My husband and I owned no property together, so there were no assets to divide. I'm now starting from basically nothing and contemplating how to build a financial future. To that end, I am on my way to saving $50,000 within the next two years. I am also in KiwiSaver and have minimal personal debt.
Should I use my savings plus my KiwiSaver (which I believe I can do as I'm starting over on my own) as a deposit on a house? Or is it better to forget that idea (I live in Auckland) and keep the money in KiwiSaver, and use the savings to grow a bit of wealth some other way?
I'm aware that if I use my KiwiSaver (currently sitting at about $50,000) it'll go back to zero and I'll have to build it up again, which might not be smart at my age. On the other hand I am in stable, well-paid employment and I plan to keep working as long as I can — at least another 20 years. The idea of owning my own small house or apartment has a lot of appeal, but would it be the most sensible use of my hard-earned savings?
A: Well done for keeping debt low and saving at a great rate. Sure, it's easier when you're on good pay, but still, $25,000 a year is impressive. And it's good to see you're considering using the KiwiSaver withdrawal.
By the way, even if you and your husband had owned a home, you may still have been able to get the KiwiSaver first home benefits as you don't own a home now.
Too many people don't know about this. It's for people whose "realisable" (easy to sell) assets are less than a maximum that varies between $80,000 and $120,000, depending on where you buy.
Some previous homeowners can also get a HomeStart grant of up to $5000 — or $10,000 for a newly built home. For the grant there's a maximum income of $85,000. There are details on the withdrawal and the grant on the Housing NZ website.
So, should you buy or not? Your last sentence says it all. Nobody knows what will happen to Auckland house prices, so buying now might or might not turn out to be the best move financially. But you want to buy, and at 48 and newly divorced there's something to be said for doing what you want to do — as long as it's not stupid, and this isn't.
Timing the switch
Q: I've been considering changing KiwiSaver funds. I like the look of one that has lower fees and invests and operates more sustainably — specifically, to Simplicity Growth from ANZ Growth. Is there a best time to do it, eg in relation to share prices?
A: No. You would be swapping one fund that holds mainly shares for another similar fund. It makes no difference whether all the shares, in both funds, have high or low value at the time.
It's money that counts
My concern is that there will be a loss. As I see it, existing units that were purchased some 16 years ago would have to be cashed up and new ones bought at today's higher values, resulting in a reduced number of shares.
I wonder what you think about the merits of this exercise.
A: Your situation is similar to the previous correspondent's. Good on both of you for going for lower fees.
The value of the units in a fund changes whenever the prices of its investments — shares and bonds and so on — change. In other words, all the time. So your units will be worth more now than when you started the investment.
Mary Holm: As markets fall, should you upsize your KiwiSaver contributions?
Mary Holm: Can those on minimum wage really be in KiwiSaver?
It may be easier to forget about units and just think of the money you put into the fund, and the money you get out now.
You won't lose anything by transferring that money, unless there are exit fees.
Over the long term, AMP is bottom of all league tables for their returns. This costs hardworking, well intentioned Kiwis millions of dollars. I am furious that AMP can get away with these terrible returns and there is nothing that the industry, government or financial columnists are doing about it.
Mary, as you are aware from your work on the evaluation panel for KiwiSaver default providers, when a person starts work and doesn't select a provider they are randomly allocated a government-appointed provider, and lucky AMP is on this list.
My first request of you Mary is that you use your influence and get AMP removed from the default providers. Are you willing to accept this challenge for the benefit of ordinary Kiwis?
Your previous responses to AMP poor performance were along the lines of:
• Pensions are a long-term investment and so you should ride it out.
• You suggested that I am doing a disservice to investors as they may read about AMP's terrible performance and switch provider (and I thought you were here for individual investors rather than protecting a financial service company's gravy train!) However, I note that in your June 8 column you say, "You can rule out a fund that has repeatedly performed below average".
So my second request is that you state in your column: "If Kiwis want to maximise their wealth then they should look at other KiwiSaver providers, because AMP have demonstrated that over the long term they return less than other KiwiSaver providers."
Oh, and just in case you say, "We should give AMP more time, they might turn performance around", the normal drivel excuses, here's an anecdote.
When I am hiring a staff member, the first thing I do is look at their CVs and interview the candidates that have a proven history in good performance. I don't pick the CVs that have a track record of woeful performance (i.e. AMP) and say, "I think they will improve once I hire them."
A: The performance of KiwiSaver and other managed funds is a very different issue from the performance of employees. Quite often, a fund that has done really well in one period will do badly in another period, and vice versa.
An example: In Morningstar's KiwiSaver report up to June 30, 2019, there are 11 conservative funds that have been around for 10 years or more.
The one with the best one-year performance, after fees, came 10th out of 11 over 10 years. And the one with the worst one-year performance came second over 10 years.
How topsy turvy is that!
Among the aggressive funds, only four have been running for at least 10 years. But if you had chosen the best performer in the last year, you might have been shocked to learn it was the worst performer over 10 years.
It's not always like this. Sometimes a fund will have a good or bad run for quite a while. But you can never be sure when that will change.
Having said that, a lot of AMP KiwiSaver funds have done badly for a worryingly long time. Let's look at this three ways:
• Ten-year performance. The Morningstar report includes 10 AMP funds that have been offered for 10 years or more.
Of these, none has performed in the top 25 per cent of funds of their type over the 10 years, and six out of 10 have performed in the bottom 25 per cent — with four of those coming dead last.
Why? Says an AMP spokesman: "The longer-term performance of some of the AMP Capital managed funds reflects a more conservative investment approach post the global financial crisis, which was a decision taken in the interests of clients to help protect against potential market downturns.
"But as we have seen, this prudent approach has delivered lower returns than some other funds over the past decade."
• Recent performance. The picture is somewhat better in the last couple of years, during which AMP added 10 more funds.
Most of the newcomers are AMP's versions of funds run by ANZ, ASB, Mercer and Nikko. This means members have "a wide range of funds, which they can easily switch between, backed by our full-service offering including access to helpful guidance and online tools to help them achieve their goals," says the spokesman.
In the year ending June 30, three of the new funds have performed in the top 25 per cent of funds of their type. And one, AMP Income Generator, was the best performing balanced fund. But still, six of the 20 AMP funds were in the bottom 25 per cent, and two came dead last.
Says AMP: "Given the diverse range of funds we offer through five market-leading fund managers, each with differing investment management approaches, we would always expect a range of performance outcomes, and this is reflected in the latest performance data."
• Default fund performance. Perhaps the most worrying performance is that of AMP's default fund, which has more members than any other KiwiSaver default fund. Over the last 10 years, it was the worst performing default fund. And it came eighth out of nine over the last five years, and the same over the last single year.
AMP's response: "Given clients in the default fund have usually not made an active investment decision, we continue to take a prudent and conservative investment approach to protect their capital value, which we believe delivers stable returns at a low cost and lower risk." It seems that AMP has been more conservative generally — and in its default fund — than many other providers. And that has turned out to be bad luck.
The NZ and world share markets have performed unusually well over the last decade. If the markets had been more volatile, AMP funds would probably have ranked better. Indeed, when the downturn comes — which it inevitably will at some stage — AMP may come into its own.
But still, the provider's performance over 10 years is poor. I always say largely ignore past performance — because it changes so much — and choose a provider based mainly on fees. But you're right, I did suggest recently ruling out funds that keep performing badly over a long period.
Members of AMP's KiwiSaver scheme might want to check their fund's five-year performance on Smart Investor, and consider switching funds if it's consistently below average. Is that near enough for your second request?
On your first request, I don't have that kind of influence. But you could always propose the removal of AMP from the default providers yourself. The Ministry of Business, Innovation and Employment is currently seeking comments on default providers at www.mbie.govt.nz/default-kiwisaver. Submissions close on September 18.
Usually the government doesn't hear enough from ordinary citizens on these issues. I bet they would read what you say with interest.
A sum too far
Q: I would like to put a lump sum into my KiwiSaver. If I was to put in five times $1042 — or $5210 — does that mean I would then get the government contribution every year for five years?
A: No. You have to contribute each year to get the government money.
If you think you won't be able to contribute to KwiSaver in the next few years, other than with this money, it would be best to keep your lump sum in bank term deposits and deposit $1042 into KiwiSaver each year.
- Mary Holm is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. 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 firstname.lastname@example.org or click here. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.