News you can use through the covid lockdown – 1 April 2020

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Here are some snippets of current financial information for you.

THE QUICKEST WAY TO LOSE MONEY RIGHT NOW IS TO MOVE YOUR INVESTMENTS INTO CASH

At present, the financial markets have fallen sharply in a very short space of time.  Financial markets hate uncertainty and we are all living in unchartered waters!

At present, the “problem” that is causing the financial issues is actually Government policy.  

To try to stop the spread of Covid – 19, Governments have basically closed down either sectors of their economy or their entire economy.  This is why Governments are introducing monetary and fiscal policy stimulus – the likes of which have never been seen before.  

As the NZ economist Tony Alexander explains it, they are time lords trying to shift our economy through time while keeping it in suspended animation.   

We basically need to get from here to there, and then life will restart. 

As we have seen from China and South Korea, the time from total lockdown to no domestic transmission is about 2 months.    

Following lockdown, it takes 2 to 3 weeks before the rate of new infections stops rising.  Italy, God bless them, must get getting close to the top of that curve now.  Others are just starting out on the journey. 

At some point, global transmission rates will start to fall, especially in Western economies.  Once that happens, and social distancing is relaxed, things will bounce back very quickly. 

The current drops in financial markets will be reversed at some point, and reversed very quickly.  

If you have sold out of shares and property assets and gone to cash, you will not be part of that recovery.    You have solidified the financial loss that your investment has made, and you will not have the opportunity to get that money back.  

By the time that you work out that we are in recovery, send your form off to get a switch actioned so that you are back in shares and property and the fund manager actions the switch, you will have MISSED the best part of the recovery.   

The biggest gains in a recovery are usually made in the first 2 weeks, and you need to be there on Day 1. 

There is no doubt that this is going to generally be a short term event for financial markets.  

In 6 months time, we will all be having coffee and congratulating ourselves for making it through.    PLEASE DO NOT have created a permanent drop in the value of your future spending because you acted out of feelings and not out of logic. 

MORTGAGE REPAYMENT HOLIDAYS

Banks have agreed to give clients whose incomes have been affected by Covid – 19 a six month payment holiday (principal and interest) on their mortgages. 

This is to avoid people losing their homes, especially if they have lost their job or had a severe reduction in income.

It is a brilliant initiative for people that are going to be in severe financial stress due to the nationwide shutdown. 

Mortgage repayment holidays

If you take a mortgage repayment holiday, you need to know that you are basically adding the money that you have not paid onto the end of your mortgage. 

If you have a 25 year mortgage term remaining, you will be paying interest on this deferred money for the next 25 years.   

If you do not need to take a mortgage repayment holiday, please do not take it just because it is offered.

BUSINESS INTERRUPTION INSURANCE because your business is closed

I have heard many people on talk back radio telling business owners to call their insurance brokers and get a claim in on their business interruption insurance. 

The definition of business interruption is that there must be a PHYSICAL LOSS to your assets (Building, stock or plant) to trigger a claim under this type of policy.  

This covers things like fire, earthquake, storm damage, a car coming through the front door etc.     Covid – 19 is not covered by business interruption insurance.   

 

business interruption insurance

However, if you have other business insurance, it is worth flicking your insurance broker an email to check if it is covered under any other policies that you may have in place. 

Thanks to Linda Kane from Vercoes Insurance Brokers for giving us the specific wording for this segment. 

WHAT IS HAPPENING WITH PROPERTY SALES?

The Law Society has issued guidance for lawyers. 

As people are going to be unable to complete pre-purchase property inspections, hire moving companies and going to be unable to move house under Level 4 lockdown, it has been suggested that all property settlements are deferred until 10 working days after the Covid alert level has reverted to Level 2.   

All buyers and sellers are being advised to add this to their contracts at the moment. 

Property Sales - Covid-19

Obviously, purchases of bare land do not require any movement of people, so these can probably proceed.   

Thanks to Michael Hunwick from Hunwick Law for providing information on this. 

 

If you need any financial advice at this point, please feel free to contact us by phone (07 9578190) or by email  [email protected] or [email protected]

Janet Natta is a financial adviser and director of Smart Money Advice, offering investment portfolio construction and management services to clients throughout NZ, as well as comprehensive financial planning advice to assist clients to build and protect wealth to achieve their dreams.
DISCLAIMER: The information contained in this article represents the views of the author. It is based on information believed but not warranted to be correct.   Any views or information, whilst given in good faith, are given with an express disclaimer of responsibility and no right shall rise against any of the authors or Smart Money Advice or their employees either directly or indirectly out of any views, advice or information.
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