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Mistakes made by investors

 

Written by R. A. Stewart

Everyone makes mistakes, it is a part of learning. Those who claim to have never made any mistakes are living in self-deception. As far as money and investing is concerned, learning how to invest according to your goals and personal circumstances requires experience and that will be accompanied by mistakes along the way. As they say, “Experience is your best teacher.”

Here are some of the most common mistakes made by investors.

  1. Investing too conservatively

Investing too conservatively will leave you short-changed in the long run if there are decades between you and retirement. Long-term investors who are too conservative are leaving thousands of dollars on the table. This does not mean that you should be reckless and invest your life savings in something risky but invest for growth.

  1. Investing in the wrong fund.

If you have a retirement fund or mutual funds then investing according to your goals is important. If you have a rainy day account this should be invested in something safe such as with a high street bank because the money is available as needed and the last thing you want is to invest your rainy day fund in something volatile such as shares and  just when you need the money your balance has gone down and you will have less money in your account than you thought you had.

 

  1. Not diversifying

Placing all of your eggs in one basket is just asking for trouble. You don’t know what is going to happen in the future. Investing your money in several places will cushion you from the effects of a downturn in the economy because not all industries are affected in the same way. 

  1. Unwillingness to get financially educated

Ignorance can be very costly. If you are not even willing to learn how to manage your own money and investing then you have only yourself to blame if you end up in need. There is only one person who can change your situation and that is the person you see in the mirror.

  1. Lack of Planning

Not knowing where you are going will lead you to nowhere. Having goals for you and your finances gives your work and your life a purpose. It gives meaning to everything you do. It is the “Why” to everything you do.

Everyone has choices but these choices have consequences and it is up to you to make choices which are beneficial to you and your family if you have one. Taking responsibility for your choices and mistakes shows that you are a mature person. Immature people blame others for their mistakes and are quick to find a scapegoat for their misfortune.

About this article

This article is of the opinion and experience of the writer and is not financial advice.

You may use this article as content for your blog or ebook.

Read my other articles on www.robertastewart.com

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Investment Strategy

Investment Strategy

Written by R. A. Stewart

Because investing is not a sure thing in most cases, it is much like a game – you don’t know the outcome until the game has been played and a winner has been declared. Anytime you play almost any type of game, you have a strategy. Investing isn’t any different – you need an investment strategy which is based on factors such as your age, your goals, and your personal circumstances.

An investment strategy is basically a plan for investing your money in various types of investments that will help you meet your financial goals in a specific amount of time. Each type of investment contains individual investments that you must choose from. A clothing store sells clothes – but those clothes consist of shirts, pants, dresses, skirts, undergarments, etc. The stock market is a type of investment, but it contains different types of stocks, which all contain different companies that you can invest in. 

Your financial plan must be one which fits in with your personal circumstances and not something which you feel you should do just because others are doing it. Making choices which will enable you to live within your means is at the heart of money management, it is not the size of your pay packet which counts it is what you do with it which determines how much you have by the following pay day.

If you haven’t done your research, it can quickly become very confusing – simply because there are so many different types of investments and individual investments to choose from. This is where your strategy, combined with your risk tolerance and investment style all come into play. There are plenty of books available on finance and investing. Reading these books will increase your financial literacy with the result that you make better choices in the future.

If you are new to investments, work closely with a financial planner before making any investments. They will help you develop an investment strategy that will not only fall within the bounds of your risk tolerance and your investment style, but will also help you achieve your financial goals. 

Never invest money without having a goal and a strategy for reaching that goal! This is essential. Nobody hands their money over to anyone without knowing what that money is being used for and when they will get it back! If you don’t have a goal, a plan, or a strategy, that is essentially what you are doing! Always start with a goal and a strategy for reaching that goal!

Your goals are the factors which determine where you should invest your money. If the money is for your retirement then growth funds may be the answer to where to invest but this all depends on how long to go before you retire and when you are likely to need that money.

Never beat yourself up for making the odd mistake and never let it deter you from making future investments. Learn from your mistakes and learn from them. In this way you will become a better investor.

ABOUT THIS ARTICLE

This article is for information purposes only and is not financial advice, it is of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. 

Read my other articles on www.robertastewart.com

Working in your chosen field

You may not have the talent or inclination to be an international sportsperson but you can be an asset in your chosen field and that does not mean that you have to be something out of the ordinary to become a valued member of society. A person who works at an entry level job can do so with such a good attitude that their diligence will not go unnoticed by their employers.

You may not particularly like your job and have any control over what happens at work but your attitude is something you can control. An employer with a bad attitude will take that bad attitude with them wherever they go. 

If you enjoyed this article then this ebook may interest you:

How to Enjoy Your Job

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The Value of a Rainy Day Fund

The Value of a Rainy Day Fund

Written by R. A. Stewart

Having a rainy day fund will enable you to pay for unexpected expenses when they arise. This could be for medical expenses, dental expenses, car breakdown, or anything else which may crop up from time to time.

A rainy day fund is not something you use to pay for discretionary spending items. Gym membership fees, a weekend away, or a day at the races are not things you would dip into your rainy day fund for.

When setting up this account you need to set guidelines as to what can come out of this account and what is a no no.

If you are in debt then should you have a rainy day account?

The answer to this is yes, but you MUST pay off your debt first before start depositing money into your rainy day account because the savings on interest will put you into a better financial position.

It is not sensible to have money in an account which pays next to no interest when you are paying high interest on loans.

If there is one bad habit which can be a hindrance to financial freedom it is the habit of borrowing money for stuff which should only be bought with discretionary spending money.

I hasten to point out that if you have debt of any kind then you do not have any discretionary spending money until that debt is paid off.

Getting into the habit of living more modestly means readjusting your lifestyle to fit in with your monetary goals. There are things which people spend their money on which are really choices. They have the choice to spend it on this and that or do without it. 

A bad money manager fritters away all of their discretionary spending money so that by the time the next payday comes around they are broke.

Having a raining day account will provide a cushion again unexpected events which can cause finance stress.

Where to keep it: Keep this money in a separate, easily accessible bank account — ideally a high-yield savings account. It shouldn’t be hard to reach when you need it, but keeping it isolated from your day-to-day checking account prevents you from accidentally spending it on regular expenses.

The benefits of a raining day account are:

  1. It protects you from high interest debt. If you have a $1,000 bill suddenly crops up then your only option may be to borrow that money at high interest rates.
  2. It gives you peace of mind. Knowing that you have money readily available to pay for some unexpected expense gives you some breathing space.
  3. It prevents you from selling investments at the wrong time. If you have investments in growth or balanced funds then you may be forced to sell them just when the markets are down. Having a rainy day account will insure that this does not happen.
  4. It buys you time and choices. If you suddenly suffer a job loss, a rainy day account will buy you time to decide on your next move instead of just making a random choice out of desperation.

About this article

This article is of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. This is not financial advice but the opinion of the writer.

Read my other articles on www.robertastewart.com

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The Magic Power of Compounding

 

Written by R. A. Stewart

If you have any kind of financial knowledge you will know that the process of investing your money for years, sometimes decades and leaving your interest or dividends accumulate so that you end up earning interest off your interest is known as compounding.

Your investment starts to snowball once you have built up a decent portfolio. Using the process of compounding will enable you to achieve your goals faster.

Compounding also helps you to beat inflation which is a thorn in the side of those who are trying to get ahead in life. 

Investors who choose to have their interest or dividends paid into their bank account rather than have them added to their investment will find that their original investment will lose it’s purchasing power thanks to inflation. 

Your investing timeline is a big factor and the purpose of your investment.

If you are retired then you may prefer to have dividends paid into your bank account to help pay the bills and many do just that. The young ones usually let the income from their investments accumulate. This is common in retirement and mutual funds.

When you are saving for something then consider whether they are short-term, medium-term, or long-term goals. This matters because choosing the wrong type of investment for your timeline can affect how much you will end up with when it comes the time to cash in your investment.

For example it is not appropriate to invest your emergency fund in a growth fund due to it’s volatile nature because what is liable to happen is that just when you need the money the markets are down and there is less money available in your emergency fund than you thought there was.

At the other extreme, it is foolish to just leave your retirement fund in an ordinary savings account where you are paid minimal interest because inflation will erode the spending power of your money. 

Here is a break-down of the timelines of Short-term, medium-term, and long-term goals.

Short-term goals are within 12 months.

Medium-term goals are 1-5 years.

Long-term goals are over 5 years.

Getting into the habit of saving and investing will put you into a good position to withstand the financial shocks which life throws at you. This could be illness, job loss, family emergency, car breakdown, or anything else.

It takes vision to make some kind of provision for your future because you are preparing yourself for an event which may or may not happen. 

Then there are events which most people planned for such as buying a new car, further education,  saving for a house deposit, marriage, family, overseas trip, and retirement. People who have common-sense will make provision for events in their life which they expect to happen.

Investing your money for compound interest will help you to achieve your money goals sooner rather than having your interest or dividends paid to your bank account to spend. But it all depends on your personal circumstances.

About this article

This article is not financial advice and may not be applicable to your personal circumstances, therefore discretion is advised.

You may use this article as content for your blog/website or ebook.

Read my other articles on www.robertastewart.com

 

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The Rule of 72: The Ultimate Mental Math Trick to Double Your Money

The Rule of 72

Written  by R. A. Stewart

When investing your money there is a formula for calculating how long it will take your money to double. this is known as the Rule of 72. It is a quick, useful mental math shortcut used to estimate how long it will take an investment to double in value at a fixed annual rate of return.

Here is how it works:

The Formula

Divide 72 by the rate of interest or the expected rate of return per annum.

Note: When using this formula, you use the percentage as a whole number, not a decimal. For example, for a 6% return, you use $6, not $0.06

How It Works (Examples)

  • At a 6% return:
    72 divide by 6 = 12
    Your money will take approximately 12 years to double.
  • At an 8% return:
    72 divide by 8 = 9
    Your money will take approximately 9 years to double.
  • At a 12% return:
    72 divide by 12 = 6
    Your money will take approximately 6 years to double.

Reversing the Formula

You can also flip the formula to find the interest rate required to double your money within a specific time frame:

72 divide by 3% = 24

If you want your money to double in 24 years, you need a 3% return

72 divide by 7.2% = 10

If you want your money to double in 10 years, you need a 7.2% return

Why 72?

The number 72 is used because it has many low divisors ($2, $3, $4, $6, $8, $9, $12), making the mental math incredibly easy.

Mathematically, the exact number for natural log-based compounding is closer to $69.3, but $72 provides a remarkably accurate approximation for typical investment returns (between 5% and 12%) without needing a financial calculator.

Here is an example of how your money can double using the Rule of 72 Formula.

Expected return per annum (per year) is 8%

Maria has $1,000 to invest and she has decided to invest it in kiwisaver at an expected return of 8%.. Here is a breakdown of  how this initial investment will grow.

Age Investment Age Total

18 $1,000 27 $2,000

27 $2,000 36 $4,000

36 $4,000 45 $8,000

45 $8,000 54 $16,000

54 $16,000 63 $32,000

63 $32,000 72 $64,000

When an investment is left to compound it means that the interest or dividends are added to the  original investment which means that you are earning interest fro the interest.

This is how kiwisaver fortunes are being made.

At the other extreme, Jasmine invests $1,000 at the age of 18 but instead of just leaving the interest with her $1,000 investment she gets her interest or dividends paid into her bank account to spend. The spending power of her original investment of  $1,000 has been eroded by inflation over the years. This means that her $1,000 if she were to spend it when she retires would not go as far as her original $1,000.

Example

Age Investment Age

18 $1,000 27 $1,000

27 $1,000 36 $1,000

36 $1,000 45 $1,000

54 $1,000 63 $1,000

63 $1,000 72 $1,000

Retirees who have built up a good nest egg sometimes like to have their interest and dividends paid to them to help with day to day living costs but this is not suitable for the young ones who seek to build their wealth over time.

About this Article

The information in this article may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your website, blog, or ebook.

Read my other articles on www.robertastewart.com

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Mistakes with Money

Written by R. A. Stewart

1 They make poor life choices

The difference between the rich and the poor is because their choices in life are different. There is a stark difference between what a rich person and a poor person does with their discretionary spending money. All of those satellite dishes on council estates tell a tale. A rich person will find ways to invest their discretionary dollar so that it multiplies while a poor person will spend all that they have and more when you consider the consumer debt that they take on. It is also a fact that the poor tend to have more children and having kids does not come cheap, so this further compounds their vulnerable financial position.

2 They do not save 

People in a poor financial state do not save money. They fritter away their money with no thought for the future. Their financial situation is made worse because of their poor lifestyle choices. They borrow for stuff which is not essential to everyday living and spend money on things of no lasting value and this leaves them with nothing to show for their labors.

3 They do not invest

Wealth does not increase when money is not invested. Instead it loses its value due to the effects of inflation. Investing gives you a financial education and this leads to better decision making when it comes to money matters. This in turn leads to better financial outcomes for the future.

4 They do not take risks with their money

Investing involves taking some risks with your money but this does not mean speculating which is really just gambling on some favourable outcome going in your favour. It is having a strategy of investing which enables you to make the most of what you have

5 They do not get financially literate

Lack of financial literacy is the number one reason why so many people are broke. Lack of ambition to rise above mediocrity is the main reason and there is little hope for the individual who lacks the will to improve their financial situation. I know that you are not one of those people otherwise you would not be reading this.

  1. They hang out with the wrong people

People tend to associate with like-minded people. You are the average of the person you spend most of your time with. You will learn money attitudes from whoever you spend most of your time with. 

  1. They have a poor attitude

Having a poor attitude to money is one sure way to live in mediocrity all of your life. When you receive a windfall do you invest it or spend it? Most people do the latter then accuse those who make the most of what they have as stingy. 

Having the will to improve your finances is one thing but putting it all into action is another. Reading books and investing some of your discretionary dollars is a starting point. It has never been easier for the person with limited means to invest in the share market with so many online investing plat forms. It is just a matter of having goals which align with your values. Having something to save for is what provides the motivation to save.

About this article

You may use this article as content for your website, blog, or ebook.

Read my other articles on www.robertastewart.com

Working in your chosen field

You may not have the talent or inclination to be an international sportsperson but you can be an asset in your chosen field and that does not mean that you have to be something out of the ordinary to become a valued member of society. A person who works at an entry level job can do so with such a good attitude that their diligence will not go unnoticed by their employers.

You may not particularly like your job and have any control over what happens at work but your attitude is something you can control. An employer with a bad attitude will take that bad attitude with them wherever they go. 

If you enjoyed this article then this ebook may interest you:

 

How to Enjoy Your Job

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The Benefits of Investing from a Young Age

The Benefits of Investing from a Young Age

Written by R. A. Stewart

To start your journey on to financial prosperity it is crucial that you start young if you want to get the full benefits of time. Here are three benefits of investing while you are young. This does not mean that investing when you are older will not have its own benefits. Investing money at any age will be beneficial and is better than having no savings whatsoever.

Here are the main benefits of investing from a young age.

  1. Time is your Friend

When you are young you are able to make time work for you. Money invested in the correct funds will multiply and increase its value. This is called compounding and it can really increase your wealth. Not only will your original investment keep producing a profit for you but the profits whether, that is from interest or dividends will be added to your original deposit and it too, will produce a profit for you.

  1. More Time to recover from financial setbacks

The markets can be volatile with shares going up and down like a yoyo, but with the benefit of time, young people have time on their side to ride out the storm. That does not mean that people who are just retired should not invest in the share market but rather they need to ask themselves this question, “How will the loss of this money affect my lifestyle?”.

It also does not mean that young people should invest all of their money in the share market. It all depends on what the money is going to be used for. If you need the money in the short term then you need to be a little bit more conservative with your investing.

The case I am making for the young ones to be a little more aggressive with their investing is that they may not be retiring for another forty years, therefore, taking advantage of capital gains which the share market offers can pay off.

3.It is better to make your mistakes early in life

People tend to make most of their mistakes early in life. That is no surprise since lack of experience often leads to errors of judgement, but as far as investing money goes, there are advantages in making your mistakes early in life. One is that you have fewer commitments, therefore, a mistake which can result in an investment going down the gurgler will not affect your lifestyle as much as it would for a person who has a family. Investing mistakes made early in life can be used to make better judgments in future. 

Investing early in life will enhance your financial literacy and will put your whole life ahead of you. There are opportunities to grow your wealth so grab it with both arms.

  1. More disposable income

As a young one you are likely to have more disposable income than someone who is older and with more commitments. If you are sensible, then investing your money will help grow your wealth. You are also likely to be in a position to take more risks with how you are investing your money, but that does not necessarily mean speculating on something which is a bit dodgy, but rather, taking some calculated risks.

  1. Habits formed early will make and break you

Developing habits which add value to your life and others will make and break you. One of these habits is the habit of saving and investing. These days it is easy to start a financial portfolio with so many investing apps available. It is just a matter of choosing one which is the right fit for your investing objectives. It is also important to set goals which align with your values and not be influenced by what your colleagues at work or your family say. It is your life and you are the one who has to live with your decisions so use the brain which God gave you and you will be better off in the long run. By all means, take note of financial advice as you will find in the business section of the newspapers but learn to develop the ability to discern whether advice is good or bad. Associate with people who have common sense. As the proverb says, “He who walks with wise men shall become wise, but a companion of fools will be destroyed.”

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your website/blog, or ebook.

Read my other articles on www.robertastewart.com

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Late Life Relationships: Financial Risks

Late life love: Things to consider

Written by R. A. Stewart

Getting involved with someone new late in life may sound like a good idea but there are financial considerations to consider not for yourself and your own family.

If you are receiving government support then you will be on the married rate whatever that is. It is your obligation to notice them of your new relationship status. Failure to do so may result in legal hassles later on.

Your will is something which needs to be changed when a new relationship starts. This will have serious implications for your children or whoever you intended to leave your assets to when you pass on. Your new spouse or partner will be entitled to everything irrespective of any promises made prior to entering into a new relationship.

There could be a situation whereby your family’s assets will be transferred to your spouse’s family should you pass on first.

Men in particular have to be wary of gold diggers and scammers.

There are people out there who prey on the emotions of others. Stories appear on the news occasionally of men who fell victim to romance scams.

As for gold diggers, some women are more interested in what’s in your wallet than what’s in your heart. Someone with discernment and common sense will know the motives of potential partners. 

There are some things which you need to consider when entering into a relationship late in life.

  1. Has this person got a good credit rating?

This may seem an unromantic question but if you are dating someone with a poor credit rating then you expose yourself to their debts. It could alter your estate planning as your spouse’s creditors could take a chunk off your estate.

  1. It can be difficult to change one’s existing lifestyle to accommodate someone else’s wants.
  2. Marriage may change your tax status, therefore it will pay to get advice on this.
  3. Marrying someone who has dependent children will make you equally responsible for child maintenance if your new spouse has children from a previous relationship.
  4. Estate planning needs to be carefully considered because the new relationship status will change who gets what if one person passes on. Clear communication with family members is essential. It is also important to get legal advice. This needs to be done prior to entering into a new relationship.
  5. Consider a prenuptial agreement in the event that the relationship turns sour.
  6. Placing your assets in a trust may be right for you if your desire is to leave your assets to your own family.

It is worth noting that as far as retirement savings go. Any contributions made to your kiwisaver during a relationship are considered matrimony assets, but only contributions made during the term of the relationship. The rules may be different in your own country regarding pensions. 

About this article

The contents in this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your website/blog or ebook.

Read my other articles on \www.robertastewart.com

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Dividend Reinvestment Plan Explained 

Dividend Reinvestment Plan Explained 

Written by R. A. Stewart

A Dividend Reinvestment Plan, (often called DRIP or DRP) is an automated way to grow your portfolio by reinvesting dividends into the same company instead of receiving cash.

It is the same principle as investing for compounding interest.

Think of it as putting your money to work as soon as it is earned.

How a DRIP works

When a company you own shares in pays a dividend, you have two choices:

  1. Cash Payout: The money is paid into your brokerage or bank account.
  2. Reinvestment: The money is used to purchase additional shares (or fractional shares) in the same company.

Most major brokerages and many individual companies offer these plans. In many cases you can “opt-in” through your account settings and the account settings handles the rest.

How it Grows Your Wealth

When you opt into a Dividend Reinvestment plan you are not just owning more shares-its in the snowballing effect over time.

There are three key benefits.

  1. The Power of Compounding

Any dividends which are reinvested into the company will earn dividends during the next cycle which can accelerate your holdings in the long-term. An example is that you own 100 shares in a company. They pay a dividend and the dividend is converted into shares. You now own 102 shares.

  1. Dollar Cost Averaging

DRIPS purchase shares at regular intervals and this means:

(a) When the market is down you purchase more shares-its

(b) When the market is up you purchase fewer shares.

It all balances out in a year which mean that you are practising dollar-cost averaging.

  1. Reduced Fees and Discounts

There are reduced fees because you are purchasing more shares without the need for the normal transaction fees. 

It will pay to check on the conditions of the brokerage firm or the online platform where you have invested your money because not all of them are the same. 

Important considerations

DRIPS are a powerful tool for wealth-building, there are some things to consider.

Taxation: Dividends reinvested are still considered taxable income of the year that they are received even if you did not receive them in the form of cash.

Stock Imbalance: If a company pays a high DRIP then you could end up with a greater percentage of share in that company in your portfolio.

Income needs: If you may need the money for living expenses then taking your dividends in the form of extra shares may be impractical.

Summary

Feature Benefit to you

Automation “Invest and forget” helps to build discipline

Fractional Shares You own more shares even if it is a fraction of a share.

Compound Interest You accelerate your savings through compounding.

Why companies offer a DRIP

DRIPS are one way companies can generate more cash. Companies have a good idea of how much money they are likely to generate with DRIPS so it is a cost-effective way of raising capital. Reinvesting future dividends into the company means that an investor has confidence in the company’s prospects.

About this article

The contents of this article is based on the writer’s own opinion and experience and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website, or ebook.

Read my other articles on www.robertastewart.com

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Fear of Loss will kill your chances of prosperity

Fear of Loss will hinder chances of prosperity

The fear of losing money will cause people to play it safe by not stepping outside their comfort-zone and not investing their money for greater returns. 

Leaving your money in an ordinary savings account will mean that inflation will erode the value of your money yet that is exactly what a lot of people do. They are afraid to take risks.

Some of this fear comes from those who had experienced the crash of 1987, better known as “Black Monday” when portfolios were hit hard. Some people lost their life-savings and more tragically, a lot of the money which went down the drain was borrowed money.

In these situations, shares were worth less than the money borrowed to purchase them.

There are risks which are worth taking and risks not worth taking. It takes discernment to tell the difference.

I remember once (about 2001) I bought shares in Air New Zealand and they almost went bust, well they would have if the government did not bail them out. The shares dropped to a low of fourteen cents a share. I bought my shares in the company at around $2 a share.

This was the last time I bought shares in an airline. It was an expensive lesson. 

I have known some people who never invest their money for fear of loss; they cannot handle the volatility of watching their balances go up and down yet they have no problem with buying their weekly lottery tickets. If they had deposited that same money into their kiwisaver then these people would have a fortune waiting for them once they reach the age of 65.

“You make your choices and your choices make you.”-Jim Addison, Scottish Pastor

It is all about choices.

The choices you make today will determine which choices you are able to make in the future.

If you have been sensible and joined a retirement scheme and contributed to it all of your life then this choice will give you more options in your later years.

Ask yourself these questions, “What action can I take today which my future self will thank me for?”

There will not be a single person who reaches the age of 65 or whatever the retirement age is in your country, who will regret ever joining  and contributing to a retirement fund.

It is everyone’s responsibility to get a financial education. This will help you to make right choices for your money. Apply what you have learned which are applicable to your personal circumstances.

Getting over your fear of loss will enable you to grow your wealth rather than just leaving it in the bank where inflation will steal the purchasing power of your money.

About this article

You may use this article as content for your blog, website, or ebook.

The contents of this article may not be applicable to your personal circumstances, therefore discretion is advised.

Read my other articles at www.robertastewart.com