Why You Don’t Need Millions to Retire with Mary Holm

I love learning about money. Money's not something we talked about a lot when I grew up, but I understand now you can get money to work for you. So I sit down with the world's leaders in wealth and finance and money, so I can learn not just from me, but pass it on to you as well. Today I sit down with an absolute titan, Mary Holm, prolific author, financial analyst, so many columns for years. She's been in this industry forever. You're in for an absolute treat today. If you want to look at your finances and wealth. This episode is for you, Mary, a huge welcome to the Lead On Purpose podcast.

Thank you, James.

I'm so glad you're here because I picked up Rich Enough, your amazing book, Scorpio Books in Christchurch, and I think a lot about money. Coming from Northern Ireland, I grew up in a working class town where there wasn't lots of money floating around. And the rhetoric that really sat with me was money doesn't grow on trees and it's very scarce. So 18 or 19 years of age, I started to get interested in are there ways to make more money and create more money? So reading books like the One Minute Millionaire, all these think and grow rich books, right? And some interesting concepts in there.

Yes.

But when I lifted your book just five, six months ago, I said, okay, this is really practical and tangible for an everyday human to go. I could follow this advice and actually start to understand a little bit more about how to get my money to grow. So I'd like to get the ball rolling by asking, what do financially successful people do differently?

Oh, let's start by defining financially successful people, because I'm not that interested either personally or in my readers being rich. I look, if they are, that's fine, that's lovely. But it's more having enough to. Which is where the Rich Enough title really comes from. Having enough to lead a fulfilling life. And in fact, as you might remember, at the beginning and end of that book, I go briefly into the relationship between money and happiness. And there's a lot of really interesting research on it. The thing that I found most interesting was some global research that found that beyond a certain wealth level, people's happiness tended to decrease. Now, that doesn't mean you, James. As you get richer, you'll get less happy. Doesn't necessarily mean that. But they looked at people with a certain wealth level, and the questions about how happy they were were very interesting. Two questions. One was, how did. What. What was your dominant emotion yesterday? You know, and they listed sort of happy, sad, interested Tired, whatever. And then the other one was on a scale of 1 to 10, how happy, fulfilling is your life? So a sort of broader picture than that. And when they looked at the scores, the better off beyond a certain level, people who were better off were not happier. And the speculation was perhaps that they're spending too much time working.

Yes. To create more money.

Yes.

It's on a hamster wheel almost.

Yeah, that's right.

The kind of level that we need to get to. I remember when I was younger reading about it, it was around 70 to $80,000 was around that number of. Once you get to that point, that brings a relative level of happiness and you get happier up to that point. But after that point there wasn't much more. Has that figure changed in terms of inflation now?

In that research on one of the measures, it was around 70 something thousand in New Zealand and on the other one it was something like 130,000 or something. So in other words, people always say to me, okay, what's the optimal level of wealth? So it's not clear cut what the level is, but I think it's just interesting to think about the whole concept about how being driven to increase your wealth isn't necessarily what makes you happiest.

It's really interesting. I was reading Arthur C. Brooks. Him and Oprah did a great book on building the life you want and being happier. And he said that the research shows there's only three ways to do it, to actually be more happy. And it was in the pursuit of joy, in the pursuit of satisfaction and in the pursuit of meaning. And nowhere did he mention money. But I think making money or being successful there, maybe that's the pursuit of satisfaction. Perhaps, maybe people find joy as well. But I think some of the people I deal with, they're ultra wealthy, ultra high net worth, and sometimes they'd be sitting at 3,4 billion net worth and they want more. And I was like, well, how much more and why and where do you. And they don't have answers to these questions. It's almost like an addiction.

Look. Yeah. Do you remember at the very beginning of Rich Enough? I've got a little quote from Joseph Heller and Kurt Vonnegut, two American novelists who, I don't know if they're still alive actually, but they were very prominent novelists in like the 80s. They went to a party run by a hedge fund manager and apparently, I think it was Vonnegut said to Heller, do you realise that our host makes more in a day than you made from Catch 22. He wrote Catch 22, this hugely successful novel. And Heller replied, but I've got something he'll never have enough. And so that's sort of partly where I got the title of the book, Rich Enough. And so you're talking about people like that hedge fund manager who just. They get on a treadmill and I mean, you know, I don't envy that at all.

No, it's misery. I would never want to be there. No, it's interesting. I always think about what is enough. And probably over the last 10 or 15 years, what's my number? What would enough look like? And, you know, it's probably if I said my number, people would be like, is that it? But I don't think I need tens and hundreds of millions to have a good life and to have freedom and.

Affect might be harmful.

And what do you mean by that? For people that set these. I need 50 million by the age I'm 50. What kind of harm might they set themselves up for?

Yes. Yeah. I mean, even needing, you know, 5 million is. I get really annoyed by a lot of people in New Zealand. In the financial world say you need a million dollars to retire. And I say, first of all, look at who's saying it. It's very often someone in the financial area who would benefit from people saving more, particularly through their kiwisaver funds or their bank or whatever. You do not need a million to have a happy retirement in New Zealand, I believe, especially if you've got your own home. You know, it is as there's a growing trend for people to be retiring without their own home. And if that's. There's nothing wrong with that. There'll have this obsession in New Zealand with owning your own home. But if you retire without your own home, you just want to have more savings, obviously, to cover the rent.

Can we chat about that? So what do we need to think about to have a retirement where we're comfortable? I mean, we have a certain lifestyle. 30, 40 and 50. Our lifestyle at 70, 80 and 90 will arguably be different. And so our financial needs, I imagine, will probably be adjusted and changed as well. So what kind of number would an everyday Kiwi. What could bring them a nice retirement?

Yeah, look, you know, a few hundred thousand, I suppose, to pull a number out of the air, really. There's a very basic rule that is that for every $100,000 you have at retirement, you can spend $100 a week. So if you retire with $100,000, you can spend $100 a Week. This is if you retire at 65, and that would supplement your New Zealand Super. So you've got super coming in, plus $100 a week. And a lot of people would say, I'd rather have more than that. Although I think it's about 40% of women in retirement who live on New Zealand super and not much more than that. And I've had some interesting letters to my Weekend Herald column from people saying, I have a really nice life, I live just on New Zealand Super. And, you know, I borrow books from the library and I can ride around Auckland free on the buses if I do it at the right times of the day and I can go for walks and I've got a heck of a lot of friends. And so it's really interesting to work out what makes people happy in retirement. And you know what? I reckon to some extent it's just the person's personality. You know, if you're a reasonably positive person and you are open to doing the things that don't cost money or don't cost much money, like going for a walk and getting the joy out of that, then if you've got that attitude that I'm going to do these things and I'm going to borrow books from the library and go to other free events around the place and foster friendships, then you're going to have pretty nice retirement, probably with support from other people.

And that's a rich life. What you described is a rich life, enjoying nature, enjoying friendship. That's what it's actually all about.

It is in the end, isn't it?

Yeah, it really is. It's interesting as my earnings and my income has increased over the years, my lifestyle hasn't, and I feel sometimes that people look at me and they go, you shouldn't be driving that Japanese car. You should be driving the fancy, you know, European car. You know, you should be doing this or you should be buying this type of clothing. But actually, I quite like a simple life.

Yes.

And I feel like my road to retirement is quite simple and I've got a plan and it's a very simple plan. And that's what you described, a fully paid off house. Get into indexes, stay in indexes for a long time. Now, about 15 years ago, I picked up a book, Money Master the Game, Tony Robbins, who interviewed many financial investors, fund managers, hedge fund managers. And I read, it was about 550 pages and I read and I underlined and I took notes and then I went to my kiwisaver policy and I went through it line by line. I'd never done anything of the sorts. Yes. And then I rang up my provider and I had 27 questions y and just normal questions about where and how and why and what if I was here in New Zealand. And they could only answer 20 of those questions really. And so I says, could I talk to someone maybe a little higher up?

Yes, because the person on the phone might not be the expert.

Call me back when you get a chance. So a couple of weeks pass and I get a call back and they answered another five questions. But there was a couple of questions they simply didn't have an answer for.

Can you remember what they were?

Cannot. I will go back and get them and I'll put them in the show notes. But I was worried because this was my nest egg I've put in. I am relying on them to manage it for me and they couldn't answer these questions. I thought that's a concern. So I did switch because of that. Not because of fees or not because of performance, because I lacked trust. And for me I think investing comes down to trust. So for the person listening right now, they're obviously in Kiwi Savour. It's something that we just do as.

Presumably most people are now most adults and by the way, I think it's great for children to be in too but that's a whole other topic we can talk about if you want to.

Absolutely. I've got a nine year old boy and I definitely would jump into that for sure. So first of all, for the adults in their Kiwi Savers, how do we pick a Kiwi Saver? There's so many options, there's so many people telling us this is great and that's great. What do we do?

I look, to put it very simply, the most important decision in KiwiSaver is getting into the right risk level, the right fund. And there's some tools on the retirement Commission's website sorted that'll help you choose which KiwiSaver risk level is right for you. Basically it depends on when you expect to spend the money. If it's more than 10 years away, it's a good idea to be in a growth or aggressive fund. If it's less than 10 years, then you want to be reducing the risk so that there's. So you're not going to find when you get the money out that the markets have suddenly plunged. So that's the most important thing. And the second most important thing then is to choose a provider. And if I had to say there's one simple rule that is go with the low fees. Once again, sorted comes to the rescue. There's a tool called Smart Investor and you just click on KiwiSaver funds, click on the risk level. So whether you're in defence of conservative balance growth or aggressive fund and then it'll rank all the KiwiSaver funds at that risk level for you and you can rank them by returns. But I say don't do that or largely ignore that. We can go into that too if you like, but rank them by fees.

Let's talk about the fees part because I was blown away in the studies that I did 15 years ago. Reading all those books I started to realize that a very small shift in fee percentage could actually mean a massive difference at the end.

Absolutely.

So somebody's looking at 1% fee versus a 2% fee. Just taking numbers that doesn't look like a lot, it's 1%. But actually is that quite significant over a 30 or 40 year period?

It sure is. It sure is. And 1% is actually a fairly highish fee in Kiwisaver. Now the rates have come, there are some that charge zero fees and interestingly enough I've just recently emailed off to the, I think there's four or five providers that have some funds with zero fees and said to them how do you do it?

Yeah, I'd love to know.

Yeah, well I'll be putting that in my Herald column in the next few weeks.

I'll be reading that when I get.

The answers to that. Yes, but there are quite a lot of them that have, that are really low fees now. And I got into index funds in the late 1970s when they were first invented. I was living in Chicago at the time and going to the University of Chicago doing a part time MBA degree and my professors were some of the people who were developing the index funds. And so I became a believer then and put money and my pension money, my equivalent to Kiwisaver when I left America some years later, just left it there. And because the fees are so low, this was in Vanguard funds, it grew incredibly over the decades. I brought that money back to New Zealand now for various reasons but it really taught me the power of being in an investment that's got very low fees.

So the fees are very important here.

For us to do. I think they are not the returns, the returns. You know, it seems obvious to everyone that that's what you should look for. You should look at whichever fund has got the highest returns, has had recently had high returns. And because nearly Everything else in life, we look at how something's performed in the past, we judge it. Yeah, we're looking at an athlete or an artist or an author or you know, you look at their last book, their last painting, their last ra and that's a really good way to picket who's likely to do well next time around. With funds like Kiwisaver and other funds. There's lots and lots of research largely done by S and P in America, Standard and Poor's in America that shows that the ones that did well over a year or even over a whole decade quite often do worse than average in the following, in the following period. It's really, there's data that they've been generating for decades now that shows that. So there are a couple of Kiwisaver providers in New Zealand currently who have really good returns over 10 years, not just one year. And so I think, well yeah, okay, that's, you know, definitely ignore returns over one year because they mean nothing of course, so easy there. Over 10 years you start saying, well this is pretty impressive. But the research shows that quite often the ones, ones that do really well might do really badly next time around because they might be riskier and they take certain end quote gambles that don't work out very well. And another point about it is that if there really is a person there who works for one of these providers who's got brilliance at which investments to choose within the industry, people know that and surely that person's quite likely to get a huge job offer from become opposition and moves and we don't know that. We don't, you and I, you know, our KiwiSaver don't get a list of who's making the decisions for us. And so I mean all in all I just think go with the low fees within. The retirement commission also surveys all the providers twice a year on what services they offer. And I always get a bit involved, they send questions off to me and say, got any other ones you want to ask? And there's all sorts of. I've got a bit of an issue going at the moment that there's only a couple of providers that won't let you be in more than one fund. Most of them will let you be in more than one fund. And there are a few reasons why that can be a really good idea for people. Just quickly, why is that? First of all, in retirement, once you get to the point of spending you want the money you're going to be spending within the next year or two to Be in low risk.

Okay, that makes sense, yeah.

Because you don't want it falling right when you're going to spend it. And then the sort of middle money you're going to be spending from sort of three to 10 years, something like that, in a medium risk fund and then the longer term money, leave it in growth or aggressive. I mean, even at 65, quite a lot of people are going to live for 30 years or more with technology and advances.

Of course.

Yes, yeah. And so, you know, 65 is not the time to be moving the whole lot into something very low. So for those people, it's really good to have kiwisaver at different risk levels. And another situation where it's good, I think, is when people realise, younger people realise they're in the wrong fund for them and quite often they realise that it'd be good to be in a higher risk fund because on average they get higher returns over time. But they think, oh, I don't know, you know, the crash might be coming. There's been a lot of talk about in recent times because the international share markets have done so well in the last couple of years that we've got a crash coming and we might, and we might not have a crash coming. But people say, I don't know that I want to move all my retirement money and even though I've got 20 or 30 years before I retire, I don't want to do that. I want to, you know, I couldn't cope if it halved. And you've got to picture it halving because that does sometimes happen. In the 87 share market crash in New Zealand, the value of shares halved.

If you pull out at that stage with the half that you've got left, it's terrible. But if you stay in and be patient, what has history shown us at that point?

That's a brilliant thing to do, to just stay in there. But people who are thinking, okay, I'm going to increase my risk, but I'm a bit nervous about doing it with all the money. That's another situation where I think people being allowed to be in a couple of different funds, so you can go to your provider and say, I want a quarter of my money to be in higher risk or half my money to be in higher risk. And I think that's a really good way for people to do it. And then perhaps after five or ten years they get a bit braver and transfer more.

I think that's really important for people to think about where they are spreading the risk because I think often we play it very safe. We don't want to lose money. Now, I don't know if I've got it right or wrong, but. So I've got Kiwisaver. I've had that for a while. And I've also got Vanguard S and P. And each month, I just put the same amount of money in each month. If my salary goes up, a little bit more money, it's a percentage. And I kind of never check it. I check it maybe once every 12 to 14 months.

That's great, James.

Is that good? Okay.

Yeah. I mean, first of all, you've got better things to do with your life.

Exactly. Like chatting to you.

Well, yes, thank you. But it's. First of all, the drip feeding, irregular amount in, regardless of what's happening in the markets works really well because of this thing that rather stupidly is called dollar cost averaging, which I break that down.

What does that.

Yeah, and it's a very. Ignore the title because I don't quite know what that means.

Some old white man made that up, let's face it. Right?

Yes, exactly. Yeah, they did. But basically, at a simple level, when you're going into a kiwisaver fund, you're buying units in the fund, your money's buying units. And when the markets go down, let's do a very simple example. Let's say the units are worth $20 each, and you're putting $100 a week or a month in. So when the units are worth $20 each, you're getting five units. And when the markets crash and the units go from $20 down to $10, you still putting your $100 in, you're buying 10 units. And so what it amounts to is you're buying more when they're cheap and fewer when they're expensive. And that's why it's a winning strategy, because it's just like sort of buying fr. You know, we tend to buy more when the fruit's in season, of course. And yeah, it's a really good thing to do. Mathematically, it works out really, really well buying more when they're cheap. But you don't. Even if some people can't quite get their head around all that, and I say it doesn't matter. Look, as long as you're putting the same regular amount in, and for many employees, it's just 3% of their pay that they're putting in on the same amount every period, then this automatically happens for you, whether or not you understand it, which is brilliant.

Fantastic. And so I've got the Kiwisaver and I've got with invest now it's like a sharesys type thing. So I've been with them for a long time and it's set and forget. Is it wise for me to be investing the same percentage, the same amount into both of those or should I be putting more into the S&P 500 and just minimum into my Kiwi Saver?

I say for most people put just as much into KiwiSaver as you get rewards from elsewhere. So from employees you're putting in your 3% so that the company is also putting in their 3% for non employees that self employed or people at home on parental legal in whatever situation put in enough to get the maximum from the government which means it's basically $20 a week is where all those funny numbers come from. The base is $20 a week, so it's 1,042 years.

So I might pull mine back what I'm putting into my KiwiSaver to that roughly 20, 20, $30 a week and.

Then put the rest, put the rest elsewhere. And the reason for that is just that then you've got access to that other money and you never know when you might need it. Not necessarily because something bad's happened either. I mean sometimes, you know, you might have a child who comes up with this brilliant business idea and you want to invest in that. I mean there's all kinds of reasons why people suddenly find they want more access to some of their money. And so having as much as possible out of KiwiSaver, the KiwiSaver, the power of KiwiSaver is getting that extra money in from the government and from your employer. That's why it becomes an impossible investment to beat really because it's because it's got this sort of turbocharging going in.

Yes.

And for most employees that ends up by the time they get government and employer money, roughly doubling the money that they themselves have put in. And what people don't always realise is that means double the money just trickling in over the years means twice as much in retirement. So instead of retiring with 100,000, you're retiring with 200,000.

Significant.

Yeah, it's huge. But beyond that you really want access to the money, unless you're one of those people who can't keep your sticky fingers off it and, and would blow it all on. You know, you were talking about cars and I've also got a very old car and kind of proud of it actually.

There we Go.

Yeah, because I'm not interested. I want it to be reliable and safe.

Utility. Right. It's useful.

Yes.

It's not for show.

No, it's utility. It's not about. But look, I, I understand some people love their cars. It's a, it's a source of pleasure in their lives and that's totally, totally cool.

And I agree, you know, mine's books. I have way too many books. I've got probably a thousand books in my house and I love them and I spend way too much money on them.

Yeah, but. But I love it. Yeah. And that. Look, that's what it's all about. But, but yeah.

Can I ask for a percentage roughly? So let's say someone's earned, earned a hundred dollars. What percentage roughly should we be putting away for long term investing? Should it be 1%, 5%, 10%? Is there a rough estimate what we should be looking at?

I don't know. I mean, the more the better to a considerable extent for most people. I mean, you know, 5 or 10% is good, but there are people out there who save too much. Most notably women in particular single women. I don't know whether there's any research on that, but it's just something I've observed over the years. I get people writing, it's through the Herald column. I get lots of input because I've had thousands of letters because I've been doing it for nearly 30 years. And you've got these women who are maybe worried about how their retirement's going to be and so they're actually saving too much and not spending enough money on travel or parties.

They're actually losing out on living life.

Yes.

Because they're focused on this future self.

Yeah. You can overdo saving, without a doubt. And then of course there's people who don't save enough, but you know, and it so depends on their circumstances, if they're having trouble feeding the children. Well, who are you and I to sit here and say they should be saving money? But it is very powerful to put even $5 a week into some kind of savings vehicle if you're doing it over the years and especially if you start young so that money can compound away. And so, you know, it's good to see people possibly just setting up. If you set up the automatic transfer, whether it be into Kiwisaver or. Because as an employee, if you're an employee, you don't have to put, don't. Going via your employer is not the only way to put money into KiwiSaver. You can also just set up a direct transfer to the KiwiSaver provider straight from out of your bank account. And that's a great thing to do.

I didn't actually realise you could do that.

Yeah, anyone can do that and put those. And I've known a few people who are doing that for children too, and not only their own children, it's parents who've got to open the KiwiSaver account. An auntie or grandparent can't do it, the parents have got to open the account. But I know quite a few people now who have set up an automatic transfer, maybe from when the child's a baby or at whatever stage out of their account, an auntie, an uncle or a friend or whatever, of $5 a week or something. And if it trickles into that child's account and after a while, doesn't take long for you to not miss it in your life. Totally.

You get used to it. Well, I did the same. I have a little boy, Finn. He's nine years old. Nine years ago, the week he was born, I went into invest now, I think it was, and opened up a little thing for a portfolio for him and it was an S and P Vanguard SP 500. And I put a little lump sum in at that stage. And then every month since then, it's 50 bucks a month. And so I don't see the 50 bucks a month going out, but it just trickles in. And he'll get access to that when he's much older and it'll be looking pretty good, I hope.

Yes. Yeah. And that's not KiwiSaver, correct?

No.

Yeah. And it doesn't make, I mean, one good. One argument in favour of it not being KiwiSaver is that that can be used for university education or starting a business, or there's all kinds of other good uses of money when he's still young, as opposed to a first home. But now the government's moved the age of government contributions down from 18 to 16. That's good. Yes. And so it's quite good as your child getting towards 16, to have a KiwiSaver account there. And then if you're putting money into does, because it doesn't matter where the money comes from, the provider just looks at the end of the KiwiSaver year, which goes from July through to June 30, and tells IRD how much money has been contributed over that period. And if it's 1,042, the kid's going to get. It's only 261 now. But look, it all adds up.

Absolutely.

And if it's only $100 that has gone and the child is still going to get $25 coming in from the government and it's a real pity for young people to be missing out on that money which they can use for a first time. Or you can't really talk to the children about this being for your retirement. I mean you can, but it means nothing. But you can when they're teenagers possibly say, look, this might help you buy a house.

That's pretty exciting for a teenager to.

Think about something that's sort of on the horizon.

And can we talk about the buying of the house? In Northern Ireland where I grew up, buying a house was what you aim for and you do. I still feel when I moved To New Zealand 20 years ago, same thing, you buy a house and you get in, it's yours and you pay it off. But I see a little bit of a move towards people going I don't need to buy a house, I'll just rent. And so what do you think the benefits are for and against?

Yeah, look, I applaud that trend because I think New Zealand has overdone the home ownership thing. And many young people, their parents and their grandparents are saying, you know, you've got to own a home. And look, one powerful argument for owning a home is if you're planning to have children it gives a stability that rental properties don't have. But there's an increasing trend now for long term leases on for tenants and rental properties. Simplicity's one company that's building long term rental properties that are going to be long term rentals. And so that argument for the sort of security, the home base isn't as strong as it used to be. And you know, you go to countries like Switzerland and Belgium and Germany and so on and some of those countries, only about half the population owns their own home and the others have long term leases and apparently do their own decorating and you know, it's their home but they just don't happen to own it. And it's perfectly legitimate to say I'm not going to own a home. The only thing is you've really got to save more for retirement than you otherwise would because you've got to cover your rent. Of course. Yeah.

And if we looked at more, let's say someone was saving 5% and they had a home they were paying off versus the person who was renting, should they be at 15 or 20% in.

Terms of near 10 or. I mean, one way you can sort of measure it is if you've got, if you're renting and you've got a friend who owns a home, then ask them what they're paying in mortgage interest, not mortgage payment of principal, because that's actually saving, that's building capital. But mortgage interest is just an expense.

Yeah. It's just money you're giving away, Right?

Yep. And rates and insurance and maintenance, all of that money. And if you, your, your rent is probably not as much as what your friend is paying and all of that. So if you're sort of setting aside the gap, you know, the gap between those two amounts, that will really help set you up for retirement. There's a lot of models that you can see online in that renting versus home ownership.

It's quite interesting watching them. You can almost see that people end up in a very similar position either way.

Yes. And all you need, if you play around with those models, all you need to do is change the mortgage interest rates or change the rental costs of rent a little bit and the other side wins, you know.

Of course.

Yeah. And so there isn't a clear cut case that to be financially better off, you have to own your own home.

That's so good to hear. And I think some people will be listening to this, going, phew, I'm nowhere near being able to buy my home. And so I don't actually need to do that to have a great retirement or to even have a great life.

Yeah, it's beautiful. Just before we get off that, I had a letter recently from a young woman. She and her partner are house sitting in order to save, to buy their own home. And I put that letter in the column because I thought it's an interesting one. I mean, I think they've been doing it for a few years, you know, and most of us might not. You know, we want a bit of a base that we call our home. But some young people wouldn't feel that way. And typically when they're house sitting, they're not paying anything or not much. It depends on the situation. But if they're looking after the, the pet or something like that, quite often it's free. They're living in quite a nice house. And yeah, so I thought, well, that's an interesting way for young people to actually get in and build up that capital. But at the same time you could do it and build up your savings for renting. For renting for the rest of your life, 100%.

And I think it's being creative with how we get there. There's not one fixed method to becoming financially free or being rich enough. There's lots of different models. So if we look for a second KiwiSaver versus an index fund. So kiwisaver is a managed fund, is my understanding.

Well, they're all managed funds. In and out of. Managed fund is just a very broad term for any fund that holds a whole lot of shares, or it might be bonds or it might be a mixture, active management and passive management. And so active management is when the provider is choosing which shares and bonds, et cetera, to buy and how long to hold them, when to sell them.

Ugly would cost me more money in terms of fees for active management.

That's high. Yeah, because they cost more to run. They've got to pay quite high salaries to these people that are choosing. And then all the brokerage costs and just the cost of getting in and out of the market markets. Whereas passive management, they're usually investing in all the shares or bonds or whatever in a market index. An index like the S&P 500 or the New Zealand's NZX 50 or the one I tend to invest in is the world index, not just the American you were mentioning earlier. I think for your son, that an S&P 500 fund and American shares make up, I think it's about 70% of the value of all the shares in the world. So they're hugely dominant. So if you're in a world fund, you're still largely in the American market.

You're exposed to the American market.

Yes, very. But it does give you some diversification. It means.

Is that called the Vanguard World Index?

Yes, some of them are called the MSCI World and et cetera. I can't remember what MSCI stands for, but that's one of the prominent indexes. But some of them just. They call it a global index fund. A global index fund. There's several of them. And that's where you're getting the widest diversification you can. And because especially these days, the American market, you know, who knows what's going to happen there with political issues as well as market issues. And so it's quite a good idea to have. So you'll have a fair bit of money in Britain and France and Japan and China, some of these other share markets as well, if you're in a global.

So I need to look at that because I've always been kind of S and P Vanguard, so that's really helpful, actually.

Oh, good.

Yeah, that's Brilliant. Thank you. So if we think about the. I've got some friends who are in wealth management and wealth advisory here in New Zealand and I love them dearly. They often convince me that it would be very wise of me to take some of the money I've been saving and investing in the index and give it to them. And I love them. However, I don't love their fees and they tell me how low their fees are and then I compare it to what I'm paying in an index fund. I'm like, well, it doesn't really add up to me. And I often hear people saying, but I can beat the market. And I'm going, well, looking at the facts, roughly 4% of managers. This was a research piece I read about 10 years ago. 4% of managers can outperform the market.

Sometimes and that'll be over a longer period. Over a single year it's higher. But.

But over 15, 20 years.

Yes, yeah, the longer the period, because people have quite a lot of luck in individual years. I mean, the index tends to perform on the market average and so in a single year you might get half the wealth managing people or the active fund managers, just people who are out to beat the market. You might get about half of them beating the market. But you look at two years and it's not the same half. And five years, 10 years. Yes and yes. And this is the Standard and Poor's research that they do, looking at the different funds and how they do and the wealth managers will be similar. There's a basic reason why somebody who's trying to pick which shares to invest in, they're not going to beat the market, usually because if a company, the shares in a company selling for $20 a share, and that usually sort of a fairly good assessment because lots of different investors have looked at the company's business and said this is about what the company's business is worth. But if one researcher comes across something that suggests, oh, the company's actually undervalued and they're the very first people to realise that, they leap in and buy the shares at $20 and the shares then rise to 25 or 30 and they've done well, the trouble is, once they've leaped in and bought, every time someone's in there buying, they're pushing the price up, demand's going up and so the price goes up. And so by the time the ordinary person gets in the market or even the financial advantage advisors out there get into the market, the extra value's already in the Price. Yes, yes. So Warren Buffett, you know, the famous American share investor, there's a great, great quote from him about this. Goes something like back when I got invested in Coca Cola, which was one of the early big investments of his company, Berkshire Hathaway, Coca Cola was a good company and the share price was cheap. It's still a good company, but it's not cheap anymore. And so it's not a good investment.

That's such great advice from a legend of investing.

Right, Isn't it?

He said something else that I find fascinating, that if he was to pass away, he would not want all of his money to be given to a fund manager. He would want to put it into an index fund for his family. And I thought that was really powerful.

Yes, it's very interesting. He is said, yeah, he's instructed his wife. Well, I hope he hasn't instructed, but suggested to his wife that they just put it in index funds after that. Yeah. I mean, one of the great differences between his strategy and most active fund managers is that he buys and holds for a long, long time. He'll research companies and then buy them and sit on them for decades.

Would you advise Kiwis to do that in terms of. If they're not very sophisticated as an investor, they don't understand markets. Should they buy something and hold it or buy a whole index?

Buy an index. But buying and holding is better than trading in and out. I mean, there's trading costs as well, and you can get caught for capital gains tax. But even that aside, it's people who. There's another company called Dalbar D A L B A R that does research on how well the average American fund performs versus the average American investor. And they find year after year that the average investor does worse than the average fund because they're picking individual shares, picking individual funds, getting in and out, moving around, thinking this is. This is the best step for me and spending all that time and energy and ending up worse off.

I love that. I love the way you approach it because I've never bought an individual stock ever. And maybe I'm an idiot for doing that, but I just go to indexes and I'm not trying to make billions. I'm just trying to work slowly and surely over the long term, build that so that when it comes time for me to stop working, there's enough there for me to have a reasonable existence.

Oh, that's great. The only individual share I've ever bought was Genesis Energy, and that was only because they were issuing it out to the public, this is about 20 years ago or something like that. And I put the minimum amount for the sake of journalism, because I wanted to see what information they were giving people. And, you know, it was a research thing, it wasn't an investment and it's actually just sat there. One of these days I must get around to selling them again because I think they've gone up a bit, but, you know, good. I haven't even followed it.

Wow, I love that. And if we think of Kiwis, what are some of the biggest financial mistakes you see Kiwis make every day?

Well, I suppose not being in KiwiSaver because of the sort of turbocharging you get from government money and employer money, it makes it a risk on a risk return basis. It gives it this head start that, you know, outside KiwiSaver or international equivalence, whenever you're getting a higher return, you're taking more risk. There's no escaping that. People say, oh, that's not true of rental property or it's not true of gold, or it's not true of whatever. And when you start looking into the situations, if you're going to get higher returns, you have to take more risk and. But getting extra money coming in from the government and from your employer is not increasing your risk, but it is increasing your return. And that's why I think everyone should be in it, including little children, just partly just to make sure they're getting the money once they get to 16. And you're suggesting to the grandparents and all that, wanna do something for the kid, set up $5 a week. Yeah. And so that, I think's the biggest mistake, not being in and then not contributing regularly. If you.

I, like you said earlier, to automate it, automate your contribution every week, every.

Month, whatever it might be, and after a while you just forget about it. And for retired people too. A lot of them don't really realise that Kiwisavers just. There's no money coming in from the government anymore if they're still employed. The employer doesn't have to put in money after 65.

But most good employers would, right?

Yeah, they do.

You would hope.

Yeah, they do, most of them. I was talking to the chief executive of one company that I'm not going to go up and say, congratulations, happy birthday on your 65th birthday, by the way, I'm going to stop you.

How could you do that?

Yeah, yeah, yeah, so. But even those who are retired, it's just a good place to be. The KiwiSaver investments are not government guarantee, but they're monitored awfully closely by the government. And you know, it's pretty much inconceivable that you would lose money. I'm not talking about your balance going down, but I'm talking about money being absconded or something like that.

There's a lot of control.

Yes, there is. I mean, your provider is not actually holding the money, they're just sort of running the thing. The money goes to custodians and there's a supervisor, some two separate companies, a supervisor and a custodian.

They call that escrow in North America.

Yes, I think they do.

Okay, I know, I think they do.

Yeah. So it's not. And they are charged, these other supervisors and custodians and that are charged with making sure the money is going to where the provider says it's going. So if your provider goes out of business and there have been a few little kiwisaver providers that have gone out of business and all that happens is the government steps in and moves your money to another kiwisaver provider and says, hey James, you're now with such and such and if you don't like that new provider, you just move. And by the way, moving provider is much easier than people think.

Oh, it's a click of a button almost.

Well, it's, you know, if you're going to move banks or something like that or insurance companies or whatever you think, oh, you know, it can be quite complicated. But with moving provider, all you do is go to the new provider. You don't have to go to the old one and say, I don't love you anymore. The new provider will organise to get the money transferred over to them and it should be really easy.

I love that. And I guess in terms of financial mistakes, this idea. When I came to New Zealand, I felt like I had to get a house really quickly and then I had to start building a portfolio of properties and I needed a batch. So this was this kind of like comparing myself to everyone. Do you think that's potentially a mistake for many Kiwis to have this expectation that they need a whole portfolio of properties?

Are you talking about rental properties or. Yeah, I mean, look, that's another classic New Zealand investment and most people have done really well with it. I mean, basically because they borrow money from the bank in form of a mortgage and so to buy the rental, well, often to buy their first home and then quite often then they'll use the money that's built up in their home. They borrow against that to invest in a rental property. And then some of them go on and on and do it for quite a few rental properties. And that can work really well. Cause you're getting growth on the money you've put in and growth on the bank's money or whoever else is lending you the mortgage money. And so that's why it usually works well. But look, there's quite a few scenarios where, you know, these days it's quite common for someone who's invested in a rental property to where the rent doesn't cover all the outgoings for the, for the mortgage and the rates and the insurance and the maintenance. And so they're having to put. The landlord's having to put some extra money in from perhaps their pay packet or somewhere else. And that's all right, that doesn't really matter until perhaps they lose their job or until the tenants don't pay or they can't get tenants for a while. I mean that tenant landlord market shifts around all the time or the rents go down or the mortgage interest goes up, or there's all kinds of scenarios that can happen that force people to sell a rental property. They find that putting it back on the market and as we've seen in recent times, they might be selling it for less than they bought it for. And because property prices across New Zealand have gone down, what is it? Look at something like 20% or something significant. Yeah. Over the last, since 2022, it's kind of unheard of.

When I moved to New Zealand, I was always told the property market has never went down here, keeps going up.

Which has always been a myth. If you look on the Reserve Bank's website, they've got a graph of average property prices and they've gone down, you know, every 10 years or so for a while. And you know, in the global financial crisis around 20 2009, 10, 11, they went down a fair bit and recently they've gone down a fair bit. And what can sometimes happen if you get forced to sell a rental property when the market's down? Not only, you know, this is sad, oh gosh, I bought for a million and I've sold for 800,000 or something like that. But sometimes that doesn't even cover the outstanding mortgage and people are left with a debt to the bank and nothing, no asset. And I know people that's happened to likewise. Yeah. And so, you know, it's not without its risk. The other thing about owning rental property is, personally, I don't want the hassle of it. I mean, I think I'm the same.

I was building up this portfolio. I had some houses and I just sold them as I want to go index. Excuse me, have my own home, pay it off. Index funds.

Yes.

Keep it simple.

Yeah, it really is. When people are weighing up those two types of investments, they tend to not always take much notice of kind of the hassle factor of getting called at 2am and told the toilet's blocked. Or, I mean, look, there are property managers that can take care of some of that. But one landlord said to me, yeah, yeah, I hired a property manager. And that just ended up being another problem because they weren't performing.

Had to manage the property manager.

Yeah. Yes. Yeah. And so, you know, you're adding quite a big complication to your life having a rental property. Some people who are really DIY people and like to get in, they might buy a house that's in quite bad shape and before they ever rent it out, they tart it up.

I'm pretty hopeless. That's not me.

No, no.

I'm not good with that.

No, me. But some people actually enjoy that. And so that can work quite well. And then maybe between tenants, they get in and tart it up a bit more and they actually like spending their weekend doing that kind of thing. And so that can suit them quite well. But it can be risky. The golden rule. Don't be forced to sell. Don't ever get yourself into a situation where things might go wrong and you might be forced to sell. Because quite often that happens when you might have lost your job because there's an economic downturn, and that's more likely to be when house prices aren't growing too well either, and in fact might have fallen and the whole thing can collapse in a pretty ugly heap. Really?

Absolutely. And we've seen it happen before. Mary, I've got a couple more questions before we wrap up, but before I go there, I want to encourage everyone to go and get your book. Rich enough, we're gonna put a link in the show notes so people can buy it right away from Witcoles Paper plus wherever you buy your books. But we'll also put a link to Amazon in as well.

Appreciate that. Can I just say, too, that I. A lot of adults buy it for their adult children, their younger children. I don't think that many people in their 20s and 30s buy the book. I think quite a lot of them, their parents buy it. But then I get feedback from the young ones coming back and saying, oh, I didn't realized this was so easy to read.

It's a brilliant read. Like it's so easy. Like think and grow rich. When I tried to read that 25 years ago, I did the first two chapters and put it down. I did that five times.

Really.

I couldn't get it going. I did finish it eventually. Your book, I couldn't put it down. It was just so natural but also applicable. I thought I can do that or hey, I am doing that or oh, I really should do that. So really cool. So thank you. So I'll put a shout out there in the show notes but two last questions. So one for the 40 year old person who's got arguably another 40 or 50 years of life all being well, if you went back to being 40 again yourself and you were starting from scratch to build your investments for retirement, what would you do?

Set up regular payments into either kiwisaver or a non kiwisaver fund. Kiwisaver to the extent you get the extra money from elsewhere. Otherwise a non kiwisaver index fund really. I mean for people who don't quite know what's an index fund, just go for the low fees, the providers with low fees and find that out from the smart investor tool on Sorted because they're nearly always the low fee ones will be the index funds. Yeah, yeah.

0.0 something is often the percentage that they're charging in fees.

That's right.

I've went to and I'm not endorsed by any of these companies but Invest now sharesys and there's another one, Simplicity's.

Got quite low fees.

Okay. We have Sam Stubbs on the show coming up shortly as well.

Oh, do you?

Yes.

He's a character.

Yeah, definitely.

Yes. Yeah. There's smart investors that run by the stock exchange.

Yes.

Funnily enough, quite a few of them start with S which is just weird.

Well, I'll put it all in the show notes actually. All of those and a link to Sorted as well because it's been a phenomenal website over the years to help me. I find it brilliant.

And in particular their Smart Investor tool is the one it's really helpful on. And you can click on any fund and get a fairly concise summary of the fund and its kind of basic what it offers, how it's done over the years, even though we don't want to put too much emphasis on that, how the fees compare with other people, what sort of investments it's in. It gives you a nice quick overview of each fund that's phenomenal.

What I've loved as well about today as you've said, you do not need millions and millions in retirement to live a nice retirement.

Definitely not, no.

That's such a relief to hear because we're being told we need millions. You know, I was told my number should be about 4,5 million, and I'm like, well, that's a bit of a journey to go.

No, you don't always look at who's saying that and they're nearly always got a bit of a vested interest.

I reckon you've given me some really good tactical advice, life advice and even philosophical advice, and it's been very helpful. May I ask one last question?

Sure.

So if you and I were to fast forward many, many years into the future and you were highly aware that it was your last day here on Earth and someone very young that you loved dearly came into the room, said, mary, how do I go about leading my life on purpose? What would you say to them?

Oh, gosh, James, it's. Treasure your friends, I think. Yeah. If I'm trying to think of one thing to say, I think, you know, in the end, when you look back on your life, the ones who have stuck by you, and I've got a surprising number of friends from school days, actually.

Wow.

Yeah. And I love that because we sort of know where one another came from, who had the nice mums and who had the crabby mums. All of that. Yeah. Yes. And getting out into nature, you know, on the beach, in the bush, how revitalising and how important that can be. And it's free. Yeah.

I love it. Such good advice. It's interesting, my mum would definitely have said that first one. She treasures her friends and reminds me how important friends are. My partner, Caroline, would definitely have said the second one. She would resonate with nature and being out and amongst it. So I just want to say massive thanks for being here today.

I've really enjoyed it. Thank you, James. You've asked some great questions.

That's been a pleasure. And thank you for helping me and the listeners work towards being rich enough.

Yes, very good. Thank you.

Thank you.