- Rental property comparison with KiwiSaver not valid
- Working out your true income can help you curb spending
- How reader can keep getting some benefits after 65
- A pity more managed fund providers don’t distribute dividends to investors
- A reader’s story: Recovery from divorce, and 21st birthday presents
QYour reader — in your April 29 column — who broke even on their investment properties only held them for four to five years. Property and shares are a long-term investment — 10 to 20 years.
Fourteen years ago our daughter got the KiwiSaver $1,000 from the government, and we invested in a no-fees growth KiwiSaver. At the same time, we invested $50,000 in a property costing $350,000 (with equity in our own home).
Today the KiwiSaver has turned the $1,000 into $2,082. Our property has a current value of $965,000, although it has been as high as $1.24 million.
Had we invested our $50,000 in KiwiSaver we would now have $104,100. Instead, we have $665,000.
Yes, in the first five years when rent was $310, we had to top it up with our own money, but these losses have been offset in the last five years, now that rent is $660. Yes, it is harder work and more stress than a managed fund.
AThanks for writing, but I’m afraid your comparison is just not valid, for several reasons. Let’s start with three little stories:
- We’ll say you have two daughters, one blonde and one redhead. In a primary school running race, the redhead beats the blonde. Does that mean all redheads are faster runners?
Moral of the story: Drawing broad conclusions from single experiences doesn’t work.
- Five years later, things have changed. The blonde daughter has been training, and she can now outrun her sister.
Moral: Timing is all. You’ve owned your rental property through an extraordinary boom. Say, for example, you had bought it a year or so ago, when prices were at their peak. Your return a decade from now might not look quite so good.
As we’ve seen from recent letters, in some periods rental property wins, in other periods managed funds win.
- Some years later, the girls are in a jungle and need to cross a river in which crocodiles lurk. People can usually swim across, but some are maimed and every now and then someone dies. The blonde decides to take her chances and she swims across, unharmed. The redhead walks a kilometre downstream, crosses a bridge, and walks back upstream. The blonde took considerably more risk but got there sooner.
Moral: Those who take calculated risks often come out winners — although not always, and sometimes they lose spectacularly. Meanwhile, the more conservative person will almost certainly reach their goal, even though it takes longer.
Investing in a widely diversified KiwiSaver fund, even in a growth fund, comes with considerably less risk than investing in a single rental property.
There are plenty of stories of individual properties losing heaps of value, perhaps because they were leaky or were used as meth labs. Or — these days — the houses were built on flood plains. What if you had bought in the Esk Valley?
Also, you took on a sizable mortgage on your property. To make a more valid comparison between your daughter’s and your investments, you would have borrowed to invest in the KiwiSaver fund too. Then you would get growth — or losses — on that borrowed money as well as the original $1,000.
And you would need to deposit extra into KiwiSaver every time you put extra money into your property to top up mortgage payments, and every time you paid rates, insurance or maintenance over and above the rental income.
And how about the work and hassle of your rental? We could value your time at, say, $50 an hour — maybe $100-plus for the really stressful stuff, like finding and checking out tenants, chasing up unpaid rent, or coping with a maintenance emergency.
Investing several hours into looking after a rental is the equivalent to investing extra money into KiwiSaver. So — if our comparison is to be fair — whenever you spend time on the rental you should put money into the KiwiSaver account.
I wonder where all that would leave you? These comparisons are not straightforward.
A few more points:
- It seems you actually invested nothing in your daughter’s KiwiSaver. It all came from the government. If you had invested just $1 extra, your investment would have grown more than 2,000-fold. By investing nothing, the growth is actually infinite. Wow!
But that’s a whole separate issue. Let’s just say “well done” for taking advantage of the free kick-start for your daughter, while it lasted.
- You’re right, of course, that these two types of investments are for the long term — a point I make in the Q&A you refer to — and all the time actually.
- For more on putting a dollar value on your time, read on.
QRecent comments about spenders and savers reminded me of how, years ago, I calculated what I call my true hourly rate. It was a sobering exercise and reduced my spending.
First work out your true income — wages minus tax, ACC, KiwiSaver. Also deduct work travel costs, (petrol, parking, insurance, wear and tear. Would you even need the vehicle if you didn’t work?), work clothes, child-care costs and then all the little extras (morning coffee and lunch bought from a cafe, even drinks after work).
Then work out your true work hours. That includes unpaid overtime, travel time, plus time on emails and phone call etc.
Divide your true income by your true hours. The figure may shock you, but now you have a more accurate idea of how many hours you have to work to pay for an item that you “need”.
Finally, think about the worst part of your job, and ask yourself if you “need” the item so much that you are prepared to work X hours doing Y? As a teacher, I just imagine my worst class, and it usually deters me from spending!
Your column is the first thing I read. My husband just throws the Business section at me and says, “What has Mary got to say this week?”
AYikes. Not sure I want to be a missile! But I like the point you are making. That’s a great way of thinking about what something really costs you.
QI am on Job Seeker support. I am getting the Accommodation Supplement and Temporary Additional Support with that. I will get my NZ Super from June. I have a mortgage of $300,000 on a $600,000 unit. I also owe around $20,000 to my daughter.
I have KiwiSaver of around $18,000, and I heard that if I have KiwiSaver they stop the Accommodation Supplement and Temporary Additional Support when I get my Super. What is best to do in this situation.
ALet’s take this one step at a time.
Once you start getting NZ Super, you will no longer receive the Jobseeker Support, says Graham Allpress of the Ministry of Social Development.
But you may still be able to get additional support, like the Accommodation Supplement and Temporary Additional Support payments.
For the Accommodation Supplement the cash asset limit for a single person is $8,100 and for a couple or sole parent it’s $16,200.
For the Temporary Additional Support payments the limits are $1,279.35 and $2,131.73.
(How do they come up with such numbers? They must be the result of inflation adjustments, but couldn’t they round them at least to the nearest dollar?)
However, once you can access your KiwiSaver money it’s included in asset testing, and returns on the money are included in income testing. For more on this see here.
This would seem to put an end to your supplement and support payments from June. But I sent another question to Allpress: “The person who wrote the letter has debts — his mortgage, and $20,000 to his daughter. What if, the day he gets access to his $18,000 of KiwiSaver money, he uses it to pay most of the debt to his daughter, or makes a lump sum payment on his mortgage? If he has no other cash assets, will he then be eligible for the WINZ payments?”
His reply: “If a person withdraws and uses KiwiSaver funds to pay back debt, they may still qualify for Accommodation Supplement and Temporary Additional Support.
“There may be some cases, where MSD may ask for information about the debt that is being repaid to determine eligibility.”
He adds, “We encourage anyone who is unsure of what they can get to come in and see our staff or call our NZ Superannuation team on 0800 552 002.”
If I were you, I would do that.
QTwo years ago I added a substantial sum in my ANZ KiwiSaver Balanced Fund and another substantial sum in the non-KiwiSaver Kiwi Wealth Balanced Fund (recently sold to Fisher Funds).
The aim was to have a diversified investment with a capital gain of around 4 to 6 per cent per annum, with the “experts” looking after the investment.
This didn’t happen, and both principals have lost about 5 per cent in value since then.
Both funds must receive regular substantial dividend payouts, which I presume they add to the fund and should increase the unit price, so the loss must be higher than the estimated 5 per cent.
My question: Why do these funds not pay out the dividends to the customer to provide an income, like the SmartShares NZ Dividend ETF fund? In this case you don’t have to worry about a (hopefully temporary) reduction in the value of your investment.
APeople under 65 can’t make withdrawals from KiwiSaver — including investment returns such as interest and dividends — except to buy a first home or in financial hardship and so on.
However, a KiwiSaver provider could distribute dividends to members over 65. And a non-KiwiSaver provider could do it for everyone. But hardly any do. The only provider I know of who offers this is SuperLife. This service can work well for retired people who want to regularly move some of their savings into cash for spending.
Any other providers who also offer this option please let me know, and I will publish their names.
Meanwhile, take heart. Your losses are not continuing. As I’ve said before, 2022 was one of only three years in the last 100 years when both international bond and share prices fell — so balanced funds were hit particularly hard.
But Morningstar says your ANZ fund reported an annual return of 4.4 per cent in the first three months of this year. It’s 10-year average annual return is 6.2 per cent. Your Kiwi Wealth fund’s returns will probably be similar.
For other readers, no mainstream KiwiSaver funds reported losses in the first quarter of this year. There were just a few negative numbers in some specialty fixed interest, property and Australasian equity funds.
Everyone thinking of moving money because of recent KiwiSaver losses should hang in there. The same goes for you — although you might consider moving to balanced funds with lower fees.
A Reader’s Story
Since mid April, to mark the 25th anniversary of this column, we have run some readers’ stories of how the column has helped them over the years. Here’s another.
QMy divorce shone a harsh light on decades of dual professional incomes with no investment plan. Getting my financial house in order at this stressful time was possible with your weekly, bite-sized pieces of financial education. Spurring me to read more increased my financial literacy.
My financial plan began by trading down, paying off my mortgage, and establishing an emergency fund. My KiwiSaver was moved to a new (low fees index) provider with a high risk profile, reflecting the time before it will be accessed. A second accessible fund is with a not for profit.
I’ve researched to invest in several ETFs meeting my sustainability goals. Now confident enough to dance with the angel investing community, I choose to support NZ start-ups with money I can afford to lose.
I spread your financially empowering love with the following 21st birthday present for the young people in my life — some cash tucked into one of your latest books. They can spend the cash if they wish. So far no one has, rewarding me with stories of their financial awakening and the power of compounding interest.
AYou’ve done so well. And I love the 21st presents.
No paywalls or ads — just generous people like you. All Kiwis deserve accurate, unbiased financial guidance. So let’s keep it free. Can you help? Every bit makes a difference.
Mary Holm, ONZM, 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 [email protected] 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.