NZ Herald 11 July 2009

AYes, they will. Over the long haul, though, there will probably be enough years of strong returns for your daughters’ accounts to grow.

At worst, their $1000 kick-starts will decrease before they turn 18. But it’s extremely unlikely they would end up lower than, say, $700 or $800. That’s still $700 or $800 — and quite possibly much more — that the girls wouldn’t otherwise have had.

What’s more, being in KiwiSaver might get your daughters started on developing strong savings habits when they get their first part-time or full-time jobs. They might learn a bit about how markets work. And they’ll be lined up to get KiwiSaver help with purchasing their first homes.

It’s still a great idea to combine kids and KiwiSaver. And once they turn 18, and are eligible for tax credits, it’s good to help them contribute up to $1,043 a year so they receive those tax credits.

By the way, for those who complain that I cover KiwiSaver too much, it’s been 11 weeks since the headline Q&A in this column was about the scheme.

Defensive? Well, yes. Mindful of your criticisms, I might have erred too much the other way — given that there’s barely a New Zealander under 65 who wouldn’t benefit from being in KiwiSaver.

AIsn’t it interesting that when house prices go down the housing market looks more attractive to you, but when managed fund investments go down, the opposite happens.

I suppose it’s partly because your managed fund has dropped more than houses — although take another look, as many managed funds have recovered a fair bit in recent months. But there’s probably also an element of trust that the property market will recover — a trust that I suspect many New Zealanders don’t feel for the share or bond markets, where most of your managed fund money is almost certainly invested.

This is a pity. The very fact that share and bond funds have fallen considerably in recent times suggests they might do better than average over the next five, ten or 20 years. Our next correspondent certainly thinks so.

Still, if property has more appeal for you, I’m not going to say it’s a bad idea. Unlike the couple thinking of buying a rental property who wrote to this column recently, you have a mortgage-free home. That makes a huge difference to your tolerance for risk.

So does the fact that you are relatively young. And, given that your child has been in day care, I assume that you both work. That gives you a buffer, as it’s highly unlikely you would both lose your jobs at once.

You need to be aware, in doing your sums about a would-be rental, that mortgage interest rates could rise, rents could fall and you might have periods without tenants — or have tenants who do expensive damage. It’s also possible that house prices won’t rise much for a long time.

But if you work through a worst case scenario and feel you could survive it — sticking with the property for perhaps 15 or 20 years if that’s what it takes to make it a winner — then go for it.

You already have $40,000 in shares and/or bonds, so it’s not as if you will be concentrating only in property.

I suggest you buy a place not too near your home, and a different type of property, so you get better diversification. And, in the current environment, bargain hard.

AI’m not surprised that the bank is offering you a deal on breaking your term deposit. They would probably be happy to get out of paying 8.7 per cent in the current lower-interest rate environment.

But that’s exactly why you might be best to leave your money where it is. You’re getting what has turned out to be a pretty good return.

It’s certainly possible that you could do better in a share market rally, but it’s also possible that shares could fall further. Trying to predict what the market will do over the next few years is a fool’s game. And you, with your low risk threshold, might well end up committing an investment “sin” — bailing out of the share fund after a downturn and so cementing in your losses.

Note, too, that to do better in the share fund, you need a return considerably higher than 8.7 per cent to make up for the 2 per cent cut in interest on the money because you took it out early.

Having said all that, I do think it’s usually better to put ten-year-plus money in a low-fee diversified share fund. And the best way to get into such a fund is to drip-feed into it over time. That way, at least some of your money will go in at what turn out to be good prices.

If you really want to get into a share fund — and you’ll promise yourself not to jump if times get tough — perhaps you could transfer a small portion now, and further small portions in one, two and three years. Work it out so that, by the time the term deposit has expired, you have maybe a third of your planned share fund total already in the fund.

Then transfer the rest into the fund over the following year or so.

AI’ve never heard of that before. I suppose it’s one of those things that you notice only when it affects you or someone you know well.

Anyway, thanks for writing. I’m sure our correspondent will check that out. It’s a lovely way for a school to help out a family.

AI had thought you could get trauma and total and permanent disability insurance only as an add-on to life insurance. And, as I said last week, the woman might not need life insurance. But further research shows the two types of insurance are not always linked.

So yes, she might want to look into that cover, especially if she can’t get loss of income cover. I must say when I first became self employed, the insurance companies weren’t exactly lining up to offer it to me — although my insurance broker did find one company who would do it.

If the woman decides to start her own business it’s certainly a good idea to have at least loss of income or trauma etc insurance, possibly both. And this is even more important while she has dependent children.