Before You Invest

WE BELIEVE… that it’s best to adopt a sensible approach in planning your investments.  This will enable you to select the right investments to meet your goals at the right time, with an acceptable level of risk along the way.  But before you do this, you need to lay the foundations to look after yourself, your family and your lifestyle:

  • Income Protection – for both yourself and your family
  • Asset Protection – for example, mortgage cover, cover for your car and household
  • Health and Medical Protection – hospital cover, healthcare
  • Estate Protection – an up to date Will, Enduring Power of Attorney for health and assets, family trusts
  • Access to Cash – at least three months’ income in cash.

WE RECOMMEND… that whether you are a regular or a lump sum investor, you work step-by-step through our investment process to help you make the right investment decisions.

To start with, all investors need to understand risk.  There are typically two types of risk associated with investing:

  • Putting your Eggs in One Basket – relying on too few types of investment – for example putting all your money into a speculative property.  The solution is diversification – spreading your money across several types of investment, both internationally and in New Zealand.  We can do this via Managed  Fund s,  your risk is managed for you or direct investments.
  • Market Volatility – investment markets go up and down daily, and in longer cycles. So you can expect temporary paper losses and temporary paper gains.  The solution is to take a longer term view because markets consistently trend upwards over reasonable period of time – it is the end value that counts.  In fact, market volatility can work well in your favour if you are a longer term regular investor.


Consider the Following

1 Set Your Objectives

Why are you investing?

  • To achieve a steady income now or in the near future?
  • To accumulate wealth over a period of time?
  • To preserve or increase your existing capital?

What are your goals?  For example

  • To fund your children’s education?
  • To buy a business?
  • To supplement your lifestyle?
  • To create a secure retirement?

When will you realise the investment?

  • Soon?
  • In the medium term – within say seven years?
  • In the longer term – seven years or more?

2 Put Risk in Perspective

Higher Returns Mean Higher Risk

Usually, the higher the expected return, the greater the associated risk.

Risk Decreases over Time

Often, the longer you maintain your investment, the lower the overall risk.

This is because the highs and lows of the market – the volatility – are averaged out over time.

3 Avoid Market Timing

It is Time, not Timing that enables you to achieve your goals without unnecessary risk.

It is tempting to make a profit by getting into and out of the market at the “right time”.  But the possible gain you might make, must be weighed up against the risk of being out of the market during a sudden rise or having to get out after a sudden fall.  Most investors lose value by changing their investment strategy.

4 Take the Risk out of Volatility with Regular Investments

Market volatility is inevitable.  Investment markets always rise and fall over time.  If you are a regular saver you can average out the volatility by the ongoing purchase of investment on, say, a monthly basis.  KiwiSaver  is a great example of saving on a regular bases.   This is known as Dollar Cost Averaging.

5 Diversify Your Investment

There are essentially four major asset classes.  They have individual characteristics and do not necessarily all perform well at the same time.

  • Cash
  • Fixed Interest
  • Shares
  • Property

To invest, for example, only in property – maybe your house – concentrates your risks unnecessarily.  The solution is to diversify your investments.  The assets allocation decision involves deciding the proportion of funds to be placed in various asset classes and how much should be invested in New Zealand and off-shore. This is the most important investment decision because it is the basic determinant of the return and risk taken.  Investing within a similar asset allocation, diversified portfolios will tend to produce similar returns over time.  Therefore, differences in assets allocation will be the key factor causing differences in portfolio performance.  Effective asset allocation involves responding to changing markets in a disciplined manner without succumbing to fear or greed or attempting market timing.

About Risk Profiles

How tolerant are you personally to risk?  Several factors can influence this – your age, net worth and when you need your savings.  Your “time-frame” is critical in determining your tolerance to risk.  Your risk profile will determine the best “mix” of investments to ensure the highest possible cumulative return over the investment period at an acceptable level of risk to you.



Defensive – No tolerance for capital losses; dependent on income; probably already retired or near it, without a big “cushion” in savings.

Conservative – Similar to Defensive, but prepared to sacrifice some income for capital growth; probably near retirement or already retired with significant savings.

Balanced – Wants longer term capital growth without too much fluctuation in returns from year to year; will probably invest for at least five or more years, or has savings surplus if near retirement.

Moderately Aggressive – Younger or wealthier investor who has little need for short term income and wants capital growth; can afford periodic setbacks; investment time frame is longer than that of the Balanced profile.

Aggressive – Focus is purely on capital growth over the longer term; younger (at least 15 years to retirement/ investment duration) and/ or wealthy investor; can tolerate the odd bigger setback in exchange for better average returns.

Successfully manage your finances means providing money for all your needs and wants and providing protection from risks to your financial circumstances.  To do that, you need access to a comprehensive range of financial products and services.  A range that accommodates the changing needs you have through life’s stages.  Financial Advice Hawkes Bay offers you access to our proven experience in helping people make smarter decisions, we can provide you access to our knowledge and expertise  so you don’t have to do it alone- just call us on 06 834 0974

Published by Paul Sewell

May 9, 2022