Budget 2025 at a glance

Finance Minister Nicola Willis has released ‘The Growth Budget’ for 2025.

Some of the key highlights include:

• Changes to KiwiSaver.

• A tax incentive for businesses.

• Investments in health, education, law and order, and other public services.

• Defence Force funding.

• New infrastructure, including hospitals and schools.

• Targeted cost-of-living support.

What are the main changes, and what do they mean for you?

Read on to find out.

KiwiSaver changes

Summary of key changes:

• The default employee and employer contribution rate is increasing to 4%. This increase will happen in two steps: increasing to 3.5% from 1 April 2026, then increasing to 4.0% from 1 April 2028.

  • If you are unable to contribute at these higher rates, you can opt to stay at a 3.0% contribution rate for up to 12 months at a time. You can renew this rate before you’re automatically bumped up to the new default rate.

• The government will extend the government contribution to 16- and 17-year-old KiwiSaver members from 1 July 2025 and extend employer matching contribution to 16- and 17-year-olds KiwiSaver members from 1 April 2026.

• The annual government contribution is being reduced from $521.43, up to a maximum of $260.72. The contribution rate is being halved from 50 cents per dollar to 25 cents per dollar. These changes take place from 1 July 2025.

• Members with an income of more than $180,000 will not receive the government contribution from 1 July 2025.

What this means for you:

• Despite a reduced government contribution rate, the government contribution still provides a good 25% return on $1042.86 per year between ages 16 and 65.

• Increasing contribution rates is a step in the right direction, which means that KiwiSaver balances will grow faster.

• Minors aged 16 and 17 can now receive government contributions and employer matching contributions.

• These KiwiSaver changes are being rolled out over the next few years, which gives businesses adequate time to plan their cash flows and adjust systems to implement these changes.

• Members with an income of over $180,000 will still get employer matching contributions up to 4.0% by April 2028 but no longer receive any government contribution from 1 July 2025.

• The New Zealand Retirement Expenditure Guidelines, researched and published by Massey University, note that an average couple living in a city will need about $1,739.85 per week to have a comfortable (choices) retirement. NZ Super will contribute $828.34 per week for couples (after tax). Having saving schemes like KiwiSaver helps to close the gap between how much more you need to save in order to have a comfortable retirement.

Investment Boost

Summary of key changes:

• Businesses can deduct 20% of a new asset’s value from that year’s taxable income, on top of normal depreciation.

What this means for you:

• If you are a business owner that invests in productive assets like machinery, tools, and equipment, Investment Boost can help improve business cash flow and make more investment opportunities financially viable.

• The government forecasts that this policy could boost GDP by 1% and wages by 1.5% over the next twenty years.

Other changes

Summary of other key changes:

• New funding to ensure New Zealanders can access timely, quality healthcare. This includes a $5.5 billion funding increase for hospitals and specialist services, over $1 billion for health infrastructure, $447 million to expand access to urgent care and after-hours services across New Zealand, and over $1 billion for additional cancer treatments.

• New funding to help lift school achievement. This includes $646 million to support children with additional learning needs, $100 million of new funding towards extra maths help for students who need it, and a $140 million package for services to lift school attendance.

• New funding to continue the government’s efforts to restore law and order. This includes $480 million of additional funding to support frontline policing, $472 million to manage prison growth from stronger sentencing laws, $246 million to reduce court delays and improve access to justice for victims, and $35 million for Customs to combat drug smuggling and organised crime.

• New funding to support the provision of social services. This includes $774 million to respond to the Royal Commission of Inquiry into Abuse in Care, $275 million for social investment initiatives including the creation of a Social Investment Fund, and $760 million to support the provision of Disability Support Services.

• New funding to support Kiwis doing it tough. This includes increasing the maximum prescription length from three months to twelve months, enabling additional SuperGold cardholders to get a rates rebate, and lower costs for around 115,000 teachers.

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You can also view further information about what the budget delivers using the button below.

Budget at a glance

If you would like to discuss your KiwiSaver, investment portfolio, retirement planning needs, goals-based investing approach, or any other financial planning matters, please feel free to give our office a call at 09 553 8928 or email us at info@trilogyfs.co.nz.

We are always happy to help.

Sincerely,

The Team at Trilogy Financial Solutions

Trilogy Investment Update - May 2025

Financial markets experienced heightened volatility in April, largely driven by US President Trump’s “Liberation Day” announcement regarding global trade tariffs. As the month progressed, market turbulence began to ease, retreating from the extreme levels seen earlier. Historically, such elevated volatility has often presented attractive buying opportunities for investors with a medium- to long-term investment horizon.

The S&P 500 came close to entering bear market territory in April, having declined nearly 20% from its peak on 19 February. Note: A bear market is typically defined as a drop of 20% or more from a recent high.

Bear markets are relatively rare. Over the past 50 years, the S&P 500 has experienced only seven such downturns. The most recent occurred in 2022, when surging inflation led the Federal Reserve and other Central Banks, including the Reserve Bank of NZ to implement aggressive interest rate hikes, resulting in a 25% market decline. While notable, this drawdown was milder compared to the 49% decline during the dot-com crash and the 57% fall during the 2008 financial crisis.

These historical events serve as a reminder of the cyclical nature of financial markets. Although bear markets can be unsettling, they are a normal part of long-term investing and often pave the way for strong recoveries once economic fundamentals improve and investor confidence is restored.

Key risks to watch:

• Trade Tariff Uncertainty: Markets remain sensitive as the 90-day cooling-off period concludes.

• US–China-UK Trade Talks: Progress in negotiations will be critical to restoring trade flows.

• Weakening Economic Indicators: Lower business and consumer confidence could signal a slowdown.

• Corporate Earnings Pressure: Potential for reduced profits due to tariffs and weakening demand.

• Financial System Stress: Disruption of traditional investment patterns may increase systemic risk.

It’s important to note that we have appointed high-quality fund managers who are closely monitoring market conditions and making informed, strategic adjustments to your portfolios to help navigate these ongoing changes effectively.

The cycle of investor emotions

The cycle of investor emotions. Source: Russell Investments.

It’s important to keep you informed about investment concepts that help you understand how emotions may influence investment decisions.

Russell Investments has published a paper on the cycle of investor emotions; the key points are outlined below.

Investing can often be an emotional journey, as investors experience different emotions as markets rise and fall. When things are going well, we feel that nothing can stop us. And when things go bad, we look to take drastic action. Thus, emotions can pose a threat to our financial health.

The important thing is to understand these investor emotions so that you avoid falling into the trap of making emotional investment decisions.

Here is a breakdown of the typical investor emotion cycle:

• Optimism: Investors start to invest, believing the market will go up. Confidence grows as early returns are positive.

• Excitement/Thrill: Investors may start taking more risks as markets rise and returns look great.

• Euphoria: Everyone is investing as fear of missing out (FOMO) dominates, despite prices being very high and the market reaching peak levels. This is the riskiest time to invest.

• Anxiety: Investors start questioning decisions as markets stop rising or become volatile.

• Fear/Panic: Panic sets in as losses grow and investors begin to worry they made a mistake.

• Despondency: As the market bottoms out, investors sell at a loss, convinced it’s only going to get worse.

• Hope/Relief: Markets begin to recover, and some investors start cautiously reinvesting.

• Back to Optimism.

Remember to get advice before making any important financial decisions.

“The time when the markets look their worst is usually the point of maximum financial opportunity.” - Russell Investments

Global market update

United States

• The U.S. economy contracted by 0.3% in the first quarter of 2025, a sharp reversal from the 2.4% growth seen at the end of 2024. This downturn was largely driven by businesses rushing to import goods ahead of President Trump’s new tariffs, which took effect in April. The surge in imports, coupled with a decline in government spending, weighed heavily on GDP and has sparked concerns about a possible recession later in the year.

• The U.S. labour market is showing signs of weakness. The latest ADP employment report revealed that private employers added only 62,000 jobs in April, far below expectations, and forecasts suggest job growth is slowing. This, combined with negative GDP data, has heightened recession fears and may influence the Federal Reserve’s interest rate decisions.

• Stock markets have responded negatively to the uncertainty. Over the past month, U.S. stock markets have experienced heightened volatility, driven by trade policy and concerns about economic growth. After a steep early-April selloff triggered by new tariffs, major indexes like the S&P 500 and Dow Jones rebounded with their longest winning streaks in years, only to slip back into negative territory as uncertainty over tariff negotiations persisted.

New Zealand

• The OCR dropped to 3.50% on 9 April 2025. This marks its lowest level since October 2022, signaling a shift to a more accommodative monetary policy in response to rising global economic risks, such as international trade tariffs. This drop has led to lower interest rates for borrowers, making mortgages and other loans more affordable, while also reducing returns for savers. The RBNZ has indicated that further cuts are possible if global economic conditions deteriorate or if inflation and growth remain subdued, with some economists now forecasting a potential OCR low of 2.75%.

• Headline inflation reached 2.5% in Q1 2025. The main drivers were higher rents, up 3.7%, and a sharp 12.2% increase in local authority rates. Construction costs also contributed. Falling petrol prices helped offset some increases, and the proportion of goods rising more than 5% is at its lowest in four years. Inflation remains within the Reserve Bank’s 1–3% target band for the third consecutive quarter, suggesting price pressures are elevated but not yet of concern.

China

• Rising Deflationary Pressures: Consumer prices have fallen for two consecutive months, and producer prices have declined for 29 straight months, indicating weak domestic demand and entrenched deflation.

• Downgraded Growth Forecasts: Moody’s projects China’s GDP growth at 3.8% for 2025, well below the government’s 5% target, due to trade tensions and fragile consumer confidence.

Europe

• ECB Rate Cuts: The European Central Bank (ECB) lowered its key interest rates by 25 basis points in April, bringing the deposit rate to 2.25%, in response to moderating inflation and a weakening growth outlook. The ECB signalled a data-dependent approach going forward, with further cuts possible if economic conditions worsen.

• Record ETF Inflows: U.S. investors have poured record amounts into European ETFs, with $10.6 billion in inflows in Q1 2025. This shift is driven by Europe’s regulatory reforms, infrastructure spending, and relative market stability compared to the U.S., making European equities and bonds increasingly attractive.

Finally, it is important to stay the course rather than try to time the market, as markets can move quickly and unpredictably. Remaining invested or using dollar-cost averaging approaches to invest your money over a period of time, or using a goals-based strategy, can help you navigate these fluctuations more effectively.

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If you would like to discuss your current portfolio, retirement planning needs, goals-based investing approach, or any other financial planning matters please feel free to give our office a call at 09 553 8928 or email us at info@trilogyfs.co.nz.

We are always happy to help.

Sincerely,

The Team at Trilogy Financial Solutions

Building confidence in uncertain times

Tariff turbulence

You may have heard about tariffs being announced in the U.S. on a day being touted as “Liberation Day.”

As a result, there have been sharp reactions in global markets, and particularly in the U.S., with the S&P 500 dropping over 10% in the last 2 days.

This occurrence is one of the biggest 2-day drops that U.S. stocks have ever seen, and we are expecting further market volatility in the coming days.

Navigating the uncertainty:

• While volatility periods can be unnerving for investors, they often create opportunities for active managers of your portfolio. Markets often have knee-jerk reactions to announcements like these and then settle down as investors digest the long-term impacts. These knee-jerk reactions can present opportunities.

• Fund managers are reducing exposure to the U.S. and increasing exposure to Europe, Asia, and Emerging Markets.

• They are also focusing on active currency management, specifically through unhedged or partially hedged positions. This strategy is particularly effective during global market corrections, as the New Zealand dollar typically depreciates in such scenarios.

• It’s also important to note that the defensive part of your portfolio (consisting of cash and bonds) acts as a shock absorber to your portfolio returns. The cash and bond returns have been positive since the start of this year.

• Asset classes like infrastructure further diversify your portfolio.

We would like to take this opportunity to explain and educate you about what has happened, a summary of observations, what we are doing to effectively manage your portfolios, and some recommendations for how to handle these uncertain times.

You can rest assured that the Trilogy team is working with our consultants and fund managers to minimise risk and to maximise any opportunities that the uncertainty might create going forward.

What happened

• Liberation Day: On "Liberation Day," April 2, 2025, U.S. President Donald Trump introduced sweeping tariffs aimed at reshaping U.S. trade practices and boosting domestic manufacturing.

  • What is a tariff? A tariff is a tax or duty imposed by a government on imported goods and services. The purpose of tariffs is to make foreign products more expensive, encouraging consumers to buy domestically produced goods instead. Tariffs can also be used as a tool in trade policy to protect local industries, reduce trade deficits, or retaliate against other countries' trade practices. However, they can lead to higher prices for consumers and potential trade disputes between nations.

• What tariffs were implemented?

  • Universal tariffs: A 10% tariff on all imports, targeting goods from all countries, including New Zealand.

  • Reciprocal tariffs: Higher tariffs on countries with significant trade deficits or perceived barriers to U.S. exports (e.g., China 34% tariff, the European Union 20%).

  • Sector-specific tariffs: A 25% tariff on foreign automobiles and auto parts.

• Why did Trump announce tariffs? To address what was perceived as an imbalance in trade, the U.S. administration argued that other countries had taken advantage of their open market whilst protecting their own. Noting that U.S. tariff rates are comparatively low, the administration is using reciprocal tariffs as a strategic tool to encourage trading partners to reduce their own trade barriers.

Summary of observations

• Share market reactions: The share market has reacted strongly as a result of the harsher-than-expected tariffs.

  • NASDAQ: down 22.9% (currently 15,587.79, from a peak of 20,204.58 in December 2024).*

  • S&P500: down 17.5% (currently 5,074.08, from a peak of 6,147.43 in February 2025).*

  • Dow Jones Industrial Average: down 15.0% (currently 38,314.86, from a peak of 45,073.63 in December 2024).*

• Currency market reactions: Currency markets have also reacted quite strongly, with currencies such as the New Zealand dollar and the Australian dollar weakening against the U.S. dollar, whereas currencies like the Japanese yen and the Swiss franc have strengthened against the U.S. dollar.

• Volatility: These volatile market conditions have led to broad pullbacks in investing, consuming, and trading, with importers and exporters holding off on trades until there is more certainty around the effects of these tariff policies. We can expect further volatility in the days to come.

• Responses from other countries: While China has imposed a reciprocal 34% tariff on U.S. imports, over fifty other countries have reached out to the U.S. to negotiate these tariffs.

*These figures are accurate at the time of writing on 7 April 2025.

What we are doing

• Diversification: Portfolio diversification is key in how we manage investment risk. This involves investing across a variety of asset classes, such as cash, bonds, infrastructure assets, listed property, and equities, to mitigate risk.

• Goals-based investing: We implement strategies that are specifically designed around your personal goals and priorities to ensure you have sufficient cash to meet your requirements.

• Strategically increasing allocation to cash and bonds: Cash and bonds are a good diversifier during volatile times.

• Keeping you educated and informed: The most important tool we can give you during these uncertain times is guidance/advice and knowledge. We will continue to provide information and keep you posted on current events as they unfold.

Our advice

• Maintain a long-term view: Periods like this remind us why we diversify and why we invest for the long term. As you can see in the below graph, over the decades, equity markets have gone through wars, recessions, political upheaval, and trade tensions and have consistently rewarded patient investors. By focusing on short-term market noise, you risk losing out on the recovery phase, which can be as rapid as the initial decline.

Source: Morningstar Direct. Long-term returns for a balanced portfolio (60% growth, 40% defensive).

• Manage your emotions: We recognise that people can become anxious when there is uncertainty around money and investments, and that can lead to poor decision-making. Your investment strategy has been built with volatile periods like this in mind. Successful investors follow the approach of “time in the market” and not “timing the market.” We recommend practicing emotional discipline and relying on facts and figures when making financial decisions.

• Focus on your goals: In times like these, it’s important to focus on your long-term goals and the strategy that will lead to achieving them. Our goals-based investment approach ensures you have enough money to meet your short-term financial needs, as well as the right mix of investments to achieve your medium- and long-term goals.

• Understand how the market works: Markets will always react to events, both positive and negative. No investment portfolio is immune to these reactions. If you have a well-diversified portfolio, such as those that we recommend, you will win over the long term.

• Remember the positives: There are amazing developments constantly happening around the world, including innovation in technology and modern healthcare, which are leading to improved productivity and increased longevity. Oil prices have also recently dropped, which should lead to cheaper prices at the pump.

• Get in touch: The Trilogy team is here to support and answer any questions you may have. We understand these times can be concerning, and we want to assure you that your portfolio is being actively managed to minimise potential losses. We will also keep you informed of any further developments.

If you would like to discuss your current portfolio, retirement planning needs, or any other financial matters, please feel free to give our office a call at 09 553 8928 or email us at info@trilogyfs.co.nz.

Sincerely,

The Team at Trilogy Financial Solutions