Investments You Can Own Forever

Investments You Can Own Forever

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Six investments you can own forever, and some you shouldn’t

Life is a journey into the unknown and your investment journey is no different. No one knows what markets will do tomorrow, but there is one investing technique that doesn’t require you to know the future. Using the forever investments strategy can simplify your life and make you some great returns too.

The key is to find investments that withstand the test of time. Legendary self-made billionaire investor Warren Buffett has long advocated for the power of patience and playing the long game. Buffett has outperformed nearly all his competitors for decades and his long-term approach is crucial to his success. A recent business article in the New York Times simply advises: “In the Stock Market, Don't Buy and Sell. Just Hold.” But many people don’t listen and get burned.

Recent research from the US shows that, on average, people held stocks for just ten months. Buffett and his team invest in businesses they can hold for years, even decades. To achieve results like Buffet, you must practice patience and let your investments do the work. So, where can you find these investments for a lifetime?

Individual Dividend-Paying Stocks

It’s not easy choosing a stock (share) that’ll be suitable to hold forever. The company you buy must be prepared to overcome wars, economic shocks, disasters, climate change, technological disruption, shifting regulations, and anything else you can think of. So, how do you pick a firm that will thrive over the decades? One way is to look at those with dividends. Stocks with dividends can be the bedrock of your financial fortress if you choose the right ones. Paying a steady dividend is a sign of a stable company, which has a proven track record of profitability and free cashflows.

A forever investment in a company requires you to believe in it for the long haul and not merely chase short-term gains. Buffett's advice: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." It’s fair to say Buffett thinks Coca-Cola is a wonderful company; he bought his shares in The Coca-Cola Company over 30 years ago and still has them.

Investing in dividend-paying stocks provides a steady income stream, making them appealing to investors seeking stability. These stocks often belong to established companies, adding an element of security to the investment. Instead of aiming to sell for a short-term profit, you can rely on a steady stream of dividends.

But buying individual stocks comes with an addictive dopamine hit. You own part of a company and can watch its stock price rise (or fall) at any time. It’s a ride. The importance of this strategy is not to get off the ride when things get rocky.

Investing in individual stocks requires a keen eye, continuous analysis, and, most importantly, steely discipline. It's not for the faint of heart, but for those who find joy in understanding the intricacies of businesses, the rewards can be huge.

Think about an investment in The Coca-Cola Company. Maybe major governments around the world will implement a sugar tax on soft drinks, and Coca-Cola’s stock price will drop. Many would have an instinct to sell the stocks there and then, but that would just be locking in their losses. If you want to invest forever, you must be able to hold on.

To add a little balance: some of the world’s most famous and successful companies have never paid a dividend. These include Berkshire Hathaway, Warren Buffett’s own investment company, Google (Alphabet), Amazon, and Facebook (Meta). Instead of paying a stream of dividends, these companies reinvest any profits in more growth. For the giant tech companies, this means squeezing out competitors by expanding their number of users, and doubling-down on their competitive technological advantages by funding even more research and development.  

To take this investment approach, you’ll need financial acumen to evaluate each potential investment on its merits and weaknesses.

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Spread the Risk: Funds

Instead of investing in one company, why not invest in many? Funds can do just that. A share fund is made up of multiple companies. With your money invested in multiple companies, you can spread the risk over multiple industries, countries, and businesses.

This reduces the need to understand then monitor details of individual stocks, and can simplify other matters too, such as tax, which can be complex when it comes to investing in international shares for New Zealand investors.

There are funds for just about everything you can imagine. Many managed funds are focused on shares, though plenty have different blends of stocks and bonds to smooth the inevitable volatility that comes with investing in the stock market. KiwiSaver Schemes are the most well-known type of managed funds in New Zealand, though there are plenty of accessible funds too – i.e., funds where you don’t have to wait until age 65 to withdraw any money from. There are even real estate funds, which usually focus on non-residential real estate investments such as industrial property or large office buildings. 

Some funds are listed on exchanges such as the New Zealand stock exchange (NZX), as exchange-traded funds (ETFs).

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Real Estate, Individual Residential Properties

Residential real estate is still a favourite among New Zealand investors. It seems to be a part of our national psyche; we simply love it. 

One key strength of investing in real estate is the ready availability of high leverage via a mortgage. This amplifies returns, though can amplify losses too!

As far as “forever investments” go, rental properties aren’t going anywhere. People will always need a place to call home. This demand means property can be held forever – it’s highly unlikely to be disrupted by a new technological advancement.

While most New Zealand investors in housing have been doing so for the capital gain, i.e., price appreciation, there’s another key benefit to property investment: rents. If you buy and hold a property forever, once the mortgage is repaid (assuming you’ve borrowed to buy the property) you’ll be pocketing the passive cashflow from tenants paying to live there. Incidentally, as no investment is 100 percent passive, you’ll need a good property manager to keep an eye on the property to ensure it is truly an investment you can own forever.

Real estate is not without its challenges. You’ll need a deposit to get into the market and will need to deal with fluctuations in rent and values, unexpected expenses, changing regulations, vacancies, interest rate changes, and tenant troubles (hence the need for a good property manager!) which will present hurdles. Successful property investment requires diligence, market awareness, and a long-term perspective.

Buying a property in one New Zealand’s major centres is probably the best way to ensure your property will be in demand from tenants for the long-haul. This is because most regions or smaller population centres in New Zealand often relies on one or two major employers to prop-up their regional economy. For example, the University of Otago is a prominent employer in Dunedin, the government is the biggest single employer in the Manawatu (a major government restructure or downsize would have the same impact as a business closure), Rio Tinto’s aluminum smelter is a major employer in Invercargill, and similar can be said for nearly every other region or town countrywide. A closure or major downsizing has a flow-on effect too, as leaving large employers take with them the demand for supplier businesses, subcontractors, and so-on. This means a lower rental demand as so many families are likely to move out of town, and lower demand means lower prices, i.e., lower rents.

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KiwiSaver: Maximising Gains Until You’re 65

Enter the KiwiSaver scheme – a government-initiated savings program designed to set Kiwis on a path to financial security in retirement. With great features including employer contributions and government contributions, KiwiSaver is a popular investment start point for many New Zealanders for good reason.

The magic lies in the power of compound interest and a long-term approach. KiwiSaver allows individuals to accumulate wealth steadily over the years, creating a financial safety net for retirement.

However, there are a couple of catches – KiwiSaver can only be held in one person's name and you stop getting benefits at 65.

First, only being in one person’s name can be a problem as a “forever investment” because most people retire as a couple with a fully merged financial situation. In this case estate planning becomes crucial. Holding all assets in joint names ensures a smoother transfer of wealth to the surviving spouse, assuming one spouse outlives the other, which simplifies the estate settlement process and therefore minimises stress on the surviving spouse.

Second, in most cases the government and your employer will stop contributing to your KiwiSaver account once you turn 65, wiping out the major benefits of KiwiSaver. When it comes to investments you can hold forever, it may be better if you choose elsewhere.

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There are a few other investments that probably don’t make the grade of being a “forever” investment, too:

  1. Savings in the bank, aside from a rainy-day contingency account. The primary drawback here lies in the challenge of keeping pace with inflation over extended periods. As a result, while banked savings serve as a secure option for immediate liquidity, they will nearly certainly not generate the returns necessary to preserve or grow wealth in the long run.
  2. Your own business or side-hustle. Being self-employed is a bold move that offers a unique blend of autonomy, potential financial success, and personal satisfaction. However, the very nature of entrepreneurship introduces a set of challenges that may cast doubt on its suitability as a "forever" investment. One of the fundamental aspects that distinguish small businesses and side-hustles is the intimate involvement of the owner-operator. Usually, the success and smooth operation of the venture rely heavily on the owner's skills, determination, and strategic decisions. While this hands-on approach can foster a strong connection to the business, it also creates a vulnerability — dependence on the owner-operator. Life circumstances, health issues, or changing priorities may impact the owner's ability to remain actively involved in the day-to-day operations over an extended period. Aside from this, small businesses are nearly always distinctly vulnerable to several unforeseen challenges such as the arrival into the country of an international competitor, consumer preference changes, technological disruption, and especially in New Zealand, natural disasters.

Alternative Investments

While sometimes overlooked, alternative investments can be a forever investment for many people.

The term alternative investment might encompass a wide array of assets that diverge from traditional stocks, bonds, and real estate. This category is expansive, ranging from tangible assets like fine art to intricate financial instruments such as derivatives. Even unconventional options like cryptocurrencies and precious metals like gold find a place in this diverse category. However, it's essential to recognise this approach is unconventional and may only be suitable for a select group of individuals with unique circumstances.

Fine art stands out as a distinctive alternative, appealing particularly to art connoisseurs who appreciate the aesthetic and cultural value of artworks. For those with a passion for art, cultivating a collection may not only bring personal fulfillment but also serve as a unique and potentially lucrative long-term investment.

Alternative investments are inherently individualised, and their suitability depends on personal preferences, interests, and risk tolerance. They are called alternatives, after all!

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The Bottomline: Invest Forever

Each forever investment has its own unique opportunities and challenges.

The key to navigating financial waters remains keeping your finances as robust as possible, which in this case means diversification, understanding the risks, and aligning investments with your overall financial plan. The key to forever investments is in the name. Leave them alone and let them work for you. As Buffett says, "The stock market is a device to transfer money from the impatient to the patient." So, practice your patience and let your investments work for you.

You can start your forever investment journey today with a complimentary financial health check with one of our trained professionals – reach out to arrange yours. It would be our pleasure to assist.

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