Photo: RNZ
Got a question about personal finance or the economy? Email it to susan.edmunds@rnz.co.nz
My older sister has been telling me to switch to her Simplicity high-growth KiwiSaver. She says the returns are excellent because it's an index fund with low fees. I'm not a fan of the build-to-rent aspect of Simplicity - it seems risky to me - and I'm not sure how this fits in to their KiwiSaver scheme. My KiwiSaver is a growth fund with the ANZ Bank. I feel like it's safer having my KiwiSaver with a bank rather than a newcomer like Simplicity. But I agree with her that the lower fees are tempting, and I like the sound of an index fund.
Simplicity is a lower-fee option for KiwiSaver, with a passive investment structure that means that it largely mirrors the performance of markets rather than trying to beat them, as an active manager might.
Simplicity is a default KiwiSaver fund these days and subject to the same rules and oversight as the bank schemes.
It has also generated some publicity in recent years with its foray into build-to-rent investments, which its KiwiSaver funds invest in.
Simplicity founder Sam Stubbs says the amount of exposure that any Simplicity fund has to its build-to-rent investments depends on its risk profile. If you're in a defensive fund, you won't have any exposure. But if you're in a high growth fund, up to 10 percent of your money could be invested.
"It's not a huge amount of each fund," he says. "But it does add up to a lot of money - we've invested about $180 million already."
He says it is not particularly risky.
"There's always development risk when you develop but Simplicity Living and its previous incarnation as NZ Living have already built around 900 homes this way so we're very, very familiar with how it's done.
"Once these things are there you have rent and changes in the valuation of the property but the business itself we wouldn't consider to be particularly risky. It's normal for pension funds overseas - in Germany about 10 percent is a normal benchmark for build-to-rent. We're at the conservative end and over time we might build it up but only if the returns justify it versus investing in other things."
He says there are also diversification benefits for investors because it gives them another asset class to put their money into.
The right KiwiSaver fund for you will depend a lot on your circumstances, your risk profile and your own beliefs about where you want your money invested.
There are tools online, such as by Sorted, that allow you to compare funds' returns after fees. What is right for your sister won't necessarily be right for you, so it makes sense to take some time looking into your options, and seeking professional advice if that's appropriate, to make the right decision for you.
New Zealanders are very keen on fixed mortgage terms. (File image) Photo: RNZ / Nate McKinnon
We're hearing about interest rates potentially coming down. But how soon are people really going to feel the benefit?
You are right that there is a lag effect between retail interest rates falling and households feeling any benefit because New Zealanders are very keen on fixed mortgage terms.
CoreLogic economist Kelvin Davidson says mortgage rates have been around 7 percent for about 12 months now, and during that period a lot of people have been fixing for six or 12 months.
He says September might be the first time that one-year rates are lower than they were a year earlier.
"In a nutshell, then, I think we can broadly say that rate cuts will start to be felt by existing borrowers from around September/October, and of course new borrowers straight away - although might not become 'significant' until the OCR and mortgage rates themselves are actually lowered more notably. So I'd say the real effect starts in the first half of next year, but some benefits starting to flow pretty soon this year."
Why can't we control inflation by forcing increased principal repayments on lending, thus removing cash from the economy in the same way increasing interest rates, but instead by putting everyday New Zealanders in a better financial position instead of the banks?
I can understand why this idea appeals - I would definitely rather have been putting money on to my mortgage over recent years rather than paying higher interest costs.
Off the top of my head, I can see a few problems, though.
As with the idea of requiring higher KiwiSaver contributions, it targets one specific group of people - homeowners with mortgages - but does not affect the people who do not have a mortgage, or businesses.
Only about a third of New Zealand households have a mortgage. It might also be the case that this method could lead to more of a "wealth effect" - where people feel better off due to the equity in their homes increasing, and potentially their house value rising too, which might keep them spending.
There is also no incentive to save via this method - with higher interest rates, people who have money in the bank end up better off.
Massey University associate professor Claire Matthews also points out that there would be no clear way to encourage people to spend if the economy needed a boost. You can lower interest rates in that scenario, but would you lower repayments?
"I don't think it could be argued that reducing principal payments would benefit borrowers, when they would end up with loans for longer."
She also asks how you'd cope with people who have loans that are interest-only - would this be banned? If not, that would be an easy way for people to dodge the increase.
"Fundamentally if this was a practical approach, I think someone would be doing it somewhere by now."