Financial advisors share tips and tricks to make your money work for you in a recession

Two Bay of Plenty financial advisers say there are steps people can take to improve their personal wealth as the cost of living continues to rise and the threat of a recession looms.

Annual inflation remains unchanged at 7.2pc, with the main drivers continuing to be household costs such as rent and maintenance, higher food prices and building costs.

Food prices rose 1.1 per cent in December and were 11.3 per cent higher than a year earlier – the biggest annual food price rise in 32 years, Stats NZ said last month.

Meanwhile, almost half of New Zealand’s mortgage debt is expected to be settled between October 2022 and September 2023 and some borrowers are likely to see big increases in their repayments, including one Rotorua first home buyer whose monthly payments had risen from $1500 a month to around $2000.

Forsyth Barr Tauranga investment adviser and manager David McConnochie said the current investment period was a bear market – with the market down from its peak by more than 20 per cent.

He said one of the advantages of investing when the market was down was that good quality assets could be found at much cheaper than normal market prices.

The rapid rise in interest rates can also reset valuations and give investors better returns over the long term and help savers in lower risk investments such as term deposits in the short term.

McConnochie said investors could take proactive steps through this period.

“The investment decisions made during these periods can be some of the most important that people will make in their lifetime, and this is where it is wise to seek advice from an investment adviser.

“They can provide guidance based on the client’s long-term investment goals and overall goals for the future. Whether it’s buying a house, increasing savings in KiwiSaver or making long-term growth decisions.”

Saving and investing go hand in hand and the best piece of wisdom McConnochie could impart to any investor during this period was that it’s “timing the market, not timing the market”.

In other words, investors should create and follow a long-term savings and investment plan that reflects risk tolerance, investment horizon and long-term goals.

“Sticking to this plan can help you prevent panic selling when markets are challenging.

“It is important to remember that investors benefit from owning shares in good companies that grow their underlying value over the long term. Today’s great businesses have not only endured past bear markets, but have thrived on the other side.”

McConnochie said it “remains uncertain” whether New Zealand will avoid recession.

“It has been a turbulent few years for the global economy and markets.

“We are now in an environment where interest rates have risen 4 per cent over the last 12 months, the fastest in New Zealand’s history, and a negative yield curve now exists.”

A negative yield curve is when short-term interest rates were higher than longer-term interest rates, a dynamic that usually precedes a recession.

Despite market volatility and the uncertain economic outlook, consumer spending and the performance of the companies Forsyth Barr invests in have been largely “better than expected” so far, McConnochie said.

Most of the company’s results last quarter came in above expectations, driven by strong sales growth, but higher costs meant profit growth had been limited.

“This uncertain backdrop is challenging for investors. If inflation continues to ease and economic activity remains robust, we expect equity markets to be resilient.

“Conversely, if we see a significant recession, it will have a significant impact on corporate earnings and put renewed pressure on share prices.”

Wealth Health financial adviser Craig Coupland said there were a few key steps to getting started with investing.

The first was to look at fixed financial obligations, or what Coupland called core expenses—those that have to be paid no matter what, such as accommodation, food, utilities, health care and transportation.

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Next, take a close look at discretionary spending or “things you want rather than have to have” – ​​things like takeaways, movies, pay TV or subscriptions and going out.

“Instead of cutting discretionary spending completely, give yourself an allowance each week so you don’t feel like you’re trudging on a never-ending treadmill of financial responsibility.

“A few years ago, we did this when the children were small. We had budgeted down to the last $0.50c each week.

“I’ll tell you, it’s really quite depressing not being able to go out and buy a pie, if you want one, make sure you build in some ‘pie money’ – it could be coffee or whatever.”

Aside from investments, Coupland suggested trying to increase income, consider downsizing vehicles, structuring affairs more tax-efficiently for the self-employed, checking government options and not buying lottery tickets.

He was also a “big fan” of studying and, despite not being “good at school”, got his life together after the last bell and studied through Massey University by correspondence, doing one paper a year , while juggling work and family life.

“The result was a diploma, a better paying job and a career I was actually interested in… Just do it mahi. You only have to take the exam once and then you’ve got your ticket.

“It was tough and sometimes I wanted to throw it in, but remember if you do, you might not reach your goals.

“The study and subsequent job led to a 12-year career at the bank where I learned even more and then started my own financial advisory practice which is almost eight years old.”

Coupland preferred to take a long-term approach to investing, so ups and downs were averaged out.

If people wanted to invest in stocks, he encouraged people to think about how stable the company was and whether they would be trading in 15 years.

Things like supermarkets and infrastructure – roads, telephones, electricity – were core things that would exist for a long time because people had a need for them.

He said one of the best things people could do was get professional help.

“As a starting point, get advice if you don’t have the skills yourself. Honestly, it will save you time and possibly money by not investing in the wrong things, even if you have to pay the professional to do it.”

“Try to ignore your emotions. It’s too easy to make an emotionally driven investment decision. A professional advisor is detached from you personally and can grasp and advise things logically.

“A financial advisor is likely to come up with solutions to problems you didn’t know existed that will benefit you financially, and provide you with solutions that are tailored to you and fit your risk-taking attitude.”

Views and opinions in the article should not be considered financial advice, with McConnochie and Coupland suggesting people speak to a financial advisor to discuss investment options.