NZ Herald 6 November 2021

AThere will always be something to worry about when considering investing in shares. And there will always be heaps of people — including some with impressive credentials — writing about it.

The fact is that nobody knows, for sure, how things might turn out for the huge Chinese real estate developer. Meanwhile, you are sitting on the sidelines, probably earning a pathetic return in bank deposits.

By the time this crisis plays out, another will loom. And another. You could stay on the sidelines until you have retired, with probably a lot less savings than you would have had if you’d stepped into the game.

Yes, the Evergrande situation might cause a worldwide downturn — although if many professional investors thought that, we wouldn’t expect the MSCI world share price index to have climbed an impressive 32 per cent in the last year. Share prices don’t only reflect what is, but what investors expect.

In any case, as long as you stick with the three rules of share investing, you should be fine. They are:

• Diversify widely. You will do that by using managed funds. I hope you are looking at international as well as New Zealand shares.
• Use money you don’t plan to spend for at least ten years — despite what our next correspondent says!
• Leave it there, no matter how much the markets might fall in the meantime.

Having said that, if you are investing what for you is a large amount, you might want to invest a third now, a third in three months and a third in six months.

True, in the meantime the uninvested money will probably be earning less in the bank. But your risk of investing the lot at what turns out to be a market high — which would be discouraging — will be reduced. It’s psychologically easier.

If you do that, though, stick with your plan regardless of what the markets do in the meantime.

A… even though it’s worth only your desultory interest! Oh well.

I sent your letter to financial advice provider Brent Sheather, a close follower of research on long-term returns on investments.

“Yes it is true that equities have vastly outperformed bonds and cash over the last 40 years,” he says. “But perversely that is less reason to be overly confident that equities will outperform in the next 10 years.”

Shares have become more expensive, says Sheather. “And if you believe in mean reversion” — the tendency for returns to move back towards their long-term average — “there is a risk that valuations could fall in the future. It is probably unlikely but possible.”

He adds that with the “forward equity risk premium” — the expected gap between returns on shares and bonds — “at just 3.5 per cent, the attractiveness of equities over bonds is nowhere near as compelling as it has been in the past.”

Then comes the old chestnut: “I would also mention the fact that past performance is not indicative of the future.”

So what does Sheather advise on time horizons? “Personally I would be very cautious about investing money that I needed within ten years, and would instead hedge my bets by investing maybe half of the money in cash or bonds.

“From a legal standpoint if a financial adviser invested money that the client would need within 10 years (in shares), there is a chance that if a major prolonged downturn occurred a court might rule that such a move wasn’t prudent,” he says.

Add to this the fact that I’m not a financial adviser, able to hold the hand of a client if their share investment loses value. Instead I’m giving one-off suggestions to people with a wide range of risk tolerances. So usually I’m going to err on the side of caution.

Old-fashioned my ten-year rule might be, but I’m sticking with it.

ANow, now. Calling people rotters will get you nowhere!

ANZ acknowledges that “when we started the wind-up we gave investors an indicative date of 31 October 2021.” But the bank’s spokesperson adds that “no specific deadline was set for the payment.”

“During the year we have kept investors updated via our annual report and website that our expected payment date had moved to December. Making payments has required significant changes to the Bonus Bonds technology systems. This has taken some time as it’s important that it was done right.”

Still, she says, “We’re working to make payments as soon as possible and expect bondholders — who have provided their current bank account details — to be paid before Christmas.”

Recipients are scheduled to get $1.10 for each Bonus Bond. However, the funds are still invested and the management fee has been reduced to zero. So you may eventually get a little more interest — despite your cynicism. “The exact amount that customers receive will be calculated at the conclusion of the wind-up next year,” says the spokesperson. “However, we expect any additional payment above the $1.10 would likely be small, at less than five cents per Bonus Bond.”

She adds, “After the distribution in December investors can continue to provide account details to receive their payments if they have not already done so.

“We encourage anyone who thinks that they may have Bonus Bonds to contact us before then so they can get their money as soon as it is available. Call us on 0800 266 374 or visit bonusbonds.co.nz for more information.”

By the way, the Banking Ombudsman doesn’t take action unless somebody files a complaint with her.

AThe answer to your first question is easy. You can be in only one KiwiSaver scheme — although in many funds within that scheme if that suits you.

On your second question, the answer is “probably”. Most providers charge lower fees for their KiwiSaver funds than for similar non-KiwiSaver funds, and the investments are probably much the same.

I suggest you ask your provider about the fees, and if there’s any other reason why you shouldn’t make the move.

But first, it would be a great idea to confirm that you’re with the best provider. Use the KiwiSaver Fund Finder on www.sorted.org.nz, to check how well your provider ranks on fees and services at different risk levels.

By all means also check its ranking on returns, but only to dismiss that provider if its returns are below average year after year — click on “Show yearly returns”. It’s not wise to choose a provider based on high returns, especially over the short term. And even a strong long-term performance is no indication that that will continue.

If your provider doesn’t come off well, particularly on low fees, I suggest you move to a provider that does. All you have to do is contact the new provider. They will get the money moved for you.

AThey’re not exactly “unpaid”. But yes, some landlords are not driven to receive the maximum rent if they like their tenants.

That’s what makes rental property a more complex investment than any other, but not necessarily a worse one. It seems that the reward for some landlords is partly monetary, and partly the satisfaction of knowing they are providing a family with good accommodation.

I don’t see anything wrong with that, although I agree that it’s not good if a landlord finds they can’t afford to maintain a property well.