While some people may have pictures of their heroes or mentors on their office walls, I have something quite different.
It is a graph of investment market performance for different asset classes since 1971. Sounds a little boring and unexciting you may think. But no it is a salient reminder to me about what people should do with their money if they want it to grow.
These Investment Market graphs aren't that unusual - firms have been producing them for years. What is worth noting though is that the best returns over the long term come from shares - sometimes New Zealand shares and other times international shares.
What is arresting is the power of compounding. If you put $10,000 into New Zealand shares at the start of 1971 and left the money there, it would now be worth $810,156. That is an annualised, pre-tax return of 13.4%.
Although cash has been a fair investment for New Zealanders, generating an annualised return of 10.1% over the same period of time, your New Zealand shares would be worth more than three quarters of a million dollars, while the cash investment would sit at $292,652.
It's useful to think about these returns in the current environment. For the past few years New Zealanders have been obsessed with short-term income producing investments such as term deposits, finance company debentures and the like.
You can't miss them with wall-to-wall advertising in the weekend press. However two questions you need to answer are:
What risk am I taking on for these returns; and
Is investing in this area the best way to increase my wealth?
Dealing with the first question it is clear the risk people are taking on to get these good short term returns is high.
Research shows us that some of the companies offering high rates are not as financially sound as some of the others. While there have been no defaults and investors have yet to lose any money, the risk is still there.
The ideal mix is to have a high rate and security, such as rating from one of the international agencies such as Standard and Poor's or Moodys.
The answer to the second question is you need to have long-term growth assets in your portfolio to create wealth.
The message is simple: Have a diversified portfolio and invest in shares. Cash plays an important part in a portfolio as it is a place where you can keep some money for unexpected events and it is a place to accumulate dollars before putting them into longer-term investments.