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GETTING THE RIGHT ADVICE

Listening to the right people…

Taking advice from the right people and ignoring comments from the uninformed will help you to become better off financially in the long run. An example I am going to use is my nephew Kyle who had made a bit of money from sports betting. He withdrew all of the money from his betting account and invested the money in a fixed interest account. His goal is to save money for a house deposit but he is almost got the money now. It is some of the advice or rather comments that he has been given that really gets me, with some of it bordering on stupidity.

Myself, I advised him that investing in the New Zealand retirement savings scheme Kiwisaver would be a good bet because he would be able to use part of his kiwisaver for a house deposit providing that he has been in kiwisaver for at least 3 years and that it is for his first home. He would qualify on the latter as he has never owned a home but he has been in kiwisaver for just 6 months and is unwilling to wait another 3 years.

That may be so, but everyone in kiwisaver should at least contribute $1040 into the scheme per annum to take advantage of the full tax credits of $520. This is effectively a return of 50% per annum on your investment, all tax free.

The advice I gave is exactly the same as every other financial expert have been saying, and no, I am not qualified to give financial advice to anyone but then neither are many of those who have been adding their two cents worth. Some of them have little money or assets and have nothing to show for their life’s work.

If you hang around losers, you will be one yourself. What they will do is drag you down to their level because then that it will make them feel better about themselves. Some people have such a low opinion of themselves that they will tear others down because the success of others is giving them an inferiority complex.

To use Kyle as an example, he has prospered since he moved out of his auntie’s flat.

Kyle has more financial sense than any of his siblings; one of whom told their mother that he has a gambling addiction. He withdrew 10k from his betting account and invested the money and when he told his brother that he had nothing left in his account that he had nothing left, he thought he had lost the money.

The pathetic thing about this is that this sibling cannot live a day without alcohol and smokes like a chimney that who knows how much of his income is disappearing every week on booze and smokes. Multiply the weekly amount spent on this and the amount spent annually on his vices is quite substantial, certainly in the 1000s.

It pays to not let others know what you are doing and keep your activities to yourself apart from those who are on the same page.

As for investing money into his retirement fund to save for a house, well that may not be the right option for someone looking to use the money in the short to medium term. A retirement fund is exactly that-a fund for retirement and one has to understand that you have to wait until you are 65 or whatever the retirement age when you reach it. Money for other purposes should be put in appropriate account.

A stupid comment I did hear from someone regarding kiwisaver was, “You may not get it back.”

Kiwisaver will get the money at 65 but what gets my goat is that the person who masde this comment has very little in the way of assets so that whatever she spent the money on she never got it back. It is the same with people who spend x money on a nicotine or alcohol addiction; that is money gone forever, not to mention a shortened life span because of the health consequences of these addictions.

I wrote a post a few weeks ago about using your money as a seed to grow your wealth. Money if it is sown in the right places can reap a nice future harvest.

Happy investing!

www.robertastewart.com

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CAPITAL GAINS TAX

Capital Gains tax and kiwisaver

The talk in New Zealand these past two or three weeks has been the possibility of the introduction of the Capital Gains tax. This is likely to be at 33%. irrespective of which tax rate you are on. So if for example you are on the lower income bracket paying tax of 17.5% then your kiwisaver provider would still pay 33% tax on any capital gains on your kiwisaver. The capital gains tax could be mitigated by new incentives by those in the scheme or at least encourage those who have not joined to do so. All will be revealed in May’s budget but it is likely that the $1000 kickstart will be reinstated and that the annual tax credit will be increased. It was the last National government who scrapped the kickstart in order to balance the books. They also reduced the tax credit from $1040 to $520. Prior to the reduction, you had to deposit at least $1040 to get the full government tax credit so that was in effect the same as making 100% on your investment, tax free. Then National reduced the tax credit to $520 but you still had to deposit $1040 to get this which is like earning 50% on your investment.

As for the $1000 kickstart. If you are a school leaver or have not got around to joining kiwisaver then it may be a good idea to wait until after the budget to see what unfolds. It really depends on timing because Grant Robertson (The finance minister) may decide that they changes will take effect on July 1st which is the start of the kiwisaver year but if the changes take effect immediately after budget night then it would be good sense to join kiwisaver in order to collect the 1k kickstart and deposit at least $1040 into your kiwisaver account by 30th June in order to collect July’s tax credit.

Another change which has been talked about is the scrapping of the tax on employer contributions for those earning less than $48,000. As with the government incentives, the employer contributions will become tax free if your level of income allows it. It was the last National government who placed the tax on employer contributions.

It is interesting to see how any capital gains tax will effect kiwisaver balances in the future because a lot of these funds do have investments in property. It may well affect the supply of housing because would be property developers will think it is just not worth the hassle especially with the new compliance costs which will cost land lords an arm and a leg.

A capital gains tax will not just affect property and shares. It is likely to affect crypto currency as well but it is not clear what the situation is in the event that someone makes a capital loss as can happen when investing for capital gain. Investor’s who lose money in an investment in this way may well be able to claim losses against their wages and salaries but it is best to seek advice from a qualified person in this regard.

www.robertastewart.com

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MESSAGE TO INVESTORS-“Don’t Panic.”

Important not to panic during sharemarket drop

It is important not to panic when the markets are falling as has been the case recently. Whether you have a grand or two in shares or have 1000s invested in the sharemarket, it is best to ride it out the storm and just let the markets bounce back in your favour as no doubt they will. That is if you had followed the basic rules of investing.

The most important rule is to never invest in the markets money which you cannot afford to lose. If you are saving for a house then the sharemarket is not the place to invest your money-you should instead go for more conservative investments. The worst thing that can happen if you had invested your house deposit money in the sharemarket is to find that the value of your investment is reduced when it comes time to withdrawing your money.

If on the other hand you were investing for your retirement then you can afford to take risks as this is a long term investment and you will be able to take advantage of the gains in the market which for decades have outweighed the falls. Some financial advisors would tell you to scale back to more conservative funds the closer you are to retirement but that all depends on how soon after retirement you actually need the money. This is particularly relevant for those with kiwisaver accounts (NZ retirement savings scheme). (Not necessarily applicable in your own country).

It is also important to diversify your investing so that your risk is spread out over several companies and industries. If you have the means to play the market directly then this is the most important rule to follow. It will help you to withstand a sharemarket down turn better because some companies fare better than others during an economic downturn.

This week’s sharemarket down turn is a timely reminder to exercise commonsense when investing money by not placing all of your eggs in the one basket and to ride out the storm.

This article is not intended as financial advice but rather is the sole opinion of the writer.

Bob

www.robertastewart.com