Kiwi Saver, Mary Holm financial writer and columnist

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Weekend Herald

Mary’s Q&A column appears in the Business section of the Weekend Herald. Mary was a finalist for the "Best Columnist – General" award for this column in the 2014 Canon Media Awards.

NZ Herald 3 February 2018

Q&As: Is a tiny house on wheels financially wise?
- Young couple should go ahead and buy a home, despite the market
- Last week's binary options victim "deserves to be fleeced"
- 2 Q&As about Israel's connections to binary options
- Do more bathrooms mean more use of water?

Question: Me and my Mrs are looking to build a tiny house on wheels and rent a space for it to park up. This will cost around $100/$150 a week. I'm doing this to keep costs low so we can invest in passive diversified index funds.

Is it financially better to do this or buy a house then invest after? We're both 31 years old.

Answer: What an imaginative idea. It might be a tight squeeze to live in a tiny house - as opposed to holidaying in one. But there are some really clever ways people make the most of every cubic centimeter. I'm sure you'll do your research on that, and on regulations around plumbing and so on.

And financially it looks like a winner, whether your goal is to buy a bigger house later or continue as you are - perhaps using your savings for a house purchase when you retire. That might depend on whether you have children, in which case "tiny" might turn into "impossibly small".

The point is that in the meantime you'll be paying much less for accommodation than most people pay in rent, so you'll be able to save much more.

Will the savings grow faster in index funds than they would in a house?

It's worth noting the numbers in Brian Gaynor's column last week. In the ten years to the end of 2017, NZ house prices grew 63 per cent and Auckland prices grew 96 per cent, meaning they close to doubled. But - with much less fanfare - international share prices also grew 63 per cent, NZ shares grew 108 per cent and NZ bonds grew 96 per cent.

Nobody knows what the future holds, but shares and bonds are probably as good a bet as houses.

A warning though: If you're getting within ten years of buying a mainstream house, it would be good to switch most of your savings into bonds. And when you're within two or three years, I would switch to bank term deposits. Then you won't be hit by a market slump right when you want to buy.

P.S. I've been in trouble before for commenting on correspondents' grammar. But as the daughter of an English teacher, I struggle when people say "Me and my Mrs" instead of "My Mrs and I". Still, you're far from alone, and there's no way what you've said can be misinterpreted. So I'm working on gracefully accepting that this is just another way English is evolving!

Question: My husband and I are 34, with a young baby. We have worked hard and saved $415,000, with another $110,000 in our retirement funds and $7,000 in shares.

With one of us now only working part-time, we can only save $30,000 a year (above our super contributions). We have no student loan, no debt and no credit cards. But we also don't own anything - no cars and no home.

We are renting on a long-term lease, but I would now like to have our own home for our child, in a neighbourhood where she can go to school close to friends and family.

We have seen properties in the area for $960,000, which I think we can afford. My husband argues we are better off continuing to save, wait for the market to come back, and then buy in a few years to ensure we are not overpaying and to reduce risk. I'm starting to get restless. What should we do?

Answer: It's almost a mantra of mine: don't try to time markets. Picking when to buy or sell an investment is a mug's game. History shows that people get it wrong as often as they get it right - basically because too many unforeseeable factors affect markets.

If you're investing in shares, bonds or another investment you can purchase in bits, the solution is to buy some now, some soon and some later. You'll end up getting your timing right at least some of the time.

The trouble with buying property is that it's all or nothing - one of the reasons it's a riskier investment than many acknowledge.

And there's no denying that this doesn't feel a good time to buy. Average house prices are at crazy multiples of wages.

So what should you do? It's always good to look at a worst case scenario. If somebody buys a property and its value drops to, say, two-thirds of what they paid for it, of course they'll be really annoyed. But there are also other possible outcomes:

- Many people would find themselves with what's called negative equity - the mortgage is bigger than the value of the house. This may not matter much if they stay in the house. After a while prices will recover. But what if they want or need to move? After selling the house, they will still owe the bank money - hardly a strong position from which to buy another house.

- Those with a smaller or no mortgage don't need to worry about negative equity. Still, a big drop in the house value would make it harder to move to another town or country where prices hadn't fallen as much.

- Anyone wanting to extend their mortgage - perhaps to make house alterations or to set up or grow a business - would find that difficult if not impossible.

How does all this apply to you? With a close to 50 per cent deposit, you're highly unlikely to end up with negative equity. But the second and third outcomes could be relevant to you.

On the other hand, house prices might not fall appreciably. You could be waiting, restlessly, on the sidelines for years.

Unlike many tenants, you've got a long-term lease. That removes one of the big negatives about renting - that you could be kicked out without much warning. But still, renting is not the same psychologically as owning your own place. This is your life we're talking about, not just your money.

What clinches it for me is that you two are in an unusually strong financial position for your ages.

If you were closer to retirement, had a smaller deposit, or a weaker track record for saving, I might suggest you hang about for a year or two to see what happens to house prices. But I just can't see you in financial difficulties. So get on and enjoy home ownership. In the long run I reckon you'll be glad.

Older readers will probably agree that, over a lifetime, people tend to make some property decisions that turn out to be good, and some that are not so flash. It all comes out in the wash.

Question: Last week's column contains a letter from some guy who lost money on binary options etc, and wants others to avoid the same mistake. Are there likely to be any more people out there as stupid as this person?

Frankly people as greedy/stupid deserve to be fleeced. In fact I think there is a public duty to take their money?

Instead of giving the idiot sympathy you should just tell him he is a cretin. I am sick and tired of reading about these gullible people. I just wish I could meet one so I can get a slice of the action.

Answer: The correspondent last week didn't have to tell his story in detail. Sure, he wanted some suggestions on what to do next. But he also told what happened to him, blow by blow, as a warning to others.

Despite losing more than $100,000, he wasn't thinking only of himself. If you don't want to give him credit for that, I do.

I'm sure there are other readers out there who share your point of view: "You made your bed, you can lie in it - and what's more I'd like to steal your pillow."

But I prefer some other sayings, such as Charles Dickens' "No one is useless in this world who lightens the burdens of another."

Or how about Abraham Lincoln's "He has a right to criticize, who has a heart to help."?

Or perhaps the words of author Michael P Watson: "Strong people don't put others down... They lift them up."

Question: Read your excellent column last week about the guy scammed on binary options. Thought you gave him good advice.

Regarding the Israeli company, I've been told that Israel has become one of the biggest and most sophisticated scammers around. They employ scammers that have the same culture and language as the intended victims, so that they can scam you in local dialect, and are even scamming the Nigerians who invented this stuff.

The Israeli company that offered to help is the second part of the scam. What the first guy didn't take the second one will. Under no circumstances is he to engage the company offering Israeli help, but you have already told him that.

Answer: Yes, Israel and binary options seem to be inextricably linked. Read on.

Question: Just to suggest you (or your correspondent) goes to the "Times of Israel", which you can get emailed to you in English and which has been pursuing the binary options scammers (most based in Israel) for a number of years. I haven't checked whether the back articles are still available, but it has been a pretty comprehensive rundown on a hideous scam.

Answer: Thanks. I did actually mention that newspaper's extensive coverage on binary options trading in a Q&A last year, but it doesn't hurt to repeat it. And by the way, you don't need to get the paper emailed to you. You can just Google it.

One thing I've learnt from the Times of Israel is that last October the Knesset banned the binary options industry, which the paper describes as, "a vast, multibillion dollar scam that has defrauded millions of victims worldwide for a decade."

One of the most shocking articles, at www.tinyurl.com/BinTrader, is written by a reporter who trained undercover for a day as a binary options trader. It's an interesting read. In the course of the day, a colleague told him, "If you want to do this job, you can't think about people. You must not give a shit about anyone."

Question: I was surprised to see a reader's comment in your column that large houses need more than one bathroom.

All living creatures need water to live. Worldwide water is a scarce commodity and getting scarcer with the increasingly higher temperatures each summer. As a result we should be conserving and recycling water rather than encouraging wastage with extra bathrooms.

Even if you live in an area with reticulated water that is not a reason to waste it. It would appear that the conservation message as regards water has not reached urban areas.

Answer: It's not clear that having more than one bathroom means you use more water - although I suppose it's more likely you will linger in the shower if there's not a queue at the door.

More generally, water usage will probably be in the spotlight more than usual throughout this long hot summer. And that's got to be good. But we're straying out of what this column is about.

* Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and 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 Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

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