Mary Holm: Don't bet big on the kiwi dollar

I have a HSBC Hong Kong bank account as I have worked overseas for a number of years. I am now back living in New Zealand but still have around $50,000 in this account.

Some weeks ago when the New Zealand dollar against the US dollar was around 51c, I decided to transfer NZ$20,000 to my Hong Kong bank account. Many people were speculating that the New Zealand dollar would drop to 45c or even 40c against the American. Knowing the Hong Kong dollar is pegged against the American dollar, I figured I was on a winner.

The dollar dropped to 49c and I thought it was on its way down. As we all know, it went up and hasn't stopped going up yet. Some are now predicting it will go to 70c against the American dollar.
Would you suggest I withdraw my money from Hong Kong now? Do you think it will actually drop later in the year?

I don't know. And I don't think anyone else does - clearly including the "many people" you unfortunately listened to.

Of all the financial forecasts - on interest rates or the prices of shares, bonds, currency rates or even classic cars - perhaps the toughest to predict are foreign exchange rates.

A prominent banker once told me he hasn't a clue what will happen to the NZ dollar, but business customers put huge pressure on him to make predictions so they can say, when things go wrong, "I just followed what the bank told me". He does his best, but often it's incorrect.

So what should you do now? I suggest you leave the casino while you've lost only your shirt. Forget about trying to gain from currency movements and think about where you expect to spend your money.

If it's in New Zealand, plan to gradually move the money here - regardless of the foreign exchange rate. You might, for instance, move a quarter now, a quarter in three months, a quarter in six months and a quarter in nine months.

Stick to your schedule, and you'll end up moving at least part of the money at a relatively good time.

Note, though, that if you expect to spend some of the money in Hong Kong or the US, or on imports from those countries, you might be better off leaving that money in Hong Kong. That way, it won't be affected by currency movements either.

In your column last week you say: "You do have to pay management fees. But overall, I reckon managed funds are the way to go for most New Zealanders' savings." I couldn't disagree more.

The D minus the Morningstar survey gave New Zealand managed funds last week is generous! In 2004 - after 13 years of thinking that I was investing wisely for my future - I awarded the industry an F. How bad could it be?

Here's just one of my examples: I was sold two superannuation policies in 1991, by a "financial adviser". I made monthly contributions until 2004. Total contributions: $52,700. Total value when cashed in 2004: $53,200.

That's a 1 per cent total gain over 13 years, which obviously means a significant loss once adjusted for inflation. I would have been considerably better off in an interest bearing bank account, never mind the possibilities with far more efficient but equally simple long-term investment vehicles like the exchange-traded funds that I use now. Caveat emptor!

When you meet someone calling themselves a financial adviser, be very, very wary.

Sure, alternatives for offshore investing are challenging. The NZX offers a pitiful range of offshore exchange-traded funds, and direct offshore investment from New Zealand isn't easy. But I've achieved it, and the results have been well worth the effort.

I've resolved as a result of this experience never to touch another New Zealand managed fund, so I find your position quite intriguing.

Is there something that I'm overlooking - something that has changed since 2004, or even since 1991? Am I really being too harsh in judging these so-called investment advisers and fund managers as nothing but parasites that smart (or at least, experienced) people avoid?

Your story is appalling. But yes, managed funds have changed since 1991. And hopefully there is more change to come.

The fund you were in almost certainly paid large commissions to your adviser, which ate heavily into your returns - in a practice that I understand doesn't happen anymore.

Still, in some circumstances managed funds fees remain too high, and too difficult to know about. That's why I wrote last week that the law must be changed so that fees and other expenses are disclosed. I went on to list many other shortcomings of managed funds, noted how both the industry organisation and the Government are working to fix the problems, and urged that change take place quickly and comprehensively. My column hardly sang the praises of the managed fund industry.

Nor did I exactly enthuse about how some financial advisers operate. "It's common to use sales contests to motivate sales of managed funds, and for advisers to be compensated for selling particular funds," I wrote. "I would love to see these practices stop, but I suspect that falls into the "dream on" category. However, better disclosure - and more investor awareness of what to look for - would help."

It's really important that investors, like you in 1991, understand who is receiving what money when they go into a managed fund - or any other investment.

Nevertheless, as a whole managed funds are much less likely to rip people off than they used to be. Consumer awareness is increasing, partly through KiwiSaver, and there are some good operators out there now. Proposed improvements should make it even better. Many people - myself included - have very satisfactory managed fund investments.

By the way, so do you. As I said last week, managed funds are vehicles in which lots of people's money is pooled to buy many investments - usually shares, property, bonds, cash or a combination of those. Your exchange-traded funds would be included.

Mary, try telling the thousands of investors that put money into the so-called low/medium-risk ING frozen funds that managed funds are a good bet.

The whole funds management industry has no credibility at all after these products were misrepresented to the market. It's no wonder Kiwis gravitate to residential property.

Bridgecorp, Hanover, ANZ , ING. No trust, no integrity, just fleece Kiwis' retirement savings. These companies have no conscience.

Hang on a minute. Bridgecorp, Hanover and the other finance companies that got into trouble didn't offer managed funds. They offered high-risk fixed-interest investments - something I have always suggested people stay away from.

True, the ING products are managed funds, and that story is a sorry one - although I doubt if it's fair to say the fund managers have no conscience. Poor judgment would be more accurate.

But it makes no more sense to write off a whole industry because one company made a bad move than it does to write off rental properties because some have turned into nightmares.

One of the difficulties in comparing rentals and managed fund investments is that, when the property market slumps, rental investments go bad one at a time, and they don't make it into the news media. There may well be many more New Zealanders wishing they had never gone into a rental investment than are wishing they had never gone into an ING fund.

While I agree with most of what Clive Matthew-Wilson says about classic cars, there are a few points that I think bear making in response:

The example Clive uses of the 2005 Ferrari is not an apt one if we are talking about cars as investments. The definition of a classic car is notoriously subjective, but most would agree that a classic has to be older than four years.

It probably has to be at least 15 years old, because what really defines a classic car is the shape of its depreciation curve. All cars depreciate rapidly for 10-15 years, but if it's a classic it will depreciate more slowly after the first 10 years. And after the curve bottoms out (after 15-20 years) it will start to rise again - always assuming it is in perfect condition.

* If, however, you are going to buy a dud investment (and what other sort has there been recently?), then you can do a lot worse than a classic car. I expect that there are a lot of GM shareholders who now wish they'd bought a classic Corvette instead.

Okay, so it's a classic if its value rises after about 15 years.

I guess it's what happens after that that dictates whether it's a good investment. Just because a price starts to turn upwards, it won't necessarily continue to rise.

Your correspondent last week accused Clive Matthew-Wilson of having "a rather blinkered view", while clearly demonstrating his own lack of 20/20 vision.

Now, I have no quarrel with classic car ownership per se. But his main defence of classic cars as investments has nothing to do with any financial aspects, but appears to be based on his assertion that his car and his wife together make "quite a show" when on the road.

This might suggest reasoning best explained by learned individuals who have studied psychological/emotional drivers in the acquisition and display of trophies by the male of the species.

As financial experts and advisers (including yourself) generally caution against allowing emotion to drive financial decisions - but rather suggest using prudent, rational judgment - perhaps someone could also point out to him that a trophy wife can turn out to be a poor investment and an expensive lesson in life as well? Tee-hee!

Careful now. You might have leapt to the wrong conclusion. By one definition, a trophy wife is "usually young and attractive, regarded as a status symbol for the husband, usually older and affluent". For all we know, our correspondent's wife might be old and ugly. She and the car could still make quite a show.

In any case, he wasn't saying classic cars are good investments, just pointing out that his one is often on the road.

P.S. I'm not an adviser. I'm a columnist, author, seminar presenter, chief cook and bottle washer. Partly because of the antics of some advisers mentioned earlier in this column, I'm happy not to be given the adviser label, thanks.

Mary Holm is a seminar presenter, part-time university lecturer and bestselling author on personal finance. Her website is www.maryholm.com. Her 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 or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.