This article was published on 21 May 2011. Some information may be out of date.

Getting back in balance

Investment markets have been particularly turbulent in recent years. Chances are, therefore, that your spread of investments — over property, shares, bonds, term deposits and so on — has changed without your intending that to happen.

How much you invest in each different type of asset should depend on two factors:

  • When you expect to spend the money. If it’s less than about three years, it’s probably best to invest in bank term deposits. Over three to ten or twelve years, a good choice is high-quality corporate bonds or a bond fund. Beyond that, history shows it’s usually best to invest a good portion of your money in shares and/or property.

Note that just because you plan to retire at a certain age, that probably doesn’t mean you will spend all your savings at that age.

With good health and luck on your side, you may be spending some of your savings 25 or more years after you stop working. So it’s wise to invest money you might spend at that stage in shares and/or property — which usually bring higher long-term returns.

  • Your tolerance for risk. If you can’t cope with seeing your savings fall much, reduce your investments in shares or property.

Otherwise, you’re likely to bail out of those riskier investments when the markets plunge, selling at rock bottom prices. You would have been better off staying with bonds or term deposits.

There is, though, such a thing as taking too little risk. If inflation is higher than after-tax interest rates — and it’s not all that far off that these days — the value of interest-bearing savings falls, in terms of what you can buy with the money.

On the other hand, the values of property and shares tend to rise over the years with inflation, so in a way it’s less risky to include these assets in your long-term savings — as long as you stick with them through market downturns.

If you’re not sure of your risk tolerance, use the Risk Recommender calculator on

In choosing your asset mix, note that it’s wise to diversify. If you own your own home, it’s good not to have too much of your other savings in property, because if the property market declines, you will be hit particularly hard.

Okay then. In light of all of the above, let’s say that a few years back you decided on the following asset mix: bonds 30 per cent, property 20 per cent, and shares 50 per cent.

Since then, though, declines in the share and property markets have left you with this: bonds 50 per cent, property 15 per cent, shares 35 per cent. To get back to your ideal balance, you need to reduce bonds and increase property and shares.

This may be the last thing you want to do — move your savings into whatever has lost value recently. Nonetheless, it’s not only the way to get back to your ideal mix, but also a great opportunity. You will buy at what are likely to be low prices.

The downside is that moving from one type of asset to another often costs money — in brokerage, fees and so on. The exception is KiwiSaver, where providers will usually let you move from one of their funds to another without any charges.

Apart from KiwiSaver, though, it may be better not to switch current savings, but instead to change where you put new savings. In our example, you would stop any new contributions to bond or bond funds, and put all your savings into shares and property, until you get back to your desired balance.

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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.