Had enough of the money madness and the joyous junk? Photo / Getty Images
COMMENT:
Q: I like your messages to people to reduce the silly spending on Christmas presents that are usually not right for the person.
I've had various forms of reducing presents in the past, such as secret Santa. This year I've told everyone that I'm not giving or receiving Christmas presents — I'm going to return any given unopened — except for a few I'm giving to my daughter and stepsons.
I'm going to give my partner a handwritten voucher to a meal at a restaurant of his choice (within reason). I'm also giving him a handwritten voucher for 10 back massages from me, which he loves.
I've spent ages decluttering following Marie Kondo, which has been great, and I don't want to fill up my house again with lots of stuff I don't want and can't get rid of in case it upsets the giver.
Merry (non-commercial) Christmas!
A: And to you! Brace yourself for being called a Grinch.
But your thoughtful gifts to your partner — and the exception for your daughter and stepsons — suggest you're not a mean person. You've just had enough of the money madness and the joyous junk. I couldn't agree more.
Q: I would like to know where and to whom to go to start investing in index funds, please.
A: First, let's get other readers up with the play. Index funds — also called passive or tracker funds — are usually share funds that invest in all the shares in a market index, such as the NZX50.
The managers don't do research on which shares to buy or sell. And they trade only when the shares in the index change, which isn't often.
This means they are much cheaper to run than actively managed share funds, so their fees are lower. And that gives them a big advantage when you're looking at share fund returns, after fees, over the long run.
Note that in any single year index funds will always give only an average performance before fees because they own all the major shares in the market. Meanwhile, through good luck or good management, quite a few active funds will outperform them.
But research shows, again and again, that although most active funds are above average in some years, they are below average in others. Only a few active funds keep outperforming. And there's no way to know in advance which ones they will be. Even with 10-year data, last decade's top performers are often well below average this decade.
So index funds are a better bet, given their lower fees.
Where can you invest in them? Within KiwiSaver, the following providers have told the Commission for Financial Capability that these funds are passive:
• AMP: AMP Passive International Shares Fund, ASB Moderate Fund, ASB Balanced Fund, ASB Growth Fund (you can invest in ASB funds through AMP)
• ASB: Conservative Fund, Moderate Fund, Balanced Fund, Growth Fund
• Booster: Asset Class Conservative Fund, Asset Class Growth fund, Asset Class Balanced
• Simplicity: Conservative, Balanced and Growth Funds
• SuperLife: 33 of its 40 investment options are passively managed, as well as its Age Steps funds
Many of these providers also have similar non-KiwiSaver funds. Check their websites or email and ask them.
Another option is exchange-traded funds, or ETFs. These are passive funds that are traded on the stock exchange. You invest in the same way as you would buy shares.
To my knowledge, the only New Zealand-run ETFs are offered by Smartshares, run by NZX — the stock exchange company. Through them, you can invest in funds that hold international as well as New Zealand shares.
You can also invest online in international index funds.
Q: I understand an ETF buys into a tracker fund that contains a basket of shares. Its price changes based on the value of the shares within, presumably changing through active traders' transactions.
If everyone was to buy ETFs, how would share prices change if nobody was actively trading shares? Though not a likely event, it's possible for the active share trading pool to diminish with fewer buyers and sellers. Am I missing something?
A: Yes, I think you are.
I've been recommending tracker (or index or passive) funds for decades. But in the past few years, when these funds have finally come into their own, several people are saying that if their popularity isn't curbed, the whole sharemarket system will collapse — as you suggest. But that's not going to happen.
You're right that it's the trading of active fund managers and individuals that sets share prices. If lots of them want to buy a share, that pushes the price up. If lots want to sell, the price falls. So, yes, if nobody was actively trading, prices wouldn't change.
But think about it. Active traders compete to be the first to discover new information about a company. Let's say an active trader finds out that Fab Company has a new strategy and is likely to perform even more fabulously than everyone else expects. The trader will rush to buy Fab shares before others realise and also want to buy, pushing up the price.
Similarly, the first person to realise Dodgy Company will do worse than expected will be able to sell for a reasonable price. Latecomers will get a low price. So there's plenty of competition to be first with information.
It's really hard for one trader to beat the crowd often, let alone always. But that doesn't stop people from trying. There will always be active fund managers convinced they are the special ones who can do better than average year after year. And they'll always draw investors attracted to their confidence and recent good track record.
If, in future, there are fewer active managers — because ETFs make up more of the market — the reduced competition will probably boost managers' confidence, and chances, further.
Human nature being what it is, I can't see active management dying out.
But I still recommend that you go for index funds or ETFs.
Q: I am over 65 and recently tried to make a withdrawal from my KiwiSaver account. I was amazed to find out that I can't until I have been in it for five years.
My belief — and I'm sure that of most people — is that you can withdraw any time after you turn 65. I am sure 90 per cent of the population would think that. No one that I have spoken to was aware of the five-year rule.
I attach a letter from my KiwiSaver provider, Kiwi Wealth.
A: Your provider, or at least the person you communicated with, is not up with the play. The five-year rule is on its way out — although that's not all good news.
Until July 1 of this year, there was a five-year lock-in for anyone who joined KiwiSaver aged 60 to 64. On the plus side, they got five years of government contributions and compulsory employer contributions — whereas these stop at 65 for everyone else. It meant someone who joined at 64 got the incentives until they were 69.
From July 1, the five-year lock-in has been phased out:
• People of any age who joined after July 1 can withdraw their money when they get to NZ Super age, currently 65.
• For those people, government contributions and compulsory employer contributions stop at 65, regardless of their joining age. However, many employers continue to contribute voluntarily past 65.
• There are special provisions for people like you, who were subject to the five-year lock-in. If you are over 65, any time from April 1, 2020 you can choose to stop the lock-in and access your money. But note: you will lose the remainder of the five years of government contributions and compulsory employer contributions.
Why do you have to wait until next April? Says an Inland Revenue spokesperson: "The policy change was introduced at short notice for Inland Revenue and scheme providers, so time was needed to allow both parties to determine how best to operationalise the 'opt-out' process."
Joe Bishop of Kiwi Wealth says he knows about the changes. However, "on this occasion one of our call centre staff mistakenly provided incorrect information to a customer, who we've since called to let know the money can be withdrawn," says Bishop. "The customer was pleased to have this confirmed."
This is not really good enough. KiwiSaver providers do well out of taxpayers, whose money helps to make the scheme so attractive. Providers should make sure their staff know of changes to the rules.
By the way:
• Another change from July 1, 2019 is that people over 65 can join KiwiSaver. Although they get no government contributions or compulsory employer contributions, some will receive voluntary employer contributions. And for many, KiwiSaver is a good place for their savings.
• I suspect you haven't been reading this column for long. Regular readers must surely know about the five-year lock-in, which I've written about often enough — although less so in recent years because I thought everyone knew about it. Clearly I was wrong!
Q: I notice the recent letters regarding NZ Super payments.
I would be among the "undeserving rich". In fact I do not need my NZ Super and give it all away to 11 deserving charities, and some more of my private funds as well. And I am sure more "rich" people do exactly the same.
PS: Furthermore, we arrived from Holland in this fantastic country in 1963 with absolutely nothing. Now in our early 80s, we are very comfortable. New Zealand has been good to us, and we like to think we have been good for New Zealand as well. Due to inflation and the building boom in Auckland, we ended up on the "fortunate side", and share it around a bit.
A: Well done. You could, of course, have simply not applied for NZ Super. But it's good to be able to direct government money to causes that matter to you.
Another reader has gone one step further. Read on.
Q: Following on from the discussion about means-testing NZ Super, I've initiated an approach that may interest others.
A couple of years ago, I faced the enviable conundrum of what to do with my superannuation. I don't need it, and my children and grandchildren also live well.
I decided to set up a means of giving for superannuitants in a similar position, which I have now done. The charity is called Spend My Super, and it enables people to donate part of their superannuation to 12 charities whose focus is child poverty in Aotearoa New Zealand.
The point of difference from other similar organisations is that we do not take a percentage. The charity and all its costs are privately funded. And it provides tremendous flexibility in how much and how often you gift. The donor has complete control.
To quote from one of our regular donors, "I had been saving my Super, as I didn't need it, and wondering how I should donate it. Then I heard a piece on the radio and realised Spend My Super provided the perfect solution."
Our website is spendmysuper.org.nz.
A: Good on you.
- Mary Holm is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
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