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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20181 posts

Uber Geek

#906068 1-Oct-2013 23:49

AidanS: 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.

The minimum deposit may have changed by the time you buy. Things can change quickly.

The stock market is more long term, but over the very long term it should out perfomr bank interest rates. You can get it all managed for you where they spread the money across a wide range of shares.

mattwnz

20181 posts

Uber Geek

#906069 1-Oct-2013 23:54

rayonline: 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%.

You are forgetting that they have just paid out a dividend. Also it is a longer term investment. Shares are only worth as much as someone will buy them for.

rayonline

1734 posts

Uber Geek

#906084 1-Oct-2013 23:57

2000 dollars or 800 units dividend 56 dollars with a lost of 200 dollars on share price yeah long term. ... didn't take long to drop tho

mattwnz

20181 posts

Uber Geek

#906085 2-Oct-2013 00:02

rayonline: 2000 dollars or 800 units dividend 56 dollars with a lost of 200 dollars on share price yeah long term. ... didn't take long to drop tho

Or 230 after brokerage fees. The thing with that sort of share is to buy them, and then don't look at them again for another year or two, and then see where the shareprice is. but if you want to get rich quickly, power shares probably aren't the ones to buy. They are more of a share that you buy for the return, not for the share growth. Look at Xero for a share that is a growth one.

itxtme

2102 posts

Uber Geek

#906159 2-Oct-2013 09:14

AidanS:
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.
-Aidan.

Shhhh, you will upset the locals!! Your are absolutely right though. If you are in the position to pay off your fees in full/live at home then you will be likely to make approx $60,000 on a 3 year degree (incl all pay-back allowances). Now that does have to be paid back, however 6% on a $60,0000 mortgage is $3600 in interest per year. Now wait for the outrage to ensue..

resurrect

80 posts

Master Geek

#906336 2-Oct-2013 11:33

rather than shares why not look into forex, it's easier to get into and it has lower brokerage fees. as long as you do your research into it then you should be fine.

TinyTim

1042 posts

Uber Geek

Trusted

#906345 2-Oct-2013 11:45

resurrect: rather than shares why not look into forex, it's easier to get into and it has lower brokerage fees. as long as you do your research into it then you should be fine.

Though the OP has said he wants low risk.

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Geektastic

17944 posts

Uber Geek

Trusted

Lifetime subscriber

#906360 2-Oct-2013 11:55

I had to Google "savings"! ;-)

bender84

78 posts

Master Geek

#906400 2-Oct-2013 12:57

resurrect: rather than shares why not look into forex, it's easier to get into and it has lower brokerage fees. as long as you do your research into it then you should be fine.

I'm picking you are refering to "retail" forex trading? Do you trade (Retail) Forex yourself and If so, how long have you been in the "game"?

resurrect

80 posts

Master Geek

#906407 2-Oct-2013 13:11

bender84: I'm picking you are refering to "retail" forex trading? Do you trade (Retail) Forex yourself and If so, how long have you been in the "game"?

I started a few months ago with $200 just to test the water using pepperstone as my broker and i'm now using the aslan group as an introducing broke so i can do scapling, all up my trading is roughly breaking even but now i should start getting some returns.

bender84

78 posts

Master Geek

#906487 2-Oct-2013 15:18

resurrect:
bender84: I'm picking you are refering to "retail" forex trading? Do you trade (Retail) Forex yourself and If so, how long have you been in the "game"?

I started a few months ago with $200 just to test the water using pepperstone as my broker and i'm now using the aslan group as an introducing broke so i can do scapling, all up my trading is roughly breaking even but now i should start getting some returns.

Thanks for your reply Resurrect

It would be interesting to see if you would be one of the few that actually beat the odds and still be trading profitably 5 (or even 3) years down the track from now.

In my sole personal opinion, from what I've seen after 5 years of investigating / researching (retail) forex trading is that those making money in this "Market" are largely not the traders themselves, but perhaps those that sell / provide products and services (such as Educational courses, signal services, Managed forex, counter party services, etc) to these retail traders.

(And no, Religiously applying money management in your trading is NOT guaranteed to save you.)

Just my opinion.

mattwnz

20181 posts

Uber Geek

#906497 2-Oct-2013 15:33

If investing in individual shares, I would suggest learning everything you can about the company. Also read warren buffett and george soros books.

jpoc

1043 posts

Uber Geek

#906631 2-Oct-2013 19:41

With the amount of money that you have to invest, your timescale and your intention of using the money as a deposit for a house, there is an awful lot to be said for keeping the money in bonus bonds.

Why?

If you multiply the number of bonds that you hold by the number of draws that you will be in then you will see that you are in the region where you will expect a steady trickle of prize winnings. These winnings are not taxable - interest on a savings account is taxed - so your likely net income from bonus bonds will not be far behind your income from a savings account. This means that, by the time that you will be coming to cash in the investment and use it as a house deposit, you are likely to be looking at a difference in the size of your investment of just a few percent. Suppose that you accumulate $40K over your chosen timescale, you might see that the difference between bonus bonds and a high interest savings account amounts to a difference between having $40k and $45k in savings. That is not going to make a huge difference in the house that you can afford to buy since the size of your mortgage will normally be determined by your income. (Even with the current restrictions on low deposit mortgages, there are still loans available and somebody with a multi-year history of saving a steady amount will be at the front of the queue.)

However, there is no more upside to a savings account. The upside to bonus bonds is that, as well as the steady income from small prize wins, you do have a chance - small it must be said - of winning one of the larger prizes. That could easily double your available deposit and you may consider it worth giving up a few percent of your overall investment return in exchange for the possibility of a life changing piece of good fortune.

I have used this strategy in the past and have been content with the outcome - I did not win big was was only a little behind my potential return from a savings account and the difference was too small to care about.

Of course, no financial adviser will suggest this to you because there is nothing in it for them.

nickb800

2723 posts

Uber Geek

Trusted

#906641 2-Oct-2013 20:03

jpoc: With the amount of money that you have to invest, your timescale and your intention of using the money as a deposit for a house, there is an awful lot to be said for keeping the money in bonus bonds.

Why?

If you multiply the number of bonds that you hold by the number of draws that you will be in then you will see that you are in the region where you will expect a steady trickle of prize winnings. These winnings are not taxable - interest on a savings account is taxed - so your likely net income from bonus bonds will not be far behind your income from a savings account. This means that, by the time that you will be coming to cash in the investment and use it as a house deposit, you are likely to be looking at a difference in the size of your investment of just a few percent. Suppose that you accumulate $40K over your chosen timescale, you might see that the difference between bonus bonds and a high interest savings account amounts to a difference between having $40k and $45k in savings. That is not going to make a huge difference in the house that you can afford to buy since the size of your mortgage will normally be determined by your income. (Even with the current restrictions on low deposit mortgages, there are still loans available and somebody with a multi-year history of saving a steady amount will be at the front of the queue.)

However, there is no more upside to a savings account. The upside to bonus bonds is that, as well as the steady income from small prize wins, you do have a chance - small it must be said - of winning one of the larger prizes. That could easily double your available deposit and you may consider it worth giving up a few percent of your overall investment return in exchange for the possibility of a life changing piece of good fortune.

I have used this strategy in the past and have been content with the outcome - I did not win big was was only a little behind my potential return from a savings account and the difference was too small to care about.

Of course, no financial adviser will suggest this to you because there is nothing in it for them.

IMHO that's terrible advice. If you are routinely buying lotto tickets then it might be a good way to serve that addiction, but the overwhelming odds are that you will be worse off than if you put it in a high-interest savings account, and even worse off than term deposits.

Sounds like the OP is still in school, so even with a bit of part time work his tax will probably be ~10.5% which is pretty negligible.

The rate returned to bondholders in 2009 was 3.25% (ref), and will be much lower today as interest rates have fallen since then.

jpoc

1043 posts

Uber Geek

#906700 2-Oct-2013 21:01

nickb800:
jpoc: With the amount of money that you have to invest, your timescale and your intention of using the money as a deposit for a house, there is an awful lot to be said for keeping the money in bonus bonds.

Why?

If you multiply the number of bonds that you hold by the number of draws that you will be in then you will see that you are in the region where you will expect a steady trickle of prize winnings. These winnings are not taxable - interest on a savings account is taxed - so your likely net income from bonus bonds will not be far behind your income from a savings account. This means that, by the time that you will be coming to cash in the investment and use it as a house deposit, you are likely to be looking at a difference in the size of your investment of just a few percent. Suppose that you accumulate $40K over your chosen timescale, you might see that the difference between bonus bonds and a high interest savings account amounts to a difference between having $40k and $45k in savings. That is not going to make a huge difference in the house that you can afford to buy since the size of your mortgage will normally be determined by your income. (Even with the current restrictions on low deposit mortgages, there are still loans available and somebody with a multi-year history of saving a steady amount will be at the front of the queue.)

However, there is no more upside to a savings account. The upside to bonus bonds is that, as well as the steady income from small prize wins, you do have a chance - small it must be said - of winning one of the larger prizes. That could easily double your available deposit and you may consider it worth giving up a few percent of your overall investment return in exchange for the possibility of a life changing piece of good fortune.

I have used this strategy in the past and have been content with the outcome - I did not win big was was only a little behind my potential return from a savings account and the difference was too small to care about.

Of course, no financial adviser will suggest this to you because there is nothing in it for them.

IMHO that's terrible advice. If you are routinely buying lotto tickets then it might be a good way to serve that addiction, but the overwhelming odds are that you will be worse off than if you put it in a high-interest savings account, and even worse off than term deposits.

Sounds like the OP is still in school, so even with a bit of part time work his tax will probably be ~10.5% which is pretty negligible.

The rate returned to bondholders in 2009 was 3.25% (ref), and will be much lower today as interest rates have fallen since then.

You are correct to say that you will probably be worse off and it would be a rotten investment if you were going to save for a long term goal such as a pension in 40 years time but over a short period and with an amount of money large enough to mean that you have a reasonable prospect of a steady trickle of prizes then things are different. The timescale is short enough that the lower annual return has a lesser impact on the accumulated return. Do you really think that having a $45K deposit instead of a $40k deposit will make a huge difference to the house that the OP can buy? Suppose that at 24, he can borrow $300k, that is the difference between having $340k or $345k to spend on a house. Is that really going to be a big difference? The other side is the chance of one large win and then you are looking at the difference between needing a mortgage and not needing one. Sure, the odds are small but the cost - only $340k to spend on a house instead of $345 is also small in terms of what you are likely to be able to buy in the - most likely - scenario where you do not get a big win.

The strategy only makes sense in a limited set of circumstances but the OP happens to hit that spot.

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