Q: My query is one you've talked about many times -- investing in property versus shares.
We are mortgage-free and looking at saving more aggressively towards our retirement. We've read your column over the years and have come to realise that property is perhaps a lot more trouble than it's worth, and we like the concept of not having our eggs all in one basket. So we set up a managed fund with the long term in mind, and all is well.
The trouble is that everyone we talk to tells us we are absolutely crazy not to be buying property, with mortgage rates at such a historic low.
We were so sure at first on the managed fund, but now there's all this talk about shares going down (driven by the Chinese economy), and my confidence is wavering. I know it's impossible to know what's around the corner, but any advice would be appreciated.
A: President John Kennedy's father Joseph sold shares shortly before the 1929 sharemarket crash because, "I knew it was time to sell when my shoeshine boy gave me a stock tip." If everyone is making a certain investment -- and suggesting that you do -- it's usually wise not to join them.
I'm not saying property prices, in Auckland or elsewhere, will fall. I wouldn't be surprised if they do, but they might not.
What I am saying is that historically low interest rates -- particularly given they've been low for some time now -- are not a good reason to invest in property.
Sure, the low rates have made property investment more attractive. But that, along with high immigration and other factors, have contributed to growing demand for property and hence rising prices. If you buy property now, the advantage of low interest will be offset by higher entry prices than would otherwise be the case -- even outside Auckland.
Furthermore, the fact that interest is at historical lows suggests that rates are more likely to rise than fall in the medium term. That will inevitably lead to financially stretched people selling properties, which will soften prices.
Counting on a decent gain if you buy property now feels pretty risky to me.
Mind you, investing in a share fund -- assuming your fund mainly holds shares -- is risky too. Who knows where the current market wobbles will lead us?
But you said you've made your investment "with the long term in mind". That means holding your course when the seas look choppy.
To quote another American, hugely successful share investor Warren Buffett, "Unless you can watch your stock holding decline by 50 per cent without becoming panic-stricken you should not be in the stock market."
Do you pass that test?
If so, hang in there. If you're making regular contributions and the markets slump, you'll benefit from buying at low prices. And the markets always rise again. Also, as you say, a share fund is less hassle than property and gives you diversification from your home.
But if you don't pass the Warren Buffett test, I suggest you move not into property but into a lower-risk managed fund -- perhaps one that holds lots of high-quality bonds as well as some shares. It will probably grow less in the long run but give you a smoother ride.
NZ Super not backdated
Q: In reference to your reply in Saturday's Herald on NZ Super, may I suggest you advise your readers that they should apply up to 90 days before their 65th birthday.
I have a relation who applied about three months after his 65th birthday and did not start to get his pension until the application was approved.
A: Good point. They don't backdate NZ Super to when you're first eligible, and it seems a pity to miss out.
10 kids hard work
Q: I was interested in what sounded like a grumble from the writer of the first letter in Saturday's paper re the woman who "chose to have 10 children", and then when the children became independent was not interested in finding another job.
Maybe this mother of 10 felt she had done her bit for society. Raising 10 children would be mighty hard work and a huge job in itself, and maybe she is still supporting them by helping out with the grandchildren. I bet she isn't sitting twiddling her thumbs.
As a mother of only three, now fully grown, children, I salute this mother of 10 who has raised the next generation of taxpayers that will be contributing to the smooth running of the country and especially my pension!
A: You're not alone in your view. Read on.
Q: I was staggered by the shallow, myopic, selfish woman whose letter led your column this week.
Did she really say her mother of 10 "friend" makes no contribution to the tax base, so deserves no NZ Super? Such an attitude would be bordering on sociopathic.
I have three points:
Contributions to the economy are not always financial.
What about contributions to society? We need more young people to work to support our ageing population. Just look at the demographics of developed countries where fertility rates have dropped to 1.2 to 1.6 having to import their immigrant labour.
There are also such things as contributions to humanity -- which is certainly beyond the comprehension of your lead letter writer.
A: Well put. I must say I was surprised that last week's correspondent used the word "friend" in that context.
Home truths on living afloat
Q: I have been reading with interest the recent columns about "life afloat". I have been a co-owner of boats for over 20 years and have been living aboard full time for the past four.
Our strategy has partly been fuelled by your advice, Mary, as I've been reading your column for many years and read your books also. Tips picked up from you and others led us to believe that we could make our sailing dreams a reality -- with a bit of forethought, setting goals and having a financial strategy to get there.
What we wanted is what we now have -- "semi-retired" at age 50 -- spending six months working and six months sailing up to various Pacific islands each winter and becoming what is known in the sailing world as "cruisers".
Our investments (predominantly shares in New Zealand, Australia and global funds) are left to compound and "percolate" a bit, our house is rented on a five-year deal, and so far we've been able to find work when back in New Zealand to keep the whole show going.
Although it's a life we love, here are a few "home truths" about living aboard a boat full-time:
Boats are lots of wonderful things, but they are not an investment -- and never mix your "boat money" and your "house money".
You are unlikely to ever get back what you have paid to buy and maintain a boat over time. And if you have been out of the housing market for any length of time, you may not be able to get back in on the step of the property ladder where you jumped off.
Living on a boat is great until you get much older or get sick. Sadly there are cruisers out there who sold their homes to live their dream and probably had a fabulous time doing it. But when they don't want to live afloat any more, they simply can't afford to move back on to land. This may not be how you planned to spend your final years.
Boats are not cheap to keep. As a rule of thumb, budget 10 per cent of your boat's value to maintain it each year. If you aren't lucky enough to have a husband who is mechanically minded your maintenance bills will be significantly higher.
Boats -- even big ones -- are very small compared with any sort of house. Lots of people confide that there's no way in hell they'd want to live in such close proximity to their nearest and dearest with virtually no privacy or space -- but that's boats for you.
If you're working and using your boat as "affordable housing" you will need a marina berth. Renting one could easily cost $7000-$9000 per year and $50,000-$80,000 to buy for a 12m boat. The bigger the boat, the more a berth costs.
You will have to pay a "live-aboard" fee, electricity and be happy to use public facilities for washing and showering -- not that easy when you've been used to your nice clean washing machine that's only had your stuff in it.
All sorts of people live in marinas -- they're not always who you would like as neighbours.
So, just a few ideas for a reality check. When you do escape the marina you can experience a great sense of adventure, freedom and gratefulness to live in such a special part of the world. We wouldn't swap it for anything.
A: A longer letter than usual but packed with great advice. Thanks. Oh, and don't forget that sometimes the woman is the mechanically minded one!
Q: I live aboard and my per-week full costs are $118. I own my own berth and can vacate and travel freely when rented out.
Being a freedom boater I am concerned your article will trigger repercussions from this desperate Government, which is so incredibly in debt.
I was instructed by a family trust to do this, so as there was always a financially secure retreat when things (as they sure soon enough will) become financially intolerable for the greater number, especially in Auckland.
A: Gosh, you have a dark view. I like our next correspondent's attitude better.
Fun to be had on boats
Q: Some years ago when in New Zealand I did the numbers on living aboard in Auckland and came to what might be the same conclusion as your correspondent: If you like boats, are tidy and organised and can cope with a very constrained space, and like the idea of casting off from time to time, live-aboards appear to stack up relative to some alternatives.
Capital gain there ain't, and expensive boats are a hole in the water into which one pours money, but there's fun to be had.
A: And let's face it, other forms of accommodation can be more work than fun.
Q: I would like to support your comments about the lucky young landlord.
When I was a young person after my parents' marriage ended, I was charged a nominal rent by professional people who took me in.
Because of them, I was able to finish school and I also qualified for university scholarships.
Without the assistance of these generous people I could not have succeeded.
I know people who charge less than market rent to young people who are starting out in business, and this has helped them get their business started. It's not always about charging the market maximum.
A: It's great to hear about good landlords, and I'm sure there are plenty of them. As I said in my January 30 column, "selling accommodation -- people's homes -- is not the same as selling ice cream".