ingshield’s advisers frequently work with UK migrants and other clients who hold sterling (GBP) cash funds. Two common issues often arise in these discussions:
A reluctance by people to convert their British pounds (GBP) into NZ dollars (NZD) until the exchange rate reverts to what they consider to be an appropriate level, typically $2.50 to £1.00 or even $3.00 to £1.00.
If you click on this link, you’ll see a live graph which tracks the value of the GBP against the NZD for the last five years.
It’s worth noting that the last time the rate was close to $2.50 to £1.00 was in September 2015. (Incidentally, the last time the rate was close to $3.00 to £1.00 was in June 2006.) Since 2013, the average rate has arguably been around $2.00. Therefore, anyone delaying their decision until a return to $2.50 or $3.00 may be waiting for some time.
Holding sterling cash can be regarded as an opportunity cost, as the cash is earning 0% interest return and is actually losing its spending power in real terms because of inflation. (To put it another way, £100 today will buy you more now than £100 of today’s money in five years time.) This is particularly true if you are holding sterling cash in a QROPS (Qualifying Recognised Overseas Pension Scheme) or other pension fund because you are still paying management fees while not earning any return on your funds. Therefore your money is being eroded.
With this in mind, you may wish to consider converting at least some of your sterling cash funds into NZD. There are two main reasons for this:
- Interest rates and yields are currently higher in New Zealand than in the UK. Even a low risk fixed-term bank deposit in New Zealand offers interest rates of up to 3.5% per annum. If you’re prepared to opt for a higher risk income investment, then you could potentially earn a greater return over the medium to long-term.
- If you have decided to permanently settle in New Zealand, then having all your investments reported in NZD provides greater stability, and makes it easier to keep track of your income and outgoings. Furthermore, you’re not completely at the whim of currency fluctuations between the pound and NZ dollar.
A concern about what may happen to the value of sterling in the wake of the Brexit negotiations.
As for Brexit, at the time of writing, the outcome of the negotiations is a completely grey area with a final outcome seeming far off. However, even with all the vagaries, there are some things you can do to protect your funds in the event of a worse case outcome.
Consider investing at least part of your sterling cash funds in companies that earn revenue outside the UK or in companies diversified globally around the world.
This would mean:
- If the GBP falls in value because of Brexit, your investment would be worth more in sterling terms once the non-UK revenue (eg: USD) or investments are converted back into the weaker GBP – therefore you will be insulated from this risk.
- In the meantime you will have exposure to economies that are growing faster than the UK, enabling you to potentially earn higher returns.
Finally, seek professional advice, weigh up the pros & cons, and make a decision. The choice is yours. But that’s the most important point of all. Make sure that it is an informed decision, rather than a knee-jerk reaction or something just left to chance.
Kingshield Investments offer qualified, impartial investment advice to clients across New Zealand. For a friendly, confidential chat about how our advisers may be able to assist you, please contact us or call (09) 930 6933.