Money Matters: Big things start life small

By Mary Holm

Q: A small ($500) question: Are there any managed funds that you can buy into for $500? Or should I just find the highest term deposit I can?

A: Your savings might be small. But we all know what can happen to acorns, if planted in the right spot.

And the right spot for you is probably a managed fund that invests at least partly in shares - as long as you don't think you'll need the money for a few years or more.

If your saving is shorter term, stick with a term deposit. Over a couple of years, there's too big a chance that a managed fund will lose value. That's much less likely long term. Assuming, then, that you're planning to give this oak tree some time to grow, you've got two options.

The first is to go with a managed fund that will accept as little as $500. And most don't. Minimum initial investments of $1000 or $2000 are common.

But there is one index fund with a $500 minimum. It's the NZ Top 40 Fund, run by an associate of stockbroker Frater Williams. It invests in the shares included in the NZSE40 index.

Morningstar, which does research on managed funds, looked through several of the big fund companies' products for Money Matters. It came up with ANZ's superannuation trusts. They accept investments as little as $100. If you're interested in a managed fund that's listed on the stock exchange, you may also be able to get into it with just $100, via stockbroker Craig & Co's START programme.

It covers many of the listed managed funds that don't pay tax on capital gains. These include the New Zealand listed index funds and property index funds and a range of British investment trusts and United States index funds, including funds that invest in various US industry sectors.

Brokerage to start in START (sorry) is 2.5 to 3 per cent.

Most managed funds that aren't listed on the stock
exchange charge entry fees, often of around 5 per cent for funds that hold shares. But some advisers will reduce that, in some cases to zero.

Your second option is to start a drip feed programme, in which you set up regular automatic deposits of a fixed amount.

Many funds waive their minimum initial investment if you're drip feeding. Typically, you can put in $100 a time - in some cases even less.

In your case, you could make, say, $100 deposits for five months - leaving the rest of your $500 in term deposits in the meantime.

After that, you could stop contributing. If you plan to do that, check before you start that there's no rule about an annual total.

In Tower managed funds, for instance, you must have a minimum account balance of $1000 within the first 12 months, says Morningstar. In WestpacTrust's superannuation trusts, your drip-fed money must total at least $1200 a year.

Other funds, though, have totals within your range. The minimum for Armstrong Jones unit trusts is $400 a year.

For Colonial First State Investment Managers' funds, it's $200 a year, according to Morningstar. And some funds have no annual minimum.

It would be great, though, if you could continue to put in $100 a month - or even, say, $30 a month or $100 a quarter if the fund permits that.

It's surprising how fast a drip-fed investment can grow, especially if you reinvest dividends.

And you get the advantage of dollar cost averaging. By spending the same amount month after month, you buy more units when the price is down. This brings down your average purchase price.

Most managed funds that aren't listed on the stock exchange run their own drip feed programmes. The listed ones don't. But you can drip feed through the START programme - and that, in fact, is how most people use that programme. START accepts deposits weekly, monthly or yearly - whatever period you want. And you can stop whenever you want.

One way or another, then - through lump sum investment or drip feeding - you can put your $500 into many managed funds.

I suggest you talk to a sharebroker or financial adviser - one who can give you information on both listed and unlisted funds - about your choices.

Q: I bought Pacific Lithium shares some 18 months ago, largely because of some belief in the future demand for lithium batteries. As they are not listed on the stock exchange, how can I find out their present value?

A: Ring the company, on 09 309 5221, or e-mail it at paclith@pacificlithium.co.nz.

It holds a register of buyers and sellers, and will tell you what the going price is. Currently, it's around $4.

Chief executive Robin Johannink says the shares weren't very liquid until recently. The company was raising $10 million in capital, so all buyers were taking up that $4 offer.

That's over now, though. So, if you want to sell or buy, Pacific Lithium will put you in touch with someone on their list who wants to trade with you.

If nobody is listed, you'll go on a waiting list.

That's one of the hassles of owning unlisted shares.

All this is expected to change when Pacific Lithium lists on America's Nasdaq - where many technology shares are traded - probably next April or May, says Johannink.

From then on, you'll be able to get a price from a sharebroker, and trade through the broker.

Q: With regard to your article about transferring funds electronically from one bank to another (in last week's Money Matters), I have, or have had, term deposits with the ASB, Westpac, S.B.S, Southern Cross Building Society, BNZ, UDC, Marac and even the National Bank.

Upon completion date the original deposit is transferred to my cheque account with the BNZ, and during its term the interest is paid into my savings account with BNZ, regardless of where the money is invested.

I should mention that I have been dealing with banks for longer than most of the tellers, managers, and other officials have been alive, and I have found that it is frequently the case that they don't know what they are talking about and blithely insist upon what I know to be wrong information. (This does not apply to some of the senior women bank workers).

Even the manager of one of the banks tried to tell me that I could not have the investment transferred to another bank's account on termination, when I had, in fact, been doing this with investments at his bank for years.

A: The problem doesn't stop there. The people in head office apparently don't always know bank policy either.

Since last week's column, National Bank says it stands corrected.

The reader should have been able to transfer his matured term deposit money, at no charge, to an account at any other bank.

National adds, though, that it's easier for the bank if you tell it before the maturity date where you want your money to go on maturity.

Otherwise, the money goes into a suspense account.

And it's a bit more complicated to transfer it from there. At that stage, strictly speaking, the bank could charge a manual transfer fee. But tellers are told that's not good practice, says a bank spokeswoman. She apologises about the confusion, and says that the reader's difficulties may have arisen from the merger of National and Countrywide Banks, which had different policies.

"Once we are merged with one system, in September, there should be no further issues."

Still, given your long-term experiences with banks, can we be so sure - at National or any other bank?

The moral of the story seems to be: if you think what a banker tells you may be incorrect, try the next teller. Or see the manager. Or ring back later and see if you get the same story.

It shouldn't be that way.

* Got a question about money? Send it to Money Matters, Business Herald, PO Box 32, Auckland; fax: (09) 480-2054; 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 corre
spond directly with readers.