Book Review: Investing – Is It A Risky Business?
Snakes and Ladders - A guide to risk for savers and
By Mary Holm
Available for free through Good Returns Bookstore
Investing – Is It A Risky Business?
Reviewed by Vicky Powell, Good Returns
If you are saving for a special goal or for retirement, once you have managed to save your hard earned dollars, you certainly don’t want that amount to be exposed to any uncalculated risk.
There are several ways you can minimise this risk, one option is to utilise the services of a professional adviser who is qualified to offer you sound financial advice. However, it is your money and no one can be more concerned with its welfare than you, so part of your strategy should be to educate yourself on the investment options that are available and the inherent risks involved with each.
The Reserve Bank of New Zealand has recently released a free booklet targeting savers and investors to explain the different levels of risk involved in various investment options. The book explains how investors can minimise any risks associated with investing.
Author, Mary Holm advises that risk should not be a dirty word. Calculated investment risk can be good and in fact that taking too little risk can be harmful. “Those that keep their long-term savings in bank term deposits will probably end up with a much smaller total than those who take on some investment risk,” she says.
The booklet outlines the pros and cons of gearing – borrowing to invest - and explains how gearing works. Gearing can be utilised to make a good investment better, but on the flip side it can also make a bad investment worse. You can gear into any type of investment, including shares, managed funds and forestry, but most New Zealanders gear to buy property.
Taking out a mortgage to buy a home is gearing and you run the same risks as with other geared investments. If you find you can’t meet mortgage repayments and have to sell you could lose part or all of your investment.
Holm explains the three cardinal rules to abide by to minimise the risk of gearing and to make gearing work for you, and how gearing affects each different type of investment class.
To reduce the volatility of your investments, Holm advises to invest in a variety of asset types and diversify across many different shares or different properties or bonds to further reduce your risk.
Deciding where to save is possibly one of the biggest hurdles people face. There are a myriad of financial products available so where do you start? The best advice is not where, but when to start, and that is as soon as possible.
The power of compounding returns is staggering – you simply reinvest any interest earned on your principal and allow this amount to compound, don’t be tempted to withdraw it for that holiday trip! Due to the power of compounding returns over long periods, those who save for 40 years accumulate more than four times as much as those who save for 10 years.
This booklet contains some useful information, especially for those people still depositing savings into a bank account or keeping cash under the mattress. We also recommend reading, Financial Secrets - The NZ guide to everyday finances, by best-selling financial author Martin Hawes. Financial Secrets explains the different types of investment options available to you and how you can manage your money wisely.
Snakes and Ladders, a guide to risk for savers and investors is available free through Good Returns Bookstore.click here.
To buy “ Financial Secrets by Martin Hawes” priced at $29.95 from the Good Returns Bookstore; click here.