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Investing in New Listings

Investing in New Listings

Written by R. A. Stewart

Is it worthwhile buying shares in New Listings, also known as Initial Public Offerings?

I have read that these have the potential for significant early gains, but they can at the same time be risky. 

Pros

There can be benefits in investing in new listings.  They are:

  1. High growth potential if the company performs well in the early stages
  2. You get the chance to invest at the offering price before the company lists on the stock exchange.
  3. The IPO process has stringent rules meaning there is increased scrutiny on the company prior to listing.
  4. Newly listed companies are often hyped up meaning that the share price rises sharply soon after listing.

Cons

There are some downfalls of investing in these new public offerings. They are:

  1. There is limited data to use for making a future prediction.
  2. Shares can be highly volatile if the market is down or the company fails to meet its expectations.
  3. If the New listing is oversubscribed you may receive fewer shares than you requested.
  4. The new listing can be overhyped by its promoters that the price per share is set too high leading to a drop in the share price once the trading starts.

Things to consider

  1. Read the prospectus and do your research online to make sure you understand the risks involved.
  2. Company insiders may not be able to sell their shares for a set period of time and when this set period ends there may be a considerable drop in the share price.
  3. Access to new listings may not be available unless you have a brokerage account, however, they may be available through online platforms such as sharesies and robinhood which allow you to purchase shares with a minimum of investment.
  4. If you don’t have the time to research individual IPOs then maybe you can invest in an Exchange Traded Fund  (ETF). This way you are able to invest in a range of IPOs without trying to pick a single IPO.
  5. Monitor the stock after purchasing it to see how it is going. There are some influencing factors which determine the directions of the stock. This can be initial public demand and hype, market sentiment, and economic trends.
  6. My view is that Initial Public Offerings are not for long-term investing but something which can be part of your portfolio as an added interest. The same rules apply to initial public offerings as they do with any other company you are investing in. The questions you should be asking is:
  7. How does this fit into my financial strategy?
  8. Can I afford to lose this money?
  9. How have similar companies fared in the past?

In a nutshell you should do your own due diligence because you are the one who has to live with any financial decision made concerning your money.

About this article: The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook.

Read my other articles on www.robertastewart.com

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Invest and Forget

Invest and Forget

Written by R. A. Stewart

I know a couple of people who have money invested in the share market and keep track of how their investments are going by checking up on their shares online just about everyday. I told them that I just invest in such and such and then just forget about them. 

For me, there is no point in worrying about how your share portfolio is going because what the markets are doing is out of my control.

If you have chosen where to invest your money and it is in line with your values, your goals, and your risk profile then what the markets are doing should not be a concern for you.

Financial experts will tell you that if you are investing for the long-term, 10 years plus, you should be a little more aggressive with your investing.

Some investors get panicky when the markets are down and shift funds. Then what happens next is that they miss out on the gains which would regained their previous losses, if you can call it that, because these are just paper losses. They are temporary, but if you decide to sell when your shares are down or switch to conservative funds then these losses are locked in.

Some investors change fund managers because their funds are not doing well. It is worth noting that past record is no guarantee of future performance, so even if a particular fund manager out performed all others this year it does not necessarily mean that they will continue this trend.

If you have chosen which fund type to invest in then how the markets are performing should not be an issue.

Your savings goals can be categorised in one of three goals; they are:

Long-term goals

Medium term goals

Short term goals

Long-term goals are money which is not needed for 5 years+. Retirement savings and house deposit savings are examples of long-term goals.

Medium-term goals are money not needed for 1-5 years. Saving for a car or the trip of a life-time fall into this category.

Short-term goals are money needed within 12 months. This could be your emergency fund set up for unexpected expenses such as an appliance or car breaking down. School expenses, etc.

There is no one shoe which fits everyone, therefore it is up to each individual or couple to set up their own financial plan according to their goals and personal circumstances.

Which funds are best for you?

There are three types of funds to choose from when you invest in a managed fund, also called mutual funds. They are:

Growth funds

Balanced funds

Conservative funds.

Growth funds have the most potential to grow your wealth but are the riskiest. They are for long-term investing. It is suitable for young people because they have more time to recover from a market meltdown.

Balanced funds are a combination of growth and conservative funds. They have the potential to grow your funds but are not as risky as growth funds. 

Conservative funds are safer than growth and balanced funds but are not as profitable. They are more suitable for short and medium-term investing depending on how much risk you are prepared to take on.

Once you have chosen where to invest your money, you should just get on with your life and turn your attention to other things. In other words, “Invest and Forget,” because what happens in the money markets is out of your control.

About this article

This article is of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your website/blog or ebook.

Read my other articles on www.robertastewart.com

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The Advantages of Saving Money

The Advantages of Saving Money

Written by R. A. Stewart

“It is not how much you receive but rather what you do with it after you receive it.”

The benefits of saving a portion of whatever you receive cannot be understated. We all have a choice in what we do with our money and unless you are being controlled by someone else then your choice of what happens to your money is the major influencer of your long term financial wealth.

It is the choices you make in life which will have a major influence on your financial outcome. That is the choice of entering into a relationship, the choice to purchase a car, and so forth. In many instances there are people who bleat about the cost of living crisis but at the end of the day their situation is often their own making.

It is all about priorities. 

It can be said that stupidity is one reason for poor financial outcomes. I mean how else do you explain why there are people who are subscribed to Netflix and satellite TV, but have not joined Kiwisaver, New Zealand’s retirement scheme.

Saving for something and not just for the sake of it will give your life some purpose.

If you are wondering what to save for, here are several ideas:

  1. Your retirement
  2. An emergency fund
  3. An education fund
  4. Travel
  5. Major Purchases
  6. Your Hobbies
  7. Your Wedding
  8. Home repairs
  9. Start a business

There is a stark difference between saving to build up your wealth and saving to spend. When you are saving to build up your asset base you are increasing your resilience to life’s financial shocks. Saving to spend means that you are back to square one once your money is gone. This is particularly so when it comes to travel. 

Other expenses such as further education can be a good investment but you have to be sure that it is what you really want to do otherwise it will be just a waste of time and money.

Setting up an emergency fund is an excellent way of having money available for unexpected expenses which may crop up from time to time. 

Home repairs may add value to your home but it all depends on your priorities. Retired people may prefer to spend that money on travel.

Here is something to think about:

Having your assets in the share market means that your assets can be quickly turned back into cash when you need it. This is not the case with property which may take months to sell.

Another thing to consider with property is that many of the home improvements may not even increase the valuation of the property which means that it is money which is spent with no return.

Saving and investing money is a good habit to get into, it leads to a more prosperous future. Borrowing money and getting into debt is a bad habit which can lead to a poor financial outcome. Even if you do manage to pay everything by the due date, you have to consider whether you are making the right choices in your choice of lifestyle.

Paying interest on borrowed money over a lifetime is an expensive way to purchase stuff. It is better to save up for things rather than borrow, that way you will pay the retail price of whatever it is you are purchasing.

The bottom line is that living within your means is the key to managing your money successfully and that requires discipline.

Read my other articles on www.robertastewart.com

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It takes Vision to make Provision

Written by R. A. Stewart

“Where there is no vision, the people perish.”-Proverbs 29:18

Financial planning takes vision. It also takes a bit of maturity and responsibility.

The choices you make today will affect the choices you have available to you tomorrow.

It is all about making provision for unforeseen circumstances and not all circumstances which you may find yourself in are unforeseen. 

If you have plans to get married and have children then that is not an unforeseen expense, therefore, if you are smart, you will make provision for such life changing events.

An unforeseen event is one where you have been injured in an automobile accident or were to have an accident at work.

For this reason it is important to set your finances up in such a way as to have some kind of cushion against financial shocks.

There is a scripture in Matthew 25:1-13 about ten girls. Half of them were wise and half of them were foolish. They were all invited to a wedding. The wise ones brought enough oil for their lamps, but the foolish ones did not. The foolish ones had to go back and get some more oil for their lamps and by the time they arrived at the wedding the door was closed on them. 

That was the consequence of not making provision for their journey. 

The wise girls made provision for their journey but the foolish ones did not.

There are consequences to living for today with no thought to the future. If you spend all of your wages within a week and are broke by the time the next pay day comes around you will always be at the mercy of lady luck. If an unexpected expense occurs it will be a great inconvenience to the broke person. A dental emergency, illness, accident, or a household appliance which we all take for granted breaking down can all occur.

Having some kind of emergency fund to take care of these is the responsible thing to do.

An emergency fund is considered short-term funds; that is, money you may require in the short term, therefore keeping this money in a low risk account is the best option for this type of fund. Investing in high risk funds, also known as growth funds, is not a sensible option. The last thing that you need is for the value of the fund to drop just when you need the money.

Your timeline is the key to finding suitable investments for your money.

Long-term money is funds which are needed after 5 years.

Medium-term money is funds which are needed from 1-5 years.

Short-term money is money which is needed within 12 months.

Discretionary spending money is what is used to feed these three categories. People who have debt do not have any discretionary spending money until that debt is paid off. As the proverb says, “The borrower is a slave to the lender.”

The bottom line is that it is essential that you control your money and not let money control you.

Certainly, the benefits of saving and investing your money cannot be underestimated. Building up your financial portfolio will give you more options in the future, but spending everything limits them. Investing will increase your financial literacy which in turn will help you to make better choices for your money.

About this article: The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore, discretion is advised. You may use this article as content for your website/blog, or ebook.

Read my other articles on www.robertastewart.com

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Going for Growth Funds

Going for Growth

Written by R., A. Stewart

Are growth funds appropriate for you?

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

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

There are three categories:

Short-term money. (1 year or less)

Medium-term money. (1-5 years)

Long-term money. 5+ years

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

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

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

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

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

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

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

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

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

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

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

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

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

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook. Read my other articles on www.robertastewart.com

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Over caution can be costly when investin

Written by R. A. Stewart

“Never invest in the share market which you cannot afford to lose” is a saying that you may have heard a few times but is it good advice?

It all depends on what you are going to use the money for and how soon you need the money.

If the money is in your retirement fund and you are in your twenties or thirties then you will not need the money for another thirty or forty years and even then you may live another thirty or so years so the money won’t be needed for decades. A share market tumble will not make any difference to your current lifestyle. 

You have time on your side to recover from the lows of the markets.

If however, you are saving for a house deposit and require the money in less than five years then being a little more conservative with your money may be the way to go.

The worst thing which can happen is for you to withdraw your money for a house deposit just when  the markets are down and then a month or two later the share markets have rebounded.

It is all about taking a balanced approach.

There is no doubt that many investors are afraid to lose their money so they invest their retirement funds conservatively. The end result will be that they are left short-changed when they reach 65. 

Worst still, they react emotionally when the markets take a dive and shift their funds from balanced to conservative, then when the markets rebound they miss out on the rises which would have seen their retirement fund recover.

It is time not timing which is the key to creating wealth in the share market. Young people have an abundance of time on their side and the young astute investor can use this to their advantage to create their wealth.

Inflation reduces the spending power of your money and just leaving your money in the bank will erode the value of whatever is sitting in that account. If money sitting in the bank is for everyday expenses or an emergency fund then that is fine, but to get ahead one needs to become a long-term investor.

Your risk-profile is the factor which should determine how much risk you should take. Your age is one factor. New Zealand financial advisor, Frances Cook, says, “Subtract your age from 100, and the answer is the percentage of your money which should be in shares.”

I do know of people who have a much larger percentage of shares than Frances Cook’s formula suggests they should have. One elderly couple I know invests in the share market for the dividends which they use to pay for their health insurance.

It is for investors to decide what level of risk they are willing to take and to take responsibility for decisions they make. 

Investors must get over their fear of loss in order in order to make the most of the investment opportunities available. Playing it safe in the matter of finances and life in general will leave you feeling short-changed, when with a few more risks you would have achieved more with your money.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website, or ebook.

Read my other articles on www.robertastewart.com

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Dividend Reinvestment Plan-what it is

Dividend Reinvestment Plan-what it is

Written by R. A. Stewart

Some companies give their investors the option of accepting a dividend or have the dividend paid out in shares. This is called a DIVIDEND REINVESTMENT PLAN (DRP or DRIP).

This can be cheaper than accepting the dividend and reinvesting the money elsewhere. This kind of arrangement makes it easier for an investor to grow their investment and saves money because investing your dividends elsewhere will attract fees for the new investment

A DRP at work

You have opted into a company’s DRP and it issues a dividend. What happens next?

Those who have opted into the companies DRP receive their dividends in the form of extra shares, while those investors who have not opted into the DRP receive their dividends in the form of cash.

The way a company calculates its share price will determine how many shares you will receive. Its method of calculation is sometimes called the “Strike Price”.

The shares are distributed within the company which means that you as the shareholder saves money on transaction fees. This process occurs each time the company declares a dividend. Sometimes the company will stop the Dividend Reinvestment Plan for one reason or another and when this happens, its shareholders will be informed of this,

Is Dividend Reinvestment Plan Right for you

Only you can answer this question, because it all depends on your personal circumstances and your goals. If you are using the income you receive from shares, in this case dividends to pay for some of your expenses, health insurance, for example, then you will want to receive the dividends into your bank account. If you are a long term investor and do not need your dividends then you may choose to opt in to the Dividend Reinvestment Plan. If you are unsure, then speak to a financial advisor.

The downfall of DRP is that it could reduce your diversification. Your strategy could be to spread your portfolio over a range of shares. Reinvesting your dividends in certain companies can mean your investment becomes unbalanced and weighted toward certain industries.

Always keep in mind that whenever there is the opportunity for a capital gain there is also the opportunity for a capital loss, therefore, it is best to invest according to your risk profile. 

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore, discretion is advised. You may use this article as content for your  website/blog, or ebook.

Read my other articles on www.robertastewart.com

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Build your Wealth with Diversification

The Art of Diversification

Written by R. A. Stewart

“Invest your money in many places because you never know what kind of bad luck you are going to have in this world.”-Ecclesiastes 11:1-2

Diversification means that you invest your money in several companies in order to manage your risk. We all know that from time to time a company will collapse, leaving those who invested in them out of pocket. We sometimes hear of cases where one or two investors had their entire life savings invested in such companies and got severely hurt by their loss.

The big mistake these people made was that they placed all of their eggs in one basket. They have only themselves to blame and no one else.

It is important to ask the question of “How will the loss of this money affect my lifestyle? And invest accordingly.

If you are investing for the long term, ten years+ for example then the share market drops should not worry you. These dips are only temporary and you should not view it as a loss but rather treat share market volatility as a fact of life and just get used to it.

Life has its own concerns without being overly concerned with how your portfolio is doing. If you have invested according to your risk profile then there is nothing to be concerned about.

No investment is entirely risk free but in order to increase your wealth then it is necessary to take risks but that does not mean gambling with your money which is speculating on a certain outcome. Investing means taking calculated and sensible risks. 

What is a sensible risk?

Investing in cryptocurrency for your retirement fund is not a sensible risk, it is a reckless one. However, investing in cryptocurrency as a side interest and with only discretionary spending money is fine as long as you understand the risks involved and the loss of your capital in this way is not going to affect your lifestyle.

The same can be said to investing in individual shares as an interest. I have a sharesies account where I drip feed money into individual shares in the share market. I choose one company to invest in per year and drip feed money into this company throughout the year. The share price will go up and down throughout the year and I will get shares at the lower price when they are down.

Investing your retirement fund in this way is considered to be “Placing all of your eggs in the one basket,” and is not recommended, but investing speculatively with your discretionary spending money can provide an added interest and an extra string to your financial bow.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website, or ebook. 

Read my other articles on www.robertastewart.com

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Don’t make money your first goal

Don’t make money your first goal

Written by R. A. Stewart

To live a purposeful life one has to do something meaningful and that usually involves some kind of activity which does not involve getting paid or which costs you money.

Of course your first responsibility is your commitments. Take care of those but also spend some time doing whatever you enjoy doing, then you will have something to look forward to when you get home from work.

This is particularly so if you are in a job you hate.

It is soul-destroying when all you have to look forward to is your paycheck every week or month, and once that is gone you go through the same process over and over again.

There are some ways of getting out of a rut and one of these is to up skill but even that does not work for some people. I have known people to take courses in various subjects in order to improve their chances of getting a higher paying job and they still never seem to rise above working in a job which pays the minimum wage.

Paying for higher education with a student loan can pay off but if you are going to take this route then you had better make sure it is something you want to do otherwise it will be a waste of time and money. The key thing is to know how you are going to use this education. It will be a good idea to make a list of the jobs which you are available with the qualifications you are seeking to acquire.

It is important to do things for the right reasons and not try to fit in with what others are doing.

I have known people who have gone into study simply because others are doing or to impress others because they appear smart. Usually there is no thought of what they are going to do with their newly acquired skills, that is, if they have passed their exams.

Getting a higher paying job may not be all that it is cracked up to be if you weigh up all of the pros and cons. There are some things to consider.

  1. Will the increased income move you up to a higher tax bracket?
  2. Will you be spending less time with your family?
  3. Will you have more responsibility?
  4. Will you have to do more travelling as part of the job?

The bottom line is the extra stress which goes with the position may not be worth it and you may not be all that much better off financially anyway.

Life has to be lived in a balanced way in order for it to be meaningful. The bills have to be paid, but if you are able to turn a hobby into an income stream then you are living the dream. An ambition has to involve more than just earning money to buy stuff. Experiences with others cannot be purchased with money. Our family’s tradition was our Sunday afternoon game of cricket and it all began with just a cricket bat. We used boxes for wickets to start with then we cut up some saplings to use for wickets.

It just goes to show that you don’t need much money to create lifelong memories.

About this article

This article is of the opinion and experience of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook. 

Read my other articles on www.robertastewart.com

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How to respond to financial setbacks

 

Written by R.A.Stewart

In 2008 during the Global Financial Crisis, a company I had money invested in went bust. I had close to 7 grand invested in it but my initial investment was 5k. The interest rate the company offered investors was higher than what you would receive if investing for a fixed term with the banks. 

I had smaller amounts invested in other companies which went bust.

The company had assets in property and I thought that at least they had assets which could cover the loan if they ever went bust. Problem was, their assets were worth less than their liabilities.

It reminds me of the 1987 sharemarket crash, also known as “Black Monday” when investors borrowed money using the value of their shares as collateral and as the value of shares increased investors were able to borrow even more. 

That is until the crash when the value of their portfolio was worth less than the money owing on them.

A guy I worked with told me that he had mortgaged his house to purchase shares and was left with a debt which at that time will take years to pay off.

There are several ways in which people respond to financial setbacks such as those that have been described. Here are three:

  1. Stop investing in the markets

Some people who got their fingers burnt during Black Monday, stopped investing at all and just left their money in an ordinary savings account. These people may have avoided future share market shocks but they have also missed out on the market rises. Savings which are just left in a personal bank account will lose money if it is left there for any length of time when you consider the effect of inflation and taxation.

  1. Blame Others

During the Global Financial Crisis (GFC), a lot of investors lost money that they had invested in finance companies. A few had their entire life savings invested in some of these companies. Many blamed those in charge of the company for it going under. Not one of those who were interviewed by the TV reporter who covered their meetings took responsibility for their situation or even admitted that they made an error in placing all of their eggs in the one basket. Why did they not diversify their portfolio in order to minimize the risk of losing everything in one hit. Placing all of your eggs in the one basket is just like going to the races and putting all of your money on the one horse. It is easy to be upbeat when things are going well, but try getting along with someone who has taken a heavy loss.

When choosing where to invest, the question one has to ask is, “How will the loss of this money affect my lifestyle?”

Greed gets the better of some people, so much so, that they ignore all of the telltale warning signs. 

Financial experts warned investors about the risks of investing in financial companies which offer high interest rates, saying, “The high interest rates do not reflect the risk investors are taking with their money.”

  1. Learn from the experience

Then you can take it on the chin and accept that you made an error of judgement. Experience is an expensive teacher but you have to invest in order to gain experience and become financially literate. It is important to get over the fear of loss when investing for the long term. If you are investing for the short term such as for next summer’s vacation or for a car then you may want to invest conservatively.

The question that needs to be asked is, “How will the loss of this money affect my lifestyle?”

When I say loss, I mean if the share market drops by 5% or more. You lose only if you sell your shares. A 5% drop in the market is not a problem for those investing for the long or medium term. 

The only way to get experience is to invest. Experience is your best teacher; this applies to any job or activity which you undertake. You will make mistakes; don’t beat yourself up or blame others; learn the lesson and take that into your future decisions.

About this article

This article may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook. 

Read my other articles on www.robertastewart.com