NZ Herald 20 February 2010

AIt’s no use crying over spilt money. But that doesn’t mean you should wipe up the mess all in one go.

I like your goal of getting rid of your mortgage — and well done to achieve that at 45. I also like the idea of getting rid of a portfolio of just two shares. It’s way too undiversified.

You haven’t actually done all that badly so far. People sometimes find their one or two shares do horribly, or even become worthless — something that almost never happens if you have a widely spread portfolio. While I don’t think anyone is forecasting dire stuff for your two companies, who knows what the future holds?

That applies on the upside, too. Nobody can accurately predict when — or even if — GPG share prices will rise much.

I suggest you sell them in, say, four lots — a quarter now, a quarter in six months, a quarter in a year and a quarter in 18 months. That way you’ll get a good price for at least some, which is the best anyone can hope for.

The Fletcher Building holding is probably too small to split four ways, but you could sell it in two lots.

Put the money into repaying your mortgage. Once you are mortgage-free, it would be great if you put most of the money that used to go into mortgage payments into long-term savings. That should set you up nicely for retirement, perhaps even early retirement.

If you invest that money in shares — a good place for long-term savings — either spread it widely or go into a share fund that will do that for you. You don’t need to use a financial adviser for that.

Check out the KiwiSaver providers — there’s a list under “Providers & schemes” at the top of the home page of www.kiwisaver.govt.nz. Most of them also offer non-KiwiSaver share funds. Oh — and go into KiwiSaver too, from now on, if you aren’t already.

AAny New Zealand resident under 65 can join. If you’re not an employee, you miss out on employer contributions. But you still get the $1000 kick-start and the tax credit, which matches your contribution up to $1043 a year. It’s well worth having.

Your wife needs to approach a KiwiSaver provider and ask to sign up. For help in choosing a provider, see my column last week — but don’t agonise over the choice. It’s better to be in any scheme than on the sidelines. You can always move later if you wish.

Generally, it’s best to tie up as little money as necessary to get all the KiwiSaver incentives. For non-employees, that means putting in $1043 a year, either as a lump sum or in regular amounts. If your wife can afford further saving — and won’t be tempted to withdraw money early for unnecessary spending — she can do it in another investment where she can access the money if needed.

AWhen I wrote “The Complete KiwiSaver” a year ago, I asked all KiwiSaver providers if they charged an exit fee. Only three said, “Yes” — Gareth Morgan, Grosvenor and Staples. For space reasons, I didn’t go into detail last week but said — as you note — these three charge the fee in some circumstances.

To keep everyone happy, here are the circumstances: Gareth Morgan may charge $50 after 1 July 2010 — now changing to 2012. Grosvenor charges $30. Staples Rodway may charge up to $25 if the member leaves within two years.

All the other providers specifically said they didn’t charge exit fees. If any reader knows of others that have charged such a fee, let’s hear about it.

AIndeed. And that’s not the only pitfall of investing directly in international shares and running your own portfolio, according to Stephan Jonas, head of client services at investment advisory firm Craigs Investment Partners. He lists the following possible problems — all of which are eased or eliminated by the use of a New Zealand sharebroker’s custodian service:

• “The first hurdle will be opening an account and fulfilling the various anti-money laundering client identification requirements of an international broker,” says Jonas. In New Zealand brokers have to sight photo id and bank account details and complete other paperwork. “If an international broker is not requesting this information then they may not be fulfilling their own ‘know your client’ obligations,” — which could lead to future complications.
• You will be responsible for knowing about, and filing, tax declarations and returns in New Zealand and other countries.
• Unless you monitor your investments, you might miss out on bonus or rights issues and the like. What’s more, “often timeframes are too short for individuals to wait for the documentation from international issuers to be delivered via the normal post.” You may not get your papers back on time.
• You’ll need to arrange banking facilities for payments from issuers. “We are striking more incidents where issuers will not pay dividends into non-local bank accounts,” says Jonas. “Even some Australian issuers now insist on paying remittances into Australian bank accounts.” He adds that opening a foreign account is becoming more difficult. And even if a foreign company will pay into a New Zealand bank account, “there will be receipt handling and conversion charges.” On the other hand, “a custodian will operate bank accounts in each major market and will be able to receive and remit proceeds to clients’ preferred bank accounts.”
• When you die, your holdings will need to be transferred to your estate. This takes time and can be complicated, sometimes costing thousand of dollars. “If the positions are held by a custodian then a transfer to an estate can be executed locally,” says Jonas.

He adds, “It is true that the costs associated with providing custodial services are increasing as the legislative and compliance rules change. But the problems and costs associated with missing a corporate action, receipting a dividend or trying to prove ownership are far greater.”

Of course we need to keep in mind that Jonas has a vested interest in saying all this. But it rings true.

You have perhaps kept things simple enough that you haven’t struck problems. But some might come back to bite you. Doing it your way might be cheaper — at least in the short run — but it could end up being more complicated.

Still, thanks for telling us about it. If you’re willing to run the various risks listed above, good luck.