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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?”

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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.

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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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RETIREMENT SAVINGS SCHEMES

Kiwisaver Retirement Savings Scheme

“A good man leaves an inheritance to his children’s children.” Proverbs 13:22

Saving for one’s retirement is the responsible thing to do and it is up to each individual to get their own finances sorted for their latter years. New Zealand has their own retirement scheme as most other countries do to help make life easier for their citizens when they retire. 

The New Zealand retirement scheme is called “kiwisaver.” It is open to New Zealand residents. Kiwisaver is voluntary and anyone aged up to 65 can join. You do not have to be in work to join kiwisaver, you are able to make voluntary contributions at any time.

You are about to make contributions through your wages and salaries of between 2%, 4%, or 8% (you choose). Your employer will also make contributions to your kiwisaver account. If you are not employed then you can choose to make voluntary contributions.

The key component of kiwisaver is the government’s contribution which is a maximum of $10 per week or $520 per year but you have to contribute at least $1040 per annum to get the full $520 otherwise you the government will put in 50% of whatever is your contribution.

You will receive the government money sometime in July. The kiwisaver year starts 1st July and ends 30th June and any money deposited into your kiwisaver account during this period will be eligible for the government contribution the following July. You could say leave it until June before you put any money in kiwisaver and still be eligible for the tax credits as the government money is sometimes called.

When joining KiwiSaver you will be given the choice of fund managers. If you do not choose one, the I.R.D (Inland Revenue Department) will choose one for you and when this happens, it tends to lean on the more conservative side. 

You have the option of different funds, Growth, Balanced, or Conservative with growth funds being aggressive. They have the potential to grow your savings but the downside is that they are the most risky. Conservative funds are low risk but can inhibit the growth of your savings while balanced funds are a combination of growth and conservative funds. 

Your savings in kiwisaver are locked in until you reach the retirement age of 65 (applicable in NZ) but you may be able to access your funds under exceptional circumstances. These are if you are suffering from financial hardship, have a terminal illness, or die (money goes to your estate). It is important that you have a will because if you don’t, any money still in your kiwisaver will likely be swallowed by lawyer’s fees.

You may use some of your kiwisaver funds for a deposit on your first home but only after you have been in kiwisaver for at least five years. If you are at that stage where you will be looking at purchasing your first home in the not too distant future then it would be a good idea to go for a combination of balanced and conservative funds when choosing which type of kiwisaver fund to invest in because if you went for growth funds, the markets may have gone down when it comes time to withdraw some of your kiwisaver funds for a home deposit. That would be a double whammy because when the market recovers and is on the up, you have missed out on the gains because you withdraw your money when the market was down.

It is a good idea though to have other investments which can take advantage of the swings and roundabouts of the markets even if you only have a small amount to invest. 

Always try to keep up to date with what is going on in the financial world as this will increase your financial literacy and help you make better decisions on your finances.

Check out my site www.robertastewart.com for useful information on how to increase your wealth.

The information in this article is the writer’s opinion and experience. It is advisable to seek independent financial advice to ascertain the best financial plan for your situation.

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Taking Responsibility for your Finances

Taking Responsibility for your Finances

Life is full of choices and what you do with your choices determines the outcome or what happens in the long term. Taking no action is a choice in itself. As far as finances go, what you do with your resources can make a difference to your life.

In New Zealand and in most countries some form of retirement scheme is in operation.That is where a small percentage of your pay goes directly into your retirement scheme. There are various incentives available to encourage people to contribute toward their retirement savings. 

New Zealand’s retirement scheme is called “Kiwisaver” and it is voluntary which means that no one is compelled to join or to contribute to their retirement fund if they do not wish to.

Considering the advantages of belonging to Kiwisaver it is truly baffling why anyone would not want to join. 

I have heard all kinds of excuses such as, “I’m not earning enough,” “You can’t take it all with you”, “Other people are not in Kiwisaver.”

These are all excuses and not reasons.

The truth is and the real reason why some people are not involved in KIwisaver or are contributing toward it is because they are irresponsible.

Of course you will not hear any of them admit that.

The bottom line is that it is not up to the Prime MInister to spoon feed people. At some point one has to take responsibility for your own finances.

Irresponsible behavior is a habit and a pattern of behavior. Responsibility is a dirty word to some people and a person who is not responsible enough to join a retirement plan of some kind is likely to be irresponsible in other areas of their life. The number of one parent families is a prime example of this. “Where are the fathers of these kids” is a question I sometimes ask myself when I see a story on TV about single mothers.

Responsibility also means that you must make the decisions on which funds to invest in; those who may be intellectually limited and those who do not have the time to do their research can make the use of a fund manager by investing in managed funds. All money invested into kiwisaver are in managed funds. 

Fund managers are skilled and have the kind of financial knowledge that the ordinary man in the street does not but you still have to choose which fund to invest in whether it is growth, balanced, or conservative. 

Markets will go up and down which are beyond the control of the fund manager, therefore, do not take your anxieties out of them when the markets are down.

It is certainly a fact of life that some people will let others make their decisions for them so that they have someone to blame when things turn to custard.

You may have a financial advisor but they still need to know what your intentions are as far as your goals in order to make the right choices for you. An investment made for someone who has thirty years left till retirement is not going to be the same as one for someone who has five years to go. It is your responsibility to keep your advisor informed.

That is, if you have an advisor. If you do not then it is up to you to do your own homework. That way, if things turn to custard then the person who is to blame is the one you see in the mirror every morning.

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KIWISAVER RETIREMENT SCHEME

HOW TO MAKE 50% ON YOUR MONEY TAX FREE

Do you want to make 50% return on your money tax free?.

Sounds too good to be true?

Some people will now be thinking that I must have fallen for one of these internet scams. The truth is thousands of New Zealanders are doing this every year which has helped to build up their wealth and it is really no secret; in fact people are encouraged to participate in this scheme by the government.

Over a million Kiwis are making 50% of their money in this scheme every week and if you have not guessed what it is, it’s KIWI SAVER.

The government will contribute $520 to your kiwisaver account per annum but you must contribute at least $1040 to get the $520. If your annual contribution is less than $1040 then your tax credit will be 50% of whatever your contribution is.

Let’s look at an example.

If 4% of your gross income is deposited into your kiwisaver account and you earn on average 50k per annum then your contribution to kiwisaver per annum is 2k. 

There are countless thousands of New Zealanders who are living from payday to pay day who may struggle to contribute even $1040 annually to their kiwisaver account. If you can find a way to contribute money to your kiwisaver then it will be worthwhile in the end. What you spend your money on is what takes priority in your life so if you want a way you will find a way to reach the $1040 target.

Your employer will contribute 3%  of your gross income to your kiwisaver account; it all contributes to your retirement savings.

When signing up for Kiwi Saver, you are given several options of which funds to invest your money, the degree of risk each of these funds carry depends on where your money is being invested.

The funds offering the highest return are also offering the greatest risk of loss, the thing to bear in mind us that if there is a chance of a capital gain then there is also a chance of a capital loss and there is no guarantee that a share market crash such as the 1987 black Monday one will not occur again and it is the higher risk funds which will be affected mostly.

Your tolerance to risk is another factor to consider, there is no point in investing in higher risk funds if  the possibility of loss is going to cause you to lose sleep. Your age is another factor to consider; if you are young then you have the luxury of time on your side.You have more time to recover from financial setbacks.

These are just some things to think about but it’s best to speak to a financial advisor before making any decision.

www.robertastewart.com

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UNDERSTANDING INFLATION

How to beat inflation guide for ordinary people

Inflation is no respecter of people; it affects all of us, rich, poor, or in between; you do not have to have a lot of money to feel the effects of inflation, in fact, it is those who are least able to afford the rising prices who are affected by inflation.

So what is inflation?

Inflation is the name given to the rises in prices. This is all tallied up and averaged out with the measure of inflation indicated by a percentage point. If inflation is say 1.5% then it means prices on average have risen by 1.5% in the 12 months the survey was taken.

There are many different strategies for beating inflation, most involve investing for a return greater than the inflation rate. If you just stored the money under your mattress, the value of your money would decrease every year by the value of the inflation rate. If the inflation rate was 1.5%, then your money would decrease by 1.5% per annum.

1-CUT UP THE CREDIT CARDS

When you purchase stuff using borrowed money, you are paying inflated prices for everything and this all adds up during your lifetime. “If you have not got the money then don’t buy it,” is a good rule to live by.

2-CUT BACK ON YOUR SPENDING 

This is the best way of getting ahead financially in life and will protect you from some of the effects of inflation. Think of everything you spend on an annual basis. Some folks think nothing of spending $20 on coffees per week, but that adds up to  $1000 per year.

3-BUY SECOND HAND WHENEVER PRACTICAL

There is a huge difference between the price of something in a high street store and that same item in the second hand/charity shop; the amount you will save will quickly add up during your lifetime.

4-DON’T JUST SAVE YOUR MONEY…

Invest it; there are plenty of options for you to invest your money, even if you do not have a lot to invest. “You do not have to be rich to invest but you need to invest to become rich.”

5-MANAGED FUNDS

This is my favoured method for a long term inflation beating investment. Your retirement fund with all of it’s incentives is a no brainer, but there are lots of other managed funds you can join, many are ideal for the small saver who do not earn all that much. Managed Funds or Index Funds as they are also called have stood the test of time as the best way of beating inflation.

There are a lot more options for investors looking for managed funds to invest in and some of them can be started on a shoestring, it is all about managing your money and how to beat inflation.

www.robertastewart.com

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WEALTH CREATION DOES NOT JUST HAPPEN

Wealth creation does not just happen….

It is the result of living within your means, saving, and then investing.

Simple isn’t it?

So why are so many people have so little to show for their years of working?

There is no one answer to this question, but…

whatever the reason for their lack of financial success can be summed up in just two words;

Financial illiteracy

People are not broke without a reason and neither are they prosperous without a reason.

If you divided the world’s wealth equally between its citizens, it will not be too long before everyone will return to the same financial position as they were previously because everyone has developed habits of using their money which will either build their wealth or keep them poor.

There is no secret to the financial success of those who build their wealth, and it can be summed up in two words;

Financial literacy

No one is born with financial literacy, just like education of every other kind, it is learned. 

So where do you learn about financial matters?

Start with your local library, there are plenty of books you are able to borrow on financial matters. Your local bookstore, ebay, or Amazon all have books on finance while you may pick up the odd book on the subject from a charity shop.

One good book to keep an eye out for is “Rich Dad Poor Dad,” there are a lot of other books from the same author. 

The author of Rich Dad Poor Dad stresses the importance of developing income producing assets and reducing those or at least eliminating liabilities which cost you money.

I have a free ebook to give away, it is called “Financial Steps.”

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