When a $3000 car won't take you too far

By MARY HOLM

Q. I am a 17-year-old student at secondary school in Auckland, in the sixth form. I read your articles regularly.

I have $3000 to invest and hope to increase this to pay for my university education or my sporting activities and the goals I wish to achieve in yachting.

This $3000 is a gift from my grandparents, so I wish to make the most of it rather than lose it.

Buying a car is an option, but I don't think this is a good investment, although I'd love my own car.

What do you suggest? Shares? Which ones?

Sharebrokers seem to have their favourites. Who do I go to for an independent opinion? The banks are boring. I'm looking for more gain!

A. Please don't buy a car.

Occasionally a vintage car or some other remarkable vehicle turns out to be a good investment. But you can't get something like that for $3000.

Ordinary cars have all sorts of merits, but growing in value is not one of them.

Unfortunately, the alternatives aren't all that wildly exciting.

I would love to tell you about some low-risk investment that will double your money in no time. But there aren't any.

I'm assuming you want to use the money in the next few years. In that case, putting it into shares is just too risky.

You might do really well. But data on the New Zealand sharemarket from 1958 to 2000 shows that there is a 23 per cent chance you will lose money in a single year, and a 14 per cent chance over three years. And that's before tax and brokerage are deducted.

You would feel a bit sick if your $3000 dropped to $2500 or $2000.

Given your time horizon, and that you haven't many thousands of dollars to play with, I think you should stick with term deposits.

Sure, they are boring. But the boredom that comes from knowing where you stand can be bearable. And returns on term deposits, these days, are not too bad.

For a two- or three-year term deposit, you can get around 6 per cent. (See www.interest.co.nz for rates offered by the different institutions.)

At that rate, over three years, your $3000 would grow to $3573 before tax. And, unless you've got lots of other income, you shouldn't be paying too much tax.

Another possibility is to forget about using the money for varsity or yachting, and tie it up for the really long haul.

In that case, you could put it into shares or a share fund, confident that its value would grow strongly, despite short-term ups and downs.

If you got a return, after tax and after fees, of 5 per cent, after 40 years your $3000 would have grown to more than $21,000. And after 50 years, to $34,400.

At 17, time is on your side.

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