Buy the right assets.Know when to buy them and when to sell them.
And the sad truth is that nobody has fully mastered these steps. Sure, some do better than others. But even the Warren Buffetts of this world get it wrong fairly often.
For every person who congratulates herself or himself for picking the right share at the right time, there’s another one quietly disappointed with how their choice turned out. Quite often it’s the same person with two different shares, actually!
We tend not to hear about the latter, so we get a distorted picture of how easy it is to successfully pick investments.
The fact that Rocket Lab’s share price has rocketed before it has even announced a profit – and in fact doesn’t expect to for a couple of years – shows how share prices are based not on how a company is performing but on how it is expected to perform in future.
Sometimes those expectations are fulfilled – or even better. Sometimes they’re not. A competitor overtakes the company, or perhaps a “black swan” event – something totally out of the blue – harms the business. It happens surprisingly often.
The uncertainty is why I don’t recommend putting a lot of your savings into a single share, or even into several shares. Most shares perform worse than the market average, with just a few soaring. And picking the soarers with any consistency is close to impossible.
I know it’s boring, but it’s far lower risk to invest in a low-fee fund – in or out of KiwiSaver.
Maybe you realise that. Maybe your investment in Rocket Lab is with just a tiny portion of your money. If so, enjoy your fling.
But if it’s a big chunk of your savings to buy a house, or set yourself up for retirement, be aware that you’re playing with fire. Regardless of whether you decide to sell your Rocket Lab holding, I recommend that from now on you use a fund for your main investments.
PS: One way to solve the “sell or not sell” quandary is to sell half your shares. Then you can look back on the decision and tell yourself you were at least half right!
The mirror test
Q: I asked Musk’s AI agent, which I assume is all-knowing, the best way to reduce one’s income tax. It advised that rather than a PIE fund, it is better to reduce one’s income to below the next-lower tax threshold.
To me this is akin to a doctor advising the best treatment for hand arthritis is to have one’s arm amputated. But do we bow to AI on this?
A: I don’t think I need to answer that question! But it raises an interesting issue: should tax avoidance – as opposed to evasion, which is illegal – drive your financial decisions?
There are two issues here. One is whether it’s honourable to try to avoid contributing to the pool of money that pays for roads, schools, police and so on.
The other is whether you end up better off trying to dodge tax. Your artificial intelligence (AI) suggestion, to cut back your income, could mean a less comfortable life.
You might, of course, hire a clever accountant or lawyer who prides themselves on finding loopholes in the tax laws. As a result, you still get the income but Inland Revenue can’t take its share. Despite the huge fee you pay, you’re considerably better off.
But how does it feel when you look in the mirror?
Is it means-testing?
Q: In your discussions about retirement income, can you explain the difference between means-testing and progressive taxation of New Zealand Superannuation?
A: With means-testing, which doesn’t currently happen, the Government would pay less or no NZ Super to people with income or assets over a set amount.
With progressive taxation of NZ Super, which does happen, people in higher tax brackets pay more tax on their NZ Super – and so receive less cash – than those in lower brackets.
In both cases, the better-off get less. So you could argue that NZ Super is sort of means-tested already.
Nobody told him about Super
Q: I have a different grievance about NZ Super. My husband worked for years past 65 and applied for super on retirement. We later learned that he would have been eligible to receive super while he was still working.
He inquired about back payments, and was informed that retroactive payments cannot be made.
We came to New Zealand halfway through our working lives, and had no idea that this was how NZ Super works. The Social Security department of my native US starts sending reminders about applying for retirement benefits well in advance of retirement age.
My husband, and undoubtedly many other non-native New Zealand workers, are penalised for being unfamiliar with the system. Do you think this is fair?
A: No, it’s not really fair – although it affects not just immigrants but also people born in New Zealand.
I asked the Ministry of Social Development (MSD) just who is told by the Government that it’s time to apply for NZ Super.
“Existing MSD clients who receive a benefit will receive a letter inviting them to apply for NZ Super ahead of turning 65, as part of regular engagement with us,” Graham Allpress, group GM of client service delivery, says.
But others don’t. “MSD would be unable to reach out to all New Zealanders ahead of turning 65, as we do not hold contact details for anyone who is not already an MSD client,” he says.
My guess is that the US Government holds more info on its citizens than our Government does – including birth dates and addresses. Would we want that here? There are pluses and minuses.
Most people, I suspect, are simply told by friends or family that they need to apply for NZ Super as they approach 65. But perhaps the Government should also advertise it.
This is a good reminder for any readers in that situation. And other readers might want to point this out to family, friends and neighbours.
On applying to receive catch-up money, “NZ Super can’t be backdated if someone applies after their 65th birthday,” Allpress says. “Legislation outlines that NZ Super must be granted from the later of the date someone qualifies and the date they apply.”
That does seem mean. Lobby your MP!
The bootless man
Q: Your readers over the last few weeks failed to mention that all Kiwis are living at least 10 years longer than they did in, say, the 1960s to the 1980s.
So that is another reason to advance the NZ Super entrance age to, say, 68 or 69 years. The other aspect is of course that we have better healthcare now than we did then, which accounts for the age advancement in retirement.
If you look at all Western countries, as I did when I was researching information for a Grey Power group, virtually no Western country still provides an old age pension from 65.
The exception was the oil-rich countries such as Norway, UAE and Saudi Arabia. Over the years that I have been a taxpayer, I have seen a steady approach to a more socialist society, where many people now rely totally upon government support in all age groups. This has grown steadily over the years.
If we are to have a reasonable future when I am long gone, it is time to make Kiwis more reliant upon their own efforts and less on government handouts.
A: I have actually mentioned that New Zealanders are living longer a couple of times in recent columns, but it doesn’t hurt to make that point again. It makes a big difference to all the numbers.
And you’re right that many similar countries are raising the age at which their state pensions start.
But I have to challenge your last comments.
It’s hard to compare the levels of government support over time. Payments for jobless people of course vary, depending on the unemployment rate.
The level of state housing has varied widely. And government support payments range from just a few dollars a week to much bigger amounts.
Keep in mind, too, that in many ways it’s tougher financially for younger people these days than when you were young – assuming you are of retirement age.
From the 1950s through the 1980s, the median house price was two to three times household incomes. It wasn’t hard for the young to become home owners.
By 2021, it was about nine times – three times as much! Since then it has dropped, but only a little. House prices make a huge difference to “getting ahead”.
Also, if you were like me and my friends, you found it pretty easy to get your first fulltime job. These days, it’s not.
And when we were young, university education was pretty much free. These days, graduates with bachelor’s degrees often have student loans of $30,000, and those with higher degrees, $40,000. For some, it’s much more. That’s a hurdle we didn’t have to leap.
On making Kiwis more reliant on their own efforts, remember what Martin Luther King said: “It’s all right to tell a man to lift himself by his own bootstraps, but it is cruel jest to say to a bootless man that he ought to lift himself by his own bootstraps.”
Last week, I spent a couple of days at a conference run by the Retirement Commission Te Ara Ahunga Ora. The people who attended were different from those at most conferences. There were far more women, younger people, non-Pākehā. Many didn’t wear suits.
Turns out, about half of them are financial mentors, who give free help to people struggling financially. Some of the stories they told were deeply worrying. For a lot of people, being “more reliant upon their own efforts” is not easy.
To paraphrase singer songwriter Ralph McTell, “Let me take you by the hand, and lead you through the streets of Auckland. I’ll show you a cleaner working two shifts a day to make you change your mind.”
Australia v NZ
Q: A recent contributor to your column correctly noted that Australia’s Age Pension is means-tested.
However, Australia’s retirement system is designed to make most people self-sufficient in retirement through higher compulsory employer contributions, tax concessions on contributions, earnings within the fund and, in some cases, even after retirement.
The result is that Australians generally retire with several times the savings of their New Zealand counterparts, while the Age Pension is intended more as a safety net for those without sufficient savings.
I made a conservative estimate of the compound value of Super Fund tax concessions for higher income Australians over 30 years. For someone earning more than A$220,000, those tax concessions would be equivalent to about 3.5 times the value of NZ Super, ignoring the higher value of the Australian dollar.
I am not suggesting that one system is necessarily better, though ours is far less costly to administer. The point is that both systems are effectively subsidised by government, even for high earners, simply in different ways.
A: You make some excellent points – and I know you have some expertise in this.
While most Aussies don’t get the Age Pension, they do get something else of great value from their Government, in the form of tax breaks on their retirement savings. Many New Zealanders don’t realise how powerful that is.
When KiwiSaver was being designed, officials considered giving us tax breaks on contributions and/or returns over the years. I understand they rejected this because tax breaks benefit wealthier people in higher tax brackets more than others.
Instead, the Government makes the same contribution to everyone who puts in enough money each year. Good decision. The only trouble is that contribution has dwindled from about $1040 to a quarter of that – $260 a year.
By the way, the KiwiSaver Government contribution used to be misnamed as a tax credit, apparently because that’s what it was going to be initially.
* 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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