June wrap up - Investing during a cost of living crisis

12 July 2024 / Published in News & Stories

By Frank Jasper, ASB Investment Committee Member and Investment Strategist

It was another strong month for growth assets like shares in June with continued outperformance of US technology companies leading the market higher. There was also good news on the inflation front with data suggesting inflation is falling. This put the possibility of central bank interest rate cuts back on the table and led to a fall in long term interest rates, boosting the value of these investments. It was a good month for investors.

But for Kiwis under pressure from the cost of living crisis that may be of passing interest only. It can be hard to think of the future when the present is so challenging. 

It was my third form Economics teacher (that's year 9 for the younger readers) who first gave me a formal definition of why we save. We forgo current consumption in order to consume more in the future. Saving, and then investing is, by its very nature, a long term commitment. 

The cost of living crisis has made thinking about the future, let alone saving for it, hard for many people. A recent article in the Bay of Plenty Times1, leading with the headline "I lie awake worrying about money" highlights the plight for many kiwis. "Horrendous, impossible, stuck" is how they describe the challenge of making ends meet. The article goes on to highlight that KiwiSaver financial hardship withdrawals have more than doubled in the year to April 2024. 

To be able to build the future we want, we not only need to manage today but also have a plan that helps us feel more in control of our financial lives. 

There aren't easy answers for getting this balance right in a cost of living crisis. I am acutely aware that we each have our own unique circumstances and that not all of the comments below will be suitable for everyone. But there are, I believe, steps we can take to help us rest more easily at night despite the cost of living crisis. Some of these are things we can do as your wealth provider, some are decisions that rest with you. They will make a difference.

Building strategies that work

Building robust portfolios that can perform in a range of different environments is a key consideration when we construct portfolios offered in our wealth products like the ASB KiwiSaver Scheme or ASB Investment Funds. An inflationary environment, like the one that has led to the cost of living crisis, is an important scenario we have explicitly considered. 

There are three key inflation flighting attributes in the portfolios we build on your behalf:

Growth assets are more resistant to inflation - when we design portfolios a key investment objective is to grow your wealth in "real" terms, that is generating returns in excess of changes in the cost of living. Over time this builds purchasing power. It is the growth assets, like shares and property that are most resistant to the effects of inflation. Ensuring the portfolios have the right exposure to growth assets, while delivering an acceptable level of risk is an important way that we can make the portfolio or fund you're invested in, more resilient.  

Diversification is critical - while growth assets are part of the solution for building resiliency, being diversified across different industries and different countries is critical and a key plank of our investment strategy. The divergent performance between the US and New Zealand share markets over the past year paints this picture well. New Zealand's more interest rate sensitive market (NZX50), declined -0.8% over the year to 30 June 2024 while the US share market (S&P 500), fuelled by the tech behemoths, is up 24.7% in US dollar terms over the same period. 

Be dynamic - every economic and market cycle has its differences. Being dynamic, adjusting portfolios to anticipate and reflect the cycle, is an important tool we have to enhance returns and manage risk. Over the past year, for example, we have included an allocation to gold in all of our core diversified portfolios. As an inflation hedge gold has a long track record and has risen 22.1% in New Zealand dollar terms over the year to 30 June 2024.

What you do makes an even bigger difference

Every dollar you save counts, so does your choice of strategy - while saving is hard as higher costs hit household budgets, it is doubly important to make sure every dollar saved works as hard as possible. For investors, and this is particularly true if you are just starting out, adopting a more aggressive strategy with a higher weighting to more inflation resistant growth assets may make sense, depending on your situation and attitude to risk.   

Try and stay in the game - while it is tempting, or may be unavoidable, to halt regular contributions to your investment, trying to at least save a small amount will help over time. Specifically, for those eligible KiwiSaver investors, it can maximise the value of annual government contributions, which boosts effective returns. In addition to this, even small contributions help you keep your saving habit going. 

It takes a team

Ask questions, seek advice. We are here to help - this is the time to talk. We can assist you with developing a long-term financial plan that can flex as your circumstances change. The most important part of this is helping you feel empowered and more in control of your finances. 

If you'd like to discuss your investment in the ASB KiwiSaver Scheme or ASB Investment Funds, remember you can always contact the ASB Wealth team. For the ASB KiwiSaver Scheme, call 0800 272 738, or for ASB Investment Funds call 0800 108 084. You can also request a call back.

1. https://www.nzherald.co.nz/bay-of-plenty-times/news/cost-of-living-bay-of-plenty-middle-income-families-describe-struggle-to-make-ends-meet/HHCF5YZYZ5B6VPXQ4NFDY767ZU/

This material provides general information only. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any financial product in any jurisdiction.

Interests in the ASB KiwiSaver Scheme and ASB Investment Funds (Schemes) are issued by ASB Group Investments Limited, a wholly owned subsidiary of ASB Bank Limited (ASB). ASB provides administration and distribution services for the Schemes. No person guarantees interests in the Schemes. Interests in the Schemes are not deposits or other liabilities of ASB. They are subject to investment risk, including possible loss of income and principal invested. For more information see the ASB KiwiSaver Scheme Product Disclosure Statement or the ASB Investment Funds Product Disclosure Statement available from this website and the register of offers of financial products at www.disclose-register.companiesoffice.govt.nz (search for ASB).


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