Back into Investing after House Purchase

[epower]

Hi all,

First post on here so hoping to get some good advice.

I'm 28 years old and my partner is 30. We both work full time and live in Auckland. I own an investment property in Auckland that I bought almost two years ago. I met her shortly after and she has a rental property in Tauranga. Hence, we have large mortgages and need to top them up by a few thousand each year. We live together in a completely separate third house which we rent. We don't have lots of cash available but would like to put some into the sharemarkets alongside paying back our mortgages.

Prior to buying my first property, I was invested 100% into the NZX and ASX sharemarkets with direct stock holdings. I generally held between 5-10 stocks at any one time. I used to love nothing more than reading annual reports, sector magazines and publications, business news and following the markets every day. Fast forward three years to today and my job has much more responsibility and I have other life priorities than watching the market and doing hours of research each week.

We would be in a position to put around 5k per year into stock market investments. This would be quite slow to diversify into 5-10 stocks again as I like to invest around 5k at any one time to minimise brokerage fees. So we would only be buying one company a year at that rate.

The other option we have begun to look into is Smartshares or other alternative index/ETF type funds as a way to capture the market returns with very little time, stress and effort input on our part. Or the other option is to simply wave the markets goodbye for another 10+ years until we have the marriage, kids, etc out of the way and we have spare cash with two incomes again.

I like the idea of being in the market and following basic businesses news, but I have no desire to spend much time researching like I used to.

[silverblizzard888]

Given your current situation an index fund or etf would likely suit you the best since you don't want to engage into too much research or have the time to monitor your stock and indexes have proven to perform well in the long term. An index fund is likely best since you want a general diversification as oppose to anything to specific. You could top it up every 6 months since you want to avoid paying too many fees or enrol into one of the smartshare programs where you can top up on a regular basis. For an index its advised to spread it out so that you can average out your buy ins, meaning you don't always buy at the top and risk riding it all the way down without being able to reduce you average buy in.

However if you want to buy specific stocks its probably more recommended that you aim towards stable companies producing profits with a solid growth plan. e.g Heartland bank, Tourism Holding Limited, Turners, Restaurant Brands and so on.... These companies have great 3-4 year long term growth plans and perform well every year and they don't do anything thats too hard to figure out or require extensive research. As well as alright liquidity in case you need to sell.

Advice is to ensure your mortgages are manageable first though, as you should always reduce your own debt to manageable levels before risking money in an uncertain situation over one that is certain. If future interest rates were to be anything from 6- 8% would it still be a manageable situation and from there you should have your answer if you need to ensure you have a plan for it. Also ensure you have spare cash for random or emergency situations where cash is needed so that you give yourself the flexibility you need for anything that can arise.

[percy]

epower,
Welcome.
You are certainly "well positioned'.
And silverblizzard888 has given you sound advice.
Nothing I can add.

[Beagle]

Welcome epower. I agree 100% with the advice you've been given. I think Smartshares are the way to go for you for the foreseeable future.
Congrats to you and your partner for getting yourselves onto the property ladder at a young age.

[Marilyn Munroe]

An American take on your dilema but good advice all the same;

http://www.forbes.com/sites/thebogleheadsview/2012/12/02/paying-down-debt-often-the-best-investment/#36b8e0446129

Boop boop de do
Marilyn

[LAC]

Welcome Epower, you and your partner are definitely in a good position to be in, most people your age are still out wasting their hard earned cash on cars and beer or blaming others for why they aren't able to jump on the property ladder. Good on you.
I agree with smartshares as well. I just got the Mrs into that as well as she has no time to research shares and she typically wont take my research seriously lol.:) so smartshares are the best option for her.

[voltage]

what is the cheapest way to buy smartshares? through superlife or on the NZX, also I think you can buy directly from smartshares?

[Bjauck]

Hi all,

First post on here so hoping to get some good advice.

I'm 28 years old and my partner is 30. We both work full time and live in Auckland. I own an investment property in Auckland that I bought almost two years ago. I met her shortly after and she has a rental property in Tauranga. Hence, we have large mortgages and need to top them up by a few thousand each year. We live together in a completely separate third house which we rent. We don't have lots of cash available but would like to put some into the sharemarkets alongside paying back our mortgages. .. That must be a lot of debt you owe. Several questions to consider: (1) Are you negatively geared with your rental house investments? (2) Do you plan to refurbish or have expensive maintenance on your rental investments? (3) Is the rent you pay on the house you live in more or less than the rent your receive from your rental properties? (4) If you work in Auckland could you live and commute comfortably from your Auckland investment property? (5) Do you have loss of income and health and disability insurance?

[King1212]

People think share market is easy n always win...first rule to remember only invest in the share market with the money that u can afford to lose. Your mortgage is so huge...better off pay off it with an extra 5k to save u the interest...that is a guarantee win...while 5k in the stock market..u might not win...

[epower]

That must be a lot of debt you owe. Several questions to consider: (1) Are you negatively geared with your rental house investments? (2) Do you plan to refurbish or have expensive maintenance on your rental investments? (3) Is the rent you pay on the house you live in more or less than the rent your receive from your rental properties? (4) If you work in Auckland could you live and commute comfortably from your Auckland investment property? (5) Do you have loss of income and health and disability insurance?

1. Yes.
2. No, renovated shortly after buying for mine and hers is modern enough for the next decade.
3. Yes for Tauranga, no for Auckland. We pay $460 in rent where we live. She gets $390 for Tauranga and I get $550 for Auckland. We considered moving into my Auckland rental, but it made more sense financially and legally to keep it separate.
4. As above, could do but better off not to.
5. No, we have considered this and thought it a waste of money. There is ACC, unemployment benefit, public health system and could always sell a house if it went very sour.

[epower]

People think share market is easy n always win...first rule to remember only invest in the share market with the money that u can afford to lose. Your mortgage is so huge...better off pay off it with an extra 5k to save u the interest...that is a guarantee win...while 5k in the stock market..u might not win...

This is what we have been doing for the past two years. We now think we are in a position to but a bit each way.

[epower]

what is the cheapest way to buy smartshares? through superlife or on the NZX, also I think you can buy directly from smartshares?

Via Smartshares, you pay a $30 set up fee each time you enter into a fund. There is then the yearly management fee which varied per fund, typically around half a percent.

Via Superlife, you pay no set up fee, just a $12 yearly admin fee. You pay the same yearly half a percent management fee. There is no fee if you want to change your funds from say the NZX50, over to the S&P500, where as with smartshares, there are buy/sell fees to do so.

I'm personally going to go through Superlife as my Kiwisaver is already with them, and I want to put half in the NZX50 fund and half in the S&P 500 fund.

[skid]

People think share market is easy n always win...first rule to remember only invest in the share market with the money that u can afford to lose. Your mortgage is so huge...better off pay off it with an extra 5k to save u the interest...that is a guarantee win...while 5k in the stock market..u might not win...

I agree---My first question was going to be ''how well did you do on your previous dabble in the share Market''----there is alot of wisdom in that old saying of getting rid of or reducing your mortgage first is the best move you can make. It would be a shame if you lost your cushion on servicing your mortgage if interest rates rise---Never underestimate maintenance or vacancy expenses if tenants go bad.(If that happens you will always be in a losing position financially,and on the back foot legally)
Imo your most important goal should be to get your ''business''(rentals)on as safe a territory as possible as thats where you stand to make the most gains or loses.Your already having to top up the mortgage each year--eliminating that would be my first step along with brushing up on my handyman skills. Also check this site out https://www.propertytalk.com/forum/forumdisplay.php?14-New-Zealand

[Lewylewylewy]

Something else to consider is p2p. Harmoney have the highest return and highest risk, but Squirrel do a really nice option which is 9% return with low risk (it's backed by a trust that will pay if a borrower doesn't). Since you aren't living in a house you own, you can't tilt the mortgage onto the rental for tax reasons. Therefore your ROI becomes simple to calculate - you either get your mortgage rate, or your investment rate after tax. Squirrel becomes about 6% after tax, which means a pretty much guaranteed bonus 1.5% above your mortgage. Therefore, you might consider borrowing as much as you can on the house and dumping it into Squirrel, which you could then use to reinvest 1.5% and the remainder of the monthly repayments to cover the extra cost of the invested money from the mortgage.

Not saying that the above is better, just something to consider with what others have suggested :)

[Sgt Pepper]

1. Yes.
2. No, renovated shortly after buying for mine and hers is modern enough for the next decade.
3. Yes for Tauranga, no for Auckland. We pay $460 in rent where we live. She gets $390 for Tauranga and I get $550 for Auckland. We considered moving into my Auckland rental, but it made more sense financially and legally to keep it separate.
4. As above, could do but better off not to.
5. No, we have considered this and thought it a waste of money. There is ACC, unemployment benefit, public health system and could always sell a house if it went very sour.

Regarding no.5 Income Insurance

Your most valuable economic asset in life is your ability to get up and go to a job and get paid for it which is not compromised by health issues. Statistically the most common reason for being off work later in life is not an accident but an illness. I am a strong believer in Income Protection Insurance. Yes it can be expensive but there are ways of reducing this which I did when I started mine in 1992
1) I selected a 3 month stand down
2) Level premium. i.e I paid more initially but way less now
My policy is with the Medical Assurance Society which is a brilliant company. You can also claim the premium on income insurance as a deduction on your income tax.
I am insured for $1900 in my hand per fortnight, cover until I am 60 and only costs $54 per month. I have never claimed and hope I never have to

[Yoda]

I have 3 rentals in TGA . IF you have a 3 bedroom house here, you should consider putting it up slowly but surly. 390 is cheep here now.

[fungus pudding]

Regarding no.5 Income Insurance

Your most valuable economic asset in life is your ability to get up and go to a job and get paid for it

Absolute rubbish, although thinking that way might make it so.

[Lewylewylewy]

Absolute rubbish, although thinking that way might make it so.

It depends how much money you have. If you have tones of money, then it's absolute rubbish. If you don't, then it's very true.

[axe]

Hi epower - welcome to the forum. There are some great folks on this forum with lots of knowledge and experience. However an authorised financial adviser is qualified to give advice. We posters are the forum are not.
https://fma.govt.nz/consumers/getting-financial-advice/how-to-find-an-adviser/



Hi all,

First post on here so hoping to get some good advice.

[Raz]

It depends how much money you have. If you have tones of money, then it's absolute rubbish. If you don't, then it's very true.

I agree..income protection and disability insurance should be a consideration... fungus in the head it seems.

[Raz]

Regarding no.5 Income Insurance

Your most valuable economic asset in life is your ability to get up and go to a job and get paid for it which is not compromised by health issues. Statistically the most common reason for being off work later in life is not an accident but an illness. I am a strong believer in Income Protection Insurance. Yes it can be expensive but there are ways of reducing this which I did when I started mine in 1992
1) I selected a 3 month stand down
2) Level premium. i.e I paid more initially but way less now
My policy is with the Medical Assurance Society which is a brilliant company. You can also claim the premium on income insurance as a deduction on your income tax.
I am insured for $1900 in my hand per fortnight, cover until I am 60 and only costs $54 per month. I have never claimed and hope I never have to

Medical assurance society is good however limited availability for most people.

[winner69]

Absolute rubbish, although thinking that way might make it so.

Right on fungus

As they say there's more to life than money

[fish]

Medical assurance society is good however limited availability for most people.
It is good in general.
However they (and I suspect most others) are not good when you reach the age of 60.After having a LOI policy for over 30 years and never making a claim they just cancelled when I reached 60.
Their loss as I will no longer have anything to do with them.
Fortunately by then I had enough assets to not need insurance.
Tax deductability only applies if you are self-employed or a company

[fish]

Hi epower - welcome to the forum. There are some great folks on this forum with lots of knowledge and experience. However an authorised financial adviser is qualified to give advice. We posters are the forum are not.
https://fma.govt.nz/consumers/getting-financial-advice/how-to-find-an-adviser/

I could talk a lot about financial advisers but will keep it brief as my experience with them ended a few years ago when many where getting rich by giving biased or compromised advice.
For instance receiving income from finance companies for clients to invest with them-many of these companies went broke and many have lost large amounts of investments.
My advice would be to use a good accountant-just my opinion.
If you are an employee priority is probably to pay of your mortgage before you think of investing .

[Lewylewylewy]

I don't think paying off the mortgage is the best thing to do with the money when there are options like squirrel money around, 4.3% on the mortgage vs guaranteed 6% after tax with monthly returns makes lots of sense.

[Bjauck]

...
5. No, we have considered this and thought it a waste of money. There is ACC, unemployment benefit, public health system and could always sell a house if it went very sour.
- Income protection insurance can cover situations not covered by the emergency state unemployment benefit.

- Private medical insurance is definitely worth considering. Being independent, productive and happy are great assets. If something goes wrong, access to speedy and top rate treatment is important. The state system (especially for "non-accident" conditions) means long waits for specialists, imaging and surgery. Consequently there is increased chance of needing to be in a serious condition prior to surgery with consequent increased risk of loss of quality of life and being able to be fully productive. I would say an investment in full private medical insurance would provide a yield over the years in increased peace of mind and quality of life as well as increased productivity return surpassing most other investments. With an aging population and governments prioritising tax cuts, funding for state health care will only be at the minimum governments can get away with. If you have good health now, you may not consider health insurance a priority, but you will be able to get private health insurance without any loading for poor health or pre-existing conditions.

Disc: Waited months with pain and slight loss of function for surgery for an orthopedic condition, caused by an accidental event but which was deemed medical rather than accident (pre-existing degeneration according to ACC.) Now have private insurance but with a loading and exclusion for some conditions.

[RupertBear]

Absolute rubbish, although thinking that way might make it so.

As someone who had Income Insurance and then had the misfortune of sufferng a huge health problem (brain tumor) leaving me unable to return to my profession (medicine), I can speak from experience when say I agree 100% with Sgt Pepper. My life would have been immensly harder without income assitance, firstly when I was recovering from surgery and secondly when it cost me my ability to work.

I would be interested to hear why you think insuring your income is "absolute rubbish" fungus pudding?

[huxley]

I don't think paying off the mortgage is the best thing to do with the money when there are options like squirrel money around, 4.3% on the mortgage vs guaranteed 6% after tax with monthly returns makes lots of sense.

Depends on your appetite for risk .. paying down the debt is the only guaranteed return. It sounds like they're in a very leveraged position already so well up the curve. I'd be keen to reduce that if it was me : D

[Bjauck]

Depends on your appetite for risk .. paying down the debt is the only guaranteed return. It sounds like they're in a very leveraged position already so well up the curve. I'd be keen to reduce that if it was me : D I would agree - especially with the current increased uncertainty (rates and Trump). However they are negatively geared on their rental properties - so I imagine they can reduce tax on their other income at the moment.

[JBmurc]

Hi epower - welcome to the forum. There are some great folks on this forum with lots of knowledge and experience. However an authorised financial adviser is qualified to give advice. We posters are the forum are not.
https://fma.govt.nz/consumers/getting-financial-advice/how-to-find-an-adviser/

I searched for a financial adviser about three years ago. I chose in the end - after going through about five initial meetings and one second meeting - that I would rely on myself to invest.

My initial personal experience, being female and in my late 20s, was that they couldn't relate to me, and two of them treated me with suspicion (maybe they thought I was wasting their time?) and arrogance. The remainder were professional but every one found the need to mention "you are the first person I've seen without grey hair"!

Other than being a bit put off on first meeting them, the main reason I didn't use any of the advisers was because of the fees and the structure of how the advisers are paid, and hence what they suggest I should invest in. Okay, you don't know what kind of return you're going to make. But you also don't know what kind of fees you're going to pay, which really bugged me.

http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11482789


---disc-- my personal experience with a broker and then brief meetings with F/A was at the time wasn't the best I found the F/A just wanted to put me into low yield investment he would get good kick backs and a few NZX blue chips...the broker much the same but with a couple of risky investments that went belly up...

it really comes down to your goals and your personal experience & confidence in the S/M ....

[skid]

I searched for a financial adviser about three years ago. I chose in the end - after going through about five initial meetings and one second meeting - that I would rely on myself to invest.

My initial personal experience, being female and in my late 20s, was that they couldn't relate to me, and two of them treated me with suspicion (maybe they thought I was wasting their time?) and arrogance. The remainder were professional but every one found the need to mention "you are the first person I've seen without grey hair"!

Other than being a bit put off on first meeting them, the main reason I didn't use any of the advisers was because of the fees and the structure of how the advisers are paid, and hence what they suggest I should invest in. Okay, you don't know what kind of return you're going to make. But you also don't know what kind of fees you're going to pay, which really bugged me.

http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11482789


---disc-- my personal experience with a broker and then brief meetings with F/A was at the time wasn't the best I found the F/A just wanted to put me into low yield investment he would get good kick backs and a few NZX blue chips...the broker much the same but with a couple of risky investments that went belly up...

it really comes down to your goals and your personal experience & confidence in the S/M ....

Glad to hear that,after KWs exit ,that we still have some female posters around (even if we dont agree on everything):)

[Beagle]

Something else to consider is p2p. Harmoney have the highest return and highest risk, but Squirrel do a really nice option which is 9% return with low risk (it's backed by a trust that will pay if a borrower doesn't). Since you aren't living in a house you own, you can't tilt the mortgage onto the rental for tax reasons. Therefore your ROI becomes simple to calculate - you either get your mortgage rate, or your investment rate after tax. Squirrel becomes about 6% after tax, which means a pretty much guaranteed bonus 1.5% above your mortgage. Therefore, you might consider borrowing as much as you can on the house and dumping it into Squirrel, which you could then use to reinvest 1.5% and the remainder of the monthly repayments to cover the extra cost of the invested money from the mortgage.

Not saying that the above is better, just something to consider with what others have suggested :)

Be careful with this sort of thing folks. #1. Interest rates won't be 4.5% for long http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11765198 #2 All investments carry commercial risk no matter whether they are guaranteed or not and a guarantee is only as good as the guarantor.

[winner69]

Glad to hear that,after KWs exit ,that we still have some female posters around (even if we dont agree on everything):)

Skid - Do you want me to set you up a date with JB

I'm sure you two would get on like a house on fire .....and goodness knows where it might end up

Happy New Year

[Rawiri]

Hi epower thank you for this post it has been quite helpful/interesting to see the different opinions from posters as I am in quite a similar position to yourself.
My brother and i brought our first rental property early last year whilst we still lived at home with our parents, we were both working full time and saving $300 per week(combined, including $90 a week profit from rental property after expenses) after rent, and other weekly expenses. We then sought advice from from friends family and even an accountant who all told us we should be saving that extra money and paying as much off our loans as possible. Being young and less risk averse we did the opposite and using our equity in the house plus incomes got approved to borrow a further $200k for investing in the share market. Using advice from many posters on this forum as well as my own research i ended the year up 22% investing on the nzx and asx which allows us to pay down far more of our debt(should we choose to) when the mortgage is up for review next march. My approach to investing was very rushed and unintelligent and i made a lot of mistakes which cost me i estimate 5-10% had i just held my original portfolio from day 1 instead of "trading" stocks, but nothing could have taught me more about investing than just getting into the market and teaching myself along the way and I am the only person responsible for my (mis)fortune. I get that what has happened is not guaranteed to happen again and the nzx is currently in one of its longest bull markets and that cant go on forever but had i not been contrarian to the advice from my peers i wouldnt be so "well positioned" going into 2017 hahaha.

[Valuegrowth]

What an interesting discussion? In short one thing is clear: There are risks as well as rewards in any type of investment, savings or insurance products. Financial markets or property markets are not 100% risk free. As it is our money, it is wise to have our own successful strategy.

[Sgt Pepper]

Absolute rubbish, although thinking that way might make it so.

Acquisition of assets which generate income i a worthy objective and I guess the approach takes personal aspiration, time and application. M y comment that ones prime economic asset is to be able to earn an income from an employer does not preclude anyone from aspiring to be economically independent. The reality is that most of us ,usually, at least when we were young had to work for someone else. I assume Fungus you have worked for an employer at some stage? My point was that income insurance is something to seriously consider at this stage, especially if someone has regular debts to service and a family to support. If , like Donald Trump you are given $20,000000 at 21 yrs you don't have to work for anyone else
For most of us mere mortals that is not the case.

[JBmurc]

Glad to hear that,after KWs exit ,that we still have some female posters around (even if we dont agree on everything):)

LOL well "Mary Holm" is ......

[Bjauck]

Glad to hear that,after KWs exit ,that we still have some female posters around (even if we dont agree on everything):)
A lot of experience for someone comparatively young too.

[skid]

Skid - Do you want me to set you up a date with JB

I'm sure you two would get on like a house on fire .....and goodness knows where it might end up

Happy New Year

My daughter is older than her, winner--maybe some fatherly advice(or banter)--young blood keeps things fresh

[skid]

LOL well "Mary Holm" is ......

Geez--god help us if she ever gets on the ''property investment'' thread :)

[skid]

A lot of experience for someone comparatively young too.

I was thinking the same thing--must have started young...lets see aprox 30-32 ..joined 15 yrs ago..32-15....aw anyway ..good to have young blood:)

[winner69]

LOL well "Mary Holm" is ......

JB, did you really write to Mary? I can't believe that.

And that's not you on the Herald photo.

She A good soul though, full off good intent and willing to help anybody.

[Beagle]

Given your current situation an index fund or etf would likely suit you the best since you don't want to engage into too much research or have the time to monitor your stock and indexes have proven to perform well in the long term. An index fund is likely best since you want a general diversification as oppose to anything to specific. You could top it up every 6 months since you want to avoid paying too many fees or enrol into one of the smartshare programs where you can top up on a regular basis. For an index its advised to spread it out so that you can average out your buy ins, meaning you don't always buy at the top and risk riding it all the way down without being able to reduce you average buy in.

However if you want to buy specific stocks its probably more recommended that you aim towards stable companies producing profits with a solid growth plan. e.g Heartland bank, Tourism Holding Limited, Turners, Restaurant Brands and so on.... These companies have great 3-4 year long term growth plans and perform well every year and they don't do anything thats too hard to figure out or require extensive research. As well as alright liquidity in case you need to sell.

Advice is to ensure your mortgages are manageable first though, as you should always reduce your own debt to manageable levels before risking money in an uncertain situation over one that is certain. If future interest rates were to be anything from 6- 8% would it still be a manageable situation and from there you should have your answer if you need to ensure you have a plan for it. Also ensure you have spare cash for random or emergency situations where cash is needed so that you give yourself the flexibility you need for anything that can arise.

Just want to pick up on this post which I think is an extremely good one and expand the point I've highlighted a little.

epower, may I assume seeing as you and your partner both have a house to get to that point at a relatively young age your income must be over $48K ?, (for the purpose of this post I'll assume it is).
Your marginal tax rate is therefore 30% and quite possibly 33%, (people earning over $70K).
The idea that is commonly referred too that no investment is without risk isn't quite right. As Silverblizzard quite correctly alludes too, we're arguably at the bottom of the interest rate cycle and its quite possible interest rates are headed up to a more normal range in the medium term. Again I am guessing but I would imagine you and your partner each have mortgages running to several hundred thousand dollars so a 1.5% interest rate increase for the average person who locked in a while ago at 4.5% up to a more normal range of 6% could wipe many thousands of dollars of disposable income out of your annual budget, (even if you had an average mortgage of $300K each that's $4,500 each per annum in increased mortgage payments you'd be making if interest rates head back to 6% which I think they will inevitably do at some stage in the foreseeable future.

If interest rates head to 6% every extra dollar you can repay on your mortgage now will generate a 6% tax free, (equal to 9% gross annual return before tax) completely risk free compounding return for the rest of your life. Further, no research is required or investment of your time in any other way.

Just a thought, how many of us would absolutely love to invest in a completely risk free investment that's absolutely certain to pay us an annual gross return of 9% compounding for the rest of our lives ? (show me where to sign !, unfortunately I have already exhausted this avenue of arguably the greatest free investment lunch of our lifetime by repaying all my debt years ago).
Just a different way to skin the investment cat, just putting it out there for your consideration.

[winner69]

I was thinking the same thing--must have started young...lets see aprox 30-32 ..joined 15 yrs ago..32-15....aw anyway ..good to have young blood:)

I have it on good authority that she's 39 this year

[huxley]

Just want to pick up on this post which I think is an extremely good one and expand the point I've highlighted a little.

epower, may I assume seeing as you and your partner both have a house to get to that point at a relatively young age your income must be over $48K ?, (for the purpose of this post I'll assume it is).
Your marginal tax rate is therefore 30% and quite possibly 33%, (people earning over $70K).
The idea that is commonly referred too that no investment is without risk isn't quite right. As Silverblizzard quite correctly alludes too, we're arguably at the bottom of the interest rate cycle and its quite possible interest rates are headed up to a more normal range in the medium term. Again I am guessing but I would imagine you and your partner each have mortgages running to several hundred thousand dollars so a 1.5% interest rate increase for the average person who locked in a while ago at 4.5% up to a more normal range of 6% could wipe many thousands of dollars of disposable income out of your annual budget, (even if you had an average mortgage of $300K each that's $4,500 each per annum in increased mortgage payments you'd be making if interest rates head back to 6% which I think they will inevitably do at some stage in the foreseeable future.

If interest rates head to 6% every extra dollar you can repay on your mortgage now will generate a 6% tax free, (equal to 9% gross annual return before tax) completely risk free compounding return for the rest of your life. Further, no research is required or investment of your time in any other way.

Just a thought, how many of us would absolutely love to invest in a completely risk free investment that's absolutely certain to pay us an annual gross return of 9% compounding for the rest of our lives ? (show me where to sign !, unfortunately I have already exhausted this avenue of arguably the greatest free investment lunch of our lifetime by repaying all my debt years ago).
Just a different way to skin the investment cat, just putting it out there for your consideration.

Great post.

[Subway]

I searched for a financial adviser about three years ago. I chose in the end - after going through about five initial meetings and one second meeting - that I would rely on myself to invest.

My initial personal experience, being female and in my late 20s, was that they couldn't relate to me, and two of them treated me with suspicion (maybe they thought I was wasting their time?) and arrogance. The remainder were professional but every one found the need to mention "you are the first person I've seen without grey hair"!

Other than being a bit put off on first meeting them, the main reason I didn't use any of the advisers was because of the fees and the structure of how the advisers are paid, and hence what they suggest I should invest in. Okay, you don't know what kind of return you're going to make. But you also don't know what kind of fees you're going to pay, which really bugged me.

http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11482789


---disc-- my personal experience with a broker and then brief meetings with F/A was at the time wasn't the best I found the F/A just wanted to put me into low yield investment he would get good kick backs and a few NZX blue chips...the broker much the same but with a couple of risky investments that went belly up...

it really comes down to your goals and your personal experience & confidence in the S/M ....

Just wanted to add my 2c here from my experience in funds management in NZ, I worked for a Custodian and then as a Paraplanner for a Financial Advisory firm for around 5 years, now work for a Fund Manager in London, but I’d like to think I’ve seen all sides of the equation.

The likes of Chris Lee and Brent Sheather will harp on about fees, and they aren't wrong. Especially once you factor in a Custodian, advisors fees and fund of fund fees then returns aren’t usually spectacular. Where I found Financial Advisors providing their worth is getting a client to sit down and understand their financial situation and appetite for risk, thats going to be the guys that Chris and Brent dislike, but its almost a necessary evil, the cost of not sitting down and planning your income/assets in retirement would be far more than the fees they will charge, even if the returns aren’t wonderful.

As far as Fees go, its pretty open now. An independent financial advisory might get a kickback from the broker on the brokerage you pay to transact, otherwise, very few (if any) outfits will still pay an advisor a kickback based on the specific asset you buy/sell, the days of finance companies paying upfront/trail brokerage are long gone. Otherwise they will be making money as a fixed percentage of your total portfolio and that’s about it.

Even some of the institutional brokers that run private wealth teams I’ve seen some pretty questionable recommendations, where you can see they are churning for the sake of brokerage, and into high yielding illiquid bonds/fixed interest.

[fungus pudding]

As someone who had Income Insurance and then had the misfortune of sufferng a huge health problem (brain tumor) leaving me unable to return to my profession (medicine), I can speak from experience when say I agree 100% with Sgt Pepper. My life would have been immensly harder without income assitance, firstly when I was recovering from surgery and secondly when it cost me my ability to work.

I would be interested to hear why you think insuring your income is "absolute rubbish" fungus pudding?

I didn't say that it was. It's important for some people at certain stages.
The statement I called rubbish was 'Your most valuable economic asset in life is your ability to get up and go to a job and get paid for it.' It is not your most valuable economic asset unless you want it to be.

[huxley]

Just wanted to add my 2c here from my experience in funds management in NZ, I worked for a Custodian and then as a Paraplanner for a Financial Advisory firm for around 5 years, now work for a Fund Manager in London, but I’d like to think I’ve seen all sides of the equation.

The likes of Chris Lee and Brent Sheather will harp on about fees, and they aren't wrong. Especially once you factor in a Custodian, advisors fees and fund of fund fees then returns aren’t usually spectacular. Where I found Financial Advisors providing their worth is getting a client to sit down and understand their financial situation and appetite for risk, thats going to be the guys that Chris and Brent dislike, but its almost a necessary evil, the cost of not sitting down and planning your income/assets in retirement would be far more than the fees they will charge, even if the returns aren’t wonderful.

As far as Fees go, its pretty open now. An independent financial advisory might get a kickback from the broker on the brokerage you pay to transact, otherwise, very few (if any) outfits will still pay an advisor a kickback based on the specific asset you buy/sell, the days of finance companies paying upfront/trail brokerage are long gone. Otherwise they will be making money as a fixed percentage of your total portfolio and that’s about it.

Even some of the institutional brokers that run private wealth teams I’ve seen some pretty questionable recommendations, where you can see they are churning for the sake of brokerage, and into high yielding illiquid bonds/fixed interest.

Regarding risk, did you find that active fund managers are incentivised to push their clients into higher risk instruments because the potential return makes the fees they charge more palatable?

[epower]

Thanks for all the tips from everyone.

My partner and I are reviewing all our insurances and have talked to both our parents and others and are going to look into income protection insurance for my career. She is on a full service health insurance plan which we will look to reduce or eliminate as I'm a fan of not having health insurance for small dentist, GP, physio appointments.

Also the recommendation to pay back debt instead of investing: The point of having some money invested in index funds was two fold. Firstly, setting aside a couple of thousand a year will cure my fascination with investing and the sharemarkets. Secondly, it will be a little buffer or emergency type fund for the longer term for any major health surgery costs (that just can't wait on the public system), replacement cars, etc. Think of it as a self insurance fund if you will.

[fungus pudding]

It depends how much money you have. If you have tones of money, then it's absolute rubbish. If you don't, then it's very true.

Not so. You're most valuable economic asset is the ability to think, observe, and learn. After applying those things you might find you have sufficient money. It is not the ability to earn in the way you can insure for. If you have tonnes of money, your ability to earn more is less important.

[RupertBear]

Not so. You're most valuable economic asset is the ability to think, observe, and learn. After applying those things you might find you have sufficient money. It is not the ability to earn in the way you can insure for. If you have tonnes of money, your ability to earn more is less important.

I agree having the ability to think, observe and learn are very important life skills to have however applying them is much easier to do when one is healthy and without financial stressors. When you are not well and unable to work your most valuable economic asset IMHO is whatever allows you to pay your mortgage and bills hence my strong advocacy for income insurance. However if you have tons of money to tap into then yes it wouldnt be nearly as important :)

[Beagle]

Insurance is nothing more than spreading or averaging risk. Usually a large percentage of every dollar you spend on insurance is gobbled up in profit and another large chunk is gobbled up by rent and administration costs of the insurance company. The actual amount paid out in claims can literally be pennies on the dollar.

A worked example to illustrate my point. When we were young Mrs Hound and I looked at quotes for a comprehensive Southern Cross policy for us and our two puppies. That and income insurance protection from the best quote at the time (25 years ago) came to $375 per month. Worthwhile for peace of mind you might ask ?

Consider this. We didn't take either of the policies and have never had cover of this type in our lives. We would have never made a major claim in 25 years of any material size other than minor claims for glasses, teeth and the usual minor doctor's bills.

Without any doubt the cost of the monthly premiums would have gone up substantially over our life time as we got older but just sticking with $375 per month I plugged this into my Microsoft money calculator and if this $375 was invested each month at an average rate of 5% per annum the self insurance fund would now have grown to $219,650. Now what's the bet that no insurance salesman would tell you a story like this !

To be fair we probably wasted the money along the way on fancy boats, cars, travel and a very nice house or two but probably better there than in the profits or overheads of the insurance company don't you think.

Moral of the story, the more things you can self insure the better.

[Raz]

Not so. You're most valuable economic asset is the ability to think, observe, and learn. After applying those things you might find you have sufficient money. It is not the ability to earn in the way you can insure for. If you have tonnes of money, your ability to earn more is less important.

Classic... yes it is, how many people in life thou are actually good at it..measure their emotions and other factors that come along...I'm not talking about the deluded or those that over estimate their abilities :-)

[Lewylewylewy]

Regarding insurance, I consider it based on my percieved personal risk level. As insurance cost is the average chance of all involved (however that's spread in various risk groups) or having an issue + the cost of the insurance companies profit, I don't buy insurance for things I consider myself to be low risk in, but would like to buy it for things I consider myself higher risk than the average Joe. For example, I get sick lots, so health insurance makes sense. I never crash my car and only drive to and from work - no car insurance for me thanks. That said, I do have a pot of money that I call my rainy day fund in case I do crash into a Ferrari. This pot of money is spread between the share market and a revolving credit mortgage (I borrowed more than I needed to fill a rainy day fund, then put it straight back into my mortgage so I never pay anything, but always have access to the money - something I recommend to all).

[777]

Regarding insurance, I consider it based on my percieved personal risk level. As insurance cost is the average chance of all involved (however that's spread in various risk groups) or having an issue + the cost of the insurance companies profit, I don't buy insurance for things I consider myself to be low risk in, but would like to buy it for things I consider myself higher risk than the average Joe. For example, I get sick lots, so health insurance makes sense. I never crash my car and only drive to and from work - no car insurance for me thanks. That said, I do have a pot of money that I call my rainy day fund in case I do crash into a Ferrari. This pot of money is spread between the share market and a revolving credit mortgage (I borrowed more than I needed to fill a rainy day fund, then put it straight back into my mortgage so I never pay anything, but always have access to the money - something I recommend to all).

3rd party insurance is cheap enough to cover the Ferrari and all the others that may be involved in the same claim.

[Hectorplains]

3rd party insurance is cheap enough to cover the Ferrari and all the others that may be involved in the same claim.

I think it's insane not to cover yourself with at least 3rd party; it should be compulsory.

[Raz]

Regarding insurance, I consider it based on my percieved personal risk level. As insurance cost is the average chance of all involved (however that's spread in various risk groups) or having an issue + the cost of the insurance companies profit, I don't buy insurance for things I consider myself to be low risk in, but would like to buy it for things I consider myself higher risk than the average Joe. For example, I get sick lots, so health insurance makes sense. I never crash my car and only drive to and from work - no car insurance for me thanks. That said, I do have a pot of money that I call my rainy day fund in case I do crash into a Ferrari. This pot of money is spread between the share market and a revolving credit mortgage (I borrowed more than I needed to fill a rainy day fund, then put it straight back into my mortgage so I never pay anything, but always have access to the money - something I recommend to all).

Just be aware this is in essence a bank facility..these can be removed by a material change in your circumstances or simple change in bank policy to reduce risk profile to a sector..

Insurance is good for large contingencies..just got paid out a life insurance policy to cover the equity payout to a business partners estate...
Already chosen a new partner so a net cash out for me...now what to buy/invest with it...

[Beagle]

Raz there's the new 100 kg's lighter 4wd BMW M5 out soon :cool:

[Subway]

Regarding risk, did you find that active fund managers are incentivised to push their clients into higher risk instruments because the potential return makes the fees they charge more palatable?

I wouldn't necessarily say they are incentivised but I often wondered why they would propose buying very small parcels of shares for clients where the brokerage costs impacted returns (and they were also the broker). I also questioned some of the IPOs that brokers bringing to market and the suitability of them for their private wealth clients. They will always be compliant recommendations, but in such a small market with so few operators, the same guys bringing an ipo to market, are the same guys issuing the research and making the recommendations to their own clients...

FYI the FMA now dictates that advise is regulated, the format has to be approved by the FMA, fees, research, disclosure, everything, including the requirement that any recommendation is in line with the clients risk appetite, an individual has far more discretion to invest outside of that mandate tbh, although any deviation can be agreed with the client, its why you will find advisors going for fund of funds with morningstar reports, the research is already done for them.

[fungus pudding]

Regarding insurance, I consider it based on my percieved personal risk level. As insurance cost is the average chance of all involved (however that's spread in various risk groups) or having an issue + the cost of the insurance companies profit, I don't buy insurance for things I consider myself to be low risk in, but would like to buy it for things I consider myself higher risk than the average Joe. For example, I get sick lots, so health insurance makes sense. I never crash my car and only drive to and from work - no car insurance for me thanks. That said, I do have a pot of money that I call my rainy day fund in case I do crash into a Ferrari. This pot of money is spread between the share market and a revolving credit mortgage (I borrowed more than I needed to fill a rainy day fund, then put it straight back into my mortgage so I never pay anything, but always have access to the money - something I recommend to all).

Third party for vehicle accidents is extremely sensible and costs peanuts. No matter how careful you may be, there's no guarantee that you won't be found at fault, or contributing to the accident in some way if you do have a ding. (Blame in vehicle accidents can be apportioned and attributed to both drivers. So even an 'innocent' driver may and up with 20% of a $50,000 claim, and that's not worth defending, which is always a ganble) And if it happens to be the wrong sort of vehicle it would make a big hole in your bucket of money - a lot more than not being paid for a few months. Get a quote for 3rd party, and re-think it.

[epower]

I've got 3rd party through AA for $115 per year. Cheap as chips considering the risk and likelihood since I drive my car almost everyday.

[skid]

Insurance is nothing more than spreading or averaging risk. Usually a large percentage of every dollar you spend on insurance is gobbled up in profit and another large chunk is gobbled up by rent and administration costs of the insurance company. The actual amount paid out in claims can literally be pennies on the dollar.

A worked example to illustrate my point. When we were young Mrs Hound and I looked at quotes for a comprehensive Southern Cross policy for us and our two puppies. That and income insurance protection from the best quote at the time (25 years ago) came to $375 per month. Worthwhile for peace of mind you might ask ?

Consider this. We didn't take either of the policies and have never had cover of this type in our lives. We would have never made a major claim in 25 years of any material size other than minor claims for glasses, teeth and the usual minor doctor's bills.

Without any doubt the cost of the monthly premiums would have gone up substantially over our life time as we got older but just sticking with $375 per month I plugged this into my Microsoft money calculator and if this $375 was invested each month at an average rate of 5% per annum the self insurance fund would now have grown to $219,650. Now what's the bet that no insurance salesman would tell you a story like this !

To be fair we probably wasted the money along the way on fancy boats, cars, travel and a very nice house or two but probably better there than in the profits or overheads of the insurance company don't you think.

Moral of the story, the more things you can self insure the better.

I agree ,(even though no one can say anything is totally safe)--If you look at the odds your better off. Of course you have to have the ability to save..so the odds get better for those who can be thrifty. One can also lesson the burden if something does happen ,and get a break ,with medical tourism---Ive gotten lots of dental stuff done in Thailand. you obviously have to do your homework---We are very lucky to have at least a ''safety net'' health care system for emergencies. Most other things would work for medical tourism.---(of course ,its not for everyone-but the friends who have done it were happy with the results)

[Bjauck]

I agree ,(even though no one can say anything is totally safe)--If you look at the odds your better off. Of course you have to have the ability to save..so the odds get better for those who can be thrifty...
If you "self-insure" you have to be disciplined. With most people, even careful people, the amount you save from not having to pay health insurance premiums will probably not be put aside, so that if you do decide to skip a waiting list to have a private procedure, the money will probably not be sitting in a convenient bank account. So even if medical insurance is "expensive" for a person with average or below average medical needs, you are able to budget for a regular monthly insurance expense. In addition, you or your family may be unfortunate to require more medical attention than the average person.

In the face of an aging population and drive to reduce taxes, can we rely on future governments to maintain the funding level for the current services of the state system with access to the latest procedures and drugs? Not everyone is able to travel or afford to travel to have medical procedures. I believe the state medical service should be fully funded by taxes so that there is no need for private medical treatment (apart from for cosmetic reasons.)

[Bjauck]

I've got 3rd party through AA for $115 per year. Cheap as chips considering the risk and likelihood since I drive my car almost everyday. Sounds a good deal....does it cover theft as well?

[Marilyn Munroe]

Sounds a good deal....does it cover theft as well?

Nope only damage to the other car. So if you run a stop sign and T-Bone an Alfa Romeo Giulia Quadrifoglio your insurance company pays and you escape from declaring bankruptcy.

Boop boop de do
Marilyn

[fungus pudding]

Sounds a good deal....does it cover theft as well?

Of course. It is included with all companies' 3rd party cover as far as I know. Certainly it is with an AA policy.

https://www.aainsurance.co.nz/car-insurance/third-party-fire-theft/

You may even get something from the policy if you get damaged by another driver who is not insured.

This is from AA site.

"If there's an accident and you weren't at fault but you can identify who was and they're uninsured, we'll pay up to $4,000 to repair your car."

[Bjauck]

Of course. It is included with all companies' 3rd party cover as far as I know. Certainly it is with an AA policy.

https://www.aainsurance.co.nz/car-insurance/third-party-fire-theft/

I have just checked AA site - they seem to offer three main types of policy :

Comprehensive (https://www.aainsurance.co.nz/car-insurance/comprehensive)
Third Party, Fire & Theft (https://www.aainsurance.co.nz/car-insurance/third-party-fire-theft)
Third Party (https://www.aainsurance.co.nz/car-insurance/third-party)

[fungus pudding]

I have just checked AA site - they seem to offer three main types of policy :

Comprehensive (https://www.aainsurance.co.nz/car-insurance/comprehensive)
Third Party, Fire & Theft (https://www.aainsurance.co.nz/car-insurance/third-party-fire-theft)
Third Party (https://www.aainsurance.co.nz/car-insurance/third-party)


Yes. You are correct. I thought it was an automatic inclusion. I wouldn't want to pay much extra for fire and theft. Might consider it if I had a car worth pinching.

[skid]

If you "self-insure" you have to be disciplined. With most people, even careful people, the amount you save from not having to pay health insurance premiums will probably not be put aside, so that if you do decide to skip a waiting list to have a private procedure, the money will probably not be sitting in a convenient bank account. So even if medical insurance is "expensive" for a person with average or below average medical needs, you are able to budget for a regular monthly insurance expense. In addition, you or your family may be unfortunate to require more medical attention than the average person.

In the face of an aging population and drive to reduce taxes, can we rely on future governments to maintain the funding level for the current services of the state system with access to the latest procedures and drugs? Not everyone is able to travel or afford to travel to have medical procedures. I believe the state medical service should be fully funded by taxes so that there is no need for private medical treatment (apart from for cosmetic reasons.)

Yep--Its not for everyone...Its another option ,but it would be a risky thing to recommend to all. It doesnt cost that much to get to Thailand (and we are talking non emergency things like a knee or hip,but it would be a much better option for those who could finance themselves here if need be (even if they lost ,financially)--Your points are certainly valid
For me the dental option has worked well as its not covered here,and they are very good with all the latest flash equipment.
that Indian hospital in Bangalore is also top rate from what ive seen for medical issues (ofcourse it wouldnt be everyones cup of chai)

[skid]

Yes. You are correct. I thought it was an automatic inclusion. I wouldn't want to pay much extra for fire and theft. Might consider it if I had a car worth pinching.

I have fire and theft--Its not that much more (and wouldnt you read about it,when I was overseas the wife had to use it (car wouldnt start) and 15min after she got back home our daughter noticed it was on fire:scared:---it worked out well in the end cause it was about to be replaced.
One thing about 3rd party though,is that you get stuff all help if someone else hits you and you need them to communicate with the other insurance co--at least in my case ,with our daughters car.

[kiwico]

We have Comprehensive. Often not many more $ than TPF&T for a cheaper vehicle but if there is an accident you have the no-hassle factor that it is all dealt with by the insurer rather than having to chase up a guilty third party yourself.

The Uninsured Third Party cover mentioned above (typically $3-5k if hit by an uninsured driver) automatically included in TPF&T and TPO policies won't apply if the guilty third party has insurance but chooses not to make a claim on it or if their identify cannot be proved. You can also have issues where there is a dispute over proportions of blame.

As I'm not listed on the FSPR (https://www.companiesoffice.govt.nz/fsp) none of this is advice - DYOR.

[skid]

We have Comprehensive. Often not many more $ than TPF&T for a cheaper vehicle but if there is an accident you have the no-hassle factor that it is all dealt with by the insurer rather than having to chase up a guilty third party yourself.

The Uninsured Third Party cover mentioned above (typically $3-5k if hit by an uninsured driver) automatically included in TPF&T and TPO policies won't apply if the guilty third party has insurance but chooses not to make a claim on it or if their identify cannot be proved. You can also have issues where there is a dispute over proportions of blame.

As I'm not listed on the FSPR (https://www.companiesoffice.govt.nz/fsp) none of this is advice - DYOR.

how about we put a giant DYOR on the whole forum--:):)

[epower]

Sounds a good deal....does it cover theft as well?

No fire and theft would be around $185. I have a 1997 Nissan Wingroad.

[alistar_mid]

well I would have though to entertain more risk.

You are double income no kids, young, with heaps of future earning years in front of you. Now is the time to take some risks.

I'm 10 years older yet have grabbed more off my mortgages for stuff like harmoney and share trading. Taking advantage of the low interest rates.