By Brenda Ward, JUNO

With an illustrious foreign-exchange career, and through the course of his amassing his personal wealth, John Key has learned some valuable investment lessons along
the way. The Prime Minister provides some practical tips for Kiwi investors.

History tells us that most people don’t diversify their investments enough, says the Prime Minister John Key. “It’s the old story: don’t put all your eggs in one basket. Most [people’s] investments are in housing, and that can be both reasonably profitable and a realistic option, because it ticks a number of boxes.”

However, diversifying your investments is a good strategy, whether it’s through KiwiSaver or other financial investments, he says. “The evidence shows diversified portfolios are less risky and probably, over the longer term, generate better returns.”

Know when to exit an investment

Key is a multimillionaire, and he certainly understands the investing landscape. But he has taken a hit on investments in the past, and he understands the reasons for that.

“Generally, they’ve been in areas where I haven’t fully understood the risks, haven’t been able to quantify the risks, or they’ve been rash decisions,” he says.

His advice to Kiwis is not to take risks where you can’t afford to lose your investment.

“The hardest financial decision I’ve had to make is selling an investment when it was losing money. It’s always easier to take profits and much harder to crystallise losses. 

“You have to realise that with all the best intentions, sometimes you just get things wrong. If you don’t understand why an asset is performing so badly, then you’re better off quitting it and reassessing from a position of calmness and neutrality.”

Good research is the key to successful investing, he says. “If you’re not comfortable that you fully understand the information, you should seek professional advice. Even if it costs you money, it might save you money in the long term.”

Set goals and prioritise

Key’s father died when he was a child, and he was raised in a Christchurch state house by a solo mother. As a boy, he made up his mind to become a millionaire.

“I grew up with limited financial means, which is why I always recognised the importance of financial security, and I put a high degree of importance on it. “That gave me a natural ambition to have what I perceived to be more than enough money.”

At school he worked hard and his early interest in money led to him sharing an economics prize.

In school holidays he worked for an accountant and then graduated with a Bachelor of Commerce. He tried accountancy before walking into Canterbury International and asking for a job.

“I set about reaching my goals by ensuring that I got the education I thought I needed, to have a job that would pay me well.”

Then he saw what foreign exchange traders do and knew that would be his next career move. He went to work as a trader for Elders Merchant Finance. “I was prepared to take a few risks with my career and go into areas where I thought I would be well paid.” 

Key’s reputation as a foreign-exchange dealer grew quickly. He moved to Auckland from Christchurch and then London.

Pay off the mortgage, have a budget

“Having got into a position where our income was reasonably high, my wife, Bronagh, and I were relatively conservative and saved. We paid off our mortgage as quickly as we could,” he says.

And that’s his advice to Kiwis. “Pay off your mortgage as quickly as you can. Buying a property is an important step, as it’s usually most people’s largest asset.” 

Key now owns an impressive home in Parnell and a beach house in Omaha.

He says having a budget and sticking to it are tips he and Bronagh followed in their early married lives. 

“Make your budget realistic, so there’s some money for treats and nice things, otherwise you’ll never stick with the plan. If you take a small amount out to save every week, put it somewhere you won’t touch it.

For those of us who are not millionaires, the Prime Minister says KiwiSaver is the answer to a better retirement. “Because of the nature of KiwiSaver, where your employer and the government both make a contribution, it has the highest rate of return of any investment most people will make.”