Investing Is Not Black and White
30 Jun, 2024
I’m sure you will agree that I can go on a bit. If I’m talking about a topic, such as how Jonny and I recently applied ‘our version’ of The 4% Rule, I explain my reasoning in detail. I have to because MANY factors made up our decision to sell off $20,000 of our investments. Many of them are non-math related because psychology and emotion play a huge and necessary part in managing our money.
It’s standard for me to get at least one blunt email saying I’m wrong about a financial decision or purchase I’ve made on behalf of my whānau. Generally, the reasoning given will be based on one aspect, often a technical math issue, ignoring all the other points I mentioned.
I used to panic that they might be right and that I might have this money stuff entirely and utterly wrong. But I no longer do. Instead, I take their comments with a grain of salt and consider that it’s probably them who are wrong. Although it takes time, often I’ll research their argument and find that they are.
Today I:
Trust my gut.
Dig a little deeper.
Put those who nitpick to one side.
Do my research, make my own decisions and ultimately, do my own thing.
Stand up for yourself.
Today, I want to encourage you to stand up for yourself when managing your money. You know more than you think you do. Given my blog, I’ll get the opinions of strangers, but it’s more likely that you are receiving the opinions of your spouse, whānau, colleagues and friends. If you face pushback, I want you to get in the habit of considering it, doing some research, drawing your conclusions, trusting your gut, and then doing your own thing*.
*Unless your friends are telling you it’s a scam! If that is their pushback, consider that your friends are probably RIGHT!
Know this: There is no perfect way to manage your money, and anyone who tells you money is black and white is—how can I put this delicately—wrong.
Yep, they are wrong.
A straightforward explanation of backing myself and the knowledge I have is my insistence that signing our daughter up for KiwiSaver at one year old was, and still is, the right thing to do.
I’ve repeatedly heard it said in New Zealand personal finance blogs, media, books, and podcasts that signing children up for KiwiSaver makes little financial sense. Given my child was born before blogs and podcasts were a thing, thankfully, I’d already signed her up anyway!
Why is it considered a pointless exercise for those under 18?
Because until she turns 18, she is ineligible for the government's $521 annual contribution (up until 2012, it used to be $1,042 annually). Since she is now 16, she has never received a government contribution. She has NOT received almost $10,000. A further issue people see is that her fund provider will also charge her fees.
Given what she didn’t get and what she spent on fees, were we wrong to sign her up? Absolutely not. I/we are thankful we had the foresight to do so.
How full is your glass?
I guess that signing your child up for KiwiSaver depends on whether you are a glass-half-empty person (it is not worth it because they don’t get government contributions) or a glass-half-full person (a small monthly share market investment will benefit from years of compounding returns).
When I signed her up at the age of one in 2008, the government gave her a ‘kickstart’ of $1,000 (sadly, that perk has since been scrapped), and her grandparents gave her a one-off gift of $1,000 (again, never repeated), which I added to her KiwiSaver. From that day forward, because we budgeted for it, Jonny and I have contributed $40 a month, and since she began her part-time job about two years ago, where she earns about $40 a week after tax, her employer has contributed 3%. In my experience, most employers contribute to the KiwiSaver of under 18-year-olds.
We ensured she was in a high-growth, low-fee (in actual fact, she pays $0 in member fees under the age of 18 and just .25% in annual fund fees), and passively managed KiwiSaver Fund (Simplicity High Growth) and then let it roll. We have always told her about her KiwiSaver fund and shown her the balance of it.
Total (approximate) Contributions to her fund:
Government kickstart + gift: $2,000
Parental contributions to date: $7,200
Employer contributions: $150
TOTAL CONTRIBUTIONS: $9,350
The balance of her KiwiSaver fund today, at 16, is $20,000.
I look at it this way:
Sure, she didn’t get the annual $521, but she did get a $2,000 boost at the beginning and a $40 monthly deposit since then. Plus, she got a whole lot of financial education along the way. It has provided an opportunity to discuss KiwiSaver and money in general.
Had we NOT signed her up to KiwiSaver, she would have had $0 and no knowledge about how retirement funds work.
Thank goodness I never listened to the naysayers.
We are glass-half-full investors. What we have given her is a base upon which to build.
At the age of 16, she has two key factors working in her favour:
Investing for retirement is already a habit
She has had an exceptionally early start on compounding returns
She has a balance of $20,000, not just $9,350 because every dollar invested has had capital gains and earned income, which was reinvested. It’s allowed us to help her learn how share markets work. You can have all sorts of fun on the Sorted Savings Calculator projecting her future returns!
Her investment in KiwiSaver has allowed us to educate her using real-time and real money. When she turns 18 or gets her first ‘proper’ job, we won’t have to tell her that investing in retirement funds is a good idea. The proof is there for her to see. She’ll see investing in her low-fee, high-growth retirement fund as a no-brainer. If she decides to switch funds, she has something to compare.
KiwiSaver became a gateway to educating her about money. While I felt it made sense to do so, I didn’t anticipate all the unexpected positive educational consequences of signing her up as a baby.
We explained that KiwiSaver is for retirement, but she will most likely want money to buy a home, study, travel, etc. So, we also started up a $50 monthly investment in an ETF on her behalf, something she has recently taken over herself. Plus, we signed her up to Sharesies, where she invests 50% of every dollar she makes into an ETF. More recently, because I felt the time was right, I signed her up for the budgeting app PocketSmith.
Education by stealth.
Is my teenager simply delighted with having learned so much? Goodness no! I’ve been educating her by stealth and once you see something, it’s hard to unsee it. Therefore, although I hover about as all good Mum’s should, she’s got increasing understanding and control of all of her pūtea. She has learned excellent financial literacy, all without knowing she was learning.
The knowledge has built up slowly, yet steadily over time, and when this teenager leaves home in the next few years, she will have a solid financial understanding, plus some money to go it alone.
From a tiny acorn, a mighty oak grows. KiwiSaver planted a seed; we’ve just been watering it until it (she) can stand on its own two feet.
What’s the takeaway?
The takeaway is when you hear a sweeping statement of “KiwiSaver is not worth it for those under the age of 18”, question it. Dig a little deeper. Do some math. Trust your gut. And then, do what you think is suitable for you and your whānau.
Today, I’ve used KiwiSaver as an example of people zoning in on one aspect. However, other areas that come to mind are when people get dogmatic about Property vs. Shares or Index Funds vs. ETFs. Everything is nuanced; nothing is black and white, so I simply encourage you to question everything, do your research, trust your gut and just get on with it.
