At least those were the numbers when I wrote this! There is, indeed, always the chance of a big downturn, especially after strong growth.<\/p>\n
Should you get out now? You might be glad later, or really annoyed at missing further gains.<\/p>\n
As I\u2019ve said so often it\u2019s boring \u2013 and as you acknowledge \u2013 it\u2019s not wise to move in and out of the markets, trying to avoid downturns while benefiting from upturns. Changes often happen really suddenly.<\/p>\n
Every year, US investment research firm Dalbar publishes a comparison between sharemarket performance and how well individual share fund investors have done. It recently announced that the average investor\u2019s return in 2024 was 16.5%. Sounds great, until you learn that the S&P500 return was 25%.<\/p>\n
Why the difference? Investors either tried to time markets or switched to funds that had performed well, but didn\u2019t continue to perform well \u2013 another common occurrence. It\u2019s much wiser to just stay put.<\/p>\n
However! It sounds as if you expect to spend at least some of your savings within 10 years. If so, I would move that money to a lower-risk fund now, regardless of what the markets are doing. High-risk funds are no place for shorter-term money.<\/p>\n
KiwiSaver not covered<\/p>\n
Q: We will retire next year and, although not cash-rich, have the option of selling our rental.<\/p>\n
We\u2019re currently in a major bank KiwiSaver moderate fund only. When we sell the rental, we will mix the money with some longer-term funds.<\/p>\n
Is it safe to put it all in the bank KiwiSaver or should we mix it into other providers, due to the Depositor Compensation Scheme only covering $100,000 per person. Should we go to other banks?<\/p>\n
A: Bank-run KiwiSaver schemes are not covered by the Depositor Compensation Scheme. It\u2019s just for savings accounts, term deposits and the like. See tinyurl.com\/DCScoverage.<\/p>\n
Setting that aside, you can\u2019t be in more than one KiwiSaver scheme. But if it helps you sleep at night, you could branch out into other providers\u2019 non-KiwiSaver funds.<\/p>\n
The most important thing, as mentioned above, is to put money you\u2019ll spend in the next few years in a low-risk fund, three- to 10-year money in medium risk and, if you can cope with volatility, 10-year-plus money in higher risk.<\/p>\n
More on gold v shares<\/p>\n
Q: The comparison graph \u2013 Gold v NZ Shares and World Shares Indexes \u2013 with last week\u2019s column is causing me some problems. <\/p>\n
I presume the term \u201cgross\u201d means that the performance does not take into account taxes, brokerage fees and, in the case of managed funds, the regular charges levied \u2013 including performance fees and in some cases acquisition and withdrawal charges.<\/p>\n
It looks like one of those comparisons regarding house prices and shares where the sale price of the house is presented, ignoring the amounts paid for rates, repairs and legal and accounting fees over the years. (My own annual fees for accounting are now due.)<\/p>\n
Once purchased and held, the cost of holding physical gold seems to be zero. It would be interesting if those matters could be incorporated into such a comparison graph. <\/p>\n
An argument in favour of gold should also point out that the holder of gold is less likely to sell as it requires a little more effort. Gold jewellery is also likely to enter the realms of personal attachment and less likely to be disposed of.<\/p>\n
A: You\u2019re right that it\u2019s wise to take into account the costs when comparing investments. The trouble is that costs vary so widely in different circumstances. One set of reasonable assumptions favours one investment, another set favours another.<\/p>\n
It\u2019s true that there may not be many costs of holding physical gold, such as the ingots last week\u2019s correspondent owns, although surely there would be insurance? <\/p>\n
And I don\u2019t think I would hold large quantities of gold at home, for fear of burglary, fire and so on. As a friend puts it, \u201cIf you hide it in the house, there is also the risk that on death no one knows about it and it goes to the person who next does a major renovation and finds it.\u201d A note with your will would help!<\/p>\n
But it might be better to pay for a safe deposit box or storage at a mint. Also, there will be transaction costs when you buy and sell, reflected in the difference between the buy and sell prices. <\/p>\n
An alternative is to use a gold exchange-traded fund, or ETF. As long as it is backed by physical gold, this can be a convenient way to do it. But you would probably have to pay fees, including covering the manager\u2019s storage costs.<\/p>\n
Meanwhile, you make the costs of a share fund sound much higher than they need to be. I always suggest low-fee funds, which the Smart Investor tool tells us can charge below 0.1% these days \u2013 in and out of KiwiSaver. There are usually no separate brokerage fees. In index funds, which I recommend, there won\u2019t be much trading and therefore much brokerage anyway.<\/p>\n
Buy and sell fees are not common in share funds, and nor are performance fees. A well-chosen share fund can be pretty cheap.<\/p>\n
The tax comparison is tricky.<\/p>\n
Share funds \u2013 in and out of KiwiSaver \u2013 are PIEs, with a maximum tax rate of 28%. What\u2019s more, if the fund holds New Zealand and Australian shares, it is taxed only on dividends \u2013 not on capital gains or losses. And New Zealand shares benefit from dividend imputation, considerably reducing tax.<\/p>\n
Other overseas shares are taxed under the FDR (fair dividend rate) regime. You pay 5% of the value of the shares each year.<\/p>\n
Tax on gold investments is also complicated, so I turned to tax expert Terry Baucher of Baucher Consulting.<\/p>\n
\u201cIf a person is a dealer or trader in gold bullion then any profits will be taxable at the person\u2019s highest personal income tax rate, ie up to 39%. But if a person is not a trader and can demonstrate the gold bullion was not acquired with a main purpose of disposal, then any gain on disposal would not be taxable,\u201d he says.<\/p>\n
Couldn\u2019t any investor argue they\u2019re not a trader? Baucher refers to an Inland Revenue document, found at tinyurl.com\/NZTaxGold. \u201cIt notes that gold doesn\u2019t provide a return\u201d, and \u201cThe commissioner therefore considers that, for gold bullion, the nature of the asset is a factor that strongly indicates that it was acquired for the dominant purpose of ultimately disposing of it\u201d.<\/p>\n
\u201cThe counterargument is that gold is a part of a sophisticated investor\u2019s portfolio and therefore in such cases can be treated as capital and not taxable. So, clear as mud, as usual,\u201d Baucher says. <\/p>\n
On your final point, yes, a share fund investment might be easier to sell. But I can\u2019t imagine someone selling any investment simply because it\u2019s easy. If anything, the ease of selling shares is a plus, given that we never know when we might unexpectedly need the money.<\/p>\n
So where are we? My main reason for running last week\u2019s graph was to show that while gold prices have soared lately, it\u2019s not an extraordinary investment over the long term. Too many people make rash decisions based on short-term trends.<\/p>\n
On whether gold beats a share fund on costs, the answer has to be: \u201cIt depends.\u201d<\/p>\n
Sunny-day umbrella<\/p>\n
Q: I just read your recent Q&As on cash funds and term deposits. One thing you didn\u2019t mention is preference shares, which both BNZ and ANZ have offered and trade on the stock exchange. ANZ pays 7.6% and BNZ 7.3%.<\/p>\n
Both are perpetual and trading between 5% and 8% above the issue price of $1. Yes, you would pay a premium, but they seem a good option to bonds or term deposits for retirees in a declining interest rate market, as they don\u2019t expire. And there is little price volatility.<\/p>\n
It would save monitoring and rolling over term deposits, and no break fees if you need to sell. I haven\u2019t checked market liquidity, mind. What do you think? What downsides?<\/p>\n
A: Preference shares sit somewhere between shares and bonds. If the company gets into financial trouble, the first investors it pays are bondholders, and then those with preference shares, before shareholders get anything.<\/p>\n
I asked financial adviser and columnist Brent Sheather how he rates them. He\u2019s no enthusiast!<\/p>\n
\u201cI do not think bank preference shares are good substitutes for bank deposits for either short- or long-term investment,\u201d Sheather says.<\/p>\n
\u201cThat\u2019s because these preference shares are subordinated to all the other debt of a bank, and banks are highly leveraged entities,\u201d meaning they have lots of debt.<\/p>\n
\u201cFor example, as at September 2025, BNZ\u2019s balance sheet showed that the company had $135 billion in assets but just $13.9 billion in equity (shares). So if BNZ suffered a loss equivalent to 10% of its assets, that would be more than enough to wipe out all its ordinary equity and the value of its perpetual preference shares.\u201d<\/p>\n
He continues: \u201cLooking specifically at the BNZ preference shares that your reader highlights, they might not be particularly attractive in \u2018a declining interest rate market\u2019 because their interest rate is reset at a floating rate in June 2029, and in any case, BNZ could opt to redeem them at that date as well.\u201d<\/p>\n
It\u2019s true that in normal times, these bonds are not particularly volatile and it\u2019s reasonably easy to sell them, Sheather says. \u201cBut whenever there is a sharemarket crash, liquidity in junk bonds tends to disappear.<\/p>\n
A writer in the Financial Times alluded to the risks of junk debt when he described them as \u201cumbrellas you can only use when it is not raining\u201d.<\/p>\n
\u201cIt is important to note that institutional investors tend to limit their exposure to junk debt to about 5% of their bond portfolios, and within that exposure, they diversify widely,\u201d Sheather says.<\/p>\n
Another downside: unlike term deposits, bank preference shares are not covered by the Reserve Bank-run Depositor Compensation Scheme.<\/p>\n
\u201cIf a bank gets into trouble, they can suspend interest payments on their perpetual preference shares,\u201d Sheather says. \u201cIf that happens, you can imagine how difficult it would be to sell them. And distributions are often non-cumulative, which means that if one isn\u2019t paid, the bank is not obliged to pay it at a later date. Last, but not least, because there is no fixed maturity, investors may be unable to sell unless the bank chooses to redeem them.\u201d<\/p>\n
His final comments: \u201cWe don\u2019t recommend them to our clients, in the belief that if they have a balanced portfolio of bonds and equities then their bond portfolios should be genuinely low risk. The high level of gearing of banks, both locally and around the world, makes me even wary of having too much exposure to their senior debt.<\/p>\n
\u201cA prolonged deflationary environment would be very bad news for bank customers \u2013 debt levels would be fixed but asset prices would be falling, which might mean big losses for banks.\u201d<\/p>\n
My conclusion: Let\u2019s stick with cash funds or term deposits for short-term money.<\/p>\n
PS: Last week we had a Q&A about a 92-year-old investing short-term money in a property fund. Now you\u2019re suggesting bank preference shares.<\/p>\n
Probably in both cases, the appeal is the higher interest rates than on term deposits. But whenever you\u2019re offered a higher return, think about why the financial institution is offering that rate \u2013 which of course increases its costs. It must be because astute investors won\u2019t take on the higher risk without being rewarded. <\/p>\n
Higher interest will always mean more risk.<\/p>\n
* 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\u2019s 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<\/a>. Letters should not exceed 200 words. We won\u2019t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice. <\/p>\n