NZ Herald 27 January 2024

AI sometimes get complaints from readers that too many letters in this column are from wealthy people, despite the fact that I try to favour letters from people with average wealth or less. But — and please don’t be hurt by this — your letter takes the cake! Or rather, your husband’s attitude takes the cake.

Perhaps he was raised by parents who went through hard times in the Great Depression of the early 1930s, or he faced hardship earlier in his life. But clearly that no longer applies. While some people have too much of a “she’ll be right” attitude to funding their retirement, your husband is way too cautious.

A fairly conservative way to estimate how long your retirement savings will last is: for every $100,000 you have saved, you can spend $100 a week. For example, if you have saved $300,000, you can spend $300 a week, and your savings should last as long as you do. That’s on top of NZ Super.

That calculation assumes you both stop work at 65. Assuming you are both older than that, you would have more to spend each year.

But putting that aside, you have 40 lots of $100,000. So you could spend 40 times $100, or $4,000, a week. That is indeed enough. Time to put your feet up, hubby!

AYou’re right that banks have not been a particularly great investment in the last 10 years, says financial advice provider Brent Sheather.

“ANZ has returned 5.6 per cent a year in NZ dollar terms versus 11.4 per cent for the world stock market. Westpac shares have done even worse at just 2.3 per cent a year. But returns haven’t always been that low — since 1969, which is as far back as my data goes, the annual return on ANZ shares has been 11.1 per cent a year,” he says.

He adds that the ANZ annual dividend is a little less than it was back in 2014. “This reflects the fact that earnings per share have been largely flat, and volatile, over the period. This is likely to be at least in part a function of the highly geared nature of bank balance sheets.”

Sheather goes on to say, “As your writer points out, the last 10 years has been a particularly bad time for the Australian banks, as it has been for banks all over the world. That’s probably due to a combination of low interest rates, bad behaviour (as became evident in Australia’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry) and the inevitable response from regulators.

“For a stockbroker in the 1980s the Australian banks were seen as a solid, safe reliable investment which we bought for lots of clients. Today, however, they look a lot less compelling.”

Is it time to give the banks a break, as you suggest? Sheather’s view: “Given the finance sector’s size and importance to the economy, the potential liability they represent to taxpayers given their extremely low levels of equity, and the extent to which their debt costs are subsidised by taxpayers via ‘too big to fail’, the government and regulators preoccupation with the sector is entirely justified.”

I have to agree. And by the way, it’s not really fair to say Fisher & Paykel Healthcare profits from people’s ill health. Let’s say it profits from helping people with their health problems.

AIndeed! Research quite often finds someone choosing shares by throwing darts at a list of company names does better than many professionals. In one study, a chimpanzee outshone many experts.

It’s interesting that you compare yourself with fund managers, rather than with broad share market indexes, such as the NZX50.

Over time, most fund managers who actively choose investments perform worse than the market indexes. They might beat the relevant index some years, and occasionally a manager will “outperform” over a decade, but research shows almost all underperform over the long term.

That’s why for many years I’ve advocated investing — in KiwiSaver or otherwise — in passively managed index funds. These funds follow the performance of an index. They usually do slightly worse than the index because they charge fees, but the fees are low because the funds are cheap to run.

You might want to monitor your performance against that of an index fund. But, even if you don’t do as well as that fund, I doubt if you would give up your DIY investing.

And that’s fine. You’re enjoying the challenge. And it sounds as if you follow two important rules for DIY investors:

• You buy and hold, rather than trading shares, and that’s usually a far more successful approach.
• You own quite a few different shares, so a disastrous one is not a big deal.

AI’ll take your word for it on the plug for Kernel! And you’re quite right, I do “approve” of investing regularly in index funds, and leaving the money alone — as noted in the previous Q&A.

But the correspondent in the last column said their son wanted to learn about the share market, and mentioned a share trading account as a possibility. That’s why I suggested he use an online trading platform, adding, “If he chooses just one or two shares, or he wants to trade frequently, let him!… He will almost certainly learn some valuable lessons while there’s not too much at stake.”

It sounds as if you are doing a great job with your teens’ financial education. Good on you! But I wonder if they are missing out on learning from making unwise choices. Maybe encourage them to trade shares with a small portion of their money, if that appeals to them?

As James Joyce put it, “mistakes are the portals of discovery.” Or how about Richard Branson? He said, “You don’t learn to walk by following rules. You learn by doing, and by falling over.”

AKilljoy! That letter was about a family who had long forgotten about the insurance policy, and so were delighted when they were given $15,000.

Still, I’m sure you’re right. The 2,000 pounds in 1957 — or $4,000 in today’s currency — has grown by 2 per cent a year to reach $15,000. That’s pathetic, given interest rates soared into the high teens for parts of the period. The low growth suggests someone was taking more than their fair share in commissions each year.

There are many sad stories of people being ripped off by insurance policies in decades past. I don’t think that happens nearly as much these days though.