NZ Herald 3 December 2022

AAs I’ve often said, it’s really good to drip feed into an investment over time — which is what happens for most people with KiwiSaver accounts. Drip feeding gives you a good deal.

Let’s look at a simplified example, in which you invest $100 a month into KiwiSaver:

• When the markets are performing well, the value of the units in your fund may be $20, so your $100 buys you 5 units.
• When the markets are down — as is the case currently — the unit value may be $10, so your $100 buys you 10 units.

The average market price over those two periods is $15 — halfway between $20 and $10.

But you bought a total of 15 units for $200, so your average price is $200 divided by 15, which comes to $13.33.

How come you paid a below-average price? Because you bought more units when they were cheaper, and fewer at high prices.

We do this consciously with, say, peaches — buying more when they are cheaper. With drip feeding into an investment it happens automatically. Great!

However, you’re in a different position. You’ve got the money there to invest all at once.

With a lump sum, theoretically the best idea is to invest it all now. On average the returns you’ll get in the fund will be higher than in the bank account, or wherever the money is sitting waiting.

But I recommend splitting your $50,000 into, say, three equal lots, and investing some now, some in one month and the rest in two months, because of two psychological factors:

• Choosing a date. If you are investing it all at once, you will be inclined to keep putting off making the investment, in case the market drops further tomorrow. Meanwhile, the money is probably earning a lower return. And you run the risk that you’ll miss out on a sudden market recovery.
• Avoiding post-investment blues. After you have invested, you don’t want to be really unhappy if you see that the market dropped soon after you put in the whole $50,000. If you do it in three lots, at least some of the money won’t be invested at what turns out to be the worst time.

But don’t get carried away with spreading the deposits over too long a period. Get that money in there.

AYour advice is probably good, although other retired people wanting a credit card shouldn’t give up.

“ASB does not decline applications for new or increased credit card spend simply because a customer is retired,” says a spokeswoman. “As a responsible lender, our lending decisions take a range of factors into account, including reliability of income and the ability to meet repayments over the long term.”

She adds that under Credit Contracts and Consumer Finance Act (CCCFA) requirements, “there have been cases where it’s been more challenging for customers to get credit.

“This is because the information we must consider when assessing repayment ability might show the customer cannot easily manage the repayments, even though other factors mean they would be unlikely to fall into hardship. ASB has been working with Government to help iron out some of these issues.”

Nevertheless, the bank obviously thought your situation seemed odd, and asked me to put you in touch with them.

The result? An email from you saying, “ASB were falling over themselves to help, thanks to you. I now have a Platinum Visa card, free travel insurance to boot. Many thanks.”

I’m glad it turned out well.

AAn interesting suggestion, thanks — assuming the boy’s parents or another relative or friend is happy to help him set it up.

I suggested last week that he invest in a high-risk, low-fee KiwiSaver or other managed fund, which would hold mainly shares. Research shows that the average individual investor doesn’t do as well as someone who invests in a share fund, despite the fees. And it’s easier.

But he might get lucky — as you have. Your 13.25 per cent a year is better than the NZX50’s compounded before-tax return for the last 21 years of 10.3 or 11.2 per cent a year, depending on how you measure it.

And he would certainly learn more about shares and the share market.

Incidentally, I like the wide range of industries you suggest he invests in. That’s much wiser than concentrating on a few industries, which might do really well but then crumble.

AA great story. I can only admire your sister and her family for making it work.

By the way, the correspondent last week was a woman, not a man. It’s funny how often readers make wrong gender assumptions!

ASounds as if you’ve been there — and learnt from it.

I agree that it would be unwise to count on making a gain on selling a rental property to make the investment work — especially over a relatively short period. The very fact that there have been large house price increases in recent years makes it less, rather than more, likely such big gains will continue after the current slump.

I suggest anyone planning a rental property investment talks it through with their own accountant or adviser, not someone connected to property sellers.