NZ Herald 23 February 2019

ARemember when I replied to you personally, many months ago, saying “watch this space”? Now, at last, I’ve got some good news for you.

As you may have heard, this past week a new online tool called Smart Investor was launched. You can find it on sorted.org.nz, and it was put together by three government organizations, MBIE, the Commission for Financial Capability and the Financial Markets Authority. So you know it’s unbiased.

Smart Investor uses information that fund managers, bond and share issuers and others have to report to the government. That information is available on what’s called the Disclose Register, but Smart Investor makes it much easier to access and lets you compare different KiwiSaver schemes, different non-KiwiSaver managed funds, bonds, or a small number of shares and other investments.

There’s more detail about KiwiSaver funds than on the older KiwiSaver Fund Finder. For example, you can see a list of all of a fund’s investments. And it’s good to be able to look at a fund’s annual returns on a graph, so you can see at a glance how volatile it is compared with other funds of the same type.

Smart Investor also has tools that help you work out, for example, what sort of investor you are; explanations about different aspects of investing and so on. Rather than me listing it all here, I strongly recommend you go and try it out. You don’t have to enter any personal information.

A useful feature for many people — including our correspondent — will be the comparison of non-KiwiSaver funds. I’ve long suggested that people who are already putting enough into KiwiSaver to get the full government and employer contributions should consider putting other retirement savings in a non-KiwiSaver scheme.

That means the money is accessible in case you need it. I’m not suggesting you raid your nest egg whenever you feel like taking a trip or updating your kitchen. If you’re likely to be tempted, it would be better to leave the money tied up in KiwiSaver.

But you never know when something good or bad might come along for you or your family — such as a redundancy followed by a period of unemployment, or a startup of a relative’s exciting new business. At times like that, you might be justified in using some retirement savings.

Getting back to our correspondent, you might also want to use Smart Investor to compare KiwiSaver funds, and perhaps consider moving to one that charges lower fees.

ASee above for the answer to your first question. Smart Investor should help you.

On your last paragraph, yes, the unit prices in managed funds do vary with changes in the share and bond markets. So you could end up regretting investing all your money in a fund if its unit price falls soon after you buy. Then again, you might wait around and regret not investing if the unit price rises.

Not even the experts are good at timing markets. So it’s a good idea to drip feed your money into a fund to some extent. But don’t do it over too long a period. If the money is sitting in a bank in the meantime, there’s a good chance you’ll miss out on higher average returns in the fund.

One more thing: you seem to be planning on comparing funds on the basis of performance. Can I suggest you don’t — even though you can on Smart Investor?

Note that Smart Investor says, “About past returns. Seeking returns is what investing is all about, but those shown here are already gone; they won’t continue. The best can become the worst and vice versa, so it’s unwise to just choose a fund based on how well it has done in the past. There are a lot of other criteria to make a smart choice, such as the right investment mix and reasonable fees.”

Not convinced? A while back I was looking at Morningstar’s KiwiSaver report for periods ending September 30 2018. Here’s what I noticed:

• Of the five default funds with 10-year information, the top performer in one year was the worst over ten years. And the worst over one year was the best over ten years.
• Of the four aggressive funds with 10-year information, the top performer over one year came third out of four over ten years. And the worst performer over one year was the best over ten years.

I’m not saying it’s always like this. Sometimes one fund performs pretty consistently for quite a few years. But you never know which one that will be.

It’s a much better bet to choose a low-fee fund, given that on average their after-fee performance tends to be better than for a high-fee fund.

AI’m not sure why you say I’m out-of-date. Last week we looked at some aspects of the property versus shares debate, and I said there would be more in the next few weeks. We hadn’t yet covered the regulations around rental properties. But anyway, you’ve summed them up nicely, so thanks.

I don’t blame you for finding the new rules off-putting. But hopefully they will have two results:

• Rental properties will be of higher quality, with insulation, damp-proofing and so on.
• The power imbalance between landlords and tenants will be reduced.

Sure, the changes could lead to increases in rents, and fewer rentals being available. But if some landlords sell, that should put downward pressure on house prices, so more tenants can buy their own place. That’s got to be good for New Zealand.

As for what to do with your cash from selling, I reckon the best place is a low-fee share fund. But clearly you don’t like shares.

I don’t know your 1980s story, but many people who lost lots in the ’87 crash broke some really important share investment “rules”:

• Don’t invest in just a few shares. Get into a broad range, including blue chip companies that aren’t as exciting but are likely to stay in business through thick and thin. Or diversify by being in a share fund.
• Don’t borrow to invest, unless you’re in a position to take big risks.
• Invest for at least ten years. Even if the market crashes in the meantime, stick with your investment.

Share and share fund investors who have followed those rules have — like you — done really well over recent decades. I suggest you join them, within KiwiSaver if you’re not already in it. See the choices of KiwiSaver and non-KiwiSaver funds on the new Smart Investor.

If you’re adamantly against shares, Smart Investor also tells you about some other investments. But they will tend to be lower-risk, lower-return options.

AThere’s no way to tell whether you will be better off financially in, say, 10 or 20 years by sticking with the rental or investing elsewhere — probably in shares or a share fund. Either investment will sometimes go badly, but perform well over the long term if you stick with it. So you might as well go with whichever one you prefer.

That’s where it gets tricky, as it seems that you two have different preferences. But if you both concentrate on what you like doing, rather than on which investment you think will perform better, perhaps you can come to an agreement.

I’ll just add that if I had three little boys — who will keep you busy for lots of years yet — I would get out of the landlord business at least until they’ve grown. These are precious years with the kids.