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The averaging system for shares

The averaging system for shares

Averaging is a term which has been used by share market followers over the years. This is when an investor buys several shares in the same company over a period of time and the average price which was paid per share may be higher or lower depending on which direction the share price is going.

Here is an example of one New Zealand company, Fletcher Building beginning with January 4, 2023. The first three days of the year were public holidays so January 4 was used as the starting date and every seven days after that.

Date Share Price

4/1 4.71

11/1 4.90

18/1 5.06

25/1 5.11

1/2 5.25

8/2 5.46

15/2 5.07

22/2 4.81

1/3 4.71

8/3 4.65

15/3 4.50

Now let us assume that you had purchased Fletcher Building shares on each of these dates, investing the same amount of money. You would simply add up the totals of these prices and divide the answer by 11. That is the average price you paid for the share. In this case the average price you would have paid for Fletcher Building shares would have been $4.93 if you had bought them every week. 

We all know that shares go up and down so drip feeding shares into the market in this way will ensure that you have bought shares at a lower price when they are down as well as when they are on an upward trend.

Online trading platforms such as Sharesies and Robinhood make this process easy. If you have more money to spend you may want to choose two or more companies per year to invest in using this system.

As with other investment strategies you need to ask the question  “Where does this fit in with my financial goals?”

About this article

You may use this article as content for your ebook or web page. The information may not be applicable to your personal circumstances so discretion is advised.

Start investing on a shoestring

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

 

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The Art of Averaging 

INTRODUCTION

Investors must realize that investing in the markets has its ups and downs (literally) that it is important to keep it all into the right perspective if investments do not go your way. There is a method of playing the markets in a way that you can take advantage of the market drops. 

The Art of Averaging 

Averaging is a term one may come across in the markets now and again; what this refers to is the average price paid for a particular share if you had bought shares in that particular company.

To calculate the average price paid for a particular share you add up the total amount you have paid for the shares and divide that by the number of shares you have bought in that company. 

The answer is the average amount that you have paid per share.

Try this mathematical question:

There are five numbers 10, 20, 30, 40, 50

What is the average number?

The calculation: 

Add up the five numbers:  10 + 20 + 30 + 40 + 50 = 150

Divide the total of the five numbers (150) by 5

150 divided by 5 = 30 (answer)

You can do this easily with a calculator.

There are so many share trading platforms available these days that investing directly into the sharemarket has never been easier for the ordinary man and women.

So how does averaging work?

If you purchase stock at regular intervals you will pay different prices for each stock because share prices go up and down. Imagine if you bought something at the supermarket last week at the full price then bought the same item this week on special. The average price you paid for the item will be somewhere between the higher price and the lower price.

The sharemarket works like that. By purchasing a particular stock at regular intervals you will manage to pick up some shares in it when the price is lower. This is the advantage of saving regularly. 

In fact I think there is a case for purchasing more shares when the price is low. The average price paid per share is determined by calculations as explained earlier. 

The averaging strategy can also be used in cryptocurrency investing. 

Bitcoin is more volatile than the sharemarket so an astute investor who has an eye for a bargain can invest when the price has dropped.

There are so many share trading platforms available that playing the markets is accessible to everyone. I have joined two of them in New Zealand. Most countries have share trading platforms available. Signing up for them is easy; you require some form of identification. Just follow the directions and you are all set up.

TO SUMMARISE

Playing the markets requires a positive mindset and a cool head. If you have these you can profit from falling markets. Averaging is a method that takes advantage of falling markets. 

ABOUT THIS ARTICLE

Robert Stewart has a blog with other articles of a finance nature. Visit www.robertastewart.com Feel free to post this article on to your site, use it as part of your ebook, share it, print it, even sell it.

 

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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.
ABOUT THIS ARTICLE
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www.robertastewart.com
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Now is a good time to join kiwisaver if you have not already

Now is a good time to join kiwisaver if you have not already

Written by R. A. Stewart

It is a good time to join kiwisaver if you are young and just starting out in the world. If you are over 30 and have not already joined kiwisaver then why not? Kiwisaver is the New Zealand retirement scheme. If you are in work you will get the equivalent of 3% of your gross wages from your employer deposited into your kiwisaver account. 2%, 4%, or 8% (you choose) of your gross wages will be deposited into kiwisaver and deducted from your pay. You can also make voluntary contributions to your kiwisaver account. This is an option used by those who are self employed or not in work.

The government’s contribution to your kiwisaver is what makes this a no-brainer. You will receive $520 of government money into your kiwisaver account but you need to invest at least $1040 to receive the full $520 otherwise the government contribution is 50% of your contribution. This is per annum; in other words you need to invest at least $1040 into your kiwisaver account per annum to receive $520 of government money every year.

The Kiwisaver year begins on July 1 and ends June 30 the following year. If you are on part time work and it looks as though your kiwisaver contributions are going to be less than $1040, you can make voluntary contributions to ensure your own contributions reach $1040.

In order to take advantage of the falling share prices you need to be in a growth fund or have some portion of your portfolio in a growth fund, otherwise called a balanced fund. If you are in a conservative fund then you are going to miss out on the market rebound. Financial experts will tell you that if you are in a growth fund then you need to leave it invested for at least five years. That way, if the market falls during this time there will be time for it to recover and recoup any losses which it has to be said are only paper losses.

Money which is needed for the short term such as a holiday abroad next year is considered short to medium term money. If you had this money invested in a growth fund you may find that your spending money for your trip has been depleted therefore, to reduce this from happening investing in something less risky is an option taken by a lot of holidaymakers even though the return on this money is less than the inflation rate.

If you are prepared to take the risk then you might consider investing your short term money in growth funds in the hope of increasing your capital but it is important to understand that whenever there is an opportunity for capital gain then there is a chance for capital loss.

It cannot be stressed enough that it takes a cool head to live through the ups and downs of the sharemarket and be relaxed about it. One thing you can always bank on is that the sharemarket will go up and down. It is important to have a strategy in place to take this into account.

Diversification minimizes your risk. Diversification is when you spread your investment among several companies. One company might fall over but not the whole lot.

Some may argue that if you plunge all your money in one stock then you will make a killing; that is true, but you never hear of those who tried that and lost. If you are going to do that then it should be done independently of your main investments rather than risk your retirement savings going down the drain.

ABOUT THIS ARTICLE

The information in this article is of the writer’s own opinion and may not necessarily apply to your personal circumstances. You are advised to seek professional financial advice if you require assistance. You may use this article as content for your ebook or website. Check out my other articles on www.robertastewart.com

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Crypto-scams on the rise

Crypto-scams on the rise

Written by R. A. Stewart

A newspaper article appearing in the Christchurch press headlined, “Cyber-scams cost Kiwis $3.7m highlighted the dangers posed by those who are investing in online share market, crypto, or NFT platforms. The $3.7m refers to the amount lost to these types of scams in just the first three months of the year.

The sudden rise in popularity of NFT’s (non-fungible tokens) is a contributing factor in the rise of scams.

Cryptocurrency scams are increasing according to the article but not to the same extent as those scams relating to NFTs.

NFTs are unregulated and expensive and payment was difficult to reverse. 

The fear of missing out has created a demand for crypto and NFTs which has resulted in many investors investing in something which promised a great return only for it to be just a scam.

The article gave this great advice which really is applicable to all kinds of investments whether it is online or offline and that is to do your due diligence. 

As far as cryptocurrency goes, due diligence means searching the name of the investment with the words “scam alert”, or searching the FMA warning and alerts page.

Another important thing is to not feel pressured in anything. If you are told to invest within a short time or you will miss out then don’t bother because the promoters of such a scheme are only trying to take advantage of the “Fear of missing out,” mentality in you.

A phishing scam is the most reported scam. It is when you receive an email from someone posing as a trusted site or business in order to gain your personal details. They ask for your log in details and use it to gain access to your accounts. Different strategies may be used and one is when you receive an email asking you to verify your account. When you register for a site you are asked to verify it within 24 hours of joining. If you receive an email asking you to verify your account months after you registered then be wary and do not click on the link provided.

It is also a good idea when registering with a crypto or NFT site to use an email address which is different from your personal one and certainly do not use the same one you would normally use for your banking or online auctions.

As far as banking goes; do not use your main debit card for crypto trading but rather a separate one because of the risks of hacking. Even with all of your own due diligence, there is also the possibility that the crypto exchange website with all of your banking details will get hacked and that is out of your control. It is up to each investor to do their own homework and take responsibility for their own decisions. That way you have only yourself to blame if you lose your money.

ABOUT THIS ARTICLE

Feel free to share this article. You may use this article as content for your website or ebook. Read my other articles on www.robertastewart.com

DISCLAIMER: Please note, this article is not intended as financial advice but rather the opinion and experience of the writer. Caution is advised when investing in cryptocurrency or NFTs.

www.robertastewart.com

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Three sure ways to lose during the bear market

Three sure ways to lose during the bear market

The sluggish year so far for the money markets has made some investors nervous and questioning how they should react. It is important to maintain the right attitude and stick to your plan or you may regret it later on. If you have invested with the right strategy then it is only a matter of living normally and riding out the storm. 

If you have noticed that your share market portfolio balance is lower than at the start of the year and thought, “I have lost xxx amount of money,” then you are not alone. These are only paper losses. There are three sure ways of losing money during a share market downturn, so here they are:

1-Selling your shares

If you sell your shares during a bear market and then the market rebounds you will miss out on the gains that would have recouped your previous losses. You should bear in mind that they are only losses if you cash up when the markets are down. Any financial advisor will tell you that shares are a long term investment.

2-Transferring to more conservative funds

Transferring your funds from growth to conservative during a downturn is a bad time to do it for the same reason as selling your shares at this time. Once the markets rebound you will miss out on the gains when they eventually come.

3-You stop investing in your retirement fund

This too is a bad move. In fact it may be a good time to invest in the markets because you will receive more units for your money which means your investment will grow. Who knows where the markets will be in 5-10 years time. If you have the luxury of time on your side then you can afford to take on more risk with your money.

Inflation is detrimental to your wealth

Keep in mind that if you invest in conservative funds then inflation will erode the purchasing power of your money, however, that is not so much of an issue if you require the money in the short to medium term. It all depends on your time frame and your goals.

DISCLAIMER: Please note this article is of the opinion of the writer and does not constitute financial advice. If you need financial advice then see your bank.

www.robertastewart.com

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One rule for investing you need to consider

One rule for investing you need to consider

Written by R. A. Stewart

The one question you MUST ask yourself before investing your money is, “Can I afford to lose this money?”

Only you can answer this question, but…

that depends on when you need the money and what the loss of your investment will mean for your other goals.

For example if your goal is to save for a car within the next 18 months or so then this is considered a short to medium term goal which means that investing in something with low risk is imperative. Growth funds on the share market and bitcoin are out of the question because the loss of your investment could mean that you may not be able to purchase that car. It really comes down to how badly you require that car. If it is essential for you to get to and from work then you cannot afford to lose the money that you are saving for a car.

The same is said for money which you are saving for a house deposit but it really depends on how soon you require the money. If you are looking at a 10 year timeframe then investing in growth funds may increase your savings faster but no one can predict when and if the markets will crash so it is really a risk to invest your house deposit money this way but the flip side is that if there is a 1987 style crash then house prices will also tumble so less money will be needed to purchase a house.

Can you afford to lose your retirement fund? The answer is no but…

Where your retirement fund is invested all depends on how soon you need the money. Some financial advisors will tell you to scale back the risk as you are approaching retirement but the problem is that if you start doing that when the markets are down you are taking a loss and missing out on any gains which will happen when the markets rebound. The other thing to remember is that you are not going to just spend all of your retirement funds as soon as you retire. You may live another 20 years and that is ample time to recover from any crash which will occur near your retirement. Of course you may want to tick off as many items off your bucket list as you possibly can so the early stage of your retirement will be when you will want to do as much as you can. You certainly do not want to sit in an old folks home at 90 with any regrets.

The size of your retirement fund when you require it is determined by where you have invested your money. If you just saved your money and just left it in low interest accounts you will lose.

How? 

Because inflation will erode the value of your money. Then there is tax on the interest.

It is important to learn how to invest for a better outcome and where you invest should be determined by your age and how soon you need the money.

Saving up for a house is the biggest single investment in one’s life with a car being the second biggest. Not everyone has ever bought a house or car but have saved money for other things; here is a list of other items which many people are spending their money on:

*Paying off a student loan

*Saving for an overseas holiday

*Saving for a business

*Paying off a medical/dental bill

These are major items. It has to be said that saving for a holiday can be considered discretionary spending and therefore will not cause you a great deal of hardship, just disappointment if you lose this money in the share market.

Setting priorities is an important part of managing your finances and the one question that should be asked is, “Can I afford to lose this money?”

NOTE: You may use this article as content for your website or ebook. Feel free to share this item.

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FINANCIAL GLOSSARY

Financial language

Written by R. A. Stewart

It is important to familiarise yourself with financial jargon and their meanings. Do your research on the internet for further information on what these terms mean. This increases your financial literacy.

ASSET RICH-CASH POOR

This refers to people whose wealth are tied up with their property but have little cash in the bank.

BAD DEBT

Usually described as consumer debt or dumb debt, bad debt is when one purchases consumer goods on credit. It is bad debt because the item which has been purchased loses it’s value over time.

CAPITAL GAINS.

This is the increase in value of your asset. It is important to keep in mind that if there is a chance for a capital gain there is also a chance for a capital loss.

CASH ASSET

A cash asset is money in the bank, stocks and shares, and any investment invested with a financial institution.

EQUITY

When someone refers to the equity in their property, they mean how much equity is left after deducting the money owed on the property from its value.

DEPRECIATION

Depreciation is the reduced value of any item purchased. A vehicle is a perfect example of something which reduces it’s value over time.

FINANCIAL PLAN

A plan for your money. To address money issues.

GOOD DEBT

Borrowing money for something which increases in value is considered to be “good debt,” however, it needs to be stressed that if something can increase in value then it is just as likely to decrease in value; shares and cryptocurrency are typical examples.

INFLATION

This is based on the average increase of prices of consumer goods. If your investments are earning less than the inflation rate then you are losing money. 

LIABILITY

This is anything which you have bought on credit and pay interest on. It is said to be a liability. A vehicle is a typical example of a liability. A house could be a liability if it is costing you money but it could be said to be an asset especially if its value is increasing per annum.

NON-CASH ASSET

A property is an example of a non-cash asset. 

RISK PROFILE

This is your temperament to risk and is one factor in determining where to invest your money.

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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KIWISAVER CHANGES IMMINENT

INTRODUCTION

It is important to keep up to date with changes to government policies because it could have some impact on your financial situation and the New Zealand retirement savings scheme Kiwisaver is a perfect example. Even if you are not from New Zealand, your own country will change policies on various issues and these may or may not affect you.

Kiwisaver changes maybe on the horizon

New Zealand’s superannuation scheme called “Kiwisaver,” was introduced in 2007 as a way for all New Zealanders to squirrel away money for when they reach the retirement age of 65. The scheme is voluntary but incentives were put in place to encourage people to join and to contribute to the scheme.

The incentives which were in place when kiwisaver was introduced were:

  1. $1,000 kickstart on joining the scheme
  2. A maximum of $1,040 tax credits per annum. To qualify one had to contribute $1,040
  3. Employer contributions which are at present 3% of your gross earnings.
  4. Deductions were made from your account at the rate of 4% or 8% of your gross income and deposited into your kiwisaver account..

It seems that governments have looked at kiwisaver as an easy form of revenue when trying to balance the books. Because National became the government in 2008 just at the beginning of the Global Financial Crisis and removed the $1,000 kiwisaver kickstart and reduced the tax credit to $520 per annum but one still had to invest at least $1,040 to receive this amount.

This never made any impact on the National party’s popularity. The public understood that the books needed to be balanced.

Fast forward to 2022 and New Zealand has a huge debt to repay as a result of the covid lockdowns. This current government just like the previous one is expected to make cut backs to the kiwisaver incentives as a first step towards balancing the books. The $520 annual tax credit is expected to be removed. The 3% employer contribution is seen as an incentive enough for wage and salary earners to sign up with kiwisaver. Instead, the $520 annual tax credit will still be available but only for voluntary contributions. What this means is that investors need to make voluntary contributions of $1040 per annum to receive the $520 government money. Whatever is deducted from your wages and deposited into your kiwisaver account is not considered to be voluntary. This is expected to incentivise savers into making extra contributions to their kiwisaver account above what they would normally make.

Someone on 50k per annum would receive $1,500 of employer contributions per annum toward their kiwisaver which is a nice top up towards their retirement savings, but the desire to make life more comfortable during one’s latter years should be incentive enough to get most people to have some financial plan in place.

This change is likely to be part of the May Budget.

Since it is Labour voters who are likely to be most impacted by this kiwisaver change it will be interesting to see how this affects Labour’s popularity.

These changes which are part of a government review in kiwisaver are not the only ones. It was also recommended that beneficiaries be enrolled in kiwisaver and that payments be made for them. The other was to pay “care credit” Kiwisaver contributions for people who take time out to raise children, or care for sick or disabled relatives.

The review was ordered by David Clarke, the Minister of Commerce and Consumer Affairs.

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