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Mary Holm on KiwiSaver and Investment for the Self-Employed

Posted by Ben Jardine on 3 June.

Mary Holm is a column writer for the Weekend Herald, the bestselling author of several finance books, and an educator on personal finance, savings, and investments.

We chatted to Mary about her latest book, Rich Enough?, which explores our notions of ‘richness’ and proposes methods for achieving a level of wealth that we can all be happy with. What is a healthy work/life balance? What is the best approach to investing? 

You can order a discounted copy of Mary’s book on her website, and be sure to check out her writing in the New Zealand Herald for regular tips on investing and finance. 

 

How did you start out writing about finance? 

 

I’ve been in journalism my whole career. I got my MA in journalism in Michigan, moved to Chicago, and then worked for several papers in Chicago. And along the way there, I found that there were more openings in the business side of journalism because a lot of reporters aren’t good at numbers. That was a way of getting a job on smaller papers, but then, later on, it was a way of shifting from editing to reporting on the bigger Chicago papers. But I’m not a person who spends my leisure time reading finance stuff. People ask me if I’ve read the latest finance books, and I tell them I’m too busy reading novels! I’m not hellbent on money being the main thing in life. 

I hadn’t actually written any books for ten years until Rich Enough. I’d given up on books mainly because it can be quite hard to publish a book in New Zealand that makes much money. It’s perhaps too small a country and the sales just aren’t that big. So for all the work you put in, you don’t usually get a lot back for it. Books are just quite nice to have alongside journalism.

 

What was it about this particular book that brought you back? 

 

A publisher approached me from Harper Collins and asked how I felt about writing another book. I told them that I’d given up on writing books, but we got talking and I said that in some ways, I’m more interested in the relationship between money and happiness than I am about maximising how much money someone has. So we talked more and decided to make that the point of my next book. 

The framework of the book is about getting rich enough to do the things that really matter in life, things that aren’t necessarily to do with money. I start out by saying, ‘Hey, reader: let’s get you rich enough so that you can then get on with the other more important things in life.’

A lot of research shows that if you haven’t got enough money to live reasonably and comfortably – to put shoes on the feet of your children – then of course, getting more money makes you happier. There’s no disputing that. But a lot of research suggests that once you get to a certain point of wealth and income, then having more money doesn’t necessarily make you happier.

While I was thinking about this, my son came across some newer research which shows that, in fact, richer people tend to be less happy. And one global study, in which they interviewed thousands of people (some in New Zealand), showed that it’s not so much about getting a pay rise or, if you’re a freelancer, a new contract, that will make people happier in the long-run. 

When they looked at people with a higher level of wealth, they asked two questions to measure happiness: 

  1. On a ladder with ten steps on it – the bottom step having a really horrible life and the top step having the happiest life possible – which rung are you on? 
  2. Yesterday, what was the dominant emotion you felt? They gave people a list of emotions to choose from: joy, elation, sadness, boredom, etc.

From those two measures, they worked out who was happier, and they found out that richer people, past a certain point, were less happy than those in the middle. And then they postulated that it’s probably because richer people can get absorbed with earning more money, having more acquisitions, and wondering where and how to invest. People can tend to get more ‘status-conscious’ – that they haven’t got as good a car as their neighbour, for example – and so they’re just not as happy. 

The basic idea of the book is to focus on getting yourself rich enough so that you can get on with the things that really make you happy. And I write a bit about what really matters in life, and it’s really obvious stuff: spending time with friends and family, getting into the outdoors – things that aren’t about money. 

The bulk of the book is centred around eight steps that can get you to a point where you’re rich enough to get on with other things in your life. 

 

Can you talk a bit about the title? How do you define ‘richness’? 

It’s a terribly old cliche, the saying that nobody on their deathbed says they wish they’d spent more time at the office. But it’s still a really good thing to keep in mind, especially for self-employed people. I’m one myself – I’ve been self-employed now for over twenty years and I think, on the one hand, it’s neat because I can quite often be flexible with my time. If there’s a friend or family who needs some support, we can quite often go off in the middle of the day and give it to them.

On the other hand, though, a lot of self-employed people, myself included sometimes, can take on too much work when it’s offered because they’re scared that six months down the track they might not have enough. So sometimes, self-employed people can end up working awfully hard and not really have weekends free. So it’s a bit of a mix for self-employed people. 

 

People are making a bigger point of having a clear work/life balance. What does it mean for someone to have an enriched life in the current moment?

 

I do think that cell phones are a blessing and a curse, because we tend to be constantly thinking about checking our emails or texts. There’s always that fear that we might be missing out on something.

I’m actually quite shocked when I work on my column, which I sometimes do on the weekend (as many other self-employed people do). I’ll send off a question for my column to the IRD on a Sunday afternoon and I totally don’t expect a reply until Monday morning. But then half an hour later I get a reply from someone who works at the government. I think that’s not good – someone is monitoring their emails on a Sunday afternoon. 

On the other hand, in many workplaces, you hear Chief Executives being concerned with people’s lives outside of work. That’s a very different attitude to when I was in the workforce in the 80s and 90s. There’s more acknowledgement, for example, that if someone has a sick child, they might have to take some time off work. 

 

What do you think has brought about that shift in attitude? 

 

I think there’s a realisation from employers that if they don’t treat people well and realise that they have lives outside of work, giving them some flexibility, then they’re not going to be able to keep good people. If they get a reputation for having a workplace that cares about people’s welfare, then they’re more likely to attract good people. 

Compared to twenty years ago, there’s a lot more flexibility in terms of when and where you work. That idea of ‘where’ has changed dramatically, with people being able to work from anywhere as long as there’s an internet connection. And while that’s attractive to people, there’s just the risk that we are always sort of half ‘switched-on’ with our work, that we’re always accessible. It is quite hard to turn everything off. 

 

How can self-employed people achieve that richness? Are there any misconceptions around richness? 

 

I like to think that a lot of self-employed people are doing the sort of work they love to do. People in the creative arts, I assume, love to be creative. But even in other areas, it’s surprising what people love to do. You get people who love being accountants. I love writing, and so there are times when I’m sitting here writing my Herald column and I’m actually really enjoying it. So, stopping to go for a walk or a swim isn’t necessarily going from something horrible to something wonderful, it’s just going from different sorts of nice stuff. 

I do worry that some people don’t get to do what they love doing enough. They’re always feeling like they should do this, or should do that. I think I’m getting a bit better at that, myself.

When you’re self-employed, there’s always something you could be doing for work. The weekend comes around, and you could spend Saturday doing a bit more or doing something a bit better, so the work can be kind of endless. You could end up spending a lot of your waking hours on the business. 

It takes a lot to go: “I’m not being forced away from my work today, I’m choosing to go away from my work today.” And it usually works out. Somehow or another you end up getting enough work done, and well enough, to keep going. 

 

How do you think individuals can get that feeling of richness throughout life? 

 

It’s about achieving that feeling of knowing that the money is sorted. It’s not that you can buy everything all the time, but that it’s not terrible if the car breaks down and it can be quite expensive to repair it. I think that’s one definition of being ‘rich enough’: that when something goes wrong, it’s not a crisis to fix. It can still be awful when something goes wrong, and little and big bad things happen all the time. You want a bit of money to cope with the little crises that happen in life. And also to be able to go to the movies, and have a cheap and cheerful meal, without that breaking the bank. 

 

You often write about KiwiSaver for the self-employed – can you share your insights on that?  

 

Broadly speaking, the self-employed are underrepresented in KiwiSaver. The data is starting to show that about 30% of people who are not in fixed employment are making KiwiSaver contributions, whereas 75% of employees are. 

The government contribution is still a good deal for the self-employed, because your money is multiplied by one and a half. If you put in $1043, the government puts in $521. So, just broadly speaking, I often tell people, “instead of retiring with, say, $100,000 in savings, you’ll have $150,000. So it’s that simple, and that’s a huge difference, and a lot of people haven’t got that message yet.

 

How can the self-employed take advantage of KiwiSaver? 

 

Getting the government contribution is the best start. To get that $1043 in there, it’s much easier for people to put in $87 a month, or $20 a week, than finding $1043 once a year. But $87 a month isn’t that big a deal for a lot of people, and when you’ve got it set up, you can kind of just forget about it. 

Quite a few self-employed people that I speak to often think that they can do better with their investing elsewhere. They’re perhaps more inclined to be independent investors: they pick which shares to buy or they own a rental property, rather than just having money in the bank or having money in KiwiSaver. 

You actually probably can’t do better than KiwiSaver – not when you take risk into account. The extra money that’s coming in from the government gives KiwiSaver a kind of unfair advantage, compared to other kinds of investments. In the whole economy, the riskier the investment, the higher the average return. But with KiwiSaver, they’ve kind of bumped that equation up one level, and so people do better in KiwiSaver than in an alternative, because of the risks involved in the latter option. 

 

What is that best mix of investments for the self-employed? 

 

If you are making long-term retirement savings, then it’s best to go into a KiwiSaver growth fund. For money that you’re not saving for retirement, where it might be best to be able to access the money earlier, then I’d say get into a non-KiwiSaver fund. There’s a whole other group of funds out there that are pretty much the same as KiwiSaver funds. Some KiwiSaver providers might offer high-risk, medium-risk, and low-risk funds in KiwiSaver, and then very similar funds that are outside KiwiSaver. The main difference is that with non-KiwiSaver funds, you can get your money out whenever you want to. The fees often end up being a little bit higher, in the non-KiwiSaver ones, because that access is there. 

The broad rule with savings is:

  • if you’re planning to spend the money in ten years or more, go into a higher risk growth type fund.
  • if you’re planning to spend your savings within three years, it’s best to go with a bank term deposit. There’s too big a chance that if you put it into something riskier, the market might go down right before you want to take your money out – as some people have seen lately.

In the long-term, the market will go up and down sometimes, but there’s time for it to recover. And for that middle-level money, money that you plan to spend between three and ten years, it’s a pretty good idea to go into a medium-risk, balanced fund, inside or outside of KiwiSaver. Then, once you get within three years of spending it, move it into either a very low-risk fund or a bank term deposit.  

One really important thing to remember, if you are in the higher risk funds, especially in the growth funds for the longer term, you’ve got to promise yourself that you won’t panic and move the money out when the markets go down. In those higher-risk funds, especially in the last few decades, there have been times when people’s money was halved. They have $10,000 and then over the course of the week their money can drop to $5,000.

That has happened in history, and we’ve had a slightly less dramatic example of it in March this year. A lot of people see that happen and go, “oh my god, I can’t cope with this,” and they move their money at that point to something lower risk, and that’s a terrible thing to do. They’ve made their losses real. They would have been far better off to have stayed in a lower risk fund all along. 

 

Is that because the losses in a higher-risk fund are, at least initially, more severe? 

 

Well, you just won’t make that kind of loss in a lower risk fund. It’ll grow more slowly but it won’t go down nearly as much.

If you look at what some people have done lately, they would have been better off being in a low-risk fund all along, than being in a higher-risk one and then panicking when the markets went down. The markets always go back up again, though sometimes they can take a few years to do so. You’ve really got to promise yourself that you won’t panic. 

I always say to people: imagine that your current balance gets halved in a short amount of time, and just picture what you’d do. 

 

 

One of the interesting trends I’m seeing is this idea called “FIRE” (Financially Independent, Retire Early). These people are extreme savers – watching every penny they spend – with this goal to retire at 40. And I wonder how it will work, because they’ll swing from being very frugal about how they spend their time and their money, to suddenly having all of the time in the world and a fair bit of money. 

I’ve had a couple of letters to my Herald column recently, about people who were frugal when they were younger, often because they had to be, and now that they’re retired and they’ve got the money, they don’t know how to relax that frugality and enjoy their money.

People get used to living a certain way, not that that’s a terrible thing, but there is a worry that you’re forgoing too much of your life in the meantime. For example, if you’ve got little kids and you’re working really hard and not spending much time with them, you don’t get that back when the kids are older. Suddenly you’ve got more time and you’d like to spend more time with them but you might not have as close a bond with them because you were working too hard when they were little. 

You can read about it online, people who are struggling to save for a house. It’s damn hard at the moment, especially if you’re in a big city and house prices are ridiculous, and so I’m saying to people: “look, don’t feel like you have to own a home in order to have your financial act together. If you don’t have a home, save really hard in order to have a big lump sum in retirement to cover your accommodation from then on.” 

If you’re thinking that way, then somewhere along the way house prices might go down and people might be able to afford to buy. It actually looks as if prices will fall in the months to come, but maybe not enough. Who knows? At the moment, the house price to income ratio is eight or nine times average income and historically it’s about three times. So that’s got to change back again. 

I guess what I’m saying to people is that you don’t have to get into this whole FIRE thing, and I think it’s maybe a bit silly to get into it too much. But if you’re looking for ways to save and be careful about your money so that you can put a house deposit together, you might want to read a bit about what different people do to cut their spending. 

Having a spending/saving balance is just as important as having a work/life balance. A lot of people are too much one way or too much the other. 

 

What’s the best approach to investing? Set and forget, or more hands-on? 

 

I’m an advocate of set and forget. That doesn’t mean you shouldn’t have a look every year or two at where things are going, and be aware of them. But things like choosing which shares to buy and sell, choosing when to get in and out of the market, or choosing which rental properties to buy and sell – a lot of research suggests that those people who get into that actually do worse than the ones who get into the right level of KiwiSaver and just leave it there. 

 

Is that because the set and forget approach is less stress-inducing? 

 

It’s not really about stress. Some people find the hands-on approach fun and not stressful. It’s exciting for some, it’s a game. If you’re well-off enough and you enjoy it, then why not? But a lot of research, and I’ve quoted some numbers in the book, shows that people who are in and out of the markets, on average, do quite a lot worse than people who just put their money in and then leave it there. So it’s one of those unusual things in life when doing less is actually better. In most other skills, the more you practice and learn about them, the better you do. But that isn’t true in investing. 

The idea with my book is that people can read it, get things set up, and then get on with the other, much more important things in life – like friends and family.

 


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