Money with Mary

Money with Mary: The lazy person's guide to investing — in and out of KiwiSaver

NOTE: These are Mary's own personal views and they are of a general nature. This is not a substitute for professional legal advice, which we encourage you to obtain.

I'm not saying do nothing at all! But if you just take a little time to set up your investments well, you can then relax and do other more exciting things. Check your investments only occasionally, such as when you receive your annual KiwiSaver statement.

How do you get set up? Firstly, make sure you're at the right risk level. Whether in a KiwiSaver or non-KiwiSaver fund, go to the KiwiSaver Fund Finder on sorted.org.nz. Choose “I'm not sure which type of fund is best for me”. It will tell you your appropriate risk level for either type of fund.

It's best to regularly drip feed the same amount into your investments. This is done automatically for employees in KiwiSaver. Non-employees such as carers, business owners and contractors should do it too - along with everyone investing outside KiwiSaver. It's easy, and your $100 - or whatever amount- buys more units in a fund when the markets are down. Great!

Rule 2: Don't move to whichever investment or fund has done well lately - or even over the last ten years or so. Studies find that winning funds or investments in one period can be more likely than not to perform poorly the next time around. Chasing high returns doesn't work well.

Rule 3: Stay put. The only times to move your risk level are: If you just can't cope with the ups and downs of your fund. Reduce your risk but then stay there. No moving back when times get better! You're getting closer to spending time. Within 10 years of spending? Move out of higher-risk funds to medium funds. Within 3 years? Move to a low-risk fund or bank term deposits. Lazy is best!

Money with Mary: Pay down debt - including your mortgage - or save?

NOTE: These are Mary's own personal views and they are of a general nature. This is not a substitute for professional legal advice, which we encourage you to obtain.

The messages are loud and clear: “Get rid of debt!” and “Save!” Both are great moves to make. But which should you do first?

Priority list: • Firstly, pay off loans with high interest or fees - credit cards, buy now pay later etc. • Then save in KiwiSaver - preferably at least $1,042 a year to get the most from the government. • If you're employed, put in 3% to get the most from your boss. • After that, pay off your mortgage faster. • Finally, increase your saving - in or out of KiwiSaver.

Why that order? • Getting rid of a 20% credit card debt improves your wealth as much as earning 20% in an investment, after fees and tax. • Paying down a 6% mortgage is as good as earning 6% after fees and tax. • Even in an aggressive KiwiSaver fund, it's hard to get 6% after fees and tax year after year. • So why contribute to KiwiSaver before reducing your mortgage?

The KiwiSaver advantage: For employees who contribute 3%, the money you put into KiwiSaver is roughly doubled by government and employer contributions. Even for non-employees, if you contribute $1042 a year - perhaps $87 a month - your money is multiplied by 1.5. Because of this, KiwiSaver tends to beat making extra mortgage payments. And this will be increasingly true when mortgage rates fall.

But once you've set up that $1042 or 3% into KiwiSaver, concentrate on killing the mortgage! It gives you security. If you get into financial difficulties later, your lender will be more likely to help you. And it's psychologically great to get rid of that big debt.

Note: There may be a penalty for paying off your fixed rate mortgage faster. Ask your lender. Often you can make small regular extra payments. But you may have to wait until your term ends to make larger repayments. At that time, you can negotiate regularly paying off extra.

Make time your friend in KiwiSaver

Money with Mary: Make time your friend in KiwiSaver

NOTE: These are Mary's own personal views and they are of a general nature. This is not a substitute for professional legal advice, which we encourage you to obtain.

We'll look at: • The cost of not being in KiwiSaver - or of taking a savings suspension - for just 2 years. If you're in, but you're trying to persuade someone else to sign up, this should help! • How much extra you'll have in retirement if you boost your KiwiSaver contributions a little each week.

Not in KiwiSaver? Let's say that you and your employer would each contribute 3% of your pay if you join. If you're 20, earning $40,000, and you delay joining KiwiSaver for just 2 years: • In a balanced fund you'll have $58,000 less at 65. • In an aggressive fund you'll have a huge $119,000 less. That's $58,000 or $119,000 less for food or fun in retirement!

What if you're 40, earning $60,000, and you delay for 2 years? The differences aren't as big, but even so: • In a balanced fund you'll have $27,000 less at 65. • In an aggressive fund you'll have $39,000 less. That's still a lot of food or fun!

Even at 60, earning $60,000, it would be a real pity to delay for 2 years. • In a balanced fund you'll have $8,800 less at 65. • And in an aggressive fund it's $9,400 less. For non-employees, the differences won't be as big, but they will still be there. It's really worth joining now!

Now let's look at how much faster your savings would grow if you save an extra $10 a week. You won't notice it now, but you will at retirement! It's easy. Whether you're an employee or not, just ask your provider how to set up a $10 a week automatic transfer from your bank account.

• If you're 20, in a balanced fund you'll have $60,000 more at 65. In an aggressive fund, it's $112,000 more. • At 40, you'll have $20,000 more in a balanced fund, and $27,000 more in an aggressive fund. • And at 60, it's $2,600 more in a balanced fund, and $2,700 more in an aggressive fund. Still worth having! To do your own calculations, go to the KiwiSaver Calculator on sorted.org.nz.

Starting a conversation about money

NOTE: These are Mary’s own personal views and they are of a general nature. This is not a substitute for professional legal advice, which we encourage you to obtain.

But like it or not, relationships just don’t work well when there’s a financial elephant in the room. So how and when can you start a conversation? Perhaps not when you’ve just discovered your partner has blown the budget! A calm chat at another time might work better.

Top tips on making it work: Give each person some money to spend as you please - no questions asked. Make use of the recent tax cuts. Note the increase in your take-home pay, and set up an auto transfer of that amount into a joint savings account. If you’re both earning, do this for both of you. Every month, increase the transferred amount by $5. You won’t miss it, but it really adds up.

Agree with your partner that the saved money will be used for: 1. An emergency fund, then ... 2. To repay any high-interest debt, then ... 3. To contribute to KiwiSaver if you are not currently doing so, or ... 4. To save for a first home, or reduce a mortgage. Making progress together makes a big difference.

Splitting KiwiSaver when a relationship ends

NOTE: These are Mary’s own personal views and they are of a general nature. This is not a substitute for professional legal advice, which we encourage you to obtain.

Your KiwiSaver has your name on it and belongs to only you. But still, the law says you must take it into account in a relationship property split. 3 out of 4 people breaking up don’t realise this, according to Retirement Commission research.

Under the law, you must include the following information, as part of relationship property: • All KiwiSaver contributions from you, your employer and the government made during the relationship. • The growth on that money – returns such as interest, dividends and gains. Excluded: All contributions made before the relationship started, and the growth on that money. Same for your ex-partner.

But if that won’t work, a lawyer may be able to apply to the court for an order requiring your partner’s KiwiSaver provider to pay out some of their money. It would probably go into your KiwiSaver account or bank account.

What if you separated in the past, and didn’t receive your share of your partner’s KiwiSaver money? I suggest you ask a lawyer about this to see what your options are.

KiwiSaver tips for women at all life stages

Money with Mary: KiwiSaver tips for women at all life stages

March 8 is International Women's Day. So we're looking at financial issues that tend to affect women more. But the messages still apply to everyone.

Heading towards a home purchase or retirement. Move from a higher-risk fund to middle risk when you are within about ten years of withdrawing it. Then, within three years, move to a low-risk fund. This is likely to prevent your balance from dropping close to withdrawal time.

Taking a break in your career ... Keep contributing to KiwiSaver – at least $20 a week, or $1042 a year. Then you'll get the maximum government contribution of $521. It all adds up. On paid parental leave? From mid 2024, the government will replace the 3% employer contributions you miss, as long as you keep contributing 3%. Do it!

In retirement ... Consider not moving all your money to lower risk. You could keep what you don't expect to spend within ten years in higher risk or at least a balanced fund. And put your middle-term spending money in medium risk. You should get higher average returns over time.

How to pick a provider — for KiwiSaver and other investments

Money with Mary: How to pick a provider — for KiwiSaver and other investments

Your choice of provider — In or out of KiwiSaver — can make a big difference to your outcome. So how do you pick one? Not by: • Staying with the one you were 'defaulted' into when you first joined. • Picking the one with the most appealing ads. • Checking who has had the best returns lately.

Hang on a minute! Surely returns matter? Last year's best performer is likely to be best in the future — right? Wrong! Much research shows that recent stars are quite likely to do badly next time. Sure, occasionally a provider keeps doing well for several years. But the top performers over a decade often rank much lower the following decade.

So how should you choose? Maybe pick the provider that charges the most? After all, aren't the most expensive brands of many things often the best? Sorry, but it's “No” again. Those funds with the highest fees tend to do no better than the others — when looking at returns before fees. After fees? Low-fee providers tend to do best.

That's how I suggest you choose: Select from the low-fee funds. On the Smart Investor tool on sorted.org.nz, click on funds at your risk level — from aggressive funds down to low-risk defensive funds. Then sort by “Fees (lowest first)”. Pick your provider from the first half dozen by clicking on each fund name and reading more about them.

You may also want to take ethical investing into account. There's info on the ethics of KiwiSaver and non-KiwiSaver funds at mindfulmoney.nz Choose from the low-fee funds whose ethics suit you.

Decided to switch providers? It's easy, especially in KiwiSaver. Just tell the new provider you want to move to them, and they will take care of the transfer. Outside KiwiSaver, withdraw your money from one provider and deposit it with another.

Setting financial goals for the new year

Money with Mary: Setting financial goals for the new year

OUT OF DEBT: Whatever financial goal you're aiming for, it's easier if you set a goal. It might be to: • Get debt off your back. • Put aside money for a rainy day. • Save for a big, essential purchase like a car or appliance. • Save for a treat, such as a holiday. • Put together a deposit for a first home. • Invest for a comfortable retirement - in or out of KiwiSaver.

Want to do more than one of those? Great! Tick them off one at a time. First, save for any truly essential purchases. Try really hard not to borrow for them. Next, get rid of high-interest debt - it destroys wealth. After that, get the rainy-day money sorted. Then it's up to you!

Tips for success: • Tell family or a friend. Ask them to check on your progress every now and then. • Set up an auto transfer the day after your income comes in. • Extra income? Use some to boost your progress. • Send a message to yourself in the future using futureme.org to check you are on track.

More tips: • Give yourself inexpensive rewards when you reach, say, a quarter, a half and three quarters of your goal - perhaps an ice cream or a weekend off housework. • If you fail one week or month, don't double your saving next time. That's too hard. Keep it achievable.

Good luck with reaching your goals. Although it's not really about luck but sticking at it!

Christmas fun without the financial hangover

Money with Mary: Christmas fun without the financial hangover

Overspending at Christmas time is a trap we can all fall into. It's too easy to tell yourself, “Oh well, it's just once a year!” And when time runs out to buy a gift, you say, “This is way too expensive, but it will have to do.”

Credit card research shows that many people who usually pay in full can't cope with their January bill. And then you have to pay interest at high rates. Ouch! No doubt there are similar patterns with buy now pay later.

Now is the time to plan what you'll spend - and have some fun doing it! Talk with the people you usually exchange presents with about how traditions could be changed. They're likely to welcome this conversation.

One idea is for everyone to give a gift to just one other person, often called Secret Santa. There are lots of variations on Secret Santa. Find an idea online and propose it to family members. Leave the “picking a specific gift for a specific person” to birthdays.

A reader of my Weekend Herald column once sent a list of ways her family has exchanged Christmas gifts: • Op-shopping • Donating to charity • Exchanging second-hand books • Exchanging second-hand anything • Getting rid of unwanted stuff to another lucky family member

These themes have brought lots of laughs, she said. “Of course, some of the ideas overlap, but who cares? Some of the grandchildren do baking or make sweets, etc. We all agree it's lots more fun, much less stress, and way less expensive.”

Other low-cost gift ideas: • 5 back massages (or whatever you are good at) • A special home-cooked dinner - the recipient names the menu (some might need a price maximum!) • A set number of weekend hours to help someone with their project

Generosity is not about big spending. Enjoy a happy, heartfelt - and inexpensive - Christmas everyone!

Achieving financial success without owning a home

Money with Mary: Achieving financial success without owning a home

Many people despair of ever buying their first home. But you can be financially comfortable without owning a home. In some wealthy countries, such as Germany and Switzerland, many people rent for life.

The key is to save lots, to cover your rent in retirement - or perhaps to buy a home at that stage. And if home prices should fall considerably in the meantime, you can buy then. How much should you save? One idea: • Pretend you own a home; • Ask a new homeowner what they spend on their mortgage, insurance, rates and maintenance; • Subtract what you pay in rent, and save the difference.

The prospect of renting long-term - and perhaps moving at the whim of a landlord - can be daunting. This is especially true if you have children, and don't want them to have to move schools and neighbourhoods. But as more build-to-rent projects are being developed, more long-term leases will be available.

And renting has advantages: • No worries about maintenance; • (A friend says, "Did you have a good weekend, or do you own your own home?"); • You can move house much more easily and cheaply; • Your savings can be invested widely, not just in one building.

Where should you invest your long-term savings? A higher-risk KiwiSaver or other managed fund is good - and stick with it! Learn to cope with ups and downs and your savings will grow faster than in a lower-risk investment. As you approach spending time, whether that's retirement or eventually purchasing your own home, move to a lower-risk fund.

Investing more ethically

Money with Mary: Investing more ethically

Ethical investing is about matching your investments with your values. It's also known as sustainable, responsible or ESG (environmental, social, governance) investing which means: • Taking an interest in where your KiwiSaver and other savings are invested; • Supporting companies you like; • Avoiding or discouraging companies whose activities you don't like

Ethical funds have different approaches: • Some avoid companies involved in weapons, tobacco, animal testing and the like.; • Others invest only in “good” companies, say on environmental issues.; • And some deliberately invest in “unethical” companies, hoping to persuade them - through shareholder voting - to change their ways.

But don't take the fund manager's word for it. Many funds indulge in “greenwashing.” They hope that, by calling themselves green or ethical or sustainable or social, people will just accept that. Don't! If you wonder about some investments, ask your provider.

There are resources available online to help you make ethical investments. Check your fund on the Smart Money tool on sorted.org.nz. There you'll find each fund's 10 biggest investments, and a link to a full list of investments.

There's also the Mindful Money website where you can: • Check your fund and see the percentage of its investments involved in animal cruelty, environmental harm, fossil fuels, human rights violations, social harm and weapons.; • Find a fund that suits you ethically.

A note about risk: • Before you switch to an ethical fund, check that it's at the right risk level for you.; • You don't want to find yourself in a fund largely investing in shares if you can't cope with the ups and downs of the markets.; • If you prefer a smoother ride, choose a lower-risk fund. In the long run it probably won't grow as fast, but it will be less volatile.

KiwiSaver for a first home

Money with Mary: KiwiSaver for a first home

You can use your KiwiSaver money to purchase a home in two scenarios: • You've been in KiwiSaver for 3 years+ and have never owned a home; • (This is not as well known.) You have previously owned a home but no longer do, and meet the criteria set out by Kainga Ora. See kaingaora.govt.nz/first-home-grant

When the exciting buying time comes: • You can withdraw all but $1,000 from your KiwiSaver account to buy your home. • You must plan to live in the property, not rent it out.; • Contact your KiwiSaver provider for an application form.

You may also get a First Home Grant - up to $10,000 from the government. To qualify: • Your income must be below $95,000 for one buyer, or; • $150,000 for one buyer with dependants, or 2 or more buyers; • The house price must be below the cap for your region set by Kainga Ora; • For rules, and the First Home Decision Tool, see kaingaora.govt.nz

Getting rich too quick

Money with Mary: Getting rich too quick

Investment scams have become trickier and harder to spot. But the basic “rules” still apply.

Ignore any stranger who approaches you with a “good investment” - by phone, email or whatever. I’ve asked readers of my Herald column, and nobody has ever reported getting a good result from that. Even if it’s someone you know, it’s highly likely they’ve been conned and will later regret it all. Invest when it suits you, not when somebody makes you an offer.

There’s no such thing as a low-risk investment with high returns. If you’re offered anything more than a few per cent, the investment MUST come with some risk. If it didn’t, the whole world would already be in it!

Don’t let anyone pressure you to “invest now or miss out!” That’s a classic scammer’s trick. A good investment will be just as good after you’ve taken time to check it out.

Understand how an investment makes returns: Bank term deposits and bonds give you interest; Shares give you dividends and price increases; Property gives you rent and price increases; KiwiSaver and other funds give you a mix of those. More complicated investments are often highly risky.

If an investment interests you, Google the company name along with “review” and “scam”. This can be revealing —- showing media coverage, warnings from the FMA and other regulators, and so on. But even if you find only positive stuff, don’t be comforted. Scammers are clever at creating good reviews.

Taking a break from KiwiSaver

Money with Mary: Taking a break from KiwiSaver

Bills getting on top of you? It’s tempting to take a break from contributing KiwiSaver. But try not to.

This used to be called taking a “contributions holiday”, but the name was changed to a “savings suspension” for good reason. A holiday sounds great, but there’s nothing positive about stopping KiwiSaver contributions. You’ll end up taking fewer real holidays in retirement.

Sometimes you have to stop contributions for a while. Perhaps your mortgage rate has jumped, or you lose your job. But please: Keep contributing even a tiny amount, if you can and end the savings suspension as quickly as possible.

Let’s say you’re an employee and you have to stop your 3% contributions. Set up an automatic payment directly to your provider of, say, $20 a week. That’s way better than nothing, and you’ll still get the government contribution. But return to 3% just as soon as you can.

How to retire a Rich Old Lady

Money with Mary: How to retire a Rich Old Lady

Start, or increase, your saving NOW – even if it’s just a tiny amount! Whatever your age, there’s power in having your savings grow over as many years as possible.

Use KiwiSaver. You get a widespread of investments, which greatly reduces your risk. And no other investment is boosted by contributions from the government and perhaps your employer. These extra contributions push your savings to a higher level – as much as twice what they would be otherwise.

Be brave and invest in a higher-risk KiwiSaver growth or aggressive fund - unless you expect to spend the money within ten years. Your balance will drop sometimes, but ignore that. Growth funds have historically delivered the highest returns over the long term, and you’ll end up with much more than in a lower-risk fund.

Choose a fund with lower fees – leaving more money to grow for your rich old age. The Smart Investor tool on sorted.org.nz gives info on fees.