Saving for those happy golden years in the sun can be done without becoming involved in risky investments. Photo / Getty Images
Q: We are both near the top end of the retirement age, but still healthy and happy in our own house.
The crash of the finance companies decimated our savings, so we can't contribute to our daughter, a solo mum, and our grandchild. The banks pay a pittance in interest and we're too old to work. We have a small share portfolio.
Now we've heard of this (named) foreign exchange trading scheme. We were invited to watch a video to see how the trading works.
The package is priced at (quite a few thousand dollars) plus investment money. Have you had any experience with it?
We could get the necessary amount for the deal together, but could not afford to lose it.
A: I don't know anything about the company - which is why I've removed a few identifying details. But I do know this: trading foreign exchange is what is sometimes called a zero sum game. All the gains from trading equal all the losses. It's like a seesaw - no ups without downs.
That's because you're not investing in something that will grow over time, like shares in companies that produce goods and services. You're just swapping one currency for another. There's no building of wealth.
It means that on average a foreign exchange trader will break even over time. And as you'll be trading with some full-time professionals, chances are that they'll do better than average and you'll do worse than average - which means you make a loss.
What's more, this is before including the costs of trading, which make foreign exchange trading a negative sum game.
That won't be how the company presents it to you, of course. It will make a convincing sales pitch, which is quite likely to include some mysterious software that does all the work for you, and "proof" that it works.
But don't forget one of the golden rules of investing: if you don't understand where the profits come from, stay away. Too often complicated investments are much riskier than they are portrayed.
The considerable start-up cost in the company you're looking at underlines that. My guess is that you would have to be extraordinarily lucky to make enough profits to cover that cost.
It's one of those situations in which you should ask yourself: "If these people have really worked out how to profit from foreign exchange trading, why don't they keep it to themselves and get rich? Why are they bothering to share it with strangers?"
Your letter worried me enough that I replied directly to you.
You thanked me and then said, "So it seems that we'll stay with term deposits at the bank, which is hardly more than the inflation. Or is there anything better?" My next reply addresses this issue.
Q: An advertisement has come to my attention by a (named) finance company for higher returns on one's investment.
The interest rate is much better than I get at the moment on my $50,000 with ANZ, which is 4.3 per cent for six months.
I am a pensioner, so I can invest only for the short term. Would this be an ideal and - importantly - safe investment for me?
A: Again, I don't know, but I doubt it.
The question to ask yourself with this type of investment is: "Why are these people paying much more than the bank?"
The answer must be that otherwise they couldn't attract enough money, presumably because they look risky.
I'm not saying they definitely are risky. Perhaps the people involved are rock solid, but their company is new, small and unknown, so investors don't trust them.
Sadly, though, many new, small and unknown companies don't last long. This is far from an ideal investment for you.
That leaves you and our previous correspondents stuck with bank term deposits and their lacklustre returns. And it's cold comfort to acknowledge that New Zealand interest rates are higher than in many other developed countries.
Are there other options - apart from wishing for an interest rate rise? You have just a short-term horizon, and given the other couple's age I assume they do, too. So a share or property fund is too risky. There's too big a chance the market will be down when you take your money out.
However, you may be able to get somewhat higher returns from high-quality corporate bonds.
If you stick with bonds that have good ratings, there's only a tiny chance you'll lose your money. I suggest you talk to a sharebroker or authorised financial adviser about what's available and what might be suitable for you.
Q: Is it possible - or even desirable - for those protesting against partial asset sales to instruct their KiwiSaver provider to void their KiwiSaver account of any such shares?
If they protested because of their beliefs, perhaps these principles ought to be respected by fund managers.
A: Some KiwiSaver providers already offer funds with a certain "flavour" that might appeal to particular investors, in the form of ethical or socially responsible investment funds.
Some of these invest only in "good" companies, perhaps environmentally, while others invest in all but "bad" companies, perhaps including those in the tobacco, alcohol, armaments, gambling or pornography industries.
In a similar vein, it's possible that a provider will set up a "no partial asset sales" share fund. It would be interesting to see the number of takers. But I wouldn't hold my breath for one to start.
In the meantime, you can ask if your provider can switch you to one of its KiwiSaver funds that doesn't plan to hold those shares for reasons that have nothing to do with asset sales. Note, though, that may mean moving you out of any fund that holds any New Zealand shares at all.
The partial asset sales shares are expected to be major companies on our sharemarket. Mighty River Power, for example, is likely to be in the biggest 10 companies.
Therefore, many KiwiSaver funds holding New Zealand shares are likely to include MRP - and probably the other partial asset sales shares when they come on to the market.
To avoid those shares, you might have to go into a really low-risk fund that invests only in cash and high-quality bonds.
There are, however, some providers that offer funds that invest only in property or in overseas shares. If you wanted to stick with higher risk and your provider doesn't offer such a fund, you could switch providers.
Q: Perhaps it's time to revisit gold, after several letters from gold bugs in your column over the last few years telling everyone that to survive the coming financial storm you needed to buy gold.
The gold mania is subsiding. Nothing can survive an exponential spike as gold did, taking many chastened speculators with it. Your advice on gold - to invest only a small portion of your savings or none at all - was sage indeed.
A: They say the four nastiest words in the English language are "I told you so". So of course I won't say that.
Suffice to note that, since the highs in 2011, the price of gold has fallen 25 per cent in US dollars and 27 per cent in New Zealand dollars.
I'm not saying I have any expertise in forecasting gold - or shares or bonds or any other investment. All I know is that any investment that can rise quickly can also fall quickly, and nobody knows when.
A little gold in a long-term portfolio is fine. A lot in a short-term portfolio is mad.
Q: My wife and I came to New Zealand 11 years ago from South Africa with two small children. We obtained permanent residence before our arrival and did everything legally.
Our professional qualifications and work experience were not recognised once we were in the country, and that resulted in a long unemployment period and the loss of all our savings. An exchange rate of 6.4 to 1 did not help. In the following years we were battling to survive in the extremely costly country with a small income.
We have learned our new professions now, and can call ourselves mid-income earners. We've had one holiday during this period, and do not spend on eating out or anything remotely costly.
That resulted in a small savings that we plan to use as a house deposit.
However, we cannot buy lost time and now that we are almost 50 years old, buying a property seems a daunting task. There are a lot of things to consider and we would like to know your thoughts?
Also, can you advise on somebody honest and reliable who can spend a couple of hours with us and present some options.
A: Worse things have happened than buying a home in your late 40s - even though you may have to get a fairly modest place.
Most families prefer owning their home over renting for all sorts of reasons, including the knowledge that they can't be kicked out by a landlord, and that they can set things up and decorate and garden the way they want to.
Even if we look at it from a purely financial viewpoint, home ownership works well for most people. Once you're in your own place, you will probably do everything you can to make the mortgage payments, and hopefully have the loan paid off by the time you retire.
The only good alternative is to keep renting and have the discipline to save a large amount to cover your accommodation in retirement. You do not want to go into retirement trying to pay rent as well as other expenses out of NZ Super. Quite a lot of people do that, but it's no picnic.
So my vote is for buying a small home with not too big a mortgage.
On a source of advice, I don't use an adviser so I can't recommend one. But I think it's best to use an authorised financial adviser who charges by the hour rather than accepting commissions for putting you into certain investments.
For more on this, and a list of possible advisers, see the Info on Advisers page on www.maryholm.com. I suggest you visit a few to talk through how they might help you and what they would charge.
An alternative is free budgeting advice. See www.familybudgeting.org.nz.
PS: It's none of my business, but you sound unhappy. I do hope you can find something to appreciate about this little country of ours.
• 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 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.
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