By Martin Hawes*
And now for some good news: this pandemic has accelerated a lot of trends. One accelerating trend to welcome is the way younger people have started to embrace the sharemarket. A recent report told us that Sharesies had taken on 50,000 new customers in the last two months (this includes one of my daughters). Three quarters of these new customers were new to share trading (also including my daughter).
That is very good news on a range of levels: it is good for market liquidity, and it is good for capital markets long-term in New Zealand. I confidently expect that most people owning shares via Sharesies (and other similar platforms) are younger people and it seems good for our collective futures if young people are discovering how to invest in businesses.
Sharesies allows you to buy and sell small amounts of shares using any device – people can sit on a bus and happily buy shares in their parents’ retirement villages, or sell a small holding of Sky TV. That’s great.
There are some good reasons why Sharesies has got so popular: First, COVID-19 has created market volatility and people see that there is money to be made by buying businesses cheaply. Moreover, the pandemic has given people who are sitting at home in lockdown the time and space to sign up for Sharesies – and, maybe, to figure out what they want to buy.
Second, younger people are now happy to ignore their parents/grandparents/ uncles/aunts dire warnings to stay clear of the sharemarket. The 1987 sharemarket crash hit my generation hard and, ever since, they have never given up cautioning younger people to stay away from shares.
However, what older people do not realise (but younger people do) is that the regulatory framework is completely different now from what it was in the 1980s. In 1987 the New Zealand sharemarket was like the Wild West – a lawless, rugged land where anything goes, inhabited by a bunch of shady neer-do-wells looking out for the main chance (I am probably being over polite and kind to these people).
Today the financial sector is well regulated and overseen by the Financial Markets Authority (FMA). The sharemarket is watched over not just by the FMA but also the NZX and the New Zealand Shareholders Association (in the 1980s, the NZX was an old boys club called the New Zealand Stock Exchange and the New Zealand Shareholders Association did not exist).
The sharemarket is still not perfect, but it is a Pacific paradise compared to the bad-lands of Dakota, which was the share market of 35 years ago. Younger people are right to ignore the wailings of the older generation – things have changed.
Third is KiwiSaver. When Sir Michael Cullen introduced KiwiSaver in 2006, some predicted that the scheme would eventually help financial literacy. I think it has done that.
Younger people may not be experts on KiwiSaver, but they know a lot about it. My daughter, aged 35, has spent about a third of her life in KiwiSaver; it has been there for nearly all her working life. Lots of young people know where their money is invested and have become accustomed to investing in financial markets. Perhaps most crucially, they know that they are (largely) able to trust the regulatory oversight of markets.
There is one more thing that I would love younger people to learn (preferably not the hard way). That one thing is that they should not “trade shares” but, instead, invest in businesses. Buying and selling on the sharemarket should not be about trading some risky commodity called “shares”; it should be about buying a fraction of a business.
This is a subtle change of mindset: when I buy some Ryman or Amazon, I become a business owner. I may only own a tiny part of the total business but I, along with thousands of others, own the business.
The decision to buy is, therefore, not so much what the share price may do tomorrow but how well the businesses is likely to perform for the next five or 10 years. Buying a fraction of a business means doing some analysis just as if you were buying the whole thing – it does not matter whether you pay $5 or $6 for a share if you are think it will be worth $20 per share in five years.
Congratulations to Sharesies, Sir Michael and the others: I hope and expect that my daughter and her generation will buy more and more good New Zealand businesses. They already own quite a lot of businesses through their KiwiSavers – I hope they continue to branch out to own more businesses on their own accounts.
*Martin Hawes is the Chair of the Summer Investment Committee. The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd and a Product Disclosure statement is available on request. Martin is an Authorised Financial Adviser and a Disclosure Statements is available on request and free of charge at www.martinhawes.com. Martin is a Director of Lifetime Income, an Annuity provider and a Board member of the New Zealand Shareholders Association.This article is general in nature and not personalised advice. Summer competes with banks and other KiwiSaver providers.
33 Comments
Most institutional bankers in the world predicting the expected returns from equities to earn about 7% a year in real return for the remainder of the decade. The main reason being as a result of major pandemics (including Black Death in 1400’s), lower the real interest rates higher the real wages will last for a decade. In US the employment recovery has happened after Great Recession was only due to record low interest rates. Kiwisaver still seems to be look like favourable longterm........ investment.
Still a looong way to go in addressing FinLit (financial literacy) in NZ, the plague that is door to door trading trucks is evidence of that. I too like how the breakout Apps such as Sharesies has helped take the fearfactor out of trading equities just keep your digital security protocols upto date!
If I was commenting on the current state of the share market, I would say that modern companies are in no way any more trustworthy than the companies were back in 1987. In fact with the lack of Christian morals in the upbringing of certain ethnic groups who have flooded into NZ in recent years, I would hazard a guess that the level of imprudent short term thinking and outright fraud could well be higher.
Granted, the bulk of these firms will not be listed on the stock market.
It will be interesting. We shall find out in the months to come.
You have cojones U, saying what everyone thinks but is scared to say.
Nonetheless re morals I have never been disappointed by immigrant tradespeople, it's the European kiwis tradies that have always caused problems for me to the extent I now choose Chinese Kiwi companies for any work.
Also if you look at ANZ shady deals over the last few years you will realise that wide boys are spread over the whole race spectrum
Haha good way to ignite debate.
I don't agree with the Christian morals comment however an observation I would make is that people coming from countries more densely populated have a higher proportion of people willing to walk over others for personal gain. We have native Kiwis (with Christian morals) doing the same however I'd definitely argue that the proportion is a lot higher in people of countries which it is often a necessity to get ahead.
A bit of a sweeping claim U, but yes, I think Martin is also a tad guilty of the same sin in implying that yesterday's sharebrokers were irresponsible cowboys.
The world has changed from small town NZ where almost every profession came from similar backgrounds and cultures and where partnerships often passed from father to son. Certainly insufficient regulation to try to constrain the occasional bad apples, but nevertheless very many fine upstanding professionals bound by "your word is your bond", where deals were assured on a handshake.
But yes the world has changed but in many ways it seems a pity to be run by regulation, with associated expensive and none to competent bureaucracies like the FMA.
its nice to say you own part of the company for a small shareholder but in reality you have only one option if you see a bad CEO take over and that is sell, example fletchers. you can go along to meeting and voice your opinion but ultimately it is the large shareholders (funds) that have the sway with the board to change the CEO
and that is a big disadvantage in NZ as we have seen CEO's come in and almost destroy solid companies another example Fonterra before action is taken to right the ship.
while it might give you warm fussies as a tiny shareholder to say i own a bit of such and such company you are only along for the ride, and it is up to you to keep track or your investment and leave the ship before it sinks.
As Martin said, the NZ Shareholders Assn has been a positive innovation giving small shareholders a degree of influence not otherwise available. But the old story...the many are content to rely on the efforts of an active few, or perhaps just moan that their individual vote doesn't count. The solution lies in every private shareholders hands. Give the NZSA your proxy.
I appreciate Martins articles (and his webinars) but the statement
"Three quarters of these new customers were new to share trading (also including my daughter)." maybe confirms that those using Sharesies and such are playing a trading game, and not investing. Whilst I only buy a few thousand in a company, that, relative to my wealth that at least is real money. I look at the market depth online and the small parcels are a real annoyance - I'm not certain but it appears to be the result of such platforms as Sharesies.
ASX offers sharemarket games for those not ready to invest.
Some interesting comments today
I agree that PE ratios are very high but current values are based on equity risk premium which is OK at the moment.
If we get a real return of 7% from equities over the next decade, that is pretty good (I'll be happy with that)
1000 shares does not let you appoint the CEO but it does give you a small voice and a vote.
The "christian morals" comment will have to wait for discussion over a single malt ...
I generally agree with Martin's thoughts on this...
From the other side of the coin is this from ASIC:
https://www.smh.com.au/business/markets/don-t-try-this-at-home-asic-s-w…
Early withdrawal of KiwiSaver funds under COVID-19
KiwiSaver is a voluntary, work-based savings scheme, designed to help people prepare for their retirement. The primary legislative objectives of KiwiSaver are to:
• encourage a long-term savings habit and asset accumulation by individuals,
• increase individuals’ well-being and financial independence, particularly in retirement.
The policy drivers for the implementation of KiwiSaver were the perceived low levels of private saving for retirement and a concern that middle-income New Zealanders, in particular, were at risk of experiencing a substantial drop in their living standards during retirement.
However, an IRD study into KiwiSaver, found evidence to suggest that KiwiSaver has not been successful in improving the accumulation of net wealth for its members and that KiwiSaver members actually accumulated less wealth compared to non-KiwiSaver members.
The IRD cost and benefit analysis also showed that each taxpayer dollar the Government spent on KiwiSaver, only resulted in additional savings ranging from 20-38 cents for the target membership.
The study also showed that the primary incentive for people joining KiwiSaver was for the employer contributions.
For those made redundant under Covid-19 and facing long term unemployment, KiwiSaver has become a luxury that is neither consistent with their reason for joining, nor their changing priorities.
This raises an important question as to whether KiwiSaver members should have early access to their funds outside of the current withdrawal criteria which are; (a) reaching the age of entitlement for government superannuation (age 65 but likely to keep increasing), (b) first home buyers, (c) financial hardship, (d) moving overseas permanently (excluding emigration to Australia) and (e) serious illness/permanent disability.
Individual’s best interests can only be served if they get the best possible return on investment applicable to any given world economic scenario. The KiwiSaver rules are currently forcing people to remain exposed to a risky share market producing negative returns or to remain with cash tied up in a fund that isn’t working for them.
KiwiSaver funds have suffered huge losses recently and those losses are unlikely to be recovered in the share market within a long term economic recession.
In the current situation, the cost of debt far exceeds investment returns, so reducing or offsetting debt is a prudent alternative to continued exposure to the volatile share market.
Other alternatives to consider are; diverting KiwiSaver funds into businesses or other investments which are safer or afford more control and liquidity. Some have been forced to retire early and they should not be forced to wait for their retirement funds. Others might wish to invest their funds to re-train or up-skill for new careers.
In summary, my belief is that for many, KiwiSaver is no longer fit for purpose in the post Covid-19 recession. The IRD study showed that even in boom times KiwiSaver was out-performed by alternative investments and that for taxpayers, the costs of KiwiSaver out-weighed the benefits. There is no incentive for those no longer enjoying employer contributions. There are many ways in which KiwiSaver funds can now be put to much better use in order to achieve the original objectives of asset accumulation, individual well-being and financial independence.
If you are interested in pursuing early withdrawal of your KiwiSaver funds outside of the current rules, then please sign my government petition at:
https://www.parliament.nz/en/pb/petitions/document/PET_97690/petition-o…
Young professionals or should I say young adults are exposed to being business minded now a days, it went even much higher when the pandemic occur. Not pretty much surprising, talking about how a certain idea will spread through social media and internet. This will give future to the community in economic aspect.
I myself wanted to involve on sharemarket, as a young employee who works for water blasting north shore auckland, it would be a great investment in the long run (correct me if I'm wrong).
One of the positive impact of the pandemic.
Also, this is kinda hilarious when you said, "In 1987 the New Zealand sharemarket was like the Wild West – a lawless, rugged land where anything goes, inhabited by a bunch of shady neer-do-wells looking out for the main chance (I am probably being over polite and kind to these people)".
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