Let’s take a look. Please note I am assuming that you all know know one thing - “you should not put all your eggs in one basket.”
The main investment options in NZ are:
-gold and silver
-collectables such as jewellery and paintings
They usually pay low interest, and investing in one bank is not diversified. If you choose to stay in a bank, use 2 or 3 or 4 banks, and make sure your deposits all mature on different dates (see next week’s article for more on this issue).
You hear about a new bond issue at 6.65% from bank, and 6.61% from another, but as soon as you start reading the fine print, you see that plain English is glaringly absent. NB. Some recent bond issues were not at all good.
Bonds are a loan to a government, or a bank, or a big company like Telecom or Auckland Airport, pay a tad more interest than a bank deposit, and are usually for 5 to 7 years. There are 4 key things about bonds;
– Some are far better quality than others
- Ad the good ones can be bought and sold anytime – & it’s nice to have access to money
- The good ones don’t pay much more interest than a bank
- The good ones are very low risk
Property is much loved by all, but most of us already have a house, and sometimes two or three.
In fact it is common for Kiwis to have about 70% or more of their total assets in their houses.
Best to put some money elsewhere ?
Fear of loss reigns supreme and we all heard about how much Uncle Joe lost the ’87 crash.
When we buy a share we are investing in a company, and will share in their fortunes, good and bad.
And yes, they can fly and they can fail.
However on average and given time, a widely diversified portfolio of shares is likely to pay 3% to 6% more than bonds – that is on and offshore shares.
Note the ’87 crash was mainly an NZ crash, as offshore markets recovered very quickly.
There are four key things about shares to bear in mind;
- If you buy shares, you must give them time
- You must diversify over hundreds
- Not many people (if any) know how to pick the good ones
- They are liquid so you can get some cash out anytime
Gold & Silver
Gold was $1800 not long ago, now $1250 ! Over long periods it has made less than bank deposits and it pays no interest either.
Silver is much the same.
If you have the skill, why not? But perhaps these should only be 10% of your overall assets since they are not always easy to sell at a good price.
What to do ?
Logic says a mix of bonds and shares.
Bonds as they are low risk, and shares because they can make more money.
But where do you go ? who do you invest with ? what funds do you choose ?
If you decide you need advice, look around and try a few. You will need someone ;
-who speaks plain English
-who does not claim he/she can pick the best shares
-who recommends wide diversification on and offshore
-who you can talk to regularly as you may be still learning all this stuff
-who will help you review and rebalance your investments regularly
Take your time
When seeking advice, look for a plain English speaker who you can communicate easily with
If you can’t find the right person straight away, don’t worry - walk away and keep looking
If in doubt invest half, and leave the other half in a bank while you “test the water”
When you do invest, diversify widely and give it time
Supplied by Alan Clarke, financial & retirement adviser, & author. He also writes regular articles for the media & on line – see www.acfs.co.nz
His second book is at the printers & is entitled “The Great NZ Work, Money & Retirement Puzzle”.
Alan is an independent authorised financial adviser (AFA) FSP26532 & his disclosure statement is available on request and free of charge.