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Frequently Asked Questions
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Please also refer to "Jargon Explained".
For answers to other general questions on financial planning refer also to the articles we publish in the Evening Post in Your Money Column.
LYFORDS: The directors, Alison Renfrew and Richard Renfrew established Creating Wealth Limited in July 1994. LYFORDS Limited and Lyford Asset Management Limited were registered at the end of 2004. The companies were named after Mt Lyford ski field near Hamner Springs where the directors have a log cabin in the Mt Lyford ski village. The directors have always had an association with the mountains and it seemed like a natural fit to call the new company LYFORDS.
LYFORDS subscribes to independent research advice on over 9.800 New Zealand and Australian based funds. The data is updated weekly so that we are on top of performances and any changes that may influence future performance. From this we can select the top 25% of funds. It is important, when selecting funds, not to select last year's winners.
Through the combined weight of our clients' funds we are able to negotiate lower fees.
The key feature that separates LYFORDS from other financial planning companies is that both principals have science backgrounds and are married to each other. The influence of their science backgrounds can be seen throughout their business in that all advice is well thought through and reasoned advice. The benefit to you of Richard and Alison's 20 years of marriage is the stability of the company. Most of their clients comment that they use LYFORDS because they want continuity of adviser, after all comprehensive financial planning is very personal.
LYFORDS and its team are highly skilled and professional attending industry and international conferences, ensuring that their skills are kept up to date. Financial planning and investment advice is given from a holistic perspective. Refer also to What services does LYFORDS provide.
LYFORDS does not operate a trust account. All cheques are written out directly to the fund managers recommended, which ensures the security of the investors' money.
LYFORDS is not tied to recommending any particular fund manager. We recommend what best matches the client's risk/return profile and needs. How to assess your risk/return profile.
Contact information
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Services that LYFORDS can provide. It needs to be noted that although we provide reference to several investment opportunities and refer to other web sites, placing business with us is how we get paid. Provided applications have our stamp on them then we will get paid, we can track your investments and you will often get in at entry fees below what you may be charged by approaching the fund managers directly. We have 5 levels of service these are given under the Client's section, click here. LYFORDS Fees, this depends on the complexity of the advice, please phone to discuss, 04 471 0662.
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Why do the calculators not work? You should only use numbers in input fields. Do not use "," or "$" in input fields. For example $35,000 should be entered as 35000. If you see "NAN" in a result field this means you have entered an incorrect number, probably a ",", or "$". The calculators are written in Java script and you need to have Java script enabled in your browser. In Internet Explorer go to Tools > Internet Options > Advanced .
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Portfolio Report: Reports can be emailed in adobe acrobat (pdf) format. If you are paying for on-going service you can also view your portfolio directly from our web site, web portfolio.
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Asset Classes: The asset classes are cash, fixed interest, property, equities and futures. There are also sub-classes related to industry sectors and region, whether your money is invested within New Zealand, or offshore.
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Real rate of return: Investment return which is net of tax, inflation and management fees.
We use historical data as a basis when developing portfolios. Over the longer term (15 years plus) each of the major investment sectors will tend to conform to an historic earnings pattern. This pattern has proved remarkably stable across different economies and time periods.
Investment | Historical Average | Volatility |
Cash | 0.0%-1.0% | 4.4% |
Fixed Interest | 1.0%-1.5% | 7.1% |
Property | 2.0%-3.0% | 3.8% |
Equities | 5.0%-6.0% | 21.2% |
Small Companies shares | 8.0%-9.0% | 35.2% |
Managed Futures | 8.0%-10.0% | 20.0% |
Real Rates of return equals the declared return less the effect of inflation. The volatility figure represents the amount that returns may be expected to differ from the average in any one year. For example, property returns can be expected to be between (1.8%) and 6.8% the majority of the time.
The 'real rates of return' (net of inflation, management fees and taxes) you could expect, based on historical trends over 15 or more years in the New Zealand and off-shore markets, depends on the risk profile chosen. We believe realistic 'real rates' of return are:
| Portfolio Risk/return Profile | Realistic Real Rate of Return |
| Defensive | 0.5-1.0% |
| Conservative | 1.0-2.0% |
| Balanced | 2.0-3.5% |
| Moderately Aggressive | 3.5-6.0% |
| Aggressive | 6.0-8.0% |
| Highly Aggressive | 8.0-10.0% |
Refer to Portfolio Construction
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Volatility/Risk: This is related to 'standard deviation' or how much the return varies from time to time (eg monthly) from the average for a period. The greater the variation the higher the volatility or risk. It is important that the use of the term 'risk' here is not associated with risk of total loss. It is related to the variation in returns.
There is 'market risk' and 'specific risk'. Most of the specific risk can be removed through diversification, buying shares of companies that have a low correlation with each other and through use of unit trusts, or managed funds. Market risk can generally not be removed for a particular asset class, but can be reduced by combining different asset classes within a portfolio.
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Correlation Coefficient: This measures how closely one equity, market, or sector moves with another. A correlation of "1" means both equities are highly correlated and will move both up and down at similar times and amounts. A correlation of "0" means the two equities are completely independent, that is they will move randomly with each other. A correlation of "-1" means the two equities move directly opposite to each other.
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Diversification: This goes back to the 1929 share market crash and the Cowles Commission report. Basically, "do not put all your eggs in one basket". To reduce 'volatility' then 'Modern Portfolio Theory' as Proposed by Markowitz and Sharpe, 1990 Nobel Prize in economics, tells us that if you use asset classes and investments with low correlations, the volatility of one's investment portfolio will be reduced. That is, higher returns for lower risk
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As a New Zealand based investor, it is impossible to design an investment portfolio with the appropriate balance of diversification required to reduce risk, without including international investments.
The New Zealand economy is narrowly based with a major emphasis on agriculture, fishing and tourism. We are lacking in many investment sectors, such as, heavy engineering, aerospace, pharmaceuticals, international finance, bioengineering and electronics.
New Zealand's equity market makes up around 0.08% of the World's equity markets by capitalisation.
In order to maximise the possible return on an investment portfolio, and to reduce the risk, and volatility of the investments, it is important to not only obtain an exposure to international investment sectors, but also to diversify internationally for political, demographic, social and currency reasons.
In taking any investment with an international component, investors are exposing themselves to some currency risk. Currency risk, is the risk that movements in the New Zealand dollar against foreign currencies will reduce the return to the investor and reduce the value of the initial capital invested.
Correspondingly, movements in the New Zealand dollar may improve the return and initial capital of the investor. It is impossible to predict with any certainty movements in the New Zealand dollar. As a rough guide, currencies are stable for 70% - 80% of the time and volatile for the remainder.
We believe that in general, the currency risks are more than offset by the benefits gained through international diversification, particularly in light of the fact that the offshore investments are medium to long term.
By combining different assets you can reduce the risk of investing in one particular asset class. For example look at the relationship between NZ equities and International equities over the last 10 years.
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"To get profit without risk, experience without danger, and reward without work is as impossible as it is to live without being born", A.P. Gouthey, Philosopher.
Refer to:
Real Rate of Return
Calculating your risk/return profile
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Portfolio Construction: A prudent investor will invest in a portfolio across all asset classes balancing risk and return. If you do not mind your investments dropping by 25-50%, if there is a share market crash, then investing in 100% equities across different regions and industries will give the highest return. We do recommend spreading your investments across a range of asset classes and regions.
Equity: Another name for shares. There are privately and publicly owned shares. Fund managers' use publicly owned shares listed on stock markets.
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Inflation This is taken as the CPI (consumer price index), not the underlying inflation target the Reserve Bank uses, 1 to 3%. Looking to the future we believe inflation will probably average 2 to 2.5%.
Click here for an inflation calculator.
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Unit Trusts/Managed Funds: A fund manager uses your money together with other investors to buy a parcel of shares, ranging from 30-50 different shares. With a Unit trust you can achieve diversification and have experts managing the investments versus you buying shares directly.
Unit trusts and insurance bonds allow the small investor to invest in a widely diversified portfolio of investments, both in local and international markets, which were previously the domain of larger institutional investors.
Using unit trusts you have the security of a Trustee style of investment and the benefits of good liquidity with competitive fees and transaction costs.
Small investors also benefit from the experience and expertise of full-time professional fund managers and in many cases they have free switching opportunities between the various investment funds managed by a particular fund manager.
Which investments?
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