Around the house or in finance, some people find that DIY is its own reward. Photo / 123RF
OPINION:
Q: It’s great to learn, in your column two weeks ago, that so many of your followers are investing so widely at such a young age. I wonder if they’ve ever thought of investing for themselves rather than in funds, as surely all funds charge a percentage of whatever is invested, which allows them to exist in the first place.
My wife and I originally bought our neighbour’s rundown house as the tenants were a nightmare to us and other neighbours (in 1986). It was a very hard slog at the time, refurbishing for six months ourselves before being able to rent it, and only charging very little rent in the hope our tenants would look after it. (It worked some of the time.)
We did well out of it over the long term, and when my wife became ill (dementia), we decided to sell it, and another rental we had procured.
We decided to invest with a broker when we got rid of life insurance in our fifties, and again have done well.
However, when we did sell the rental and were about to give our broker the proceeds, I decided I might try dabbling in shares myself, as the cost of buying and selling shares ($100 per transaction) plus the cost of running the portfolio was beginning to irk me.
Due to luck, and mainly buying into lithium shares, we did exceptionally well, which enabled me to pay the $60,000 per year that my wife’s dementia care was costing at the time.
This past year or so since my wife passed away I’ve been down (not lost ... yet) about $470,000 between what my broker and I both have invested. Yes, a bit annoyed, but I think there is light at the end of the tunnel and I’ve already recovered $100,000 so I do not dare complain.
My point is, buying and selling shares on my own has been an education. I don’t buy and sell on a regular basis but sit on shares for years, as I do not want to attract the attention of the taxman as a “trader”, but pay my tax when due.
I’m on the pension now and it gives me something to do. But as I said earlier, with the cost of brokers and KiwiSaver (I’m still contributing but mostly just my minimum amount), it certainly seems to me to be worth a punt. Particularly if one sticks to good companies who pay regular dividends.
I guess it’s not everybody’s cup of tea, but in our case it seems to have paid off so far, despite the recent dip in fortunes.
A: A question for you: have you compared your returns with what you could have made in low-fee funds? Many people are proud of their share performance when, in fact, the market has performed even better.
Of course, you might be an exception. You were lucky with the lithium shares, which you acknowledge. But who knows which industries will star in future? It’s not about industries with good prospects. While they are not hard to spot, investing in them probably won’t make you rich. Getting rich is about finding industries whose future performance is not yet reflected in their share price. That’s much harder to predict, especially for amateurs who compete with people working full-time on finding these gems.
Most of the time, in most markets, the majority of shares perform below average while a few perform way above average. Will you pick the right ones next time around?
It’s true that funds charge fees. But the recent correspondents chose low-fee funds, which makes a big difference over the long term.
And funds have a clear advantage — diversification. When one share in the fund performs badly, that is often offset by another performing well. This reduces your risk without reducing your average return — something that never happens in other situations. That’s why diversification is sometimes called the only free lunch in investment situations.
There’s nothing wrong with investing in individual shares, as long as you diversify widely. It was an absorbing hobby for my father, and for you too, it seems. Many enjoy it, and most do pretty well — even if on average not quite as well as in a low-fee fund.
Q: I would appreciate your advice on a dilemma I have, please. By a sheer stroke of luck, when the planets aligned for a brief moment in time, I was able to buy a tiny apartment, my first property, four years ago at the age of 60. I took out a largeish mortgage to buy it.
I was overjoyed, having previously faced an uncertain future. I planned to sell it when I retired at 65, and the modest equity — perhaps about $300,000 — would enable me to buy something equally tiny, without a mortgage, perhaps somewhere down south. And I would just, just, squeak by on NZ Super and a small amount in KiwiSaver (which I had used the bulk of for the apartment deposit).
Not having to rent in retirement is something I never dreamed of being able to achieve. But now the equity is dwindling, due to the apartment market nosediving.
Should I retire and rent? I would not be able to afford the mortgage if I stopped working. I never want to go back to renting if I can help it, but I may have to.
Or should I keep working and hope the market picks up so I can still one day have my own roof over my head? To be fair, I am in a secure job where I could work past 65 if I wanted to, but who knows what the market will do and therefore what age I will need to work till. I have worked non-stop for nearly 50 years and the thought of having to work till 70 and beyond is dismaying.
While the property market nosediving seems to be great for some, I’ve been feeling bereft at that tiny glimpse of security now retreating further and further away.
A: Your situation is in some ways like that of the woman in her 30s in my January 28 column, who thought she could no longer afford the mortgage on her newly built home now that interest rates have risen. And my suggestion to you is the same: don’t give up and sell.
While I have often said you don’t have to own your home to have a comfortable retirement, that works only if you have large savings to cover your accommodation costs through retirement. And that doesn’t sound like you.
A growing number of retired New Zealanders rent their homes.
In 1986, 87 per cent of people in their sixties owned their homes mortgage-free, says Te Ara Ahunga Ora, the Retirement Commission. By 2018, 80 per cent of those in their early sixties were homeowners, but one in five were still paying mortgages, and 20 per cent were renting. By 2048, the proportion renting is expected to double to 40 per cent.
Some of the tenants will be non-homeowners by choice, but many will simply not be able to afford a home. And clearly that’s not a good situation in retirement.
If I were you, I would do whatever it takes to keep your home. If that means continuing to work for a few years, accept it.
How much longer will you have to work? Nobody knows, but we can be certain that property prices — including apartment prices — will rise again at some point. And history would suggest it won’t be all that many years from now.
Keep in mind, too, that the prices of small houses down south will also be lower than they were a year or two ago.
In the meantime, you can be boosting your equity by paying extra off your mortgage to the extent you can do that without penalty. Beyond that, boost your KiwiSaver. Look closely at what spending you could cut. It all adds up.
Q: My husband and I recently withdrew money, rightly or wrongly, from a managed fund to put on term deposit, now that the interest rates are more acceptable. We cannot afford to lose money in our late seventies and the managed fund was causing us concern.
Your idea about laddering term deposits sounded sensible to us, so that is what we tried to organise with our two banks. For some reason our banks seemed unable to understand what we were doing and to correctly take our instructions. We got there in the end but it has been a mission.
Banks offer a very poor service these days. There are no branches to go to, they won’t answer the phone, and simple requests take days to resolve, or in the case of our laddering, several weeks!
A: It seems ridiculous that you couldn’t set up laddering easily. I wonder if you gave them more information than they needed.
What we’re talking about is dividing your savings into, say, three lots. Then you set up term deposits so you have one-third of your money maturing this year, one-third next year, and one-third the year after. When each deposit matures, you renew it for three years.
Laddering has two advantages:
To set up laddering, after you have divided your money, you need to put one-third in a one-year term deposit, another third in a two-year deposit, and the last third in a three-year deposit.
If you had asked just for that, rather than perhaps explaining why you were doing it, surely the bank would have obliged. If not, their service is appalling.
But even if you did tell them you were setting up laddering, they should have understood that. You’re entitled to be indignant!
By the way, your timing on withdrawing from the managed fund probably wasn’t too terrible, as most funds have recovered a fair bit of what they lost last year. But you’re perhaps a bit lucky with that.
Anyone, at any age, who feels they couldn’t cope with seeing their balance fall much in a managed fund shouldn’t be in there in the first place. It’s a real pity if they don’t realise their nervousness until the fund has lost ground, so they lose money when they bail out.
Low-risk cash funds are a good investment for those who don’t want wobbles — as are bank term deposits, now that their interest rates have risen.
- 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.
'Debt becomes more like a rent payment that people get so used to paying.'