"Warren Buffett said if he had to go to Mars for 30 years and was only allowed one investment with no changes, his money would go into Coca-Cola shares.
"My answer to that question would be commercial property."
Martin Hawes, financial adviser and author
Money. It's the driving factor behind many life choices, but is it the be-all and end-all?
'Me and My Money' is a regular feature that investigates Kiwi attitudes towards money and what drives the choices they make.
Martin Hawes has seen four market crashes and written 22 books. Drawing from 30 years' experience as a financial adviser, Hawes spoke to Newshub about how people can improve their relationship with money, why COVID-19 has made investors more confident and the merits of using KiwiSaver to save a first home deposit.
1. Why is it important to have a good relationship with money?
Money gives you choices. Having more lets you live a bigger and better life.
The extent to which money gives happiness is something we can debate. We do know that a lack of money (or a bad relationship with money), causes unhappiness.
This usually comes from people living beyond their means or loading up too much on debt.
Avoid these and you're likely to get on well with your money and have more of it.
2. Has COVID-19 impacted Kiwis' confidence in investing?
Strangely, I think COVID-19 has left many people more confident in their investments.
COVID saw severe market falls, but this was short-lived. Markets (property and shares) bounced back and are now higher than they were. This has left many wondering what the fuss was about.
There will be market falls at other times in the future. They may be deeper, longer and altogether more severe. People need to be ready for that and not become over-confident.
My advice is to make sure you have the right level of risk and not take on too much debt.
3. What can we learn financially from COVID-19?
Government response softened the blow for many. Although people have lost jobs and seen businesses fail, so far, redundancy and unemployment are lower than many expected.
Such a crisis is best handled by people who have put cash aside. Most advisers recommend people have three-to-six months' expenses in the bank at all times.
Many retired people have relied on bank deposits to provide sufficient income for a decent retirement. This is no longer possible: bank deposits are likely to give low returns for the foreseeable future.
Retirees need to rethink their strategies. They ought to invest in a diversified portfolio and perhaps commit to spending capital as well as investment returns.
4. What are your preferred forms of investment and why?
Warren Buffett said if he had to go to Mars for 30 years and was only allowed one investment with no changes, his money would go into Coca-Cola shares.
My answer to that question would be commercial property, particularly industrial property (e.g. warehouses and factories). I'd do this by investing in listed property trusts. These are trusts and companies that own large amounts of property, listed on the sharemarket.
For most people, the best investment is to spread money across all asset classes. This means owning some shares, listed property, fixed interest and cash. This can be achieved through a managed fund.
Rental property may suit some people, but it takes work. Both the purchase and management require effort to maximise returns.
5. What can first home buyers do to maximise opportunities for buying a home?
Interest rates are currently so low that meeting mortgage repayments isn't difficult. But accumulation of a deposit is much harder. There's little alternative to saving hard.
Fortunately, we now have KiwiSaver. This is an excellent way to save a deposit for a first home. People doing this should ensure they aren't too aggressively invested. If markets fall close to when KiwiSaver funds are withdrawn, it could be a long wait until the balance is restored and a house purchase becomes possible again.
6. How can people make the most money from KiwiSaver?
There are three things:
- Make sure you're in the right fund with the right amount of risk. This will mean doing an on-line questionnaire which will tell you whether you should be in a conservative, balanced or growth fund.
- Have a look around for a fund in your risk category that's performing well (e.g. Sorted Fund Finder).
- Stick with it. Contribute an amount so that you get maximum contributions from your employer and the Government (minimum $1042.86 per year). Keep contributing through thick and thin.
7. Does having more money increase happiness?
Up to a certain level, yes.
Things that previously made us happy can quickly become 'old hat', meaning we need 'newer, bigger, brighter, better' to provide the happiness and satisfaction the old ones once did.
Remember what you want money for. Often it's not 'things' (e.g. cars, boats or furniture), but less concrete items like security, time and relationships with other people.
8. The best money advice someone's ever given you?
Warren Buffett once said that investors should be fearful when others are greedy and should be greedy when others are fearful.
This is a contrarian approach to investment. Although it's hard to do, it's very profitable.
Over my life, I've seen four major crashes. Although I wasn't in position to take advantage of some of them, the crashes I could take advantage of were very profitable.