Mary Holm is continuing her theme of where to invest your money in these times if you're not paying extra off your mortgage.
She talks more about shares as an investment option and about people's fears of putting their money into them.
Holm tells Jesse Mulligan that it’s important listeners realise that interest rates will almost certainly rise.
“Economists get this stuff wrong all the time. The general feeling seems to be that interest rates won’t go down much more from here, they’re more likely to go up. People who are borrowing for a home or investment property need to keep that in mind.
“People should keep being aware that mortgage interest rates are very unusually low at the moment, so that’s a very good argument for getting rid of your mortgage and reducing risk by reducing your mortgage as fast as you can.”
She says that if you have a bit of money aside and want to do something other than paying down the mortgage, it should be something fairly risky.
“It’s not a good idea to instead be putting the money in bank term deposits or something, because the interest you earn on the term deposits will be lower than the interest you’re paying on the mortgage. You’ve got to weigh up those two returns.”
Shares and property are the basic choices, Holm says.
She says people can go into a rental property investment assuming prices will probably go up, but perhaps not at the rate they’re rising now. However, by going into a rental when you already own a home means all your money is going into one type of investment, property.
“And if you’re buying just one rental, you’re lacking diversification in the rental market and things can happen to just one house – you could suddenly discover it’s leaky, there are problems in the neighbourhood. All sorts of things can happen so it’s quite risky in that sense.
“Also, with rental property, you can’t sell it off gradually as you can with shares or a share fund. In retirement, or early on if you need the money, you can sell just some of your investment whereas with a rental it’s all or nothing and there are quite a few hassles and most people need to borrow to get into rental property.
“While [rental property] has been a brilliant investment for a lot of people, I wouldn’t continue to count on it being really good… I’m not dumping on rental property, I’m just saying it’s not necessarily a great alternative for a lot of people compared with paying extra off the mortgage.”
Holm says much of the fear of the stock market is irrational and is often felt by people who lived through the 1987 crash. That fear, however, is beginning to subside.
“Partly just because younger people are coming through and they weren’t even born, some of them getting into shares now, and even their parents are maybe beginning to realise that, after all these decades of huge share price increases since then, that they’re not that scary.”
Conversely, Holm says there are signs that people are taking some big gambles on retail trading apps such as the recent GameStop short squeeze.
“It’s playing with fire really. I was really worried that some people didn’t realise what they’re doing with that, it’s a big win if you’re lucky but a big lose if you’re not, so I don’t recommend all that.”
She says there are two ways to approach the sharemarket, one is to buy shares, follow the market and trade frequently, and the other is to buy and hold for a long time.
“The research shows that the long-term holders tend to do better in the long run. People who try to trade frequently don’t tend to do as well, but it can be a bit of a sport for some people.”
Holm says that, if you decide to buy shares, it’s important to diversify and choose a range of companies rather than putting all your eggs into one basket.
“I mean, who would’ve thought our whole tourism and airline industry got hit the way it has, you just can’t predict when an industry is going to get hit.”