# Advice on Where to Next



## ENP (15 February 2011)

Bit of background on me.

I'm 22 and live in Auckland, New Zealand. I've graduated my 3 year degree at university and have been working for around 1.5 years. Managing so save up roughly $20,000, which are currently in term deposits. I flat in a house with other young people and manage to save roughly 1/4 of my take home pay of $150 per week. 

I have a $30,000 student loan which is interest free. 

I have a long term partner/girlfriend who is 23. She doesn't live with me, but she is just down the road. 

I have a few different options...

- One is to keep my money in term deposits.
- Two is to put some money into the NZX or ASX in 1-3 well established companies and watch them well. 
-Three is to buy a joint home with my partner.
- Four is to buy a rental property. 

Option 1-2 allows me to travel overseas and do an OE which I would like to do in roughly 3 years time. Where as option 3-4 would put a few restrictions on that one.

The dilemma I have it that my savings aren't earning great interest here in New Zealand, and house prices are really expensive in Auckland where I live. Stocks seem to be at an all time high since the GFC, the exchange rate for AUS/NZ isn't favourable for investing in the ASX from here. Also not nothing is jumping out at me as a great buy. 

Appreciate the help. (especially from anyone who has been though a similar situation)

Thanks,

Elliot.


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## matty77 (15 February 2011)

I would go term deposit and travel the world whilst I had the chance!

At least with a term deposit you dont need to worry about what the market is doing, or if someone has just trashed your rental property..

my thoughts anyway.


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## metal_loz (15 February 2011)

How can you afford to buy a property with only $20,000 in savings? Do you want a massive mortgage hanging over you? You could save for a few more years accumulating interest in the term deposit.


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## skyQuake (15 February 2011)

ENP said:


> -Three is to buy a joint home with my partner.




It might be worth buying the home under only one person's name. Will save a lot of hassle with paperwork, esp when 2 signatures are required.

Not sure about NZ, but Aus has several incentives for people buying their first home. If you buy the house jointly, you'll get 1 payoff instead of 2. (around $10k for aus first home owners)


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## ENP (16 February 2011)

matty77 said:


> I would go term deposit and travel the world whilst I had the chance!




What do you mean why I still have the chance? Do you mean before I'm caught up in my career, married, kids, etc, etc. 

And also, $20k can buy me a 2-3 bedroom unit to rent out in parts of Auckland. 10% deposit.


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## Bill M (16 February 2011)

I would do the term deposit and travel. You have the rest of your life for all that other investing. I found travelling when younger much easier than in my older years. Might be worthwhile to get it out of your system then come back and your 20k is still waiting there for you, safe and sound. Good luck mate, I've spent my whole life based around travelling and love it.


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## Sir Osisofliver (16 February 2011)

ENP said:


> I have a few different options...
> 
> - One is to keep my money in term deposits.



 Term deposits traditionally have the lowest level of return over the longer term. Don't forget to calculate your return after tax and the effects of inflation. Safety comes at a price.


> - Two is to put some money into the NZX or ASX in 1-3 well established companies and watch them well.



 2- 3 shares doesn't give you much diversification so you expose yourself to some significant specific stock risk. Do you understand and accept that risk as part of your investment strategy? It may pay you to look at an ETF for a single purchase cutting down on brokerage fees. This will give you a market level of return - so it depends on what you think the market will do over your time frame. <- Not advice







> -Three is to buy a joint home with my partner.



 You may end up chaining yourself to a large asset with limited taxation benefits. Can you tax deduct the interest payments on your PPR as opposed to an investment property?







> - Four is to buy a rental property.



 Investment properties are useful for wealth creation over the longer-term as opposed to passive income generation. This wealth creation however can lead to passive income generation in the future, or the purchase of additional IP's. Watch your gearing ratio's carefully and don't borrow the maximum you can afford.







> Option 1-2 allows me to travel overseas and do an OE which I would like to do in roughly 3 years time. Where as option 3-4 would put a few restrictions on that one.



 If you do your numbers carefully a good rental place can become cash flow positive in four years. I'd watch out for units and apartments though - the increasing cost of Body Corporate fees can extend that time-line for cash flow positive asset. Don't be afraid to look for property that is outside your immediate area.


> The dilemma I have it that my savings aren't earning great interest here in New Zealand, and house prices are really expensive in Auckland where I live. Stocks seem to be at an all time high since the GFC, the exchange rate for AUS/NZ isn't favourable for investing in the ASX from here. Also not nothing is jumping out at me as a great buy.
> 
> Appreciate the help. (especially from anyone who has been though a similar situation)
> 
> ...




Cheers 
Sir O


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## matty77 (16 February 2011)

ENP said:


> What do you mean why I still have the chance? Do you mean before I'm caught up in my career, married, kids, etc, etc.
> 
> And also, $20k can buy me a 2-3 bedroom unit to rent out in parts of Auckland. 10% deposit.




once you are married, have kids, have debt etc it all becomes a lot harder.

Term deposit is good as it keeps your options open, maybe you will find a place to buy somewhere else over sear? who knows!


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## LiL_JaSoN (16 February 2011)

im in the same boat as you, im 21 and doing my last yr in uni and have over 40k in a term deposit and some money in my bank account which im looking at to invest in the asx.


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## ENP (18 February 2011)

Main reason I ask is because I just don't feel my term deposits are working very hard, basically they are just keeping up with inflation. 

I feel that with my knowledge of savings and investing so far, that I should be making my money work harder, but then I don't want to see my hard earned savings halve in value either.


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## Sir Osisofliver (18 February 2011)

ENP said:


> Main reason I ask is because I just don't feel my term deposits are working very hard, basically they are just keeping up with inflation.
> 
> I feel that with my knowledge of savings and investing so far, that I should be making my money work harder, but then I don't want to see my hard earned savings halve in value either.




Welcome to RISK VS REWARD

Cheers 
Sir O


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## Knobby22 (18 February 2011)

Sir Osisofliver said:


> Welcome to RISK VS REWARD
> 
> Cheers
> Sir O




Lol


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## Wysiwyg (18 February 2011)

ENP said:


> Main reason I ask is because I just don't feel my term deposits are working very hard, basically they are just keeping up with inflation.
> 
> I feel that with my knowledge of savings and investing so far, that I should be making my money work harder, but then I don't want to see my hard earned savings halve in value either.



 That is the nature of our society. There are a few ways to financial prosperity but they too are controlled via taxes, fees, charges, duties, interest rates etc. Most of us maintain the gap between the haves and the have nots at a society friendly distance. Few get to (or are born able) to soar high above the crowd. That's why people play high risk by trading financial securities' prices. To break free from the status quo. Good luck.


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## Wysiwyg (18 February 2011)

And believe me. All brokers are waiting with baited breath for newbies entering the 'game'.


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## ENP (20 February 2011)

What if I stayed in the country and didn't go on an overseas trip working holiday. 

Would your advice differ?


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## tothemax6 (21 February 2011)

ENP said:


> What if I stayed in the country and didn't go on an overseas trip working holiday.
> 
> Would your advice differ?



Yes, it would be 'change your mind' .

If you want your money to be invested somewhere that will offer you a good chance of a good return, you need to read up first. Yes, the whole point of a savings account is to protect your money from inflation (not to make money). A good place to start for learning about investing is Roger Montgomery (look him up on youtube).


LiL_JaSoN said:


> im in the same boat as you, im 21 and doing my last yr in uni and have over 40k in a term deposit and some money in my bank account which im looking at to invest in the asx.



Would you mind me asking how it is you and ENP have saved so much? I don't see how so much could be saved up at such a young age, given wage rates and uni fees etc? Pardon my nosiness . Maybe I have been spending too much...


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## ENP (21 February 2011)

tothemax6 said:


> Would you mind me asking how it is you and ENP have saved so much? I don't see how so much could be saved up at such a young age, given wage rates and uni fees etc? Pardon my nosiness . Maybe I have been spending too much...




I save about $200 per week from my $560 per week salary. Nothing too exciting.


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## 6figures (21 February 2011)

im in the same boat, i have 20k in a term deposit which just matured and i have 10k in my share portfolio in the asx.. 

im 24 and im looking to travel alot but i also want to purchase a rental property.. 

i'm looking ot move my 20k into more risky waters as TD are the lowest returns, my thoughts are we are still young and can recover but be smart with the money i spose.


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## KurwaJegoMac (21 February 2011)

I'm 24 and I seriously do not understand this 'i have to see the entire world right now' mentality that everyone in their 20s seems to have. 

Yes I understand that having kids, a mortgage, etc makes it harder to travel - but doesn't it make more sense to save as much as you can while you're young so that you can juggle kids, mortgage, travel, new cars, etc when you're older? I mean, while your young, your living expenses are generally quite low - you're not supporting a family, you can happily squeeze into a house with roommates (something you would probably not want to do in your 30s). There should be a lot of room to save - even more if you're lucky to be still living with your parents.

I feel so strongly about this because I look around at my friends who have spent the last few years traveling and they are flat broke, or are in debt as a result of loans for their trips. Yes I haven't traveled as much, but I am at a stage now where the investment returns I make every year is enough for several overseas trips. That being said, I have gone on a lot of interstate trips, ski trips every year and a holiday in Fiji for a week - all while saving up the capital base I have now. 

My advice is look at how much you've saved up and how long it took you to save it. Then look at what you can get as a reasonable rate of return and ask yourself if it's worth forgoing that extra return for the sake of going on a trip now. I'd rather have an additional source of income growing every day than to see some foreign country filled with people living in poverty just so that I can come back and tell all my friends how 'changed' a person I am. Or to hit up some Asian beach with other westerners, getting smashed on buckets of alcohol. 

Pfft... maybe i'm just cynical because I haven't had a 'rebirth' from an amazing overseas experience that opened my eyes and changed the way I live forever 

-----

tl;dr

Delay Gratification to earn extra income vs holiday?


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## wtang89 (21 February 2011)

Hi all,

I am in a similar position myself. I am not sure if we 'can' give advice on this forum, however, if you are looking to get into rental properties then i would take a look at the US property market at the moment. Reason? their housing market has been on freefall for much of the last 2 years after the GFC, with many properties falling 50-70% from their highs in 2007-8 (to below replacement costs), our (AUD or NZD) is at historical heights giving us greater purchasing power overseas, just to name a few a few reasons . As a result, you can see great rental yields on such properties. The risks are still there as with all investment properties with the addition of no one truly knowing when the prices would stop falling however, if you buy it in a good neighbourhood, in a state with strong job prospects, etc then i think opportunities exist. Just something for you to think about. Best of luck!


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## ENP (21 February 2011)

KurwaJegoMac said:


> I'd rather have an additional source of income growing every day than to see some foreign country filled with people living in poverty just so that I can come back and tell all my friends how 'changed' a person I am.




You make a good point about the "have to travel NOW" mentality. My brother is travelling and living over in the UK. He's 25, has no real job, has a 40k odd student loan and no savings. When he comes back to NZ will have no career really to make decent money. By then he will be 27 ish.

I'm 22, if I stay in NZ and work on my career, I should have a few decent assets under my belt, be earning a decent wage and will be light years ahead of him and most of the other people I know. 

Really opens my eyes to how going against the crowd generally works in your favour in the finance world.

I work in a bank here in NZ and it amazes me how much debt young people are carrying with little or no regular savings at all. Then they complain that they will never be able to afford a house deposit (yet they can afford overseas trips, concert tickets, new cars, etc)


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## 6figures (21 February 2011)

I agree with the above and what KurwaJegoMac said, I thikn there are 2 sides to the story I suppose and many ways in managing how you head down either path.

I think u can build a career, save hard and manage your investments sufficently and still be able to travel and enjoy life if you do it right.. and by doing it right I mean cutting back on some things in order to enjoy others.

for example I have 20k in my bank, 10k in share portfolio and about $10k in other assets - if the past yr I have been to Japan, Singapore, Thailand and Queensland/Melbourne. 

However I drive a $1000.00 car - when in most cases many of the younger/gen Y's would have a 20k load or saved up 20k to buy a depreciating assest. 

It just depends.. some people have the mentaility "I need to do it all before I get old" while im still in my "prime" but I guess everyone defines their "prime" deifferently. 

At this stage of my life i'll be heading down the same direct as KurwaJegoMac .. as I agree that when you travel somewhere and you spend $5000 - $10,000.00, 99% of the time you come back home with  minus $5000 - $10,000.00. 

Buld up your wealth while your young, use your assets to attain more assets and then travel and do what you want when your more established.


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## ENP (21 February 2011)

6figures said:


> "I need to do it all before I get old"
> 
> Buld up your wealth while your young, use your assets to attain more assets and then travel and do what you want when your more established.




Yea I think I'll head more down building wealth route rather than the live young, spend, etc.

I don't want to be 30 years old with no savings and all to show for it is some memories and travel pictures. It doesn't mean I won't do any travel at all, just means I'll budget and save for it rather than blow all my investment savings on it.


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## tothemax6 (21 February 2011)

KurwaJegoMac said:


> I'm 24 and I seriously do not understand this 'i have to see the entire world right now' mentality that everyone in their 20s seems to have.
> 
> Yes I understand that having kids, a mortgage, etc makes it harder to travel - but doesn't it make more sense to save as much as you can while you're young so that you can juggle kids, mortgage, travel, new cars, etc when you're older? I mean, while your young, your living expenses are generally quite low - you're not supporting a family, you can happily squeeze into a house with roommates (something you would probably not want to do in your 30s). There should be a lot of room to save - even more if you're lucky to be still living with your parents.
> 
> ...



You obviously haven't been to Japan yet .

But yeah, your friends behaviors are pretty foolish, time preferences too high and all that. Using debt for consumption is the hallmark of financial irresponsibility. However, 
some people adhere to the other extreme, accumulating money for the sake of it. What can Buffet possibly do with his money now? Give it away, no doubt. What a waste, spending your whole life earning money which you never actually use.

A balance there is, always.


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