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fixed term investments and finance companies

Written by Robert A. Stewart

Finance companies offer higher interest rates to their lender’s only because they charge higher interest to their borrower’s than the high street banks will do. This is because the customer’s of finance companies are usually those that the banks will not lend to because they are deemed to be at a higher risk of defaulting on their loans. These are the people that borrow for consumable goods that lose value and in almost all cases, the liability (the amount owing) is more than the value of the goods acquired. This is particularly so for motor vehicles and house hold appliances. Some of these companies will lend to property developers and this does not mean that since they finance company has an asset such as property to fall back on if the borrower defaults on the loan because there are cases where the property developer has gone into liquidation bring the finance company down with it.

During the Global Financial Crisis of 2008, many finance companies collapsed losing their investors millions of dollars out of pocket. The sad part is that many retired folk or those approaching retirement age lose their entire life savings after investing everything they had into the one company. These people broke of the most important rules of investing in that the placed all of their financial eggs in the one basket. I don’t know if any of them received financial advice or not but at the end of the day it is the responsibility of each individual to be a steward of their own resources and to educate themselves on financial matters.

So what are the main rules of investing with finance companies?

1.Do your homework first! This involves do an internet research, reading the financial section of the newspapers, and obtain their prospectus by writing, phoning, or emailing them for details.

2.Diversify, that means don’t put all of your money in one basket but spread your investments around several companies.

3.Invest in the larger companies because they will less likely to be affected by one major lender defaulting on their loan

4.Invest in companies that have stood the test of time and have been around the longest because they will have systems in place to deal with economic down turns as a result of being experienced in dealing with recessions.

Investing in finance companies can give you a good return on your money if you play your cards right but they should only feature as a minor part of your financial oportfolio and not all of it as the higher interest, as enticing as they may be, do not always compensate for the level of risk being taken by investors because the finance companies are out to make money, not friends and will pay as little interest as they are able to in order to temp investors but at the same time charge as much interest to their borrower’s in order to make a decent profit.

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www.robertastewart.com

The advantages of saving

Having savings will make life easier later on down the road. Just think about these benefits of saving money that people who are spendaholics cannot take advantage of.

1.You are able to invest the money and grow your wealth. There are ample opportunities to invest your money and make it grow and if you are able to save your money, you can take advantage of these.

2.When you save up for something instead of using your credit card then yo save on interest repayments. People who buy stuff on credit are paying more than if they have paid in cash. During a person’s lifetime, this interest adds up to a fortune.

3.Having savings behind you gives you more options. If you spend everything you make then when the time comes that you may lose your job, you are inhibited by your lacks of resources. People with savings behind them are able to move to another city in order to find work.

4.When an emergency arises such as dental repairs, car break down, family occasion such as a wedding or funeral, you are in a better position to deal with it if finance is not a problem.

Saving money requires self-discipline and responsibility for your own finances and with a bit of planning and organization you can make life easier for yourself to cope with the financial hits that will occur from time to time.

www.robertastewart.com

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Taking a long term view to your investments

Taking a long term view of your investments means not panicking if the markets are done a bit because if  you hang in there, you are able to take advantage of the swings and roundabouts in the markets. If you were investing directly into the sharemarket and have invested all your money in one stock then you have placed all your eggs in the one basket, and the odds are that you may lose the lot if the company which you have trusted with your savings goes bust.

The beauty of kiwisaver is that all the investments of everyone who is part of of New Zealand’s retirement scheme is  combined and invested in a wide range of companies. This minimizes the risk of losses should there be a market crash but there is nothing one can do about it therefore it is best not to be concerned about something that is out of your hands.

When you are a young 20 or 30 something investor, you have more time to recover from a market crash than someone in their 50s or 60s. Some financial advisors would advise those approaching retirement to take a more conservative approach to investing because taking a financial hit late in life could affect one’s retirement plans.

The markets are driven by fear and greed. When the markets are going down many people sell for fear of losing their money. What these people fail to realize is that the markets can go up as well and very often the sellers are missing out on the gains which would have been available if they just hung in there. If they are so worried about losing their money in the markets then it is not a place that they should be investing there money in.

The astute investor can take advantage of the lull in the market for when the market is down, it is time to buy and let time be your friend.

Having said all of this, you have to have some kind of goal for your savings. Are you saving for a house deposit, retirement, overseas trip, to finance a business? Establish the “Why” and you will end up with some kind of goal for your savings.

This post is the opinion of the writer and is not intended as financial advice. If you are unsure of where to invest your savings, seek independent financial advice.

www.robertastewart.com

I will be off the internet until Tuesday so if you have ordered any ebooks, I will not be able to send them to you until then. Sorry for the delay.

Bob

If its too good to be true-It almost certainly is

We have hard these words so often by those warning us to beware of scammers yet so often we hear of intelligent people being scammed of thousands of dollars and in extreme cases tens of thousands. Commonsense seems to go out the window when intelligent people get taken in by these rat bags. In a recent case, a New Zealand man in his late 50s whose job title was a cleaner aoppeared in the Christchurch District Court for his part in a ponzi type of scam where over $8 million was invested by 900 people in a fake foreign exchange scheme.

Many invester’s felt that everything was above board because the company involved weas registered on the Financial Service Provider’s Register however the cleaner was charged with obtaining registration as a financial service provider by deception.

A tradesman who had lost everything he put into the scheme commented that the investment appeared too good to be true and that he was afrauid of missing out on such an investment opportunity. A friend of the tradesman who had got him into the scheme later told him it was a scam but only after they had both lost the money they invested in it.

What happened to the money is a commonly asked question in similar scams and in this situation, none of it went into any legitimate forex trading platform or other invstment as had been promised by the company. Instead the defendant used part of the money as a deposit on a $3.5 million Christchurch property and $111,000 on a BMW.

I think there is a clear lesson here. Good money manager’s live a modest lifestyle and would you take financial advice from someone who drives a flash car? It hard to believe that people like this are able to relate to those who managed to save and invest money from their modest incomes. At the end of the day it is up to everyone to take responsibility for their own finances and use their commonsense, something that tends to go out the window when people are enticed into money making schemes promising easy riches.

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www.robertastewart.com

Debt-a dirty word for the financially literate

“The borrower is a slave to the lender.” Proverbs 22:7

If you don’t have the money you don’t buy it is a quote I once heard from a church leader and he is right. Debt is a cancer on the financial health of people and just like physical cancer, the cure is often painful and requires a change in behaviour. It is all very well to keep your debt under control but you must learn to live within your means if you are able to. If the books make terrible reading then you still must do something about it such as seeking financial advice and going to a budget advisor.

Credit card spending is one of the main causes of debt because it makes credit easily available. Once you have convinced your bank of your credit worthiness you are virtually guaranteed a credit card. All the bank is concerned about is making a profit. They are not concerned that you are getting in debt and if you get behind in your credit card repayments, the interest rates really bite hard.

It is not just those on modest incomes who are in possession of a credit cards. Those on medium and high incomes use them as well.

So what does this tell you?

It tells me that what motivates people to use credit cards is greed and selfishness. It is the “keeping up with the Joneses” mindset. Some people spend their whole lifes trying to keep up a persona, that is keeping up a self-image just to impress others. That nice car or expensive house house may impress others but at the end of the day if it is bought with borrowed money then it will result in the borrower’s life being ruled by the lender.

Many people are pennywise but pound foolish! They take note of all of the bargains and will purchase one item over a competititor because it is 10p cheaper yet would think nothing of purchasing other stuff on credit and paying interest on it which means they are paying a higher price for everything bought on credit.

It is important to live by your own financial objectives and circumstances. In short: Stop being a people pleaser and be yourself!

The information here is the opinion of the writer. If you need financial advice then ask your budget or financial advisor. Feel free to pass on, share, and print this post.

www.robertastewart.com

Working out your risk profile

Investing money has its risks if you are prepared to go for growth but even though you may not have the stomach to take on risky investments

The main one is to diversify. That is to spread your portfolio over a wide range of industries. This is possible for the ordinary man and woman in the street who are able to invest in managed funds where your investment is combined with those of others. It is then up to the fund manager to handle all of the investments. This is exactly how kiwisaver operates.

Each fund will give you an option of investing in Conservative, Balanced, or GRowth funds and your decision of which fund to leave your money in will be determined on whether you can stomach heavy losses should the sharemarket go bellyup. If the though of losing your money will cause you sleepless nights then you should go for balanced funds. Conservative funds will not grow your money if at all once the fund manager withdraws their fees that you may have better options though in the case of kiwisaver, the government will contribute 50% of what you put in to a maximum of $520 per annum so at least this would make it worthwhile.

Your risk profile is not the only determining factor in deciding which fund to choose. If you are saving for a deposit on a home then you are not going to want to risk losing your money in the sharemarket which will happen if you had all of youer money in Growth funds only for the markets to tumble.

Your age is another factor to consider. When you are young, it is advisable to go for growth funds because you have more time to recover should the markets go down whereas someone nearing retirement would have their retirement plans affected should this occur.

It is your money however and your own responsibility to decide where you are going to invest so learn all you can about the various types of investments and in time you increase your financial literacy.

The information given here is my own opinion and not given as financial advice.It is best to seek professional financial advice if you are unsure.

www.robertastewart.com