7 July 2020
How Martin Hawes invests for himself
This week we asked Martin Hawes to give us a peek into how he invests his own money.
The other day I had a term deposit mature. Thinking I would roll it over, I looked up the going rates: at six months, the best I could do from one of the four big banks was 1.65 percent. Holding my nose and heaving a sigh, I accepted - what else could I do?
I always like to have a bit of cash on hand. The idea that there might be an emergency in the family, or a major market collapse means that I have a couple of interest earning on call accounts and a series of ’laddered’ term deposits in place. These laddered term deposits are at a variety of maturities so that at least one of them is never too far from maturing and being available for use.
This seems to me the best of a bad deal: my deposit accounts give me the princely return of 0.55 percent but at least, if I need, I can get at it immediately. The term deposits give a better return (slightly!) although after it has been taxed I’m probably losing money if inflation is taken into account. You cannot get a decent return on cash today and I for one will not chase return by taking more risk with a second or third tier bank (remember that New Zealand bank deposits are not government guaranteed).
For my money, this means one of the four majors. These big Australian owned banks have the highest credit ratings and have all my bank deposits.
At the moment, I have a good bit of cash on hand – quite a bit more than usual. Covid-19 has me thinking there may be another wave of selling and in my mind that represents an opportunity. I realise that my cash gives lousy returns, but I will tolerate those returns for safety and availability.
My plan is to hold cash with low returns and make up those low returns with other parts of the portfolio.
Critically, although I am holding more cash than usual currently, most of my portfolio is well diversified across shares, property, and fixed interest. I sacrifice returns from the cash I hold by trying to make them up with the other parts.
I have three main diversified portfolios: first, I have money in KiwiSaver which gives me a ready-made diversified fund that is professionally managed and requires no input from me. Over the last couple of months this has done well and gone some way in making up for those low-returning term deposits.
Second, I have an account with a share broker. This arrangement lets me do some stock picking as I buy shares, property companies and fixed interest investments as I see opportunities arise. This is building my own portfolio and lets me test some ideas as I do my own buying and selling.
Third, I have an annuity with Lifetime. This is invested in a balanced fund and, because I am still working, I am not yet drawing an income (I am just letting it grow) but this is another diversified portfolio that needs no management from me.
I would usually expect my overall position to be 40 percent in growth assets (shares and property) and 60 percent in income assets (fixed interest and cash). However, putting all my holdings together (including the cash) I am actually running at about 30 percent to growth and 70 percent to income.
One other thing I am careful with is to be sure that I have a good amount of money invested internationally. I like to have at least 20 percent of my portfolio invested in international shares and often a bit more than that. This is for two reasons: first, investing internationally allows you into industries and brands that are not available in New Zealand or Australia (things like technology and healthcare especially). Second, having money offshore would be more than useful if some New Zealand-specific event were to hit (another big earthquake, major bio-security breach etc). I think diversifying beyond New Zealand is essential.
All asset classes spread around geographically makes for the best investment approach, although you do not have to have three separate portfolios like I do. It hardly needs saying that a strategy of owning little more than term deposits will no longer work – and low interest rates are not going to change any time soon. Yes, cash has its place (right now, in my portfolio, that is a big place) but living on interest rates in this economy, which we are likely to have for at least a few years, is not the best plan.