An offer so great, you just have to hang up

There’s a simple answer for callers with enticing investment deals: ‘No’

Q: Is the following a scam? Since getting it and filling out a form, they have been phoning me day and night. Please reply in your column or by email, I’m not answering my phone for that reason.

“AMAZON SHARES INVESTMENT

“Register now for free and discover how to profit with Amazon’s shares. Free 1-on-1 Training on How to Start Investing in AMAZON shares!

FIND OUT HOW TO GENERATE INCOME WITH AMAZON.”

A: Gosh, I’d better reply fast if you’re not taking phone calls. Who knows what invitations you might be missing out on! And by the way, I’m legally not allowed to answer you directly, via email or phone, as I’m not an authorised financial adviser.

Without knowing any more than what you’ve sent me, I can’t say whether this is a scam or just a ripoff — something you pay too much for. It’s possible that it’s neither, but that would really surprise me.

At the very least, I’m sure you would pay more for Amazon shares than if you bought through a mainstream New Zealand-based institution like Sharesies or Hatch or another stockbroker — all of which would give you all the training you need to buy some shares.

I suspect the “training” this company offers is around timing purchases. But if these people really are good at that — which would be pretty miraculous because nobody else is — why aren’t they just trading very profitably for themselves, without bothering with you?

Another point: even though their training is “free”, it has to be paid for somehow. And so does the work of the people who are trying to phone you. And what about a profit for whoever is running this? Where will this money come from, one way or another? Look in the mirror.

All that aside, I wouldn’t recommend buying shares in a single company anyway — unless you already have investments in about 10 or preferably 20 other individual shares.

If you invest in any single share, you are taking unnecessary risk. While Amazon seems unlikely to go out of business, its share price might currently be high, and might continue to be pretty volatile. But if you own lots of shares, the rises and falls can offset one another.

Can’t afford to buy many shares? Then it’s far wiser to invest in a growth or aggressive managed fund, which in turn invests in a wide range of shares.

Say a loud and clear “No” to these people. Don’t let them drive you away from using your phone, but don’t engage them in conversation. If necessary, talk over the top of them to say you’re not interested, then hang up. If they keep ringing, keep doing that. They will finally get the message.

A warning to all readers: avoid any investment where somebody comes to you with a “good deal”. Inevitably they, not you, are the ones who benefit. If you want to invest, take the initiative yourself.

Compound payoff

Q: I continue to enjoy your columns and despair at the number of times correspondents do not understand the basics of financial planning like compound interest.

You have covered examples of how this works recently. You may like to use my real-life example.

When our elder son was born in 1988 we were living in the UK and started a £30 per month investment into a unit trust. It was a moderate-risk UK smaller companies fund. It has been a good but not top-flight performer.

We maintained contributions until early 2015, so have invested under £10,000. The current value, despite Covid, is £60,700.

I don’t have the Excel skills to work out the average annual rate of return, but it is certainly single figures. Income was reinvested.

UK unit trusts have lower charges than most NZ funds, but recent downward pressure by some KiwiSaver providers is improving things for the investor here.

A: Don’t despair. That’s what this column is here for — to sort out misunderstandings. And there’s no such thing as a dumb question about money.

Well done on your son’s investment. Calculating the annual return — without using Excel — is a bit complicated because you contributed regularly but stopped in 2015. But given that you have been investing for most of the 32 years, let’s just say you contributed for the whole time, to keep things simple and give us a rough idea.

When using an online calculator, you can ignore the fact that you’re working in pounds. The return would be the same if you contributed $30 a month and the investment grew to $60,700.

On the savings calculator on sorted.org.nz, the first thing to do is turn off the inflation adjustment below the graph, as that complicates things in this situation.

Enter $30 a month for 32 years, and put in any return to start with. Then keep changing the return until your total is about $60,700. In this case the return is just under 9 per cent a year. And the graph shows that the vast majority of the savings total is compound interest, not the amounts that were deposited.

The main message for others: if you set up regular investments into a managed fund or other savings vehicle, over the decades you benefit hugely from compounding interest.

On fees, yes, hopefully many more KiwiSaver providers will reduce their fees soon.

Saving for kids

Q: In the hope that one of them might get lucky, we have bought monthly Bonus Bonds for our three grandchildren since birth (they are now 11, 8 and three months).

First, should we leave the balances in Bonus Bonds for the wind-up period — is this safe?

And second, what would you advise as the best way forward in “saving” monthly for our little ones? We would like them and their parents to have short-notice access if an urgent need arose.

A: What you’ve been doing is great for the lucky grandkids, although I have one worry about situations like yours. What happens if one of the children wins a seriously large amount? Would they share it with the others? If not, isn’t there likely to be resentment?

Anyway, that is probably no longer an issue, unless one of the kids has a big win in the last Bonus Bonds draw.

So what should you do instead? First, I don’t think anybody — probably including the people at ANZ — knows whether the children will be better off if you redeem their bonds now or wait. If waiting would worry you, act now. If you’re happy to take the chance the grandkids might end up with a bit more, hang in there.

And then what? You don’t want to use KiwiSaver as you want to retain access to the money. But a similar non-KiwiSaver fund could work well. The money can always be withdrawn at perhaps a couple of days’ notice.

The big question is how much risk you want to take. If it’s okay if the balance goes up and down a lot — and could be down at the time of a withdrawal — choose a higher-risk fund that will probably grow more over the long term. If volatility is not okay, go for lower risk.

The best way to choose a nonKiwiSaver fund is to use the KiwiSaver Fund Finder tool on sorted.org.nz. That sounds wrong, but bear with me.

First, use “Find the right type of fund for you” to choose your fund type, then check all the funds of that type by using “Compare Funds”. Rank the funds by fees and note, say, the five lowest. Then compare their services.

What about their returns? Use the comparison to eliminate any funds that have had really poor long-term returns, but don’t choose on the basis of high returns. Research repeatedly shows that funds that have done well in the past won’t necessarily do well in the future — and it’s not uncommon for them to be among the poor future performers.

If you’re stuck trying to choose between two or three funds, toss a coin. Don’t agonise and leave the money earning pathetic returns in a bank in the meantime.

Okay, so you’ve chosen the best KiwiSaver fund for you, but you don’t want KiwiSaver because it locks the money away. However, most KiwiSaver providers have other very similar funds outside KiwiSaver. Check out the provider’s website, or phone or email them and ask.

Keep an eye on fees. Sometimes, a non-KiwiSaver fund’s fees are quite a bit higher than on their KiwiSaver equivalent. That’s not okay. Check out another of your finalist funds.

Having a flutter

Q: My friend and I have had Bonus Bonds for the past 10 years, with wins from joint buys. One larger win we split and spoilt ourselves a little.

It has earned $380 in prizes during this period. We now have $3645 together. We are disappointed that we can no longer do this.

Do you have any suggestions we can put our money into that is not complicated, and is fun?

A: For all the bad press Bonus Bonds have had in recent years — because, let’s face it, the average returns were pretty pathetic — many critics have ignored the fun element.

When you’re investing a small amount, so that it doesn’t matter much if your financial returns are low, Bonus Bonds may have been good value given the entertainment you also gained.

So what can replace it? You could put that small amount in shares in an exciting start-up company, perhaps in high-tech. If things go well, you would end up with huge returns. Keep in mind, though, that you could also end up with nothing if the company goes broke — something that didn’t happen with Bonus Bonds.

This suggestion might seem contrary to my comments in today’s first Q&A, about not investing in a single share. And generally I don’t recommend it, because returns are much more volatile than in a share fund, and you can lose the lot.

But there’s no denying that, if you strike it lucky, you can win in a big way in a single share, and this is what we’re talking about here — basically gambling with a small portion of your savings.

With the demise of Bonus Bonds, I don’t know of any investment in which you might win big and you can’t lose your money. Can anyone else think of any?

More on what to do with Bonus Bond money next week.

NZ Super calculations

Q: Thank you for your last column regarding superannuation.

You indicate that the amount paid, after tax, to each person in a couple is “$614.34 if that person gets less from NZ Super than from wages or salary, and their total income from NZ Super and wages and salaries is less than $48,000.” Does the “less than $48,000” include:

● Super, taxed or untaxed?

● KiwiSaver returns, taxed or untaxed?

● Interest from bank term deposits?

A: I received another similar letter, in which the correspondent asked about income from rental properties and dividends.

Here’s a reply for both of you. The total income in the sentence you quote does not include income from KiwiSaver, bank term deposits, rental properties, dividends, business profits or other investments. It’s only from NZ Super, wages or salaries, says Inland Revenue.

Also, when you are looking at your total for Super, wages and salaries, use before-tax numbers.

● 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 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. 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.

A warning to all readers: avoid any investment where somebody comes to you with a ‘good deal’. Inevitably they, not you, are the ones who benefit.