Week 10 of the 14-week Bermuda plan to improve your financial lifestyle.

Review of pension and investments — part 2 (part 1 was published last week)

Readers who have been courageous in attempting this “long” review of their finances — you are more than half way through. This is the hardest bit, though — thinking about investments and what they mean to your successful financial future.

Here is a little factoid.

Your Bermuda National Pension Plan (formal name Occupational Pensions Act 1998) is probably going to be your biggest asset, besides your home. Spectacularly, a 25-year-old in the Bermuda workforce today could see values at retirement even higher than the price of a residence. Further, I can assure you that if you understand what is in your pension plan, you will feel more comfortable about other investments you might want to make on your own. This assumes that you make it a personal consistent goal to monitor your pension plan on a quarterly basis. This is your money!

Thus, I’ve used an unorthodox approach to the investment section — by starting with some composite basics: your Bermuda pension plan at MamaZina’s Pizzarina (MZP), your employer for the last five years. Yes, MamaZina’s business just took off from day one. You’ve worked hard to become the floor manager for orders and delivery with a current annual salary of $70,000. That’s a lot a pizzas that have to be sold, just to pay you! You also have a pension with MZP that is now five years old, growing in value, you hope, along with your increases since your original starting pay of $50,000.

We will discuss the MZP statement as best we can based upon information gleaned from websites of the Bermuda Pension Administrators (BPAs). Only two of the four provided specific investment information and fact sheets.

Are all my contributions accounted for? Open your statement. What is there, or not, on your third-quarter September 2015 statement? Note: other firms may issue monthly, or semi-annually, so locate June 2015 instead.

You should see the following:

The opening balance, from the last report, contributions, withdrawals, fees, investment gains or losses and closing balance — with a line for employer and employee 5 per cent of your salary, separated.

Your contributions should total $70,000 x 10 per cent x three-quarters of the year That comes to $7,000 x .75 = $5,250 representing 5 per cent from you, 5 per cent from MZP. All there? Great. MamaZina’s Pizzarina Ltd is a good corporate citizen, meeting all of its payroll obligations to its employees.

How do I pay for my pension? What are the fees? Now look at the fee column. There may or may not be a column or amount for fee deduction, depending on the pension provider. Generally, several fees are deducted from your pension account plan. The fees for pension administrator, the underlying mutual funds fees, if used, the portfolio manager fee, a custody fee may be charged separately, and finally, there may be upfront or back-end sales commissions fees charged. If you cannot calculate what your specific fees are, you may need to contact your pension provider for clarity.

What is the real net growth after fee deduction? We will explore the effect of fees on investment performance in-depth in week 11.

How am I doing — is my money growing? Reviewing the investment gains or losses column. What you chose and how it should be performing should be listed below the account transaction details for the reporting period; it will be titled as your investment profile or similar language.

To review those dollar values, use the closing balance of your statement compared to the opening balance. Your ending pension value, if the market is up, should increase by the amount of your additional contributions plus an appreciation number. Try an even better indicator — the closing balance of last year 2014, and if you really want to be on top of things, pull out your closing statements for 2013, 2012, 2011, 2010 — hoping you kept these records! Is your pension steadily appreciating (above and beyond your total annual contributions) over the total time frame, even if there have been intermittent losses? Doing well? Then you should continue on with that investment profile. If not, then you need to find out, why not.

Lower performance, which is not necessarily a bad thing, could be attributed to a number of reasons:

• Too conservative an investment choice if your workforce longevity is more than ten years from retirement.

• Too aggressive an investment choice, particularly, if you are close to retirement — you may not have the workforce time (or stamina) to make back losses.

• High fees.

• Succumbing to investor emotions by moving your investment choices every time there is market volatility, thereby selling at losses.

• Lower than calculated contributions amounts that should have been deposited. This is pure cause for alarm. Contact your pension provider and/or the Bermuda Pension Commission.

Reviewing your investment choices. What are they? It depends upon which pension provider your employer uses and what your pension adviser recommended, based on how you feel about investing.

Are you aggressive, balanced, moderate, very conservative? What do your investment choices mean in rates of return (appreciation) by reviewing the benchmark guidelines on which portfolio managers base their investment performances.

It boils down to the same old lessons:

There is always risk in capital markets. Your reward (rate of return) is based upon the amount of risk you are willing to accept. More risk, more return.

In appreciation and growth,

• Stock returns beat bonds.

• Bond returns beat cash.

• Cash is there for expediency’s sake, possibly earning a little interest.

Quiz: What do you think the investment return will be for the shareholder/owners of MamaZina’s Pizzarina (MZP) over time?

How would you figure that out?

Do you think that investing in MZP is the same as choosing a mutual fund or pension fund? Read last week’s article of October 3, 2015. Cross-border caution. US citizens, green card holders and dual citizens should not be in the Bermuda National Pension due to US tax and reporting complications. Two firms offer US plans that meet the Bermuda Pension Act guidelines: Freisenbruch Meyer (for more than 15 years) and since last year, Argus.

Week 11 — soon!

Martha Harris Myron CPA PFS JSM Masters of Law: International Tax and Financial Services, appointed to the Professional Tax Advisory Council, American Citizens Abroad. https://americansabroad.org/. Principal, The Pondstraddler* Life™ Consultancy providing international financial planning, publications, presentations for Bermuda residents, their multinational families and connections. Contact: martha@pondstraddler.com