Money matters: Good place to START for only $100

By MARY HOLM

Q. I read your column in the Herald with much interest. But it is all for those who already have money to invest. What does one do if the purse is empty?

My partner and I have been to a "seminar" (sales pitch), but you need $2000. That's a lot of money. How does one start smaller? Any ideas, please?


A: I'm glad you didn't have the $2000.

I've been to quite a few sales "seminars" in my day, just to see what happens there. I've never come away convinced that what they were pitching was much good.

Still, you make a good point. It can be hard to make a start with savings.

As French philosopher Jean-Jacques Rousseau once said: "Money is the seed of money, and the first guinea is sometimes more difficult to acquire than the second million."

So how do you climb out of the empty-purse rut? Have you ever noticed how non-savers often spend just about as much as they earn, whatever the level of earnings?

If they happened to earn a bit less, they would spend a bit less. Couldn't you, then, pretend you make $25 less a week, and save that?

But what to do with that money? You could put it in the bank. Or you could use the best long-term savings scheme for small investors that I know of.

It's called START, and it's run by stockbrokers ABN AMRO Craigs. Through the programme, you can save as little as $100 a month.

Regular saving is done by direct debit, so that after a while you might not even notice you are doing it.

You can suspend or stop saving, or sell part or all of your investment, at any time.

You get a choice of where to put your money. But all the investment options are share funds. This means that returns on them will fluctuate.

There will be periods - occasionally lasting a year or even a few years - when the value of your investment will fall.

Promise yourselves, before you start, that you will hang in through those bad periods.

As long as you're investing for 10 years or more, you are almost certain to make more money in shares than anywhere else - other than in a high-risk investment in which you could lose the lot.

What's more, all the share funds in START don't pay tax on their capital gains, and they tend to charge lower fees than many other share funds. This can make a big difference to returns over the years.

The START options include New Zealand-based index funds, and US and UK-based funds.

Through them, you can concentrate on big or mid-sized local shares, US, Australian or world shares, or a combination.

There's even a technology fund. Yikes! But at their current prices, high-tech shares might be a good buy for the more daring investor.

If you're new to investing, the choice might seem overwhelming. I suggest you start with a global share fund, which will spread your risk beautifully.

The fees on START are not negligible. You pay 2.5 per cent brokerage to buy and sell, a 0.5 per cent custodial fee each year and, on some investments, 0.5 per cent UK stamp duty. You also pay the fees charged by the share funds themselves

Still, I think the charges are reasonable for what you get. The products are good. And not everyone is willing to deal with $100 here or there.

You can get information from the ABN AMRO Craigs website. Click on "investor education."

Q: We have saved $1000 and want to start investing to build our fortune! We are on a modest income of $47,500 gross a year and have a small baby.

We are committed to putting aside $20 a week toward our investments to help them grow.

Who should I approach about this? Is $1000 enough to start some kind of investment, and if so what sort?


A: You're making a good start. And the aptly named START programme would suit you well, too, if you could just boost your savings a few dollars a week to get $100 a month.

You could begin by investing your $1000, and then add the regular savings. You could also add other lump sums whenever you want to.

Those monthly $100s can add up nicely over time. After 10 years, $100 a month at a real return (after inflation, tax and fees) of 2.5 per cent comes to about $13,600.

After 20 years, it's more than $31,000. And after 40 years, it's more than $81,800, according to the Office of the Retirement Commissioner's Your Retirement Action Planner.

And the 2.5 per cent is a conservative return. In a share fund, chances are that your average return will be a lot higher. That makes a huge difference over many years.

Also, you will probably be able to increase your savings rate as your income rises.

Just remember, though, what I said to the first couple: share funds are 10-year-plus investments.

Don't bail out if the value of your investment falls. It will come back up again and, over the years, might even soar.

Q: I would like to get in touch with the writer of the letter about chartism which appeared in your column on June 2.

Charting is a subject I am very interested in, and this person may be able to offer some guidance.


A: If you read the chartist's letter, presumably you read my response to it. But clearly, I didn't make much of an impression! Perhaps I need to spell it out again.

To my mind, chartism - in which people try to profit from looking at patterns in past stock prices - isn't much better than voodoo.

Asking me to put you in touch with the letter writer is a bit like asking an atheist to be a godparent, or a vegan to cook the roast.

Sorry, but no!

And let's not have more letters saying, "Chartism worked for me." I've done my dash on the topic for a while.

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Money Matters

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