In this article, I’m going to cover off some of the issues around insurance and investments in light of the current Covid-Correction that is occurring.
To get you started, have a listen to this fresh podcast with ASB Senior Wealth Economist with ASB, Chris Tennent-Brown. If you have KiwiSaver or you want to know what’s going to potentially happen with interest rates, this is an important podcast to listen to.
By now, you may be spending more time with your kids, with your spouse, but not with your employer. It’s weird, it’s uncertain, and who knows when it’s going to end. Here we are though.
So here’s part two of my ‘broken-record’ summary of a hundred or so conversations had this week, between me and some of my clients, who are justifiably concerned about current events. In this article I want to cover off some common Covid-19 questions all centred around insurance and your investments such as KiwiSaver.
Will my insurance cover me during this time?
This will depend on what type of insurance cover you have and what event you feel you need to cover. Keep in mind the following:
Income protection covers you for the event of not being able to work due to illness. Income protection policies do not normally cover you for redundancy events – if in doubt, check your policy documents.
Life cover pays out if you die. Full stop. Does it matter if you get hit by a train, fall out of a plane, or accidentally fall off a cliff – no! Does it matter if you die of AIDS, Ebola, Cancer, an accident, or some random virus – no. If you’re dead, you’re dead – life cover should payout.
Travel insurance covers you for ‘unknown’ events – we’re dealing with a known event now. Contact your travel insurer if you are going away soon, assuming you can get out – you may not be covered for losses associated with this event.
Try your best to retain your insurance cover during this time, and if you’re struggling due to a job loss, get in touch with your insurance adviser or the insurance company directly. They may be able to offer some short term solutions to assist in the form of premium holidays and suspension of cover. Try your best to keep your insurance in place during this time but do what you have to do here. Before changing anything, doing a budget and cutting costs on streaming services, subscriptions, memberships etc., should all be considered as a first option.
What should I do with my KiwiSaver or other investments?
Investing is a predetermined, long term move in a consistent direction. Investing is not about buying/selling reactively – that’s what we call ‘trading’. In the long term, trading doesn’t normally pay off. The house always wins. Keep calm and carry on is the trite, but accurate, expression to use here.
Moving to a conservative fund right now with your KiwiSaver fund will ‘lock in’ paper losses. Volatility, or changes in the value of your investment, usually go hand in hand with higher returns over a long time horizon. If this is hard for you right now, think about changing your fund after this storm has passed, not in the midst of it. This is happening now, so be brave, hang on for dear life, and invest according to the outcome you’re trying to achieve.
You may want to consider going on a KiwiSaver ‘holiday’. It’s not really a holiday, don’t get excited – but you can cease contributions for a time by going here to apply.
What about alternative ‘safe-haven’ assets like gold, silver (physical) and bitcoin? These assets should in theory, perform well during this time, but will no doubt drop along with everything else, as traders have to sell [anything] to cover positions. We haven’t really seen gold drop by a significant amount yet but we’ve seen this with silver. It’s always wise to allocate some of your portfolio to alternative assets like gold and silver but, good luck trying to find a dealer who can supply precious metals within a reasonable timeframe at the moment.
I’ve been bullish on Bitcoin for several years now. An alternative monetary system which operates outside of the current system has never looked so appealing as it does now. This potential spike in demand and interest (from the everyday investor) will likely push up the price. Happening at the same time is the famed Bitcoin ‘halving’ event where supply of new Bitcoin will be further limited.
After a time though, what’s shiny really begins to shine and what’s currently ‘alternative’ becomes mainstream. If you want a history lesson, check out the price of gold in the 4 years following the global financial crisis of 2008.
What should I be buying at the moment?
When to buy and what to buy is the wrong question to be asking – usually it’s a sign that you’re about to make a financial decision driven by emotion. Emotion that’s currently being informed by a potpourri of social media and panicky phone calls to friends and family. Current economic events can show us things that ideally, we should keep in mind later on.
Investing is a long-term game and the decisions you make along the way should be made with all of you, not just the emotional part. If anything, use current events to help inform what you would insert into your ‘ideal’ portfolio. Perhaps you have a core which is passive funds, and direct property ownership? Maybe around the edges and to a smaller degree, you own direct shares, start-ups, and some alternatives. Now’s a good time to design such a portfolio, but take care in executing anything during this time.
In summary, we all like to think we’re rational individuals who respond clinically to unforeseen risks, but in reality, when the world throws a curve-ball at us, we often react with way too much emotion. Our feelings are not great motivators for making smart money moves. Keeping a clear picture on what your long term investment objectives are, is key during these short term periods of scary uncertainty. Insurance keeps us from missing the long-term targets we’re aiming for, and investing is about expanding your footprint in financial markets. We use tools that are far from perfect to do this, but the extra return you get from a well made portfolio, is compensation for seasons of volatility you may need to occasionally endure.