Why do we invest and how?
- Fritz J de Boer, CFP, NZIJ FINANCIAL SERVICES LIMITED
I recently attended a luncheon at which a prominent American financial expert discussed the question of why people invest. There is a common perception that people invest in order to become wealthy.
Depending on how one measures "wealth", this would seem to be only a dream. By commonly accepted measures only about 10% of the population, at the very most, could be considered wealthy. And many of those did not get to be wealthy through investing.
So why then do we invest if it is not to become wealthy? Our American speaker was strongly of the opinion that we invest in order "not to be poor".
Particularly in the modern environment, most people accept that government superannuation will, in the future, be more of a safety net rather than a pension on which to live a full and enjoyable life in retirement.
We are already seeing people starting to run out of money in retirement and as we live longer this problem will become greater. In recent times we have seen the emergence of equity release mortgage type products to help those who are now cash poor and asset rich.
As the baby boomers move into retirement and live even longer, the risks of running out of savings in retirement will become greater. Hence we need to invest in order not to be poor in our old age.
On the question of how we invest, our American expert believed most people do it badly because primarily their decisions are based on emotion. He cited numerous events throughout history when people did not invest because they perceived that these were not good times to invest. The events mentioned were the World Wars, the Cuban missile crisis, the assassination of President Kennedy, the Vietnam War, the oil crisis and more latterly the war in Iraq. History shows us that even during these times sharemarkets continued to provide strong investment opportunities. In fact markets favourably rewarded those that did invest during these times.
So how did our expert recommend investors overcome the tendency to make irrational decisions usually driven by emotion? He strongly advocated that in order to take the emotion out of these decisions investors should employ a financial adviser to provide sound investment strategies and recommendations. In other words investors should have an adviser that can hold their hand.
Our American expert made a lot of sense to those in the room many of whom had made the mistakes he was talking about. For me, it was reinforcement of what I had witnessed myself many times during my 37 plus years in the financial services industry and I have to admit that in my early days I made some of these mistakes myself.
Readers may be interested that even I have another adviser who I respect that I discuss my own investment decisions with. I also have two longstanding clients who are actually financial advisers themselves but want an independent person to hold their hand with their own investment decision making.
So if you do not presently employ an adviser to help you, give me a call and I will be happy to discuss how we can work together to achieve your financial goals and ensure you do not end up poor.
For assistance with your personal financial planning contact Fritz J de Boer at NZIJ Financial Services. Phone 0800 90 60 90 or email fritz@nzij.co.nz
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