NZ Herald 28 May 2016

AI don’t know how “low factor 5” would affect your health. But I do know that you should think hard before abandoning life insurance.

Personally, you would undoubtedly be better off putting your money into an investment instead of life insurance. After all, you won’t be around to benefit from the insurance! But think about how your wife and any other dependants would be placed if you died in an accident tomorrow. It’s hardly surprising that your wife is keen to keep the insurance going.

Of course this ignores what you call a sickness payout. If you find yourself claiming that, you, too, will be glad you stayed insured.

The basic question to ask is: if you died or became disabled, would your wife have enough income and assets — including a home and car — to live comfortably, perhaps for several more decades? Given your wife’s current illness, perhaps there might be limits on how much she can earn in future. Take that into account.

It’s not uncommon for people to realise as they get older that they no longer need life insurance, especially if they have a mortgage-free home and adequate savings. But — according to the insurance industry — many New Zealand families who do need life insurance have no or too little cover. Of course the industry would say that, but they probably have a point.

If you conclude that you do need life insurance, I suggest you shop around. That’s the best way to see if you’re getting a fair deal.

Join Consumer NZ if you don’t already belong, and then search on www.consumer.org.nz for unbiased info on the basics of life insurance, who offers what, and a life insurance cover calculator. While you can get some material on that website without joining, the membership is well worth it. I use it often for guidance on major and even some minor purchases.

And by the way, when applying to insurance companies, always tell the truth about your health. If you lie, you may get away with it until it’s time to claim. But then the policy will probably be declared invalid.

I hope things go well for your wife.

PS I noticed that Consumer NZ has a “50 per cent off” membership deal until May 31. Grab it!

ANobody should ever judge the performance of a KiwiSaver or any other managed fund by what happened in a single year.

An aggressive fund invests largely in shares and often some commercial property. These are the most volatile of mainstream assets. There’ll be some years in which all aggressive KiwiSaver funds report losses, and some when they soar — and over the long term we expect their average performance to be higher than in the lower-risk funds.

But in different years, different aggressive funds will rise or fall more. That’s because each fund manager picks different shares and property. And they also vary in the extent to which they sell some investments and hold cash for short periods if they expect the markets to go down.

Also, some funds have small holdings in commodities, gold, silver, derivatives and so on. And some aggressive funds might borrow to invest, which increases risk and potential returns.

For info on how a particular fund invests, see the provider’s website or the KiwiSaver Fund Finder on www.sorted.org.nz. After clicking on your fund in the Fund Finder, read “Here’s what the provider says about this fund” and scroll down to “What’s in this fund”

Ideally, you want a fund that will perform better than average over the long term. The trouble is how do you find it?

You suggested noting the fund managers and company leadership. But firstly, their names won’t mean much to most people. And even if they do, history keeps showing us that the good performers over not just single years but even a decade don’t necessarily repeat that the next time around.

In fact, there’s a tendency for the top performers to do worse than average in the following period. Why? Fund managers that do particularly well tend to be “out there”, doing things really differently and perhaps taking more risk than most. Sometimes it works fantastically well, sometimes abysmally.

So what should you do? Because it seems impossible to get useful information from fund performance, I recommend using the KiwiSaver Fund Finder to help you choose an aggressive fund that charges low fees and offers good customer service. Over long periods, low fees can make a big difference to returns.

You ask whether you will lock in losses by switching providers. Not seriously, if you’re switching from one aggressive fund to another. The two funds should have performed roughly similarly in the recent past.

However, if you move to a lower-risk fund right after a market downturn has hit your higher-risk fund, you will indeed lock in losses, because you won’t be sticking around while the higher-risk fund regains its ground.

That’s why I don’t recommend moving funds in response to market trends. Use the “Find the right type of fund for you” tool in the Fund Finder to work out the right risk level for you, regardless of what the markets are doing, and stick with that risk level.

AWhat a wonderful story.

We should note, though, that it’s a lot harder to buy a first home now than when you were young. The ratio of house prices to incomes is ridiculously high now.

Still, your account shows the importance of starting out small and sticking at it. I never cease to be impressed with how some people on relatively low incomes get ahead financially by sheer determination.

AYour sister and her husband should contact the NZ Federation of Family Budgeting Services at www.familybudgeting.org.nz. Under “Find a Service” on that website they can find a budget adviser near them.

This is a free service, funded partly by the government and partly by private businesses, trusts and so on. I’ve heard good things about their work. They help turn people’s lives around.

I can’t help wondering, though, why people run up such big debt. It would be great to hear from someone caught up in this — as opposed to others passing judgement on them. How does this happen? Is spending addictive or something?