OPINION

Q: I am hoping you could direct me to specific financial help. Essentially, my husband and I need some sort of combination financial/couples counselling service.

I am a born saver. He is a born
spender. In the two years we have been married he has dropped three major financial (debt) bombshells on me. I get upset, then make a plan and move forward. Then the next bombshell lands.

Our other core values are fundamentally compatible. But I fear our different money attitudes will wreck us, both financially and emotionally.

He is not a bad or selfish person, he was raised with polar opposite money values to mine and he is trying to be better with it. He dutifully reads books I hand him and tries to stick to a budget I make. But the credit card bombshell just landed again. I would love some professional help.

A: I’m sure many other readers relate to what you’re saying – whether they are the bombshell dropper or the recipient. And you’re right, money issues can ruin a relationship, even though the two of you get along well in every other way.

But help is at hand. What’s more, it’s free – an important point for couples who are probably in debt.

“A financial mentor will help walk this journey alongside the couple,” says Ange Smart, team lead at MoneyTalks, which is run by non-government organisation FinCap.

“It is not an uncommon situation, and sometimes you just need a third party to help bring it all together so that it feels like you are on the same team,” says Smart.

If you click on Find Help Now on the moneytalks.co.nz website and type in your location, you’ll get a list of financial mentors in your area. I’ve heard good stuff about this service.

By the way, while I’m no expert in this area, I’m told there is more and more research around how autism, ADHD, dyslexia, dyscalculia (maths version of dyslexia) and the like affect people’s ability to save, stay on a budget and control spending.

For example, it’s not uncommon for neurodiverse people to experience “time blindness” – the feeling that tomorrow doesn’t exist. So making a budget for next week doesn’t compute. This can explain why some people can’t do the right thing financially when they know they should.

With more and more people being diagnosed as neurodiverse, it might be something for your husband to look into. A GP or psychologist should be able to help.

MoneyTalks also assists people with other money-related issues. “We connect people and whānau with their local foodbanks, help them find their way through Work and Income processes and entitlements and support people to manage their money,” says their website.

Who knows baby’s future?

Q: We’ve just welcomed a new baby boy into our family and are wondering if you think it’s worthwhile to join an investment programme for his university?

My parents joined Australian Scholarship Group when I was born, and I wondered if these programmes are still relevant?

A: Congratulations on the new little one! It’s great that you’re thinking of saving for him from the start. With lots of years before the money is spent, he will greatly benefit from compounding returns.

However, I suggest you save somewhere where the money can be used for anything, not just university. Your boy may, instead, want to start a business or pursue a career in the arts or … who knows?

A low-fee non-KiwiSaver fund run by a KiwiSaver provider can be a good choice. You could start in a higher-risk fund, as you have way more than ten years before the money is likely to be spent. The balance will wobble around, but over time should grow faster than in lower-risk investments.

Then, as the spending time approaches, you could move to a medium-risk fund and later a low-risk fund – so you know the balance won’t drop just before it’s withdrawn.

Flaw in index investing?

Q: I’m thinking that a US index fund is becoming increasingly undiversified.

The so-called “Magnificent Seven” form a large part of those indices due to their size. That means those indices have a significant proportion in a small number of technology companies whose valuations are unrealistically high, with limited value now that the cheap money that has contributed to their growth is drying up. Maybe reminiscent of Brierley Investments with their 20 per cent of the NZX in 1986?

In fact, is this not a flaw in index fund investing? It encourages the flow of funds from small to medium companies to a few large ones. Surely the upside growth potential of those large companies is far less than the smaller, undervalued ones. I guess that’s why it’s good that there are indices on other sectors that will ignore those overvalued behemoths.

A: You’re referring to the fact that seven companies – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – have come to dominate the performance of the US’s main stock market index, the S&P500.

The value of shares in these companies has risen so fast recently that they now make up more than 30 per cent of the index, even though they are just seven of 500 companies.

And given the Magnificent Seven are basically all in the one industry, investing a large proportion of your savings in an S&P500 index fund will give you too much exposure to that industry. If tech stocks hit hard times, as they did around the turn of this century, your balance could plunge. Also, you would be investing in just one country.

Luckily, though, there’s no need to put yourself at such a risk. As you say, there are many index funds – including lots offered by New Zealand managed fund providers – that invest in smaller US shares and small and large shares from all over the world.

It’s the same old story: diversification reduces risk without reducing average returns over the long term. Read on.

In everything!

Q: I am a fan of passive funds, and I read from your columns/interviews about your opinion on passive funds, which I totally agree with. I am currently with SuperLife KiwiSaver. However, instead of opting for their managed funds such as the high-growth fund. I did my own combination of DIY sector funds with about 11 sector funds (NZ Top 50, NZ dividends, NZ bonds, Australian shares, S&P/ASX200, US500, US Large Growth, Total world, Asia Pacific Fund, Europe Fund, Emerging Markets) with different percentages and covering different countries. The majority are shares except for a small amount of bonds.

A: For other readers, a passive fund is – in almost all cases – a low-fee fund that simply invests in the shares in a market index, so it’s often called an index fund.

The main point about your approach to investing in index funds is that you have broad diversification, which is great. You could probably achieve something similar if you invested just in the Total World fund plus, perhaps a smallish percentage in a fund holding New Zealand shares, to give you more of a local bias.

Your current mix will be somewhat different from that – depending on how much you have in each fund. But nobody can really predict whether you will be better or worse off because of that.

As long as you’re happy keeping track of all those investments, and the fees are not higher than on the main funds, go for it!

Super Fund could do better?

Q: As you mentioned last week, the NZ Super Fund (set up by the government to help fund NZ Super payments in future decades) compares its own performance to a reference passive portfolio of their choosing. Over the last 20 years the NZ Super fund claims 9.53 per cent per year returns versus their reference portfolio return of 7.93 per cent. That’s pretty good!

But what about the S&P500, the gold standard of reference passive portfolios? It has returned 9.8 per cent per year with dividends reinvested! Perhaps the NZ Super Fund should have saved the money on all its expensive staff and thrown it all into the S&P500! Also worth noting is how the NZ Super fund invests. They don’t just buy shares and sit on them. They buy whole companies and reshape them. Can we ordinary investors buy Shell’s retail arm, rebrand it as Z Energy and list it on the sharemarket for a $210 million investment and $1.1 billion return? Not likely! But even with all the capital and ability, it seems the S&P500 still wins.

A: To some extent today’s third Q&A addresses this issue. But let’s see what the NZ Super Fund has to say.

A spokesman acknowledges the S&P500 has performed very well, “driven by strong earnings (a product of robust consumer and government spending) and by the performance of high-profile tech stocks including NVIDIA (a five-year return of 1094.64 per cent), Tesla (up 807.56 per cent over the same period) and Apple (up 340.4 percent).”

“However, by law the Guardians of New Zealand Superannuation is required to invest the Super Fund ‘on a prudent, commercial basis … in a manner consistent with best-practice portfolio management … maximising return without undue risk to the Fund as a whole’. Putting all our investments into 500 US companies would create a level of concentration risk that is not compatible with that mandate – even if hindsight shows it would have worked out fine over the past 20 years.”

The next 20 years may be quite different, as our third correspondent suggests.

Currently, the Super Fund’s reference portfolio and passively managed investments track four indexes: the MSCI World Climate Paris Aligned Index and the MSCI Emerging Markets Climate Paris Aligned Index; New Zealand shares in the S&P/NZX 50 Gross Index; and fixed income assets in the Bloomberg Barclays Global Aggregate Total Return Index.

Decisions about these investments are reviewed regularly.

The spokesman also points out that in 2009 the Government said that it expected that “opportunities that would enable the Guardians to increase the allocation of New Zealand assets in the Fund should be appropriately identified and considered”.

“The five percent allocation to New Zealand equities in the Reference Portfolio, while significantly overweight relative to the NZX’s share of global equities, represents a meaningful contribution to our domestic capital markets that the Guardians Board believes does not contravene our mandate to maximise return without undue risk.”

In response to your point about Z Energy, the spokesman says, “the Super Fund’s long investment horizon enables us to invest in illiquid assets. That, and our sovereign status, gives us access to investment opportunities (like Z Energy) that are not necessarily available to other institutional investors – let alone retail investors.”

As I said last week, the Super Fund and the sorts of funds you and I can invest in are different beasts.

Taking up a dare

Q: Your response to the “Judging tax loopholes” letter last week, including your implied condemnation of “people doing fancy footwork around tax law” to (legally) minimise their tax payments, was ironically timely given that it came one day after it was revealed how our Prime Minister (legally) claimed $52,000 a year for living in his own apartment.

Dare to publish your assessment of the PM’s actions? Or at least publish this message of mine? – Of course not.

A: This is not a column about politics – although we do sometimes wade into the muddy waters of government policy around KiwiSaver, NZ Super, taxes and so on.

So I’ll just say that, when it comes to both tax and work expenses, some people claim everything they can legally, while others consider what’s fair and reasonable. Wise politicians keep in mind how their behaviour looks to struggling taxpayers.

For the record, Prime Minister Christopher Luxon is no longer claiming that money and has repaid what he’s received so far.

– 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 or click here. 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.