Festive season quick reads

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Festive season quick reads.

This month we thought we'd share snippets of interest from recent weeks that may prove useful conversation starters over the holiday period.

How long will you live?

If you are like most people in western society, you are probably underestimating your life expectancy. Recent surveys in Australia and the UK found that people underestimated their life expectancy on average by five to ten years compared to official estimates. While this could lead to a pleasant surprise — receiving a card from the Queen would be nice — it could also mean that you outlive your savings.

One way to overcome what is known as 'longevity risk' is to put more money aside while you can, just in case. Or, you might like to consider investing less conservatively, so your assets are working as hard as they can for as long as they can.

Bad things that never happened

The global market reaction to the Trump election is the latest in a series of big false fears that haven't come to pass. Leading up to the election, many commentators warned of a serious market correction should the worst case happen and Trump be elected US President. Before that, there were warnings of a Chinese economic hard landing, which would reverberate globally since we all rely on China to generate economic growth. After Britain voted to leave the EU in June, many warned of a big fallout impacting not only Britain and Europe but the rest of the world. Deflation was also potentially on the cards, as was a US recession. Didn't happen. In fact, markets rallied following the Trump win, China has continued growing, Brexit is being worked through, and markets have quickly moved on, and we've seen inflation through higher energy prices and economic growth instead of a recession.

Cheaper is not always better

It stands to reason that, all other things being equal, when comparing funds, cheaper should mean better. But ratings agency SuperRatings found in its latest research covering funds in Australia, Hong Kong and now New Zealand, that low fees do not equal the best returns.

"There is often an inverse relationship between fees and investment outcomes achieved by members."

SuperRatings' modelling of actual returns achieved, and actual fees charged by KiwiSaver funds over a five-year period, showed that funds with the lowest fees will often provide lower investment returns than their higher fee counterparts. In fact, "whilst fee savings will deliver some benefits to members, the associated reduction in potential investment earnings is often four to five times the level of fees saved".

That's not to say that fees are unimportant; they do matter. But the most important consideration for any investor is the return achieved after fees and tax.


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