How should I invest $200,000?

Thursday 24th January 2002

Q: I am 52 years old and would like to retire within 8 years. I have approximately NZ$200,000 to invest. What percentages of this amount should be invested and how, in order to give me a reasonable return? I own my own home etc and am debt free.

A: First I would like to congratulate you. You are in an enviable position and are taking steps to be even better placed when you retire. There are no easy answers to your question unfortunately. World equity markets are going through very uncertain times and interest rates are rather low. I am not going suggest any actual shares or bonds for you to buy - I am going to direct you to some places that can help you in your decision.

Depending on how risk averse you, I would not suggest investing your entire sum in equity markets (far too risky). You could take a portion of your cash (say $100,000) and invest it across equities both in NZ and abroad to build up your cash to provide a bigger kitty to invest for income when you wish to retire. How much time & energy do you have to devote to doing this yourself? The more you can do yourself, the more you can save in fees. Unit trust and fund managers can do a reasonably good job but you have to weigh up the returns against the fees they charge. You can access the same information they can via the internet, learn while doing it and make the money for yourself without the capital gains tax.

I would also suggest you look at http://www.mlhsbc.co.uk/. This is one of the many sites that have been setup for 'self directed investors'. I don't think they accept clients outside the UK at the moment but it will give you an idea of the tools that are out there if you know where to look. Look to invest a portion of your nest egg in bonds. Don't be tempted to go for the highest yield. The attractive returns of 12-14% per annum that are occasionally offer look good, but that's only if the person offering the return doesn't run into strife. Bonds will offer a fixed coupon paid 6 monthly but there is also the possibility of making a capital gain if interest rates are lowered.

Do talk to investment advisors. If there are any in your area make appointments to visit them and hear what they have to say. Don't let them talk you into any of the products they are offering. The ongoing fees they will take are all coming out of your profit and capital, but they can offer a range of interesting options and will take your circumstances and tax considerations into account. If you like any of the options they offer - go directly to the issuer. For example, if they suggest a world share index fund, find out who runs and promotes it. You can get discounted fees and rebates on the internet.

Although I am not in a position to work out a detailed investment plan for you, I hope this gives you some ideas.

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