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WHAT IS YOUR RISK PROFILE?

Your risk profile-what is it?

Your risk profile is the level of risk you are willing to take when you make an investment! The higher the potential return on your investment, the higher the risk but the catch 22 situation is that just parking your money in low risk low return investments will inhibit your potential returns and could end up costing you in the long run. Taxation and inflation will eat away your profits so investing needs to be a balance between risk and reward.

Your risk profile is a big factor when deciding how you are going to invest and that has several parts to it so lets examine them.

1. YOUR AGE

When you are young, you are able to take more risks because you have more time to recover from financial setbacks but that is not to say you cannot be on the conswervative side if your circumstances warrant it.

It also does not mean that you cannot take risks when you are approaching retirement because chances are that you could live long after you retire.

2. YOUR GOALS

It would be madness to invest in high risk (growth investments) if you require the money in the short term, say within the next 6 months to pay for a wedding, new car, or whatever because the markets may be losing ground and you may end up with less money than you intended. Therefore for money you require in the short tern, invest conservatively.

3. PERSONAL MAKE UP

If the prospect of losing your money is going to cause you to lose sleep then lean towards more balanced investments. These are a combination of growth and conservative investments.

Your potential return will not be as much as it could be but at least you will sleep easy, albeit, at a cost.

4. YOUR FINANCIAL SITUATION

If you are up to your eyeballs in debt then clearing that debt has to be your number one priority and staying out of debt is priority number two then you can think about saving for whatever reason. Investing in the kiwisaver scheme is a very good investment for the reason that there are tax credits of up to $520 per annum and you are entitled this providing you invest a minimum of $1040. That equates rto 50% return on your investment, tax free. Where else will you get a return like that?

At the end of the day, it is your money you are investing and it is you who will bear the consequences for any financial decision make.

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SAVING FOR A HOUSE DEPOSIT

Saving for a house deposit?

The beauty of the kiwisaver is that part of your funds are able to be used to purchase your first home. There are conditions such as you must not have previously owned a house  and that you must have been in the kiwisaver scheme for 5 years. It is understood that kiwisaver holidays where you did not make any contributions to the scheme are not included in the 5 years.

Making voluntary contributions to your kiwisaver account can really accelerate the savings process because you are investing in an asset which increases in value and there will not be the temptation to withdraw some money for whatever reason. Anotther good reason why using kiwisaver as the main house saving tool is that you will not have to worry about gold digging relatives who accuse you of being stingy and money hungry but purchase lottery tickets because they think that it is the only way of getting financially ahead.

It pays to run the figures in your head in order to know how you are going to arrive at your destination.

For Example, saving $20 per week=$1,000 per annum, $40,00 per week adds up to $2,000 per year, $60 per week adds up to $3,000 per year, $100 per week = $5,000 per annum. Your savings can really multiply quite rapidly once you get into the savings habit.

Saving and investing are two different things. most people can save money but it is being an investor which can mean the difference between staying in a financial rut and prospering.

Parking your money in low interest accounts is not being an investor.

Once tax is paid on any interest you receive and then inflation devalues the value of your money by whatever rate it is, there is nothing in the way of profit left for the account holder.

Few people have the sufficient funds to invest directly into the sharemarket but with your kiwisaver account, you are able to participate in the markets and take advantage of the fantastic capital gains which are available. Kiwisaver is not the only option for investing in the markets. Many banks do have managed funds you can invest with the minimum amount to get started can be $250 on wards. It is an excellent way of breaking into the markets.

Sharesies is another option for investing. It basically works like other managed funds but the beauty of this is that you are able to invest the bare minimum. You can start the fund with as little as $20 and invest as little as $5 per week. It is an excellent way of learning about the various funds and watch their movements. Visit; www.sharesies.nz

Developing the savings mindset will go a long way towards reaching your financial goals but if you sit there thinking, Saving for a house deposit for 5 years is a long time, I will be 30, 35, 40 years old or whatever in 5 years time”. Stop and think about this for a moment.

You will be 5 years older in 5 years time whether you decide to plan for your future or not!

Forget about what other people are doing, they cannot live your life for you though they may try to. Just think about your own situation but ask for advice by all means then decide if you are going to take it on board.

Happy investing!

Robert A. Stewart

This article is not intended as financial advice but rather is the opinion of the writer. If you require financial advice, see a qualified financial advisor.

www.robertastewart.com

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