• Mark Harris.

Creating an investment portfolio to match your retirement goals.

Last month, we spoke to JMI Wealth investment advisors Lynette Ball and Shameema Shameem about the challenge for income-orientated investors relying on a steady stream of income from term deposits and bonds. Typically, these are retirees who have been forced to think differently about the traditional approach to retirement planning, considering the current low interest rate environment. In this editorial we get the views from newly joined JMI Wealth investment advisor Mark Harris, and explore some of the questions and concerns he encounters from clients approaching, or currently enjoying, their golden years.

Mark starts with the point that each client has a slightly different situation, so there is no 'one size fits all' approach to the process of creating an investment portfolio to suit a client’s retirement goals. The needs and means will vary from client to client. There are some general considerations such as the amount of funds available for investment, the requirement for liquidity and the varying degrees of diversification of assets. Mark notes that while some people have money tied up in property and others are locked into bank term deposits, investors invariably have common questions such as: What if the unexpected happens, or my partner, for whatever reason, is no longer able to manage our investments?”

In response to such questions, Mark offers some caution in relation to the pitfalls in retirement planning. “Locking capital away without providing a source of regular income, and not having access to it if an emergency arises, is a common oversight. Property, for example, is not a very liquid investment. You can't sell off a slice of it, and equity is notoriously slow to release, particularly if the property market is flat.”

Owning a rental property can, of course, return a monthly income. According to the latest figures on interest.co.nz, the median New Zealand house price of $580,000 delivers an annual rent of $23,015 gross. * From here, tax, rates, ongoing maintenance and property-management fees all need to be deducted. * https://www.interest.co.nz/property/rent-ratio

“Considering that most couples I meet need around $60 - 80k per annum to cover their living costs at retirement, rental-property revenue may end up less than a third of the target required, while the capital is tied up.” Mark adds consideration of the pitfalls of being a landlord such as property damage add to the risk factor too. 

Term deposits have similar locked-in characteristics and if you need to withdraw money for unexpected events it would mean forgoing a portion of your interest payments, if the bank will allow you to even break it. Diversification is an essential consideration, and Mark notes that, “creating an ‘all weather’ investment portfolio is key to ride the 'ups and downs' of markets and to reduce concentration risk. It’s the conventional wisdom of not having all your eggs in one basket.”

Mark suggests a holistic investment portfolio for retirement, “starts with consideration of your different goals and needs, and assessing what your circumstances might look like in years to come." 

The next part of the process involves allocating the right investments that are suitable to the time period and the level of risk you're prepared to take. "This is when an Authorised Financial Adviser (AFA) can transform a potentially complex process into a much simpler and productive one. A session with an AFA will help you identify what the priorities are and how you can achieve them."

Mark’s point, essentially, is it would be better to discover these things sooner rather than later. That way there is more time to save and plan ahead.

Once you've agreed on your priorities, an AFA will help devise a realistic plan based on access to sound investment research and present you with an investment solution that suits your situation. This process can help you streamline your investments to match your short, medium and long-term goals. Your level of financial comprehension will increase, giving you greater peace of mind and a sense of control. That is the power of great planning! 

Mark Harris has lived in Browns Bay for 26 years with his wife Fiona, living in the same home, raising three sons and completing eight major renovations. Mark enjoys weekends at his caravan in Mangawhai Heads and loves fishing. He has been a Rotarian for 10 years and has received two Paul Harris Fellows with Sapphire Pins for services to Rotary, including his District’s Rotary Youth Leadership Awards (RYLA).

Contact: Mark Harris, M: 027 688 9836
mark.harris@jmiwealth.co.nz
www.jmiwealth.co.nz


Issue 104 November 2019