How should I "invest" my savings?

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Forums › Finance and wealth management › How should I "invest" my savings?

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#905805 1-Oct-2013 16:29

Some ideas/options:

The first rule of investment is diversification, ie. in common terms don't put all your eggs in one basket.
The second rule would be to assume that the higher the reward the higher the risk. This is what caught out most mums and dads in NZ in the finance company collapses. They made the assumption that the finance companies were like banks, with better interest rates and this was patently not the case.
www.interest.co.nz - has a number of interesting topics, they keep track of most bank accounts and interest rates so you can make sure you get the best rate on a call.term deposit (don't assume it is your bank).
www.nzx.com - they have a number of funds which passively track the stockmarket, there are no fund management fees and it is well diversified across the NZX, this might be an alternative to managed funds.
Understand that humans have a natural aversion to loss. Most people will cut hang in on a stock as they can't entertain the thought of cutting their losses.
Think about the transaction costs of what you are investing in. It may cost you more than you earn to get into and out of many investment options.
Something speculative to think about is investment in monopoly's. The reason is (without getting too far into the economics) is that a monopoly can charge what they like as there is no one to stop them. When I use the term monopoly I am not talking about something which is necessarily illegal, it may be a competitive advantage due to any number of reasons and the company may be regulated or not. An example would be a drug company, their competitive advantage relates largely to patents they hold on medicines with a large barrier to reinvent the wheel they make a lot of hay while the sun shines.
If you become interested in owning and trading shares, try www.directbroking.co.nz

Hope this helps,

Jon

afe66

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#905811 1-Oct-2013 16:39

While $8000 is alot of money for someone so young, for being an Adult it isnt much at all. (What can you realisticaly buy with it.)

For me I would look at what I am actually going to use that money for and when I would draw down on the funds and whats the amount of risk can you tolerate?

If you need the money for shorter term things like car study then some sort of term deposit would be safest but lesser return / no real growth once you take tax and inflation out.

Me if it was for a house in 10 yrs, I would put it into kiwisaver Growth Funds to maximise my return. I dont know much about shares which is why I pay other people to manage my money, just like I pay a plumber/electrician to fix my house etc.

If I ended up loosing some funds, I would take it on the chin as you are still young and can make it up later. But then again I would most likely get more than 4%. (even the default conservative kiwisaver funds are returning more than that)

A.

jonherries

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#905814 1-Oct-2013 16:45

afe66: While $8000 is alot of money for someone so young, for being an Adult it isnt much at all. (What can you realisticaly buy with it.)

For me I would look at what I am actually going to use that money for and when I would draw down on the funds and whats the amount of risk can you tolerate?

If you need the money for shorter term things like car study then some sort of term deposit would be safest but lesser return / no real growth once you take tax and inflation out.

Me if it was for a house in 10 yrs, I would put it into kiwisaver Growth Funds to maximise my return. I dont know much about shares which is why I pay other people to manage my money, just like I pay a plumber/electrician to fix my house etc.

If I ended up loosing some funds, I would take it on the chin as you are still young and can make it up later. But then again I would most likely get more than 4%. (even the default conservative kiwisaver funds are returning more than that)

A.

I would not recommend putting it into Kiwisaver. There is no guarantee that the legislation won't change in 10 years which would mean you can't make a withdrawal for a house deposit and your money could be stuck there for another 39 years...

Also there is another rule I forgot which this reminds me of: past performance is no indicator of future performance.

Jon

stevenz

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#905832 1-Oct-2013 16:54

If you make the right choices with Rabo's managed funds, you can make some surprisingly good money.

My "high risk" KiwiSaver fund consistently lost money every year for 4 years before I gave up on it, whereas the "low risk" one earned quite good interest. Agreed that it's pretty much at the whim of the politicians to stuff it up for people whenever they feel like, you're probably better off reinvesting it in a term deposit account every year or so.

@KnightNZ

vectran

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#905869 1-Oct-2013 18:13

I'd focus on improving your financial literacy and developing skills and understanding around financial markets and investment types.

As you are young you should be investing in a riskier portfolio compared with other GZ users - as you have no dependents, no mortgage and plenty of opportunity over your lifetime to earn back the initial $8000 investment.

I'd highly recommend investing around 50-75% into shares/equities and the remainder into fixed-return securities (such as bonds or term deposits) or even Kiwisaver.

For your shares/equities I'd invest in:
50% in indices (or ETFs - exchange traded funds) which provide a 'market return' meaning an average return based on all the individual stocks the index is following. The NZSX50 for example tracks the performance of the 50 biggest NZ companies - so its fairly diversified and low risk/volatility.

For the remaining 50% I'd then pick one or two other shares you like the look of, read a bit about them and then invest longterm (ie 2+ year outlook). Follow them on the news and attempt to read annual reports etc. Even turn up to the annual meetings - really understand how a public company functions (as well as free drinks and nibbles)! Even shares like Telecom which haven't seen any capital appreciation over the last five years have consistently produced about a 10% return purely on dividends! If you're tech-minded there are shares like Xero, Diligent, TradeMe, Comvita, SLI Systems, Wynard which may be of interest.

RaboPlus accounts (I think) offer the best interest rates with strong level of security. Else Kiwisaver is an option too.

I think the importance at your age is playing around and understanding what different investment options are and what they mean and what suits your profile best.

I'd highly recommend having a look at a few books (see Amazons top sellers in investing) or sites (including interest.co.nz).

Tinshed

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#905929 1-Oct-2013 19:45

jonherries absolutely nails it "The first rule of investment is diversification, ie. in common terms don't put all your eggs in one basket. The second rule would be to assume that the higher the reward the higher the risk"

If you only remember these two principles of investing you will go a long to being OK. Really. They are guiding principles that won't let you down. Diversify. Risk/reward ratio. The best advice you will ever get.

Tinshed
Wellington, New Zealand

PaulBags

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#905945 1-Oct-2013 19:48

All I can say is good on you. I'm 26 and have about $70 to my name, all of which is already dedicated to future bills. For me 'invest' means 'buying socks and undies in bulk when they're on special, and keep some unopened aside'.

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jonherries

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#905948 1-Oct-2013 19:53

Tinshed: jonherries absolutely nails it "The first rule of investment is diversification, ie. in common terms don't put all your eggs in one basket. The second rule would be to assume that the higher the reward the higher the risk"

If you only remember these two principles of investing you will go a long to being OK. Really. They are guiding principles that won't let you down. Diversify. Risk/reward ratio. The best advice you will ever get.

Cheers. Jon

minimoke

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#905952 1-Oct-2013 20:00

Right, firstly congratulations are definitely in order for saving as much as you have already.

There’s has been lots of useful advice so far and you’ll have lots to think about. I guess you now need to try and distil it all into something useful.

Before you do, I’m going to suggest making your very first investment. And that is to buy “The Intelligent Investor” by Benjamin Graham $22 at fishpond.co.nz. Its an oldie but it's a classic. At the end of chapter 19 he says “To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.” Its not an easy read but you can skip the bits that don't interest you now (for example Convertible Issues and Warrants) but perhaps spend some time in the first 10 chapters before disappearing off into some where of interest

I am biased towards property and shares so I’m not going to advise on anything else.

Other than on reflection there is one piece of advice I wish I had been given early in life – despite buying my first property when I was 18. Somewhere along the way I wish someone had told me about Stop Loss. No one did and I learnt the hard way in the share market. This is basically when you make an investment you also decide then and there at what point you are going to pull out of it when it starts to run at a loss. And then stick to it. There are loads of different Stop Loss formula (for example sell at 5% below the last high) but find one that suits your appetite for risk.

Oh – and perhaps one final idea. Try a strategy on paper first. If its fixed interest or shares, or diversification do it on paper first. “Buy” your investments on paper and track how they go and keep an eye on the different things influencing the movement. Once you get the hang of things a bit you can then spend your hard earned cash.

Good management (no luck!) and well done.

Dar3dev

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#905994 1-Oct-2013 21:08

If you are looking for just a savings account I can definitely recommend the premium saver at Rabodirect. One of the highest interest around and no bank fees.

mattwnz

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#906028 1-Oct-2013 22:06

Dar3dev: If you are looking for just a savings account I can definitely recommend the premium saver at Rabodirect. One of the highest interest around and no bank fees.

You have to be careful though, as you have to make sure you read all the terms, otherwise you may not get the bonus interest. Other banks have similar schemes. I think westpacs is 4% on call, and if you are a shareholder it is 4.25%, which I think is the highest I have seen. Some banks like ANZ have recntly dropped their rate, which doesn't really make sense, as interest rates on mortgages are going up slowly.

Dar3dev

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#906029 1-Oct-2013 22:13

mattwnz:
Dar3dev: If you are looking for just a savings account I can definitely recommend the premium saver at Rabodirect. One of the highest interest around and no bank fees.

You have to be careful though, as you have to make sure you read all the terms, otherwise you may not get the bonus interest. Other banks have similar schemes. I think westpacs is 4% on call, and if you are a shareholder it is 4.25%, which I think is the highest I have seen. Some banks like ANZ have recntly dropped their rate, which doesn't really make sense, as interest rates on mortgages are going up slowly.

Quite true - Rabodirect is pretty good tho, you just need to make sure you go up by $50 per month and you can do unlimited withdraws in between.

rayonline

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#906046 1-Oct-2013 22:51

I think maybe term investment could be the way for the few years ... But you may wanna choose a 1yr and redecide then the % may change ... it's a gamble.

Like someone else mentioned my Kiwisaver has consistently lost money for me until I switched it to a conservative that was a few yrs back. From my one the growth one seems ok now but it may not be something you just leave it there for a year or more and let's it produce its magic. I'm now on a balanced one.

As someone mentioned about Meridian, I went with MRP. 10% drop in share price. Seems to be consistently there now. Well esp for the 2 or 3yrs you say to you are 20yr old. The dividend doesn't breakeven it. There is the 4% bonus shares with MRP not sure Meridian has it. But this 4% doesn't cover the lost also :D and not to think about the opportunity lost by investing in term investment that's a gauranteed (more/less) return while 4%.

nickb800

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#906048 1-Oct-2013 23:01

I think the question that you should be asking yourself first is - when do you think you will need the money (and how much)? A few small withdrawls for gadgets, then spend the lot on university, or deposit for a house. You need to know (or guess) when you will need the money to decide on an appropriate investment.

Its common to say that the young can cope with the risk of the sharemarket (as is said in this thread) but if you want to use the lot for uni in 2 years then a high risk strategy probably wont be appropriate

AidanS

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#906064 1-Oct-2013 23:44

Thanks for the response guys! I'm relying on this money (and the $4k/$5k/year additions) on helping me fund my first house deposit. I figured that having even just $20k-$30k in my young twenties will be a lot more useful than nothing at all (though with the recent housing market here on the North Shore I'm going to need nearly a $100k deposit, but that's beside the point).

This savings is separate from my "short term" savings so I won't need to touch it for gadgets and general teenage expenses, those are covered separately.

I also figured I should take advantage of the interest free student loan for uni and instead put my money into getting a head start on my mortgage.

I think I'll seek some financial advice and see what they suggest though term deposits are looking like the most safest return while still combating inflation and providing "some" sort of return.

The stock market will be something I'll probably leave till I'm, a) More educated on the entire system, b) Am more financially stable later on in life.

Thanks for all the responses everyone! Feel free to further the discussion :)

PS: I have no intention of leaving my money in bonus bonds it was just something I figured I'd put my money into for a few months until I sorted out where I was really going to put it.

-Aidan.

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