Alan Clarke: Give investments time

Spread your assets, get good advice, be patient and watch your returns grow.

Make no mistake, investing is a tough game and one that is extremely unforgiving. However, following this checklist may help make it easier.

Time
Very few investments will work well if you don't give them time. For example, a balanced portfolio needs five to seven years for best results. Short-term trading and speculating is different and can be risky unless it is your chosen profession (and even then, it is still risky).

Work out an asset allocation that meets your risk profile
Decide if you are going to have 33 per cent bonds, 33 per cent property and 33 per cent shares. Or 25 per cent bonds, 50 per cent property, and 25 per cent shares.

There are many variations and combinations - pick one and stick to it.

Rebalance regularly
Allow a tolerance of, for example, 5 per cent and then rebalance. It is an essential discipline and yet a simple tool too. Rebalance or pay the price.

Buy quality
Junk bonds and certain properties may pay a higher yield, but if they do the risk will be higher. The NZ Super Fund just lost $200 million investing in a Portuguese bank - a classic junk bond.

If in doubt, do half

This is one of the best rules. It can apply to buying or selling bonds, multiple rental properties, shares, loans to children, helping a wayward brother, and so on.

Average into investments over time
A logical extension of half now and half later. Once you have decided to invest, buy half now and half in six or 12 months (this is really easy to do with bonds and shares).

Diversify widely
Find out what this means and never forget it. Diversify onshore and offshore since the small New Zealand economy lacks diversity and is vulnerable to earthquakes and imported diseases.

Get experienced independent advice
There are few truly independent advisers - only about 300 New Zealand-wide.

Avoid investments that are not liquid
Very few investments nowadays offer any advantage by being locked in.

Liquid investments can double as emergency funds, so why not?

Do not allow fear or greed to influence your decisions
US research indicates the average DIY investor gets about half the return they should. It's thought they mainly fail by reacting to fear or greed and either selling out near the bottom when things look bad or buying near the top when things look good.

Ditch the rose-tinted glasses
Be disciplined. Be ruthless. Never fall in love with an investment. Look at both the pros and cons. If in doubt, write them down.

Make haste slowly.

Alan Clarke is a financial and retirement adviser and author. His second book, The Great NZ Work, Money & Retirement Puzzle, is available at acfs.co.nz Alan is an independent authorised financial adviser (AFA) FSP26532; his disclosure statement is available on request and is free.