Q: I am 66 and my husband is 75. We have adequate income from NZ super and teacher super, interest and dividends to live comfortably. We are not big spenders but have children who are settled overseas, so we do travel to see them.
However, we have $232,000 invested in shares: $72,000 that we manage ourselves; and some in managed funds with, for example, ASB and AMP. At present, almost all are doing well.
We frequently read and hear that the market is due for a big correction soon and we wonder whether we should put all our savings in a bank deposit instead of shares before this happens. We won't be around for the next catch-up cycle and it would be distressing to see our savings dwindle.
Can you give us some suggestions?
A: There are two basic investment rules at play here. The first is don't try to time markets. People who move their money around - say from shares to term deposits when they think share prices are likely to fall, and back again when they think prices are likely to rise - get it wrong often, and end up worse off.
"As history has shown repeatedly, market timing is a losing game," says Morgan Stanley, a global financial services firm that would actually benefit from people moving their money in and out of markets, but nonetheless says it's a bad idea.
"Volumes of research critical of the practice have been written, and some of the greatest investment minds - William Sharpe, a Nobel laureate, Benjamin Graham, considered the father of value investing and John Bogle, the founder of Vanguard Group - have all counselled against it."
Even experts don't get it right often enough, the firm says. It writes of a study that tracked more than 4500 forecasts by 28 self-described market timers between 2000 and 2012. Only 10 accurately predicted share returns more than half the time "and none were able to predict accurately enough to outperform the market".
The clear message is that it's better to just stay in shares - if that's where you should be invested in the first place - rather than try to time entrances and exits.
The "if" in that last sentence leads to our second basic rule: don't put money into shares if either of these applies:
• You plan to spend the money within the next 10 years. The market might be down when you sell the shares, or have fallen before then and not yet recovered - something you are clearly aware of.
• You couldn't stomach seeing the value of your investments fall a long way - to the extent that you'd be likely to bail out at the worst time, at the bottom of a downturn.
It's not clear from your letter what you plan to do with your shares. If you're likely to sell and spend some of the money within the next 10 years on travel - or maybe home maintenance, a new car, major health expenses or other bigger-than-usual spending - I suggest you move it out of the shares or share funds.
Put what you expect to spend within the next three years into bank term deposits and the rest into bonds or a bond fund.
However, if some of it is longer-term money - perhaps for you to spend if you make it into your 80s or 90s, or for your family to inherit - I suggest you leave it in shares. Sure, we can be almost certain there will be at least minor downturns in the sharemarkets over the next decade or so, and quite possibly worse. But there will also be periods of growth. And nobody can reliably predict which will happen when.
You need only look at the last nine years, since the global financial crisis. Both world and New Zealand sharemarkets have performed well. A few years ago it would have been easy to say that it was time for a big downturn and bailed out. You would have missed some great gains since then.
History shows you'll almost certainly end up with more, over a decade or longer, by sticking with shares - unless the second bullet point above applies to you. If so, move the lot out of shares into bonds, or perhaps a fund with a small holding of shares but mostly other types of investments. And stay there.
Q: I feel that your response last week to the "Tale of two houses" - about the family wondering whether to sell their home and buy in a better school zone or to rent out their house and become tenants in the better zone - overlooked an incredibly obvious point.
If somebody bought a "modest" house in 2006 that is now worth $850,000, it would have cost somewhere around $300,000 at the time.
My wife and I bought a modest and slightly run-down house in Mt Albert for $300,000 in 2001 which is now worth about $1.6 million.
So if the mortgage at the time started at no more than $300,000 and you have been earning $175,000 a year (perhaps not that much in 2006, but then living costs were less then), what have you been doing with your money? If you couldn't make significant inroads on that mortgage with that level of income, then what makes you think you won't be going backwards at a rapid rate of knots if the mortgage doubled?
Back to our situation. Our mortgage started at $200,000 in 2001 and we paid that off, borrowed another $150,000 for significant renovations and paid that off, and the house is now mortgage-free. We also have three investment properties with about $250,000 in combined net equity.
Our combined income has never got close to $175,000. For most of this time our combined gross income was under $100,000. Obviously we have been very careful with our money, but this is something that anybody can do if they simply want to.
Also, with the couple's kids now 9 and 11, surely the stay-at-home dad can earn some money. Buy a lawn-mowing round (I did that once to boost our income), look for part-time work - something, anything.
To me this reinforces something I have always believed. What you do with your income can often have far more impact than how much income you get.
A: I quite agree with your last statement. And you and your partner are to be congratulated on how well you've done financially.
But the reader was asking for help about her and her partner's situation, not a judgment about how they'd got to where they are.
You make many assumptions. We don't have any idea how long the woman has earned such high pay, or what other payments the couple might have been making over the years. Perhaps they've been supporting extended family members, or paying off debt from a failed business venture. Who knows?
On the possibility of the father working, I did mention that. But maybe he doesn't have to. They weren't complaining of being short of money.
The old saying about walking a mile in someone else's shoes seems pertinent here.
Q: I thought I'd point out another option for the "rent or buy" correspondents. They could also cost the option of staying where they are (possibly extending the house) and "wasting" money on private schooling instead of additional mortgage or rent.
Whether it makes sense will depend on whether both their children are boys, and if not, whether they're happy with the state option for their girl.
If it's only the state option for boys that's bad, they might not need to send a daughter to a private school.
Here in Wellington, private girls' schools are $18,000-ish a year, but the private boys' school is $20,000. The integrated Catholic schools are about $3000 a year. Some Auckland private schools might "only" be $16,000 a year.
The way I count it, the difference between a $200,000 mortgage and a $600,000 mortgage is about $24,000 a year in interest. That would automatically make private a more logical option if it's only one child.
However, if it's two children, it will come down to how many years the mortgage will take to pay off, how much more interest they end up paying after the children have left school and whether they can afford two sets of fees for the three years their children are both at secondary.
But that last bit is teaching you to suck eggs! You will be better able than me to work it out.
If there's a $3000 Catholic option that's academically acceptable, local and available to them (getting in will depend on how Catholic the writer's family is and how many non-Catholics the school takes), and they can cope with the religious aspect, that's easily the most financially logical choice.
A: I think I'll give the egg-sucking a miss, thanks. I said last week, "It's impossible to know which option is likely to find you financially better off 10 years from now - with the direction of house prices, mortgage rates and rents all up for grabs." Adding school fees to the mix makes it worse.
In any case, there's a lot more to all these decisions than money. The couple may have strong views about private schools. For one thing, it's not just Catholic schools that include some religious elements in their education.
But this is drifting away from what this column is supposed to be about. Let's just say that private schools are something the couple might want to consider.
Q: You didn't mention the tax implications for the first couple in last week's column. They're complicated, though.
What about the option of selling and renting?
Their capital of $580,000 invested at 5 per cent a year will earn $2400 a month before tax.
A: Oh, no, we're adding tax to the mix, too! The calculations - and the assumptions you would have to make - are turning into a nightmare.
Selling their house and then renting in a better school zone is indeed another option. But I wouldn't recommend that the family gets out of the housing market.
True, if house prices fall appreciably in Auckland they could gain from selling now and buying later. But that's a bigger gamble than I would want to take.
Several other kind readers also offered suggestions for the couple. More on this next week.
Q: Why single out Craigs last week for mention as an option for direct share investment via KiwiSaver? Some other providers offer the same via their growth funds.
Or are you saying that via Craigs the writer can pick the stocks that his/her KiwiSaver fund manager invests in?
A: The latter. To my knowledge, Craigs is the only KiwiSaver provider through which you can put some or all of your KiwiSaver money directly into individual shares - as opposed to into share funds. Craigs' KiwiSaver investment list includes more than 40 New Zealand shares, plus Australian and other international shares.
I'm not necessarily recommending this. It's important to be sure your investments are well diversified, and to keep an eye on fees. But this option may suit some people - especially those who also have other investments.
• 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 email@example.com or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. 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.