share advice for daughter

[Tim]

My daughter is saving her student loan and wish to buy some shares ($4000) every 6 months.
I do not want to recommend high risk shares but solid blue chip. Should one be looking at a fund to get a spread or stick to a single share. If a single share should one say look at best in NZ like AIA then choose a blue chip in Aussie. Helpful ideas appreciated.

[zyreon]

If she's studying finance then let her make her own decisions, I've found share investing to be very valuable experience for university study (general business also) in terms of interest in the theory and real world examples.

Otherwise you'd probably best stick to income oriented stocks, but of course it depends how long she's studying and whether or not she wishes to cash up and pay it all back at the end of studies.

Another approach is to think of it as a buy now pay later thing i.e. build up a share portfolio with student loan monies over the course of studies and then make the minimum payments upon starting work, eventually paying off the loan but keeping the stock portfolio. In that case you can be a lot more agressive, or at least look to more growth oriented stocks, or even a few small caps

Of course you could always just spread it over a couple of active or passive funds e.g. KFL,SAM vs FNZ,MZY (and take advantage of the savings plan with the smart shares)

[Halebop]

Good on your daughter! ...Hmmm even if my tax dollars are helping fund her portfolio. If she has no interest in investing then letting someone else do it for her may be the go. If she's got an inkling to learn something about sharemarkets then why not DIY? Even if she lost the lot, $4,000 is a pretty cheap price to pay for an education.

There are a couple of key factors to determine first:

Her goal (what's the eventual money for? How much does she want?)
Her timeline
Her Risk Profile

...These will help answer investment destinations better than anyone offering a few picks on the ASX or NZX.

If the timeline is short then equities are only useful if her risk profile is higher than normal, particularly if her experience is nil.

Experimenting with a dummy portfolio could be useful although I think you can only learn how to make an omelette with real eggs and I prefer to get on with job anyway - time is after all money.

Australian and New Zealand markets are at cyclical highs and as time goes on the probability of eventual disappointment must increase. Buying direct shares with $4,000 precludes diversification. Buying shares outside Australia and New Zealand may result in negative cash flow if the mooted wealth tax is introduced. In the short term in a toppy market, takeover prospects might generate better returns.

This might include:

Cheaper than their peers media companies in Australia (I haven't been looking lately to know who).
RBD in New Zealand - modest franked dividends, limited "new tax regime" risk, the sort of cash flow business performing poorly that private equity likes and a sniff of a turnaround (not too much evidence of this yet though!).

In the longer run any large company with longevity that delivers higher than average return on assets and equity, higher than average dividend growth, lower than average debt, trades at a discount to intrinsic value and dominates their markets. There are always these sorts of companies around - banks, insurance companies, casinos, breweries, supermarkets, media companies etc. (My pick in the insurance sector is QBE except that American F&G business isn't for the faint hearted).

...also Tomorrow's Big Companies: Look for demographic plays. Who benefits from an aging population? Who benefits from increased global trade? Who benefits from both? What other long term demographic factors? Hospitals, Logistics, Ports, Retirement Care, Mobility equipment, Medical Equipment? Difficult to buy cheaply and volatile due to $US/$NZ cross rate but I like F&P Healthcare as a demographic share.

Really outsized returns comes from identifying these companies and having the patience (and dry powder) to buy them in those brief times they become fallen angels - accounting problem, sales glitch etc. Aristocrat Leisure was a great example in recent years. Bad Sales decision into South America and a very public loss of CEO saw a fundamentally sound and growing business selling at a fraction of intrinsic.

Good luck!

[Tim]

Thanks Halebop and zyreon, points much appreciated. Daughter is doing an accounting and finance degree and this should be a learning experience so you are right she should be making the decisions. Medium term horizon, A bit hard to know where to start and what to focus on, diversification, future trends etc

[Halebop]

Should also add I wouldn't buy QBE at current prices - they don't meet my value criteria. But they do meet qualitative criteria.

[easy money]

cer is looking good

[Halebop]

quote:Originally posted by easy money

cer is looking good

Now there's a surprise.

[FTG]

Then of course there is another angle to consider. A philosophical angle.
If she has the means should she really be investing your or my taxpayers dollar? I suggest not. Despite the obvious temptation in having an Interest free loan from the taxpayer and turning it into more money for herself A) that's not in the spirit of the what student loans are for B) What is for the "greater good" surely should prevail over what is good for ones own pocket regardless of cost to all in sundry.

I can understand the financial argument for doing what you are proposing but I urge you/daughter to peel back a few more layers and consider the hidden costs to us all.

Just think, if we all had the "hand in the till" like this, the whole system would collapse and we would certainly all be worst off financially let alone in other ways too.

[Tim]

Interesting comments FTG, situation is not as simplistic as revealed.
Burdens to tax payer, it is amazing how many students getting the living allowance at university because parents income is so low, but usually this is not the case, parents are asset rich and able to write income down thru various structures to make it look like they are poor. The poor guy on $40000 struggling with 4 kids is classified as wealthy compared to many who hide behind trusts or have the facilityto write down incomes

[FTG]

I understand your response as it is a common one used. Another common justification used is "I have paid so much tax over the last few years and I'm just getting my own money back" As suggested earlier the system only continues to function because fortunately not everyone thinks this way.
Going back to your daughter, the fact that she/you are considering what shares to invest the student loan money into, tends to indicate that this money is not needed to deal with a "struggling situation". Whilst it is nice to see she wants to invest in a responsible fashion - rather than wasting it on Beer etc, it is still a want rather than a need.
Remember there is NO free lunch!
If all the NZers who had "their hands in the till" (and didn't really need to) took their hands out, think of how much more money we ALL would have, including the "poor guy on $40K with 4 kids"