NZ Herald 14 September 2024

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.

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.

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.

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.

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.

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.