If you're tempted to raid your nest egg whenever you feel like taking a trip, then your money would be better in KiwiSaver. Photo / 123RF
COMMENT:
There are various sources where one can compare KiwiSaver schemes in useful detail.
However, is there an unbiased source where one can compare non-KiwiSaver investments, rather than relying on advertisements (in effect) from the banks and other groups?
My interest in this is personal, in that I am retired now and my KiwiSaver scheme is costing me nearly $1400 a year, while generating a gross of 4.7 to 5 per cent (it is worth about $143,000).
Remember when I replied to you personally, many months ago, saying "watch this space"?
Now, at last, I've got some good news for you.
As you may have heard, this past week a new online tool called Smart Investor was launched. You can find it on sorted.org.nz, and it was put together by three government organisations, the Ministry of Business, Innovation and Employment (MBIE), the Commission for Financial Capability and the Financial Markets Authority. So you know it's unbiased.
Smart Investor uses information that fund managers, bond and share issuers and others have to report to the government.
That information is available on what's called the Disclose Register, but Smart Investor makes it much easier to access and lets you compare different KiwiSaver schemes, different non-KiwiSaver managed funds, bonds, or a small number of shares and other investments.
There's more detail about KiwiSaver funds than on the older KiwiSaver Fund Finder. For example, you can see a list of all of a fund's investments.
And it's good to be able to look at a fund's annual returns on a graph so you can see at a glance how volatile it is compared with other funds of the same type.
Smart Investor also has tools that help you work out, for example, what sort of investor you are, explanations about different aspects of investing and so on. Rather than me listing it all here, I strongly recommend you go and try it out. You don't have to enter any personal information.
A useful feature for many people — including our correspondent — will be the comparison of non-KiwiSaver funds. I've long suggested that people who are already putting enough into KiwiSaver to get the full government and employer contributions should consider putting other retirement savings in a non-KiwiSaver scheme.
That means the money is accessible in case you need it. I'm not suggesting you raid your nest egg whenever you feel like taking a trip or updating your kitchen. If you're likely to be tempted, it would be better to leave the money tied up in KiwiSaver.
But you never know when something good or bad might come along for you or your family — such as a redundancy followed by a period of unemployment, or the start-up of a relative's exciting new business. At times like that, you might be justified in using some retirement savings.
Getting back to our correspondent, you might also want to use Smart Investor to compare KiwiSaver funds, and perhaps consider moving to one that charges lower fees.
How do you compare various unit funds?
I am retired and have several hundred thousand dollars which I'm considering placing in a conservative or balanced unit fund of the type run by most of the major brokers or banks.
I have asked for performance data from each of the funds, but it's not easy to compare which is the best.
Have you got any suggestions or the name of a website that does this comparison?
Also, the purchase price of the units varies, and I'm not sure whether the date at which you buy the units is sensitive to the market (like buying shares at the top of the market)?
See above for the answer to your first question. Smart Investor should help you.
On your last paragraph, yes, the unit prices in managed funds do vary with changes in the share and bond markets. So you could end up regretting investing all your money in a fund if its unit price falls soon after you buy. Then again, you might wait around and regret not investing if the unit price rises.
Not even the experts are good at timing markets. So it's a good idea to drip feed your money into a fund to some extent. But don't do it over too long a period. If the money is sitting in a bank in the meantime, there's a good chance you'll miss out on higher average returns in the fund.
One more thing — you seem to be planning on comparing funds on the basis of performance. Can I suggest you don't — even though you can on Smart Investor?
Note that Smart Investor says: "About past returns. Seeking returns is what investing is all about, but those shown here are already gone; they won't continue.
"The best can become the worst and vice versa, so it's unwise to just choose a fund based on how well it has done in the past.
"There are a lot of other criteria to make a smart choice, such as the right investment mix and reasonable fees."
Not convinced? A while back I was looking at Morningstar's KiwiSaver report for periods ending September 30, 2018. Here's what I noticed:
• Of the five default funds with 10-year information, the top performer in one year was the worst over 10 years. And the worst over one year was the best over 10 years.
• Of the four aggressive funds with 10-year information, the top performer over one year came third out of four over 10 years. And the worst performer over one year was the best over 10 years.
I'm not saying it's always like this. Sometimes one fund performs pretty consistently for quite a few years. But you never know which one that will be.
It's a much better bet to choose a low-fee fund, given that on average their after-fee performance tends to be better than for a high-fee fund.
I wrote to you a couple of times before as a pro-property believer in the property versus shares debate.
After reading your last column, I must write again to tell you a) your rental property advice is out of date, and b) I changed my mind.
Being legally robbed in the 1980s sharemarket debacle set me against shares and anyone selling them. However, 25 years of double-digit capital gains in rental housing investment set my family up very comfortably.
But government policies mean the business dynamic is changing and many landlords are getting out.
Apart from the looming capital gains tax, which will probably affect all investments, the recent banning of letting fees led to property managers increasing charges, so rents must rise (about $25 a month) to cover that.
The requirements for upgraded insulation mean many lower-end rentals cannot be economically made to comply so will probably be sold.
The coming requirements for damp-proofing, ventilation and heat pumps will add costs to all rentals, while the risks from the proposed granting of property rights to tenants (limited termination, pets, building modification, etc) makes the rental business untenable for small-scale operators.
So I think you should warn potential investors to research the market and government policies carefully when considering rentals, and also advise tenants to save a deposit and buy a home, because rents will increase significantly while availability and quality of rentals falls.
And perhaps you could offer some advice for landlords selling up, who also distrust shares. What should we do with all this cash?
I'm not sure why you say I'm out of date. Last week we looked at some aspects of the property versus shares debate, and I said there would be more in the next few weeks.
We hadn't yet looked at the regulations covering rental properties. But anyway, you've summed them up nicely, so thanks.
I don't blame you for finding the new rules off-putting. But hopefully they will have two results:
• Rental properties will be of higher quality, with insulation, damp-proofing and so on.
• The power imbalance between landlords and tenants will be reduced.
Sure, the changes could lead to increases in rents, and fewer rentals being available. But if some landlords sell, that should put downward pressure on house prices, so more tenants can buy their own place. That has to be good for New Zealand.
As for what to do with your cash from selling, I reckon the best place is a low-fee share fund. But clearly you don't like shares.
I don't know your 1980s story, but many people who lost lots in the '87 crash broke some really important share investment "rules":
• Don't invest in just a few shares. Get into a broad range, including blue-chip companies that aren't as exciting but are likely to stay in business through thick and thin. Or diversify by being in a share fund.
• Don't borrow to invest, unless you're in a position to take big risks.
• Invest for at least 10 years. Even if the market crashes in the meantime, stick with your investment.
Share and share-fund investors who have followed those rules have — like you — done really well over recent decades. I suggest you join them, within KiwiSaver if you're not already in it. See the choices of KiwiSaver and non-KiwiSaver funds on the new Smart Investor.
If you're adamantly against shares, Smart Investor also tells you about some other investments. But they will tend to be lower-risk, lower-return options.
We are a couple, aged 37 and 40, with three boys aged six, four and 15 months.
We bought a great house in Hataitai, Wellington, and lived there, completing an extension and then using it as a home and income. We then bought another house when baby No 2 arrived and moved in there while renting out the old house.
We've had the old house for 10 years and it's doubled in price, now worth about $1.1 million. But it's quite a lot of work, which we do ourselves. Sorting out the tenancies, maintenance and upkeep is time-consuming and costly.
Rental income is $1000 a week, but it will need a new kitchen and bathroom in the next three years.
We think maybe it's time to sell and pay off our mortgage ($600,000 on the rental and $100,000 on our second house). We would then re-invest whatever's left (possibly $400,000) with a financial adviser.
But we have differing views. My husband thinks it's best to hold on to property.
I think the effort versus outcome in our current stage of life isn't worth it, and it's better to be mortgage-free, with a hands-off investment portfolio? Please offer some advice!
There's no way to tell whether you will be better off financially in, say, 10 or 20 years by sticking with the rental or investing elsewhere — probably in shares or a share fund.
Either investment will sometimes go badly, but perform well over the long term if you stick with it. So you might as well go with whichever one you prefer.
That's where it gets tricky, as it seems that you two have different preferences. But if you both concentrate on what you like doing, rather than on which investment you think will perform better, perhaps you can come to an agreement.
I'll just add that if I had three little boys — who will keep you busy for lots of years yet — I would get out of the landlord business at least until they've grown. These are precious years with the kids.
- Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and 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. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.
Economists expect the recovery continued during the first quarter of the year.