Mary Holm: Women tend to take the low-risk path for low returns

We are two middle-aged women with considerable wealth in term deposits (in excess of a million each).

We own our own homes (valued in excess of $1 million each).

I also have some money in managed funds and ASB perpetual shares and my friend owns a beach property.

We are in a fortunate position but really do need some unbiased help.

We admit to being rather poor in investment knowledge and would like advice on independent advisers who can explain in user friendly terms and guide us through what seems like a financial minefield, without being patronising and pushing their own causes.

Is there such a thing?

I'll probably get into all sorts of trouble for saying this, but you are typical women - or extreme examples of typical women.

Research shows that women tend to make lower-risk investments than men.

Accumulating more than a million dollars in term deposits - assuming they are in a bank - is the ultimate in low-risk investing.

And the trouble with low-risk investing is that you get lower average returns, which can make a big difference over the long term.

For example: $10,000 earning 2 per cent after tax, fees and inflation will grow to $18,100 over 30 years. At 6 per cent it would grow to $57,400 - more than three times as much.

You could argue that, if you've got million-dollar houses and million-dollar savings, you don't need higher returns. But if you had more savings, I'm sure there are charities that would happily accept your donations.

Anyway, you are already aware that you could use some advice about investing. You may also be aware that every financial adviser in town would love to have you and your millions to play with - but wouldn't necessarily have your best interests at heart.

So how do you find a good adviser? You have to put some time into it - time that many people seem reluctant to spend.

I get too many letters from people who wish they had done more research before going with an adviser. It's really worth making the effort now.

Here's how I suggest you go about it: Ask friends and relatives for recommendations. If you don't come up with any, look through "Financial planners" in the Yellow Pages for ads that appeal to you.

But don't just go with someone because a friend recommends them. Friends aren't always astute judges.

Read the advice on the Consumers' Institute website, consumer.org.nz. Click on "Money", then "Financial advisers" (under "Investments").

The advice includes good suggestions on what you should know about your financial situation before seeing an adviser.

Go to the Retirement Commission's website, sorted.org.nz. Under "Investing" read "Paying your adviser" and print out the "Advice checklist". Under "Fees", print out the "Fees checklist".

When you visit potential advisers, take the two checklists with you. They contain straightforward questions, such as: "Will you receive any money from anyone other than me in connection with the advice you are giving me?"

Some people feel embarrassed asking such questions. But reading out a Retirement Commission checklist should make it much easier.

The checklists are quite demanding of advisers and their time. But they can be a good test of their willingness to be open and to put some effort into helping you. The sort of adviser you want should welcome the opportunity to show you how they operate.

By the way, men tend to make investment mistakes too - but different ones from women. I'll be talking about the fascinating gender trends in investing at the Women's Bookshop at 6.15 pm on Wednesday. All welcome - even blokes!

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You said recently "house prices are cyclical". Yes, but they almost never go down.

Second-hand house prices will continue to rise as long as land supply is restricted by local authorities, because second-hand houses are underwritten by the cost of a bare section plus building a new home on it (which keeps pace with inflation.)

Section prices are expensive because there aren't enough on the market to meet demand. Only 1 per cent of New Zealand is built on and we still talk about urban sprawl and green belts.

Rural land costs a few thousand dollars per 500 sq m section (a popular size, these days).

Add $50,000 for infrastructure and $50,000 for marketing, GST and profit and that makes just over $100,000.

No section on the Auckland urban fringe sells much under $200,000 because upzoning from rural to residential is uncertain and takes decades.

It's not interest rates or incomes that set house prices, it's the regional and local councils.

Do we, by any chance, have a frustrated developer in our midst?

I'm sure there's a lot of truth in what you say.

The supply factors you mention feed into house price trends, but so do demand factors like income, immigration, rents and so on. Economic models for forecasting house prices must be pretty complex - and haven't proven all that good.

That may be partly because the housing market is as susceptible as any - with the possible exception of shares - to irrational herd-like behaviour. When the bandwagon is roaring along, many people leap aboard. When it grinds to a halt, many fall off.

Your statement that house prices almost never go down used to be true. That was when inflation was high. But average New Zealand house prices fell a few percentage points in the early 1990s and again in the late 1990s, and they have fallen further in some regions.

Overseas, several developed countries have seen considerable house price declines in recent times. Local council action or not, I'm not convinced that New Zealand is immune. Nor, apparently, is Reserve Bank Governor Alan Bollard, who said recently that he expects prices to start falling by the end of this year.

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The recent question comparing the housing market to a pyramid scheme is thought provoking. I have another perspective regarding the housing market in New Zealand.

Basic necessities for us are food, clothing and shelter.

As the house we live in is one of the basic necessities, we should not pay for it over a very long time.

Surely it means the standard of living is going down and we will no longer be a first world country.

The Government has done nothing regarding speculative housing market activity over the past four years, which is not based on real economic growth, and it is slowly damaging the economy.

It seems that the Government maintains a hands-off approach deliberately to profit, just like the banks, for votes and for a steady stream of taxes.

The government doesn't directly get more tax when house prices rise, though I guess it might receive more in GST because people tend to spend more.

More to the point, the government, in the shape of the Reserve Bank, does intervene. It has been raising interest rates in the hope that it will dampen mortgage borrowing. But it doesn't want to overdo that, as high interest rates make it harder for businesses to borrow and so reduce economic growth. It's tricky stuff.

Beyond that, I would hate to see the government play a bigger role. Whenever a government tries to interfere with economic forces such as the housing cycle it distorts decision-making and more people end up losing than winning.

What's happened to house prices in the last few years is normal. They always rise for a while and then settle or fall for a while. We have to live with that. Believe me, any alternative would be worse.

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The letter on timing would read truer with, "In life, due diligence is everything".

Getting your dream job typically involves years of education, training and work. Partners may "date" for months/years to ensure this is "the one".

They're not waiting for timing to commit, they're doing due diligence, minimising lucky outcomes by putting in the often unseen work.

I agree Mary, investments are no different.

My definition of luck is achieving your desired outcomes without due diligence.

In some ways, though, investments can indeed be different.

Of course you need to make sure your money is going where it is supposed to be going and so on. But if you invest in a wide range of publicly listed shares or a share fund, you don't need to do homework on each share.

You can assume the market is reasonably efficient, in that the prices of most shares pretty accurately reflect the companies' situations.

The professional share investors would buy if the price was too low, pushing it up, or sell if the price was too high, pushing it down.

This means that individuals can be freeloaders, generally buying at fair prices without having to do due diligence. It's a major reason why I like diversified share investment.