Investing

Help for Kids to Buy a House

Photo by Anastasia Dulgier on Unsplash

Photo by Anastasia Dulgier on Unsplash

It’s a natural instinct for parents to want to help their kids get a head start in life. A common goal for young parents is to save money to pay for kids’ tertiary education costs. However, that’s not necessarily the best way to help. For as long as student loans are interest free, it makes better sense for kids to borrow money to pay for study and to take as long as they are given to repay the debt.

The biggest hurdle faced by kids is not paying off a student loan, it is finding the deposit for a first home and being able to make the mortgage repayments. The Ministry for Business, Innovation and Employment (MBIE) has a Housing Affordability Measure (HAM) which shows that around 80% of renting households are not able to comfortably afford a new home. Getting on the property ladder is vital. By the age of retirement, it is essential to own a debt free home, as NZ Superannuation is simply not enough to live in if there is rent or a mortgage to pay. Given that property prices keep going up, the sooner young people are able to get on the property ladder the better.

So for parents, the best way to help kids financially is to help them buy a house. A cash gift is one way to do this, and the lender will usually insist that it is a gift that cannot be repaid until the house is sold. Otherwise, parents can become guarantors for their children’s mortgages. This might mean putting their own home or other assets up as security for the mortgage, or becoming a co-borrower. The guarantors will need to provide financial information to the lender. It is essential to get legal advice before any arrangement is set up.

Liz Koh

Liz Koh

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Starting Out as a Share Investor

Investing in shares is becoming a popular option with young people keen to get ahead. It’s much easier than investing in property. The entry cost is much lower (you can literally start with just a few dollars), you don’t have to borrow money to invest, there are no rules and regulations to restrict you, and you don’t have all the hassles of maintenance and dealing with tenants.

There are several different paths you can take to start a share portfolio. Your chosen route will depend on how much time and effort you are willing to put in to researching investment opportunities, your level of knowledge, and how much money you have to invest. For direct investment, you can work with a broker or set up your own online broking account (for example through ANZ or ASB). For share funds, you can use the Sharesies phone app, buy exchange traded funds or invest in managed funds.

The disadvantages of investing directly into shares rather than funds are primarily the need to do your own research and the lack of diversification and high brokerage costs when you have a small amount to invest. The advantages are the possibility that your chosen investments may outperform the market as a whole, no management fees and the satisfaction of doing it yourself.

As with any form of investing you need to decide what your goal is as well as your investment time frame. You can hold shares for the long term or trade them on a frequent basis, but we aware of the tax implications of trading. Shares are volatile in value and you should consider how much you are prepared to lose and how long you are willing to wait for a recovery.

Start with a small amount and give it a go!

Liz Koh

Liz Koh

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Investing Without Risk

As every investor knows, there is no such thing as a completely risk-free investment, and the lower the investment risk, the lower the investment return is likely to be. The challenge for investors is to strike the right balance between risk and return, to find investments that give a reasonable rate of return with an acceptable level of risk. The art of investment portfolio construction is to try and find ways to increase the rate of return while maintaining or reducing the level of risk. There are three principal techniques that are used to achieve this goal.

  1. Diversification

Risk is amplified when there is a concentration of investment in a narrow range of investment types. The remedy is diversification. Diversification can occur with many different portfolio attributes: asset class (cash, fixed interest, property, shares), geographic location (local or global), form (direct investment or investment in funds), fund management style (active or passive) and so on. The right balance needs to be struck with diversification. Too much diversification results in average returns.

  1. Rebalancing

A portfolio needs to be responsive to market conditions in the short term to move slightly away from investments with higher short term risk and towards investment opportunities that have the potential for higher return in the short term. Rebalancing in this way requires a high degree of liquidity and flexibility in a portfolio.

  1. Time Frame

Providing a portfolio is fully diversified, one of the easiest techniques for managing risk is to plan to invest for a long period of time. The longer the investment time frame, the less risk there is in investing in volatile, high growth assets such as property and shares. Matching the investment strategy to the investment time frame is key to getting the right balance between risk and return.

Liz-Koh-new.jpg

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com