This article was published on 20 September 2014. Some information may be out of date.

Q&As

  • Gold fans no longer to be seen now price has plummeted
  • Reader wishes she’d never heard of tax refund company
  • Alternative to KiwiSaver for 67-year-old
  • Is Buffett a better bet than an index fund?

QBecause I know you love to point out that asset classes go down as well as up in value, I thought I would send you this graph for gold prices.

I am sure you have a folder full of letters from people who said, during the global financial crisis, that gold was it forever and would never fall in price.

Have fun with it!

AI don’t exactly love saying that investments that grow fast sometimes also fall fast. It would be great, at least at first glance — to be able to say they just keep growing.

But if that happened we’d all invest everything in gold, shares, property, tulips, emus, whatever. Then we’d all be filthy rich, and bid up the prices of everything, and hyperinflation would set in, and… You get the picture.

So it’s not so bad, really, that investments that can make us rich can also make us poor. And anyone who invested in gold two or three years ago must be learning that bitter lesson, especially if they invested for just the short term and have to sell now.

A folder full of letters? Not quite, but I did try to warn a few gold-mad correspondents back then. It’s funny how I haven’t heard from them lately.

QThe proliferation of online tax refund companies has a sting in the tail. They state that 90 per cent of people get a tax refund. However, conversely, 10 per cent don’t.

Two years ago I registered with mytax.co.nz. I didn’t receive a refund, instead I received a bill online and a demand from the IRD, which I paid.

I emailed mytax.co.nz and requested to be removed from their database. Unfortunately, they ignored this and meddled with my tax again.

Recently, I received from the IRD an overdue tax bill for $506.44 because I had not paid it by the deadline. I had no idea that I had another tax bill to pay as I had not received a statement from the IRD or mytax.co.nz.

I rang the IRD who said this was happening more and more. They unlinked me to this company on the spot.

I have paid the full amount again and hope for a refund of the penalty charges. I have no understanding of why I owed the IRD anyway as I am just a regular PAYE employee.

Beware! It is difficult to untangle yourself from mytax.co.nz once registered with them. They meddle when requested to stop and you may end up owing money. I wish I had never heard of mytax.co.nz.

AAll is apparently not as it seems here.

“The people that don’t get a refund through us do not end up having to pay tax to IRD,” says Lester Binns, chief executive of MyTax.

“To create a tax bill at IRD two things must happen. First you must underpay tax for the financial year. Second a personal tax summary (PTS) needs to be requested or selected for that year to turn that underpaid tax into an actual bill. A tax agency such as MyTax.co.nz will only request a PTS for years where tax is overpaid and therefore a refund is due,” he says.

So how come you got a tax bill? To clarify that, you gave me permission to give your name to Binns. Here’s his response:

“In this person’s case she was part of a yearly function that IRD runs called the ‘Select’. With this function IRD automatically selects 400,000 to 500,000 taxpayers each year and requests a PTS for them.”

People who are automatically selected include those who received Working for Families Tax Credits or used the wrong tax code or a special tax code. For more on this, go to tinyurl.com/nzptsinfo.

Adds Binns, “Unfortunately in this case her employer hadn’t deducted enough PAYE over the year and the IRD sent her a bill.

“Being part of the Select is something a tax agent cannot influence, and it is distressing for anyone to receive a bill from IRD out of the blue. The client can confirm this directly with IRD if she wishes, so she knows what has taken place.”

Binns adds that he’s, “really sorry we let this client down. While MyTax didn’t create the debt in question, it is clear she didn’t receive sufficient information about why IRD created the debt. We did inform the client about the debt promptly but we should have followed up at the due date to remind the client of the payment deadline.”

He denies that it’s hard to get off mytax.co.nz’s database. “Anyone who asks to withdraw from us is done so immediately and is now also automatically delinked. If you are worried your tax agent has not delinked you on your request, a call to IRD will be able to confirm the delinking or action it for you.” An Inland Revenue spokesperson confirms this.

Inland Revenue adds that it offers a free do-it-yourself online alternative to services such as MyTax.co.nz, “where you can quickly work out for yourself if you qualify for a tax refund.”

You need to register with myIR to do this, on the top right side of the homepage of www.ird.govt.nz.

“If your calculation shows you are due a refund you can request a Personal Tax Summary (PTS), and once confirmed you’ll receive your full tax refund within five working days,” says the spokesperson.

If, instead, your calculation shows that you owe tax, you don’t have to pay unless you request a PTS or are selected for a PTS. Inland Revenue says it doesn’t “capture the information the customer enters into the calculator”.

Another option is to check that your employer is deducting the correct amount of PAYE from each pay. You can do this by using the PAYE/KiwiSaver deductions calculator at tinyurl.com/payecalculator.

QI would be grateful of your assistance please.

I am a 67-year-old retired bank worker, and a member of the bank’s privately run superannuation scheme. Upon my retirement a few years back I left my funds in the scheme as I had no need for them and the scheme’s returns generally were quite good.

Unfortunately the scheme is being wound up and funds are to be paid out shortly to all members. Staff under 65 can reinvest in a KiwiSaver fund. However, members such as myself — and there are a fair few I believe — are too old to switch to KiwiSaver.

Where can we go? My funds are invested in a growth fund and returns have been averaging out around 9 per cent a year (after tax) for the past 5 years.

AI’m surprised the bank hasn’t told you that many KiwiSaver providers also offer almost identical non-KiwiSaver funds, which anyone can join.

I suggest you use the KiwiSaver Fund Finder on www.sorted.org.nz to find what would be the best KiwiSaver fund for you, and then ask that provider if they have a similar non-KiwiSaver fund. If not, try the second best.

By the way, if you’re planning to spend the money within ten years or so, it would probably be better to go for something less risky than a growth fund. The Fund Finder will help you find the right risk level.

QAt the risk of sounding superior I am more than surprised that you would advise any readers to invest large sums in share tracking funds in a single share market, as discussed in your article of 30 August.

The first rule in investing is not to invest in only one share fund or market. A spread over the US, Australian and NZ markets as well as investments in quality corporate bonds is a far better bet, as I have stated in a previously published letter.

In fact it is difficult to do better than one of the largest US mutual funds, which is Berkshire Hathaway — founded by Warren Buffett — and the fund has a sound credit rating.

I have calculated the return your reader would have received had he or she invested 420 units in February 2005 at $60.50 and a further 244 units at $80.00 in August 2008. The return on the two initial investments of $44,914 spread over 3.5 years between 2005 and 2008 would have been a profit of $46,219 on the current share value, which is $137.25 per share today.

On a non-compounded ‘simple’ return this equals about 15 per cent per annum, a rather better return than most indexed funds!

ASorry about the late reply. The last two columns have been devoted to election issues.

Eleanor Roosevelt once said, “No one can make you feel inferior without your consent.” And I’m afraid I haven’t given you my consent!

I’ve got several issues with your letter. Let’s start at the top. Where did I advise readers to invest in a single share market? In fact I said the opposite in that column: “You can also reduce risk by, “spreading the money into international index funds as well as New Zealand ones … by investing some of your money beyond New Zealand, you reduce your exposure to just one share market.”

Secondly, I disagree with your first rule of investing. Sure, it’s really important to diversify. But investing in a single share or finance company is far worse than investing in a single share fund or market. With a fund or market you can get considerable diversity. Some share funds invest in many countries.

Thirdly, Berkshire Hathaway is not a mutual fund but a holding company, although that doesn’t matter much. It still invests in many shares. But — and here’s where I really struggle with your letter — most of Berkshire Hathaway’s holdings are in just one country, America.

Never mind. Let’s push on. I can’t follow your return calculations, but it’s true that Berkshire Hathaway has done really well compared with, say, a US index fund invested in the S&P500 index — although the index did better in some years, including 2013, Buffett says.

And — here’s the main point — there’s no knowing how well Buffett’s company will do in the future. An index fund investment will always do worse than the top performers but better than many other active funds, especially after fees. There’s no way to know, in advance, who will come out on top, so an index fund is the best bet.

The irony is that Buffett himself has often praised index funds. For example, in his 2013 letter to shareholders he writes about money he is leaving to his wife. “My advice to the trustee could not be more simple: Put 10 per cent of the cash in short-term government bonds and 90 per cent in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)

“I believe the trust’s long-term results from this policy will be superior to those attained by most investors who employ high-fee managers”.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.