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Voiceover by Te Kahukura: Welcome to How We Money. Brought to you by Māori millionaire and ANZ. A six-part series designed to help you make better money moves and achieve your financial goals. Each month will drop a simple, practical episode to help you build confidence with your cash. Māori Millionaire and ANZ. Care deeply about financial wellbeing in our communities, which is why we want you to not just listen but to take action. If you do one positive thing after every episode, that's six powerful steps forward. Let's get into it.
Te Kahukura: Nau mai haere mai e te whanau. Welcome back to How We Money. Today we are here with Jake Nicholson. Nau mai haere mai e hoa. Welcome to the show.
Jake: Thank you very much for having me. I'm excited to be here. It's my first ever podcast, so excited to talk.
Te Kahukura: Amazing. I'm so excited for our wānanga today. Would you like to introduce yourself to our audience before we get started?
Jake: Yes, I'm Jake Nicholson, I'm a Private Banker here at ANZ and a Financial Advisor originally from Wānaka, but now up here in Auckland I have been working in the Auckland office here.
Te Kahukura: Amazing. I'm really excited to have a korero with you today and learn a little bit more, a lot more actually, (hopefully) about investing in building generational wealth. So, I guess to get us started, what actually is investing?
Jake: So investing is actually a lot of things. So, we often think of it financially. But also, you know, there's investing in yourself. There's investing in your health. Every purchase that you make is an investment, whether that's yeah, like I said, in your health or in your education and your future investing can be a lot of things. Obviously, financial is definitely a big one as well.
Te Kahukura: Um, and, you know, something I wrote about in my book was like, every single purchase I make, I consider it like an investment. So, as an example, I used to spend, like, far too much money on takeaways. And so, what I how I kind of reframed it was like, every time I buy McDonald's, I'm investing in this. I'm investing in poor health. I'm investing in like, lower productivity, all of those types of things. So, you do think that for the average person who might be consuming this. Do most people kind of think of money in that way, or do people just kind of spend willy nilly?
Jake: I definitely don't think that's the common thought. You know, money is, is a vessel and it's a tool. Uh, and oftentimes we think of it as something that can get us something, but actually it goes a bit deeper than that. Money can be an asset, and it can be used to help financial freedom. And financial freedom isn't just the ability to spend on the things that you want. It's actually the ability to help the people that you want to help, to do the things that you want to do to chase your hobbies, chase your dreams, and have a bit of security in your life.
Te Kahukura: So, a lot of the work you do with private clients, so those are like high-net-worth clients over $1.5 million, is that right?
Jake: Exactly.
Te Kahukura: What are some of the things you've noticed about these people and how they utilise their money, how they invest their money? What are some of the differences, I guess, between those high-net-worth individuals and maybe perhaps lower net worth individuals.
Jake: I think actually, one interesting point that I've noticed is that these people are experts in their field. So, they've started a business or they've had a career that they're really, really successful in. They've been very driven. They've made a real success of themselves, but not all of the time, are they experts financially? They don't need to be investment experts because they actually utilise really good strategy and investment experts to help them. They know that leaning on the experts is actually where they can succeed. They don't need to start from scratch and learn the whole thing themselves. They've got their lane and they let the investment experts stay in there.
Te Kahukura: I love this so much. I was actually just speaking with a friend not so long ago about asking questions and how, you know, she was saying, I don't want to appear dumb. I don't want to, seem like I don't know what I'm doing. When I asked questions and what I said was, I actually think it's really intelligent to ask questions if you're asking them to the correct people. And I think that, you know, our minds are only so big we can't hold all of the knowledge in the world. But if we, you know, build our team and, you know, that could be Financial Advisors, it could be investment experts, whatever they are, then those people can help you in, I guess, like those weaker areas where we might not know as much. And we can leverage, like your experience, all of the knowledge that you've gained. And then you can support those people through whatever they're navigating financially.
Jake: Oh, absolutely. And I think, you know, again, going back to my clientele, they're often asking questions, you know, that it makes my job hard. But it's really, really interesting to see that from their perspective. These are people who, again, are very, very successful, but they don't focus on letting me know that. They focus on asking questions and learning, because that's actually what will make you more successful and help you grow.
Te Kahukura: Yeah. So, they're not afraid to, I guess, like, not know things. And they're so confident to just like ask someone.
Jake: Oh, and they're very upfront about the fact that sometimes they're not experts in the field of investments or finance. They're comfortable with that fact, and actually that helps them learn quickly. If you try and hide from that fact, what you're doing is you're setting yourself up for failure and a really slow learning curve.
Te Kahukura: Yeah.
Jake: But if you're open to it and you embrace it and you start being open to learning and listening, then it actually becomes a really simple process.
Te Kahukura: I love this so much. This is so interesting, and I want to come back to this later. But one of the things I wanted to chat to you about is for the average kind of person who's just getting started with financial literacy and, you know, they've got big goals of, I guess, you know, building generational wealth. I want to start off with those, like initial steps someone might consider taking. And I think one of the biggest ones is savings. I've had a lot of people go, you know, oh my gosh, it's so hard to save money, I save money, then I spend the money. For example, one of the strategies that I use is like I separate my bank into like, all of these different accounts and I have like an insurance account. I have like, all of these separate accounts so that I kind of have this, have this bird's eye view of my money. And what it does is it creates a lot of intentionality for me around how I spend my money. So, if I'm at the shop and I'm buying something that probably isn't a wise use of my money, if I have to pull it out of my fun account, I'm like, okay, I'm choosing to spend it on this, which means I can't spend it on something else. So yeah, I just guess that's something that I do to help me with my savings, but I really wanted to chat about some strategies people could use to start saving. But also like, what is the significance of actually saving money? Why should people save, have some savings, or should they? Could they? I don't know.
Jake: Well, it's a really good point, especially when you raise that whole point of actually sacrificing one thing for another. So, whenever you're spending on one thing, there's, you know, there's a cost there of you can't spend it on whatever else that might be. And like you said, separating those accounts out, actually makes it a lot more obvious when that's happening. If you have all of your money all in one account, sometimes it's not that obvious where the money's going and what you're spending it on and what you're sacrificing when you spend that money. But we always tend to think of, you know, three different types of savings. You have your everyday account, which is for your groceries. That's for your rent or your mortgage, whatever that might be. Right. And then you have emergency savings. So, these are for those, you know, accidental mistakes. You know, those emergencies where you crash the car or your car needs a repair, the fridge stops working. You don't want your yoghurt to go off. You need to buy those things pretty quickly. So, you need to have that kind of preparation. But then also there's those short to medium term goals. Maybe you have a hobby that you want to spend some money on and get some new equipment, or, you know, there's a trip coming up with with your mates or with your family that you want to save for those things separately, Separating it out in those three ways helps you A) keep your daily expenses for your daily expenses, and then keep those emergency funds so that you feel a bit more safe, a bit more secure in your day to day life. And then also when you go and spend that, that travel savings, for example, you don't feel guilty because you've worked towards it, that money set aside for travel so it doesn't feel like a guilty expense that you're taking away from something else.
Te Kahukura: Hmm. It also kind of feels like bad when I guess, like maybe you've got Europe 2026 and maybe your friends ask you to go to town. And if you have to take $100 out of your Europe 2026 fund, it's like, I don't want to do that. I want to go to Europe, you know? So, I feel like that's a helpful thing that I do of like being very intentional about, like the names that I put on my account so that I can feel that. But one of the pieces of feedback a lot of people have said is like, girl, you're a little bit crazy having that many accounts. That's so overwhelming. That's annoying. You know, for me, I don't find it annoying. I just transfer the money to my card, you know? And it's easy enough, like it takes two seconds. But for the average person, that actually might be really annoying and I can understand that. Would you say that maybe just having three accounts separated by those, those things, you know, your everyday living, your emergency and then those short to medium term, would that be sufficient for the average person?
Jake: Yeah, I mean everyone's different. You know let's clarify that. So obviously for yourself you're comfortable having a lot of accounts. But for some people that might really clutter their head space.
Te Kahukura: Yeah.
Jake: And it's important with managing your finances that you're really clear about what's going on with your money, where it's being spent and what your goals are. So, if that helps you be more clear about about your finances, then absolutely. I think that's a really good strategy. But if it helps, if it doesn't help, you know, clear that head space, then maybe you've got to think of another way of doing it. I think often times we we think we know what's going on, but when we put it down on paper or we actually, you know, create those accounts and put it on a screen. It helps us realise the gaps that we're missing.
Te Kahukura: So, when it comes to like safety net. So, for reference, I don't like calling my, you know, safety net and emergency fund. I just feel like it's just so negative. It's like, boring. Like I want to call it something that's like a little bit helpful or empowering for me. And for me it's like a safety net. It's like it gives me a little safety. Um, so I'm quite intentional about the words I use, but it doesn't really matter for whatever, whatever works for everyone. And I really think people should just use a strategy that works for them. Everyone's different, but when it comes to having that safety net or emergency fund, I personally like keeping like six months of my living costs just saved so that if anything happens, I'm good for six months. How much could the average person put aside for emergencies? What do you think is a reasonable kind of amount? Because I think there are some people who probably go a lot under, and then there's a lot of people who might tend to like, hoard money in a savings account when they might potentially get a higher return if they invested that money. And it kind of goes into that like scarcity of like hoarding cash. So, for the average person, what's a reasonable amount they might work towards having?
Jake: Well, six months is a really good time frame to use. But it's important to note what those six months of expenses actually looks like, that savings should be for your essential expenses. Um, you know, and and that might stretch out to things like the gym, which are, you know, part of your really core, um, you know, essential purchases, you know, those are the things that you might want to keep in those expenses for the six months, but maybe the things like going out every weekend or, you know, going shopping, whatever that might look like for you, your hobbies outside of that, that aren't so essential. Maybe you leave those outside of the the six month emergency fund that safety net savings. So, six months is a really good time frame to use. But also, it depends on your situation. So, for some people, you know their income is a lot more stable. Other people could be contractors or, you know, they're working as actors and sometimes, they're in work, sometimes they're out of work and for people in those kind of situations, maybe you think about having more savings because you want to be prepared for a longer time. And other people could be more stable, so they need less.
Te Kahukura: I also feel like depending on your circumstances, we might be willing to, I guess be a little bit less, like have less I guess in terms of those savings. So, you know, I'm young, I don't have children. You know, I feel like I don't have very significant financial responsibilities at this stage of my life. And so, I feel like I'm a little bit more likely to kind of be a bit risky with things and utilise every dollar I have to make the most out of it. But I guess I would say that if my situation was different, if I had children, if I had a mortgage and things like that, I would probably buffer that up a bit more. Would you say that's kind of the the approach people?
Jake: It definitely changes when you've got other people relying on you.
Te Kahukura: Yeah.
Jake: You know, that's what we find is that when people have others involved, it actually is even more important that you get that right. That savings piece is what you want to fall back on when things go tough. It's not that that's there for you to use all the time. It's a backstop. And I know you don't like the word emergency fund, but again, for those emergencies, like you said, it's a safety net, right? It's when things go wrong. You want to look after the people that are close to you. You know, whether that that's your kids, that's your family, your loved ones, your friends, whoever that might be. That's what it's there for.
Te Kahukura: So, I feel like a lot of people understand, you know, having your savings there. I feel like if you possibly haven't grown up around wealth and a lot of money, I feel like there's a focus on just like saving, saving, saving. Whereas the rich, from what I've read, from what I've learned from the people I've met. They don't say like they have their savings, you know? They're intentional about that, but they utilise their money in a different way by making their money work for them. Can you just share a little bit about some of the first steps someone might take to become an investor?
Jake: Yeah, absolutely. And you know, like you said, savings are the first step. Right. So those are the first three steps is getting those savings set up like we were talking about. But actually, next step, that fourth step is where investing comes in. And that's when we start thinking long term. So, we're thinking about what your goals are.
And let's actually get really tangible about it. Let's write those down. Let's think about what you want your future life to look like. Then from there you can start thinking about actually what's that? What's that going to cost me? You know how much am I going to need to reach those goals, to live that lifestyle that I want, to go on holidays every year, if that's what's what you're interested in, you know, take up your hobbies, to have a family life that you want to live. How much is that going to cost me – and what's the time frame? Because from there, investing becomes a lot more simple because it narrows down what your options are and what's actually going to help you reach those goals. I think, you know, for people starting out in investing, one of the most simple ways to get into it and one that are quite a lot of us are exposed to is KiwiSaver. So, KiwiSaver is great because obviously it locks away your funds for the big goals, which is buying that first home or your retirement. And what's great about it is that it sets up a disciplined strategy, right. And you don't have to have any discipline because the money never comes into your account. It goes straight into that investment. And what happens is that you start building that wealth over the long term while you're not even thinking about it. Right. That's not something that you have to focus on. It's actually something that's working for you in the background. That's what's great about KiwiSaver, right? But also outside of KiwiSaver, there's other options too. And that's where you start really honing in on those goals and figuring out what works best.
Te Kahukura: I just wanted to touch briefly on KiwiSaver. One of my favourite things about it is all of this free money you get from the government. Your employer, I’m sad, self-employed don't have an employer at the moment to help me get that match. But, you know, for the average person who could be an employee, there's, you know, if you invest $1,042, you'll get $261 from the government. And then there's the employer match, which I think when this episode comes out, it will be happening soon – the increase. So those are all cool. I think one of the things that a lot of people struggle with when it comes to KiwiSaver is not really understanding how it works. And I've spoken to a lot of people who, you know, have KiwiSaver and they're like, I want to get started investing. And I'm like, you are investing like KiwiSaver is an investment for the average person who doesn't quite understand what that means. Like, how does it work? Just briefly, we're doing another episode on KiwiSaver in depth, but very quickly. Would you be able to just share that?
Jake: Yeah, I'll touch on the investment side of it. So, KiwiSaver is an investment fund. So, you might hear the phrases ‘managed fund’, ‘investment fund’, ‘portfolio’. These are all synonyms for each other often in finance. So, you hear these different terms, and you go oh why are they all different - they are the same. So KiwiSaver is an investment fund. And what that means is you can think of it as like a basket, for example. So, you go into the grocery store and you've got a basket, you've got apples, you've got milk, you've got your bread, you've got everything in there. And what happens when you put your money into KiwiSaver, is that your KiwiSaver provider will take your money and spread it across everything in the basket so that you get a really diverse range of, in our analogy, foods. But in your KiwiSaver example it's investments. So that's stocks which are investments and companies and bonds as well, which are another part that are more conservative or a safer option. So, there's a lot of different options and there's a lot of different things that your KiwiSaver invests in – and that's managed by a team of experts for you.
Te Kahukura: So, a lot of people don't like that it's locked away. They can't access it unless they're buying a house or retiring and they kind of want to invest, but they want to do something a little bit different. Maybe they're utilising KiwiSaver for those government contributions or employer match. And then maybe outside of that they still want to invest, but they want to do something where they could potentially access that money. So, I was looking at this page that ANZ has all about ‘planning for the future’ and what's one of the first things was starting small and then it went into KiwiSaver. So, we've covered that briefly. One of the biggest ones, though, was investment scams. And that's actually a very common question that I get from a lot of people. Like, I'm thinking about investing, but like, is this legit? How would you approach, I guess, assessing if a platform or an investment is kind of obviously there's always risk involved with investing, but to make sure that you're not getting scammed, how do people do this?
Jake: So, I'll start by saying that like you mentioned, there's always risk in investment. So, when you're investing risk is part of the parcel. So, you're always going to have risk involved. But there are different types of risk. And often there are signs that you can get caught up in in the time but in hindsight are quite obvious when you see investments that are offering, you know, things that are outside of the normal expected range, they're offering 20% a year. That's just a red flag. Immediately, you've just got to start thinking, if it sounds too good to be true, then it probably is. I think investing works so well for people because they have a really long-term view on it, and they allow the investments to grow and build over time, not because they're chasing really quick, short term returns. And if you find yourself starting to look really short term and at really high returns, then maybe you're a victim to a scam. You know, you maybe start asking some questions, talk to people around you. You know, just get some advice from your family or your friends. You say, hey, does this look legit to you? You know, ask those questions. And often an external lens can help you kind of figure that out.
Te Kahukura: Yeah, I guess with a bit of just for some people, I feel like maybe their friends and their family, aren't they, they could also be susceptible to those same scams and risks in. So, I feel like for some people, their friends and family might not always be the best people to ask, are they? You know, how would someone go about like, are Banks, the FMA? Like, how would someone really kind of do it if maybe their environment or the people in their environment, maybe this is new to them. Maybe their family thinks that the share market is a whole scam, or maybe their family thinks that KiwiSaver is a scam. And I feel like if you just go to your family and your family thinks those things, they're going to be like, nah, nah, girl, the Stock market, it's all a scam.
Jake: A lot of people, a lot of people do have that opinion, you know, that investing is risky. And because like I said, risk is part of investment, but it's also something that you have to embrace when you're investing. So, what you want to do is start with research online. Obviously, you know, big names that you know and have a really trusted reputation, that can help. And if it's something that you don't know about, that's when you really want to do your research? You want to do searches online about where their background is. You know, is this someone that you're talking to? Can you setup a call with them? If you're getting emails and maybe messages on a social media app. Is there a real person you can talk to, maybe, that will help start to identify whether it's a scam or not? Again, that research thing when you're looking online. Are there reviews? Reviews of different companies or investment profiles that actually will help you realise it's real people that have done this before then maybe that'll help too.
Te Kahukura: Hmm – it's quite tricky and I feel like these bots and everything like that make things quite scary. So, I would just like, urge the audience to just, like, double check things.
Jake: Absolutely. And with AI at the moment, I mean, you can't even tell if it's a face that you know.
Te Kahukura: Exactly.
Jake: Because that could be someone, you know, it's AI generated saying things that looks exactly like someone you know and you you've seen on TV and they've got that same logo that you recognise in the corner, but it's actually not them. So, you know, look at their page, look at their followers, their reviews. Does it look legit? Start building a profile around that. And as much as you can do is always a good thing, right? You know don't stop at one. Keep looking into it. Keep researching. Keep asking questions. Ask people around you whatever you can do to build that comfort. That's always, always a good thing. I mean, there's no risk in that.
Te Kahukura: I recently had to invest in the blue tick, the verified thing because I think in the financial education space, there's a lot of fake accounts that get created, and they offer people these work from home opportunities and some other, you know, crypto things and just things that are just so, you know, to me, when I look at it, I'm like, that's just crazy. Like, that's, you know, getting rich quick is not a thing. Like there might be the rare anomaly that, you know, someone suddenly kind of like wins lotto or whatever it is. But even the people who win lotto, you know, you can win lotto. But if you don't have any financial education, a lot of people will just lose their Lotto money. And so, I just wanted to touch on this briefly around get rich quick because it's very, very unlikely. Yet a lot of people fall for the idea that it is possible. And as AI gets, you know, smarter and all this kind of stuff, I think that the most vulnerable communities are going to, like, bear the brunt of this a lot more. Why do you think that people kind of fall for this?
Jake: Well, like you say, the more vulnerable people tend to actually fall for it more often. And that's because when you need something and you really, really need it, or you really, really want it, you start believing it to be true and you and you're really pushing yourself into hoping that this get rich quick scheme is actually the way out of whatever problem you're in or the way into that future that you want, right?
Although it happens, getting rich quick is often never the case. Right. And there's a quote that I love, and it's that people often overestimate what they can do in a year, but underestimate what they can do in five years. So, for people in that kind of get rich quick mindset, actually take a step back and realise that you can do a lot more in over a long time than you really understand. With a really good investment strategy, talking to the right people and a good investment, you can do really well over the long term, but you have to have that long-term mindset. You have to be willing to go through the course
Te Kahukura: Very quickly e te Whanau, if you are enjoying today's podcast episode, make sure to share it to your story and tag us. All right, back to the show.
Te Kahukura: Prior to starting my financial journey, I was also the person who was buying ‘scratchies’. I was like, I didn't have a car. So, I was like, well, if I buy scratchies, I might want a car and all that kind of stuff. And for me, it felt like like, yeah, exactly what you were talking about – that hope piece like, oh, hopefully, like my life just changes drastically and everything gets better for me because it feels very far away for a lot of people. When you know, your net worth could be zero or literally in the negative. And when we're talking about building generational wealth over the long term, over like, you know, 50 plus years or whatever it looks like for people, it's like, that's crazy. That's so far away. My mindset is like, well, the time is going to pass anyways. So, like, you may as well just do it. And then like, this is, you know, the probability of it working out if you, you know, make sure you get good advice and you're investing and uh, you know, obviously always risk. But if you take all of these like aligned actions, it's probably going to work out for you. But just taking no action, it's like you're it's definitely not going to work out for you.
Jake: Absolutely. And yeah, the biggest risk comes from taking no action. You know, inflation is real. And it's something that not a lot of people actually fully understand. But you know, with inflation is that your dollar now might not buy you the same things in ten years’ time. So, you've actually got to start preparing for that and understanding that if you have long term goals, you've got to mitigate the effects of that inflation and the growth that you have on your money actually has to beat that. If you want to be able to spend more in the future.
Te Kahukura: Mmmm – this is interesting. I want to go into this like okay? What are the tangible steps someone would take to, you know, take advantage of this to be able to, you know, grow their money, make their money, work harder for them. People hear this stuff. They see it in books, but they're like, but what do you actually do? What are those steps that someone should take? Maybe they’re in KiwiSaver they've got their savings. They've got their money plan. They're doing all of those things, and there's a little bit of wiggle room within their finances and they're like, okay, I want to invest. What are those steps someone should take or could take to get started?
Jake: Yeah. So, like we talked about before, obviously you start with your goal, you get your time frame right. But from there what do I do? Where do I go from there? I want to invest, but I don't know where to start. Well, there's actually a lot of options, right? But you know, a few of them that are quite common are investing directly in stocks. So, what you're actually doing when you invest in stocks is buying ownership of a company. You're buying a tiny little bit of ownership of let's say, an Apple stock. So, you're buying ownership in Apple. And then if people believe that Apple is going to do well, then the demand for your ownership of Apple is going to go up in price and then you can sell it for more money and obviously vice versa. That works in the opposite direction. And there's a lot of platforms out there and again, talking about investment scams – make sure you do your research before you invest in something like that. But there's a lot of platforms out there that have that option to invest directly in stocks. But you know, outside of that, for the beginner, you know, you might not know what stocks to pick and you might say, hey, I'm not I'm not an investment expert. I don't understand all of these companies. And that's where the different options come in. So, something like an Investment Fund, for example, allows the investment experts who do this every day, who sit down with their Excel spreadsheets and monitor the markets and talk to the right people to make the decisions about your money on your behalf. And their job is to mitigate risk. So, reduce your risk by diversifying across a whole bunch of different companies and different different assets, so that your money is not affected as much by one company. So, if there's a problem with one company, actually you've got hundreds of companies in your investment fund, so it won't be as affected as if you were all in on one company. So that's one of the benefits of investing in an Investment Fund. There's a lot of different providers out there, and there's actually a few good websites out there to compare them – sorted.org.nz is a great way of doing it. You know, I obviously work in a space where I'm talking about ANZ Investment Funds often and there's a lot of different options within that space. So, you know, less risky, all the way to more risky. And and obviously risk and return are correlated when it comes to investing. So, we always have that rule that you know less risk, means less return. More risk typically means more return. And so, you know, when you're when you're looking at your investment and you're looking at how much return you want, you want to pick something that you're comfortable with because there's no point getting into an investment and then pulling out a month later because you're too nervous about the market. You really want to be able to sleep at night. Be comfortable with your decision and stick to that strategy for the long term.
Te Kahukura: One of the most common questions I get is like, I'm 65, I'm too late, I'm too old to start now. And, you know, I look at the history of the markets, and you know, obviously those can't predict the future. However, when I look at like, 08 and say the house prices back then, they've raised astronomically since then. And I think that a lot of people forget that. You know, as much as we can't guarantee the future returns, things will probably most likely continue to rise. And so even if you're, you know, a bit older, is this still the opportunity to like, maximise this or to take advantage of this?
Jake: Yep. I'll start by saying. Absolutely. I'll hit you with a quote again – the best time to plant a tree was 100 years ago. The second-best time is today. So yes, it was better to start investing ten years ago, but there's no better time for you now than to start ASAP. So, in the realm of investing, 60-65 is actually really young.
Te Kahukura: That's crazy.
Jake: I know you've got a lot of time ahead of you, and you've got a lot of time to prepare for your future generations, to prepare for your retirement. You know, you're living, your hobbies, etc. so you really want to get started on that whenever you can, because investing is a long-term thing. But hey, that's, you know, a 5-to-10-year horizon as is long term. So, for someone who's 60, 65, it's definitely not too late to start. In fact, I talk to clients all the time that are in that age range and encourage them to invest. Absolutely, if it's something that's right for you – your age is not the issue here.
Te Kahukura: So, I guess like in Te Ao Māori, we don't look at the individual and like this one person. Like everything that we. We do. It's like about the next generation. It's about thinking about, like, what seeds can I plant now, mō ngā mokopuna, like, for generations to come. So are you kind of saying that, potentially you might not experience if you're, if you're that older age range and maybe say, for example, you've got 50 bucks a week to spare, which I feel like there's a lot of people who probably don't have that. But there's also some who might if they've got, say, 50 bucks and maybe they're not going to like, build their millions in their lifetime if they start at a later age. But you're kind of saying, but you could still be able to leave something for your family when you die. You can, uh, you know, potentially if you've got that KiwiSaver, uh, all these other investments could help, you know, cover like a tangihanga, your funeral costs. So, you're saying it's if you're that older age and maybe there's a little bit less time to invest in your lifetime. It's still going to be beneficial for that next generation.
Jake: Absolutely. Yep. There's two points there that I'll touch on. So firstly, is setting up a ‘Will’. You know that's really important. Not for yourself because you won't be around. But it's actually for the people that you're leaving behind. And when you get that set up, A) it makes their life easier in a time of real need and grievance. But also, you know, what that does is allows them, you know, the future generations, to take over what you've built for them. And the second point is actually building that, right? So, investing over time and thinking about those future generations ahead allows you to think with that longer term mindset, because you're not just doing it for, you know, your years on earth, you're actually doing it to pass on to your your kids or your grandkids. And if they stay invested, that really extends out your time frame and and gives you that long, longer view. So, when you're investing actually one of those goals that we talked about. One of those goals could be to pass on that nest egg to your kids, to your grandkids. It doesn't always have to stop at you and your life and your retirement. It can actually be about helping your whanau, helping that next generation.
Te Kahukura: I really love this for whakaaro. So, if you've got, you know, say even if it was $5,000, $10,000 that you were able to leave your whanau and then that next generation can continue to invest that money. What happens when someone's investing over a very long period of time? Because you can get that interest. But there's something called compounding interest. And I think a lot of people, you know, don't quite understand this. Is it like the seventh wonder of the world. Do you have another quote for us about this?
Jake: That's true. Albert Einstein said it was the eighth wonder of the world.
Te Kahukura: Oh eighth . . .
Jake: And you know, if Albert Einstein saying that you probably should start listening, because compounding interest is a tool and if you're utilising it correctly, it really helps generate that wealth for future generations. That's when we talk about generational wealth. Compounding interest is one of those really useful tools to actually help create it. So, to explain compounding interest to someone who hasn't really been introduced to it before, you know, let's say you invest $100, you get 10% return on that, you get ten bucks. So now you have $110 bucks. Next year when you get another 10%, let's say for this example, you're actually earning interest on $110 rather than $100. So, what it means is that you're actually earning interest or a return on not just the amount you invested in the first place, but also the previous returns that you've had in different years or months. Your money is actually growing exponentially. So that's where that long term view actually starts helping you with that compounding interest. The longer you invest, the more your money grows. And that's not in a straight line. That's actually more and more with every year that goes on.
Te Kahukura: For those who haven't heard the kupu, the word ‘exponentially’. Can you explain in simple terms what this is?
Jake: Yeah. So, it's not just that your money's growing, it's that the rate that your money is growing increases. So, you're actually increasing the amount of wealth that you're generating year on year. And that's where you get to grow a lot over the long term. And what you see is that at the start that looks really small. That's $100 to $110. But at the end of the cycle, actually you're earning a lot more, a lot quicker.
Te Kahukura: This is interesting. So, if someone starts off, say, investing five bucks a week. You know, maybe at this point in time, that's what they can do. But their focus is on building discipline when it comes to investing and just investing. Dollar cost averaging. Maybe talk about that if you want. But you know, investing dollar cost averaging say $5 every single week. And then maybe they get a pay rise and they can start doing $15 a week and then $20 a week. And it just kind of goes up from there. So, they're not only increasing how much they're investing, but also the return that they're getting on their investment is going up too. And so, it's just growing and growing and growing. And then is this how we all become rich?
Jake: Well, that's the thing, right? Is that like we talked about your money's working for you, right. So that's where the compounding interest comes in. And you touched on dollar cost averaging, which is a really useful tool as well. And that's more of a strategy of how to invest. And you know maybe I'll explain that too. So, dollar cost averaging. Let's give another example. If you buy into a fund at $90 and then a month later you buy in at $110. Dollar cost averaging means that between those two is $100 is the average. So that's your average cost. So, what dollar cost averaging allows you to do is invest with a routine, is to stay disciplined and actually reduce timing risk. Because often people say, hey, I don't know, when's the best time to invest? I don't know when markets are going to go up and down. Well, dollar cost averaging is a really good way of mitigating that and saying, actually, I'm going to invest consistently over time because history has shown that over time markets do really well. And then I don't need to worry about timing, timing the market. I just need to be in the market over the long term. And you touched on, hey, I've only got $5 to invest. I think it's actually really important to stick to a strategy that you can stick to something that you can go through all your life with. Actually, you know, you can start it now and build it over time, but it's really important that it's something that you can do and that you don't fall out of really quickly. Because investing is a patient game. You're planting oak trees here, not house plants. You've got to stick with it for for the long term. That's when you see the benefits, that's when you actually get that growth.
Te Kahukura: So are you saying that since there's, you know, investment funds there’s people who research this for a living, that people that do the Excel sheets and read the markets and everything like that. And then there's these strategies like dollar cost averaging where you don't even have to know what the market's doing. You've got an AP set, you're just doing it every single week or wherever your pay cycle is. Are you saying you don't actually have to be like that smart to build generational wealth?
Jake: Investing is actually simple. You know, you can make it as complicated or as simple as you like. And for those who are really, really into it and love it and breathe it, you know, you can make it really complicated and you can get into the nitty gritty details. But to be a successful investor, you don't need to do that. You actually can keep it simple, have a have a basic strategy that you stick to and, and a good investment that is diversified and mitigates risk. And actually that's all you need.
Te Kahukura: I could literally talk about this stuff all day. It's so exciting. But I wanted to go into some like low-risk stuff, bonds, things like that. And then I guess some medium risk things, some potentially higher risk things, um, things in assets. And I guess how does someone decipher what they could potentially invest in?
Jake: Yeah. So, it's important to note that, like I said before, you can invest directly into one bond or one asset or one equity. One stock. Or you can have a wide range of things. But to kind of talk a little bit more about the spectrum of of risk bonds are typically at the at the bottom end of that risk. So that's basically a government bond for example, is is practically you lending money to the government and they'll pay you interest. And a, you know, a corporate bond is you lending money to a company and they'll pay you interest on that. And that's a guaranteed return, assuming that the government or the company doesn't go under and can't pay you back. Right. And then you shift to stocks and people might use the term equities or stocks. That's the same thing. So that is a little bit riskier. That's depending on what the market thinks of that company. So that goes up and down over time and the return isn't guaranteed. You don't know what that will be. Um, but again, with the right research and the right investment team behind it, people can make strong predictions. Where that all comes together is actually spreading your money across multiple of each. And that's what an investment fund or a KiwiSaver actually is. It's a few bonds and a few equities or stocks, and they're all mixed together so that you get a bit of both. And the ratio between the two helps identify what risk profile you're in. So, you might have heard of a conservative fund or a growth fund. A conservative fund is is more risk averse. So, it's less risky. A growth fund is more risky and has that higher return. And so, the growth fund will have more stocks in it and less bonds. And then the conservative will have it'll have more bonds and less stocks. Also to note and there are often oftentimes there's other assets. So, there might be gold commodities like silver. There might be property there. There's a bunch of different things that are also included in that. And those are funds that you can invest in as well. And, and you can invest in them individually or as part of a wider investment fund package.
Te Kahukura: So, I've heard some investors will maybe put, say, 90% of their money into some Managed Funds where they're, you know, potentially they've got a long time horizon. So it could be potentially high risk, but then they might allocate, say, 10% of their portfolio towards I guess just being a little bit creative, higher risk maybe where they might invest in individual companies where obviously the risk is a lot higher, that, you know, if I feel like at the moment there's a lot of news about different companies and what's happening with them and, you know, political things and, you know, people, you know, not agreeing with how CEOs are and things like that. So, there's a lot of volatility with that. I would love to just go into this a little bit, because I think people talk about potentially having a smaller portion invested in those types of assets. What would you say to people who are like considering that? Is that something that is, you know, wise or potentially something people could do?
Jake: Yep. So how I'd look at that is maybe you start start with your goals and you think about meeting them through the more traditional means that are maybe less risky and, and you have more confidence in. But outside of that, if you have a real interest in investing and you really enjoy looking into companies and doing your own research and maybe you find that really fun, there's nothing wrong with putting some money aside for that purpose. So, remembering that it's different for the than those long-term goal funds, but keeping some money aside to invest in things that have a higher risk to return ratio and that, you know, get you excited about investing that keep you interested and maybe something that you've, you've heard around, around the barbecue with, with your mates and you want to look into and maybe have a little bit of investment for fun rather than for that long term goal, then. Absolutely. By all means, go ahead with that. The important thing to note is that, you know, when you're having those barbecue chats with your mates and with other people, it's important to do your own research. It's important to look into to what you're getting into. You know, crypto's one that's always thrown around. You want to look into why you're buying it. What do you think is really going to drive the return in this, and what are the fundamental reasons behind that? You've got to do your own research. As much as you trust James, you know, your best mate.
Te Kahukura: Your uncle.
Jake: Or whoever it might be, you've got to do your own research and be comfortable with it yourself. I think we've talked a lot about risk, but maybe we dive into what risk actually is as well. I mean, volatility is a term that gets thrown around. And in simple terms that just means ups and downs. So, more volatile funds or more volatile stocks or crypto or investments are going to move up and down a lot quicker and a lot bigger movements. So, it means that one day you have really good returns, the other day you have really bad returns, less volatile investments, like for example, your bonds are really consistent, so they don't have as much up and downs as the others do. And when investing, it's really important to understand your tolerance for those things. There's some really cool tools online to understand your risk tolerance. What you really want to to gauge from that is if this investment was to move X amount, would I be comfortable sticking in it for the long term? Because like we said, investing is a long-term game. You can't be in and out. That's not that's not the game. The game is staying in it for the long run. You have to be comfortable to be able to do that. You have to be comfortable with risk, with ups and downs, with the volatility.
Te Kahukura: So those like high-risk things, things like crypto or those individual companies, it kind of sounds like low key, kind of like gambling like, if like for those like little, well you're taking a lot of risk where it's like, this could go one of both ways. You know, this company could literally not perform well. And then your investment is down 100%. But would you say, it's more of like a fun little thing, but not it's only going to be a small portion and only the amount that like you are okay to lose.
Jake: Yeah, exactly. What you're okay to lose is you know what you should be investing in these. But, you know, it depends what you're investing in, whether it's more gambling or educated guessing or maybe actually investing. You know, there's different types of everything. You know, there's different companies. There's your Apples, your Googles, your Microsofts that are really well known and, and are what we call blue chip stocks. So, they're really well known and established companies. And there's also really, really small companies that are a lot more speculative, that are a lot higher risk. It's the same for Crypto. You have your well-known ones like Bitcoin, but then you also have, you know, ones that are pump and dump schemes that you've got to be really cautious of before going in. And that's, you know, that's where you're more gambling lies and those lower ones, but you can have more confidence investing and in those more well-known and robust ones if you do your own.
Te Kahukura: Yeah. As part of this, I just wanted to kind of share a little bit of context for those I think about. Yes, my journey was investing. I think that Māori and Pasifika had disproportionately higher risk of, say, gambling, I can't remember. It might be four times as likely as the average New Zealander to be at risk of gambling harm, and I myself understand how my brain works, and I try and avoid things that could be potentially addicting. And so, if I can see that, say, for example, you know, Crypto has gone up by 400% or something like that to me that's like, boom, a lot of dopamine. And so, I try. I know myself and I understand my limits. And so, for me, I like to, you know, I prefer investing in managed funds because I just know I know that about myself and I that's how I like to do it. So do you think that how would someone kind of assess like, could this because I feel like some people might take it in a with their being a bit, a lot more risky than what would potentially be wise. Like, it could fall into that gambling kind of territory. How would you kind of assess about being able to do this?
Jake: Yeah. Like we said, you know, separating those funds out for your long-term goals and meeting them with those traditional strategies. Right. When you start chewing into that, that's when you start realising that maybe you've gone a bit over the top, that you're actually taking risk with money that's set aside for something that's really important to you or really important to your family. That's where it's actually really important to have those conscious boundaries, right? That's money for this purpose. That is money for this purpose and the money outside of it. That's what you can afford to lose. That's what you can have that fun with. But keep it to that. And there's nothing wrong with having fun and enjoying yourself and doing your research and putting a punt down on, on this company that you've heard of and you're really excited about. But it's really important to know that that's actually outside of the scope of the other investments that you have. Keep it separate, make it really conscious, and be aware of when you're going across that line.
Te Kahukura: Hmm – this is so interesting. I could literally talk for days about this stuff. So, you know, starting small, getting setting a goal and kind of working backwards from that. So, like, how much money do you actually want? What kind of retirement do you want? You know, starting with KiwiSaver and making sure to maximise the benefits that KiwiSaver has. Uh, considering your time horizon, how long you have to invest? Uh, understanding your risk tolerance, doing some research on like lower risk, medium risk, higher risk funds or what those actually are, those are some really, really awesome steps. Are there any that I have missed for anyone who has, you know, listened in, are so keen to get started investing. Um, I may have may have forgotten a few . . . are there other important ones?
Jake: I think there's one important step that we're missing, but anyone listening definitely isn't. And that's the education piece. You know, the fact that someone's listening to this podcast right now and is interested and bettering themselves financially is interested in investing. You know, they've already taken that first step. So kudos to you. Um, but that's actually a really important, important piece to listen to podcasts, read books, talk to people you know who are involved in investing or finance and really gather that momentum behind yourself and just believe you can do it because you can. Everybody does. It's possible, you know, KiwiSaver investment funds, they're out there. They're available. There's people to talk to – Investment Advisors. You know we're out there and happy to talk.
Te Kahukura: I have absolutely loved this time together with you and are learning all of these things. So, I just wanted to thank you for your time today, Jake. I've really appreciated it. And I know that there's going to be so many nuggets of wisdom for everyone listening in to today's episode. So, e mihi ana e hoa, thank you for your time today.
Jake: Thank you so much. It's been a pleasure.
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