Mary Holm: Banks, stocks make up for gold

Contrary to one reader's views the sky does not appear to be falling in. Photo / Getty Images

About a year ago you published the comments of a cranky reader who was berating you for advising "good, honest, decent, hard-working Kiwis" to put their money in our local (well, mostly Australian) banks.

You were challenged about the validity of our trading bank credit ratings and also on your theory that the gold price was a bubble. The writer told you to hold on to the article so he could "remind you and everyone else a year from now why you and everyone else should have all removed our money from the trading banks".

I had a bit of a chuckle at the time and recorded a few indices to see how things went over the year. I also made up a sample $100,000 portfolio at the time consisting of:

• 10 per cent cash at call (assumed zero interest after fees)

• 50 per cent cash on deposit (ASB 4.45 per cent)

• 30 per cent NZX50 linked

• 10 per cent gold linked

Thank goodness for the "instability" of our local banks and stock market, as they managed to make up for the losses on the gold, and I came out with a theoretical net 4.2 per cent return (plus dividends) as of today. Not a stunner, but better than the CPI.

Looks like the sky has not fallen, although that of your cranky reader is a little cloudier than it was this time last year.

Thanks for picking up on this. I had a note in my diary to report on how the year had gone, but you summarise it all beautifully.

For the benefit of others, "NZX50 linked" is the equivalent of investing in shares in the NZX50 index - basically, the biggest 50 local shares.

Your data show that from September 2, 2011, to August 28 this year, the NZX50 rose from 3303 to 3629, up 10 per cent.

Meanwhile, gold fell from US$1883 an ounce to US$1664, down 12 per cent. And in kiwi dollars it fell from $2227 to $1999, down 10 per cent.

I should add that a year ago I was much more confident that the banks would stay sound than that the gold price wouldn't keep rising. Gold could easily have had another good year. It's just that it doesn't always. It worries me when people put a large portion of their savings into gold - especially if it's money they'll need within the next few years.

You would think that the results you report would have silenced last year's correspondent. But no. Read on.

Doom merchant

What lies dead ahead financially for every soul upon this planet has already been determined, and will occur independent of what you, I or anyone else thinks, feels, says or does.

I have no expectations of you or the Herald to publish my letter, and to be honest, I don't need nor want the validation.

It is with some irony (being the "official week of money") that my obligatory communique to you should surface now. One year ago, we agreed to meet (through your invitation) back at your column on September 8, 2012, so I could remind your readers why they should have removed all money from their bank, prior to the bank runs and financial system collapse I predicted were about to unfold.

Someone once said, "Predictions can be difficult ... especially about the future". I believe predictions can be easy ... just avoid the date stamp. Lesson learned. However, just because it hasn't happened, doesn't mean it won't.

Financial system collapse is inevitable.

I'm 100 per cent certain.

The evidence is compelling and insurmountable, and not hard to find. A dollar is nothing more than a worthless piece of paper backed by the performance of a government and the productivity of its people. It is glaringly obvious to me that both, on a global scale, are severely declining. To believe New Zealand is immune is tantamount to financial suicide. KiwiSaver funds, I fear, will inevitably get slaughtered ...

Sorry to cut you off, but you've had more than 200 words. To summarise your next 321 words, governments and central banks are behaving badly and "an unprecedented tipping point is fast approaching".

You even quote US Federal Reserve chairman Ben Bernanke as saying, "We're about to plunge off a financial cliff."

But, if he in fact did say that - I haven't been able to verify it from a reliable source - let's check the context. In short, I don't agree with your doom and gloom. And I certainly don't accept your opening sentence, which seems to suggest we can't do anything about our own financial situations.

Spending stats puzzle

I just read the table "What are retirees spending?" in the August 17 Herald.

I would love Statistics New Zealand and/or Dr Matthews to explain the following anomalies: Single-person household transport $4.70, two-person household $27.89. Do couples travel almost three times as much as single people? Recreation and culture $8.59 versus $35.19. Are couples twice as "cultured"?

I suspect the differences come down to age. When people first retire, more than half the households would be couples. But as spouses die, a growing proportion of older retiree households will be single people.

It follows that the average single retired person will be older than the average married one. And people in their 60s travel and go out more than people in their 80s.

Raising super in stages

How will the new superannuitants look after their superannuitant parents? At age 65 an increasing number will have living parents in their 80s, 90s and centenarians.

No account is being taken of the plain fact that a 65-year-old can look after him/herself far more economically than a 90-year-old. The young retiree can opt for employment, full or part-time, can do house repairs, look after the garden, grow the veggies/fruit, etc. A really old person must use the assistance of others. I am talking of needs here, not wants.

Because of the mortality pyramid it is entirely feasible to increase the super for the old by up to 25 per cent, which would help them pay their carers a living wage, and reduce the entry-level super at 65 by 5 per cent. A progressively increasing rate will broadly match the decreasing capacities of the ageing.

I have written to the main party leaders and to Treasury with this suggestion. Only John Key's office acknowledged and no one commented. Am I kidding myself?

PS: I am aged 83 and the adjustment to my super would be minor in either direction.

Yes, but over the next 10 years you would gain lots. Just teasing!

While you're right that younger retired people can help themselves more, the Government seems to supply free support to older retirees who need it - at least for the people I know. And Claire Matthews' report suggests that paying for carers doesn't loom large in most retired people's budgets.

As discussed above, the newly retired tend to spend more, so I don't think it would make sense to increase NZ Super as people get older.

Loans and allowances

As I understand it, students can draw under the student loan scheme $150 per week as living expenses, which needs to be paid back. Students could use this money to invest if they don't need the money for living expenses.

One thing that does irk me is when parents manufacture their income to be below the required limit that allows their children to receive as much as $200 per week which they don't need to pay back. Some of these people I know own millions in farms and properties.

And when these children come home for the holidays they have to not work too much so it doesn't affect their free entitlement. This seems so wrong and dishonest.

What message does this give to young people?

It's not as bad as you think.

But first, student loans. There are three components. One is fees, which are paid directly to the educational institution. The second is course-related costs, for which you may have to provide supporting evidence. And the third is living expenses.

You're out of date on the amount of living expenses. It's currently $172.51. (I love the odd amounts of government payments - usually the result of inflation adjustments or similar. Couldn't they at least round them to the nearest dollar?)

While the Ministry of Social Development advises students to borrow only as much as they need, you're right that a student who didn't need this money could borrow and invest it - something I should have mentioned in last week's column.

Turning to money that doesn't have to be paid back - a.k.a. student allowances - these can be considerably more than the $200 a week you mention. See www.tinyurl.com/studentallowance.

For students under 24, eligibility depends on their parents' income. However, it's no longer easy for parents to manipulate their income.

"The definition of parental income changed from January 1, 2012," says a ministry spokesperson. Under the change - which affects the Working for Families tax credit and the Community Services Card as well as the parental income test for student allowances - many forms of income are counted, "including any income that your parents may have directly or indirectly deprived themselves of". For details, see www.tinyurl.com/parentsincome.

On your comment about students not earning too much in the holidays, the ministry says you must be referring to the Unemployment Benefit Student Hardship, "which is available for students while on a break in study who cannot find employment. Any income earned over this period affects the rate of Unemployment Benefit Student Hardship - not the Student Allowance."

Mary Holm is a freelance journalist, part-time university lecturer, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and 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 or Money Column, Business Herald, PO Box 32, Auckland. 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.

Financial guide released

The Reserve Bank has released the 64-page booklet I wrote for it called Upside, downside - a guide to risk for savers and investors. Excerpts from the booklet were published in this column about a month ago.

You can get copies from The Knowledge Centre, the Reserve Bank, PO Box 2498, Wellington, 6140, or by phoning 04 471 3660 or emailing rbnz-info@rbnz.govt.nz. Alternatively, you can read the booklet or download it at www.rbnz.govt.nz/publications/upsidedownside.pdf on the Reserve Bank's website. The Reserve Bank is also taking bulk orders, for members of a family, organisation, employees, clients and so on.