I would then buy again, a small home or apartment. What do you think?
A: I love it. At a stage in life when many people avoid risk and discomfort, you are embracing it!
Living in a caravan can be less than romantic in cold, rainy weather. And I assume that – unlike people in motorhomes – you have to go elsewhere for the loo and a shower. You know all that already, but it might be wise to have a trial run over a few months – preferably including some colder weather – before you sell your home.
Then there are bigger worries. A storm could damage your set-up, which would be really disruptive, even if you are fully insured. Or your health might deteriorate so that living in a caravan is difficult. Or you might lose your job. Things sometimes go wrong for even wonderful bosses. Or … I’m sure readers will think of other less-than-sunny scenarios.
But hey! You can always stop early and buy a home if you need to. Whenever you make that purchase, after living in cramped quarters, you will probably be happy in a small place, which should keep the price down if needs be.
In implementing your plan, pay off your debt and mortgage as soon as possible. And it would be wise to watch the riskiness of your investments.
I suggest you put several hundred thousand dollars in a cash fund – where the balance won’t wobble much – in case you need the money sooner than planned. But the longer-term money can stay in balanced and higher-risk funds.
There’s another issue here: should you keep your home and rent it out? See the next Q&A.
Sell or keep home?
Q: My husband, 54, and myself, 66, have been living in our caravan for five years, and travelling and working around New Zealand. We own a house in Bay of Plenty, which is rented out and has a $100,000 mortgage on it. We have no children or dependents. We have a small amount of trauma insurance and some medical insurance. I have the Government pension and we both mainly do self-employed work. We usually have no living expenses such as power and water as we are self-contained and negotiate our work with free power and water!
I have $110,000 in KiwiSaver and hubby has around $56,000. He puts an average of 5% a year into his KiwiSaver. We plan to continue this lifestyle until hubby gets to 65. We are very torn as to whether to sell our property and invest what would be around $500,000 after paying off the outstanding debt. We are both in good health. But my parents lived until they were in their nineties, and I am aware that it may be difficult getting back into the housing market or renting when health declines for either of us, or we wish to come off the road. Your advice would be truly appreciated.
A: More not-so-young gypsies! While there are lots of retired people living in motorhomes, usually they are much more spacious and come with bathrooms – and cost much more than caravans.
You’re the brave ones. And your five-year history in a simpler home on the road will perhaps encourage the reader above.
Probably the main issue behind your question about selling your property is whether the money invested elsewhere will grow more than the value of the house over the next few years – taking into account rental income after costs. And the answer: nobody knows.
So let’s look at other factors:
It’s riskier to have all your wealth in a single asset, which could lose value even if most house prices rise. There could be storm damage or a local downturn or the discovery of an issue like asbestos or leaks or … who knows?
By contrast, if you put the money in managed funds, as suggested above, you can invest in a huge variety of industries and countries. When one market does poorly, often another does well.
If you need to withdraw money in a hurry, it’s much easier to get it out of funds.Ditto if you would like to set up regular monthly or weekly payments to supplement your income.Investing in funds is simple, whereas owning a rental means you either have to deal with complications with tenants and maintenance or pay someone else to do that, cutting into your returns.
But there’s a strong counterargument that goes like this: it’s better to stay in the housing market, given that’s where you want to end up. Even if house prices decrease over the next few years, it doesn’t really matter. You sell at a lower price, but then buy at a lower price.
So I’m afraid there’s no clear answer to your question. I suggest you weigh up the factors listed above. What’s likely to apply in your situation? And – importantly – what do you prefer to do?
Whichever way you go, happy camping!
Shrinkflation taken into account
Q: When the inflation figures are released, do they take into consideration “shrinkflation” regarding food prices?
I notice that this is now a normal practice, to keep prices reasonable by reducing the contents.
A recipe called for a 440-gram tin of sweet corn, but the supermarket only stocks 410-gram tins. Perhaps the recipe books all need to be rewritten!
I could write a list of the items that suffer from shrinkflation, but it would be too long to print.
A: I presume you just added a little less of all the other ingredients in your recipe. But that’s not the point. Reducing the size of packaging, as opposed to increasing prices, is a sneaky way producers of food and many other products can reduce their costs.
Stats NZ officials – the people who put together the data for the Consumer Price Index – are of course aware of this. “In the past, we have identified evidence of shrinkflation in several goods, including chocolate bars, biscuits, chips, and eggs,” it says.
“We acknowledge that shrinkflation can be challenging for everyday consumers to detect, particularly when manufacturers retain or subtly redesign packaging and products are selected quickly during routine shopping.”
Indeed! Who compares the size of every item in your supermarket cart with the size last month? Do we notice that a one-kilogram block of cheese now weighs 900 grams?
Stats NZ added: “While companies are expected to clearly communicate any changes to their products, it is important to note that there are currently no specific regulations in New Zealand that directly address shrinkflation.”
The department has recently enhanced how it identifies shrinkflation and accounts for it in the Consumers Price Index (CPI). For more on this, see tinyurl.com/NZShrinkflation.
How to pick an adviser
Q: A while back, I read with interest your advice to a young person who had inherited a third of a house and $230,000 cash.
You mentioned that you’ve often suggested that retired people split their cash three ways, and that the same applies to people of any age, except that those under 65 should choose non-KiwiSaver funds, so they can withdraw money at any time.
I wonder if you would have the same advice for me. I’ve also had a parent pass away recently and, as a result of that, will inherit close to $2.9 million in cash, as well as two mortgage-free homes.
I have no idea what to do with that kind of money, and the pressure I feel to do things wisely and well is immense. Lawyers tell me I need to see a financial adviser, and I agree, but I don’t know who to trust. There are so many options and ways to mess it up that I feel totally immobilised.
For context, I’m 40, a woman, two children and a partner. We have signed a contracting-out agreement to protect the inheritance, should we ever split. Please help!
A: Many readers would respond to your letter with something like this: “What have you got to worry about? You’ve got several million dollars. It doesn’t matter how you invest the money – there will be plenty anyway.” And there might be a touch of envy in their voices!
But your concerns are understandable. It would be foolish to squander the money. What’s more, with that amount, you could not only live comfortably and leave plenty to your children, but also make sizeable contributions to charities whose work you appreciate. That can be really satisfying.
My main suggestions for finding a good adviser are:
Choose from advisers whose only remuneration is from fees you pay them. Some other advisers, who receive commissions if they put your money in certain investments, will say they always act in your best interests. But I’m skeptical. It’s better to hire an independent adviser, just as you would a lawyer or accountant.Meet with several, and interview them for the job of helping you. Take a list of your main questions, and take notes on how they answer.
I’ve written more on this on my website. See maryholm.com/advisers/. That page includes a link to a list of advisers who charge fees.
I hope you put a bit of effort into finding the right person. It can make a big difference over the long term.
Doing the right thing
Q: Thank you for the insightful advice in your column. I have to say, though, I was disappointed in your advice last time regarding parents who have the money to pay their daughter’s university fees, her ability to borrow at zero interest and using the money to invest until she graduates and then pay off her loan.
I think the IRD has a term for that, around the use of money interest regime, to prevent using the IRD (and its initiatives) as a bank. I know this is a common activity among the affluent. However, the loan scheme was not created to provide interest-free investment funds for children at university. The example you gave is a step back from that, though only a small one. My wife and I pay over $1 million in total tax per year, and we accept that that is how it is. We pay our tax to fund the operation of our country and the many initiatives and programmes available to our fellow citizens. Our children have either been through or are going through the university system at present; we pay all of their fees. We object though when others quite happily use this taxpayer-funded scheme to enrich themselves.
The student loan scheme was established to allow people to participate in tertiary education, but there is widespread borrowing of the money and using it to buy flats or invest in the sharemarket, or some other clever investment activity, while there is no need to borrow it as those people have the funds to pay the fees in the first place. There is a significant moral hazard with this and reinforces the belief that it is acceptable to rort the system.
A: I’m glad you wrote, making this important point. In my original draft of that Q&A, I went into the ethical issues. But it all got too long, and I decided that – given my role is not really to judge people’s morals – I should delete that bit.
That was not a good decision. I should have made the points that you have made so well. What I suggested last time may not be illegal, but it’s not exactly honourable.
Thank you for writing – and to you and your wife for being among the higher-income New Zealanders who don’t regard minimising your tax as a game.
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a former director of the Financial Markets Authority, the Banking Ombudsman Scheme and Financial Services Complaints Ltd. 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.
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