NZ Herald 18 February 2017

AI suspect everyone sometimes gets bogged down in research. While the internet is a wonderful source of information, it can get overwhelming and you end up doing nothing. So let’s get your decision made, so you can cross this off your To Do list.

But first, you’ve done well on several counts:

• Saving for your first home in a conservative KiwiSaver fund. This is the place for money you expect to spend in a few years, as it won’t be much affected by a market downturn right when you want to spend it.
• Planning to switch to riskier funds after you had bought the house. It sounds as if you have several decades to go before you retire, and riskier funds — while more volatile — are likely to grow more over the long term.
• Looking for funds with low fees. What you really want, of course, is the fund that will give you the highest long-term returns after fees. But nobody knows which one that will be. And given that fees make a big difference to long-term returns, it’s a better bet to choose a low-fee fund.
• Using the KiwiSaver Fund Finder on www.sorted.org.nz, which is unbiased and easy to use.

As you say, the Fund Finder gives you a breakdown of the main investments in each KiwiSaver fund.

I’m not sure whether you were looking at aggressive funds — with 90 per cent or more of their investments in growth assets such as shares or property — or the somewhat less risky growth funds — with 63 to 89 per cent in growth assets. Anyway, when I looked at the ten aggressive funds with the lowest fees, only the SuperLife Property Fund held mainly property. All the rest were mainly shares, as were all of the ten growth funds with the lowest fees.

This is not surprising, given that fund managers are usually more oriented towards shares, bonds and cash. People tend to make their property investments either directly or through non-KiwiSaver types of vehicles.

But still, the SuperLife Property Fund — owned by a subsidiary of the manager of the NZ stock exchange (NZX) — is an option. And, by the way, there are several other KiwiSaver funds that invest mainly in property, but they charge higher fees.

So what does the SuperLife fund hold? In the Fund Finder, the provider tells us it “captures the market returns of the listed global property markets. It invests, directly and indirectly, on a passive basis, in a diversified portfolio of listed securities on the Australasian and global sharemarkets.”

In other words, it invests in property trusts, property funds or similar, listed on stock exchanges around the world. In turn, these trusts and funds invest in a range of commercial properties — office buildings, shops, factories and so on.

Given the type of property, and that fact that the fund includes international investments, it’s pretty different from your property investment in your own home — or a rental property if you owned one.

However, I don’t think it’s your best choice. It might suit New Zealanders who can’t get past the idea that property is better than shares, or who have a wide range of other investments and are using this for their exposure to commercial property. But it concentrates on a single industry.

If you invest in a low-fee KiwiSaver share fund — particularly one that includes lots of international shares — you’ll have a stake in a wide range of industries. That gives you much broader diversification, and therefore less risk.

Check out what the Fund Finder says about several of the lowest fee options. As I said above, nobody knows which will turn out best, so don’t agonize over your choice. Perhaps put yourself in one fund and your husband in another. Both are likely to perform better over the years than your current conservative funds.

AGenerally your KiwiSaver investment doesn’t change because you turn 65 — unless you’re in a “life stages option”.

If you sign up for one of these, the risk of your investments is automatically reduced as you get older and closer to the time when you’ll spend the money. In most cases, the provider simply switches you to funds with less and less risk over time — without your having to do anything.

Nine providers have told the Commission for Financial Capability that they offer this service, through: AMP Lifesteps; ANZ Lifetimes; ANZ Default Lifetimes; Aon Lifepoints Target Date Funds; Fisher Funds TWO GlidePath; Generate Life Stages; NZ Funds LifeCycle; OneAnswer Lifetimes; and SuperLife Age Steps.

In the various providers’ options, between 80 and 100 per cent of your money will be invested in growth assets such as shares and property when you are 20. By the time you’re 65, this will have fallen to between zero and 50 per cent.

These are a great idea for people who want to “set and forget” their KiwiSaver accounts. But I do have a few reservations:

• Don’t use these if you’re fairly young and saving for a first home, because you will automatically be in a riskier fund. That’s not wise if you expect to withdraw the money within ten years.
• Nor is it a good idea if you’re young and couldn’t tolerate big drops in your account balance sometimes.
• Take note of the percentage of investments in growth assets at 65. If you expect to spend your KiwiSaver money soon after that, it’s good to have no growth assets at that stage. But if you expect to spend gradually over two or three decades — or perhaps spend none until your 80s or 90s because you have other savings — it would be better if you hold more in growth assets at 65.

However, it sounds as if you two are not using a life stages option, but are simply in a conservative fund.

Your fund will almost certainly hold mainly term deposits (called cash), high-quality bonds and similar investments, with probably a small portion in shares. To find out, use the “Check your current fund” tool in the KiwiSaver Fund Finder on www.sorted.org.nz.

With those investments, your balance will probably grow a little most years, but with some usually fairly mild ups and downs. It’s possible, though, for both bonds and shares to lose value some years. If that worries you, switch to a defensive fund, which invests mainly in cash.

AAccept your parents’ gift — and remember them in their old age when they need help from you, financial or otherwise!

There are no tax issues arising from a gift like this. Since October 2011 there has been no gift duty payable by those who give a gift. And it’s not taxable income for you.

There can be other consequences if, for example, your parents were moving the money into a trust or trying to reduce their wealth so they would qualify for government help with residential care costs. But those don’t seem to apply in your case.

AI agree that’s a scary mortgage, especially as mortgage interest rates seem likely to rise. And life’s too short to be scared about your finances.

Given that the return you’ve been earning on your shares is less than the interest you’re paying on the mortgage, you’re actually going backwards — compared to where you could be if you sold the shares and paid down the mortgage.

But even if the share return were higher, I would still suggest you concentrate on getting that mortgage down — while contributing enough to KiwiSaver share funds to get the full employer and government contributions and give you a bit of diversification. Once you’ve paid the mortgage off, you’ll be in a strong position to get back into shares.

On the exchange rate, there’s no way of knowing which way it will go. Today’s rate might even look good next year. You could spread the risk a little by selling the shares and moving the money to New Zealand in, say, three lots, separated by several months. But don’t muck around too long.