How to get the most out of $20,000

I read with great interest an article in the Dominion Post on 13 May which featured the responses from four investing professionals who were asked to address this issue. It has been an uphill battle to persuade Kiwi investors to give the share market the attention it deserves and I was keen to see if investment advisors are part of the problem or the solution.

The fact is that shares have consistently provided the best return over time so I would have expected that all 4 (possibly 3 given one was a trader rather than an investor) would have made share investment their starting point. This is not to say everyone should have all their investment funds in shares of course but if you are going to recommend an investment that is likely to give lower returns then there is surely a need to explain why. And one would expect the reason for not investing in shares to be addressed by whatever alternative investment is recommended.

So how did the investment advisors do against my criteria? Well, I was pleasantly surprised to see that two did in fact focus strongly on shares. And where an alternative was suggested good reasons were given. So to mix a couple of metaphors, maybe the tide will turn, we will see light at the end of the tunnel and more kiwis will invest in shares.

I do have a couple of quibbles. One advisor suggested retired investors should generate all required income from fixed interest before considering shares. I think this is going too far especially for those with diversified portfolios which will generate reasonably reliable and consistent dividend returns. Some people will be retired for 25 years or more and this is a long time to be deprived of the higher returns shares are likely to provide.

Another advisor said that investing in managed funds rather than directly in shares usually provides higher returns at lower risk. I think this is a highly debateable statement to say the least. In my view a lot more should be being done to encourage Kiwis to invest directly in shares.

This information is not a recommendation nor a statement of opinion. You should consult an independent financial adviser before making any decisions with respect to your shares in relation to the information that is presented in this article.