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C & D

What Sort of Investment Journey Would You Like?

It is human nature that we would like a nice smooth investment journey with no losses along the way and great positive returns. Unfortunately, that is just a dream. But how can we turn dreams into reality? Reality is achieved when you arrive at your desired destination, preferably with higher levels of income and assets than you needed to reach your investment goals.

No investment journey except for a very short one can be smooth in real terms. Bank deposits can provide a smooth return for several years, but the real return will vary depending on the rate of inflation and any tax changes along the way.

People who bought investment properties will have experienced dramatically different returns depending on when and where they bought. Growth returns, for example, in parts of Auckland have been high, but their income returns on a current market price basis have been low. In other parts of the country, rental returns may well be higher, but growth returns lower.

When it comes to a fully diversified portfolio the results experienced by investors can also be quite different. Lower risk profile investors, unless they were invested in finance companies, mortgage funds and CDO based funds, had a much easier time of it going through the global financial crisis (GFC) than investors who had high exposures to shares at the start of the GFC. Investors who made significant share purchases at the peak of the GFC, would probably have experienced a great return provided they were invested in the right sort of companies and had an appropriate foreign currency hedging strategy in place.

A forecast investment return is only one of many potential outcomes. Just because an investment return is less than the forecast return doesn’t necessarily mean that it failed. Most likely, it was in the lower half of the expected return outcomes, so the investor is disappointed. If greater than the expected return, the investor is delighted. It is human nature to always want more.

Most people would like a nice smooth investment journey. In practice, there will be periods when the going is tough, and others when the going is easy. Kill joys tend to focus on the downhill stages when there are negative returns.

Inexperienced investors tend to jump on the investment bandwagon, when the going has been good for some time. They often overestimate their tolerance for investment risk. Investors in shares or managed funds, can obtain almost real time information on how their investments are performing. Those who invest in property, will only know their real investment outcome when they sell their property. The investment journey experienced will be somewhat different.


Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.