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."

Hawes also writes about belonging to a despised profession, despite demand for financial advice.

"Because financial advisers get paid on commission, they are seen as flogging investment product - and there is a good bit of truth in that ... I think the financial advisory industry will never be trusted and treated like other professionals until they stop taking commissions."

He admits having clients lose money on his recommendations, but says, despite the industry's reputation, he would still use an adviser.

"No adviser knows everything. Always question the advice, asking for a second opinion if necessary. Never use an adviser who gets paid from commissions paid by a third party.

"But don't let the fact that there are some very ordinary people in the advisory game put you off employing one - there are also some very good ones, people who can help you make money. Track one down," he writes.

Ultimately, there is no easy way to make money as an investor, writes Hawes.

"I used to say in the 1980s that real estate was the lazy way to riches but this was a time of high inflation and low real interest rates, so it was easy then. It is not now, any more than it is easy to be a successful equity or bond investor. There is no shortcut to successful investing - be wary of anyone offering a "foolproof system" - or anything else where the returns offered are way beyond the norm."

Win the book

We have eight copies of Martin Hawes' book, Letters to Aston: Lessons Learned from a Lifetime of Investing to give away.

To be in to win, email andrea.milner@heraldonsunday.co.nz with your details and the word "Giveaway" in the subject line by 5pm Wednesday, November 25.