GOLDEN RULES

Central Otago Mirror - - CLASSIFIEDS -

It’s com­fort­ing when some­one else tells you what to do with your money.

That’s why mort­gages can be such com­fort­able com­pan­ions in peo­ple’s lives.

But there comes a time in ev­ery home­owner’s life when PMT may strike.

That’s ‘‘post mort­gage ten­sion’’, a form of stress brought on by sud­denly hav­ing to make de­ci­sions about what to do with the dis­pos­able in­come you sud­denly have avail­able.

There’s a sim­i­lar con­di­tion which may strike Ki­wiSavers when they at­tain the age 65.

It’s called OCD. That’s ‘‘Op­tions Con­fu­sion Dys­func­tion’’ char­ac­terised by sim­i­lar feel­ings of panic about where to in­vest their newly-avail­able funds.

Clearly, nei­ther PMT and OCD are real med­i­cal syn­dromes.

But I think my made-up mal­adies cap­ture real feel­ings of stress that can arise when big money choices have to be made.

I’m go­ing to fo­cus on PMT.

When there is sud­denly a sur­plus of money, sud­denly you have to choose what to do with it. That’s scary.

When a frus­trated EU de­cided to find out about why peo­ple make such bad Do your plan­ning

Do your learn­ing

Be ready to cope with more fi­nan­cial free­dom

in­vest­ment de­ci­sions, it spent a large quan­tity of eu­ros pro­duc­ing a re­port called Con­sumer De­ci­sion­Mak­ing in Re­tail In­vest­ment Ser­vices: Be­havioural Eco­nomics Per­spec­tive.

It could have been called Why peo­ple make bad in­vest­ment de­ci­sions.

The two big­gest is­sues it iden­ti­fies is fear of mon­e­tary loss, and ig­no­rance.

Suf­fer­ers from PMT (or even OCD) need to get over the fear, and the ig­no­rance.

A short-cut is to pay some­one else to help, namely an au­tho­rised fi­nan­cial ad­viser.

They will help you set: a) your goals, and b) the strat­egy for achiev­ing them, in­clud­ing how much you need to be sav­ing and into what.

If you want to be self-led, you still need to work out a) and b).

This in­cludes your ‘‘as­set al­lo­ca­tion’’ namely how much of your money you want in cash, bonds, shares and prop­erty, in­clud­ing how much in New Zealand as­sets, and how much in overseas as­sets.

You’re not re­ally in new ter­ri­tory. Be­fore the mort­gage was gone, you were in­vest­ing in a mix of cash, shares, bonds and prop­erty, and per­haps in your own busi­ness.

You were al­ready sav­ing into Ki­wiSaver, the bank, and may have had an in­vest­ment prop­erty, and a few di­rect in­vest­ments like electricity or AMP shares picked up along the way.

Now is the time to di­rect each month’s sur­plus in­come into the as­sets that give you the di­ver­si­fi­ca­tion you want, and the best long-term risk-re­turn.

You’ll also want to think care­fully about how you save it. Ki­wiSaver funds pro­vide in­stant di­ver­si­fi­ca­tion, but do you re­ally want to be lock­ing away even more money un­til the age of 65?

The best way to avoid sud­den sur­plus planic, is to be­come fi­nan­cially lit­er­ate and ca­pa­ble now, and de­vel­op­ing your a) and your b), so when the heady mo­ment comes, you know what you’re go­ing to do.

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