QI’m near to turning 50 and earning great money in a non-professional job (yachting).

I have a $450,000 mortgage on a rental property I purchased on my own, and it’s carrying its own weight.

My sea life is soon coming to an end, and I really want to get a degree in nursing so I can continue to work in a professional manner up to retirement (or past!).

My dilemma — should I keep working in my fifties and pay off my mortgage or bite the bullet and return to university full-time and take a salary decrease for a few years.

I have $40,000 in my KiwiSaver and $70,000 in a savings account also. Your thoughts would be greatly appreciated.

AYou’re in a pretty strong position financially, with that rental property. My vote is for going to university full-time.

If, instead, you keep working and skip the nursing idea, you’re not following your dream. That’s not okay. And if you do the degree part-time, it will be a hard slog. I did my MBA that way, and there wasn’t much time for fun.

What’s more, it sounds as if you don’t have the qualifications to earn high pay in an onshore job in the meantime.

Of course heading off to uni full-time won’t be a picnic either. You will presumably need to take a part-time job, while also eating — literally — into your savings. But you’ll get the qualification much faster, and then you can earn better money and forge ahead with reducing the mortgage and rebuilding your savings — in and out of KiwiSaver.

Highly motivated older students often perform well at uni, and enjoy it. And if you find it doesn’t work as you had hoped, you can always switch to part-time study to finish the degree.

Go well with your studies. The country needs you qualified!

QMy 11-year-old has $35,000 in the bank that he inherited from my mother. I deposited his money into a term deposit last year, but it’s due for a renewal.

Should I deposit this money into KiwiSaver for him? Happy to top it up each year. Is that the best idea? He’s not likely to need it for some years.

ALucky boy! In these days of high interest and wobbly share markets, it’s quite possible he will earn more in a new term deposit than in a KiwiSaver account over the next year or two. But it might be the opposite.

Over the next ten years or so, he’s almost certain to get a higher return in a high-risk, low-fee KiwiSaver fund. So that’s where I would put it — assuming you think a first home deposit would be a good way for him to use the money.

If you want to keep the option for him to spend it on, say, university fees or starting a business, you could put it in a similar non-KiwiSaver fund, which he can access at any time.

On topping up every year, there’s no real need to do that, as he won’t receive the government’s KiwiSaver contribution until he is 18. But it wouldn’t hurt to do it anyway.

QMy wife and I are getting closer to retirement (3 to 10 years?) and like many are feeling a little anxious about current investments. But I recognize we need to leave our existing investments in growth or balanced growth managed funds alone for a few years yet.

We have $30,000 to $50,000 which may be better off in a cash fund than term deposits, so we have access in the next five years and generate better returns? I looked at the cash funds on sorted.org.nz, based on your advice, and compared fees and returns.

The best returns were around 1 to 1.3 per cent a year. I realise we can’t predict future performance, but when I compare with bank term deposit rates for six months to two years, they range from 3.0 to 5.05 per cent in NZ banks.

Are managed fund providers able to do better than banks in returns over the next two to three years in cash funds? What information is available to Joe Bloggs to help us in making a sensible investment decision? How can providers achieve better returns than bank term deposits with cash only funds?

I assume access to funds is potentially easier for a cash fund rather than locking money up for different time periods in a series of term deposits?

AGiven that cash funds hold term deposits and similar investments, you would think the returns on the two options would be similar. So how come the big difference you’ve spotted?

You’re looking backwards at cash fund returns, and forwards at term deposit returns.

The “headline” cash fund returns in the Smart Investor tool on sorted.org.nz are average annual returns over the last five years ending March 31. But term deposit returns are what the bank will pay you in future.

The unusually fast rise in interest rates recently explains the big difference you found. Rates will head downwards again at some point, and when that happens cash fund returns — looking backwards — will look better than forward-looking term deposits.

A more valid comparison would look at what’s ahead for both types of investment. But unfortunately we can’t predict future fund performance.

Note too that tax will be deducted from a term deposit return, but the cash fund returns in Smart Investor are after tax. They are also after fees — but that’s not relevant here, as there are no fees on term deposits.

So which is likely to do better in the future, after tax? One market observer says cash funds tend to perform a bit worse than bank term deposits. But the big advantages of cash funds are:

  • You can withdraw money whenever you want to.
  • You don’t have to bother reviewing the situation every time a term deposits matures.

Do those issues matter to you?

One other point: If you go with a cash fund, I would choose it on the basis largely of low fees, rather than recent returns. The top performer can easily do poorly next time around, but fees rarely change.

For the benefit of others, to find a KiwiSaver cash fund go to the Smart Investor tool on sorted.org.nz, click on KiwiSaver and then Defensive Funds, and sort by Growth Assets (lowest first).

Look for funds with “cash” in their name, and then check they don’t also invest in bonds, by clicking on Details under the Mix heading. If a fund includes bonds, your balance can fall sometimes when interest rates rise — as has been seen recently. If it holds cash only, your balance should never fall — which is what you want with money you plan to spend soon.

QI have a few hundred thousand dollars (my life savings) with Milford Investments, mainly in growth and dynamic funds. Naturally they have devalued (12 per cent) over the past year, though have still increased 10 per cent (after fees) since inception.

To supplement my superannuation (I rent a one-bedroom flat in Auckland), I withdraw $1,500 fortnightly.

You have advised people in funds such as mine to “sit out” the current market tumble, which I am willing to do. But you have also suggested that investors intending to make use of a portion of their funds in the near future should put that aside into a cash fund or similar to safeguard its value.

Should I, for example, transfer $39,000 — one year’s worth of spending money — into a cash account? I asked Milford and their advice was to leave it, to avoid missing out on any abrupt market recovery, but I suspect I should apply your principle.

AAs I recommended last week, money you expect to spend within a few years is best invested in a cash fund or term deposits.

The higher-risk funds you’ve invested in are best for ten-year-plus money, because you don’t want to be caught doing what you are doing now — withdrawing when units in the fund have lost value, and thus making those losses real.

But it’s no use crying over dropped balances. What should you do now?

I suggest you move the $39,000 into a cash fund or term deposits. While your account might, indeed, recover soon, it might fall further. Too risky.

Review the situation in a year. If the markets have recovered and your higher-risk balances have risen, get things set up properly! Move the next three years of spending money into a cash fund, and the three to ten year money into a bond fund.

However, if your balances are still down, you don’t want to be moving more than necessary. So move just one year’s money into cash. Keep reviewing things each year, as described last week. Eventually you will have the “proper” set-up.

Gift Book Giveaway

It was hard to pick the five winners of copies of my two latest books to give away for Christmas — although quite a few people disqualified themselves by not sticking to the 30-word limit. Tsk, tsk!

By far the most commonly mentioned recipients for the books were readers’ children — including one who said of their girl, “She’s just coming up six but reading voraciously. Financial advice was never well explained when I was younger and I figure there’s no better time to learn. It will make bedtime stories a bit different from what she’s used to.” Indeed, but perhaps a little beyond her. Sixteen, definitely. Six, hmmm.

Other recipients included siblings, parents, grandchildren, nieces and nephews, friends, staff libraries and book clubs.

Several planned gifts to their partners, including one man who said, “If I win the book, please send it anonymously to my wife.” What’s going on there?

Then there were those who quite honestly said they wanted the books for themselves. Not quite the Christmas spirit sorry!

Here are the five winners:

  • Wilma Laryn:

    Checkout girl: “Any cash?”
    Me: “Forty dollars please”
    Little daughter: “How nice!”
    Me: first economics’ lesson.
    Thirty years later, in career and starting saving, she needs advanced advice.

  • Sonia Johnston:

    I’d add your books to our staff library. I’m of Pacific heritage and work with Māori and Pacific peoples. Knowledge is power so I’d love to see us financially empowered.

  • David Johnston:

    Rich Enough? to our laid back thirty-year-old nephew, enough said. A Richer You to recently retired family teacher a little lost on the pathways of newfound riches.

  • Robert Hunter:

    Mary Holm is not among fools,
    She’s developed great financial tools,
    Rich Enough — that’s laid back,
    and Richer You — makes you a whack!
    So I’d give both books to schools!

  • Lynne Cardy:

    My little brother is fifty and not very thrifty so your books will be nifty for one who needs to get wise well before sixty-five!

The books will be mailed to the winners shortly.

No paywalls or ads — just generous people like you. All Kiwis deserve accurate, unbiased financial guidance. So let’s keep it free. Can you help? Every bit makes a difference.

Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former 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.