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Share market slumps

Notable share market falls

Written by R. A. Stewart

The share market has weathered several major storms in the past. While the pandemic was indeed a “Flash Crash” other downturns such as the “Dot-com Bubble” and the “Global Financial Crisis” (GFC) took much  longer for investors to recoup their money. Here are some well-known share-market tumbles since 2000.

Year Crash % fall Recovery Time (to previous peak)

2000: The Dot-Com burst -49% 7 Years

2007: The Global Financial Crisis -56% 5.5 years

2020: The Covid Pandemic -34% 5 months

2022: The 2022 Slump -25% 2 years

The Dot-com slump hit the tech sectors hard. The Nasdaq which is tech-heavy actually took 15 years to recover. The severity of the losses are dependent on which sectors investors had their money in. It is a stark reminder of the value of diversification.

The Global Financial Crisis was referred to as “The Great Recession.” It took steady gains for five years for the market to finally surpass its 2007 level.

The 2020 pandemic was described as the fastest bear market in history. It dropped 34% in just over a month then recovered quickly due to government stimulus and the rapid shift to a digital economy.

The 2022 slump was due to high inflation and high interest rates. This was a “grinding” beat market rather than a sudden crash. It took until early 2024 for the market to reach new all-time highs, largely fueled by the boom in artificial intelligence.

Managing your assets

During these times when the markets are falling, investors find themselves in the “Asset rich, cash poor” trap. They do not want to sell their shares on a falling market in order to cover basic living expenses. This happens when you have all of your wealth tied up in a share portfolio or a retirement fund and little money elsewhere.

It highlights the importance of diversification.

Strategies to weather the next share market tumble:

  1. Keep a buffer fund for emergencies. This is for unexpected expenses which crop up from time to time. It ensures that you are never in a situation where you need to sell shares when they are at the bottom.
  2. Diversify for assets. Not all of your assets will fall at the same time. Some of them such as bonds may hold steady during a share market slide.
  3. Check your investment settings

Changing from growth to balanced, or balanced to conservative funds during a share market tumble will lock in losses and make them permanent, but when you are making new investments, choose where to invest according to your timeline and the purpose for the money.

If you are looking to purchase a car within the next three years, then growth funds are not recommended. Balanced or conservative funds is a better option, but if you want to be safe then a separate personal bank account will do the job.

Share market ups and downs will occur from time to time and every decade has its events which triggered a fall in stock prices, but if you have organised your finances smartly you can weather any storm which any world event throws at you.

About this article

The content of this article is 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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Going for Growth Funds

Going for Growth

Written by R., A. Stewart

Are growth funds appropriate for you?

The only person who can answer that question is you and only you because it is your personal circumstances and your goals which are the factors which determine where to invest your money. Your age, health, and commitments are factors which need to be considered.

Time is the one factor which covers all of the others. How long are you going to be investing this money for? 

There are three categories:

Short-term money. (1 year or less)

Medium-term money. (1-5 years)

Long-term money. 5+ years

If you are saving for something and will not need the money for more than 5 years, this is considered long-term and suitable for investing in growth funds. Just understand that the volatility of the markets will mean that your savings, whether it be for a house deposit or retirement will go up and down. That is the nature of the markets.

Saving for a car, an overseas holiday, or house improvements are goals which are normally achieved within five years. These savings are suitable for balanced funds which are a mixture of growth and conservative funds. Your savings will still bounce up and down but not as much as growth funds. 

These days it is easy to save by drip-feeding money into the markets with online platforms such as sharesies in New Zealand and Australia, Angelone in India,  and Robinhood in the US. If you are not from these countries then it is a good idea to do a google search for one which you can find in your country.

It is important to diversify your portfolio and have a goal for your savings even if it is just to build a portfolio on a shoe-string. Don’t just leave your nephew’s inheritance in a bank account that is easily accessible. Invest it in a fixed term account which cannot be easily accessed. 

Don’t invest all of your life savings in an online investing platform, even if you spread your money around several companies. You do not know what misfortune will hit that particular platform.

If you are saving for a house deposit then it is a good idea to invest the money in a fixed term account until you need the money. It helps develop a good reputation as being responsible with your money.

There are added risks with online banking and investing. The main one being scammers. If your email account was hacked then how safe would your money be? Having your money spread around in different places is better. Many sites ask you to sign up using a google account. You should never use the same google account you use for your banking when doing this. Always set rules which you never break and when you read of someone who has been the victim of a banking/email scam then learn the lesson which you can apply to your own life.

In this day and age of tapping as your payment goes there are dangers involved in this with the main one being that you will lose your card. If that happens then someone may pick it up and use it. Having too much money in the account which you use for this purpose is just asking for trouble. It is better to keep larger sums of money on another card which you do not carry around everywhere. Imagine if you had over a grand on the debit card which you lost. 

If you have no plans for your money then put it to work, don’t just leave it in an account paying little or no interest. Learn to be an investor and learn to handle the volatility of the markets. There are three sure ways to lose on the share market during the lows.

  1. Change from growth funds to conservative funds
  2. Sell your shares.
  3. Stop contributing to your retirement fund.

The number 1 person will find that the share prices have risen and they have missed out on the rises which would have recouped their losses.

The number 2 person will have sold their shares at a lower price than they would have received if they had waited until the markets recovered.

The number 3 person would have missed out on purchasing shares at a lower price and when the markets recovered they would have seen the value of their shares increase by a fair bit.

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 blog/website or ebook. Read my other articles on www.robertastewart.com

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3 Factors which determine your investment strategy

ABOUT THIS ARTICLE

Reaching your financial goals is not just about saving money; it is about investing your savings to help grow your nest egg. Where you invest your money can help speed up the process of saving because the capital gains on your savings can help you to reach your savings goals earlier. There are three factors which determine where you should invest your savings. This I discuss in further detail.

The information here is of the opinion of the writer and does not constitute financial advice. If you require financial advice see your bank manager or other qualified professional.

3 Factors which determine your investment strategy

You may be wondering what is the right investment strategy for you, but without knowing anything abut you, any advice on which investments are right for you may in fact be the wrong ones. There are basically three factors that determine which are the right investments for you, they are:

  1. Your age
  2. Purpose for the money
  3. Your risk profile

Starting with your age. It would be rather silly of you to invest all your money in growth funds if you are aged 65 because if the market takes a dive such as was the case during the 1987 share market crash and to a lesser extent, the GFC during the early 2000s you have less time to recover from these setbacks whereas the young ones have time on their side. 

Then decide whether you require the money in the short term, medium term, or long term.

Short term would up to a year.

Medium term is 1-5 years

Long term is longer than five years

Short term expenses would be, a bank account for emergencies, a holiday within a year, dental expenses, or t pay for the kids schooling for a year.

Medium term would be savings for a car.

Long term would be your retirement fund, saving for a house deposit, or saving for the trip of a lifetime.

Your risk profile is a determining factor in where you invest your money. If the thought of the share market taking a dive will give you sleepless nights then investing growth stocks in the share market is not for you. A better option would be managed funds where you will be given a choice between growth, balanced, and conservative funds.

It is important not to get into debt for there is a cost to debt and that is interest. Interest adds to the cost of goods bought with borrowed money, and this adds up to a fortune during a lifetime of borrowing for consumables. This is called bad debt because the value of the item declines over time.

There is such a thing as good debt though and this is your first home because the value of the property increases during the lifetime of the loan but even this is not always a good option for some people if you live a kind of transient lifestyle. 

“Everyone is to their own,” so only you know what makes you tick, so your personal circumstances are the determining factors which govern where best to invest your savings.

You must do your homework before you invest in anything, whether that is the share market, managed funds, or gold. There is so much information available on just about everything, and that includes finance. It is just a matter of learning the ropes and having a financial strategy which suits your personal circumstances.

www.robertastewart.com

ABOUT THIS ARTICLE

Most people are able to save money but having goals and selecting the right investments for your savings can help increase your assets and enable you to reach your goal faster. For finance related articles, visit: www.robertastewart.com

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Dead Money will cost you

What is dead money?

Written by R. A. Stewart

 

What is dead money?

It is money which is spent on something which does not provide anything of value to you.

Interest paid on consumer debt falls into this category. It is dead money because interest does not provide any tangible value to you. Some may argue that interest paid on a mortgage on a property provides some value because the value of the property increases at a greater rate than the interest on the mortgage.

A fair point but falling house prices have meant that some houses have negative equity on them. All the more reason for you to reduce that mortgage as quickly as possible, more so when the mortgage interest rate is low.

Dead money can also be money which is locked away in an investment for very little return. An example of this is money just simply left in a savings account for a period of time. Inflation and the tax payable on the paltry interest means that your money is losing its value over a period of time. The only money which is left in an account such as this is money which is needed in the short term.

Just stuffing your money under the mattress is another form of dead money for the same reason as leaving it in a low interest account and this is because it is not earning any money.

If you think that just leaving money lying around is foolish enough most people own stuff which is worth money and if this was sold the money could be earning an income through shares or other investments. Most people own stuff which can be converted back into cash and put to work for them. Anything which is no longer needed and is just gathering dust fits this category.

It is important to know the difference between an asset and a liability. An asset increases your wealth but a liability is a drain on your finances.

Some investors consider the equity in their home as “dead money”. It all depends on where you are coming from because there is a clear choice between having equity in your home or having a debt. I recall someone told me years ago that he knew someone who took out a mortgage on his home to purchase shares then Black Monday took place. For younger people, the 1987 sharemarket crash which occurred during October of that year was named “Black Monday.”

After the crash his shares were worth a lot less than the loans owing on them. 

At the end of the day that is the risk with investing for capital gain and investors must weigh up the risks of losing their capital against the likely rewards. 

If you have some spare cash lying about doing nothing and you are wondering whether or not you should invest it in something risky but has the potential to grow the one question you should be asking is “What is this money for?”

Only then will you know whether this is money you should be taking risks with.

About this article

This article is the opinion of the writer and may not necessarily be applicable to your personal circumstances therefore caution is advised. You are welcome to use this article as content for your website/blog or ebook. Feel free to share this article.

Www.robertastewart.com

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The Art of Diversification

The Meaning of Diversification

Written by R. A. Stewart

Diversification is a word that you will hear in investment circles, particularly when investing in the share market, but what exactly does it mean?

To put it in plain language, Diversification is when you divide all of your money between different asset classes and companies. Your total portfolio may be x amount of dollars; an astute investor will invest a certain amount in power companies, a certain amount in banks, a certain amount in insurance companies, and so on.

We often hear of horror stories whenever a company folds and the one that crops up is that investors lost their entire savings in the one company. Big mistake!

That is leaving all of your eggs in the one basket because you do not know what kind of misfortune will hit any particular company.

Government regulations and the economic cycle are out of the control of the company. 

Then there are trends which will have some influence over the bottom line.

There is no guarantee that whatever occurred in the past will repeat itself in the future.

Investment platforms such as Sharesies, Hatch, and Kernel Wealth in New Zealand and Robin Hood in the US enable the ordinary man and woman in the street to invest with a minimum amount of money. This provides an excellent education tool for people who are willing to increase their financial literacy by taking part in the share market.

There is another method of diversification and that is by investing in managed funds or as they are described in the US, Mutual Funds. This is where your money is combined with that of other investors. It is a case of safety in numbers.

Managed Funds provide investors with three options, Growth Funds, Balanced Funds, and Conservative Funds.

Growth Funds are higher risk, higher growth stocks aimed at long term investors. That is investors who are investing for 10 years or more. The reason why they are more suitable for long term investors is because they have more time to recover from a market meltdown, which is more liable to happen with growth funds. The young ones are more suited to Growth Funds because they have more time to recover from a share market crash.

Conservative Funds are safer with investors unlikely to see the kind of falls occurring in the growth funds but the flip side is that an investment in conservative funds will not grow as fast.

Financial advisors in New Zealand have often stated that young people should invest their retirement savings in growth funds to maximise returns. 

Balanced Funds are a combination of Growth and Conservative Funds. They basically give you the best of both worlds.

Diversification does not mean that you should choose an online investment platform such as Sharesies or Robinhood and invest your whole life savings there. The reason is because there have been instances in the US when these types of online platforms have folded.

Some readers may say, “I know/read about an investor who put all of their money in one company and made a killing.”

My answer to that is, “Greed gets the better of people such as this in the end,”

What is likely to happen is that they will try the same thing again and again and give all of their previous gains back plus a whole lot more.

When you hear stories of so and so making a killing, what you do not hear about are those who tried the same thing and lost all of their money.

Be sensible with your money and you will reap a harvest in the end.

About this article

The contents of this article is of the writer’s own experience and opinion 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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6 Benefits of Saving Money

The value of saving money

Written by R. A. Stewart

If there is one habit which will make your life easier it is the habit of saving money from each payday. As a responsible adult this is the mature thing to do. People who just spend all of their money leaving them broke before the next pay day arrives are irresponsible. 

Saving money without an end goal may seem pointless to some people and that is why it is important to have goals so that your money has a purpose. This gives you motivation to save otherwise you will become just like most people and just fritter your money away and when that rainy day comes there will be nothing to fall back on.

Here are reasons why you must save:

  1. Saving helps you to avoid borrowing

People who have no savings often borrow for stuff they need, such as some appliance breaking down or a medical emergency. Borrowing adds to the cost of whatever it is a debtor is paying for. This cost is called interest. Another word for interest is dead money because it gives you nothing tangible for your money. If you have debt then getting rid of it must be your first priority.

  1. Saving helps you to avoid future inconvenience

Imagine having no savings and the car, washing machine, or internet modem, or something else needs fixing and you have no savings. These are items which we take for granted but having no money to repair or replace something which needs replacing will cause you a great deal of inconvenience. Having a rainy day account for emergencies is a good idea.

Having

  1. Saving enables you to build your wealth

Saving money will help you to build your wealth portfolio and you do not need to have a fortune to begin investing but you do need to invest in order to create a fortune. Share market platforms such as Sharesies and Hatch enables anyone to invest on a shoestring. Investing with these platforms helps build your financial literacy.

  1. Saving provides more opportunities 

Saving money creates more future opportunities. It provides opportunities to study, to travel, and to move locations for work. Your future you will thank you for what you have saved today. Will anyone reach the age of 65 and regret having made consistent contributions to kiwisaver? I think not.

  1. Saving provides more peace of mind.

Saving provides a certain amount of peace of mind. When you have something up your sleeve to pay for emergencies when you need it life becomes much less stressful. That is something which should be part of your financial plan.

  1. Saving helps prepare for retirement

Having money behind you helps make your retirement years more comfortable. Whichever country you belong to it is important to join your country’s retirement scheme and take advantage of any tax incentives if any.

About this article: The contents are of the opinion of the writer and may not be applicable to your own personal circumstances. You are advised to seek professional budget advice if necessary. Feel free to print this off for easier reading. You may use this as content for your blog, website, or ebook.

Www.robertastewart.com

 

Disclaimer: I may receive a small commission if you sign up with sharesies. (see below)

 Investing with Sharesies is an accessible and straightforward way to invest in the stock market. By following these steps, you can get started on your investment journey and start building your wealth. However, before making any investment decisions, it is essential to do your research and seek professional advice if necessary.

 Join Sharesies here

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3 Mistakes Investors Make

Avoid these three Financial Mistakes

Written by R. A. Stewart

Building an investment portfolio is similar to building a relationship. It takes time and patience but over caution can be just as costly. A lot of tolerance is required because in finance and in life in general you do not always get your own way. Life has its own ups and it is during the downs that we show our true character. It is when our true colours come to the surface.

Human nature or emotion as it is can interfere with one’s better judgment. This applies to relationships and finance.

Here are the biggest mistakes made by investors.

Mistake number one-Greed

“If something is too good to be true then it almost certainly is,” but many people have fallen into this trap by investing in something which was offering above average returns. In doing so they completely ignored another rule in finance and that is to diversify. During the 2008 Global Financial Crisis many investors lost their entire life savings when various finance companies went under. Several people have their entire life savings invested in one company. Whatever has been reported about these companies it is up to investors to do their own due diligence and invest sensibly. Placing all of your eggs in one basket is certainly not investing sensibly. The key word for sensible investors is “diversify.” This minimizes risk. Two things to bear in mind is that when there is an opportunity for a capital gain as there is with shares, there is also the chance for a capital loss. The other thing to remember is that when you hear stories of someone who made a killing on the share market by placing all of their eggs in one basket, you seldom hear of individuals who tried the same thing and lost their money. Greed will eventually get the better of investors who thought they were smart enough to beat the market.

Mistake number two-Timidity

Playing it safe is risky. Being overcautious will mean that you miss out on opportunities which risk takers take advantage of. There is no suggestion that you should be reckless and ignore common sense precautions but in relationships you need to risk getting hurt in order to discover what you are looking for. As far as financial matters are concerned, you have to accept some level of risk but this is manageable by diversifying your portfolio. Managed Funds or Mutual Funds as they are also called is an excellent way for ordinary investors to get involved in the share market. In New Zealand, Kiwisaver, Sharesies, Kernel Wealth, Hatch, and Investnow are excellent platforms for ordinary investors to get involved in shares. If you are from the US you may want to look at Robinhood which operates in much the same way as Sharesies.

Mistake number three-Impatience

“It is time and not timing which is important in the share market,” is a cliche which is worth keeping in mind. Patience is a virtue and this is applicable to relationships and finances. Some people lack patience that they invest their money in abc shares then when their portfolio is stagnant they sell those and invest in something else and sod’s law, the shares they sold at a lower price suddenly rises meaning they have missed out on any gains which would have recovered their losses. The share market is a long term gain. If you require the money in the short term then investing in shares may not be the right option. Bank deposit probably is but you have got to do your homework. 

It is all about understanding the risks and whether you have the mindset to handle the ups and downs of the money markets.

It really is up to your own risk profile.

About this article

You may use this article as content for your blog/website and as content for your ebook. Feel free to share this article with others.

The information here is of the opinion of the writer and may not be applicable to your personal circumstances.

Invest in sharesies here:

Sharesies makes it possible for anyone to get into buying and selling shares. It is an online share market platform where you have the option of purchasing shares in individual companies or in various funds (managed/mutual funds). You can even start with $5. This is a no brainer because it gives investors young and not so young the chance to improve their financial literacy. There is certainly no substitute for experience when it comes to learning and this is applicable to everything else, not just investing.

Join sharesies here: https://sharesies.nz/r/377DFM

Disclaimer: I may receive a small sign up bonus if you join sharesies.

www.robertastewart.com

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Make Saving a Habit

Make Saving a Habit

If there is one financial habit which will get you ahead it is this one…

Saving!

Why you must develop the savings habit

It is not how big your pay packet is, what counts is what you do with the money. Irrespective of your financial situation, it makes economic sense to save a portion of your income regularly. the mains reasons for saving are;

1-For unexpected emergencies such as car expenses, the washing machine breaking down, or dental bills.

2-To put aside money for your retirement.

3-Holidays or wedding expenses.

4-study expenses

5-Home repairs.

6-To save for a deposit for a home.

7-Saving for a car

8-Saving for a business

Consequences of not having any savings

If you do not have any savings of your own then if an unexpected emergency crops up such as the car breaking down then you may have to borrow the money to pay for repairs and every time you borrow money, the interest you pay means that you are always paying a higher price for goods and services bought with borrowed money than someone who always pays in cash.

Saving money requires you to live within your means and to live modestly. Good savers will not purchase items brand new when they can find the same item in a charity shop at a fraction of the price. 

Your choices will make or break you

Every time you make a choice there will be consequences, good or bad. The key is to make enough good choices to succeed and to minimize your bad choices. It is important to keep your eyes and ears open to what is happening around you and listen to wise people who have succeeded in their chosen field. Having said that, you must row your own boat and discover your own calling in life.

Joining your country’s retirement scheme.

Many countries around the world have their own retirement savings scheme where a portion of your gross income is invested in that country’s retirement fund and your money cannot be withdrawn until you reach retirement age which varies between different countries. (In New Zealand it is currently 65)

Accumulate investments.

It is a good idea to not only have a retirement fund but invest in various areas to increase your financial knowledge. The share market, managed trusts, and fixed term investments are all well worth getting into.

Don’t place all your eggs in one basket

Don’t under any circumstances place all of your eggs in one basket. There is no guarantee that a particular company will not go under irrespective of how solid it appears. After all, if a company is in trouble, its directors are hardly going to shout it out from the rooftops are they? During the economic downturn around 2008, many people lost a lot of money in failed finance companies and the tragedy was that many of these folk invested their entire life savings into the one company. In other words they placed all of their eggs into one basket. The number one rule is to spread your risk. Divide your money among several different companies. That way you stand a far better chance of protecting your financial assets.

Www.robertastewart.com

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Using the rule of 72 to get wealthy

Using the rule of 72 to get wealthy

Written by R. A. Stewart

Do you know how long it takes for your money to double using the rule of 72?

Using the 72 formula it works like this:

Simply divide 72 by the interest you are receiving on your money. Of course the calculation does not include the tax paid on your investment.

Another name for the rule of 72 is compounding interest or dividends as is the case when investing in the share markets. You are receiving an income from your original investment plus from the dividends and interest which are left untouched.

This is called compound interest.

There may be a temptation to hasten the doubling up period by searching for high interest investments. My advice is to be careful because if a finance company is paying it’s depositor’s higher than normal interest rates it only means that they are charging their borrowers higher interest rates than the banks. The reason why someone would pay higher interest rates is because they couldn’t get a bank loan because they are considered risky borrowers.

Several finance companies went belly up during the Global Financial Crisis of 2007/2008. These were companies paying higher interest to their investors than market rates.

I did lose money on some of these companies. On reflection, instead of letting the interest compound I should have taken them and invested the interest into my Kiwisaver account.

The rule of 72 is just as applicable to investing in the share market. Your investment can grow using the same principle in managed funds or mutual funds as they are also called but profits can vary. 

You can calculate how much your investment needs to grow per annum in order to double within a specified time. 

72 / your time frame (years)

If you want your money to double in 10 years then you would need an average annual return of 7.2%

The important factor is time. Young people have that in their favour. 

Someone on the verge of retirement is not going to make plans for what they are going to do in thirty years time. Your age is an important consideration to where and what you invest in.

The rule of 72 also works for borrowers. You can work out how long it will take for your debt to grow with this simple formula: 72 / interest rate so if you are paying 15 percent interest rate the amount you owe will double in 4.8 years.

That is of course assuming that you have done nothing to pay off the debt.

It underlines the importance of paying off debt as quickly as possible.

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. You are welcome to use this article as content for your blog or website. 

I may receive a small commission if you sign up for Sharesies or Coinbase.

www.robertastewart.com

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He who never made a mistake…

He who never made a mistake…

never made anything.

You could read all you can about the share market but investors will from time to time go against their better judgement and invest in something because of greed or it is something they are interested in. I have lost money in the past from some of my investments.

Here is a sample:

Air New Zealand (early 2000s)

This company I thought was a reasonably safe investment. Air New Zealand was once owned by the government but it was privatized during the late 1980s or 90s. However, the company almost went under during 2001 I think it was when their shares dropped to 14 cents each from about $1.50. The government bailed them out and still owns about 51% of the company. During covid, the government bailed them out again after the border closures placed them in a financially precarious situation.

Lombard Finance L.T.D

This was one of those finance companies which offered higher interest rates than the banks for fixed term accounts. Lombard as it turned out had too much money tied up in too few projects and when one of their creditors folded it brought Lombard down with them. It lent money to property developers. Lombard Finance collapsed in 2008

Provincial Finance L.T.D

This company lent money for consumable items such as cars etc. It, like Lombard, offered higher interest rates for fixed term than the high street banks. It was also a victim of the Global Financial Crisis.

Dominion Finance L.T.D

Another finance company which fell victim to the Global Financial Crisis. It too offered higher fixed term rates than the banks were offering.

Must be a lesson there somewhere.

These were by no means the only finance companies which went belly up during the G.F.C; South Canterbury Finance and Hanover Finance were high profile collapses. 

Some investors lost their entire life savings in Hanover FInance. 

That is a classic case of putting all your eggs in the one basket; a crucial mistake which affected how some folk will live during their retirement years. 

Greed sometimes over rules better judgement.

We sometimes hear stories of young folk who have bought xxx stock in xxx company which has risen in value by a ridiculous amount. This type of rise is not sustainable and it is only a matter of time before the rising share value slows or in some cases takes a spectacular dive. 

I mentioned young folk because they do not have the past experience of older investors.

It has to be said that those who have made the most investment mistakes are likely to be in a better financial situation than those who played it safe all their lives and just kept their money in low interest accounts. Certainly better than those who are spenders rather than savers.

The bottom line is that it pays to diversify and spread your risk but the level of risk one takes is dependent on a person’s age because younger people have more time to recover from financial mistakes.

A lot of people cannot stomach the thought of losing a few grand on their investments yet would have problem frittering that money on lottery tickets, cigarettes, or booze. In order to achieve more favourable financial outcomes it is important to do a stock take of your outgoings (spending) and transfer money which would otherwise have been wasted into something more profitable. This could be starting an internet-based business, investments, or upskilling.

During the 1987 sharemarket crash thousands of investors lost fortunes. Many of them borrowed money using the value of their shares as collateral and the rising share prices meant that they were able to borrow more money. The collapse of the markets left investors with shares which were worth less than the value of the loans taken out to purchase them. The lesson here is to never borrow money for shares.

Here is a quote from the Auckland City mayor concerning debt levels. “Capacity to borrow is not the issue. It’s the capacity to pay it back.”

The other lesson is that it may be better to invest in upskilling. It never hurts to add another string to your bow.

This article is the result of the writer’s experience and opinion and not considered as financial advice. If you require qualified financial advice see your bank manager or financial advisor.

www.robertastewart.com