The Lazy Investor

Mary Holm

• Publisher: HarperCollins
• Year: 2018
• Print ISBN: 9781775541332
• eBook ISBN: 9781775491644
• Topic: Business
• Subtopic: Finance
• Index: Business

The only money guide New Zealanders will ever need From New Zealand's most trusted writer on money matters, a one-stop-shop for making the most of what you have.

Mary Holm is the most trusted writer and reliable long-term adviser on money matters in New Zealand. She has received thousands - yes, actually thousands - of emails from readers of her Weekend Herald Q&A column and listeners to her RNZ personal finance segment.

She has discussed money issues with thousands of employees at workplace seminars, and thousands more students in university lectures. Better than anyone else, she knows what worries New Zealanders about money, what they misunderstand, the mistakes they make - and their hopes and dreams.

And she knows what she's talking about. Mary holds a master of business administration degree in finance from one of the world's top business schools (the University of Chicago).

Most important of all, unlike many writers of finance books, Mary is not selling any products or services (except this book!). She doesn't want to sign you up for costly advice or courses or investments. She just wants you to do well. She's on your side.

Step

1

START NOW – IT’S EASY

In which we . . .

• Observe that laid-back investing is good

• Compare savvy Sally and slow Suzy

• Also compare the apprentice and the graduate

• See that you’ll have a lot more than twice as much if you save for 40 years instead of 20

• Learn that compounding is a friend for savers, a foe for those in debt

• Discard those ‘You need a million dollars’ messages

People often ask me if I’ve read the latest book about the share market or investing. ‘No’, I reply. ‘There are too many good novels to read. Besides, a lot of what’s written about investing isn’t much good, and sometimes it’s actually a big worry. It can persuade readers to take steps that will do them more harm than good.’

When it comes to investing, laziness is good.

That might sound crazy. In pretty much everything else we do – from running marathons to getting promoted fast at work to mastering the piano to creating a magical garden – the more work we put into it the better we’ll do.

But investing is different.

We all know people who put hours into their investments. They read the financial pages, and listen to the economists who tell them – more like guess, actually – what’s likely to happen in the next year. Then they read about which investments have done well lately. On the strength of that they choose which shares or bonds to buy or sell, and when to buy or sell them.

And guess what? Most of them end up with less than you will after you’ve read this book, set up your investments and got on with other things. It’s sometimes called ‘Set and forget’.

Let’s not be misleading here. I’m not saying you should never do anything after the initial set-up. Every few years it’s a good idea to do a quick review of your investments. But the changes you might make are easy – half-hour sort of stuff. There’ll be more about this in Step 6: ‘Stay cool’, but for now, let’s look at the basics.

Three ways to get more savings

It’s quite simple, really. The three ways to get more savings are:

1. Earn more.

2. Save more.

3. Be smarter with what you do with your savings.

Of course, it’s also great to get a pay rise – either in your current job or by starting a new job.

During my extended OE in the United States, I still recall the excitement of moving from a small-town Michigan newspaper, the wonderfully named Jackson Citizen Patriot, to the Chicago Daily News. The pay rise meant less than the thrill of knowing I would work with some great journalists. But still, my pay went from something like $US14,000 to $US21,000 a year – not to be sneezed at back then when a dollar was worth a dollar.

Chances are you will get at least one huge pay jump in your life. Fantastic! But that’s not what this book is about. It’s not what you earn, but how much you save that matters. And, perhaps more importantly, what really matters is how you save.

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Key message: You don’t have to earn a lot to become wealthy. I’ll show you how to get much more mileage out of what money you have.

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Get going

I know the feeling. Practical friends tell me I should get the runners on the sliding door to my deck fixed. I don’t understand much about things like that, and I don’t know who to ask, and it all gets too hard and doesn’t happen.

Maybe you feel that way about your finances. The ‘Don’t Know and Don’t Know Who to Trust’ syndrome finds us doing nothing, week after week, year after year.

With my house, it might matter if it all starts falling apart. With your money, there are no ‘ifs’. It will matter. Muck around for a year or two and you can end up retiring with much, much less.

But don’t panic! This book will teach you how to invest your money. It’s not hard – I promise.

Okay, let’s get on with it. Sure, you’re allowed to read this book right through first. (Kind, aren’t I!) But please don’t delay after that. Sitting on the sidelines for just a couple of years can make a surprisingly big difference. Think world trip in retirement versus the South Island. Oops! The Mainlanders are grumbling. I’ve got nothing against the South Island – I have done some wonderful tramps there – but it’s not quite Venice.

Let’s look at Sally and Suzy, 22-year-old twins earning $40,000 each. Sally joins KiwiSaver now, but Suzy is busy with other stuff, and joins when she’s 25. Even if they stick with just middle-risk funds – and I will be encouraging you to be braver – at 65, Sally is likely to have a bit more than $600,000. Suzy will have just over $500,000.

There’s just three years’ difference in the starting point – during which Sally put in 3% of her pay, or about $1,200 a year. But at the other end she has more than $100,000 extra. Wow! The contributions from her employer and the government plus the growth of her savings over many years have worked wonders.

We should note that by the time the twins retire, $100,000 won’t mean as much as it does today, because of inflation. But still, it will buy more than a few good cups of coffee.

A 2017 BERL (Business and Economic Research Ltd) report illustrates the importance of starting early. It compared how well off people are at retirement, depending on whether they:

• left high school and got no further qualification;

• became an apprentice; or

• got a degree at university.

Predictably, the high-school leaver was worse off at the end of their career. But the other two ended up about equal at retirement, despite the fact that towards the end of their careers the graduate earned close to $100,000 while the apprentice earned around $80,000.

Tradespeople earn significantly more than graduates at the beginning of their careers, which means they put more into KiwiSaver in the early years. Also, they have no student loans to repay, and they are able to buy a home earlier and pay off the mortgage sooner. ‘This, combined with sensible investment, compounds into significant wealth,’ says BERL.

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Key message: Starting to save early, and paying off debt as soon as possible, makes a big difference over the long haul.

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Figure 1: Start now!

Saving $100 a month

Source: Reserve Bank of NZ

Figure 1 shows us two things:

• If you save for 10 years you’ll accumulate more than twice as much as you would over 5 years. At 20 years it’s more than twice the 10-year total. And at 40 years it’s way more than twice the 20-year total. This is because of compounding growth (explained below).

• You save a lot more if you earn 7% interest than if you earn 3%. And the longer you save, the bigger that difference is.

Note that Figure 1 is not about KiwiSaver savings, but just ordinary money-in-the-bank type savings. In KiwiSaver, if you contribute $100 a month, your savings will grow much more because of government contributions, p...

Table of contents

• Dedication
• Contents
• List of Figures
• Author’s Note: Is This Book for You?
• Why Do You Want to Be Richer?
• Step 1: Start Now – It’s Easy
• Step 2: Kill Off High-Interest Debt
• Step 3: Set Up Insurance – and a Rainy Day Fund
• Step 4: Join the Best Kiwisaver Fund for You
• Step 5: Boost Your Saving Painlessly – How and Where
• Step 6: Stay Cool
• Step 7: Head Confidently Towards Retirement – and Through It
• Step ?: (When It’s the Right Time – If Ever) Buy a Home, or Sell One
• One More Thing: Do You Need Personal Financial Advice?
• On Happiness
• Useful Links and Websites
• Acknowledgements
• Index
• About the Author
• Copyright