Q: I have my retirement savings mostly in international shares. If Brexit is a "no deal", do you think markets will suffer and should I pull out my savings prior, and wait out the turmoil?
A: I don't know what will happen to the markets. I don't take a lot of notice of share market forecasts — I will explain why shortly. But regardless of what happens, leave your money alone!
Let's say, for argument's sake, that "no deal" will hurt the performance of UK companies.
All the professional market watchers — fund managers, sharebrokers and so on — will have known that for months. Fearing the worst, they will already have reduced their UK share holdings to some extent, pushing down prices.
If "no deal" becomes a reality, prices will fall more. But if there is no "no deal", prices will rise as the professionals get back into the UK market. If you sell now, you could miss out on a significant upturn.
You might be protesting that prices have not, in fact, fallen in the UK in recent months. They've actually risen quite healthily from the start of this year. But they fell pretty fast from May to December last year, so perhaps that was when the market was "pricing in" the Brexit worries.
Who knows? Nobody polls everyone who buys or sells shares. "Reasons" for market changes are always just guesses.
Following markets closely, and trying to anticipate future moves, is a fool's game. Even when we can successfully predict how an event will affect how companies perform, the experts will have moved on that knowledge way before ordinary investors do.
And in any case, there are always other unpredictable events that also affect prices — from natural disasters to animal or crop diseases to political developments to ... The list goes on and on.
Trying to time markets is dangerous to your wealth. Research proves that over and over.
A recent example: in the 10 years ending December 2018, the US market — as represented by the S&P500 index — grew 13.1 per cent a year. But share fund investors' returns averaged 9.7 per cent. Over 30 years it was 10 per cent for the market and just 4.1 per cent for investors.
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Why the difference? Many investors try to beat the market by timing when they should get in and out. And most do much worse than if they had stayed put.
There are so many good quotes from wise investors about the foolishness of market timing. Let's go with two from Warren Buffett, one of the world's richest men: "We continue to make more money when snoring than when active."
And: "The only value of stock forecasters is to make fortune tellers look good."
And one from Fortune magazine: "Let's say it clearly: No one knows where the market is going — experts or novices, soothsayers or astrologers. That's the simple truth."
But for calculating the amount of tax credit, do my own contributions during the same year before I turned 18 also get counted? I would like to start contributing more from July 1, so I get the benefit of any investment appreciation as well as the tax credit.
But if my contribution is counted only later, it would make more sense for me to wait till December before making the additional contributions so I don't lose out on the tax credit.
A: Get into those contributions straight away. Inland Revenue says that in the year you turn 18, they count the contributions you made in the whole July 1 to June 30 KiwiSaver year — regardless of your birthday.
This next bit is rather distant for you! But the same goes for the year in which someone turns 65, which is when the tax credit — now called a government contribution — stops for most people.
(The exception is people who joined KiwiSaver between 60 and 64. They get five years of government contributions and compulsory employer contributions — although that has stopped for people joining after June 30 this year.) Obviously you realise — but I want to make clear to others — that the maximum government contribution in the year you turn 18 or 65 is smaller. It's proportionate to how much of the KiwiSaver year you were eligible.
In your case, to be eligible for 30/52 of the maximum $521 government contribution, you need to contribute at least 30/52 of $1042, which is just over $600.
Finding the best fund
It occurs to me this isn't the best way to make this decision, but I don't know where to find any unbiased information on how to assess and choose a scheme based on performance, or if there is another measurement to consider.
A: You're absolutely right about convenience not being a good
reason to have your KiwiSaver account with your bank — although it's a common enough reason.
Actually, I think it could prove to be a problem when — not if but when — there's a major downturn in share markets, and many KiwiSaver balances fall a fair way. People who see their account balances regularly, when they log on to their bank website, are more likely to panic and move to a lower-risk fund at exactly the wrong time.
It's good to check your KiwiSaver balance every few months, but not daily. And even then, remember to hold your course in rough seas. See today's first Q&A.
So how can you find unbiased info on the best fund for you? Go to www.smartinvestor.sorted.org.nz and click on Compare and then KiwiSaver and Managed Funds. You then choose KiwiSaver and the type of fund you're in — from defensive through to aggressive.
But first, I suggest you read the writing underneath, and check that you and your son are in the right risk level for you. Then you can compare the KiwiSaver funds at that risk level.
Scroll down a little, and on the right you'll see a "Sort by" box. The options include Return, but I strongly suggest you skip that. Research shows, over and over again, that funds that have performed well in the past won't necessarily keep doing so, and in fact might be more likely to perform badly in future.
Instead, choose "Fees, lowest first". Then look through several funds with low fees. For more information on a fund — including its top 10 investments — click on the fund name and scroll down.
When insurance pays
I got ill 17 years ago (age 29) and rather unbelievably had income protection insurance. I have never recovered fully so I have been unable to go back to any sort of work. This insurance has saved my life. I can't recommend it enough!
I have been able to join KiwiSaver and buy a house (although I was lucky to receive a legacy to help me into that, but the bank wouldn't have given me a mortgage without the insurance payments) and life (sort of) has continued — also thanks to very supportive parents.
A: I'm certainly not pleased to know you are one of the unlucky ones — which I define in the book as the people who get back more from insurance than they've paid in premiums. That sounds good, but you are the ones who have had bad stuff happen to you.
It's far better to be "ripped off" — having made few or no insurance claims.
But as you point out, it was really lucky that at such a young age you had income protection insurance. It has clearly made a huge difference to your life.
I understand that many New Zealanders don't have this insurance — sometimes called disability or loss of income or income replacement insurance. There are variations, but basically you receive some income if you're unable to work.
Often, the payments start after you've been off work for either one month or three months. And the payments might last for a fixed period or until you reach 65.
You pay lower premiums for the three-month option, which will be good enough for people with a rainy day fund. But it's really good to have the cover last until you think your dependants will no longer be dependants.
Your story should make others aware of the risk they run by not being covered.
Benefit vs inheritance
After reading your column about the 51-year-old male who had received an inheritance and was upset that his benefit had been reduced, I could not help but be annoyed by his self entitlement. Two points:
• Of course he should have his benefit reduced after receiving an inheritance. In my opinion he is fortunate the entire inheritance isn't counted as income by Winz.
• Without knowing his exact predicament, I would suggest his well-worded letter suggests he is more than capable of working. The best thing he could do to help his finances is get a job.
This guy gives beneficiaries a bad name.
A: I hate to say it, but you might be giving non-beneficiaries a bad name.
Last week's correspondent has health problems that make him unable to work. And I think it's really unfortunate that the money his parents have left him can't make his life easier. He's talking about his ability to pay for haircuts and dental bills, not overseas holidays.
As for the wording in his letter, I understand he had help with it. But even if he hadn't, it's a real leap to say someone who can write an articulate letter can work. I can think of lots of situations when that wouldn't be true.
Here's a challenge for you. Before he got the inheritance, our correspondent was receiving $523 a week while paying $360 of that in rent. How about trying to live on $163 a week for everything but whatever your housing costs are? And not just for one week but 52 weeks.
As the saying goes, "Before you judge a man, walk a mile in his shoes." P.S. Thanks for your kind comments about the column. I usually edit them out of letters, but they show another side to you.
Q: On last week's Q&A about an inheritance falling victim to benefit rules, it seems pretty simple to me, but probably not appropriate for your column.
I run a hardware store. Come and see me. Spend a couple of hundred dollars on a reasonably secure safe. Put the 29 grand in it and get your $12,532 a year reinstated.
A: There are just two worries with that idea:
• It's dishonest if you don't tell the Government you still have the money — which I assume is the idea.
• If our man was caught, he could lose future benefits.
Immoral and risky. Doesn't sound all that clever!
More on this topic next week.
- Mary Holm 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 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. 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.