Mary Holm: There's a hole in your logic, IRD

We have joint investments - my wife works (for which I am eternally grateful), and I don't (well, not for much money in any case). Her PIR rate is 21 per cent and mine is 12.5 per cent. So far, so good.

But when I went to advise the manager of one of my investments they said: "We can only hold one rate." And I can recall reading that this would be the higher rate.

So I called IRD and was told: "You can use either rate".

"But you wouldn't accept it if I used the lower rate, I'd be doing you out of tax."

"I'll ask my supervisor." Ten-minute wait! "You probably should use the higher rate."

"But that seems unfair that on half the income I am paying too much tax."

"Wait a minute." Or was that 10 minutes? "You should supply them with both rates."

Which takes me back to exactly where I started. Can you please help? I just want to pay the correct amount of tax, not too much and not too little.

Your letter reminds me of a song we used to sing as kids. It starts with Henry telling Liza: "There's a hole in my bucket."

As the song progresses, Liza tells Henry to mend the bucket with straw, cut the straw with an axe, sharpen the axe with a stone and soften the stone with water.

But how does Henry fetch the water? In his bucket, says Liza. To which Henry, of course, responds: "There's a hole in my bucket."

I took your sad tale to Inland Revenue, and here's what a spokesman says: "Where the investor is a joint or partnership account, each of the holders is required to ensure their share of the income is taxed correctly. Where the PIRs of the holders are different, the PIE would need to apply each holder's rate to their share of the income. This would require some form of split of the account.

"There are a number of different systems operating within the PIE industry that could see different ways of managing this. You should discuss this with your fund manager."

I'm afraid that you are, indeed, back at the beginning. Better luck this time with the fund manager. If they baulk, perhaps you should take this Q&A to show them.

I find it hard to believe that you claim not to know much about gold as an investment.

Surely, you concern yourself with the actions of global central banks, including those in China, Russia and India. While it is known that the emerging economies consider gold an important part of their reserves, it is not so clear how the central banks of Western liberal democracies view gold as a "store of value".

Isn't that at least one very important indication of gold's value as an investment? You may not even want to call gold an investment, but you might be better looking at it as a hedge against money printing and the hollowing out of fiat currencies.

Furthermore, you claim that you've "never come across anyone whose opinion I respect who recommends gold in any quantity for ordinary investors". Does it follow that you don't respect the opinions of Jim Rogers, Marc Faber, Peter Schiff or the others encouraging individuals to include gold in their portfolios - even if you must admit these are some fairly heavy-hitters in the investment world?

Finally, while I accept that gold may not be for most investors, its performance speaks for itself. If you really believe in value investing, then surely most of the world's stock markets are not particularly attractive at present. Would you not agree? Sure, gold doesn't pay you rent or interest, but neither would residential property if it weren't for all the supply barriers and tax incentives.

Last bit first. Rental property almost always pays rent, and usually also capital gains. Sure, supply and tax issues affect how much you get, and borrowing to invest affects how risky it all is. But basically property generates income, as do shares and fixed interest. Gold does not.

More broadly, your letter covers issues that affect gold price rises and falls. Generally, I'm not really concerned with the ups and downs of gold, shares, property, bonds or any other investment - apart from knowing how volatile each asset is.

That's because I don't believe ordinary investors can win by timing their buying and selling of investments. So I suggest they don't try. Instead, they should put short-term money in bank term deposits, 3 to 10-year money in bonds, and long-term money in shares and/or property - and leave it there, regardless of what markets do.

It follows, then, that I don't read advice from "heavy-hitters" on what investments to get in and out of. History shows that few advisers continue to get it right often enough to justify the costs of trading - to say nothing of the time. And we don't know in advance who those few will be.

That's not to say large portfolios shouldn't include a little gold. It adds to diversification. But last week's correspondent wrote of gold as a "safe haven" and implied, I thought, that an earlier reader should put much or all of the proceeds of a house sale into gold. Given its volatility, that would be foolhardy.

Finally, a response to your mention of fiat currencies - which means currencies such as ours that have no intrinsic value but are declared by governments to be legal tender.

A man on the internet with the unlikely name of Steve Christ, editor of Wealth Daily, makes good sense on this.

He says he "never understood anyone who ever said that gold was a 'can't lose investment' because somehow it's 'real money', not a fiat currency.

"You see, fiat is a word that the gold crowd loves to sprinkle on top of every argument, as if the dollars in my pocket are as illegitimate as a crooked third-world dictator. Just because it sounds scary doesn't make it so.

"The truth is gold as an investment is as fraught with risk as any share of stock, bond, or piece of real estate ... Just ask anyone who bought gold at the peaks in the last gold craze. Thirty years later, the price would have to reach around $2100 today (it's currently around $1250) for that person to break even on an inflation-adjusted basis ... and that's not including the carrying costs."

I'm sending you a link that explains why gold is rising and likely to continue to rise for some time. Only this week I have read two research reports from globally respected banks recommending bullion as an asset class in a modern portfolio.

My question: Isn't gold money, a medium of exchange? If I hold gold it will always have a value. The same cannot be said of paper money. Why? Because gold cannot have liabilities, and paper money, via control by politicians, usually does. The best modern example would be Zimbabwe. Those who held bullion in Zimbabwe in recent times would not have suffered from a loss of their purchasing power.

I could site numerous examples of why even New Zealanders should be considering gold and silver bullion as an investment or anti-investment if you like. PS My company does not sell bullion!

New Zealand is not like Zimbabwe, nor any other country whose economy is collapsing, or whose citizens fear they might have to flee. In those circumstances, gold is the way to go.

But I can't buy my groceries with a gold coin. It's not the currency in this country, and there are no signs that it will be. As Steve Christ puts it, to profit from putting lots of your savings into gold, "things would have to fall apart and stay that way".

He adds that he has "always wondered how the gold bugs planned to cash in on their big payday when it finally arrived. Personally, I would rather own 50lb bags of beans and rice".

Let's finish off with a quote from supreme share investor Warren Buffett. While I don't always agree with him, he's a heavy-hitter whose opinions I do respect.

Gold, says Buffett, "gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

Your mention last week of comments on the uselessness of gold raises the question: why would we want to dig up our conservation estate just to extract gold, to melt down, and then store in the vault of a bank somewhere?

Why can't we just leave it where it is, and give the ownership of it, in the ground, to the Kiwibank, as a strategic reserve?

We don't have the cost of extracting it, and we still have the land untouched. It's safer than a bank vault.

It sounds as if you and Buffett are kindred spirits. I like your thinking.

There are probably lots of arguments about how we wouldn't know the value of what's in the ground, and it wouldn't be quickly accessible. But you present some good counter arguments.


I thought you and your vast readership would have sorted out the "Mum and Dad investor" problem by now, but apparently not, so I'll make a contribution. I can't recall anyone suggesting "inexperienced investors".

As the intention is to refer to people who don't know a lot about financial matters, doesn't that do the job?

Not bad. And here are a couple of other readers' ideas:

* Mum, dad, teenagers, bachelors, spinsters, widows and widowers are all "individual" investors.

* Perhaps as you write as a personal finance author, and I expect you are looking for a term which relates to that market, "personal investor" is the term you are looking for.

Also not bad.

Up until now we've considered "investors" with all of the following adjectives: ex-Mum-and-Dad, dumb and mad, self, lay, amateur, non-commissioned, household, retail, ordinary, unsophisticated, and common or garden.

Another option has been "the investing public".

Thanks for your efforts, everyone, but all of them except for "dumb and mad" are rather dull. How about some creativity, or even wit?

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 (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.