KEY POINTS:
Almost all investment literature is for those wanting to build wealth - very little is written for people who want to use their investment capital to give them income on which to live.
This is why I wrote Investing for Twenty Good Summers - Making your money work so you don't have to.
This new book is aimed largely at older people to help with investment.
There will come a time when you cash up and need to use your capital to derive income. Achieving sufficient income from savings so that you can enjoy 20 good summers is always a challenge.
However, deriving income from investment capital is even more challenging at present - interest rates are down and investors have been scared off property and shares.
I apply the following five principles when I help someone invest so that they can enjoy their 20 good summers.
First, drip feed your money gradually into the markets.
If you had cashed up a couple of years ago and invested all of your money at that time, you would probably be looking at some fairly severe losses right now.
Establish what your asset allocation should be, then take a number of years to drip feed your money into the markets to achieve the planned allocation.
Second, diversify as widely as possible. This includes some offshore investments as well as allocations to shares and property. You will need some income growth to keep up with inflation (20 good summers will hopefully become 30 or even 40 good summers) and this growth comes from shares and property.
This year will see good dividends from shares and listed property trusts - take advantage of them.
Third, do not reject completely investments that give good capital growth but very low income. It is true that you need income on which to live, and many older investors therefore look for high-income investments, but ignore investments that offer high capital growth.
However, remember a capital profit is every bit as good as an income profit - you can always access capital profits by selling a few shares or units.
Fourth, your fixed interest allocation should be in good quality bonds.
Do not be tempted by higher returns into riskier investments - this part of the portfolio is meant to give you certainty and you do not get that from junk bonds.
Fifth, keep some cash to tide you over for a period when markets are down. The worst thing that can happen is that you become a forced seller, having to sell at a down time in the markets, then not being in there when markets recover.
I do not like the idea of "retirement" - I would rather think in terms of 20 (or more) good summers.
The thing you have to remember is that the investment advice that might be offered to a 40-year-old does not necessarily apply to you - you always need to invest to match your age and stage.
Each week financial author Martin Hawes shares strategies to help you grow your wealth.
You can email finance questions to info@wealth coaches.net or andrea.milner@heraldonsunday.co.nz
On the web: www.wealthcoaches.net
