I recently met a professional couple who were keen to make good decisions about their next financial steps. Their household enjoyed the benefits of a pre-tax income above $500,000, and therefore they had a sizable monthly surplus of income over expenditure.
They mentioned that several of their friends suggested they buy a rental property and consider buying into Sharesies, and wanted to know what we thought they should do.
Their approach and initial thoughts about investing and questions raised concerns for me as they seemed unaware of their planned ventures’ risks. Purchasing a rental property in their position could have pushed their indebtedness above $2 million (this is not the first time I’ve seen this within the legal fraternity). The expectation that property prices will always increase is concerning.
A second concern is the number of people we observe talking about their shares and how successful they have been with their investments since purchasing during lockdown last year. These conversations reminded me of share clubs in 1987 and the hype surrounding them. I personally recall buying a parcel of Ariadne and Robert Jones shares, thinking it would be a good place to invest our “car money” while we were overseas for ten months. The rest is history, and a good lesson learned by the writer!
On a positive note, it is refreshing to observe people thinking about their financial position and seeking advice. Investing is about both risk and reward. Buying a rental property and shares might turn out to be a very good thing for this couple. Time will tell. It is important to be careful of our motivations and don’t do it just because our friends are, or we are suffering from FOMO (fear of missing out). It will always be best to plan and consider one’s total position and how you want your life to be in the future. I find the following quote by Morgan Housel, author of ‘The Psychology of Money’ motivational and helpful.
Andrew Nuttall is a Financial Adviser with Cambridge Partners, an independent and fee-only advisory practice in Christchurch.
Andrew’s Disclosure Statements are available on-demand free of charge. Phone: (03) 364 9119