To put your money in KiwiSaver or the sharemarket? Photo / File
OPINION:
Q: Our 25-year-old grandson believes that his KiwiSaver will not be around by the time he is 65, and therefore if we were to put money into it he would rather have the money to invest in shares. In his mind the money would be available when he needed it, and not in 40 years' time.
He does not add money to KiwiSaver himself and we thought we would set up an automatic monthly payment to cover the government contribution.
We would be interested in your comments about his belief that KiwiSaver will not be around for him in 40 years. He is not interested in buying a house using KiwiSaver.
A: My first reaction to your letter was: spoilt young man! He is so lucky to have his grandparents helping him financially, and it sounds as if he just wants to get his hands on the money so he can play in the sharemarket.
But that might be unfair. So let's look at his concerns.
KiwiSaver will definitely be around in 40 years. With more than half the population in the scheme, there is no way a future government would close it down. Fiddle with it? Yes. Rename it? Possibly. But shut it down? No.
True, a KiwiSaver provider could go out of business but that's no big deal for members.
They are not investing in the provider's business, but in the shares, property, bonds and cash the provider buys. And the provider's supervisor, a separate company, makes sure they do in fact make those purchases. If a provider closes down, members' investments are simply transferred to another provider.
However, your grandson is right, of course, that KiwiSaver would tie up his money until he buys a first home or reaches NZ Super age. At his age I doubt if he knows, for certain, that he won't ever want to own a home. But still, he might want some accessible savings for other purposes, such as starting a business.
I wonder if he realises, though, how powerful it is to get the government contribution. Let's say you put $87 a month into KiwiSaver for him, so he receives the maximum $521 from the government each year. And say he's in a higher-risk fund with an average return of 6 per cent after fees and tax. Over 40 years that would grow to about $250,000.
If, instead, he put the same money into shares, with the same average return — a realistic return for an investor — after 40 years he would have about $170,000. And if he traded rather than just buying and holding, he would probably have considerably less — as discussed in last week's column.
Here's an idea: you contribute to his KiwiSaver, and he builds his own share portfolio by putting in the same $87 a month, or $20 a week. He would probably be hard-pressed to argue he can't afford that. And that money would be there for his big business start-up.
You could even have a bit of fun, with a Youngie versus Oldies race — checking every now and then whose money has grown more.
Q: I have only recently got to a financial position to join KiwiSaver. I joined last year and deposited $1000 into the account the week before June 30. The government contribution was just $42.86.
After I queried this with the provider (ASB) they told me that when you join KiwiSaver the contributions are pro-rated for the joining year based on the date you joined.
I have searched high and low, including your advice, trying to confirm this, and cannot find anything. Even the IRD info says "The amount of the government contribution depends on how much a member has contributed to their fund from 1 July to 30 June" and says nothing about a pro rata government contribution in the first year. Can you please confirm if this is true?
A: It is correct. The IRD website says, "If you join, turn 18 or reach the age of eligibility to stop contributing part-way through the year, the government contribution is based on how many days in the year you've been a member." I've written about this, but not at every mention of government contributions. There's not room for all the details all the time.
In any case, in most situations it won't matter much if someone contributes more to KiwiSaver than necessary to get the maximum government money. It's only for one year and the money is yours, sitting in your account.
Still, it's not good to think you have been short-changed. So I understand your concern.
Now it's full steam ahead for you this year. You and every other KiwiSaver member — except those who joined, turned 18 or turned 65 since last July 1 — should make sure you get at least $1042 into your account between July 1, 2021 and June 30. That's this coming Thursday.
Q: I'm thinking of changing my KiwiSaver from a conservative to a high-growth profile since I have about 15 years before I can access it. Am I "locking in" my losses by doing this in the same way I would be if I switched the other way?
A: Usually when the sharemarket has been falling it works well to move from a lower-risk fund to a higher-risk one. The price of units in the higher-risk fund will have dropped more, so you're buying bargains.
This time it's a bit different. As I've explained recently, rapidly rising interest rates have caused unit prices in mid-to-lower-risk funds with lots of bonds to also fall. And generally, the price falls have probably been about the same in largely share funds and largely bond funds.
So making your move is not particularly advantageous, but there's no good reason not to make it. Given your long time horizon, it's a great idea.
Q: I have all my KiwiSaver in a moderate fund. I am now retired and will need to access my funds in about eight years. I have never minded a little risk, but now that I am no longer earning, I realise I don't like much risk at all!
With KiwiSaver now dropping dramatically, would I be unwise to switch to a conservative fund? I realise it's not good to withdraw and lock in losses, but it may be a little less worrying?
A: As I said above, these days units in KiwiSaver funds with lots of shares or bonds have all lost value. So moving from one type to the other is not a worry.
Note, though, that units in the lowest-risk funds that hold only cash don't ever change value much at all. So if you move to one of those from a fund that has seen unit prices fall, you will make your loss real.
Perhaps move to a fund that holds largely bonds rather than cash. Then gradually switch to cash as your spending time approaches.
The Smart Investor tool on sorted.org.nz tells you what every KiwiSaver fund holds.
Q: I am in my early 60s and have my KiwiSaver in a growth fund. My husband, a couple of years younger, is in a conservative fund. We both contribute 10 per cent to give our funds a good boost pre-retirement. I'm okay to leave my KiwiSaver in growth until things get better.
At the moment should we reduce the contribution percentage to the minimum and save the balance? It feels like we are both throwing that money away. We plan to retire in four to five years. On top of KiwiSaver, we will have about $120,000 in cash savings and a mortgage-free home, so can wait out this shares slump.
A: Keep contributing. These days you are buying cheap units in your funds. When the recovery comes — and it will, any time from next week to some time in the next few years — you'll have more money in there to enjoy the growth.
The same goes for another reader who writes, "Is there any point contributing anything at the moment? It all seems to be going down a black hole, and I have other bills to pay." If anything, now is the time to increase your contributions rather than reduce them.
Q: I researched bitcoin in early 2017. Deciding it was worth risking a small amount, I invested an amount I was prepared to lose.
I've since sold a small portion for four times more than I paid overall, and paid tax. My remaining coin is worth about 10 times more, although it was as high as 30 times more than the initial investment a while back.
I don't need the money right now, so is there any reason for me not to hold on to it? I do have other investments and KiwiSaver, all of which of course I am also riding out drops in. It seems bitcoin gets such a bad rap but I've enjoyed the ride.
A: That's great. In any volatile investment there will always be winners — along with the losers.
As long as you're investing only money you can afford to lose, why not stick with it? But I suggest you don't get carried away and add more.
Q: This may help with the bitcoin debate. A headline: "Warren Buffett wouldn't buy all of the Bitcoin in the World for $25.00."
I think I would rather listen to this guy than some of your letter writers.
A: A recent correspondent no doubt was including Warren Buffett when he wrote about the "influential, smug older people like you dissing crypto when you have no real understanding of it". But Buffett is no amateur. He's had huge success over decades with share investing. He notes that bitcoin doesn't produce anything — a point I made a couple of weeks ago.
Q: I'm so concerned about the readers querying bitcoin/crypto "investments" recently. The situation could be worse than they realise. To the ezmarkets "investor": please don't put any more money in and get your Visa cancelled. Real investments are not transacted through credit cards. Your credit card info may well be obtained by others. CallerID spoofing is standard practice by scammers.
To those who have clicked crypto investment adverts, even through trusted websites: Scam/malicious ads are common online. Your "investment" is not the only target. Update your antivirus, Windows/Mac OS, your web browser software and scan for malicious software. You may have unknowingly given away a boatload of personal information, maybe even downloaded some ransomware.
In general: Do you understand the Blockchain entry on Wikipedia fully? Do you know what a cryptographic hash is? No? Steer so far clear that a Nigerian prince can captain a Titanic full of bitcoin between you and this "investment".
A: Thanks for your warnings — and your colourful last sentence! I wrote back to ask if you have expertise in this area, and you replied that you know lots about computers and have friends who are experts.
"I forwarded the ezmarkets investor's question and my letter to you to one of them, to fact check it," you wrote. "Michael Price, who is a principal consultant at Axenic, a Wellington based specialist information security company, had this to say: 'Your response is spot on'. He added 'the best course of action is to withdraw and cease contact' and 'change your passwords and turn on two-factor authentication on your accounts'. He gave me permission to quote and name him to you."
You added, "I feel the vast majority of Herald readers interested in buying bitcoin are blind to the risks, even if they overcome the first major hurdle of bypassing scams presenting as cryptocurrency investments. Pump and dump schemes in newly minted and worthless cryptocurrencies are common. Cryptocurrency theft is rife. There was over US$4 billion in crypto theft in 2021."
A note to readers: please don't send me further emails about computer security. That's getting well away from my area of expertise and what this column is about. If you're worried about your situation, find an expert who can help you — perhaps by asking friends for recommendations.
- 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.'