Personal finance writer Mary Holm answers your property and finance questions.
Question: I have had money in FNZ (NZ sharemarket index fund based on the top 50 companies) since August 2016. In that time the units have had a capital gain of 9.5 per cent and a dividend of 3.11 per cent (that's total over the period), or less than 7.2 per cent when annualised.
I bought at $2.31 in August 2016 and the shares fell to $2.05 by December 2016.
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They've had a slow climb since then to $2.53 today. I am in this for the long term, but I suggest it is misleading for the Herald to talk about a 22 per cent gain in the sharemarket last year when the FNZ, which is supposed to represent a diversified average portfolio, has done okay but nowhere near 22 per cent in a year.
I have a rental property which increased in value from $720,000 to $906,000 over the same period, or 26 per cent (about 15 per cent annualised). My wife hates the sharemarket as it has been underperforming for a long time, at least the last decade.
Case in point: FNZ were at $1.56 10 years ago. So over 10 years people have earned 62 per cent. That's 4.9 per cent compounding, which is pretty bad for a diversified shareholding over a period when there has been nothing but talk about recovery from the global financial crisis and New Zealand's rock-star economy.
Mary: You've committed two research "sins" in your comparisons:
• Judging a share investment over too short a period in your first couple of paragraphs.
• Using a single property to represent what's happened to the rental property market.
For the benefit of others, FNZ is a Smartshares exchange-traded fund, or ETF. In many ways it's like other share funds, such as higher-risk KiwiSaver funds, but you invest in an ETF in the same way as you invest in a share listed on the sharemarket.
FNZ holds all the shares in the S&P/NZX 50 Portfolio Index, which covers the 50 largest companies, with no more than 5 per cent of the fund in any one share.
Despite what you say, during 2017 an investment in FNZ did, indeed, increase by 22.3 per cent, says NZX, which runs Smartshares. But for the first few months after you bought in August 2016, the price of FNZ fell, as our graph shows. So your overall performance so far is not nearly as good.
A share price is always going to wobble. That's why I have two "rules" about investing in shares or a share fund:
• Use money you don't plan to spend for at least 10 years. That gives enough time for recovery from market downturns.
• Don't withdraw earlier, especially when there's a downturn. Hang in there, and things will come right.
In your last paragraph, you do look over a longer period, 10 years — great. NZX says the average return over the last decade is 5.2 per cent after fees, rather than your 4.9, but that's probably because you're looking at a slightly different period.
While a return of around 5 per cent a year is not exciting, a glance at our graph shows the decade includes the global financial crisis of 2007-2009. Over the past half century, that plunge was second only to the 1987 crash. So 5.2 per cent over a decade that includes such a downturn is not too bad.
As it turns out, the growth of the sharemarket is also faster than the QV Quarterly House Price Index over the decade. Your rental property's value grew more, but the average property didn't. It's true the house price index doesn't include rent, but for many landlords, that's offset by mortgage interest and other expenses.
I don't want to reopen the shares versus rentals debate. We've had enough of that lately.
Let's just say both have done well in recent years. I'm afraid your wife has got it wrong.
