Structure your investments to suit your needs

Everyone has their own set of unique circumstances that determines how their wealth can be grown, and how and when they will be able to spend it.

Reputable financial advisers will treat every client as an individual, creating a portfolio of investments that best suits each investor's profile. Considerations include your age, how much risk you can afford (or are willing) to take, and how much time is available.

But the overarching concern, according to advisers, is to structure your investments properly, to diversify across asset classes and markets to limit your exposure to any market, and to monitor performance at least annually.

There are three key asset classes to include in a balanced investment portfolio: cash and fixed income (such as term deposits, corporate bonds, government bonds, etc.); property (direct or listed) and shares (equities).


Lachlan Craine, senior wealth specialist, ANZ Global Wealth and an authorised financial adviser, likes to look at a good portfolio in terms of buckets - a short-term, medium-term and then long-term bucket.

"The relationship between risk and return is very important. That's why ANZ offers Conservative, Balanced and Growth fund options. If you're seeking higher returns, you need to be willing to accept more risk. If you're seeking low risk, you need to be willing to accept lower returns."

He says the short-term bucket (up to three years) will be mainly cash based (term deposits, high-interest bank accounts), as you don't want too much volatility. The medium term (three to seven years) can cope with a little bit more volatility, depending on your appetite for risk (perhaps 50 per cent in listed properties and shares, 50 per cent in cash and fixed interest), in order to generate higher returns than would typically be available from a bank account.

"Longer term, you've got time in the market to take more risk, if you are that way inclined," says Craine. "Your portfolio should be more weighted towards growth assets. Diversification is key: cash and fixed interest, listed property and listed shares, here and overseas.

"It is vital that you think about what you are trying to achieve with your money, and the time frame."

People wanting to invest should first pay any high-interest debt, he advises, as it is usually very difficult to sustain investment returns that are higher than the cost of those debts.

He says there's no better place to start your retirement strategy than KiwiSaver. "Having a savings plan or direct debit facility is essential. With the right strategy, it can build up quickly. A managed fund is a reasonable place to start."

Senior analyst Michelle Perkins from Craigs Investment Partners, which is managing funds worth more than $5bn, says inflation is the biggest threat. "Every day it is eating away at the value of your savings," she says.

Perkins says short-term goals, such as saving for a holiday, or even a deposit on a house, are best kept in a bank savings account or term deposit. If you need your investments to provide an income stream, so you have a longer-term focus, you can consider an investment portfolio. A sample portfolio might look like the following:

1. Cash and fixed income (40 per cent of portfolio)

• Should be safe, provide certainty.
• Predominantly Senior Debt of Investment Grade Credit Rating.
• Set them to mature at different dates to reduce reinvestment risk.
• These investments are all liquid. They can be sold if funds are needed.

2. Property: listed property trusts, direct or both (7 per cent)

• Property is an important asset class within a balanced portfolio.
• Provides a reliable income stream and, in some cases, relatively lower levels of volatility.
• Lower growth than shares.

3. Shares (53 per cent)

• Entitles you to a stake in companies that have real assets sitting behind them.
• Higher level of volatility than cash/fixed income and property, but also potential for higher returns.
• Provides both capital growth, current income and income growth.

The chance of a loss in value on your investments reduces markedly the more asset classes you invest in, the more countries involved, and the more you invest in within each asset class.

There is great advice in the free Reserve Bank booklet Upside, downside: a guide to risk for savers and investors, available on

Frugality - a different perspective

Popular personal finance blog 'Mr Money Moustache' touts the merits of being tight with money in an article titled "Frugality is the new fanciness".

In "olden times" when trying to get ahead involved a lot more hurdles, someone who pulled themselves out of poverty was seen as genuinely successful. Today, however, now that flashy is the norm and wealth may very well have been passed down through generations, going against the grain and keeping a firm grip on the purse strings sets these people apart as successful.

The Canadian author describes these people as "rare", better at maths, and the ability to think a little bit into the future.

"They see that money is useful for spending, but even more useful as a tool for earning more money. So they train themselves to master finance, and hard work, and self-discipline. And they figure out how to have just as much fun as the big spenders, while being sure to do it in a way that allows them to save at least 50-75 per cent of their income."

This blog calls middle-class life an "exploding volcano of wastefulness". Readers are told to cut their spending in half and put the rest away.

"If you can save 50 per cent of your take-home pay starting at age 20, you'll be wealthy enough to retire by age 37. If you already have some assets now, you're even closer than that. If you can save 75 per cent, your working career is only seven years."

An early retirement

Personal finance philosophy 'Early Retirement Extreme' has similar ideas.

The movement's eponymous blog states financial independence is much more easily achieved by reduced spending, as opposed to finding ways to increase income.

By simple living, self-sufficiency, and prudence, a worker on a typical wage can comfortably save between 50-80 per cent, it claims. With compound interest and safe withdrawal rates, financial independence can be achieved in five to 10 years and you can retire early.