NZ Herald 30 June 2018

AYou’ve committed two research “sins” in your comparisons:

• Judging a share investment over too short a period in your first couple of paragraphs.
• Using a single property to represent what’s happened to the rental property market.

For the benefit of others, FNZ is a Smartshares exchange traded fund, or ETF. In many ways it’s like other share funds, such as higher-risk KiwiSaver funds, but you invest in an ETF in the same way as you invest in a share listed on the share market.

FNZ holds all the shares in the S&P/NZX 50 Portfolio Index, which covers the 50 largest companies, with no more than 5 per cent of the fund in any one share.

Despite what you say, during 2017 an investment in FNZ did, indeed, increase by 22.3 per cent, says NZX, which runs Smartshares. But for the first few months after you bought in August 2016, the price of FNZ fell, as our graph shows. So your over-all performance so far is not nearly as good.

A share price is always going to wobble. That’s why I have two “rules” about investing in shares or a share fund:

• Use money you don’t plan to spend for at least ten years. That gives enough time for recovery from market downturns.
• Don’t withdraw earlier — especially when there’s a downturn. Hang in there, and things will come right.

In your last paragraph, you do look over a longer period, ten years — great. NZX says the average return over the last decade is 5.2 per cent after fees, rather than your 4.9, but that’s probably because you’re looking at a slightly different period.

While a return of around 5 per cent a year is not exciting, a glance at our graph shows the decade includes the global financial crisis of 2007 to 2009. Over the last half century, that plunge was second only to the 1987 crash. So 5.2 per cent over a decade that includes such a downturn is not too bad.

As it turns out, the growth of the share market is also faster than the QV Quarterly House Price Index over the decade. Your rental property’s value grew more, but the average property didn’t.

It’s true that the house price index doesn’t include rent, but for many landlords that’s offset by mortgage interest and other expenses.

I don’t want to reopen the shares versus rentals debate. We’ve had enough of that lately. Let’s just say that both have done really well in recent years. I’m afraid your wife has got it wrong.

ALet’s take your issues one at a time:

• How long it takes to get your money out. An ASB spokesperson replies: “While it could take up to 15 days, ASB continually strives to process full withdrawals as quickly as possible.” It’s similar with partial withdrawals, but with a maximum of five business days.

  Why so long? “Once a member requests a withdrawal ASB need to confirm eligibility and make sure we have all the information needed to pay customers correctly,” she says. “Full withdrawals also require us to work with Inland Revenue to make sure the member gets the right member tax credit amount.”

• Setting a minimum unit price for a withdrawal. ASB doesn’t offer this for its KiwiSaver or non-KiwiSaver funds, “because unit prices (which involve global assets) are only finalised after a transaction is initiated,” says the spokesperson.

  However, she points out two ways to deal with the worry that you might make a large withdrawal on a day when the market falls.

  One is to gradually move your money into a lower-risk fund as you approach the withdrawal time.

  “Selecting a (higher-risk) fund with more growth assets means the customer needs to time the market, which is hard to get right. For example, if a customer was invested in the Conservative Fund, on February 5 this year (a recent day of particularly high volatility) the value dropped by 0.46 per cent, compared to a 1.9 per cent drop for the Growth Fund.”

  This suggestion might not work if you want to take your money out now. But it’s good advice for others. I’ve always recommended that any money you plan to spend within the next two or three years should be in a low-risk fund or bank term deposits.

  However, the second way might work for you. That is to withdraw the money over time. Even if it’s just over several days or a few weeks, that reduces the chance of a big loss because of a sudden market fall.

  ASB and many other KiwiSaver providers let you set up regular payments to your bank account. “A regular withdrawal enables a top up of weekly income, bringing certainty to managing money in retirement while also minimising the impact of market volatility,” says the spokesperson.

• Concerns about ASB’s “ability to manipulate rates on any day when there are large withdrawals”.

  The response: “ASB does not manipulate rates. We take this extremely seriously and have processes and reviews in place to ensure all transactions are executed to a high standard…. Unit prices are calculated based on underlying asset values, and there are processes in place to ensure the valuations are accurate, including constant monitoring and independent audits.”

• The ability for people with more than one fund to withdraw from just one fund. “This is something we can do if specifically requested,” says the spokesperson. But, she adds, “The vast majority of our customers are invested in one diversified fund suitable for their investment needs, so wouldn’t need this functionality.”

She adds, “We encourage customers to contact us if they have questions, as we’re always more than happy to discuss their retirement and investment goals, and which funds will help them get there.”

If you’re not happy with these answers, you can always move to a different KiwiSaver scheme.

AAn excellent point. And the differences would be even less if you’re on a higher tax rate.

AYou’re quite right that it’s impossible to make tax both fair and simple. But that doesn’t mean we shouldn’t try to move closer to both objectives. The current system is not as good as it gets.

On Michael Cullen’s views, I have never accepted that politicians — and ex-politicians — should never change their minds. On the contrary, they must be open to new knowledge and views.

As for cars, boats and art, mostly they don’t gain value. It might not be worth the hassle including them. But that’s clearly not true of property and shares.