I am renting and have outgoings of approximately $200 a week for the household, plus costs for a run-down car and health insurance.
Please advise of any ideas, to further myself.
I was unfortunate in marriage to have put estate monies in, which have subsequently gone into the divide, but I can't afford to dwell on this.
I would love your advice, as a financial adviser.
A. You're quite right about not dwelling on what might seem unfair in a marriage split-up.
Look to the future. You've got no dependants, a lot more money than many in your situation, and a new life ahead of you. It will be what you make of it.
Your first priority, I would think, would be to buy a home.
Although it's not clear whether a young person is better off buying a house or renting and investing the extra money, most 50-year-olds want the security and flexibility of owning their own place, preferably mortgage-free.
I wouldn't like to see you spend all $230,000 on accommodation. It's great to have some invested elsewhere for your retirement.
But, depending on where you're willing to live, you should be able to buy something small, without a mortgage, for less than $200,000.
Beyond that, you're doing well by looking for work and applying for the unemployment benefit in the meantime.
You might also talk to Work and Income about helping you in your job search.
According to their website (www.winz.govt.nz) they have workshops and booklets that cover topics like job interviews and writing CVs.
And they might help you get training in areas such as computer skills. If not, consider taking an evening course later, when you're working. That could boost your income prospects.
Until you get work, it will be tempting to dig into your savings to cover any shortfalls and perhaps even an occasional treat.
I wouldn't frown on that. You're living frugally, and a little luxury can go a long way towards lifting your spirits.
But if you can keep as much as possible tied up for the next 10 or 15 years, you will be glad of it later.
All the best!
And by the way, I'm not a financial adviser; I'm a journalist.
The distinction is important. I don't know enough about any reader's situation to do more than, hopefully, steer them in the right direction.
Q. I agree strongly with your view that in the long term the best return will be made by investing in shares, and that risk should be reduced by spreading your investments.
However, like the writer to your column two weeks ago, I disagree with your strong support for achieving this through using investment trusts.
Direct purchasing of shares is fun and rewarding.
My wife and I buy a new share every time we have about $4000 in our current account. The broker's commission of $55 is reasonable.
We select New Zealand shares in companies by first looking at dividend yields and times covered, choose an industry we aren't exposed to, and a firm that has been around for some years without reputation for speculative activity.
We will not buy any company again until we have 20 companies. (We are well short of that limit, and perhaps at 10 we might break our rule.)
We calculate our dividend yield on our purchase price, and don't worry too much about the fluctuating prices. Changes in prices are a bonus.
There are two reasons we buy only NZ shares. We don't know much about foreign companies. And buying foreign denominated investment exposes you to currency risk, when we intend to spend most of the income in New Zealand. Furthermore it feels patriotic!
A major advantage of buying individual shares is the ability to choose overpriced shares to sell if a large sum is needed. When you invest in a trust you have no such choice.
I accept that initially the risk is not well spread, but so long as there is time to build a reasonable portfolio before retirement, this risk is not excessive.
Statistically, the risk with 100 companies is not proportionally less than with 20 companies.
The administrative effort can be reduced by subscribing to a Computershare facility. For only $12.50 per year they will provide a summary for taxation purposes. Dividends may be paid directly into a bank account.
True, one does need to at least glance at incoming mail as bonus issues, etc may be offered.
But keeping your own accounts using an Excel spreadsheet is not too onerous, especially if you are interested in monitoring your success!
In the past three years we have had a dividend yield on cost of 11 per cent each year before tax and capital gains of 11 per cent, 21 per cent and minus 4.5 per cent!
With regard to diversification, we also have one rental property that yields about 6 per cent before tax.
But the effort in maintenance, rent monitoring, finding new tenants and domestic tension when a tenant is six weeks in arrears before legal removal would discourage us from expanding in this area.
Shares are so easy and add interest in both meanings of the word.
A. You put up a convincing argument. But I'm not converted.
I still think most people with relatively small amounts to invest in shares are better off in either an investment trust or an index fund - especially if they don't have much interest in following their investments closely.
Still, for those who prefer direct investing, your how-to guide is pretty good.
I like your ideas for running your portfolio. And I should add that a sharebroker tells me his firm operates custodial services for clients, keeping track of everything, for 0.5 per cent a year, which seems reasonable.
I also like your plans to diversify as fast as possible and vary industries.
But don't break your 20-company rule.
You're right that 100 companies won't give you five times the diversification benefit of 20 companies.
But just because, as you put it, the risk you are taking is not excessive, that doesn't mean everything is grand.
The less you diversify, the more you are taking unrewarded risk. Owning just a few shares is not an optimal strategy.
A couple of other points:
* I doubt if your selection process, looking at dividend yields and so on, gets you very far. Also, how do you tell when a share is overpriced, and therefore sell it?
Many researchers in many countries for many years have tried to work out a formula for picking shares to buy or sell.
The trouble is that companies prospects, good or bad, are already reflected in their prices. Unless you're lucky, over the years you probably won't do any better than if you threw a dart at the Herald share table.
* Rather than not buying foreign shares because you don't know about them, I urge you to invest in an index fund or trust holding overseas shares.
That would greatly boost your diversification. And it would tend to lower, rather than raise, your currency risk.
While you might plan to spend most of your income in New Zealand, the prices of many big-ticket items you buy here are affected by foreign exchange movements. So, of course, is foreign travel. By investing in an overseas share fund you can offset price rises in those items.
Patriotism? I can't quite see how your buying a New Zealand share, as opposed to a foreigner buying it, helps this country.
Surely we're all better off if New Zealanders' investments are less risky because they are diversified around the world.
We're the PhD students whose letter you ran in your column last week. Thanks.
We feel very encouraged now and will wave your letter in the face of any mortgage lender who screws up his nose at our patchwork income!
A couple of comments:
* We decided against one working while the other studies because we are both over 30 years old and our lifestyle would still be very frugal (actually even more so. We would have to pay up to $300 a week in childcare, because we would not be able to coordinate care between the two of us).
* In strictly ethical terms we were unsure about drawing down more of the student loan living cost than we need.
But the last review of student loans was geared towards appeasing parents supporting teenagers who drew down lump sums of up to $8000 at a time to buy cars.
The review reduced payments to a maximum of $150 a week, less student allowances. This severely disadvantaged us. So we don't hold too much hope for the next review.
We feel that looking after our own interests by making sure we have access to money when we need it is prudent, rather than hoping some will be available when the crisis happens.
You make some good points. All is not always what is seems. And what's good for the goose isn't necessarily good for the gander. And I think I'd better stop, before I get the title of cliche queen!
In general, I'm a strong supporter of the prohibition on students borrowing lump sums, other than for course costs.
In your situation, I don't think it's unethical for you to borrow as much as you can.
The student loan scheme is there to enable people to get an education.
If you use it wisely, to get your debts under control so that the whole education process isn't ridiculously expensive, good on you.
Email us your question about money
Or post it to:
Money Matters
Business Herald
PO Box 32, Auckland
Letters should not exceed 200 words. We won't publish your name, but please provide it and a (preferably daytime) phone number in case we need more information.
