Money with Mary

In our series "Money with Mary," personal finance legend Mary Holm shares practical tips on a variety of money matters.

Disclaimer: This information has been prepared for the FMA by financial columnist and author Mary Holm. The views and opinions provided in the guide are those of Mary Holm and do not necessarily reflect the views or official position of the FMA. Mary's advice is of a general nature, and she does not accept responsibility for any loss that any reader may suffer from following it. We encourage our audience to seek their own advice in relation to their finances.

The lazy person’s guide to investing – in and out of KiwiSaver

December 2024   

I’m not saying do nothing at all!

But if you just take a little time to set up your investments well, you can then relax and do other more exciting things.

Check your investments only occasionally, such as when you receive your annual KiwiSaver statement.

How do you get set up? Firstly, make sure you’re at the right risk level.

Whether in a KiwiSaver or non-KiwiSaver fund, go to the KiwiSaver Fund Finder on sorted.org.nz

Choose “I’m not sure which type of fund is best for me”.

It will tell you your appropriate risk level for either type of fund.

It’s best to regularly drip feed the same amount into your investments.

This is done automatically for employees in KiwiSaver. 

Non-employees such as business owners and contractors should do it too – along with everyone investing outside KiwiSaver.

It’s easy, and your $100 - or whatever amount - buys more units in a fund when the markets are down. Great!

All set up? Research shows repeatedly that you’ll do better if you follow 3 rules.

Rule 1: Don’t try to time when to get in and out of investments.

Markets often rise right after they have fallen. People who bail out in a panic miss the recovery.

They’ve sold at a low price and later buy back in at a higher price. Not a winning strategy!

Nobody, not even the experts, is good at predicting when markets will change direction.

Rule 2: Don’t move to whichever investment or fund has done well lately – or even over the last ten years or so.

Studies find that winning funds or investments in one period can be more likely than not to perform poorly the next time around.

Chasing high returns doesn’t work well.

Rule 3: Stay put. 

The only times to move your risk level are:

• If you just can’t cope with the ups and downs of your fund. Reduce your risk but then stay there. No moving back when times get better!
• You’re getting closer to spending time. Within 10 years of spending? Move out of higher-risk funds to medium funds.  Within 3 years? Move to a low-risk fund or bank term deposits. 

Lazy is best!

Why should you make time your friend in KiwiSaver?

October 2024

We’ll look at:

The cost of not being in KiwiSaver – or of taking a savings suspension - for just 2 years. If you’re in, but you’re trying to persuade someone else to sign up, this should help!

How much extra you’ll have in retirement if you boost your KiwiSaver contributions a little each week.

Not in KiwiSaver?

Let’s say that you and your employer would each contribute 3% of your pay if you join.

If you’re 20, earning $40,000, and you delay joining KiwiSaver for just 2 years:

• In a balanced fund you’ll have$58,000 less at 65.
• In an aggressive fund you’ll have a huge$119,000 less.

That’s $58,000 or $119,000 less for food or fun in retirement!

What if you’re 40, earning $60,000, and you delay for 2 years?

The differences aren’t as big, but even so:

• In a balanced fund you’ll have$27,000 less at 65.
• In an aggressive fund you’ll have$39,000less.

That’s still a lot of food or fun!

Even at 60, earning $60,000, it would be a real pity to delay for 2 years.

• In a balanced fund you’ll have$8,800less at 65.
• And in an aggressive fund it’s$9,400 less.

For non-employees, the differences won’t be as big, but they will still be there.

It’s really worth joining now!

Now let’s look at how much faster your savings would growif you save an extra $10 a week.

You won’t notice it now, but you will at retirement!

It’s easy.Whether you’re an employee or not, just ask your provider how to set up a $10 a week automatic transfer from your bank account.

• If you’re 20, in a balanced fund you’ll have$60,000 more at 65. In an aggressive fund, it’s$112,000 more.
• At 40, you’ll have$20,000 more in a balanced fund, and$27,000more in an aggressive fund.
• And at 60, it’s$2,600 more in a balanced fund, and$2,700 more in an aggressive fund. Still worth having!

To do your own calculations, go to the KiwiSaver Calculator on sorted.org.nz.

Starting a conversation about money

August 2024

Why is money in a relationship so hard to talk about?

• Partners are brought up with different attitudes to money, and to taking financial risk.
• Discussions can feel like criticisms: "You want to spend money on THAT?" "You don't save enough" "You care too much (or too little) about wealth."
• One person knows more about money, so the other feels inferior.
• The family or business's finances are in a mess, and it feels easier to put off talking about it.

But like it or not, relationships just don't work well when there's a financial elephant in the room.
So how and when can you start a conversation?
Perhaps not when you've just discovered your partner has blown the budget!
A calm chat at another time might work better.

Use prompts to get started:

If you hear or read about someone in a similar situation to you, refer that video, podcast or article to your partner, and then discuss it.

Together watch or attend a Money Month event on sorted.org.nz

Check your progress together on a tool on Sorted – perhaps budgeting or tackling debt or making the most of KiwiSaver

Or the two of you could book a conversation with a free financial mentor via the MoneyTalks website.

Top tips on making it work:

Give each person some money to spend as you please – no questions asked.

Make use of the recent tax cuts. Note the increase in your take-home pay, and set up an auto transfer of that amount into a joint savings account.

If you're both earning, do this for both of you.

Every month, increase the transferred amount by $5. You won't miss it, but it really adds up.

Agree with your partner that the saved money will be used for:

1. An emergency fund, then…
2. To repay any high-interest debt, then…
3. To contribute to KiwiSaver if you are not currently doing so, or ...
4. To save for a first home, or reduce a mortgage.

Making progress together makes a big difference.

What to look for in your KiwiSaver statement

June 2024

If you're 18 to 65 and in KiwiSaver – and I hope you are! – you've probably received your annual statement, or will soon. It covers your start and end balances, the money that went in and out of your account, and which fund you're in.

But perhaps the most interesting numbers are:

• How much (roughly) you're likely to have at 65
• How that translates into weekly spending until you're 90
• The amounts are adjusted for inflation – so $100 a week will buy as much as $100 buys now.
• The spending amount excludes NZ Super.

The totals are estimates. There are no guarantees.

If you didn't get these projections, you probably changed providers recently.  You'll have to wait till next year.

The numbers provided assume:

You keep contributing at the same pace and stay in the same fund.

You make no withdrawals until 65 …

… And then your withdrawals will be regularly made during your retirement.

The rest of your money stays in KiwiSaver earning returns.

For a more precise calculation – including perhaps buying a first home – use the KiwiSaver Calculator onsorted.org.nz.

What if your weekly spend looks too low?

Ask your employer to raise your contributions. You can elect to contribute 4, 6, 8 or 10% of your pay.

Or regularly contribute extra money directly from your bank to your provider.

Sorted'sKiwiSaver Calculator tells you how much difference extra contributions make.

Another approach to consider is whether you should switch to a higher-risk fund.

The balance will fall sometimes, but over the long term it should grow more. Nervous? You could put, say 25% of your savings into higher risk, and perhaps gradually increase that as you see how it goes.

But – if you plan to spend some KiwiSaver money within 10 years, I suggest that you stick with a lower risk fund, as it is often more predictable in the short term.

And keep an eye on the fees you pay your provider.

The KiwiSaver Fund Finder tool onsorted.org.nz tells you how your provider ranks for fees.

What if:

Your KiwiSaver balance is lower than last year? That happens fairly often, especially in riskier funds. Stick with it. Your fund is likely to recover over time.

You live past 90? Many people find NZ Super is enough at that stage.

Splitting KiwiSaver when a relationship ends

May 2024

NOTE: These are Mary's own personal views and they are of a general nature. This is not a substitute for professional legal advice, which we encourage you to obtain.

Your KiwiSaver has your name on it and belongs to only you.

But still, the law says you must take it into account in a relationship property split.

3 out of 4 people breaking up don't realise this, according to Retirement Commission research.

Under the law, you must include the following information, as part of relationship property:

• All KiwiSaver contributions from you, your employer and the government made during the relationship.
• The growth on that money – returns such as interest, dividends and gains.

Excluded: All contributions made before the relationship started, and the growth on that money.

Same for your ex-partner.

But you may both still be able to keep your KiwiSaver accounts intact, if you have other assets that can be included in the settlement.

Let's say you both joined KiwiSaver after your relationship started, and your balance is $40,000 when you split.

If your ex's balance is $80,000, they need to give you $20,000 to even it up.

Instead of breaking the KiwiSaver, they could give other relationship assets, such as a car, furniture or other investments, worth $20,000.

Or you could get a bigger share of your house.

But if that won't work, a lawyer may be able to apply to the court for an order requiring your partner's KiwiSaver provider to pay out some of their money.

It would probably go into your KiwiSaver account or bank account.

What if you separated in the past, and didn't receive your share of your partner's KiwiSaver money?

I suggest you ask a lawyer about this to see what your options are.

KiwiSaver tips for women at all life stages

March 2024

March 8 is International Women's Day. So we're looking at financial issues that tend to affect women more. But the messages still apply to everyone.

Early in your career...

If you're not already in KiwiSaver, sign up now.

If you're on a savings suspension, get off it!

Contributions from the government - and from your boss if you're an employee – make KiwiSaver really hard to beat.

The sooner you start, the better.

The KiwiSaver calculator onsorted.org.nz tells us that, in a low-risk defensive fund, if you start:

• At 20, earning $50,000, you could have up to $419,000 at 65.
• At 25, earning $60,000, you could have up to $365,000 at 65.

That's $54,000 less to play with in retirement.

Note: Based on 3% contribution. Inflation is not accounted for.

What if you use a higher-risk fund?

Your balance will fluctuate more. But learn to live with that! Your money should grow faster over the long term.

Redoing our calculations, but in an aggressive fund, if you start:

• At 20, you could have a little more than $1 million at 65. Wow!
• At 25, it could be $806,000 – about $200,000 less for retirement fun.

At any age, you'll probably get faster growth in an aggressive fund - although it's not wise if you expect to spend the money fairly soon...

Note: Based on 3% contribution. Inflation is not accounted for.

Heading towards a home purchase or retirement

Move from a higher-risk fund to middle risk when you are within about ten years of withdrawing it.

Then, within three years, move to a low-risk fund.

This is likely to prevent your balance from dropping close to withdrawal time.

Taking a break in your career…

Keep contributing to KiwiSaver – at least $20 a week, or $1042 a year.

Then you'll get the maximum government contribution of $521. It all adds up

On paid parental leave? From mid 2024, the government will replace the 3% employer contributions you miss, as long as you keep contributing 3%. Do it!

In retirement…

Consider not moving all your money to lower risk.

You could keep what you don't expect to spend within ten years in higher risk or at least a balanced fund.

And put your middle-term spending money in medium risk.

You should get higher average returns over time.

How to pick a provider – for KiwiSaver and other investments

February 2024

Your choice of provider - In or out of KiwiSaver - can make a big difference to your outcome.

So how do you pick one? Not by:

• Staying with the one you were ‘defaulted' into when you first joined.
• Picking the one with the most appealing ads.
• Checking who has had the best returns lately.

Hang on a minute! Surely returns matter?

Last year's best performer is likely
to be best in the future – right?

Wrong!

Much research shows that recent stars are quite likely to do badly next time.
Sure, occasionally a provider keeps doing well for several years.

But the top performers over a decade often rank much lower the following decade.

So how should you choose?
Maybe pick the provider that charges the most?
After all, aren't the most expensive brands of many things often the best?

Sorry, but it's "No" again.

Those funds with the highest fees tend to do no better than the others – when looking at returns before fees.

After fees? Low-fee providers tend to do best.

That's how I suggest you choose:
Select from the low-fee funds.

On the Smart Investor tool on sorted.org.nz, click on funds at your risk level – from aggressive funds down to low-risk defensive funds.

Then sort by "Fees (lowest first)".

Pick your provider from the first half dozen by clicking on each fund name and reading more about them.

You may also want to take ethical investing into account.

There's info on the ethics of KiwiSaver and non-KiwiSaver funds at mindfulmoney.nz

Choose from the low-fee funds whose ethics suit you.

Decided to switch providers? It's easy, especially in KiwiSaver.

Just tell the new provider you want to move to them, and they will take care of the transfer.

Outside KiwiSaver, withdraw your money from one provider and deposit it with another.

Setting financial goals for the new year

January 2024

Whatever financial goal you're aiming for, it's easier if you set a goal. It might be to:

• Get debt off your back.
• Put aside money for a rainy day.
• Save for a big, essential purchase like a car or appliance.
• Save for a treat, such as a holiday.
• Put together a deposit for a first home.
• Invest for a comfortable retirement – in or out of KiwiSaver.

Want to do more than one of those? Great! Tick them off one at a time. First, save for any truly essential purchases. Try really hard not to borrow for them. Next, get rid of high-interest debt – it destroys wealth. After that, get the rainy-day money sorted. Then it's up to you!

Goals should beSMART.

Specific	"I will save $100 a month this year."
Measurable	"By April, my savings account should total more than $300, plus interest."
Achievable	"I can manage $100 a month, even if I have some unexpected expenses."
(W)ritten	Write your goal on paper and attach it to the fridge door, bathroom mirror or car dashboard.
Time-bound	"I will achieve my goal by next Christmas".

Tips for success:

• Tell family or a friend. Ask them to check on your progress every now and then.
• Set up an auto transfer the day after your income comes in.
• Extra income? Use some to boost your progress.
• Send a message to yourself in the future using futureme.org to check you are on track.

More tips:

• Give yourself inexpensive rewards when you reach, say, a quarter, a half and three quarters of your goal - perhaps an ice cream or a weekend off housework.
• If you fail one week or month, don't double your saving next time. That's too hard. Keep it achievable.

Good luck with reaching your goals. Although it's not really about luck but sticking at it!