Risk is one thing you don't need when coming out of a relationship with money in the bank. Photo / 123RF
OPINION:
Q: I have recently separated from my partner of over 20 years. During this time I stayed at home raising the kids, and ran the administration side of our building business.
We had just sold our previous house before the split and also have land which we will need to sell shortly.
I have $350,000 in my bank account and will hopefully get another $350,000 to $400,000 when we sell the land.
It is almost impossible for me to get a loan now for a four-bedroom house, so for the next 12 months or so I am envisioning having to rent, which I am happy to do.
What advice do you have regarding the money that will be just sitting in the bank? Should I buy a house in a cheaper part of the country and rent it out, invest in the share market, or put the lot in KiwiSaver?
A: Before other readers dismiss this Q&A as not applying to them, your basic question is: What should I do with money that I expect to spend in a year or two?
And my answer is the same, whether you're 18 and saving for a car or 88 and planning a trip to see the grandkids. Park the money in bank term deposits, or in a cash fund where you might earn a little more.
Your returns will be low, but your money should all be there when you need it.
Investing anywhere riskier, such as in shares, rental property or a medium or higher-risk fund, is inviting trouble. While you might get lucky and your balance soars, it's also quite likely to fall over a short period.
The cash fund could be a very low-risk KiwiSaver fund if you are over 65 or you will use the money for a first home. In some cases, previous home owners who are now renting can also withdraw from KiwiSaver. See tinyurl.com/PreviousHomeOwner.
Others can use a non-KiwiSaver cash fund.
How do you find either one? On the Smart Investor tool on sorted.org.nz, compare either KiwiSaver or managed funds — the latter are the non-KiwiSaver funds. Then click Defensive funds, which are the lowest risk ones. Look for funds with "cash" in their name.
I suggest you choose a low-fee fund.
P.S. At the risk of being an old fuddy-duddy, can I ask if you really need four bedrooms?
Many older New Zealanders grew up in houses with one room for the girls and one for the boys. There were fights between siblings, but maybe we learnt from that. Just saying.
Q: We have a particular venture capital fund in mind to invest some money. We need certification from a financial adviser, a solicitor or a chartered accountant that we are able, and aware of risks. We cannot find a single one who is willing to certify this piece of paper needed under the Financial Markets Conduct Act.
I have called 14 of these people, willing to show paperwork of our financial dealings etc of the last 20-odd years. Instead of helping us, they tried to warn us "to be very careful". We were often told they have to know us longer as clients. Unfortunately or fortunately we haven't needed an accountant to date.
This investment seems only a chance for businesses, very rich people as wholesale investors, or people who have had an accountant for many years.
We are retirees who have achieved our nest egg through savings, term investments, bonds and a fair amount in shares. We want to support Kiwi entrepreneurs and cannot get anyone to help us.
A: This must be frustrating for you. You probably feel Nanny State is interfering unnecessarily.
But over decades as a financial journalist I've seen too many people investing unwisely and losing heaps.
So I think it's good that the Financial Markets Conduct Act (FMCA) divides New Zealanders into retail investors and wholesale investors.
Retail investors are more protected. Companies offering retail investments must "produce a Product Disclosure Statement, which outlines an investment's key features and risks in plain language," says a Financial Markets Authority spokesperson.
"These requirements do not apply to offers only made to wholesale investors, who are considered to be sophisticated and/or experienced investors and do not require the same level of protection. Overall, there are fewer protections if things go wrong with wholesale investments."
One way a person can become a wholesale investor is to self-certify as an "eligible investor". They can do that, in relation to a particular transaction, if they "have sufficient experience in acquiring or selling financial products to be able to assess: the merits of the transaction, their own information needs, and the adequacy of the information provided," says the spokesperson.But here's the rub. "This requires a financial adviser, qualified statutory accountant, or lawyer to sign the
certification stating that they are satisfied the person understands the consequences and have no other reason to consider the self-certification is incorrect." Understandably, the people you have approached want to know you better before they will sign.
The FMA has provided some questions retail investors should ask themselves before trying to become wholesale investors:
• "How do I qualify to be experienced? Does a certain amount of money really make me feel experienced or sophisticated? Why does this product require me to be experienced?
• "I will have fewer protections with this investment (including less disclosure about risk). What is so appealing about this investment that I am prepared to volunteer to be less protected?
• "What are the risks of this investment? Are they larger or more varied than with other investments? What does the provider say when I ask them?
• "If specific returns are forecast or expected as part of the advertising and disclosure, what is the basis for that? And what are the risks of the return being less, or nothing?"
Adds the spokesperson, "We strongly suggest that retail investors stay clear of wholesale investments.
"We would encourage your reader to consult a financial adviser, who might be able to help identify regulated investment opportunities that specifically support New Zealand entrepreneurs, such as listed companies, managed funds or equity crowdfunding."
Hear, hear. There are heaps of other good investments out there. Give this a miss and move on.
Q: We were saddened by last week's story of your correspondent who is struggling with health, quality of life and financial issues. You made some excellent suggestions. We wonder too would her world expand with access to a mobility scooter, and could MSD or a charity assist with purchasing such?
While all the suggestions might seem daunting, if she doesn't already have a sound listening ear maybe she could also take your reply to a supportive beneficiary rights advocate, church or Citizens Advice Bureau to help her talk through her research and decisions. CAB have email and phone availability even during lockdown. CAB volunteers seek to empower people by exploring options but not making decisions for them.
A: Your suggestions are also excellent. Thanks.
Q: I read with empathy the letter from a 58-year-old beneficiary who has a business caring for animals. I too am a beneficiary.
When I was 32 my marriage ended, leaving me with two little ones and a mortgage I couldn't afford. So I sold the house and bought a cheap neglected house in a low-income area. For many years after that I struggled to raise my children, do DIY on the house, pay the mortgage and put food on the table.
Then my fortunes changed when I was 58. My mother developed Alzheimer's and I was needed to look after her. So I sold my house, making a 550 per cent profit from when I first bought it, and bought my sister's half interest in my mother's house. I had money left over to do much needed maintenance and renovations on my Mum's house.
It costs the Government big money to pay for an elderly person in a rest home, but it costs just $18,000 a year to pay me a benefit to look after her in our own home. As well as my benefit I have her pension to spend. So I find myself not only mortgage-free in a newly renovated house but with a household income far higher than I was used to.
All of this was not planned, but I think for those with elderly parents or others that need care, caring for them is not all of the burdens you might expect. Caring for my mother has given me the chance to pay her back for all the years she looked after me, and financially it has really improved my fortunes.
I'm sharing this so that beneficiaries have hope that their circumstances can change, sometimes with planning and sometimes just by chance.
A: Indeed. In most lives there are twists and turns we would never predict. And in your case it seems to have turned out very well all round.
Q: The person who wrote your first letter last week mentioned that they can't put pictures up in their rental property. A ban like that hasn't been permitted for a while.In February, changes to the Residential Tenancies Act came into effect. One of them said that tenants can ask to make a change to the property and, if the change is minor, landlords must accept it. Hanging pictures was used as an example in most publicity when the law came into effect.
If the reader's landlord is denying them permission to hang pictures, the landlord should be reminded of their obligations under the law. If they still refuse, report them to the Tenancy Tribunal.
A: That's really good to know. Tenants might want to check the other examples of minor changes.
They are listed on pages 14 to 15 of this document: tinyurl.com/TenantsNZ. The document also says, "If the landlord declines unreasonably, the tenant can take the landlord to the Tenancy Tribunal and they could be liable for a penalty of up to $1500."
Last week's correspondent might want to show her landlord this Q&A.
Thanks to you and two other readers who also wrote about this. Some points they made:
• "As a landlord myself, I have never told a tenant they can't hang photos or artwork in their home. I prefer it if my tenants feel they are living in 'their' home." A good attitude.
• "It would be interesting to know if residential property managers have been updating tenants on these changes."
I'm sure some do, but I wouldn't count on it. Wise tenants should read the document, which also explains changes to the law about rent setting and increases, and other issues.
Q: Regarding your first Q&A two weeks ago, about the couple returning to New Zealand and buying a house in Timaru, why not suggest keeping the Auckland house as a rental for the long term?
They are probably currently clearing $300 a week (rent of $560 and assumed house purchased with mortgage of 80 per cent at 3.99 per cent interest would be $260 interest). So why not keep the rental and use the $700,000 equity to purchase a house in Timaru (average price of a house there is $500,000)?
Not only a prudent financial decision but it also gives the option of moving back to Auckland.
Yes, there are lots of rule changes approaching. But even factoring these in, high running costs and no rent increase over the next few years, the couple will at least break even in rent. And yes, this is a riskier approach than the ones you suggested. But it sounds like you assumed they didn't want to take any risk, whereas I would assume that they may want to take some risk.
A: That certainly could be an option for the couple — although it would mean they are heavily invested in property.
- 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 or click here. 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.
OPINION: Turns out the human brain is not well evolved to handle money.