Investors seeking stable and reliable wealth growth usually make long-term investments in assets such as bonds, shares, or property, with the goal to see the investment value grow over a long period of time – usually 3 to 10 years or more.
Long-term investments often generate solid returns over the long run and provide financial security to investors.
It is generally acknowledged that over time, investing in assets such as property or shares will grow wealth more quickly than simply keeping your money in the bank. Additionally, investing in property or shares may enable you to borrow some of the money to buy the asset, making your invested cash work harder and generate more wealth than would be achieved in a bank account.
Some investors seek to invest in assets that generate good income, and others are more interested in investing in an asset that will grow in value over time. And some investors want capital growth and income.
The state of long-term investments
Depending on market conditions, annual interest could be as little as 1-2.5% at a bank, making a long-term investment either in the stock market or property market appears to provide higher returns.
The NZ’s growing commercial property sector has been attracting more and more foreign investors into the country. With the government allowing 100% ownership of foreign investors into commercial property by the end of 2019 and 2020, the country is expected to attract a growing level of FDI.
According to Trading Economics.com Foreign Direct Investment in New Zealand increased by 684 NZD Million in the third quarter of 2018. Foreign Direct Investment in New Zealand averaged 469.77 NZD Million from 2000 until 2018.
Also, it is worth mentioning that according to World Bank report New Zealand has been ranked first place for ease of doing business among 190 countries in 2018 – 2019.
- Number one easiest place in the world to Start a Business (World Bank Group 2018, 2019), and
- Number one country in terms of Property Rights (World Bank Group 2018, 2019).
Qualities that make a successful long-term property investment
Knowledge of the industry and patience are the most essential qualities of a long-term investor. There are options out there to suit everyone’s risk and return profile. For example, would you prefer to buy a property in a low demand area that makes 8% return per year but is unlikely to grow in value much? Or a property in a high growth area that makes 5% per year but will likely increase in value? What type of investor are you?
Tips on long-term investments in New Zealand
New investors are advised to diversify their portfolio by investing in separate asset-classes to minimise risk. This strategy is a way of ensuring security so that in the event of unprecedented market conditions, the investor has spread their capital and can continue to grow wealth. For example the stock market might drop significantly while the property market does not – in this case it would be wise to have your wealth in both the stock and property markets, and not all in the stock market.
Savvy investors usually also invest targeting a specific ‘investment theme’ to maximise the return from their investment. Eg, New Zealand’s ageing population will likely see the “aged care” sector remain strong for years to come. Similarly, New Zealand has been experiencing a boom in tourism for the last several years and this is predicted to continue – might investing in tourism related assets be wise?
A long-term investment that takes too much time to manage or operate may be a loss-making investment. Therefore, some investors may be best suited to choosing to invest in managed investments, such as ‘managed share funds’ or say hotel property investments.
Hotel investments are proving popular at the moment for many savvy Asian investors. Some developers offer investments in a hotel room or large suite with pricing from around NZ$280,000 to $2 million, and some with guaranteed rent returns much greater than the bank interest rate.
Such investments are completely managed by the hotel operator with owners simply collecting rent every month – suiting a wide range of investors, including those seeking to invest in commercial property to support their New Zealand Visa application for residency. Some investors like them because they also get to stay in their own hotel room for free each year!
Indeed, not only does investing in a hotel property allow Asian investors to have a base of wealth outside of their home country, but in some cases, it also allows families and business people to enjoy greater mobility and ease of movement around the world – as well as potential access to overseas educational institutions for young people.
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen
Sources: UNCTAD, World Bank, Trading Economics
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