While cash savings play an important part in managing your money, there is a lot more you can do to help grow your wealth.
Cash savings are a great way to earn some good interest rates. But the best way to increase your wealth is to have a diversified portfolio of investments that includes shares, bonds, property and other assets.
The trick is how you do it. I know from experience that it is possible to manage my own portfolio of New Zealand shares. But experience has also shown me that gaining the expertise and finding the time to do it well is difficult.
As a lesson of how hard it is to get things right, I own shares I bought years ago at around $2 per share that are now trading around 5c per share and the company in question has had at least three name changes. I lost a few thousand dollars on this investment because I did not react quickly enough when things went wrong.
I want to invest in the share market, but…?
Using a managed fund is a much easier way of investing. The key benefits you can get from using a fund is that you are engaging a professional manager, with lots of knowledge and resources to manage your money. I can give them my money and let them get on with the business of making more money for me.
And think about this. If I have trouble managing my own portfolio of local shares then how on earth can I successfully buy shares in other countries such as the United Kingdom, Germany and the United States? The answer is I can't.
Likewise we often hear in the media how attractive the Asian sharemarkets are because of the huge economic growth happening in these countries. If you are like me and only speak and read English, then getting a piece of action in these markets is impossible. But many fund managers offer investments in these markets.
Diversity
Not many people would argue against the proposition that international investments are an essential part of investing. I believe the only way most New Zealanders can get into these markets is through managed funds.
Another of the beauties of funds is that you can get access to all sorts of investments which otherwise would be beyond your reach. An example of this is hedge funds. While many readers may have heard bad things about hedge funds, good ones are quite a bona fide way of adding some extra diversity - or spice - to your investments.
All the technical research shows that adding some hedge funds to a portfolio can enhance the returns and lower the overall risk.