The Press

Choose the form of the destructor

Thirty ways you’re destroying your wealth

- JANINE STARKS

On Monday one man lost US$6 billion (NZ$8.36b). That’s a bad old start to the week, but Mark Zuckerberg, the founder of Facebook, will survive.

In the financial industry we spend our careers watching people make great decisions and poor decisions with money.

Most of us give the Russian sharemarke­t and margin trading a wide berth, but the more fascinatin­g errors are the everyday financial choices.

They accumulate and create vast money gaps.

Here are 30 destroyers of wealth:

1. Stashing cash: There is nothing more financiall­y devastatin­g than holding deposits long-term. 2. Keeping inherited assets:

Here’s the test. If you woke up one morning and the asset you’d just inherited had morphed into a pile of $20 notes of the same value, would you rush out and buy the asset back? 3. Spending an inheritanc­e: It’s a chance in life to shore up your retirement. Keep it in your own name and don’t mingle it with other assets. It will remain yours in the case of a divorce.

4. Divorce: One US study shows wealth falls four years before divorce and average wealth drops 77 per cent – marriage is more efficient. 5. Lack of home ownership: The

quickest route to poverty in retirement. 6. Too much house: It’s not an investment. It’s a lifestyle asset. Buy big at the expense of better long-term investment funds. 7. Failure to ask for a pay rise and promotion every year: Ever

heard of someone labelled ‘‘annoying’’ for doing this? Nor me. 8. Failing to invest 10 per cent of your salary in a retirement fund: Current KiwiSaver rates are vastly insufficie­nt. 9. Waiting to invest: Today is good and tiny amounts are fine. 10. Conservati­sm: Failing to invest in growth funds over the long term. 11. Timing the market: If you have fear, break a lump sum into parts and invest monthly. It’s not proven to make much difference, but it’ll help your head.

12. DIY investing: How do you know a DIY investor? Oh, they’ll tell you. Generally a know-it-all with rental property, a bunch of Kiwi shares and a technical background in something far cleverer than money. They’re overly exposed to risk – both concentrat­ion and themselves.

13. Investing heavily in New Zealand: The value of shares on the main board of the NZ exchange is $129 billion (US$92b). We’re about 20 per cent of Facebook’s value after a bad week.

14. High fees: Too much money in active management or paying performanc­e fees over the long term. 15. Concentrat­ion of risk in one asset class: Own a few rental properties all in the same city? Hmmm.

16. Employer shares: Only valuable if there’s a plan to build and sell the business in a set timeframe. Don’t bank your retirement on it. 17. Peer-to-peer platforms:

Loans to strangers. There’s a reason they got turned down by a bank or didn’t approach one. 18. Crowdfundi­ng: It’s a plaything and a very-long term plaything. Don’t expect to see any action for 10 years. 19. Using borrowed money to invest: The Aussies are rather fond of this and it’s more prevalent across the Tasman. Steer clear.

Don’t underestim­ate the damage you do by funding kids’ lifestyles.

20. Kippers. Kids In Parents’ Pockets Eroding Retirement Savings: You’re over 50 and these are your turbo years of saving. Don’t underestim­ate the damage you do by funding kids’ lifestyles.

21. Retirees giving money to adult children: Do your grandchild­ren own an iPad? If they’re not suffering technology poverty they can all wait until you’re dead. 22. Businesses owned by friends

or family: If you can’t decipher a balance sheet, filter a business plan, and compare it to a range of other opportunit­ies, don’t do it. 23. Not having a goal to sell a business: Find out what multiple of earnings similar businesses have sold for. Keep close to competitor­s; they’re your natural buyer. 24. Starting a business when your mortgage isn’t paid off:

A fatal error is to have the stress of home loan payments. Assume you won’t make money for several years.

25. Starting a business without a double income: If your partner isn’t in a position to have their own career and fully support a period of zero income, you’re not cut out for it as a couple. 26. Starting a business in a field you didn’t train in: The best businesses are started by people who are already experts.

27. Stuck with a widow: The partner of a dead shareholde­r-employee isn’t ideal in a business. It’s not gallant to keep them invested and it’s not fair for them to remain. Buy life insurance policies on your key people to assist with a buy-out. 28. Starting a part-time business: You will come up against commercial reality. Any successful business is twice a fulltime commitment.

29. Viewing tax as a burden rather than a reward for

investing: It will narrow your scope of opportunit­y and cause badly timed decisions.

30. Not spending it: Retirees who don’t have a regular monthly capital payment from their savings destroy the whole joy of using their wealth.

❚ Janine Starks is a financial commentato­r with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommenda­tion, opinion or guidance to any product. Readers should not rely on these opinions and should always seek specific independen­t financial advice appropriat­e to their own individual circumstan­ces.

 ?? PHOTO: GETTY IMAGES ?? Never mind the marshmallo­w man of Ghostbuste­rs fame – a lot of financial destructio­n is self-inflicted.
PHOTO: GETTY IMAGES Never mind the marshmallo­w man of Ghostbuste­rs fame – a lot of financial destructio­n is self-inflicted.
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