NZ Herald 9 July 2016

AThere’s no question that it’s worthwhile to keep up the maintenance of a property. Whether that extends to upgrading the property depends on what you do to it.

It’s always a good idea to bring the worst house in the street up to the standard of its neighbours. But you may not be rewarded for turning a house into the pride of the neighbourhood. Sure, in a fast-rising market, you’ll probably sell it for more than you recently paid for it. But by the time you deduct the upgrading costs, your gain might be less than if you had done nothing.

It also depends what changes you make. Experts say that good moves often include updating kitchens and bathrooms — especially if the old ones are really shabby. But don’t spend heaps.

It’s often also good to: insulate a house, remove walls to allow for open-plan living, add a third bedroom, or build a deck — with large doors out to it.

A quick paint job can be a big plus, as can smartening up the entrance to create a good first impression. But installing expensive fittings, curtains or carpet may not be worthwhile unless the old ones are horrible.

Another change that may not pay for itself is adding a swimming pool, which some people see as just a maintenance chore or a hazard for young children.

Keep in mind, too, the hassle of living in a house while it’s being upgraded. If you’re not likely to gain hugely from the changes, you may not think it’s worth the bother.

By the way — following on from your point about house buyers’ expectations — would-be purchasers might want to keep in mind that if they choose a place that hasn’t been tarted up, it may be a particularly good buy. What’s more, they can then renovate to their own taste.

ASome good questions — even if I winced as I read your letter. Let’s take your questions from the top.

In recent columns I have said that I’ve always liked index or passive funds, which invest in the shares in a market index. That’s mainly because they charge lower fees than active share funds, whose managers choose which shares to buy and sell.

Research shows that index funds perform better than the average active fund over the long term, especially after fees. It’s not so clear for funds that invest in New Zealand shares, but I’m not convinced that any active NZ share fund will perform better than an index fund, so I prefer index funds for local investment too.

But I’ve never “advocated” for Smartshares, just told readers that they are by far the major provider of index exchange traded funds (ETFs) in New Zealand. As explained in a recent column, you can buy them directly from Smartshares or via SuperLife. You can read about the differences at tinyurl.com/smartsharesnz.

Who owns who? Well, a subsidiary of the NZX — the company that runs the stock exchange (then called the NZSE) — started this country’s first index ETF in 1996. The subsidiary, now called Smartshares, has since launched several more index ETFs.

Meanwhile, in January last year the NZX acquired passive superannuation and KiwiSaver provider, SuperLife.

“Smartshares and SuperLife have separate brands and offerings, although both are wholly owned by NZX and regulated by the Financial Markets Authority (FMA), as well as being supervised by independent trustees,” says the NZX.

“As a listed issuer, Smartshares is also subject to regulatory oversight by the Special Division of the New Zealand Markets Disciplinary Tribunal, which also regulates NZX Limited. NZX’s own regulation division has no involvement with Smartshares.”

Got all that? Basically, there’s a fair bit of regulation going on.

Am I required to disclose if I get any payment for giving advice? Legally no, but ethically yes. And I don’t get any such payments from anyone. In fact I’ve turned down many opportunities over the years to do lucrative work or endorsements that might compromise — or be seen to compromise — my independence. So it hurts a bit to be under suspicion.

By a “banner” on a website you must be referring to this quote from me on Smartshares’ website: “Many New Zealand shareholders own shares in just one or a few companies. That’s not clever.” As it says on the website, the quote comes from “Upside, Downside — a guide to risk savers and Investors”, a booklet I wrote for the Reserve Bank.

I gave Smartshares permission to use the quote, because I think the point is an important one. The more people who read it, the better. But at the time I wrote to Smartshares’ representative, “It’s really important that I retain my independence. I don’t want there to be a possibility that people will think I’m endorsing Smartshares.”

Your comment therefore worries me. So let’s make it clear: I was not paid for the quote. What’s more, in any of my columns — or on any website or wherever — if I say I think an investment is good, it’s because I think it’s good. I never receive any money or other favours.

On to your last question, about two stock markets. NZX runs both. Here’s how they describe them:

• “The NZX Main Board is a public equity market for larger, more established businesses. For example, Spark, Fletcher Building and Trade Me are listed on the Main Board.
• “The NXT market is an NZX market built for smaller and potentially high growth businesses. NXT is positioned as a “stepping stone” market for companies before they reach a size appropriate to transfer to the NZX Main Board.”

AYes, the woman from Kaikohe, a stay-at-home mum with a part-time cleaning job, has a wonderful attitude, doesn’t she.

On US Secretary of Defense Donald Rumsfeld, I certainly wasn’t consciously referring to him. But his quote is worth repeating here. He was replying to a question about “the lack of evidence linking the government of Iraq with the supply of weapons of mass destruction to terrorist groups,” according to Wikipedia. But the quote could also apply to finance.

He said, “Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.”

In the financial world, a lot of people make out they know more than they really do about the future. There are just too many factors that affect interest rates, the value of currencies, share prices, bond prices, property prices and so on.

Sure, we can learn a lot from long-term trends. For example, interest rates and currency go down as much as up, but shares and property tend to grow faster than inflation over the long term.

But beyond that we should always invest assuming bad stuff might happen — including unknown unknowns. Work through a worst case scenario. If you could cope with that, then go ahead and, of course, hope for the best.

AAccurately timing property markets is another impossibility.

In light of that, you might as well get on and do what you want to do. It might turn out to be good timing, and it might not. But the same can be said for waiting on the sidelines. And in the long run, it probably won’t matter as much as you might think.