Peter Prema, one of the Directors here at NexGen has a wealth of experience as well as a passion for the share market. With recent changes around property investment, Peter urges his clients to give it a go. Read on for his reasoning and insights behind this.
What better time than to start looking at investing in the share market than now. I say this due to the recent changes in tax legislation regarding residential investment properties. The extension of the bright line test to 5 years and the ring fencing of losses. Let’s not forget how high the bar is already set with house prices, especially in Auckland.
It is not so much the big residential property investors that are affected, but more the "mum and dad" investors with one or two rental properties as well as first-time investors. Restrictions on the buying and selling of houses within 5 years and the new government reviewing the ability to claim rental property losses on personal incomes means having rental property investments is no longer beneficial for tax with these so-called loop-holes being filled in by the IRD. Overlay this with slowing house price inflation (capital gains) and looking at alternative investments becomes important.
With home ownership and minimum deposit requirements well out of reach for many people, it is time to start using these funds to gain a greater return.
Therefore, investing in shares could be the next best alternative.
How do I get into the share market?
Getting into the share market is relatively easy. You can do this yourself via one of the online share trading platforms or through a financial advisor or a share broker like Forsyth Barr. Those that look after their own investments find it satisfying as they have a hands on approach and involvement in the day to day trading activities.
However, having a financial advisor is highly beneficial as they provide valuable insight into how the markets are working. They will advise you on how to invest, which markets, and provide cash and portfolio management too.
There are many different asset classes to invest in such as short-term deposits, bonds, property and shares. Depending on your appetite for risk, there are a range of investment avenues to go down. This is best discussed with our financial advisor.
What are the benefits?
Just like rent, interest and dividends payments can be paid on a regular basis so this helps with cashflow. Over time you would also expect to see a capital gain on your investment. Managing your risk is also important. Prudent investors won’t put all their eggs into one basket. Diversifying your portfolio can reduce the risk when some investments are not performing as well as they should.
When a dividend is issued from a company there are added tax benefits such as the imputation credits passed on to the shareholders or the opportunity to reinvest into the company.
From my experience in wealth management and investment accounting, it is vital to get the structure right first. Whether you want to invest through a company, your trust in or in your own name, each investment vehicle has its own pros and cons when it comes to tax and profit distributions. Investing is different for everyone, so it pays to get the right advice first.
Forsyth Barr have a great team of financial advisors who will build the right portfolio for you. For more information contact Guy Johnson or Paul O’Driscoll.