KEY POINTS:
Q. Although I do feel sorry for people who have lost their life savings via finance companies, Blue Chip apartments and/or dodgy financial advisers, I also feel all the notes of caution out there over the years about these kind of "investments" were ignored by these people. Why?
There is also a "history repeats" aspect to this. In the 80s people were actually letting Goldcorp "look after" their gold, and 20 years later people were allowing themselves to take out mortgages so Blue Chip could "look after" their "guaranteed return" investment property which, in some cases, hadn't even been built.
Any expectation some of these people might have about the Government coming to their rescue is just not on. It is up to the individual to do their own research, fully understand what risk actually is and leave base emotion out of the decision-making process.
Understand the sharemarket, understand cash flow, understand what diversification really is, take a medium/long-term view and realise you must keep abreast of developments. Just spend as much time reading the business pages as you do the sports pages, for example!
People investing in the Blue Chip scheme, for example, were probably looking at tax avoidance. Fine to buy the family home on an 80 per cent mortgage, but to later squander its equity on highly geared rental properties, up to 100 per cent of purchase price, as a means of avoiding tax overlooks the risks - loss of day job, fluctuating rentals and occupancy, mortgage interest rising, rates rising, bad tenants, not being able to sell for what you want when you want.
Me, I would rather make a profit and pay tax on it. Yes, I do wish there was less wastage in government spending but that does not mean, as a citizen, I should not contribute. I've met a few "tax avoidance bores" in my time - they were all quite happy though to use Government-provided services without blinking an eye.
As for finance companies, lots of reputable people were sounding warnings about them before they started crashing. Same goes for investment advisers.
What is it about people which has them clamouring for "less government", "lower tax", "freedom of the market" and so on when the going is good, but when things go the other way has them expecting "the Government" to fix the problem?
A. Human nature, perhaps? But I agree, we can't have the Government being a knight in shining armour, or there would be no incentive for people to check things out before investing. We would all just go for the highest risk/return choices.
I also agree about people hell bent on paying as little tax as possible.
If they spent as much time producing something as they do tax dodging, they might well end up with more, even after paying their share of tax.
An accountant friend of mine tells clients who come to him with "pay no tax" schemes, "Oh, and when you walk out of here today, who pays for the streets you will drive along, and the police to keep them safe, and the schools your kids go to, and so on?" It's a pretty sorry cause to put energy into - working out how to bludge off everyone else.
But paying less tax is not the motivation for all bad investment decisions. And it's too easy to put it down to greed. I think Joe and Joanne Blow get tired of hearing other people's "get rich quick" stories and think that if they take a bit more risk they, too, will be millionaires in no time.
And sometimes it works. It's just that we tend to hear more about the collapses - particularly in recent times.
As you say, it's really important to understand an investment. Also to work through a "worst case scenario" to see if you could cope - particularly when borrowing to invest, as you point out with your list of hazards.
One of the golden rules of investing has got to be KISS - keep it simple, stupid. If you don't want to put hours into research, stick with bank term deposits, high-quality corporate bonds and low-fee diversified share funds.
Note, though, Albert Einstein's quote: "Everything should be made as simple as possible, but no simpler." Even in those investments you need to know what you are doing - diversifying, sticking with share funds through the bad times and so on.
Q. I read your column last week where the writer was quite amazed by the naked hatred that some of your correspondents have towards landlords.
The reason a lot of people do not like/respect landlords is that to be a landlord in this current environment (which they have created through speculation) requires a callousness that is quite anti-social.
As you stated in your response, people have to live somewhere. As a tenant you don't have a choice. It is pay Peter or pay Paul, but pay you will or out on the street you go.
To evict a family from their home if through no fault of their own they become behind in the rent requires a great deal of callousness. That sort of behaviour is not going to make for warm fuzzies, particularly when the people being evicted know that the landlord is not going hungry because they have not paid the rent.
There are plenty of ways to invest money that do good. Speculating on a necessity of life is not one of them.
A. Gosh, it sounds as if you or someone you know has had a tough run. Generally, though, it's not easy to evict tenants, as past letters to this column from landlords have outlined. Many, indeed, claim that the law is far too pro-tenants.
Having said that, I agree that the control landlords have over tenants' lives makes rental property unappealing to many investors. And yes, there are good alternatives - although we might have a hard time convincing the next correspondent.
Q. My experience as a landlord is that the house values long term and their rental income struggle to maintain the same standard as bureaucrats' inflation-adjusted super.
Landlords are not responsible for the country's economic woes.
These woes are caused by poor economic management by the politicians and their advisers.
Inflation is the single biggest bugbear of any economy, and house prices are a result not a cause.
Where else can one invest their money? The sharemarket in NZ is a fiasco - can't be trusted. We all know about the finance companies, there are one or two that at the moment are okay but a change of management would probably see that change. We need a culture change.
A. We do indeed - away from such a strong focus on property. And I think two forces are bringing it about: the growing malaise in the property market and KiwiSaver, which is introducing New Zealanders to others forms of investment.
These alternatives include New Zealand shares - which despite your disdain have performed well over the years.
They also include international shares and high-quality local and international bonds, all of which have strong track records as long as you diversify and don't bail out during downturns.
Sure, people have sometimes done badly in these investments, especially over short periods. But I'm afraid the next few years might tell the same story for rental property. There is no perfect investment.
Okay, I think we've had enough on rental property for a while - unless someone comes up with something truly brilliant.
It's a hot topic, with many of your letters not making it into the paper, sorry. But there are too many other topics - including good old KiwiSaver which affects many more people - crying out to be discussed. (By the way, you'll boost your chances of being in the column if you at least vaguely stick to the 200-word limit.)
Q. In a recent column you were talking about making electronic IRD tax payments, and how you hadn't had complaints of problems.
Unfortunately I've had problems the last two years. Both times I've made my annual payment about a week before the deadline using my bank's internet banking capability. Both times I've had letters from IRD in late February to say I hadn't paid my tax, and showing details of penalties payable.
Last year I got two letters, and had to call them to let them know I had actually paid the tax. Time will tell what happens this year.
I hate to think what the extra bureaucracy is costing us as taxpayers. They need to review their systems.
A. Yours was the only letter along these lines, so perhaps you just had extraordinarily bad luck.
An Inland Revenue spokeswoman says the department doesn't collect data to that level of detail. "If a customer contacts us advising that they have paid electronically and we have now imposed a penalty, then the issue can be resolved during the call. And, if needed, advice is given about how to avoid the situation recurring."
She adds that, "In the last two years we have had four complaints received at our complaints management service about tax money being paid but not appearing in the right account. On investigation, we discovered that in every case the wrong codes had been used.
"We stress that taxpayers must use the right codings when making online payments. A full list is available at www.ird.govt..nz/how-to/making-payments/electronic-payments/."
Online tax payments are becoming much more popular, she says. In February this year, more than 150,000 payments were made online, almost four times as many as the year before.
Just as with all other internet transactions, paying tax online is really convenient but unforgiving of minor errors.
Good luck with your payment this year.
Mary Holm is a seminar presenter and author. 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.
