By Mary Holm
Money Matters
Q: I have a sizeable portfolio almost exclusively of New Zealand shares and term deposits (which now attract a low rate of return).
In the interests of diversification and wider opportunity, it seems I should, in part, invest in offshore shares.
But how does one go about taking the first such steps when knowing little of overseas economies and really nothing of past performance and prospects of individual companies abroad?
I have several friends and three or four relatives in various countries, but am not aware any of them has an interest in their local sharemarkets.
A: Forget about all that research, and bothering your overseas mates.
If you go into a fund that invests in lots of companies in lots of countries, you don't need to know about their prospects.
Ask any of the people who have done well in international share funds in recent years to name even the industries of all the bigger companies in their fund. I bet many can't.
Financial theory says that a share price reflects the information the experts have about the company's future.
Let's say some new information comes out, suggesting the company will do better or worse than previously expected.
The experts - who work for the big financial institutions with billions to invest - rush to buy or sell. Supply and demand pushes the share price up or down pretty much straight away.
This means that if you, an individual investor, buy a share that you know nothing about, it doesn't really matter. The share price will be "fair" anyway, given the outlook for the company.
Does the theory work in the real world?
Sometimes it doesn't seem to. But often that's because nobody - experts included - foresees something that happens to a company. If the experts don't foresee it, are you likely to?
Generally, shares around the world are priced pretty efficiently. And that's particularly true of the big foreign companies that you're likely to invest in. They're thoroughly studied by hundreds of analysts.
If market efficiency does break down sometimes, some shares will turn out to be overpriced and some underpriced. Over time, they should balance out.
As far as the different economies go, if you invest in several, once again you'll get a balancing out over time.
Q: Just a small question about rest-home subsidies.
My parents meet all the criteria. They have a small car, investments of $45,000 (in Mum's name), and a home unit.
My father is likely to go into a rest-home in the very near future, and I understand that all his NZ Super will go to the rest home.
However, in your article (Money Matters, September 11-12) you say that "if you (the spouse who is living in their own home) get any income from a superannuation or pension scheme, you have to contribute half of that income towards the care of your spouse". Are you referring to National Superannuation?
If you are, then am I correct in concluding that all of Dad's and half of Mum's will go towards looking after Dad?
If I'm right, then it doesn't give Mum much to live on, does it?
As an added complication to this whole business, I have a sister who is and always will be on a disability benefit. She is mid-30s.
We were hoping that at least my parents' home could be preserved for her, as it would appear that in years to come the health system in this country will have slowly wound itself down and will no longer be able to pay a benefit, even to those in need.
My parents' house was the safety net for my sister so that she didn't end on the street. But as I understand it, the house could eventually be sold (after both my parents die) by the state to cover rest home costs etc, and my sister could end up with nothing.
A: All is not as gloomy as it might seem.
Firstly, the rule about half the payments from a pension or super scheme does not apply to NZ Superannuation - or National Superannuation as it used to be called.
Sorry if I alarmed you about that.
If your Dad goes into care, your Mum will still get all her NZ Super, says Pat Thomas of Work and Income NZ.
What's more, if your father gets the subsidy, your mother's Super will increase to the single rate, from $162.79 to $195.84 a week. "So she will have a little more money to provide for her needs rather than less," he says.
And while most of your father's NZ Super will go towards his care, he will get an allowance of $27.08 a week for personal items, and a clothing allowance of about $190 a year.
Secondly, it's likely your sister will be able to stay in your parents' home.
"If father dies first and mother does not ever go into a rest-home, there will not be an issue," says Thomas.
"If mother dies first and father is still in the rest-home, or if both mother and father end up in rest-homes, then the home becomes an issue."
In that case, rather than having to sell the home, the subsidy could be paid as a loan secured against the home.
"If the disabled daughter is and has been living in the home with her parent or parents for at least five years prior to their entry to the rest-home, loan repayment can be deferred while the daughter continues to live in the home following the death of her parents," says Thomas.
He adds that each case is carefully looked at. "But it would not be an automatic expectation that the house be sold immediately following the death of the parents to repay the loan, if the daughter still wants to reside there."
By the way, I think you're being unduly pessimistic about health care in the future.
New Zealanders are not going to support any Government that puts genuinely needy people out on the street.
Now for another rest-home subsidy question. There's nothing like having one Q&A on the topic to bring other questions out of the woodwork!
Q: I have a husband in a rest-home (because of a severe stroke), who has been receiving hospital care for the last 16 months.
He has no money apart from NZ Superannuation, owing to his business going into liquidation.
However, he does own half of the house (which is mortgage-free), the other half belonging to me. He owns a car.
I receive NZ Super. I have had to pay $28,000 of his personal accounts when he went into liquidation and now 16 months' rest-home care ($636 a week), all of which was my money.
I am rapidly getting down to the allowable $45,000, and I don't know how I am going to be able to pay the normal household expenses - rates, insurance, power, food, running a car, etc after that.
When I get down to the $45,000, what happens to the house? In the event of my husband's death, is the Government entitled to sell the house to pay for care that they had subsidised?
Can you help with these two questions?
A: You've had a rough time. But the future shouldn't be as bad as you fear.
Once your assets get down to $45,000, your husband should be eligible for the subsidy.
At that point, your NZ Super will rise to the single rate, says Pat Thomas of WINZ.
And, he adds, "If there is no one else living with her in the family home, her rate will probably also further increase to the living alone rate," which is $212.69 a week.
As for your house, it's yours to stay in. For couples with one person in a rest-home, the family home is exempt from any calculations to do with rest home subsidies.
"If the husband in the rest-home dies, there will be no need to repay any loan and there will be no need for the home to be sold," says Mr Thomas.
Your house could come into the picture, though, if you go into a rest-home yourself.
In that case, if both you and your husband are in care, the Government would expect you to sell your home and use up all but $30,000 of your assets before it would subsidise your care.
If your husband has died, it would expect you to sell the home and use up all but $15,000.
Most of these rules are fair, I think. The one that is tough is the $45,000 limit.
As you say, it's not easy for the spouse still at home to get by on NZ Super and the earnings on $45,000, especially now that interest rates have dropped.
* Got a question about money? Send it to Money Matters, Business Herald, PO Box 32, Auckland; or e-mail: maryh@journalist.com. Letters should not exceed 200 words. We won't publish your name, but please provide it and a (preferably daytime) phone number in case we need more information. We cannot answer all questions or correspond directly with readers.
Money: Let the experts do all the work
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