Money with Mary


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!

Goals should be SMART. Specific -

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

While you're saving for a home purchase: • If you are 10 years or less from buying your home, a medium-risk balanced KiwiSaver fund could be a good idea. The average returns won't be as high as in a growth or aggressive fund. But there's less chance your balance will be hit hard by a long-term market downturn as you approach the time you want to buy.; • If you are within 3 years of buying, moving to a low-risk defensive fund can be a good choice, where your balance is less likely to take sudden drops.

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.

The KiwiSaver Calculator* on sorted.org.nz tells us how much a savings suspension will hit your retirement fund at 65: If you are 45, earning $80,000 and in a growth fund, a one-year suspension will cut your savings by nearly $11,000. At 25, earning $40,000, it’s worse - a nearly $18,000 cut. That’s a real pity. Keep those cuts to a minimum. *These amounts don’t include the impact of inflation – this doesn’t reduce the amount, but it does affect what you can buy with the money you’ve saved.


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.

Gradually increase your contributions. Employees can do that through work. But everyone, including people on parental leave, can set up automatic transfers from your bank into KiwiSaver. Start small – maybe $10a week - and increase the amount each year on your birthday. It’s a great gift to Future You. Also, every time you get a pay rise or your expenses drop, give your savings rate an extra boost.

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.