What should I do with my Bonus Bonds?
20 Sept, 2020
This week I’ve received even more emails about Bonus Bonds with people asking what investment options are out there for the money that will be released from the scheme when it winds up shortly and also asking what they could do with the ongoing monthly payments that people had previously been making into the scheme. They don’t want to stop this regular savings habit, but they have no idea where to put it.
With the scheme being a backstop for many people’s savings for so long, they are unaware of the whole world of investment opportunities out there these days and if you just take a look at a few of my blog posts you will see that I’ve written about a lot of them.
Whenever I’m faced with questions like this I consider what WOULD I DO if I was in the writer’s shoes, so that’s how I am answering it today. I’m a self-directed investor, I use tools, resources and investment providers that I engage with directly and I don’t pay anyone else to either make my investment decisions for me or invest on my behalf. But there is a caveat further down in this post where I’m saying that if you are dealing with a large sum of money (some of the emails I’m receiving say they have hundreds of thousands of dollars in Bonus Bonds) and you really are stumped as to what to do, then spending money on good independent advice may well be worth it to you.
If I found myself with Bonus Bonds today, this would be my thought process...
1.
I know that the managers of the scheme, the ANZ bank are saying that those who remain in the scheme till the bitter end “may” get a bit extra back due to some scraps being left in the bottom of the barrel after everything is settled up for the final closure of Bonus Bonds. My thoughts on this are “don’t hold your breath”. The people making the most money out of this scheme were always the ANZ bank, so don’t hold your breath that they won’t work out some way to hold on to as much of these scraps as possible, via the fees and charges etc to wind it all up.
If it was me, I’d withdraw all of my money today.
2.
Once it was back in my bank, I wouldn’t be in a tearing hurry to make a decision as to what to do with it. Because the reality is, as an investment Bonus Bonds were giving an extremely poor return anyway, so it’s not like I have withdrawn my investment and am suddenly having a huge drop in return. In fact, even by just sitting in a bank account, you will probably be getting a better return already, even with their pathetically low interest rates! So, I’d just chill for a bit and go about making the RIGHT decision about what to do next, I would not be in a rush to make just ANY old decision. Otherwise, I may run the risk of selecting another equally poorly performing investment just as Bonus Bonds was!
3.
I’d look around at my financial situation and if I had any debt, I’d just put it towards that debt. Credit card debt? Hire purchase agreements? Money borrowed from friends? Car loan? Mortgage?
By paying off debt I have instantly given myself a better return on my money because I am no longer paying interest AND I have given myself a pay rise as well because I am no longer handing over part of my paycheque each week to service that debt.
4.
Do I need to increase or start an emergency fund? Have I got some money set aside for a rainy day? Having even just a few thousand dollars in a bank account and close at hand will give me immense peace of mind that in a crisis I can just reach over and use that cash.
5.
I’d look at whether I had expenses coming up that I need to set money aside for? Was I planning to upgrade my vehicle? Is my fridge on its last legs? And I know that a lot of retirees have Bonus Bonds, so how about this… Do I need a new knee, a new hip or some other surgery that I’m currently on a long hospital waiting list for? How about jumping the queue and using this money to get it done privately and then you can just get on and enjoy your life without pain?
6.a
With my immediate needs taken care of, I would then just consider adding it to the investments that I already have. I’ve mentioned many times what I personally invest in: KiwiSaver, ETF’s - NZ50 (FNZ), US500 (USF), New Zealand Property Fund (NPF)
I do the bulk of my investing with Smartshares, but I also have smaller holdings with Sharesies, Hatch and Kernel.
But, I’m currently only 46 years old and I have many working years ahead of me yet, so I am comfortable with the high level of risk that my investment strategy gives me. If the money that we have invested suddenly dropped tomorrow, it does not matter to me, I’ll just leave it be and over time it will rise in value again (the sharemarket may experience drops as it did in early 2020 but in the history of the sharemarket the trend is always up, it just takes time). Therefore, with the emergency fund we have set aside, plus our ability to continue to work, I have the luxury of TIME to wait for my investment to rise again, even if it takes years, and I don’t need to access any of this money for my day to day living.
If I was already well into my 60’s or 70’s my window of opportunity to invest in shares is closing and the risks may be too great. If I invested all of my Bonus Bonds money in the market and it suddenly dropped, I might not have the time I need to wait for it to recover. I need to know that I have the ability to get my hands on cash when I need it.
So, with that in mind, if I still decided to stick with my higher risk strategy of investing in shares, KNOWING that I need to leave them alone for at LEAST 5-10 years, I’d keep a much bigger emergency fund in my bank, a much bigger cash cushion of probably around three years of expenses right there in my bank because it gives me certainty that the money is there if I need it.
It’s all about risk and at my age, I still have time ahead of me to take those risks. You, however, may not.
6.b
So, what about trading your bonds for some bonds? Personally I don’t invest in bonds, but one day I might because I’ve heard JL Collins mention time and time again that they “smooth the ride” and as you get older, having a percentage of your net worth in bonds will lessen the impact of share market volatility and lessen your risk.
Put simply a bond is you lending your money out with a fixed rate of return and with a fixed end date. The bond market is IMMENSE, but a place to start your search is with the bond funds offered by Smartshares. You can purchase on a monthly basis with them or you can use the Sharesies platform to purchase the same Smartshares product at any time during the month that suits you. You can also find access to US bonds via Hatch (and now Sharesies) or by using a company such as Investnow.
You can buy specific bonds, like government bonds, or you can buy into bond funds, there is a lot of choice out there!
Now, I only mention these as a place for you to start your search and once you have had a read and learned a little yourself you can start to widen out your search while always coming back to point number one: Take your time! You don’t have to rush this. Also, use that often overlooked resource when it comes to money; your friends. Chances are that many of them are also invested in Bonus Bonds, talk to them about what they are going to do and add that information to your own to help guide your decision making.
6.c
Some of the people getting in touch with me have $100,000’s invested in Bonus Bonds so my simple plan is probably a plan that’s way too simple for many. So, if this is you then I think that spending a few thousand dollars to seek some advice from someone else is warranted here. BUT, only seek advice from a “fee-only independent authorised financial advisor” (AFA) because if you seek ‘free’ advice from anyone else (including your bank) they won’t have YOUR best interests and your financial future at their heart, they will be advising you to invest in products that they stand to financially gain from and they will suck money from you for years to come. You will pay anywhere between $2,000 - $5,000 for an AFA, but I can assure you that if you were to use a ‘free’ advisor you will pay many times this amount over the life of your investment. On her website, Mary Holm keeps a list of fee-only advisors and although I’m happy to make my own decisions, I fully appreciate that others won’t have the same level of confidence. So, seek help, a fee-only AFA is there to create a financial plan that is individualised to you and your situation.
7.
And finally, once I had my investment plan sorted and have reinvested my Bonus Bonds so that they will start to grow and produce a passive income for me AND once I had all of my daily money needs taken care of, then I’d be like the couple in their late 70’s who emailed me. Part of their plan now that they have their Bonus Bonds back in their bank was to be generous and ‘shout’ their family*. Because in reality, once I get to that age the chances are that my own monetary needs are smaller and well taken care of, it’s just a fact that by that age many of us want for less and therefore spend less. I can’t take my money with me when I pass, so why not enjoy it and share my legacy with my family now while I’m alive and we all get to enjoy it?
* The downside to generosity is that if you have family members who act more like leeches and they know you have cashed out your Bonus Bonds and come to you with their hands out, tell them to bugger off!
Bonus Bonds were like Lotto, except you got your money back so it always felt safe for many to use this as an investment. One of my very first forays into investing was to use Bonus Bonds and for me probably one of the main things it did was that it created a habit of regularly saving, which long after I sold off my bonds, I continued to do. But now I save and invest to grow my wealth, not maintain it at the same level, which is all Bonus Bonds ever did. Sometimes, I got lucky and won a prize and while the odds of winning were higher than winning Lotto, they were terrible nonetheless.
I can understand that for many it will be a frightening proposition to now have to make quite a major financial decision as to what to do with what for many will be a big lump of money. But remember, when you made those very first investments into Bonus Bonds all those years ago, it probably felt like a big scary decision at that time too. But you went on and learned how it worked and came to trust the process. Now, you just have to find a new process to trust and today I’ve mentioned a few options. But please be assured that you don’t have to make these big decisions on your own, there are people out there qualified to help and guide you, so don’t be in a rush to reinvest your money, instead invest a little time and money into seeking out some independent financial advice that will see you right for the next chapter in your investment life.
If you have an inkling that you may have some bonds, get in touch with ANZ right now and they will be able to track you down in their system. If you think that you have a deceased relative who may have had bonds that were never cashed up when they passed away, well if you were the executor of their estate you could make some enquiries on their behalf too. But your window of opportunity is short, so get onto it now.
I’m not sorry to see the end of this particular banking era, so don’t waste your time mourning the loss of it, instead, if you have money in Bonus Bonds, apply to have it returned to you now and vow to do better with how you invest it next time.
