NZ Herald 15 August 2026

AGosh! Many older readers, in particular, will be astonished at your idea.

Most people think of home ownership as something more than optimal finances. You have the security of knowing your accommodation is taken care of, and the freedom to do what you want with the property, from decorating to gardening to renovations.

But perhaps those issues are not important to you — or to your wife, who I assume knows about this idea!

And there are several advantages to renting. As you say, you don’t pay rates or house insurance — although you should, of course, insure your contents. And you don’t need to worry about maintenance. The roof is leaking? Call the landlord.

On the downside, your landlord might ask you to leave when it doesn’t suit you. And generally you have less control over your accommodation.

Then there’s the big question: would such a move make you better off?

I think you might be suffering from “short termitis” — the tendency to look at how markets have performed in the recent past, and assume that will continue.

In shares, it’s true that some share funds — which I would recommend because of their diversification — have made annual returns above 10% in recent years. But there’s absolutely no guarantee that will continue. The markets might even plunge. See the next Q&A.

Still, if you have 13 years to play with, chances are good that your money will grow pretty healthily over that time.

Meantime, if you stay put, what might happen to the value of your home? It won’t necessarily stagnate, just because that’s what happened recently. The future of the house market is anybody’s guess too, as discussed below.

In short, your idea might make you better off in retirement, but it might not.

If you and your wife enjoy a pretty big gamble, and would like a change of scene — perhaps living in the middle of a city, or way out in the countryside — give it a go. But please don’t come back to me and say it didn’t work out as you had hoped.

AThis situation reminds me of when we are told to prepare for terrible weather. Sometimes it happens, but quite often it’s a bit of a fizzer.

But while it doesn’t matter much if we overprepare for a storm, switching investments because of a possible downturn has its price. Our returns — including on many KiwiSaver higher-risk funds — end up lower than they could be.

There’s no doubt the US share market is dominated by a small number of shares.

A recent newsletter from financial advisers Bloomsbury Associates says this has been the case for at least a century.

It cites research by Hendrik Bessembinder on US share returns from 1926 to the end of last year. He found that, out of nearly 30,000 companies, just 89 created half the total gains in the 90 years from 1926 to 2016.

And since then the concentration has become even more intense. When we include the last ten years, just 46 companies created half the gains over the century. Extraordinary.

The fact that most of the recent heavy lifters are in the one industry is clearly worrying. If the AI industry falters, so do investment funds that are overweight in that industry.

That includes many index funds and ETFs (exchange traded funds) — sometimes called passive funds — that invest in all the shares in the big US index, the S&P500.

What’s the future for those funds? Who knows? But I have a few thoughts on the situation:

• Switch to a fund based on a global share index, such as the MSCI World Index, rather than just a US index. To some extent global indexes are AI-heavy, but less than US ones.

  In a global index fund you’re exposed to a really wide range of industries and many different economies. Those funds are the Kings of Diversification.

  And while US shares have grown more than world shares over the last 20 years, that’s certainly not always the case when you look back.

• Invest only long-term money in any share fund, whether active or passive. I’m talking about money you don’t expect to spend for at least ten years, ideally longer.

  If there is a big downturn, stay put. It will come right. And in the meantime, consider how well you have done in recent years. From the bottom of the global financial crisis in 2009, the S&P500 index has grown more than ten-fold. It’s been quite a climb!

• While you say that “the best active funds will have a distinct potential advantage”, because they can reduce their holdings in AI shares, they have to get their timing right.

  Some active managers cut back their AI holdings some time ago, and as a result have slipped behind S&P500 index funds. The managers need to make up for that in their future decisions.

  It’s really hard not only to successfully pick which shares to buy and sell, but also when to buy them, and later when to sell them. We can’t know in advance which fund managers will get all those decisions right.

• Fees are higher in active funds because they cost more to run. That’s always a hindrance for them in the active versus passive race.

After considering all that, I’m sticking with a global index fund through thick and thin.

AOooh. Someone got out of bed on the wrong side this morning!

But I agree that New Zealand house prices are still way too high. As I pointed out in a recent column, average house prices from the 1940s through the 1970s were about two or three times household income.

Then they rose sharply — albeit with some big bumps along the way — to more than ten times income in 2021. That’s an extraordinary rise.

In the last five years, though, prices have fallen back to about six to seven times income — a big drop over a short time.

Nevertheless, prices are still too high for many people. And that’s not good. I would like to see a government give higher priority to helping people into their first home.

I’m not sure where you got the idea that I expect future booms.

I said in the last column, “Meanwhile, of course, we can’t predict what will happen to balances in KiwiSaver or other managed funds either. It’s quite possible growth in shares and bonds will be slower than in houses. Or both types of investments will boom. Who knows?”

That’s a far cry from saying a boom is coming. All I’m saying is that it’s possible.

I’ve been watching market movements for more decades than I care to admit, and I’ve learnt:

• Never rule out either a big jump or a big fall in the price of any asset. While markets are usually rational in the long term, they certainly are not always in the short term.
• Never say, “This time it’s different”. Actually, it’s always different. But pointing that out as a justification for predicting big long-term changes in any asset price is a fool’s game.

On shares, I’m not sure how we could value them at what they are worth, other than the way it’s always been done — letting all the would-be buyers out there come up with their assessments.

Nobody sensible buys a share because the company is doing well now. They buy because they think the company will do better in future, so the share price will rise. And, as I said above, nobody can predict that with accuracy.

On the causes of the Great Depression of 1929 to 1935, we’ve had nearly a century to learn from what happened.

I’m not saying we won’t get another recession or even worse. Again that’s getting into the forecasting trap. But the fact that downturns since the 1930s have never been as bad tells us that the experts do know more than they did back then.

AOh no. Another wrong side of the bedder!

Let’s start with the facts. Couples don’t have to use up their entire savings before one of them receives the residential care subsidy.

In one common scenario, once a couple’s assets (excluding the family home and car) are below $164,731, they can get the subsidy for the care of one partner. The other partner is not left destitute.

For details see the Work and Income website.

You could well argue the cutoff amount should be higher, but there are always other points of view.

Many many people, single and couples, are living in retirement with way less than $164,731 in savings. They might well consider that couples complaining about having to spend their savings down to (that ridiculously complicated number) of $164,731 are spoilt brats!

Imagine you are running the government, and you have to make all the decisions about how income received from taxpayers should be spent.

Do you really think we all — including many people really struggling — should pay for the care of comfortably off people, so their children can inherit more of their wealth?

Sure, singles are not obliged to support a partner. But, at the risk of stating the bleeding obvious, that’s because they don’t have a partner. And while some would argue to the contrary, I think most people think those with a partner are better off in general. Give singles a break, mate!