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Financial language

Financial language

Written by R. A. Stewart

It is important to familiarize 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 chancre 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 owing on the property from it’s 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 is 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

The 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 it’s 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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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.

www.robertastewart.com

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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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COOL HEAD NEEDED DURING THE MARKET SLIDE

Important not to panic during sharemarket downs

The markets will be on a rollercoaster ride for the duration of coronavirus, it is important to keep a cool head and not rush into a decision which could undermine future returns on your investment.

It is all down to your risk tolerance. Those who have invested in more conservative funds may be less affected by the falls in the markets but in the long term lack of exposure to risk will prove costly.

Companies connected to tourism will be most affected by the coronavirus outbreak and these include hotels, airlines, and airports. 

Of these I think airport stocks when they bottom out will be a good buy with Auckland Airport being worth a punt. The airport is not going anywhere anytime.

Some of the markets were down by 3% this week; this sounds a lot but it all depends on how much you have in your retirement fund, (Kiwisaver in NZ). 

Here is a table;

INVESTMENT 3%+ 3%-

$1000 $1030 $970

$5000 $5150 $4850

$10,000 $10,300 $9,700

$20,000 $20,600 $19,400

$30,000 $30,900 $29,100

$40,000 $41,200 $38,800

$50,000 $51,500 $48,500 

The ups and downs of the sharemarket become more noticeable as your retirement fund balance grows. In New Zealand, the government’s contribution of $520 per annum to your kiwisaver will help offset losses as will your employer’s contributions which are 3% of your gross income.

When your balance drops by say 3% then your balance needs to grow by more than 3% to regain those losses.

On the news this week, financial expert Sam Stubbs made the point that in 1918, I think it was, the sharemarket dropped by 11% yet was up by 13% a year later, and it was the same with Sars and 9/11.

If you are investing in individual companies in the market then it will pay to invest in companies least likely to be affected by Coronavirus such as power companies such as Genesis, Mighty River Power, and Meridian Energy. Everyone uses power so they are worth investing in.

Companies to avoid are those connected with the tourist industry but I think Auckland Airport when they bottom out are worth a punt.

Most people do not have the means to invest in individual companies but there is an option for doing just that and it is with sharesies where you are able to dripfeed money into the sharemarket. You can start with just $20 and invest $10 at a time. With Sharesies you can invest in managed funds or individual companies. 

Sharesies is an excellent way for youngsters and the not so young to get some practical knowledge of the markets. There is no substitute for hands on experience when investing.

You can join Sharesies here; https://sharesies.nz/r/377DFM

And my God shall supply all your needs according to his riches in Christ Jesus. Philippians 4:19

This article is the sole opinion of the writer and is not intended as financial advice.

www.robertastewart.com

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WHAT IS YOUR RISK PROFILE?

Your risk profile-what is it?

Your risk profile is the level of risk you are willing to take when you make an investment! The higher the potential return on your investment, the higher the risk but the catch 22 situation is that just parking your money in low risk low return investments will inhibit your potential returns and could end up costing you in the long run. Taxation and inflation will eat away your profits so investing needs to be a balance between risk and reward.

Your risk profile is a big factor when deciding how you are going to invest and that has several parts to it so lets examine them.

1. YOUR AGE

When you are young, you are able to take more risks because you have more time to recover from financial setbacks but that is not to say you cannot be on the conswervative side if your circumstances warrant it.

It also does not mean that you cannot take risks when you are approaching retirement because chances are that you could live long after you retire.

2. YOUR GOALS

It would be madness to invest in high risk (growth investments) if you require the money in the short term, say within the next 6 months to pay for a wedding, new car, or whatever because the markets may be losing ground and you may end up with less money than you intended. Therefore for money you require in the short tern, invest conservatively.

3. PERSONAL MAKE UP

If the prospect of losing your money is going to cause you to lose sleep then lean towards more balanced investments. These are a combination of growth and conservative investments.

Your potential return will not be as much as it could be but at least you will sleep easy, albeit, at a cost.

4. YOUR FINANCIAL SITUATION

If you are up to your eyeballs in debt then clearing that debt has to be your number one priority and staying out of debt is priority number two then you can think about saving for whatever reason. Investing in the kiwisaver scheme is a very good investment for the reason that there are tax credits of up to $520 per annum and you are entitled this providing you invest a minimum of $1040. That equates rto 50% return on your investment, tax free. Where else will you get a return like that?

At the end of the day, it is your money you are investing and it is you who will bear the consequences for any financial decision make.

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www.robertastewart.com