NZ Herald 30 April 2022

AYou don’t have to ever own your own home to live well. Renting for life is a perfectly valid option.

Common reasons that many New Zealanders prefer home ownership include:

• They want their children to stay at the same school and in the same neighbourhood.
• They want to be able to garden, knowing they can be around to watch a tree grow.
• They want the freedom to decorate and renovate as they wish.

Do these matter to you? Perhaps not.

What does matter to every tenant, though, is that you would prefer to pick your own time to move on. You’re just experiencing the hassles of being turfed out because of the landlord’s needs. But hopefully the landlord will give you an excellent reference, which may help you to negotiate a long-term lease with a new landlord.

Another common reason for wanting to own your home is financial. People point to the rapid rises in home prices in recent years, and paint gloomy pictures of renting in old age.

However, I’ve seen economists model home ownership versus renting for life. The winner is not clear. It depends on the assumptions about rents, house price increases, returns on a tenants’ savings and so on.

As a tenant, it’s wise to ask friends who own homes of a similar standard to yours what they spend on their mortgage, insurance, rates and maintenance. Then make a point of saving at least the difference between that and what you pay in rent.

Ideally you should invest the savings in a higher-risk fund, in or out of KiwiSaver, so you get good long-term growth. The aim is to retire with enough savings to cover your rent for the rest of your life — or to buy at that point. With your current savings, you seem to be heading in that direction.

Of course deciding not to buy now doesn’t mean you can’t change your mind later. And while timing the housing market is a game for fools, I agree that rising interest rates make taking on a mortgage less attractive now than a few years ago — and perhaps a few years hence.

And these days there’s less worry about house prices rushing upwards. They might even fall more than the recent price dips.

In the meantime, enjoy the lack of worry and chores that tend to come with home ownership — something that gets too little attention. When the beach beckons, you’re free to go. As someone once said, “Did you have a good weekend, or do you own your own home?”

ATo address your concerns, I put three questions to Sharesies and another similar online platform, Hatch.

Do you offer guidance for someone trying to set up a share club for high school students?

Sharesies: “Following a successful pilot in 2021, we’re running our Sharesies in Schools programme this year for students aged 16 and over (who are eligible to create a Sharesies account). We’re helping students and teachers get set up with their own Sharesies accounts and navigate Sharesies. Schools participating in the programme also get access to educational and community support.”

Hatch: “We have a fabulous team on hand that would welcome working with a school on any investing initiative.”

Would you be able to help with the students’ tax obligations?

Sharesies: “With companies and exchange-traded funds (ETFs), most New Zealand investors are only taxed on income (dividends) rather than on profit or loss. With managed funds, the amount of tax you pay is based on the prescribed investor rate (PIR) you set in Sharesies.

“Tax is calculated at the end of the tax year (31 March). We keep a record of how much tax needs to be paid (or returned to you) with each calculation and make any payments on your behalf. This will be deducted (or paid) into your Sharesies Wallet in April. We provide you with a tax statement at the end of each financial year which shows you this information, and what information you may need to provide to IR. It’s your responsibility to ensure you are paying the correct tax. We recommend seeking professional tax advice if you are unsure.”

Hatch: “If you earn less than $200 in dividends from your shares through Hatch, you don’t have to do anything at tax time (this is assuming no rental or self-employment income at this age). This makes tax time for 98 per cent of our investors easy as.

“Another thing to keep in mind is that with Hatch, you invest in US-listed shares, largely known for their growth stocks, not for the dividend paying businesses that N-listed companies are known for. The great thing about starting with US-listed shares as a teenager, is that it’s likely they use a number of these brands every day.”

Do you offer simulation access to your platform? If not, would you consider doing that?

Sharesies: “We currently have not explored simulation access, as yet.”

Hatch: “While we would always encourage people to start with a very small amount, we don’t offer a simulation. In our research, people make very different decisions when it comes to ‘fake’ money. They don’t take it as seriously and take bigger risks — not behaviour we’d want to encourage.”

Thanks to the many other readers who wrote in about share clubs. I’ll run some of the letters in the next couple of weeks.

AI disagree that longer-term holders should have been given a bigger final payment. Their reward for holding the bonds over the years was the repeated chance to win a prize. That was the deal. If at any time they thought that wasn’t a big enough reward, they should have cashed in their bonds. Johnny Come Lately had a much lower chance of winning.

On your last paragraph, ANZ responds: “Bonus Bonds was a unique product established by the New Zealand Government in 1970 to encourage savings.” ANZ took over its management in 2013.

“The decision to wind-up the scheme was made based on the best interest of bondholders at the time. With the scheme now closed, the vast majority of funds returned to investors and the advent of new savings options such as KiwiSaver, ANZ has no intention of reopening the scheme.”

ANo it hasn’t.

ANZ says it has a team working to contact people who still have Bonus Bonds, to give them their share of the money in the scheme. Since October 2020, holders of about 90 per cent of the total funds invested have been redeemed, says a spokesperson.

However, “nearly two thirds of bondholders had $50 or less in the scheme, so they may be less motivated to claim their funds. That is why ANZ is encouraging people to think about donating their money to the Cancer Society,” she says. Maybe the bank picked up on your idea!

“More than 13,000 bondholders have already chosen to donate their funds to the Cancer Society. This means ANZ will be passing on more than $300,000 on behalf of these investors.”

She adds that at the end of the wind-up, “remaining funds are passed to Treasury as unclaimed monies.

Treasury will manage the process for claiming funds after the scheme is wound up.

“ANZ is encouraging anyone who thinks they may have Bonus Bonds to get in touch now so they can get their funds as soon as possible.”

AGood point. Under New Zealand’s peculiar law, gains on the sale of an asset are taxed as income if they were bought with the dominant purpose of selling.

People sometimes argue that they bought a rental property with the purpose of receiving rent, or they bought shares with the purpose of receiving dividends. But there’s no similar argument with gold.

A ten-page paper on ird.govt.nz says, “Describing property as being acquired as a long-term investment, a hedge against inflation, for portfolio diversification, or as a store of value outside the monetary system is not sufficient to negate a dominant purpose of disposal.”

Another reader wrote about gold. His main point: “The day is coming when all paper gold holders want to convert to physical gold, and that will be the time when there will be a disconnect between physical and paper gold prices.

“That is when the physical gold price could go through the roof, along with physical silver which normally is an 8 to 1 ratio with gold.”

Sorry, but I don’t buy your argument (or gold for that matter!) If investment experts thought what you say is correct, they would be buying physical gold now, and pushing up the price now. Prices of investments — gold, shares, rental property — always reflect not what’s currently happening but what experts expect to happen.

You add that “Gold and silver have always been God’s currency.” Not sure how you know that!