Mary Holm: Let's not get manic over metals

Gold bug excites

Good morning Mary. Remember me???

Gold has now gone sailing past US$1300 ($1732.64). The next target is US$1369. I am pretty sure we will see US$1600 by year's end.

Silver is now on the verge of a major breakout. I target US$30 on this. We will then see silver head towards US$45 to US$50 an ounce. Over the coming two years or so I see US$100 an ounce.

This will happen from demand!! There isn't enough gold and silver to go round.

Why do people buy gold and silver??? Governments can't print gold and silver, so therefore they hold their value.

Fiat money like the kiwi are just bits of paper with numbers on. They are backed by nothing whatsoever.

A major currency crisis is happening and Joe Blogg hasn't got a clue. Just look at the Swissy, Canadian, aussie - all are at par or close as. The kiwi will go to US80c against the greenback and on to par. Imagine what this will do to exports!!!!!!!!

Hold on tight, and buy silver and gold. I will come back at you at US$1369 ...

How could I forget someone so excited they need not only three question marks - twice - but eight exclamation marks? Quite easily, actually. While I remember the correspondence about gold in June and July this year, I can't find any emails from you.

But no matter. Your message is clear. And maybe it will encourage not just Joe but also Joanne Blogg to get into precious metals. But not with my blessing.

Without revisiting the pros and cons of investing in gold, I just want to say that any investment that rises fast must be pretty risky. And we don't need to go back far to see gold prices falling fast.

Tell you what: let's get back to this, in this column, at year end and two years from now, to see how your predictions have gone.

I have to forewarn you, though, that even if gold does top US$1600 an ounce by the end of 2010, or silver tops US$100 an ounce by October 9, 2012, I won't be suggesting that readers climb aboard. I will, though, be happy to congratulate you on your good luck.

Oh, and why not throw in the kiwi dollar? By "par" you mean equal in value to the US dollar. You haven't given a time period for that forecast, but let's make it a year. Will our dollar equal the greenback on October 9, 2011? Watch this space.

Spread your nest eggs

I'm responding to one of the letters last week about having all your money with one provider or manager or bank.

I'm a KiwiSaver provider. In recent times, I have emphasised to people who ask that they should not put all of their money with my company, even though I consider it to be the best product by a country mile.

The main reason is the Hubbard factor - which shows that anything can happen. In the Hubbard case, several people had put all of their savings with him. The Government then put the businesses into statutory management and this has frozen everything for six months.

If you put all of your money in a bank and the bank mucked up its global expansion strategy, the government here might move to put the New Zealand business under statutory management to protect New Zealanders. Would you bet against this?

I also remember a few years back a manager who had a stellar track record got a brain tumour. In the six months before he died, he made many decisions that were okay but were implemented poorly and, in the six-month period, lost most of the extra returns made in the previous three years. Most investors would tolerate poor performance for six months if not a year before acting.

Each of the above has reminded me that if something goes wrong it is the investor who pays, not the manager. Another reason to be passive!

On the KiwiSaver side, I would not put my money in a bank because wealth is not their core business - in fact they do not know how to do it. But I would always have money in a bank (or two) in case where I did put my money got frozen.

There wouldn't be just the tiniest bit of self-interest in your comments about how banks run their KiwiSaver schemes, would there?

Still, I like your basic point. Events of the past few years have shown that we shouldn't ever assume that any financial institution is 100 per cent rock solid. The eggs in baskets message is as important as ever.

Your comment about "being passive" might not mean much to some readers. It refers to one way that investment funds - such as KiwiSaver funds - are run. With passive management, the managers choose a range of investments and simply buy and hold them.

On the other hand, active managers regularly research what's happening to the companies in which they invest, trading the shares and/or bonds in the hopes of buying low and selling high - and performing better than the markets as a whole.

Some active managers seem to have a gift for doing this, at least for a period. But how can investors tell the difference between a clever manager and a lucky one? And even if they could, as you point out, how do they know if a gifted manager is still running the show?

Furthermore, active management costs considerably more than passive, so the fees are almost always higher. And higher fees eat into returns. While different researchers measure this differently, it seems to me that passive management is a better bet.

Often passive managers base their choice of investments on a sharemarket index, such as the NZX 50 - New Zealand's 50 biggest listed companies - or the MSCI world share index. Index funds, as they are called, buy and hold the shares in their chosen index, changing them only when the index changes.

KiwiSaver providers that use largely passive investment are: ASB Group Investments, Civic Assurance, Smartshares and SuperLife. Providers that use some passive investment are: Craigs Investment Partners, Fidelity, Grosvenor, ING and Mercer. See the providers' websites for more information.

Splitting KiwiSaver

Following on from last week's question about the security of KiwiSaver providers, is it possible to split KiwiSaver funds between more than one provider?

No it's not. You can move from one provider to another. And you can invest in more than one fund run by the same provider. But you can't belong to more than one provider's scheme at a time.

Presumably this rule is there to keep things simple. In countries that let people invest in many retirement savings schemes, things can get pretty complicated and some people lose track of what savings they have where.

Also, the way KiwiSaver is run, it would cost the government more to keep track of multiple tax credits, to ensure employers are contributing fairly and so on. And we all know who ends up paying higher government costs.

As people's KiwiSaver accounts grow, I expect there will be increasing pressure to permit people to belong to more than one scheme. But I'm not sure whether I'll support that. Diversification is great, but so is simplicity.

In the meantime, the onus is on you to choose a provider you trust. As I said last week, it's unlikely the closing down of a provider would leave KiwiSavers without their savings, but it's not impossible.

Overseas employer

From reading your column I realise that I should probably be investing in KiwiSaver. But my circumstances are not straightforward.

I live in New Zealand, and work from home via email, but I am employed by an overseas company. I declare my earnings to the IRD and pay tax on them in New Zealand.

Because of this my employer obviously doesn't have a KiwiSaver scheme, so anything I do will have to be set up by me - and I won't get any employer contributions.

I presume it is still worth doing, for the government contributions I will get. What is the easiest way for me to set this up, and who should I set the scheme up with?

You can easily join KiwiSaver, and yes, it is worth doing. But first, some background from Inland Revenue.

"As far as an employer is concerned, the KiwiSaver Act only applies to an employer who is 'resident in New Zealand; or carries on a business in NZ from a fixed establishment in NZ; or does not meet either of these requirements but chooses to apply the KiwiSaver Act to an employee by deducting KiwiSaver deductions and paying compulsory employer contributions'," says a spokesperson.

"There are many workers employed in New Zealand by overseas employers that don't have a fixed establishment here but choose to make KiwiSaver deductions and pay compulsory employer contributions.

"These employers file employer monthly schedules and pay their KiwiSaver deductions. It is not necessary or a requirement that those employers deduct PAYE."

It wouldn't hurt to ask your employer to take part. If they are contributing to other employee savings schemes in their home country, they might be willing to do it for you too.

If they don't want to join the party, you'll need to sign up directly with a provider, in the same way as self-employed people.

You won't get employer contributions, but you will get the $1000 kick-start. And if you contribute up to $1043 a year - perhaps by $20 weekly or $87 monthly contributions - that will be matched by the government's tax credit. That means your money is doubled, which gives your savings a great boost.

Which provider should you choose? My book The Complete KiwiSaver includes a step-by-step guide. Or you can go to www.kiwisaver.govt.nz and click on Providers & Schemes, which gives a list of providers and some guidance on choice.

Fees are an important consideration. As mentioned above, high fees make a big difference to long-term returns. Once you have a few "finalist" providers to choose from, check out their fees on the KiwiSaver fee calculator on www.sorted.org.nz.

Whatever you do, don't delay joining because you can't decide out of a few finalists. For every month you delay, you miss out on $87 of government money. Just pick one and sign up. You can always move later, simply by contacting the provider you wish to move to. They will make the transfer for you.

* Mary Holm is a freelance journalist, 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.

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Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland.The price of gold is sailing away. Will silver follow?