Mary's Money column appears in the
Business section in the Weekend Herald.
NZ Herald January 22 2005
Q&As: Couple "retiring" in their 30s wonder how to invest their savings.
94-year-old share trader doing just fine.
How to run a caravan rental business.
Question: This may seem a strange request. We are in our early 30s and want to give up our well-paid fulltime jobs to concentrate more on our hobbies and simply take some time out.
We have worked pretty hard (which is why we want a break). During that time we achieved a mortgage-free home (worth about $450,000) and savings approaching $200,000.
Our cars are new and we don't foresee any big expenses or further requirements, except possibly trying for a child.
What would be the best way to invest our savings to help us with our goal?
Answer: I've heard of early retirement, but this is ridiculous! Or is it?
Many readers who have worked hard for decades without a break are going to read your letter and come down hard on you. Beneath their contempt, though, there just might lurk envy.
You've done extremely well with your savings so far. You could always continue to work and accumulate considerable wealth - which you could give to charity if you don't feel you need it.
Then again, why shouldn't you pull out of the work force for a while? Not everyone has to live by the Protestant work ethic. And it's highly likely at least one of you will be able to get back into high-paid worker later on.
So what to do with your savings? In many ways, your situation is like that of older couples planning to retire soon. Any money you or they expect to spend within five to ten years is best invested conservatively.
If you put it in higher-risk, higher-return shares or a share fund, there's quite a big chance over a short period that it will lose value. By five years, that chance has fallen to one in nine; by ten years, to one in 76.
In your case, too, you may have a baby. That can mean all sorts of expenses, not always predicted. It boosts the argument for keeping your money where you can get at it readily, with little or no chance of its losing value.
Bank term deposits would suit you well. Interest on them these days is well ahead of inflation.
If you want somewhat higher returns, for somewhat more risk, see a stockbroker about buying high-quality corporate bonds.
Set up your deposit or bond portfolio so that you have investments maturing at regular intervals.
How does that sit with you? If it's comfortable, great. If it's boring, maybe you should cross your fingers and go with a well-diversified share portfolio or an index share fund.
Over one year there's a one in three chance, and over two years there's a one in four chance, that a diversified share investment will lose value. On the other hand, you're quite likely to do better than in term deposits or bonds, and there's a small chance you will do much better.
While people approaching retirement might be hugely inconvenienced by having to work more years because their investments have done badly, you might be willing to run the risk that your time out will be shorter - in exchange for the possibility that it will be longer.
It depends on your appetite for risk.
What about property? Generally, returns and risks are a bit lower than on shares. But I wouldn't recommend investing in property over just a few years because the entry and exit costs - real estate commissions, lawyer's fees and so on - are high.
Question: I wonder if my experience might be of interest to readers.
I started six years ago with $200,000 off deposit. Since then I've added $200,000 and it is now all invested in 22 New Zealand companies.
I pick mainly high dividend payers, but $150,000 out of $610,000 is in four companies not yet paying dividends.
At the moment I have unrealised gains of $210,000 ($110,000 in 2004) and have received net dividends of some $110,000, a total average return over six years of about 14.5 per cent.
I have had 50 disposals - cost $650,000, sale $620,000 - quite a number being takeovers. Many were for the need for money or to buy other shares, being fully invested. This had the effect of keeping the various holdings at a fairly level value.
Brokerage on all my market transactions was about $9000.
I invest in the hope of profits and income but, at 94, find it great fun.
Answer: First we had a couple "retiring" in their 30s. Now it's an active share investor at 94! What is the world coming to?
It sounds as if you broke the rule of keeping spending money for the next ten years in bonds rather than shares - unless you have other more conservative savings.
Then again, those with plenty of money can afford to ignore such rules. And, even if you didn't have plenty six years ago, you have now!
I like your wide range of shares, and the fact that you've kept your holdings roughly equal.
It does sound as if you trade often, though. The $9000 in brokerage would be more of a worry if you had struck a period of falling markets. And here's hoping Inland Revenue doesn't decide your gains should be taxed.
I can't whole-heartedly recommend that other retired people copy you, unless they use money they can do without. The market doesn't always perform as well as it has lately.
In your case, though, you've been lucky, so congratulations.
Question: I read your column on January 15th re the caravan hiring business. It's certainly a good return against one's capital, but a lot of work to maintain and relocate caravans. I did some part-time work on caravan maintenance for a friend and there is plenty to do!
You need a 4x4 Toyota, Nissan or suchlike for towing and positioning caravans on soft ground.
The best ones to hire out are 20-footers and bigger to people who are building their own houses. They are long-term. The smaller ones are hired out more for holidays.
Tenants do knock them about, and you are often called out to repair water pumps, stoves etc.
But as your correspondent says there is good money to be made.
One amusing story: My friend had a big caravan leased out and the rent was not being paid, so he went around and said he would tow the caravan away if they did not pay the rent. Result: They fenced in the caravan so he could not tow it away.
We found out when these folk were out, pulled out the posts and fence and towed the caravan back to his place with their possessions inside! He told them they would get their gear back when they paid up the rent owing.
But this does not often happen.
Answer: Thanks for some good tips for budding caravan tycoons.
It sounds as if it pays to have a bit of cowboy blood in you.
* Mary Holm's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following her advice. Send questions to email@example.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.