Many people don’t begin their retirement savings until they are about 40- the mile stone that I refer to as “the age of reason”. It’s when you finally stick your head over the parapet, and, whether you’re male or female, think, ‘My god, 20 years have gone by and what have I done with my money? Not very much’ not surprisingly it’s at that point that people start thinking quite seriously about doing some saving.
I agree with a recent report done by the New Zealand institute of Economic Research which found little evidence of a savings problem among New Zealand households. The savings problem is not as bad as it’s been painted. The truth of the matter is that it’s where we are saving that is the real issue. Most of our savings these days are going into highly geared investments like property. We tend to run as a herd, and going against it, like not buying rental property is hard.
In my latest book-Money, Money, Money, Ain’t it Funny I highlight the difference between economic theory, where people make rational financial choices and practice, where spending is influenced by taste, whim, peer pressure, pride, envy and other considerations. Most people don’t save enough money; most of us have counterproductive financial habits which mean that ultimately most people are in fact broke when they retire.
How you save and how you invest is up to you. Brent Wheeler, a respected economist believes that investing in equities is the best choice for people planning for retirement. “I’m telling them to invest as much as they possibly can in equities, and to do it for seven years-plus. For retirement savings, that’s actually not a long time frame. There have been many complicated mathematical studies done which prove that historically, over a longer period, equities will outperform all markets, and that includes the property market.”
Whether you are biased towards property, cash deposits, shares or bonds, financial advisors say that getting educated, and in particular seeking out people with good track records in investing and investment advice are the keys to making good decisions in the current market.
Wheeler believes that if kiwis knew even a fraction as much about investment as they do about home renovation, many would be much better off. “To restore an Edwardian villa to some semblance of a nice trade off between what it was, and what we expect today, while reflecting what has happened to it over 100 years, is 90 times more demanding and involves a heap of more difficult judgments than saying, ‘Is it a good idea to leave this money in the bank?’ and ‘Why am I shifting it?’ or any other investment question. And that’s how people should be attacking investment-not trying to do anything too smart.”
Wheeler favours investment offshore. Homeowners have sufficient exposure to both the property market and New Zealand’s small economy, he says. “As individuals, we have huge exposure to this tiny economy sitting on a rock at the bottom of the world. We are heavily invested in New Zealand, which doesn’t spread our risk very much at all. After your house, your next investment should not be in New
Zealand.”
I agree with Brent, the best returns will come to those who make the most of their investments in equities’ that are offshore. The New Zealand market has been doing well, but it’s not even two percent of the world market. A lot of the sectors where we expect growth are either not available here, or if they are they are in quite a small way.
Read more in Money, Money, Money, Ain't it Funny (Longacre Press, $29.99)
And check out www.brentwheeler.com
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