NZ Herald 17 May 2025

ANo, no, no! Gold is not right for you. It would be like moving your money to one of the highest-risk KiwiSaver funds that holds all shares.

Your friend is no doubt impressed by recent high returns on gold. But nobody gets get high returns in any investment without also facing big drops in value sometimes. Your “too scared” comment suggests you wouldn’t cope well with that.

The conservative KiwiSaver fund you’re in is at the second to lowest risk level. Your balance will occasionally fall a bit — and perhaps has done so lately given that both share and bond markets have been unusually volatile. But most of the time it will grow fairly steadily. If your balance has, in fact, fallen recently, I wouldn’t be surprised if it’s now on the way back up.

Your set-up actually sounds perfect for you. When you want to add to your NZ Super income, you can use term deposit and bank account money. Meanwhile, use the KiwiSaver fund to park money you don’t plan to spend for a couple of years. Every now and then, move some from KiwiSaver to term deposits so there’s always short-term money there for you.

What would happen if you moved your savings to gold instead? You would face much bigger ups and downs. Our graph shows returns on the precious metal and on US shares have been about equal over the last 30 years — and so has their volatility.

Notice how US share values almost halved in the global financial crisis from 2007 to 2009. Meanwhile, the gold price soared — as it often does when shares are falling. But then, while shares grew pretty steadily through to the short-lived covid plunge in 2020, gold prices almost halved from 2012 to 2015.

The gold bugs — really keen gold investors — will say I’ve picked a graph to suit my message. The website Macrotrends shows graphs for the last 5 and 10 years, in which gold performs somewhat better than US shares. And over the last 20 years, gold has done much better.

On the other hand, in the longest-term graph, going way back to 1915, shares have performed more than five times as well as gold.

For readers who can tolerate ups and downs — perhaps including your friend — there’s nothing wrong with putting, say, 5% of your long-term savings into gold. As I’ve said above, there’s some tendency for its price to rise when shares fall, giving you a smoother ride. But our graph shows there are also periods when that offsetting doesn’t happen.

One big negative about gold is that the only return you get from it is an increase — or decrease — in its value. With shares, when prices are falling you still receive dividends from many shares. The Dow Jones Industrial Index, used in the graph, doesn’t include dividends. If reinvested dividends were included — and they should really be to make a fair comparison — shares would perform considerably better than gold over the longer term.

AA really good question. Reducing your risk in reaction to volatile markets is not wise. But making the same move because you are getting closer to the time you expect to spend the money is different. The idea is that you won’t find yourself withdrawing spending money from a high-risk fund right when markets happen to be down.

However, there’s no need to make the move exactly ten years from spending time. Nor is there any need to do it all in one go. It works better for most people to reduce their risk gradually in two ways:

• Move first to a slightly lower-risk fund — in your case from growth to balanced. Then, when you are about three years away from spending the money, move to a conservative or lowest-risk defensive fund.
• Make all of these moves in steps. You might, for example, move one third of the money now, one third in two months and one third in four months. Then you won’t find you moved the lot at what turns out to be the worst time.

Note, too, that unless you plan to spend all your savings as soon as you retire — perhaps to reduce a mortgage or fix up your home — it’s good to keep some of the money in higher-risk funds until it, too, is needed within about a decade.

On your comment that markets are down, they’ve certainly had the wobbles lately, but there’s been considerable recovery since early April. And if we look over a year, the MSCI World Index is up about 11% and the S&PNZX50 local index is up about 10%. There’s nothing wrong with those returns.

AI can see where you’re coming from. But I’m not a tax expert, so I put your question to someone who is, Terry Baucher of Baucher Consulting.

His response: “A bit of a surprising query to be honest. I note the couple mention they are nearly mortgage-free on the property they are renting out. It should therefore be possible for the couple to claim a deduction for any interest they pay.

“As you are no doubt aware this is more often than not the largest single expense for landlords. It should be worth their while to consult an accountant about their scenario. The accountant may be able to identify other deductions.”

However, beyond that, Baucher says, “I consider it would be extraordinarily unfair on non-property owners (about a third of all New Zealanders), to exempt the couple from tax on their rental income. Those thousands of dollars in tax they pay helps fund schools, hospitals, roads, all of which their son and grandchildren use.

“As Oliver Wendell Holmes Jr, a US Supreme Court Justice said, ‘Taxes are what we pay for civilized society.’

“Furthermore, at present if the couple were to sell their property it’s unlikely any tax would be payable on that transaction, which is something of a subsidy to property owners.”

ASorry, but it seems you can’t get a reverse mortgage in those circumstances — although that might change.

Neither Heartland nor SBS — the two banks currently offering reverse mortgages — include loans to people in retirement villages. Heartland says that’s because of “restrictions around taking security over retirement village properties.”

Heartland does offer what it calls a village access loan, “designed to remove the barriers to entry into retirement accommodation by bridging the gap between moving from one stage of retirement into another.”

This loan “allows people to borrow against the equity in their home to fund the move, deferring the sale of their home to a more opportune time. The Village Access Loan can have a number of financial benefits, including allowing homeowners to sell their existing property when they are ready (rather than as a precondition to making that move).”

But that doesn’t help people already in a retirement village.

What about Lifetime’s home reversion — a fairly similar product to reverse mortgages, discussed recently in this column?

“At this stage, we’re unable to offer Lifetime Home agreements to retirement or lifestyle village residents in most instances, as they do not meet our eligibility criteria,” says Lifetime’s founder and managing director, Ralph Stewart. “This is simply because occupants do not typically own the home they live in (rather they purchase a license to occupy), which means it would be complicated, if not impossible, for them to sell a portion of their residence in exchange for income.

“That said, we are very sympathetic to seniors in this situation and are actively investigating ways in which Lifetime Home could be made accessible to those who wish to live in a retirement village setting.”

Next I tried economist Cameron Bagrie, who runs the equityrelease.co.nz website. He is planning to soon offer “non-vanilla” options for people ineligible for a regular reverse mortgage or home reversion.

“It will be priced differently from vanilla. If a property is non-vanilla, the people are going to end up giving up a bit more equity to compensate for the investor’s risk,” he says.

Will he be able to help people in retirement villages? “It depends on the structure of the retirement village agreement. If the lender can’t get a claim on the equity in the property, it won’t work.”

He adds that people need to be aware of the ownership structure when signing up for a retirement village.

It’s all rather bleak news I’m afraid. But things might change.

APhew! I said last week that I would try for a brighter column this week, but so far I haven’t really succeeded. But now the answer is “yes”. As long as your son has permanently emigrated and been overseas for a year or more, he can withdraw most of his money by applying to his KiwiSaver provider.

He’ll lose the government contributions he has received, which will be returned to the government. But he can keep the returns earned on that money over the years. And he’ll have to fill out various forms, although his provider should give him guidance on that.

By the way, this wouldn’t apply if he lived in Australia. In that case he would have to transfer the money to an Australian super scheme, or leave it in New Zealand.

A cheeky suggestion: Seeing you found this out for him, maybe you could ask him to spend some of the money on trips home to see you!