Mary Holm: Should I cut my losses on KiwiSaver and buy this house?

Dreams do come true! Photo: Getty

OPINION:

Q: I wrote to you three years ago, and with your kind advice I have persisted on saving to ensure I can buy a house for my family.

This year, I think I'm finally able to, but I will need to take out some of my KiwiSaver for the deposit. My concern is that my KiwiSaver value has dropped due to the market downturn, and if I take the money out now, I am realising my loss.

I am looking at losing at least a couple of thousand. That might not seem a lot, but I think I'm emotionally attached to my hard-earned saving and I am worried I might make a wrong decision.

Should I continue to save until I have enough to cover the deposit (probably looking at another year or two) without using KiwiSaver money — or when my KiwiSaver goes up again?

A: Don't wait. If you want to buy now, I suggest you do so — while being tough when negotiating the house price.

It's true that in the next couple of years your KiwiSaver balance might rise, and house prices might fall. But it's also quite possible that your KiwiSaver balance will fall further, and house prices might rise.

Even the experts get it wrong quite often when predicting investment trends. So, when it comes to buying a home, it's best to forge ahead when it suits you and your family, regardless of what's happening in the markets. I've just looked back at your letter of three years ago. You're a single mum, renting a small home, and keen to give your children more space. Go for it!

Most people end up owning several homes in their lives. Looking back, some of the purchases turn out to be at the right time pricewise, and some at the wrong time. I've had one house almost double in value over two years, and another drop 30 per cent over about a year. In the long run, it all comes out in the wash.

Once you've found a house you want, I suggest you make a low offer. With lots of would-be buyers sitting on the sidelines in the hope that house prices will fall further, sellers aren't getting many offers and could well accept less than their asking price.

Oh, and well done on persevering with saving. Dreams do come true!

Low-fee KiwiSaver

Q: I haven't worked since the end of 2017 when I had to finish work due to health reasons. Since then I've been ensuring that $1042 each year goes into my ANZ KiwiSaver so I can get the government contribution of $521.

The balance of my KiwiSaver is around $50,000, with fees of $500 annually. This virtually wipes out any gain from the government portion. I've looked around for a different provider but the ones I've investigated have similar fee profiles. Is there any exception or fee reduction possible in my situation? ANZ says not.

Can you recommend an alternative provider or any course of action? I have just turned 63, so I have two more years of contributions.

A: First, good on you for making sure you get at least $1042 into your KiwiSaver account each July-to-June year, so you receive the maximum $521 government contribution.

ASB said recently that 47 per cent of its eligible KiwiSaver members — aged 18 to 64 — are not on track to get the full $521. That's nearly half!

The people who don't get the maximum government money are probably mostly self-employed or not working, as well as employees on savings suspensions.

It's a real pity to miss out. If you can't afford $1042, put in what you can before June 30. If it's just $20, the government will give you $10. Then set up automatic payments for next year of $20 a week or $87 a month, so you get the full $521 next time.

Okay, now for your question. Sorry, but there's no fee reduction for people in special circumstances. But you can switch to a provider that charges lower fees — a move you will benefit from not just for two years, but over the decades to come.

Go to the Smart Investor tool on sorted.org.nz, click Compare, then KiwiSaver, then the risk level of your fund — defensive, conservative, balanced, growth or aggressive. Then click "Sort by Fees (lowest first)".

Choose from among the first few funds that come up, by clicking on their names to get more details. And note what Smart Investor says about returns: "It's unwise to choose a fund based on how well it has done in the past." Instead go for low fees and good services.

Selling minus the agent

Q: We have decided to sell our rental property. We have too much in real estate and wish to diversify.

Rather than end up paying around $25,000 in agent fees, we are considering a private sale. Do you have any advice on private vs agent property sales?

A: Real estate agents will tell you they will get more for your property than you can. It's impossible to prove, but you've got to wonder if they can get more than $25,000 extra. So why not have a go at selling it yourself? If it doesn't work out, you can always list with an agent at that point.

A great — but little-known — source of unbiased and reliable information on private sales is settled.govt.nz, which is run by the Real Estate Authority, a government agency. It covers such issues as what you must disclose to potential buyers, and how to value your property.

The website also has information for anyone buying or selling a home, and a special section for first-home buyers. There's heaps of useful stuff.

Crypto fan mail

Q: (Emailed in very large letters) I am so sick of influential, smug older people like you dissing crypto when you have no real understanding of it.

In essence, crypto and the blockchain are a completely secure way to transfer funds around the world quickly and at almost no cost. Of course the banks hate this. Also, some crypto coins are designed with a very useful specific function.

Yes, there are scams and Ponzi situations. This latest crash will weed out many of these hopefully. And in this development stage greed is definitely a factor in why some or even most people buy crypto, just like property speculation and sometimes shares.

There is still lots of work to be done to sort out the various shortcomings in the cryptoverse. But crypto in some form is almost certainly the future of money.

Before trashing it, you really should do your homework and not rely on the views of others whose motives or knowledge of this concept is unknown.

There is one other comment I would like to make. Many young people who are now locked out of the housing market have invested/gambled everything in crypto — sometimes in coins which have little or no merit. They have been wiped out. Suicide contact info often accompanies crypto blogs at the moment. Your post shows no compassion for these unfortunate people.

A: Hang on a minute. I've never denied that cryptocurrencies have a role in moving money around the globe. The idea that they are free from government control has its appeal — as well as causing concern.

But even if cryptocurrencies do become "the future of money", does that mean their value will keep climbing? The value of other currencies — such as the US or kiwi dollar — fluctuates, with no long-term upward trend.

If you want to hear from an expert, how about Rupert Carlyon, chief executive of Kōura Wealth, which has just launched a carbon-neutral cryptocurrency fund?

He told the Herald recently, "when we are talking to our clients we are saying we expect [Bitcoin] to drop by more than 50 per cent at least one in every two years." This compares with a smaller drop in US shares — of 30 per cent or more — about once every 10 years.
"This is an investment for investors who can withstand very high levels of volatility and that are going to be willing and able to see through it," Carlyon adds.

On your final comment, I certainly feel for people who have lost money in crypto or any other investments. I'm not sure why you say I lack compassion.

I can't help but think, though, that your last paragraph seems inconsistent with the rest of your letter. If people have been wiped out, surely you would agree with my warning readers to be wary.

Term deposits

Q: I noticed the guy in last week's column who pulled money from his KiwiSaver, and took a 3 per cent 12-month term deposit.

He is a double mug. As you point out, he has made his losses real. He is also going to be sick when term deposit rates hit 4 per cent, as they surely will (one bank is already offering this) and he is tied in at 3 per cent. Another reason to be wary of term deposits when interest rates are rising.

A: Hey, let's not kick a dog when he's down! In any case, the reader didn't necessarily make a bad choice of term deposit.

It's true that deposit rates are likely to rise still more. But while he's waiting, his money is probably sitting around earning almost no interest.

Sure, he could move now to a different bank that pays more — and generally I encourage that. But people have reasons for bank preferences, including each bank's financial strength.

Timing a term deposit purchase, or for that matter picking between a shorter-term deposit with relatively low interest or a longer-term one that pays more, is always tricky. And it's similar with mortgage rates.

We could all make wise decisions if we knew how much interest rates will rise. But we don't, so we just have to get on with it. In the long run, these choices tend to make little difference. They are not the financial decisions that make or break us.

First-home buyers

Q: Like last week's correspondent, I too was surprised to read that conservative KiwiSaver funds can go backwards. I thought the amount would stay steady.

Should people wanting to use their KiwiSaver to buy a first home be in a cash fund only?

A: Yes, if they expect to spend the money within two or three years. If it's a longer-term project, a middle-risk fund is okay.

If your KiwiSaver provider doesn't have a true cash fund — one that invests only in cash — move to a provider that does. See last week's second Q&A on how to find one.

KiwiSaver clarity

Q: Just had a thought when reading your last column.

When explaining why not to sell when a KiwiSaver fund decreases in value, it might be worth pointing out that what your contributions buy is units of the fund. So it's the value of the unit that decreases, but the actual number of units you own doesn't decrease. Thus it's only by selling those units that you realise the loss of value in what you bought.

Just might help the way people think about what's going on to point out there is a "thing" you own, with the changes in value being analogous to the house market fluctuations but on a much greater rate of change.

A: Thanks for a good idea. Any explanation that helps people "get" what's going on when markets fall is welcome.

When switching is OK

Q: I'd like to change to another KiwiSaver provider, however I am unsure what the implications are in the current market.

If my fund has negative returns, am I somehow locking in these losses by changing providers in the same way you can lock in losses by changing from high growth to conservative? I am currently in a high growth fund and would want to stay in the same risk profile with the new provider.

A: Changing providers, but staying at the same risk level, is fine, regardless of what's happening in the markets.

You're selling units at a low price in the fund you are leaving. But then you'll be buying units at a low price in the new fund.

- Mary Holm, ONZM, 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 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.