Mary Holm: Golden glow of owning a home

There's nothing intrinsically valuable about gold. You don't eat it, you can't sleep on it, and the metal has rather limited real-world uses. Photo / Doug Sherring

I read with interest that you advised a reader last week to keep their property rather than sell it, while the person leaves Auckland to care for their mother.

I'm intrigued that your advice potentially puts your reader's entire wealth into one sector: property. You dismiss other forms of investment on the basis of uncertainty of high returns which, of course, applies equally to the property sector as you note.

In addition to the practicalities that you mention, it might have been useful to suggest an overall "wealth audit", taking into account likely future developments (say inheritance of a property), which could alter the scenario.

I feel you might have unwittingly endorsed an undue exposure to the real estate sector, where downward fluctuations of 10 to 20 per cent are entirely feasible. That potentially represents a great deal of money that is at risk for this person.

Furthermore, given the potential for (some say "likelihood of") a deepening of the global financial crisis, I am surprised that you don't consider "safe haven" investing options, for example, gold bullion. It is widely and traditionally considered a prudent approach and a hedge against inflation.

You wouldn't by any chance be involved in selling gold, would you? Just asking.

The last paragraph of your letter took me by surprise. Up until then I was thinking that perhaps you make a fair point about too much property - although only if last week's reader is likely to inherit his mother's house.

Even then, it's a bit iffy, as the reader says he might want to return to Auckland. And history tells us not to count on house prices elsewhere growing at the same pace as Auckland houses.

You seem to confuse home ownership with investment assets. While it's ideal to own your home and also a range of investments, most people want to get the home lined up first. And that's not so much about investing as having a basic need - shelter - taken care of. Even if house prices fall considerably, that doesn't really matter to most home owners, unless they have borrowed against the equity.

So far so good. Then we get to the gold bullion in your letter.

I don't know a lot about gold as an investment. That's because I've never come across anyone whose opinion I respect who recommends gold in any quantity for ordinary investors. For one thing, it generates no income. For another, the price can be pretty erratic.

Sure, this century gold has risen dramatically. But in the past few decades of last century the picture was decidedly different. What's more, the recent rise is making some people worry about a bubble. Here's an interesting quote from Anders Bylund on the Motley Fool website:

"Is gold bullion the new tulip bulb? Looking at a long-term chart of gold prices, it's hard not to reach that conclusion. The glinting stuff has tripled in value in five short years, and it's currently riding a rocket sled of seemingly speculative gains.

"But there's nothing intrinsically valuable about gold. You don't eat it, you can't sleep on it, and the metal has rather limited real-world uses in general. Shares rise over the long term because people work at making the underlying businesses better and more profitable. Gold? Eh, dig up some more."

I don't know much about Bylund, but I like his argument better than yours. I would never suggest someone sell their house and invest the proceeds in gold.

I am a KiwiSaver member and I currently work for a government department, which means I am also an SSRSS (State Sector Retirement Savings Scheme) member.

When I joined KiwiSaver, my employer said they did not have to make employer contributions to KiwiSaver because they were making contributions to my SSRSS scheme. At the same time IRD told me it was compulsory to have my contributions to KiwiSaver deducted from my salary, and this is what has been happening.

In your column, in regard to KiwiSaver you stated: "As long as you are having deductions taken from your pay, your employer must contribute."

Have I been duped into believing that my employer did not have to contribute to my KiwiSaver account? Can I challenge their statement and have their contributions made to my KiwiSaver account in retrospect?

You could try, but I don't like your chances of succeeding.

I should have said: "... your employer must contribute - unless the employer is already contributing to what's called an 'existing scheme"'. And SSRSS is such a scheme.

My problem is that people in existing schemes are clearly a minority. If I include their situation in every Q&A about KiwiSaver and employees, it would get rather cumbersome. And I figure that people in existing schemes should have access at work to good information about how their schemes interact with KiwiSaver.

Still, I'm sorry if I misled you.

And by the way, while you had to contribute to KiwiSaver via salary deductions in your first year, after that you can take a contributions holiday and contribute any amount directly to your provider. I suggest $1043 a year to get the maximum tax credit.

I can't help but add that as a member of both the SSRSS and KiwiSaver, you're receiving heaps of government money. If you had been able to get employer contributions to both schemes, I expect taxpayers might have yelled.

It might be a good idea to let readers know that under-18s are not eligible for the KiwiSaver member tax credit. A recent column about the tax credit states "the same goes for everyone else", but the non-voting age KiwiSaver members won't get the matching contribution.

Oops. You're quite right.

And you've got more of a case than the previous reader. Lots of kids are in KiwiSaver.

Just one little problem regarding your recent advice on the application of the tax credit.

It appears the subsidy is applied somewhat restrictively in the first year in KiwiSaver. According to advice I have received you have to be in the scheme for the full July to June year to get the full subsidy, otherwise it is applied on a proportional basis.

Thus a person starting in September of last year might only receive 10/12ths of the possible subsidy for the year to June 30.

You're also quite right. It seems that I've made the same sort of slip-up - not including the exemptions - in three different KiwiSaver answers recently.

Regular readers will know that I've written about all three situations - especially KiwiSaver for kids and the first-year tax credit - many times.

Given that I cop a fair bit of criticism for writing too much about KiwiSaver, I try to find a balance, not including every detail every time.

As I often point out, there's more on the KiwiSaver Basics page on www.maryholm.com.

But perhaps I've taken this a bit far lately. Will try to do better.

Regarding the rather stupid fascination with the politically correct or otherwise nature of "Mum and Dad" investors, I thought there was already a well-used alternative, "retail investor".

Stupid? Bah! This is life and death stuff. Anyway, another reader agrees with you, saying, "The neutral term for "Mum and Dad" investors should be "retail investors" shouldn't it? I thought that was a well established term, which contrasts with "wholesale investors".

However, a recently appointed top government official, whose work will have lots to do with ordinary investors, isn't voting for "retail investors".

The issue came up at a Workplace Savings NZ breakfast this past week. The speaker was David Mayhew, the new Commissioner for Financial Advisers, whose job it will be to make sure advisers are competent, work in their clients' best interests, and clearly disclose what they are doing - from the middle of next year. Roll on those changes!

In the course of his speech, Mayhew mentioned that he "doesn't particularly like" the usage of "Mum and Dad" investors in the context of the Government's investment reforms. Asked later to elaborate, he said, "My concern with the term is that it is too narrow in its scope, tying the regulatory reform to the collapse of the finance companies, where in fact the reforms are aimed at the New Zealand investing public generally."

He quoted from a recent government document, "This legislation is about protecting unsophisticated investors. ... Many of those who lost money as a result of the failures [of finance companies] were 'mum and dad' investors ... We have focused on protecting retail consumers ..."

"In contrast," says Mayhew, "the document also talks about more savvy investors: 'We recommend that advisers working with sophisticated clients be exempt from many of the bill's provisions. Wholesale clients are highly financially literate and we do not believe they are the sector of the market this legislation aims to protect'."

That gives us two alternatives, "unsophisticated" and "retail", but Mayhew is not keen on either. He thinks they suggest a simplistic approach to investment.

"The distinction between sophisticated and unsophisticated is in my view false. It's all a question of perception and circumstance." In the UK, where Mayhew used to work, "I've met many sophisticated clients, but when things start to go pear-shaped they are definitely retail clients!"

He adds, "I think that most New Zealanders looking to invest in the financial markets - if I have to opt for a term, 'investing public' is probably it - are capable of making intelligent decisions, provided they receive the right information in an intelligible form, the products are not made unnecessarily complex, and their inherent risks are clearly identified. Delivering that is the challenge for both the regulators and financial advisers."

It's good to see Mayhew has faith in most of us. But, while "investing public" might suit his needs well, I can't say it has much of a ring to it.

My suggested alternative to "Mum and Dad" investors is "common or garden" investors. Perhaps the "expert" investors are the "highly cultivated" prima-donna plants, as opposed to the humble ones.

Now there's an expression we don't hear much these days. The phrase is said to date back to a 1650s book called Adam in Eden, which states, "But the common or garden nightshade is not dangerous." So it was originally about plants. Given the popularity of gardening in this country, it almost works. But "common" - which can mean second-rate or vulgar - might be offensive to some. The search continues. Did you notice I used "ordinary investors" in my first answer today? We've got to do better than that.

Mary Holm is a part-time university lecturer, consumer representative on the board of the Banking Ombudsman Scheme, seminar presenter 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 (pref daytime) phone number. Sorry, but Mary cannot answer all questions, or give financial advice.