This article was published on 7 February 2004. Some information may be out of date.

QI wrote a while ago regarding keeping my own secret stash of money if I divorce my philandering husband in the future — for which you had a reply printed in the Herald, and I’m grateful.

After having heavy counselling sessions, both personal and together, along with a course of antidepressants, my husband tells me he is a changed man. I believe him.

However, I came up with an idea that I would feel very protected by — a mid-nuptial agreement. Is there such a thing?

I told my husband that if I kept him on he would have to sign something to say that if he ever committed adultery or such like I would kick him out, and I would keep everything and he would get nothing but his car and his clothes.

He has agreed and is more than happy to sign something.

I guess I should be asking a lawyer something like this, but I really want to protect my identity at this stage as the whole thing is so embarrassing.

AIt’s great to hear that things are going better for you.

But I’m also pleased to read that you’re considering ways to protect yourself. I’m no expert on relationships, but I’ve seen many “changed” people change back again.

Yes, there is such a thing as a “mid-nup”, but you might have to modify your ideas.

A couple can come to an agreement to contract out of the Property (Relationships) Act at any time in their relationship, says Auckland barrister Margaret Lewis, who specialises in relationship property matters.

“But your correspondent must get proper legal advice, as the agreement must be done in the manner required by the Act.” Otherwise, the agreement would have no legal effect and would be tossed out in court.

“Her husband would also need to have an independent lawyer, as this is also required by the Act,” says Lewis. And that’s where your plan may come unstuck.

“The lawyer acting for the husband might consider such a draconian way of splitting property is unfair, and refuse to certify the agreement. The husband’s wayward conduct wouldn’t usually be taken into account when dividing property, unless it has the effect of diminishing the value of their property interests.”

Your husband may be able to persuade his lawyer that he is entering the agreement voluntarily. But he might later lay a claim that he was under duress and that his lawyer shouldn’t have advised him to sign such an agreement. He may then attempt to have the agreement set aside. “It’s something most lawyers would give some thought to,” she says.

Maybe, though, you could come up with a proposal that isn’t quite so harsh, but still gives you more than you would otherwise get if the marriage founders.

You are giving your husband a second chance, “and giving up the opportunity to live separately and take over the management of your interest in the joint property at this early stage,” says Lewis. It seems reasonable that he should give you something in return.

It’s time to get over your embarrassment — lawyers have seen it all before — and find out what might be acceptable to you, your husband and both your lawyers.

QI have come across another twist on the property versus shares debate. My neighbours, a couple in their low 30s, have bought a lifestyle block at Waipu. So what? Their reasons are fascinating.

They are on modest incomes, one earning $50,000 per year, the other studying. They figured that getting a foot in the investment door is essential.

They realized that shares might be sensible (moderate risk, moderate return) over the long term, but they wanted to do better than the market. They decided that property had the potential to do this, if they were smart.

With their income, they couldn’t afford Auckland, but they decided that with Auckland being the economic engine that it is, being in range of Auckland made the most sense, so they set their sights on being within 90 minutes drive from Auckland.

Sea views are an increasingly rare and valuable commodity. They settled on Waipu, as having very high-value real estate nearby, with a growing economic driver in the expanding Marsden Point industrial facility 10 minutes away, and the extension of the northern motorway bringing it to about 75 minutes away from Auckland.

They have bought a one-hectare block with a good workshop/shed (and weekend “roughing it” accommodation) for $130,000.

For them, having a weekend escape where they can indulge in their hobbies of gardening and DIYing, improving their investment and enjoying themselves while doing so, 10 minutes from the beach in a growing area, while paying a lot less to rent in Auckland than owning a house would cost them, seemed like the best of all possible worlds. (They reckon the property is already worth $20,000 more in the 6 months they have had it).

I thought it a really interesting approach to getting started — and I like the way they did their homework. What are your thoughts?

AGiven that they are putting a lot of effort into their investment — albeit in projects they enjoy — I hope their return is higher than on shares.

But they’ve committed one grave investment error: they are horribly undiversified. The return on a single property can be anything from fabulous to deeply disappointing.

Sure, they’ve thought things through in a logical way — which beats buying a block of land just because you love it.

The trouble is that everyone else knows what they know. The seller of the land probably went through much the same thought process.

If so, the land will be fairly priced, with all the features you mention — proximity to Auckland and Marsden Point, sea views and so on — already factored in.

It’s always possible, of course, that the seller was naïve. That’s one way people do really well with a single property.

More often, though, I think there’s a lot of luck in it. The landowner who benefits from a changing attitude to an area, or a motorway extension or local economic development that is announced AFTER they buy, is often the one who makes out like a bandit.

I don’t want to be negative, though. Good on the couple for making a start while they are young.

As long as they hold on to the land for the long term, resisting the temptation to sell in the inevitable property slumps, they should make a good gain on it.

If they want to measure whether it’s better than they would have done in shares, on a strictly financial basis, they should subtract from their profit any money they have spent on the land, and the market value of their time.

Looking beyond the financial side, though, if they really enjoy gardening and DIYing, they might feel they should ADD the value of that “entertainment” to their profit.

And what price would they put on the pleasure of being in a place they love and of feeling so good about it?

Broadly measured, then, their investment looks like a winner even if it doesn’t grow hugely in value. And it might.

A couple more points:

  • I don’t regard shares as having moderate risk and return. They are pretty high on both counts. Their risk can easily be reduced, though, by diversification, either in a share fund or by buying lots of individual shares.
  • It’s really hard to tell if a property has risen $20,000, or whatever, unless you put it on the market.

    Even if it has risen that much, warn your neighbours not to expect that growth rate to continue. There’s no way the pace of the current property boom will continue into the long term.

QI am a trustee of a trust that has just sold a building for $2,500,000.

In the past we have limited our investment to commercial property and over time have done well in terms of income and capital gain.

With the share markets at home and internationally on the rise, I was wondering whether we should be looking to put some of the money into shares for long-term growth.

What would you recommend?

ADefinitely put some into shares or a share fund.

I’m not saying that because the markets are on the rise. They have been lately, but they might plunge tomorrow. It’s always dangerous to assume an investment trend will continue.

But — regardless of what happens to markets in the short term — trustees should make sure a trust’s investments are widely diversified.

Not only will this reduce the risk that the total portfolio will perform badly, but it also reduces your risk of being sued for investing the trust’s assets imprudently.

So far, you’ve done well with commercial property. But that type of investment, like every type of growth investment, has its down periods.

If, during such a period, a beneficiary or their representative started asking awkward questions about why you hadn’t followed one of the most basic investment rules — diversification — things could get nasty.

QIn 1992 I was made redundant. I invested all of my redundancy as a top-up of my super. At that time, our other investments totalled $80,000.

I immediately commenced a part-time job for four years, then both my wife and I retired.

In that period, we managed to live on one average income and invested the balance from my part-time work, superannuation annuity and compounding investment income.

My investment strategy was to buy shares and hold long term. The approximate split of investments was as follows: 50 per cent in New Zealand shares (10 companies), 30 per cent in Australian shares (5 companies), 10 per cent in capital bonds and 10 per cent in overseas managed funds.

On retirement in 1996 we had tax-paid inflation-proof annuities for life of $26,000 a year. Our total other investments in shares and bonds had increased to $250,000.

At the end of year 2003 these investments had grown to a value of $600,000. Note!

The overseas managed funds have been the worst performers of the group.

My investment strategy, preferring NZ and Australian shares, is mostly worry-free, and we have coped with the peaks and troughs the market delivers. Dividend and interest income after tax is approximately $25,000 a year.

My question is: Why would anyone prefer the worries and poor net returns of rental property investment?

ABecause they hope to get a big capital gain. And some certainly do.

Also, many landlords would rather worry about tenants than about companies over which they have no control. It’s a personality thing.

Some even enjoy developing a property, as the above Q&A shows. That couple aren’t landlords, but the point is the same.

You, like me, prefer the low-maintenance life of the investor in shares or share funds. We also have the advantage of diversifying away from our own home, and so on…. I’ve said it all before. But not everyone listens.

Anyway, congratulations on your savings.

If you had asked me when you first invested, I would have suggested you put more in bonds, and increased that proportion since. They give steadier income for those near or in retirement.

I also would have advised against so much in New Zealand and Aussie shares, putting more into the international funds to spread your risk.

As it has turned out, over the period in question your allocation has done much better than mine would have.

It won’t necessarily keep doing that, though. So you might consider moving some of your Downunder shares into bonds.

Then again, you have good annuity income, plus presumably NZ Super. And you say you can cope with market volatility. You could do worse than to stick with what you’ve got.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.