Mary Holm: Market volatility got you stressed? Just relax

OPINION:

Q: The issue in share investing is your appetite for risk. But whichever one chooses — and I go for “far less volatility (and sleepless nights)” — the end result is the same.

Buy and hold or, if it suits you, get out when the 200-day moving average dips. The 200-day chart seems as infallible as such things can be.

A: For readers wondering what on earth you are talking about, everyone who invests in shares — whether directly or via a share fund or a higher-risk KiwiSaver or other fund that holds lots of shares — has two choices around trading:

• Buy and hold. You leave your money where it is, regardless of what the markets are doing. This should be 10-year-plus money, and you can be pretty confident the markets will have time to recover from any downturns by the time you want to spend.

• Get in and out of the markets, hoping to avoid the downturns and be in for the upturns. This might mean cashing up or moving your money to a lower-risk fund, and returning when things look better.

I always choose buying and holding. It’s easier, and research shows that in the long run it works best.

However, people are always coming up with ways to try to predict market ups and downs, so they can win by timing their entries and exits. Our correspondent has found a system he likes, and sent me an article about it by Brett Arends on Marketwatch.com.

Some excerpts: “Money manager Meb Faber worked out years ago that pretty much every stock market crash or bear market in history has been signalled in advance.

“If you just cashed out when the market index first fell below its 200-day moving average, you avoided nearly all the carnage. (OK, in the sudden 1987 one-day crash you got all of a single day’s notice.)

“Even if you didn’t end up making more money in the long term than a buy-and-hold investor, he found, you made pretty much the same amount … and with far less ‘volatility’ (and sleepless nights).”

Arends continued, “Last year this trigger got you out of the S&P 500 [the main US share index] on March 2, just before the main implosion. The market rose above the 200-day moving average again, triggering it was time to get back in, on June 1.”

I looked back at those dates. The strategy meant you skipped nearly three-quarters of the Covid plunge. You sold when the index had fallen to 3090, missed the bigger drop to 2237, and came back in at 3056.

That’s tidy. But it doesn’t actually gain you anything — especially after you take any trading costs into account, as well as the bother of watching the 200-day chart. It would have been much more impressive if you had re-entered the market near its trough.

And what about the 1987 exception — one of the biggest share crashes?

The thing is that Arends, and our correspondent, seem to think the alternative to timing the markets is tossing and turning through downturns. But buying and holding doesn’t have to mean sleepless nights. It can mean ignoring the markets, and reading novels instead.

Sure, you can’t escape the talk during a big downturn. But I just look up from my book and say, “Here we go again. I’ll just sit tight and it will come right.” And it always does.

KiwiSaver confusion

Q: I finally followed your advice last year and opened a KiwiSaver account with a one-off contribution of $1100 to secure the full government contribution. Instead, I only received $42. The bank said that because I only joined with 15 days to go, I would only get the contribution pro-rata on that month.

I am so upset as I have only just realised this happened as I go to add in another payment. They said I joined too late last year — even though I had until the end of June to make a one-off payment as per the KiwiSaver government website, and bank advice on the day of opening the account.

Are you aware of this situation, and do you have any advice on how I can fight this?

Thanks. A middle-aged, single, previous financial abuse survivor trying to get ahead.

A: Oh dear. I may be partly to blame, because I don’t always mention the first-year situation when urging people to join KiwiSaver and receive the government contributions.

I can’t always go into all the bells and whistles. But I’m sorry if I’ve misled you.

The basic rule is that once you’ve been in KiwiSaver a year or more, as long as you contribute $1042 or more each KiwiSaver year — from July 1 to June 30 — the government will contribute its maximum $521. If you contribute less, the government puts in 50 cents for every dollar you put in.

However, in your first year in the scheme, the government’s maximum is proportionate to how much of the KiwiSaver year you have belonged.

If you join on January 1, halfway through the July-to-June year, the maximum will be about $260 in your first year. In your case, you joined right near the end of the KiwiSaver year, so your government contribution was tiny.

That applies only in your first year, though. From now on, you are eligible for the full $521. So do make the most of it.

After your first year, it doesn’t matter when you contribute, as long as it’s there by June 30. But I recommend setting up an automatic transfer to feed in $20 a week or $87 a month. It’s easier to budget, and you avoid putting the lot in at what turns out to be a bad time in the markets. Your provider can help you set up regular payments.

This is not the first time I’ve heard of bank employees giving the wrong advice about this.

Clean up your act, banks!

You could try complaining to your bank. But unless you have proof of what you were told, I don’t like your chances of getting money out of them.

Rather than fighting, look at what happened this way: the $1100 you contributed was a good start, and you will have earned returns on that money. From now on things will be even better, as you will also get full government contributions as long as you keep contributing.

Good on you for joining, and all the best for the future.

Reminder to others: check that you will have contributed at least $1042 to KiwiSaver between 1 July 2020 and 30 June 2021. If not, you can deposit extra money before the end of this month to get the government’s maximum input.

Chasing returns

Q: I am recently retired and have a large sum in KiwiSaver, split between two funds, moderate and balanced. Over the past six months the return is approximately 2.73 per cent.

Is it perfectly okay to change fund provider regularly — say annually to keep my returns as high as possible?

A: It seems you didn’t you see last week’s column — and many columns before that — making the point that it’s best to take little notice of past returns, because they are often not repeated.

Switching providers is okay and should be easy. But chasing past returns is a mug’s game. I strongly recommend you switch to funds with low fees and stay there.

Renter-landlords

Q: I read in your column a few weeks ago about the first home buyer from Auckland purchasing in Hamilton, and renting out that property, whilst renting in Auckland. I am in the same boat and have been waiting for a friend to finish her EQC repair work on her property across town in Christchurch before I put an offer in to buy it from her.

I hope to continue to rent where I am as the rent is reasonable and, as I work from home, it makes sense to stay here whilst renting out my new place across town.

The plan is that when my daughter and I get moved on from this rental, we move into our investment property and it becomes our first home.

The government says I can’t use KiwiSaver first home help because it’s too hard to find out if investment properties are purchased by first home buyers. But surely with all the paperwork I’ve filled out so far for banks, the first home grant (backup in case this sale falls through) etc, they could figure this out and support first home buyers.

Now I’m gutted as I get no interest deductibility and increased bright-line. I really feel lately it’s one step forward and two steps back in housing.

A: Sorry, but there’s no good news for you or others planning to become renter-landlords — as they are sometimes called.

For a while it felt as if I was on a wild goose chase on this topic. There are several government departments involved. But finally I got some helpful answers from the Ministry of Housing and Urban Development (HUD) and the Ministry of Business, Innovation and Employment (MBIE).

I asked first whether people in your situation could use KiwiSaver first home help and the First Home Loan and Grant.

Said MBIE, one of the rules about withdrawing KiwiSaver funds to buy a first home “is that members cannot use the KiwiSaver withdrawal to purchase an investment property, which is why members are required to live in the property for at least six months.”

Meanwhile, from HUD, “The First Home Grant and First Home Loans are designed to support people into their first home. The eligibility criteria are clear that the First Home Grant and First Home Loan are not for people looking to invest in an investment property, including an investment property that the owner intends to live in at some point in the future.”

Okay, I said, but why is it too hard to include renter-landlords who have never owned a home?

“We understand that people have a range of different plans to get into home ownership,” says a HUD spokesperson. “Extending the First Home Grant and First Home Loans to investors, even where the buyer intends to live in the home sometime in the future, would be inconsistent with the purpose and intended use of these products.

“Assisting people to purchase a first property that they intend to initially rent out could make it more difficult for first home buyers who want to purchase a home to live in from the outset.”

Not sure if that’s fair. Arguably you deserve help as much as others.

However, the spokesperson added, “It would also be difficult to define and administer this type of exemption. For example, it would need to be determined how long a purchaser could rent out the property and what would happen if the person never moved into the property.” Sorry, but that is a fair point. This could become an administrative nightmare, with people cheating the system right, left and everywhere else.

The HUD spokesperson says there are no plans to extend the grants and loans to people in your situation. He adds, though, “The Ministry is monitoring trends in home purchases in New Zealand by investors and first home buyers. The Government’s aim is to give all New Zealanders a better chance at purchasing their own home.”

On KiwiSaver withdrawals, MBIE says, “While there are no immediate plans to change the KiwiSaver first-home withdrawal rules, the Government is always considering how KiwiSaver could be improved.” Rays of hope. But don’t expect good news soon.

I suggest that if you buy your friend’s property, move into it, despite the inconveniences.

Or buy another place more suitable to move into.

– 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 [email protected] 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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