How should I "invest" my savings?

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

AidanS

458 posts

Ultimate Geek

#130877 1-Oct-2013 13:37

Hi guys,

Thought I'd ask here to see what you guys think. With 2013 coming to a near close I figured I would consider my options as to how I should invest my savings.

My opening Balance for December will be $8000, with $300-$400/month deposits. I currently have my money in Bonus Bonds "just for fun" but am considering RaboDirect's premium saver account (4.20%).

Note: I'm <18 and would like low risk options :). I most likely won't need to touch the money until I'm in my early 20's when I'll be needing to buy a house, so am also considering term deposits.

Thoughts?

Thanks,
Aidan.

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jonherries

1396 posts

Uber Geek

Trusted

Subscriber

#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

vectran

59 posts

Master Geek

#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).

minimoke

750 posts

Ultimate Geek

#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.