Property investment and your retirement
by Brent Smith
There was an opinion piece in the Weekend Herald recently – read here – which pointed out that KiwiSavers are being far too conservative in their choice of fund type when selecting their investment scheme, and by default the allocation of assets that their money is put towards.
I find this conservative nature very understandable for a raft of reasons:
1. The larger contributors (in dollar terms) to any KiwiSaver fund will be those 50+ years of age and on high incomes. The median age of KiwiSavers might be 35, but most of the actual contributions are coming from the 50+ age group.
2. These people have seen many highly fancied schemes crash and burn costing not only all the interest promised on their investment, but also the capital as well – most recently, Ross Investments and a long list of finance companies – which without the generous input of the New Zealand taxpayer, would have seen many more people experience total losses.
3. The article’s simplistic example of $10,000 invested for 30 years is typical of the rubbish trotted out about managed funds, whereby the majority of the investment is put into ‘growth income’ on the sharemarket and the return is always optimistically positive. All (or most) of a $10,000 fund in 1985 would have been invested in Equiticorp/Chase Corporation/Ariadne/Robert Jones Investments and Brierley. How would that have worked out in 1987!? You would not have had much left of your $10,000, that’s what!
In another article on the same day – read here – discussions about investment property are touched on briefly, but it quickly makes the usual error, in almost the same breath, of discussing the downsizing of your family home as though this was an ‘investment’ property. Where you live – rented or owned, mortgaged or not – is an essential part of the basic needs of life and has a ‘cost’.
Your home is not an investment unless you plan to sell it and live in a trailer park in your old age! We spend many hours teaching people the fundamental difference between your own home and what constitutes an investment property. Some financial planners haven’t grasped the difference yet.
We meet many people who think that putting 2% into KiwiSaver and paying off the mortgage will see you right in ‘retirement’. It will not…
You need to take responsibility for your financial future with a sense of purpose, and as a part of that plan, invest directly in 3 or 4 bedroom free-standing homes, purpose-built in the main centres’ hottest rental areas. Property investment is not a short-term strategy but, even with with just 10 years of your working lifetime left before you’d want to cash up, there’s still a lot of capital gain that could be made through a wise property investment – often more than could be made with your money sitting pretty-much idle in a bank account, or in a conservative KiwiSaver scheme.
In most areas of investment and market prediction, there’s no one right way to do things. The fluctuating nature of markets shows us this, and a ‘portfolio’ approach, including different investment sectors, not just different shareholdings, is a safer approach and one that pays off in the long-term. As the headline says, the return OF your money is more important than the return ON your money.
It’s by no means registered financial advice, but almost 40 years of my personal experience figuring out what’s worked best in putting money aside for ‘retirement’. If you haven’t looked outside of KiwiSaver or investment schemes as your meal ticket in the golden years, I truly believe you should take a look at investment property. It is possible.
Wondering, where do I start in property investment? Talk to us – we offer sound, cost and obligation free advice on taking your first step into the property market. Give us a call and make an appointment to have a chat.
