Grandpa's wise words

Aston Saunders and Martin Hawes. Photo / Supplied

When investment adviser Martin Hawes started thinking about things he'd like his first grandchild, Aston Saunders, to know, he settled on writing him a series of letters to capture and distil the financial lessons he has learned.

He has collated them into a book, Letters to Aston: Lessons learned from a lifetime of investing, which hit shelves this month.

Hawes says he wrote these letters "in case I'm not there to help Aston when he has grown up". He does not expect Aston to start reading them yet - he is, after all, only 3 - but says: "I'd love to think that later in life he can stand on my shoulders and benefit from things I learned.

"These letters contain the fundamental, enduring principles, the foundations of investment that apply for all time, and at all times. If Aston can grasp these then I know his life will be solid in at least that area."

Hawes has used these principles in his investing and his advisory career, especially during recent times.

"The past couple of years have been fascinating. I've seen a real divide open up between those who understand the larger picture and those who don't."

Through personal investment anecdotes, the book sets out the building blocks of Hawes' strategies to thrive financially. He says Aston will be able to use these laws of investment when saving for a car in his 20s, for retirement in his 50s and when living off his capital in his 70s.

Hawes' main investment belief is income gives investments their value, and he writes that he keeps things simple by buying quality real estate or shares in quality businesses in good markets that have attractive financials at a good price.

"I buy things for their income and hold them for that income, I watch the income grow and the investment value along with it over long periods of time. If something does not immediately perform I am not worried - I am usually in there for years. A speculator or trader will try to turn things over quickly, trying to make money on anything that can be bought and sold - gold, futures contracts or currency.

"An investor, however, buys things with income - there are only three: shares, real estate and deposits - and holds them for the long term."

The right proportions of shares, property and deposits will dictate the returns you get and the volatility you experience.

However, Hawes says there are times when you should be underweight or overweight in certain asset classes: "There are times when I have almost completely withdrawn from the share market because I thought equities were hopelessly overvalued, and other times when I would have sold your mother and your aunts so I could put more into equities, such were the bargains available."