Q&As
Q
10-month results mean little
QYour response last week on KiwiSaver for the grandkids refers. I have accessed Smart Investor on the sorted.org.nz pages that you mentioned and note that most of the aggressive funds comprise a large proportion of shares.
With this in mind, an alternative investment strategy with similar risk could be buying shares on Sharesies. As an example, in November 2023 I bought a variety of company shares ($10,000) across seven different companies and, to date, the return has been approximately 28 per cent — not a typo!
Six of the companies are “higher risk” and one is “medium risk”. The fees are comparable with those for the managed funds. There have been ups and downs along the way, as expected. So, I agree with your opinion that choosing a high-risk option is the best strategy, but believe that investing in a variety of individual company shares is a more prudent strategy than investing in managed funds where the returns are, on average, quite modest. I’d appreciate your comments.
AI’ve got quite a few comments:
- Perhaps the most important is that taking much notice of the performance of any volatile investment over less than a year is silly. (Sorry!) Returns are all over the place. Even ten years isn’t long enough. There are unusually good and bad decades in the share and property markets — to say nothing of the gold, bitcoin and other markets.
- In any case, share market returns over that period — and hence the returns on most funds that hold mainly shares — haven’t exactly been “quite modest”.
From November 2023 to early this month when you sent me your email, the New Zealand market NZX50 index rose a healthy 13 per cent, the world index rose 19 per cent, and the US’s S&P500 index rose 21 per cent.
You did even better. But you did say your shares are mostly higher-risk. Generally we expect those to gain more than average in a rising market and fall more than average in a falling one.
- You’ve bought seven shares, which is a lot better than one or two. But it’s still not great diversification — especially if they are not spread across different industries and counties.
Sure, you’ll get some really good years, but you increase your chances of getting some really bad ones, compared with in a diversified fund that holds many different shares.
- Buying individual shares is more time-consuming than investing in a fund — although some people enjoy the process.
Another consideration: As I said last week, in KiwiSaver, once the young person is 18, they are eligible for government and employer contributions. And a lifelong savings habit can start. On the downside, the money is tied up until retirement unless you use it for a first home — although some parents and grandparents like the inaccessibility.
So where are we? I can understand your excitement at doing so well over a short period. And your plan is pretty good, although it would be better if you broadened your holdings. Please stick to your plan when your returns turn into declines. It’s inevitable.
For most people, though, a KiwiSaver fund — or non-KiwiSaver fund if you want to keep easy access to the money — works better.
When a teen gets a job
QI’m hoping for your thoughts on something that occurred to me this morning. I put $20 a fortnight into Sharesies for my now 14-year-old, and have done that for about five years. I haven’t set up a KiwiSaver as without the government contribution I wasn’t sure if it was worth it.
Is there any reason to prefer KiwiSaver over something Sharesies-like for our under-18s?
ASee the Q&A above. And there is one other point: even though employers don’t have to contribute to KiwiSaver for people under 18, many of them do. After all, 3 per cent of a low part-time wage is not much for them to pay. Keep that in mind if your young one gets an after-school or holiday job.
Meanwhile, good on you for making regular contributions — which, by the way, you could also do into KiwiSaver. You get to buy more shares when the prices are low, which is great. It does add up.
Paris or party?
QThank you for publishing my thoughts on grandkids’ inheritance last Saturday. I was the writer who did not see any real benefits using the KiwiSaver scheme.
Your reply was beneficial to me. But now just think back a minute to your 21st birthday, and your Dad says, “I have a gift for you from your grandparents and it is $36,000. There are no conditions attached so you can now think about that dream of three years at art school in Paris. Or…putting another $20 into your KiwiSaver account this week, so you can get $10 from the government!”
Plenty of time for saving later! There is another 40 years of employment ahead of these kids.
AYou’ve almost won me over — although while a Parisian art school might appeal to you, a booze- and drug-fueled party for all the grandchild’s mates might not!
Maybe grandparents — and parents and others — could do a bit of both, saving for the young ones both in and out of KiwiSaver, and retaining some control over the non-KiwiSaver money.
Behind the scenes at Lotto
QLetter from Jason Delamore, CEO of Lotto NZ:
We’ve read with interest your recent letters discussing lottery wins and whether this can “buy” happiness. It’s a subject we have some insight into (which we thought may help), based on our conversations with more than 280 multi-millionaires and 900 millionaires created since Lotto NZ was established nearly 40 years ago.
Many people don’t realise Lotto NZ has a small team which contacts and provides support to every major winner. This support includes advice on who to tell (spoiler: we recommend keeping their circle very small), putting the winner in touch with a dedicated person at their bank who can set them up from the beginning, and passing on tips from previous winners on managing the emotional impact of such a big life change. While we of course don’t give financial advice, we do support our winners to find an accredited financial adviser who can meet their needs.
We also keep in touch with our winners in the months and sometimes years following the big event. While we haven’t kept hard data on how their lives play out, we can say the vast majority of our big winners use their money sensibly, to set themselves up for the future and achieve their financial goals. In some cases, they set their family up for generations. And in almost every case they use a portion of the money to help others — whether in their family, amongst their friend group, or in their wider communities.
Does a Lotto win buy happiness? Of course not. Our winners go through the same ups, downs and sometimes tragic events that everyone else does. But with good support and advice, the win can open opportunities that weren’t there before — like buying a home, retiring early and spending more time with the grandkids, starting a business, pursuing a passion, or simply making a difference in the world around you. It is these things, not the money itself or the “stuff” it can buy, that we see bring joy in our winners’ lives.
We’d finish by noting that buying a lotto ticket and dreaming about what you would do if you won is a lot of fun — and it’s for a good cause, with 100 per cent of our profits distributed to community causes via the Lottery Grants Board.
But (as I’m sure you will agree) Lotto is not an investment strategy. The odds of winning Powerball are 1 in 38 million for each line you buy. We encourage our customers to have fun dreaming, but to spend only what they can afford from their entertainment budget — and to skip if times are hard. There will always be another draw.
AYou’ve well and truly broken my loosely-policed 200-word maximum for a letter, but what you say is interesting, so thanks.
I asked you a couple of follow-up questions, as follows:
- I know that 100 per cent of your profits go to community causes. But I understand that just 25 per cent of the money people spend on tickets goes to community causes, the rest goes to cover expenses. Is that correct?
You confirmed that, adding, “Operating expenses are only 6 per cent, with the largest contribution (53 per cent) going to player prizes. You are correct that 25 per cent (all of our profits) are distributed back to the community.”
- There has been some criticism of which community organizations receive most of the money from Lotto — that sports and the arts get larger amounts, but areas like education, research, environmental organisations and animal welfare get much smaller amounts. Also that Maori and Pacific people, and new and emerging groups receive a disproportionately small amount. Do you have a brief comment?
You replied, “The allocation of grants is controlled by a separate government entity — the Lottery Grants Board, and Lotto NZ has no influence over the allocation of the grants.”
However, you referred me to the legislation covering how allocations are made. This includes references to community and environmental health, and says “a distribution committee or the Minister must have regard to the needs of Māori,” and also “older people, Pacific people and other ethnic communities, women, youth, and people with disabilities.”
How well all this is done is beyond the scope of this column. In any case, even if Lotto money doesn’t go to everyone’s favourite causes, it’s better than if it was lining the pockets of billionaires.
Student loan when you die
QI have been meaning to ask you: If you have both KiwiSaver and a student loan, when you die the Government writes off your student loan.
But if your KiwiSaver is less than your student loan, would the government “write off” your KiwiSaver against your student loan, so your left over estate gets “bugger all?”
ASays an Inland Revenue spokesperson, “Death or New Zealand-based bankruptcy are the only circumstances the student loan debt can be written off.
“If a customer dies, what assets they have aren’t used to pay off the student loan debt. If a customer is bankrupted, the assets would be sold to repay the customer’s default, depending on the asset and the value. How much IR would receive depends on who the other creditors are and what they’re owed.”
So there’s no need to worry. If you die with a student loan, your heirs will get all your KiwiSaver money.
How long does bank take?
QGood item last week about that happens to your KiwiSaver account when you die.
However, your ANZ spokesperson described all sorts of possible delays, all attributable to someone else, none attributable to the bank.
Your ANZ spokesperson carefully avoided saying how long it takes the bank to release KiwiSaver funds in a situation where there is a valid will and probate has been granted, and where the amount involved is greater than $15,000.
Please ask the bank that question, and at the same time ask them how long in the same circumstances it takes them to release money held by the deceased in term deposits. Finally, please ask the bank to explain why they take longer to release KiwiSaver money than is the case with term deposit money.
A“Timeframes for the processing of the assets of deceased estates can vary depending on the circumstances,” says an ANZ spokesperson. “We work with the family or lawyer and move at their pace.”
He adds, “If probate has been granted and all the required documentation has been provided to the bank (including the statutory declaration for KiwiSaver), a term deposit will typically be paid out within five working days and a KiwiSaver withdrawal paid out within 10 working days.
“A KiwiSaver withdrawal will take slightly longer due to the nature of the underlying investments and the processing time frame.”
For more info go to www.anz.co.nz/comms/deceased-estates/ I’m sure other banks have similar info on their websites.
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.