As a point of interest, one of the fund managers holds seminars around New Zealand declaring that fixed deposits don't keep pace with inflation etc. and doesn't point out the likelihood of big losses in managed funds.
A: Shame on them. Many seminars do more harm than good.
More importantly, though, it's time for the Don't Bail Out message again.
Sorry if I sound like a broken record to regular readers. But I get a steady flow of letters like yours, and it's really important that you all don't make a move you are likely to deeply regret.
Your losses, on paper, look awful. And it's little comfort to know many others face similar numbers.
But, as your accountant points out, if you sell you will turn paper losses into real ones.
If you stay invested for several more years, it's highly likely the funds will regain some - and if you give them time, all - of their losses, and then some.
The losses are almost certainly largely the result of investment in world shares. Returns on world shares were minus 28 per cent in 2001 and minus 30 per cent in 2002. Horrific!
We forget, though, that in 1997 through 2000 they were: 35, 27, 26 and 37 per cent - as extraordinarily good as the recent ones have been extraordinarily bad.
Nobody expects world share returns to swing back to 30 per cent in a hurry. But it would be surprising if they were not back in positive territory before too long.
I assume that when you made the investments you expected to stay in them for at least seven or eight years, or more.
For those with a shorter horizon, such funds are rather risky - as recent history has shown.
If you were a long-termer, I strongly advise you to stick with your original plan.
As hugely successful US investor Warren Buffett has said, "Our capital markets are simply a relocation centre. They relocate wealth from the impatient to the patient."
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Q: Hmmm. I wonder if those earlier correspondents are still thinking about Sky City following on from the Government anti-smoking announcement?
I was closer to the mark than I knew when I sent you the following letter. It was just smoking instead of tax.
(Letter in Money Matters on December 7, 2002): "Your correspondent advocating Sky City shares as the sole answer for every investor is blind to the obvious.
"Forget about the current terrorist risk or the disgruntled gambler that might blow the place up.
"How about something as simple as the Government raising taxes on gambling, a risk rumoured only some months ago, about the time of the election?
"No one tells us when the bad news is coming that results in the destruction of a company's share price overnight.
"I wish your correspondent and any others following a single stock investment philosophy well.
"I will remain diversified, knowing that there is greater certainty that I will attain my financial goals by doing so."
A: Your letter is well worth running twice.
For those who missed the recent news, Sky City's share price tumbled when Parliament's health select committee released a report recommending a ban on smoking in public places such as casinos.
International gamblers who smoke are expected to go elsewhere.
The ban is a little way off, and it's not expected to affect Sky City's bottom line until at least 2005.
But, in a good example of how share prices immediately reflect information about a company, even if the info is about future developments, the share price fell from $8.76 to $8.05 on March 19, and closed the day at $8.32.
It was trading recently at around $7.85.
So, yes, you should be congratulated for your foresight.
More to the point, similar bolts out of the blue can affect any company.
Investing in just one share - or even just a few shares - is a fool's game.
By the way, strictly speaking the announcement of the smoking ban wasn't a bolt out of the blue.
Sky City had made a submission to the health select committee last October, saying it could lose tens of millions of dollars in business if the smoking laws were tightened.
And when the ban was announced, Sky City managing director Evan Davies said it was "much as we expected and have been preparing for", although the company will keep pushing for an exemption for its high-roller rooms.
Analysts in the big financial institutions who follow Sky City would have been concerned for months about a possible ban.
This would have put downward pressure on the share price. Even though it rose in recent months, it would have risen further if the ban had not been a possibility.
The news on March 19 turned a possibility into a probability, increasing the downward pressure.
No doubt, when further word comes out on whether there will be an exemption for the casino's high-roller rooms, that will also affect the share price.
That's how an efficient market works.
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Q: In your column two weeks ago, you suggested a couple in their seventies might want to buy an annuity.
Annuities in NZ are generally poor investments, as the environment implies high insurance company costs and low Government stock returns.
They are also inflexible and tax-inefficient if you then go overseas. Annuity income is taxable in Australia and possibly elsewhere.
The issue is when there is a real risk that you live well longer than expected and the consequences of this are severe.
In this case the consequences are not, given the financial position.
The person would be better to construct a portfolio of diversified investment-grade bonds, where there is a higher running yield, or perpetual bonds with regular interest-rate resets, plus probably two years' expenditure, ie $75,000, in cash.
Two other things. You talk about the return on an annuity being higher than on term deposits.
But part of what you call the return is, in fact, getting back your capital.
Also, getting an annuity that increases 2 or 3 per cent a year doesn't protect you from high inflation.
A: I have to admit that my enthusiasm for annuities wanes each time I write about them and get a response like yours.
I still maintain, though, that they can work well. I know of some retired people who have been really happy with them. And I plan to look at them for myself when I'm in my seventies.
For all that they are not a particularly good deal in New Zealand, for the reasons you listed, they are still the ultimate in low-risk investing for the retired. No other investment lets you use up your capital without worrying about running out of money before you die.
Many people would be prepared to sacrifice a high return for such security.
Also, if a retired person or couple with reasonable savings puts enough into an annuity to take care of their basic income needs, they can then take more risk than they otherwise would with the rest of their savings.
This might mean, as you suggest, investments in good-quality bonds. And some retired people might also invest money they don't expect to need for 10 years or more in shares or a share fund.
Chances are that they will end up better off than if they had stuck to term deposits. Even if they have bad luck, the annuity will keep them reasonably comfortable.
Drawbacks of annuities do, of course, include inflexibility. Generally speaking, once you've got one, that's it.
But that's part of their appeal, too. They are there, for good.
And, if you intend to live overseas, you would obviously want to check the tax consequences first.
On your other points: You're quite right. I shouldn't refer to annuity payments as "returns". But I did explain that part of the money you get is really your principal.
In future, I promise to be more careful about my language. (This makes me feel like a teenager caught swearing. Shall I do 100 lines?) And, okay, payment increases of 2 or 3 per cent a year won't protect you from high inflation. But they'll be a lot better than no increases, which is usually what retired people face.
In any case, I'm naive enough to think that our Government, and most other Western Governments, have learned that high inflation is a no-no, and will continue to fight it.
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