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Timing the Market

Would you have been much better off if you had timed it just right?
2022 has not been a good experience for investors with some commentators saying that the first six months of the year has been the worst six month period for at least 50 years.
A little over 5% of the funds in New Zealand have shown a positive return during the six months to June 2022 according to research house Morningstar but what we do not know is what type of fund this 5% had invested in because it is almost certain that if they had been invested in growth funds then they would have joined the other 95% of funds which have shown a negative return.
So are you able to time the market perfectly every time?
The short answer is “No.”
The reason why this is so is that the odds of getting it right every single time is stacked against you.
If there was a method of timing the market perfectly every time then someone would have discovered it by now and you can guarantee that they are not going to share their secret with everyone.
we all have an opinion of some kind n what the markets will do; at the end of the day the markets are driven by market sentiment.
One cannot expect to be an expert on the markets overnight; it is no different to being knowledgeable about anything else. It all takes time and a bit of reading but knowledge does not involve just reading and listening; it involves doing. That is, investing; there is no better teacher than your own personal experience.
Warren Buffett recommends against obsessing over finding a perfect time to buy a stock.
“Don’t worry about what the market is doing or might do, or what the economy is going to do,” says Buffet. “Instead, think about the things you can control. Why am I investing? When do I need to use the money? Then set up an investment plan for your personal circumstances-because your goals can’t wait, but emotive headlines can.”
There is no doubt that investors jump on a bandwagon when a particular stock is rising.
The market is driven by emotion but whether a particular stock will rise or fall is not the only consideration. There is the matter of taxation. If stocks are held for a short period then sold your tax status may have changed to a trader but this area is a bit murky. A capital gains tax is in force in some countries so some of your gains could be reduced by a tax liability.

from time to time you might read of stories of investors who made a killing by timing the market just right but you never hear of the occasions of when these same investors who tried the same thing since and got their fingers burned. Greed eventually gets the better of speculators.
Timing the market correctly can sometimes be down to luck and that’s something to keep in mind if you see an advert from some guru who made a one time killing. Anyone can achieve a one off success but it is doing it consistently which is the problem. It is for this reason why spreading your investment among various forms of assets is the best way forward.
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5 things you should never borrow money for

5 things you should never borrow money for

Written by R. A. Stewart

Holiday Travel

This is a complete no no because once your holiday is over you have nothing to show for the money which has been spent on it. Before overseas travel is considered it is important to think where in the scheme of this could that money be better spent as far as your goals are concerned. Other debts such as a mortgage, car repayments, and hire purchase repayments must all take priority and this is where any surplus cash should go. To go on holiday while having these debts hanging over your head is completely irresponsible. If this is you then you are heading for financial hardship.

Cryptocurrency

I have said it many times previously; “Only purchase cryptocurrency with your discretionary spending money.” In other words, money which you can fully afford to lose. Money which is set aside for household bills such as the rent/rates money or power should not be used for purchasing cryptocurrency. If you bought bitcoin and lost it all, would that cause you undue hardship? is the question which will determine whether you should go ahead with your purchase. It is also worth remembering that cryptocurrency wallets can be hacked and you can also lose money this way. It is also a good idea to point out that investing in cryptocurrency should never be a substitute for investing in your country’s retirement scheme but rather is something treated separately.

Electronics (TV, Laptop, etc)

There are items which are classed as needs and wants. Needs are things such as rent, power, food and grocery items, car expenses, etc. Wants are luxury items which should only be bought with discretionary spending money. Borrowing money for household goods is called consumer debt. You are borrowing money for items which lose their value over time. If you are borrowing money to pay for your needs then there is something seriously wrong with your household balance sheet and making an appointment with a budget advisor is the first step toward getting back into the black.

Furniture

As with other consumables you should never borrow money for household furniture. It is better to pick up cheap stuff from a charity shop than to go into debt for the sake of impressing your peers with nice stuff which is what you are basically doing. Some folk are so focused on accumulating stuff rather than accumulating assets that they never get around to achieving any kind of financial success because there is always something they want to buy. Once something is paid off they look for something else to buy on credit. It becomes a never ending cycle of debt and in the long term all of the interest payments add up to a huge sum of money.

Pets

An absurd amount of money is spent by some pet owners per annum; namely dogs and cats. It is one thing spending your discretionary money on your hobbies and pet ownership is one, but it is another to use borrowed money to pay for it all. I have seen some people spend a lot of money on vet bills for cats and dogs when the sensible thing to do would be to have the animal put down. I was told of someone who spent a grand on vet bills for a cat only for it to die a few weeks later. Now you have to think what would you have done with that kind of money? It could have been used to pay off a mortgage if you have one or some other debt, or have been invested into some mutual funds. 

We all have a choice to spend whatever discretionary income we have and each choice has different outcomes, therefore the trick is to invest your money into something which will give you the best kind of outcome for your personal circumstances.

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How to Finance Books Book Review

How to Finance Books Book Review

Your Money Your Future by Frances Cook

There are some very good financial how-to books written by New Zealand authors which are a good read. If you come from a country outside of New Zealand then maybe you can find these listed on Ebay. You will almost certainly find these listed on the New Zealand auction site trademe. One such author whose books are worth reading is Frances Cook.

Frances is a top-rated pod caster and personal finance journalist. Her book, YOUR MONEY YOUR FUTURE is worth a good read. “The best time to plant a tree was twenty years ago. The second best time is now.” according to Frances. The book contains practical advice which anyone can use to achieve better financial outcomes.

There are several interesting points made by the author; some interesting ones being:

The 4 percent rule

This is how much you can spend on your savings per annum after you retire from working.

Income – expenses = savings

You just need to create a gap between your income and your expenses whichever way suits you, in order to save money; “a very simple equation”says Cook.

Chapter nine is titled, “To understand money, think of it as time.” The more time you have on your side, the more you want to invest in risky assets. It is not risk such as investing in a new cryptocurrency which may make you a packet one year only to lose it the next. Everything comes down to time. It is the key to unlocking the key to what you do and when. Older people need more cash on hand, because they’re in the spending phase of life.

Debt was another topic covered. “Spending money you don’t have is called debt”, says Ms Cook. “It is a monkey on your back. Your debt is standing between you and a better savings rate. The money you can’t have today as a debtor has to pay for the life you lived in the past. The debt needs to go first so that the future doesn’t keep being held back.”

Without knowing your personal situation I believe that even if you are in debt it is still important to contribute to your country’s retirement scheme in order to take advantage of the incentives your government provides, not to mention the captain gains on your money but it is a balancing act and as Frances Cook points out. Debt is a hindrance to your financial well-being and has to go beginning with the debt which you are paying the most interest on.

increasing your income through side hustling is covered. One piece of advice given is to look at other industries and see if you can adopt and repurpose the idea to your own area.

Also covered in the book is retirement and Frances says “You are either retiring from something or retiring to something.”

What do you do with your life if you don’t need your job anymore? It might be volunteering for a charity or community group. If you focus on retiring from something, you focus on what you are leaving behind. If you’re retiring to something instead, you have an end goal in sight. You may have a business you want to launch in an area of your passion. You are creating a life, not just quitting the one you currently have. If all you are focusing on is retirement from the life you had then you will find life very empty afterwards.

Frances Cook really puts things into perspective and asks a few hard questions. At the end of the day, a book such as this, may have a lot of useful snippets of information but it really is up to each individual to establish what their personal goals are and incorporate ideas from the book which are appropriate to your situation.

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3 FINANCIAL MISTAKES TO AVOID

Avoid these three Financial Mistakes

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 colors 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 def 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 really is up to your own risk profile.

www.robertastewart.com

 

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How to gain Financial Literacy

How to gain Financial Literacy

Written by R. A. Stewart

Financial literacy is the ability to handle your money. It is basically the skill to make the most of your money and not fall into the traps of the illiterate. No one is born with financial literacy but some are born with an inability to understand financial matters. This may or may not be due to hereditary conditions. 

For the majority of people, financial literacy can be learned and practiced. You can read all of the books on personal finance in the library but all of this information will do you no good unless you put it all into practice. And it is then and only then will the real you come out.

Being a savvy investor is not all about making the right investments but there is the mental side of it. You need to be able to stay strong when things are not going your way. 

You need to keep a cool head when the markets are sluggish and your portfolio seems to be losing value. It is also the negative comments of others that you need to shut out. Everyone is keen to provide advice of some kind; it is up to you to discern whether it is good or bad advice.

It is therefore important to build up your financial literacy but you do not need to spend an arm and a leg on books on courses when it is all available for free.

Your town’s public library will have books on personal finance. Learn the methods used by these authors and apply them to your circumstances if they fit in with your financial goals.

You may even pick up a few financial books at a charity shop in your town. I have. It is unbelievable to think that when so many people complain about inflation, cost of living, and so forth that few people find it worthwhile to purchase these books for a dollar or two.

The internet has a lot of free financial advice. Just do a google search of any financial question you have and see what comes up. There are videos of a financial matter on youtube if you prefer to watch videos.

All of this will assist you in making the right choices but, keep in mind that mistakes will be made and the main contributors to financial mistakes are greed, fear, and a lack of knowledge, These can easily be overcome by financial wisdom. Having the discernment to know bad advice from good advice is a good quality to have.

There really is no excuse for financial ignorance because it is more widely available than ever before.

Obtaining head knowledge is one thing but putting it all into practice is another and that is where your real knowledge develops. What you read and hear is information but it only becomes real knowledge once you use that information.

There is no greater teacher than real life experience. 

Your mistakes will be your most expensive lessons but you do not need to make the same mistakes as others have made. Just keep your eyes and ears open to whatever is in the news and you will learn of occasions where investors have lost considerable sums of money. Try to figure out the lessons in these situations in order to avoid making the same mistakes.

Studying history can be useful if you can learn from the mistakes of previous generations in years gone by. The 1987 stock market crash (Black Monday) has plenty of sad stories. Many people never recovered from that while others were more cautious with their money. Same as with the 2007/08 Global Financial Crisis (GFC). A number of retired folk lost all their life savings when several finance companies fell over. Again you will learn some valuable lessons from some of the mistakes these investors made. 

Wisdom comes from life experiences; if you are young you will hear stories from the older generation. Keep your mouth closed and listen because you will learn valuable lessons.

www.robertastewart.com/internet-income

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