Special report: Finding your investment niche

By Paul Dykes

2 comments
Let your personality have a say in wealth creation

Homeowners are property investors. Photo / File
Homeowners are property investors. Photo / File

Most people are investing in something even if they don't know it. Homeowners, for example, typically have their biggest single investment tied up in their house, so they are property investors.

Business owners invest in their companies with the intention of earning a living and a capital gain on sale when they eventually retire. Likewise, employees invest time and effort at work in the expectation of rewards that grow over time.

Others follow a passion and amass items that appreciate in value, such as vintage cars or art, and others spend a lifetime collecting something as a hobby only to find that it becomes increasingly valuable as time goes by.

There are plenty of rags-to-riches stories in the collectibles world, whether it be wine, comics, die-cast model vehicles, books, trading cards, jewellery, military paraphernalia, porcelain, coins, dolls, stamps, vinyl records or pop, sports and movie memorabilia.

The list is virtually endless.

But given all those opportunities to grow wealth, most New Zealanders either have no significant savings or take a conservative approach to wealth enhancement. Typically, most end up planning their retirement income based solely on the value of the family home, or the state pension.

Mark Lister, head of private wealth research at Craigs Investment Partners, says there are investors who operate outside the norm in chasing gains in gold bullion, derivatives (a contract between two parties that derives its value from an underlying asset) and currency trading, for example, but the vast majority tend to seek "safe and sensible" investments.

As an example, he says there was $126.8bn sitting in deposit accounts at the main trading banks, according to the latest Reserve Bank (RBNZ) figures to the end of March this year. Most will be earning about 4 per cent interest, which will be eaten away by tax (say 1 per cent) and inflation (perhaps 2 per cent).

That doesn't leave much of a gain year on year, yet thousands of New Zealanders are happy to have their money tied up in this way. Of course, many people in this category have little choice as their bank account never gets to amount to much anyway.

The RBNZ lists total household financial assets at $269.6bn at the end of March this year (excluding property), so almost half of this is resting in everyday bank accounts.

Add in $3.3bn on deposit with credit unions, building societies and other non-bank lending institutions and another $20.9bn in other fixed-interest deposits (including solicitors' nominee companies (.4bn) and government stock (.5bn).

There's another $85.9bn tied up in superannuation schemes ($44.1bn), life insurance companies ($5.8bn) and managed funds ($36bn).

On top of this, New Zealand shares accounted for $25.7bn and overseas shares $6.9bn.

Lister says investors like to keep an eye on the price of gold, oil or copper, say, but only as indicators to gauge how the financial markets are viewing the world at that time not so they can invest in these commodities.

"There are some people who want to invest in gold and physically hold it, but this is not common."

He says many New Zealand investors are retirees who need to look after their life savings, so they are not willing to take a punt on speculative investments. "It all depends on each investor's risk profile how averse they are to risk."

However, within that conservativeness, there are some investors who are demanding their investments respect the environment, ethics and fair trade, says Lister.

Craigs operates one KiwiSaver fund, for example, that is geared towards socially responsible investing (SRI).

"The SRI sector is growing steadily. People are becoming more aware of what they are investing in. They are preferring companies that add something to the world, rather than take from it."

For most people, property is the main wealth creator, whether they accumulate wealth through a series of sales of the family home throughout their lives, or invest directly in the rental property market.

The RBNZ lists housing loans as at the end of March this year to be worth $190.9bn. In the year to March, New Zealanders repaid $10.4bn in housing loans and a further $1.9bn off consumer loans.

Financial advisers insist that the golden key to good investing is to diversify. The obvious solution is to own lots of different shares, properties and bonds, but that's not a typical scenario.

KiwiSaver - investing for the future

Once it used to be just rich, upper-class men who were investors.

But with the advent of KiwiSaver, we're all investors, says Sorted's Tom Hartmann.

"The fact is that everyone is an investor and they need to engage with where their money is going."

Because New Zealanders are automatically enrolled in KiwiSaver, many end up on the default fund.

"They may not have made a choice and unless they engage, it might not be the best thing for their circumstances. We're hoping people will make an informed decision about whether to leave their money where it is, or whether in fact it might be better off somewhere else."

The KiwiSaver 'Fund finder' on Sorted.org.nz can help people choose the right fund for them, based on the risk involved, the fees and services, and the amount of return.

The funds available include defensive, conservative, balanced, growth and aggressive.

People also needed to think about how soon they would be needing to dip into their savings to buy their first house, he says.

"For myself, since I'm in the market for a first-home deposit, I have left my money in a default conservative fund in order to make sure that when I need to withdraw the money, which might be in the next few years, it will actually be there."

In a more volatile, higher return fund, a slump in the market could mean the money won't be there when you need it.

"If I had 20 years, I would probably go into a growth fund because I have time to weather those storms."

More New Zealanders have been looking to get into the stock market since the Government began selling its assets, but Hartmann's advice to would-be investors is to deal with your debt first.

"A lot of investment experts will say you really shouldn't be investing if you have significant debt such as a mortgage. The answer to whereabouts to put your dollar most of the time is going to be against your mortgage."

Our saving and investment behaviour

In June 2013, the Commission for Financial Literacy and Retirement Income released a study into
Kiwis' financial behaviours called the Financial Knowledge and Behaviour Survey.

The findings included:

• Most New Zealanders appear to be putting some money aside, at least for the short term.
• 62 per cent of people say they have put at least some money into savings over the last three
months.
• Less than one-third of respondents are saving for the mid to long term.
• Nearly two-thirds of respondents say they are investing money somewhere other than KiwiSaver. This includes term deposits, property, shares, own businesses, bonds, unit trusts or managed funds, non-KiwiSaver retirement or superannuation schemes, and other investments.
• Including KiwiSaver, three-quarters of New Zealanders are investing money.

- Source: Commission for Financial Literacy and Retirement Income

- Bay of Plenty Times

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