Trade property for the sharemarket
OPINION: We are a DIY nation for sure, and we don’t like paying anyone to do things we are capable of ourselves.
When it comes to investing, not only do we resent paying fees, but we don’t trust anyone else looking after our money. The complexity of investment markets means that these attitudes are slowly shifting, as people realise the value of advice, particularly when market conditions are difficult.
However, there remains a core of people who have the time, interest and knowledge to manage their own portfolios and do so successfully.
The default growth investment for DIY investors has traditionally been residential property.
Given the high rate of home ownership, property is a familiar asset. It suits people who want to have a hands-on approach to investing, and it has the advantage of leverage; that is, you can borrow money to invest.
While the leverage factor makes property a stand-out investment for growing your investment capital, it doesn’t work quite so well in retirement, when you need to access your capital.
Investing solely in property breaks the golden rule of diversification.
Most investors own fewer than five properties, so not only is most of their wealth in one asset class, but within that asset class it is held in a small number of specific investments.
The key reasons why people say they don’t wish to invest in shares are:
they don’t know how to go about it;
they wouldn’t know which shares to buy;
they wouldn’t know when to buy and sell;
they don’t have time to do the necessary research; and
investing in shares is too risky. One of the great things about KiwiSaver is that it has allowed the majority of Kiwis to gain familiarity with the sharemarket, albeit through managed funds rather than through investing directly. KiwiSaver marked its 10th birthday on July 2 this year.
Ten years is long enough for investors to see that while the sharemarket is volatile in the short term, those funds with a high exposure to shares clearly outperform the rest in the long run. Time and diversification take away the risk of investing in shares.
It is not such a big leap from investing in managed funds to investing in shares directly. Many funds now disclose their top holdings, and those investors with a keen interest can follow the value of the underlying investments in the funds as a way of improving their knowledge.
People who are serious about property investing spend a lot of time doing their research on the best areas to buy, finding good deals and talking to other property investors.
Property Investor Associations are a great way to get in touch with other investors; to learn and to keep up with the latest information.
Becoming a good DIY share investor is no different. It helps to seek out other people with the same field of interest. The NZ Shareholders Association (NZSA) has local branches in the main centres (see www.nzshareholders.co.nz) and members are keen to offer support to new investors.
The NZSA offers shareholder education courses periodically through its local branches, runs an annual conference and is a recognised advocate for retail shareholders to regulators and Government. There are various websites which run informative blogs on share investing (see, for example, www.sharechat.co.nz).
A couple of decades ago, share clubs were more popular than book clubs. They still exist, and if you can’t find one, you can always set up your own! Share clubs are a great way to start out because you can pool not only your money but your information resources.
Of course, the DIY approach can also be applied to trading and a number of websites offer low-cost online share trading (see www.anzsecurities.co.nz or www.asbsecurities.co.nz).
Monitoring your portfolio is important and there are websites which allow you to do this comprehensively at a low cost (see www.sharesight.co.nz).
There really is so much support out there for newbie DIY investors that there is no excuse for not giving it a go!
Liz Koh is an authorised financial adviser and author of Your Money Personality: Unlock the Secret to a Rich and Happy Life, Awa Press. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.
A couple of decades ago, share clubs were more popular than book clubs.