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OPINION:
Q: In response to last week’s person who had poor results from managed fund investments and praised rental investment, I want to provide a different result from very similar investments.
I am a little younger (high school in the 90s) so I think this has impacted my overall result. My very first investments were Tower shares in 1999 that I inherited as a customer. They fell quickly and I sold them a year later.
I invested in KiwiSaver from its inception in an aggressive fund. It is currently worth double what I have invested, even after the drop over the last year ($30,000 invested, current value $61,000).
My employer also offers another managed fund retirement scheme that I invest in — a growth of 4 per cent so far since it started last year, and I can access it whenever I want (plus my employer matches my contribution up to 5 per cent).
My husband and I bought brand-new units as rental properties in 2017, using equity in our house and $0 actual cash. The rent covered the mortgage interest, but repairs were extra and it became a compulsory savings scheme as we had to put in extra money to cover the principal (the bank allowed interest-only for the first two years, but not after).
We had no free money, stopped being able to take our kids on holidays, and it sucked the fun out of life (and we had really good tenants).
When we sold them during the recent peak in the summer of 2021/2022, we barely covered costs. We got back the money we put in and that was it. After paying real estate fees etc, the gain on the total purchase price was a whopping 1 per cent.
I know property really is a long-term investment, but in hindsight selling was the best thing we did. Property destroyed our quality of life, and if we still owned them now we would likely be bankrupt.
I have also invested in Sharesies from 2020: a similar result to last column’s letter with a current loss of 14 per cent on $4500.
This was always only meant to be a bit of fun. And I have learnt that managed funds are good, and that picking individual shares that perform well is nigh on impossible. It’s fun to have a go, though! I see this as a long-term investment, and it is fun getting dividends.
Those who are slightly older have no concept of how expensive property is in relation to rent and how lucky they were to be able to invest in a softer property market.
There is also no way these days you can cover the cost of a rental property with just the rent. And interest-only mortgages for rental investment are a thing of the past.
Additionally, having an initial property to use as equity in the first place is a position of extreme privilege. For those not in that position, managed funds are an excellent investment because you only need a couple of dollars to start.
I love your consistent message about the importance of diversification. My experience and the experience of the April 22 letter show how slightly different timing with similar diversification and investments can result in totally different outcomes.
A: So true. And even if the timing were the same, people can have varied experiences with managed funds, perhaps partly because of varying fees and risk levels.
And they can have hugely varying experiences with rental property in different locations, with different luck on tenants, different levels of maintenance and so on.
I should add that several of last week’s examples and yours were over periods that are too short. Every property or share investment should be over 10 years or more, as you acknowledge. Judging performance over a shorter period is unfair.
Still, you present a fair comparison for last week’s letter. Thanks.
By the way:
Q: Last week’s first letter, about rentals versus managed funds, is a good illustration of how many (most) investors think.
The fundamental issue was that he was comparing a 21-year leveraged investment, where the risks of leverage did not eventuate, to a couple of short-term investments.
Yes, the two insurance ones would never have worked because they each had high fees. The Sharesies started in 2019, just before Covid and the inflation spike.
His KiwiSaver investment has been longer, but hard to comment without more information.
The main observation is the strategy. What was the question where the answer was 14 per cent conservative, 61 per cent balanced and 24 per cent growth?
The implication is that his account has not been managed.
Anyway, the main issue is that the house was a 100 per cent leveraged investment over 20-plus years.
A: And, as you imply, investments like that can go horribly wrong.
If you are forced to sell when prices are down — which can happen for all sorts of unexpected reasons — you can end up with no asset and a debt to the bank. Ouch!
Clearly, last week’s correspondent has been one of the lucky rental property investors.
As for KiwiSaver, good question about his fund choices. I wonder if he’s reacted to market downturns by decreasing risk with some of the money — something I’m always urging people not to do.
Since mid-April, to mark the 25th anniversary of this column, we have run some readers’ stories of how the column has helped them over the years. Here are more.
Q: What I have learnt over the years from your column?
1) The first rule of investment — invest in education. Your Saturday columns are the primary reason for my subscribing to NZ Herald Premium.
2) IQ and FQ (Financial Quotient) are not necessarily directly correlated. Note: I work in an environment where nearly everyone has a PhD.
3) Property investment is not everything, and in the long run the sharemarket outperforms property. My own subsequent study of the NZX50 over 20 years confirms this.
4) The importance of diversification times three. Diversify in investment types and beyond New Zealand. That helps reduce the risk in the long run.
5) The next mantra — invest long-term. Time heals. Short-term fluctuations even out — provided we can hold long-term.
6) About KiwiSaver and ETFs — again as a diversification strategy. Investing in ETFs evens out risk over investing in a single company.
7) The new concept — “laddering”.
8) A reminder that interest on credit cards could be even 18 per cent or more!
9) Finally, from the recent April 8 column: that we are all mere mortals susceptible to making mistakes. The willingness to acknowledge was remarkable.
A: Thanks for a great list. The only one I would question a little is the third one. A basic investment in shares probably does usually beat property over long periods.
But people usually borrow to invest in property, and not shares. That ups the ante for property, increasing risk but also returns for most. Let’s just say it’s hard to compare the two.
Q: I have been reading your column for at least 10 years, throughout most of my 20s and now into my 30s.
It has helped guide me through choosing a suitable KiwiSaver provider and fund, saving for my first home, and managing the interest rates after purchase.
The best advice by far was explaining how those who are a long time from using their KiwiSaver should consider a growth fund.
I had been in a conservative fund for the first 10 years and missed out on a lot of gains, but now I’ve rectified that and will be reaping the rewards in my retirement, when I eventually get there.
A: Yes, moving into a growth fund, especially if you have many years before spending the money, is a great idea.
And I’m sure you know what goes with that: you mustn’t panic and move to lower risk when the markets inevitably go down sometimes.
Q: We love your column!
Some years ago, I recall you wrote that you yourself were not hugely wealthy, but comfortably off.
Your secret was: you didn’t enjoy shopping so you didn’t spend a lot! As a fellow anti-shopper, that was music to my ears. I guess it’s just lucky to not enjoy shopping and hard for those who do.
I quote you often to friends and family if they are spending excessively and then complaining of budgeting issues.
Right now, if you save and don’t spend you can get 6 per cent just on term deposit!
Thank you for your simple, sage advice, Mary.
A: Oh, dear. I hope your friends and family don’t hate me as a killjoy!
But you’re quite right. I don’t enjoy shopping, whether it’s for groceries, clothes or a car — to the point where I call them unsupermarkets because I can’t see anything super about them.
That makes it hard to relate to people who love malls and find it really hard to curb their spending. All I can say is that there’s much more beauty — and food for the soul — on beaches, in the bush, or sitting around a kitchen table with friends.
On not being hugely wealthy, that’s the deal for most journalists! But we get other rewards for our work, such as receiving lovely feedback from people like you.
Q: Your column has always been my first “go-to” when opening my Saturday Herald, although for reasons other than eliciting financial advice. It is more of an unashamedly voyeuristic attempt to gain some insight as to how the other, more moneyed, half live. It is indeed another world!
While I appreciate that a good number of your correspondents may have worked hard over many years to accumulate such wealth, I always wonder how much joy they are depriving themselves of, not just personally, but also their wider families and community.
My advice: spoil yourselves, give your money to your loved ones while you are breathing, so you don’t miss the pure joy and gratitude in their eyes.
Use your money for good, not evil, spend it, unwisely preferably, see where the greatest need is, look outside your circle of friends and neighbourhood.
As the old adage goes, “you can’t take it with you when you’re gone”.
A: Hmmm. Certainly, some correspondents to this column are well off, but far from all.
Actually, I particularly welcome letters from those who are struggling. I fear, though, that many of them don’t read the business section of the paper.
Also, the issue of enjoying spending your money comes up all the time. But it’s not a message for everyone. While splashing out can indeed bring happiness for some, for others it can also bring bankruptcy!
- Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
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