[Originally published in the Herald – August 2025]
Is Your Investment Strategy ‘Age Appropriate’?
The younger we start, the faster a little bit of money can grow. To take a little and make it greater, we need to understand the double-edged sword of ‘risk’. ‘Riskier’ investments or strategies can give you the edge, to avoid the average, but we have to consider the life stage we’re in, and the types of events we’re likely to encounter. Strategically taking financial risk is an acceptable strategy while building up wealth. Later on though, it becomes a thief in the night, looking for riches to devour. So, take risk when you’re young, and play it safer as you age? Sounds fine in theory. Only problem is, hardly anyone follows this in practice. In my experience as a financial adviser, I see the opposite out in the real world: young people invest conservatively, just like older people should, and those nearing retirement invest like they have nothing to lose. It happens with KiwiSaver, our first home and mortgage, and investments more broadly.
The young invest like old people, and oldies like the young should.
KiwiSaver: Start early, set the settings to ‘growth’.
It’s parent-proof, tax-efficient, and designed for two of the biggest financial puzzles we want to solve. The first home purchase, and retirement. Step one: Start your kids early in KiwiSaver and set it up to be in the riskier ‘growth’ options. Step two: If you’re retirement trajectory’s sorted, contribute to theirs regularly. A $300 a month investment into KiwiSaver can become around $200,000 in 30 years. Not everyone can do this of course, but if you want to help them into their first home, get them fixated on this strategy (eventually they take over the contributions).
When KiwiSaver is invested more into shares, and less into bonds, the returns will be volatile (risk), but their money will be exposed to the best chance of growth. If you’re a parent, this is the job: build their confidence with KiwiSaver and celebrate when it doubles in value. Eventually they’ll get it, and you’ve just blazed a pathway to home ownership for them.
If they really do intend on using it to fund their first home, watch out for a common trap. Remember the risk settings need adjustment as the day of home ownership nears. A few years before it’s cashed in to fund a home deposit, more should be invested in bonds (income assets) and less into shares (growth assets). This can protect their nest egg from share market volatility when the money’s needed the most.
Mortgages: Go large, go early, and pay it down later.
Buying a small home, when you could have gone larger, is a conservative, old person move, which many regret later. My wife and I succumbed to this trap, and we paid for it in the form of an even larger mortgage when kids came along. When you’re young, childless, and earning two incomes, pushing the boat out, while scarier, is the smarter move. Buy as big as you can, to avoid having to pay future prices for the property you could have owned earlier. But the mortgage payments will be massive!? In our 30s and 40s, the most appropriate move is to NOT in fact, crush the mortgage aggressively. Paying more off the mortgage is a form of deleveraging. It’s a conservative strategy. When young, we should keep as many dollars working for us as possible. This is where we can follow the government’s playbook: ‘inflate away the debt’. Inflation increases our income over time, and makes our mortgage feel relatively small during the last 1/3 of our career. Aggressive mortgage reduction, later on in life, leverages off the fact that our dollars are ‘programmed’ to lose purchasing power over time. Inflation can actually be our friend!
Buying a larger home sooner and paying the mortgage down later, lowers your lifetime property costs and reduces risk, too. Instead of pouring money solely into your home, a more chilled mortgage strategy helps compound wealth in other markets. This, age-appropriate approach progressively lowers your risk (diversification) as your time horizon shrinks.
Investing with risk, should change as you age.
Time’s a tailwind when young, or a brick wall later on. You don’t have much to lose when you’re starting out, so it’s easier to ride out the troughs, the bear markets, and the life changes. Before kids come along, skip the travel and get your financial foundations sorted. Stack higher-risk investment types, aim to buy the best home you possibly can…then hang on tight. That’s the way to take a little, and grow it. Unfortunately, we worry too much about ‘risk’ in New Zealand, and while it’s appropriate for the older generation to hear, conservative strategies are often preached to the wrong crowd. It’s like a nice roast meal though. Time, not skills, makes it appropriate to take calculated bets.
Speaking of the older crowd…Whether out of boredom, or desperation, futile ‘hail Mary’ investment attempts can be the cause of great financial loss in our later years. Uncertain property moves, tech stocks and crypto, but without a lot of time left, aren’t opportunities – they’re loaded weapons. Before we’re going to spend the money we need to live, we need to de-risk, just like the young first home buyer does. It’s boring, yes, but remember that any market involves uncertain outcomes. Don’t chase returns, without respect for probabilities.
In summary
Age-appropriate investing means mastering a set of skills that seem completely at odds. The skill of accepting uncertainty, and the skill of protecting what you have, will not come naturally. Higher returns, and unpredictable returns, are closely correlated. Wealth can be accumulated faster by carefully exploiting ‘risk’, but we must use time, to neuter its harmful effects. In the end, mastering age-appropriate investing is about knowing when to lean into risk and when to pull back. Get it right and what you’re growing, you’ll one day get to keep.
Need help figuring out what you should be doing for the life stage you’re in. Take advantage of a free 15 minute phone call, to learn how I work.
