Kiwi Saver, Mary Holm financial writer and columnist

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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 March 18 2006

Q&As: Man panicked and bailed out of share fund. No!
Real Estate Institute denies that it's hard to buy a house in NZ.

Question: Back in 2000, I invested a total of $20,000 in Tower's Tortis International share fund. For a few months the investment increased in value but then suddenly dropped. Two days ago, I withdrew my funds, which amounted to $13,376, a loss of $6,624. For quite a long time, the loss was even more - around $11,000!

Is there a point where the prudent investor will decide that enough is enough and bail out?

My only reasoning for leaving money in this scheme for so long was a rather forlorn hope that it would dramatically improve and I might at least get my $20,000 back.

You have probably covered the topic in one of your newspaper articles, but if you haven't, I would be grateful if you did.

Answer: Oh no! Not another one who has made perhaps the biggest investment mistake: getting out of a basically sound long-term investment when the going gets tough.

I have indeed covered this before, but it's a message that obviously needs repeating.

The point where an investor bails out should be about ten years before they want to spend the money - when they should move to something with less volatility. The decision should not be driven by market movements.

Any time you invest in diversified shares or a share fund - or property for that matter - you should assure yourself that you will stay put for years.

Tower's blurb about Tortis International says seven years-plus, but I prefer ten. Why? There has almost never been a ten-year period during which international share indexes - such as the one in which Tortis International invests - have fallen. Over shorter periods they certainly do fall, but given time they always regain the loss and then some.

You had the misfortune to buy into the fund right around the peak of the extraordinary tech stock boom - probably the biggest ever in international shares. And you've since gone through one of the biggest drops ever - exacerbated by the rising Kiwi dollar.

The 2000 peak was so high that it is quite possible that 2000 to 2010 will be one of the first 10-year periods during which the indexes don't regain all that is lost. But history suggests things will come right in due course, and continue to trend upwards.

Look at New Zealand shares on our graph. The 1986-87 boom and slump was of similar magnitude, percentagewise, to the more recent world boom and slump. The local market took about 10 years to regain the 1986 peak. But note what has happened since.

Indeed, Tortis International has performed pretty well lately. In the year ending January 31, it returned an impressive 21 per cent, net of tax and management fees (except entry and exit fees, which vary). And in the last three years the average return has been a respectable 10.4 per cent a year.

Who knows what the future holds? But the likelihood that the Kiwi dollar will fall in the next few years should help things along.

If I were you, I would get back into that share fund or a similar one and stay there. It's an index fund - the sort I recommend, largely because they charge lower fees.

If you won't do that, please at least promise that if you go into any other share or property investment, you will stick with it for ten years or more, come hell or high water.

A couple of notes about the graph:

* The cash line shows roughly the performance of term deposits. While the ride is much smoother than for a share investment, after 25 years the investment is worth only about half as much.

* While NZ shares are currently doing better than international shares, at various times over the years the reverse was true. It's good to invest in both.

Question: While I agree with your comments about self inflicted wounds to the wounded property investor (in last week's column), there are other factors at work here.

Recently returned from overseas, we have been trying to buy a suitable property. But we have found that the quantity and quality of information (not least of which is the indefensible omission of any sort of guide price) available from agents is often not adequate to allow proper informed decisions for such a major investment.

By way of example, on two recent occasions, agents have made it clear to us that they would not be in a position to recommend our offer if we made it subject to any sort of pre-purchase survey. Suffice to say, we walked away from both properties.

Given the importance to both the psyche and economy of New Zealand, we could do worse than follow the lead of the UK, where, despite the considerable and relevant property detail already offered by agents, the government there has seen fit to introduce mandatory 'vendor packs'.

These must include (actionable) statements about the construction of the property, any known or past defects and past or present disputes with contractors, councils, neighbours or other bodies.

I could also mention that agents' fees there are 30-50 per cent less than in New Zealand, while many agents have three years (as opposed to two weeks) relevant study and qualifications behind them.

A statutory vendor's pack would go a long way to ensuring a more orderly and responsible market. Any additional cost would be more than offset by the benefit to the market at large, and of agents recognising that substance, and not style, is the hallmark of a mature and orderly market.

Until that happens, there will be more hapless investors drawn into what is, by any reasonable and objective measure, an inadequately regulated market, with far too many of the uncomfortable characteristics of a cartel.

Answer: Many markets in New Zealand are not as regulated as they are in the UK, and many of us like it that way.

While regulation often provides protection, it also increases bureaucracy and costs. To some extent, I think, people have to look after themselves and not rely on the government to keep them from harm.

Having said that, if some agents offered something like a vendor pack in New Zealand, I'm sure buyers would prefer those agents.

"The idea has got a lot of merit," says Real Estate Institute president Howard Morley - somewhat to my surprise, given that agents work for sellers, not buyers.

He adds, though, that some of the information you mention, about past defects, disputes and so on, may simply not be available anywhere.

"We've got LIM reports here, but they're not very thorough. They just show the drainage plan on the site, when the house was built, the zoning, valuation, and whether there are building permits to build a garage etc. They're not a structural report.

"The council often adds a rider that 'it's the best information we've got'."

Still, if a buyer gets both a LIM report and an inspection by an independent building consultant, they should learn what they need to know about a property.

But what about your experience, of two agents being unwilling to "recommend" your offers when you wanted to get inspections done?

Morley suggests that maybe there were other buyers making similar offers but without inspections - which do take time. The other obvious explanation: Something was wrong. Clearly it's wise to get an inspection, even if it means you sometimes miss out on a property.

Idea for sellers: If your property is sound, why not get an independent inspection done yourself and hand out copies to would-be buyers? It could well encourage more offers.

In response to some of your other points:

* On prices, of course auctions and tenders don't include prices. The sky is supposed to be the limit. And more expensive properties are sometimes listed as "price on application" to protect privacy, says Morley.

Most other properties have listed prices, he says, adding that, "You'd wonder why" if they don't.

In any case, even in auctions and tenders, the agent will usually give you a price range if you ask.

* On the difference between New Zealand and UK commissions, Morley says UK agents do less. More of the work is done by lawyers, valuers, banks and so on, and in some cases UK agents do less marketing than here, he says.

All the same, I tend to agree with you that commissions seem high here.

* Are real estate agents operating like a cartel? I must say I've come across reluctance to negotiate commission rates.

Morley maintains, though, that since the industry was deregulated in 1985 there has been a range of commissions, starting at 2 or 3 per cent, and that many agents will negotiate fees. "The salesperson may not have the authority to negotiate. Go to the management of the company," he says.

Good luck with your house hunting, NZ-style.

* Mary Holm's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following her advice. Send questions to maryh@pl.net or Money Column, Business Herald, PO Box 32, Auckland. 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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