, the
Each generation forgets the lessons learned from previous bubbles and crashes.
The economic events of the last couple of years have been unusual but by no means unique. It may seem like this time is different – but it never is.
Because we have seen it all before, there are some investment principles that have been developed. These are the laws of investment that are for all time and for all times – things like the difference between speculation and investment, the correct use of debt, the principles of asset allocation and buying in gloom to sell in boom. Aston will need to know and remember these for his lifetime and in setting them out in a series of letters, I hope that he will not have to learn these principles as most people do – the hard way.
It is easy to get lost in the daily drivel – to be unable to see the big things that are going on because of the mad whirl of the everyday. The latest emergent advisory group, the latest investment product or the even the latest investment theory are useless if you do not understand the basics.
Speculative bubbles, whether shares or property, mean that we have deviated from the principles of valuation. Sure a few might make money while the bubble inflates but it is short term and there will always be reckoning with a price to be paid. Aston needs to know that – and remember it.
Foreign Exchange
In finance, what one person may see as a threat, another sees as an opportunity. At the moment, ’s exchange rate threatens exporters and farmers but gives an opportunity for importers and, if they are smart, to investors.This seems to me to be an excellent time to make offshore investments. This is not to say that the Kiwi dollar has necessarily peaked – foreign currency movements are notoriously difficult to predict and in any event I am not advocating currency trading.
However, it is best to make your offshore investments at a time when the Kiwi is high and, even though it may not be at its peak, it is certainly high against some currencies now. investors should have at least 40% of their portfolios offshore. There are many reasons for this but the three main ones are:
1. is a small and rather brittle economy largely dependent on the delicate industries of agriculture and tourism. It is not hard to imagine scenarios which would skittle the NZ economy (what would happen to your portfolio if got foot and mouth disease?) Offshore assets would be a godsend if had an economic crisis.
2. New Zealanders usually have offshore liabilities in the sense that many want to travel and all of us consume offshore goods. Finance 101 says that you match any liability with a similar asset – matching your desire to purchase foreign goods and to travel with offshore investments makes a lot of sense.
3. Offshore investments open up opportunities not available here in - emerging markets, technology or industries which are simply not available in .
There is a compelling case for offshore investment. However, exchange rate fluctuations increase the volatility that markets naturally have – i.e. offshore investments are more volatile. Shifting money offshore at a time when the Kiwi is high reduces some downside risk.
I find that people sometimes want to have offshore investments but do not ithink the time is right to buy foreign shares or managed funds. The answer to that is to use a time of high currency values to purchase the foreign exchange (FX) but to just hold this in cash for the time being.
The easiest way to hold FX is through your bank – nearly all banks have FX accounts. You can open an account in any currency (or currencies) that you choose and your money is as secure as the bank that you use. You will get an amount of interest on the account corresponding with prevailing interest rates in the country whose currency you choose (at the moment this is usually very little). Make sure that you shop around – the fees that different banks charge for FX accounts vary.
Who knows where the top of this currency cycle will be? The Kiwi may well go higher yet. However, whatever may happen in the short-term, be aware that against many currencies we are above long-term average levels (and therefore above what is probably a level that is sustainable for the economy). This seems to me like a good time to make offshore investments.
Residential property has always been an area of political intervention. Whether it is tax, rules for tenancies, state housing or incentives for home ownership, one of the difficulties with residential property investment is that it has always been a political football and been used in social and economic policy.
This particular football game is now being played with more urgency and investors should expect some major moves against property. I do not think that there will be any policy shifts directed against owner-occupied houses – the idea of an ownership society is still very much intact and there has been a strong trend around the world towards incentivising people to buy their own house in which to live. ’s home ownership rate has declined over the last decade or so and no-one will want to see it decline further.
However, there is already a groundswell against property speculation and those who own rental property should be wary.
I do not think that Government will impose a capital gains tax – government agencies know that this will not permanently suppress property values. However, the Tax Working Group, Treasury, the IRD and others in government have rental property tax in their sights.
One of the Tax Working Group’s ideas that has just been floated is a tax based on the Risk Free Rate Method (RFRM).
This tax would see the equity that an investor has in a property taxed as if it was returning a risk free rate – say, 4%. So, someone with a property worth $300,000 and a mortgage of $200,000 has equity of $100,000. This means that the $100,000 of equity would be deemed to return 4% and so they would pay tax on $4,000 (and could no longer claim interest, repairs, insurance etc as tax deductions).
In my view, something like this would slow the property market quite a lot. Property investors would find their cash flow significantly worse with no tax refund and with tax to pay each year. However, I do not think that by itself it will do enough to permanently shift New Zealand investment behaviour away from trading houses to other investments – as I have said before, that will take improved capital markets and encouragement of other investments.
A tax like RFRM poses some difficulties: investors would have to value their properties each year (who would be used to do these valuations?) There would be a disincentive to repaying debt because that would increase equity and therefore increase tax to pay.
Nevertheless, if not this tax, there will be some other. At the moment, on aggregate, no tax is collected from property investment (even though it is a $200 billion industry) and there is certainly some determination to do something about rising property values.
This is not a time to have all of your wealth tied up in residential rental property. I have been advising my clients that residential property is not a one way bet - with very low yields and so much talk of new taxes, the risk at the moment is on the downside.
Herald on Sunday
4 October 2009
Do you own the house or does the house own you? I think that many New Zealanders put too much store by their houses to give them happiness. In my experience, this often results in people having a great deal of their capital tied up in their houses – to the detriment of their lifestyles. I frequently meet people who when asked about what they expect for retirement say that they want a good (read: expensive) house. That’s fine – a nice place to live is what we all want. However, it does mean that they forgo having much income earning investment capital so that they can afford the expensive house. In effect, such people are allocating a great deal of their net worth (their capital) to the house and very little to investments that could give them income. This means that they can enjoy the nice house – but not the other things that they might want to do – travel, sports, hobbies etc. For most of us, capital is limited and so there is a fundamental choice – a nice house or a better lifestyle. Only a few are wealthy enough to have both. This happens not just to people planning to retire but to younger people too. I have seen many people with quite expensive houses complete with very large mortgages. To pay for that mortgage requires both partners to work long and hard. Sometimes I think that the couple is rushing around and working to have a house that they seldom have time to enjoy. I ask myself: do they own the house or does the house own them? What things are they going without so that they can have this expensive house? Ultimately, of course, the amount that you have tied up in a house is a personal and lifestyle decision. However, I do think that the way that you allocate the capital that you have is something that should be done consciously – carefully planning the trade off between lifestyle and house. Unfortunately there is no easy rule of thumb that can be followed – it is a compromise that we each have to make. Making this compromise takes judgment and some hard and honest thinking about the things that are truly important to you. Happiness may be the house - but maybe there are other things that matter more. There is much more to a house than simply a roof over your head – there are questions of the things that you can do at your house (gardening, a swimming pool etc) and of course frequently people have their status tied up in the house (a house is often the first way that we display our success to the public). However, if the amount that you have in the house is stopping an older person from visiting the children and grandchildren in
I agree that would be a lot better off if we speculated less on housing and invested more in other things. I agree that there are a lot better investments around at the moment than buying rental property. And I agree that we will never get rich as a country by selling houses to each other.
However, I do not agree that the way to motivate people to change their investment behaviour is to impose a capital gains tax– there are other, better ways for alleviating New Zealanders’ obsession with property: rather than trying to drive people away from property with a big stick (capital gains tax) we would be much better to advance other more attractive investments.
There is no evidence that waving a tax stick causes people to flee property. , , , and all have capital gains taxes. ( ring fences tax losses as well). In spite of their capital taxes, all these countries have enjoyed or endured (it depends on your perspective) a property boom at least as great as ours.
New Zealanders are not obsessed by property because of the tax system – in fact, investment in housing is not treated any differently from any other business. If people think that they have a good way of making money they will do it – even if it means paying a bit of tax. People have not rushed into property speculation solely for tax reasons –imposing a capital gains tax will simply not work.
At best a capital gains tax will see a temporary dip in property values and then it will be back to business as usual. If you want to permanently change peoples’ behaviour, it is usually better to provide a smart and attractive alternative than to belt them with a piece of wood.
People in are obsessed by property for two reasons: first, they do not know of or do not understand other investments. This makes them very suspicious of bonds, shares and managed funds. These kinds of investments are controlled by people in dark suits far removed in glass towers who in the past at least have trampled over small investors for their own gain.
Second, property is tangible and will always be there. People think that they know and understand property and they feel in control of their investments.
Much of this is myth, of course – nevertheless people feel it at a very deep psychological level. When I speak to audiences about the many very real benefits that Property Trusts have over speculating in housing, I see many people turn off – they simply do not want to trust their savings to people they regard as “financial sharks”. No, they do not want anything to do with such people – it’s all so much easier to buy themselves another house.
Before we rush off to impose more taxes to try to control property, I think that there are two things that would work better: first, our markets must be fair to all and our corporate governance must be first class. The Capital Market Development Taskforce which is working at the moment will no doubt make some recommendations in these respects.
Second, the finance industry has to tell its story better. Shares, bonds and the managed funds that are based on these investments have often provided excellent investments. However, they lose out to the real estate industry which is both more customer friendly and more importantly tells its story better.
There are attractive alternatives to speculating on housing but many people and firms in the finance industry have not communicated well nor made it easy to invest. When it comes to easy, transparent transactions and good communications, the real estate industry has beaten the finance industry all ends up.
If the financial industry – those in bonds, shares, commercial property and managed funds – made a concerted effort to tell their stories well, there would be no need for more taxes.
Herald on Sunday
20 September 2009
Do we have enough?
In finance, the question “do we have enough to retire?” is the most difficult to answer. It is difficult to answer because there are many uncertain factors which may play out over the long period which is your retirement. However, difficult though it may be, it is also a question that you really do need to get right – almost everyone lives in fear that the money will run out before they do. This is a quite reasonable and intelligent fear in the sense that none of us wants to end up living off dry toast and second-hand tea bags.
In my experience, the importance and the difficulty of the question leads to a lack of confidence meaning that a good number of people calculate a figure that is really much too high. Some people end up hanging on in work longer than they really have to – a great shame in terms of a diminished lifestyle.
I find that the biggest difficulty which stops people from taking the plunge away from work and towards the lives that they want is that they are fearful of investment. Again, this is an intelligent fear - few of us have had any experience or practice of using the capital that we have to generate income and it’s a scary world out there.
The key to investment (all investment, not just investment in retirement) is to identify your liabilities and to set your asset allocation to meet those liabilities. In essence, the liabilities that you have (to provide income in the case of the retired person) must be matched with an asset: the right investment.
Trouble comes because people think that their investment returns must be in cash – they think that capital gain is no good to them. This leads to over-investment in the likes of finance companies and corporate bonds which give higher income yield but no growth in either their income or their capital. Over-investment is seldom a good idea – neither corporate bonds nor finance companies are risk-free investments!
In any event, retired people have another liability – inflation. You could be retired for 20 -30 years or more – and inflation can quietly steal your capital over that time.
Therefore, retired people should not depend solely on bonds and deposits for their income but own a sensible amount of shares and units in property funds as well. Over time these give both income growth and some capital growth. However, these kinds of things will be volatile so an allocation to them should not be too great.
Units in property trusts (things like Kiwi Income Property, AMP Office etc) make excellent investments for retired people as they give very good income and provide some growth as well.
Shares in good businesses also provide growth although some do not give much income. However, you should remember that you can take your capital profits simply by selling a few units. Because of tax, a dollar of capital gain is worth more than a dollar of yield. Those using their capital for income on which to live should not avoid growth investments completely.
Herald on Sunday
13 September 2009
Cleantech
We may only have been on the planet for a few million years but when humans need to change and adapt, we do so quickly and we do it well. One big shift is starting to happen right now – climate change will lead to transformation in how and where we live.
That the earth is growing warmer seems beyond doubt. There may still be some dispute that the change in our climate is man made although I doubt that there will continue to be very great disagreement – I remember my Chemistry teacher in 1968 telling us of the likely effect of pumping so much extra carbon and sulfur into the atmosphere.
What’s all this got to do with building wealth? Well, everything – whenever there is great change in the world, there is a transfer of wealth. There will be transformation regarding energy and the environment in the next few years and some people will become extremely wealthy from it. As a species we are pouring huge resources into stopping climate change and the result will see a wealth divide like few others in history.
Put the word “cleantech” into Google and you will get over 60 million results. Cleantech is the use of science and technology to provide clean energy or better solutions for waste and pollution. It is the result of a shift in thinking – from a world which had no environmental limits to one where we must measure the effects of what we do and reduce our impact.
All over the world, people are scrambling to provide the means for clean energy and the ones who come up with a winning technology will benefit. So too will those who have invested in it.
The problem is that it is very difficult at this stage to predict who the winners will be – I cannot say which particular technology let alone which company will come through. My guess is that solar energy will be a winner but there are several different means of improving solar energy being explored, and in any event there will doubtless be other technologies.
You should not try to pick individual winners. Instead, there are many managed funds that are based on this area and which will give good exposure to clean tech. A couple of these managed funds seem to me to be a much better way to invest than trying to find the best company amongst the thousands who are researching ideas.
To be honest, I do not have the complete investment answers in this area but there is an important idea: the trend towards greater care for the environment is not a fad and is not going to go away. Over the next decade or two, there will be successful research that will change how we live and I am sure that this will lead to great long term investment opportunities for smart investors.
Herald on Sunday
6 September 2009
Negative Gearing
Dear Martin,
I read with interest your article on keeping yield in mind while investing in residential rental properties. I agree that decent yield should always be the driving force for any investment. But the question is, when it comes to investment in residential properties in NZ, how should the yield be calculated? Should it be just the straight rental income divided by the cost of the property OR one should also take into account the savings in tax paid on account of negative gearing? Salaried Kiwis are solely driven by the fact that negative gearing will help them pay less tax, which will eventually have a positive impact on their cash flows. Should this positive cash flow, form part of the equation in calculating the yield? I would be interested to know your thoughts on this
Salaried Kiwis should not be driven solely by paying less tax through negative gearing – they should be trying to make as much money as they can rather than lose money for tax purposes. One of the first principles of investment is to analyse the investment before tax or gearing are taken into account. That means in the case of property, your first option is correct: to get the yield, the rental income is divided by the cost of the property and then multiplied by 100 to give a percentage. No other items like interest or tax are considered until you have assessed the worth of the investment and its intrinsic desirability.
An investment must stack up in its own right before tax. The fact that an investment turns out to be tax efficient should be regarded as a bonus rather than reason to go into it.
Tax driven investments are fraught. Tax is a political construct and even though property investment does not have special tax rules – it is taxed the same as any other business – there will be increasing agitation to change how it is treated. One day a government is going to cave in.
In fact, much of the problem with property investment at the moment is that most “investors” (for which read speculators) are going into it with the expectation of losing money. This is never a good idea. Sure, the loss will mean less tax to pay on your other income which is something of an offset - but you still have a loss. And good investors don’t like loses.
It may seem wonderful to get a tax refund but it seems to me to be much better to make money and pay some tax; after all, the IRD does not take all of your profits. The thing that I do not like about residential property at the moment is that it is hard to make a decent cash profit because yields are so low.
If you go into a property investment making an income loss you will no doubt be hoping to make up that loss by way of capital gain. That will probably be true in the very long-term but may not be so in the next few years. Investment 101 says that you should aim to make money, pay some tax and the capital gain will follow along as a very welcome extra.
23 Augst 2009
Property Change
For the last few years, there’s been something bugging me about residential property investment. I have long been a fan of property investment but recently something has not been right with the way that people have talked and written about property investment - and the way that most people have gone about buying rental property
In the past couple of weeks I have given two presentations on property investment and have also started a new book on the subject. In preparation for these, I had a look at rental property with fresh eyes and read most of the current books on property investment. What I found was that there was a huge amount of information on the property cycle (especially on “drivers” and “influencers”), on how to structure ownership of property, mortgaging and tenant management. However, there is very little on the most important factor for investors – income yield.
There’s been a shift in the last decade or so – a gradual shift so that you would barely notice – from investors searching for yield to people trying to play the cycle; from investment in property to speculation.
The difference between an investor and a speculator is fairly simple: an investor investigates and analyses future income – capital gain is a welcome by product but the investment stacks up on income alone. A speculator investigates and analyses future price movements – the income is much less important as the deal rests on the price movement of what has been bought.
At the moment (in fact increasingly over the last decade) residential property has not stacked up as an investment at all – house prices are now so high that the rent gives a yield that is too low to interest any genuine investor. And yet, we have thousands of people out there buying rental property. We have (almost without realizing it) turned into a nation of speculators.
Unlike a decade or so ago, the decision whether to buy property for investment purposes is made on the basis of the alignment of certain drivers (immigration, interest rates, affordability etc) rather than on whether there is good income. As an investment model, that is unsustainable.
The disregard for income yield has gone so far that I was not surprised by a story that I heard at one of the conferences last week. Two new property investors were talking to an old hand. The new investors had just made a couple of property purchases. “Great”, said the old hand enthusiastically, “what’s the yield?”
The new investors looked perplexed: “What is “yield?” they asked.
True investors would be pleased enough when house prices are picked to rise by 24% in the next three years as tipped last week by an economic consultancy. However, they would be ecstatic if rents were predicted to rise by that much – an increase in rentals like that not only means more money in the pocket but keeps the fundamentals of housing in line – i.e there is a reasonable amount of rental for the house’s value.
That’s the difference between investors and speculators: investors’ first concern is the income from what they buy; speculators only care about price movements. During the property boom house prices rose 100% but rents only rose 14% which means that there is a fundamental breakdown of this relationship; a disconnect which has been ignored by most property writers in their rush to encourage readers into a speculative market.
Ultimately an investment asset will always be valued by its income. If you want to speculate, that’s fine – as long as you know that is what you are doing. However, if you want to be an investor you have to look for a decent yield. My benchmark as an investor is that the property would have to yield at least 7% net to be attractive.
I am often asked what you should do if you can’t get a yield like that. My answer is that you should go rock climbing (or fishing), keeping out of the market until income comes back into line with values.
It may take years before there is a proper relationshi
When I reviewed what was being written about property in preparation for my conference presentations and my new book, I was very impressed with how much the writers and speakers knew about property – most of them were very experienced and knowledgeable on the subject.
However, it quickly became obvious that many were ignorant of investment – I doubt that most of them had ever read Ben Graham or Warren Buffett, did not know about discounted cash flows or earnings yields and if they tripped over the efficient frontier they would expect to get their passports out. They know a lot about property but they have not even started investment 101.
There could be a couple of reasons for this: first they have a vested interest which has them encouraging people into the market, or, second they have simply never studied investment. Either way, this is a serious worry: a group of advisers and writers telling people what to do with their investment funds when they know nothing about investment is a recipe for disaster.
Herald on Sunday
16 August 2009
Australian Investment
If you are looking for a place to invest for the long term, it would be hard to find better than our nearest neighbour. I do not think it at all surprising that has been least affected by the global recession – it has nearly everything going for it.
First, has what William Bernstein in his book Birth of Plenty identified as the four requisites for a growing economy and prosperity: assured property rights, efficient capital markets, good communications and transport and the ability to develop and commercialise ideas free from state and religious interference. Like NZ, but unlike some other countries which otherwise might warrant investment (e.g. , ), has these essential attributes.
Second, has a growing population, adding the equivalent of a city roughly equivalent to
Third, has natural resources to die for. In a world hungry for food, energy and other commodities, ’s ability to dig things out of the ground would underpin any economy.
Fourth is ’s proximity to
Sure, has some problems – but a lack of water and a clunky state/federal system are unlikely to hold it back very much. In fact, baring a major global meltdown, it is difficult indeed to see lose its way.
From a Kiwi’s point of view, investing in is simple. The legal and tax environment is much the same and we share many financial and business institutions (especially the banks). It is true that franking (imputation) credits are not available to Kiwis meaning double taxation of dividends but is exempt our FIF regime with all its complicated compliance.
Kiwis looking to invest in are fortunate because they see a much wider range of opportunities and are able to get far better diversification. ’s position and its track record of growth mean that most investment advisers encourage their clients to allocate more to Australian assets than the size of the country suggests. Even though makes up only 2% of the world’s share markets, I am happy for people to invest 20% and more there.
Australians are a confident and outgoing people (on the sports field, we often mistake this for arrogance). In business and investment circles that confidence is also apparent. I think that they have a great deal to be confident about.