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Investing mistakes

He who never made a mistake…

never made anything.

You could read all you can about the sharemarket but investors will from time to time go against their better judgement and invest in something because of greed or it is something they are interested in. I have lost money in the past from some of my investments.

Here is a sample:

Air New Zealand (early 2000s)

This company I thought was a reasonably safe investment. Air New Zealand was once owned by the government but it was privatised during the late 1980s or 90s. However, the company almost went under during 2001 I think it was when their shares dropped to 14 cents each from about $1.50. The government bailed them out and still owns about 51% of the company. During covid, the government bailed them out again after the border closures placed them in a financially precarious situation.

Lombard Finance L.T.D

This was one of those finance companies which offered higher interest rates than the banks for fixed term accounts. Lombard as it turned out had too much money tied up in too few projects and when one of their creditors folded it brought Lombard down with them. It lent money to property developers. Lombard Finance collapsed in 2008

Provincial Finance L.T.D

This company lent money for consumerable items such as cars etc. It, like Lombard, offered higher interest rates for fixed term than the high street banks. It was also a victim of the Global Financial Crisis.

Dominion Finance L.T.D

Another finance company which fell victim to the Global Financial Crisis. It too offered higher fixed term rates than the banks were offering.

Must be a lesson there somewhere.

These were by no means the only finance companies which went belly up during the G.F.C; South Canterbury Finance and Hanover Finance were high profile collapses. 

Some investors lost their life savings in Hanover FInance. 

That is a classic case of putting all your eggs in the one basket; a crucial mistake which affected how some folk will live during their retirement years. 

Greed sometimes over rules better judgment.

We sometimes hear stories of young folk who have bought xxx stock in xxx company which has risen in value by a ridiculous amount. This type of rise is not sustainable and it is only a matter of time before the rising share value slows or in some cases takes a spectacular dive. 

I mentioned young folk because they do not have the past experience of older investors.

It has to be said that those who have made the most investment mistakes are likely to be in a better financial situation than those who played it safe all their lives and just kept their money in low interest accounts. Certainly better than those who are spenders rather than savers.

The bottom line is that it pays to diversify and spread your risk but the level of risk one takes is dependent on a person’s age because younger people have more time to recover from financial mistakes.

A lot of people cannot stomach the thought of losing a few grand on their investments yet would have problem frittering that money on lottery tickets, cigarettes, or booze. In order to achieve more favourable financial outcomes it is important to do a stock take of your outgoings (spending) and transfer money which would otherwise have been wasted into something more profitable. This could be starting an internet-based business, investments, or upskilling.

This article is the result of the writer’s experience and opinion and not considered as financial advice. If you require qualified financial advice see your bank manager or financial advisor.

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www.robertastewart.com

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HOW TO GAIN FINANCIAL LITERACY

INTRODUCTION

There is no excuse for financial ignorance when there is so much finance information available on the internet and in printed form. Becoming familiar with the various forms of investments will hold you in good stead for the future.

How to gain financial literacy

Your financial literacy is your ability to make financially smart decisions. You were not born financially smart or dumb; your financial knowledge or ignorance was developed over a period of time. I assume that you are not ignorant otherwise you would not be reading this. So without further ado, here are some ways of gaining financial literacy.

Your own experience

There is no better teacher than your own experience but that does not mean you have to go ahead and make all of the mistakes it is possible to make. It is more a case of using your personal judgement based on your knowledge and the advice of others but you will make mistakes along the way; it is a part of the learning process. It is a matter of who to take advice from and whose advice to treat with a grain of salt. 

An excellent way of gaining financial literacy is to register with one or more of the sharemarket online platforms where you are able to buy and sell shares online. Only a minimal amount of money is needed to get involved. In New Zealand sharesies.nz is one such platform but is by no means the only one around. Other countries have similar such share trading platforms available.

Experience of others

The easy way to learn is from the mistakes of others. All you need to do is to keep your eyes open; many people do not do this and instead follow others like sheep. This is not necessarily the best way. In fact history has taught me that following the crowd is often the wrong way. A classic example is the share market when a stock is valued well above it’s true worth because so many people have jumped on the bandwagon and bought shares in that particular company because everyone else is doing it. It is young people without experience in the markets who are prone to this mistake.

It pays to go against the crowd; what this means is that you look for bargains in the markets whether it is gold, shares, property, and so forth. You do not have to experience what others are experiencing if you have the ability to assess what is a good investment and what is not.

Be prepared to listen to what the older generation has to say. Many of their opinions will be based on their own experience.

Books

Ignorance is no excuse as far as not being financially educated because your local library will stock books on finance. There are some terrific books on finance, some I recommend are, “Rich Dad Poor Dad,” by Robert T. Kiyosaki with Sharon L. Lechter. They have several other books which are recommended reading. “How to Be Rich & Happy” by Hans Jakobi, Australia’s wealth coach is another book I recommend. Hans also has several other books published, “Underground Knowledge” and “Due Diligence,” are two of them. “Making money made simple” written by Australian financial advisor Noel Whittaker is a good read. Mary Holm and Martin Hawes are other excellent financial authors.

The internet

There is a lot of information available online on finance and investing; a simple google search will bring these up but like listening to your mates you have to use your own judgement when assessing the information from some sites and how it relates to your own personal situation. Martin Hawes and Mary Holm are both reputable advisors with good websites.

Newspapers

Most newspapers carry financial information and these are worth reading. Cut out articles that interest you; they make good reading in a year or so. 

www.robertastewart.com

ABOUT THIS ARTICLE

Feel free to share this article or post it on your site. You also have permission to use it as content for your ebook. My blog www.robertastewart.com has down to earth information about everyday finances.

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GETTING YOUR FINANCES IN ORDER

Saving for whatever…
Written by R. A. Stewart
Establish your savings goal. Are you saving for your retirement, a new car, a deposit for a home or whatever. This will be the determining factor when choosing where to invest your money. It is important to note that you can have several different savings/financial goals at the same time with a different type of investment with each goal.
For example, you may have a short term goal to pay off your TV set, a medium term goal to save for your car, and a long term goal to put away money for your retirement.
Your financial goals should be split up into three categorys; short term, medium term, and long term.
The category will determine where it is best to place your money.
1. SHORT TERM
Oncall-6 months
This is money on standby and used for general household bills such as power, car running expenses rent, and so forth.
Where to keep this money; Ordinary savings account or bonus bonds
2. MEDIUM TERM
6 months-3 years
This is money being saved for a car, appliance, overseas trip.
Where to keep your money; Bonus Bonds is a good option but mutual funds is an option but invest conservatively.
There are a number of managed funds which are cropping up and you do not have to have much to get started with them. A good one for the beginner is sharesies (in NZ). If you are from another country there will be companies similar to Sharesies you are able to invest with.
3. LONG TERM
3 years+
Saving for a house deposit and building a nestegg for your retirement are examples of long term goals.
Where to keep your money; kiwisaver is an ideal investment to drive you to your savings destination because the incentives will help your savings grow.
Some tips.
Pay off debt first because if you are able to pay off a debt where your are paying say 10% interest on the debt then the interest saved from the paid off debt is just as if you had been paid the 10%; as the saying goes, “A dollar saved is a dollar made.”
Stuff happens in life where circumstances change therefore you need to be prepared to be flexible.
Take a long term view of your investments. It is time and not timing which is the key to investing. As you gain more experience with investing, your risk profile will improve.
Read all you can about finance and the sharemarket. Knowledge will help you overcome your fears when investing.
PLEASE NOTE; The information in this article is the writer’s opinion basnk.ed on his experience. If you requiire financial advice see your bank.
www.robertastewart.com

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DANGERS OF GETTING IN DEBT

This article is of the opinion of the writer and does not represent financial advice. If you get advice from a professional, see your bank manager or other financial advisor.

Debt is a dirty word….

Written by R. A. Stewart

“The borrower is a slave to the lender.” Proverbs 22:7

Those who are regular followers of my posts will have noticed one thing; that is I have never written any articles on “How to get out of debt,” “How to get credit,” “How to borrow your way to a fortune,” and the like.

There is a reason for this; that is I have never borrowed money or bought anything on credit. I would rather write about something I know about not what others are going through.

For me, writing an article advising others How to get out of debt would be just like me writing an article advising smokers how to kick their nicotine addiction because I have never smoked.

However, having said that I can give you my thoughts on the subject of borrowing and debt.

The first thing you have to understand is this;

It all has to be paid back plus the interest which means that whatever you purchase with borrowed money will always cost more than if you purchased it with cash.

The bottom line is this; “The crunch comes the day you have to pay it all back.”

There are different types of credit but the worst type is consumer credit. The credit card is the usual culprit in consumer debt.

The use of credit cards is the result of greed and selfishness. In order to qualify for a credit card one has to have a large enough income and have sufficient discretionary income to satisfy the card issuer that you are a worthy risk.

One would have thought, therefore, that if your income is such that you qualify for a card, that you would not need one in the first place.

There are some kinds of debt which are considered good debt however, and one of these is a mortgage because you have acquired an asset which can increase in value over time. Your family home is considered the best asset for you however, you still have to have the income to support the mortgage repayments otherwise the bank will not loan you the money.

Interest rates are so low at the moment that we can expect a strong property market in the next year or two as youngsters take the opportunity to get on the property ladder. The sharemarket is going strongly and I believe this to be due to the pitiful interest rates offered to savers as money which was invested in fixed term interest investments are now being reinvested in the sharemarket.

It is a time for investors to tread caution because there will be ads from finance companies offering higher interest rates to temp them. Those who got their fingers burned during the Global Financial Crisis will be well aware of the kinds of traps which ensnare investors with greed being the main one.

There are plenty of other options for investing your money with gold being one of them. If you are interested in getting involved then the link below will provide plenty of information;

https://affiliates.goldco.com/l/1VRW1MU2Q/

www.robertastewart.com

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THE TACTIC OF AVERAGING

This article is of the opinion of the writer and not intended as financial advice. If you require qualified finance advice see your bank manager, financial advisor, or budget advisor.

The Sharemarket-Averaging

Averaging in the sharemarket is when you purchase shares in a company and as the share price declines you purchase more shares in the company therefore reducing the average price paid per share.

Here is an example of how averaging would work.

Price Number amount Price per share Total average

$4.00 1000 $4000 $4.00 $4000 $4.00

$3.50 1000 $3500 $3.75 $7500 $3.75 

$3.00 1000 $3000 $3.50 $10500 $3.50

$2.50 1000 $2500 $3.25 $13000 $3.25

$2.00 1000 $2000 $3.00 $15000 $3.00 

In this example you began by purchasing 1000 shares at $4 per share but in a sliding market where the price in this companies shares have continued to slide, if you buy this company’s stock as it’s share price continues to fall, the average price you will have paid per stock will be reduced. This is called averaging.

This kind of strategy can be used in the cryptocurrency market but it should be pointed out that only money which you can afford to lose should be risked in Bitcoin.

Investing in gold or other precious metals is another form of capital gains which can form part of your wealth-building strategy, you can find more about it here:

https://affiliates.goldco.com/l/1VRW1MU2Q/

www.robertastewart.com

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ASSESSING RISK VERSUS REWARD

This article is of the opinion of the writer and does not constitute financial advice; if you require advice of a professional contact your financial advisor or bank manager.

Assessing Risk and Reward

Written by R. A. Stewart

Assessing the risk of loss compared to the rewards is a balancing act and requires a bit of insight and knowledge of what you are investing on. This issue has been brought to my attention a couple of times recently. It was only yesterday I received an email from a website which holds bitcoin funds; the email was promoting a special offer. Invest a minimum of $100 US into Ethereum for 4% interest. This was not an offer to purchase Ethereum itself but rather than purchase Cryptocurrency as a means of making Capital Gains you would be investing money for a guaranteed return of 4%. This is a poor return for the risk involved and of course I gave this one a miss but with the low interest rates at present there will be some people who will be tempted if offered this kind of investment.

Finance companies that offer investors higher returns to investors are lending their money to higher risk borrowers; therefore there is a greater risk of losing your money. Prior to several finance companies collapsing in New Zealand during the Global Financial Crisis of 2007/2008, many financial advisors were saying, “The higher interest rates do not reflect the higher risk investors are taking on.” 

Many rejected that advice with disastrous consequences.

Sports betting and horse racing provide perfect examples of risk and reward.

In the Australian Rugby League Melbourne Storm were playing Sydney Roosters. Melbourne has won almost two-thirds of their games since their formation in 1999, therefore if you backed them in every game you would need average odds of $1.50 (1-2) just to break even, yet they were paying $2.20 (5-4). This was over the odds.

In the same weekend, Brisbane Broncos, a team that had lost it’s last five games was favourite against the NZ Warriors. Brisbane were paying $1.60 which was a poor price for an out of form team; they lost.

It is the same with horse racing. If there are equal favourites with one that has won one race in 14 starts and another that has had two starts for one win then which would you prefer? The one that had only been beaten once is the better bet.

You have to do the mathematics and ask yourself this question, “If I backed this horse at all of it’s starts would I be in front with the odds it is paying in today’s race?”

Getting back to investing in the financial markets one has to assess the risk and weigh it up as opposed to the rewards.

One very important point to remember is this; “Whenever there is a possibility of capital gain then there is also the possibility of capital loss.”

Investors need to get used to losing occasionally and get into the habit of taking calculated risks. If you have not had any financial setbacks it means you are not taking risks.

Taking risks is not the same as making foolish financial decisions. Just be sensible with your investing and invest according to your plan and timeframe when you require the money. 

This is some guide;

Short term (with one year) Conservative funds

Medium term (one to five years) Balanced Funds

Long Term (Six to ten years & longer) Growth Funds

Adding another category would be speculative investments.

There is no guarantee what will happen to the markets this decade and in particular post-covid, therefore it pays to diversify your investment portfolio and it is for that reason that some investors are turning to gold as another string to their financial bow but like all types of investments you have to do your research. 

You can learn about investing in gold from the link below:

https://affiliates.goldco.com/l/1VRW1MU2Q/

www.robertastewart.com

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GOALS AND YOUR INVESTMENT STRATEGY

Your goals and investment strategy

The type of investment you place your savings in all depends on your goals and the timeframe for achieving your goals. Investing in low interest accounts is not the best strategy for long term goals while investing in growth funds in the sharemarket is not necessarily the best option for achieving your short term goals. Your investment platform has to be tailored to suit your goals. This table will give you better idea of what I am going on about.

SHORT TERM GOALS

A short term goal is any goal which can be achieved within a year. This may be for a holiday to the West Coast (if you are from another district) or saving up for a car (if it is cheap enough).

MEDIUM TERM GOALS

A medium term goal takes between a year to 5 years to achieve and can be saving for a house deposit or an overseas trip.

LONG TERM GOALS

A long term goal may be saving for your retirement or paying off your home mortgage.

Lets look at some investment options.

SHORT TERM GOALS.

If you already have the money saved up but won’t be needing the money for 3-6 months then investing in fixed term accounts with one of the high street banks is a good option but if you are actually saving up the money then opening up a special account for this is one but not ther only option. I understand that one is able to drip feed money into bonus bonds and it is easily accessible. Investing in Sharesies may be another option worth taking a look at

MEDIUM TERM GOALS

Investing in Sharesies is a good option I believe because your savings has potential for growth while you are saving but another option is to use an everyday savings account to save and once you have saved a certain amount invest in a 90-day investment with a high street bank. 

It should be pointed out that if you are saving for your first house deposit then joining kiwisaver is a must because you are able to withdraw part of your kiwisaver for a first home deposit providing you have been in the kiwisaver scheme for at least three years.

LONG TERM GOALS

Investing in kiwisaver is your best option here irrespective of the date of your birthday because even if the  retirement age of 65 is just around the corner, you can scale back the type of funds you are in from growth/balanced to more conservative however people may have 20 years or more left after they retire so this may not necessarily suit some people. Once one reaches 65, those in kiwisaver are able to withdraw their retirement savings in one hit or whenever they need it. 

There are so many investment options available to you and you do not have to be rich to get involved but you do need to invest to get rich, one investment I am in favour of is Sharesies;

If you would like email updates from me, you can sign up here;

https://forms.aweber.com/form/72/892285272.htm

www.robertastewart.com

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MESSAGE TO INVESTORS-“Don’t Panic.”

Important not to panic during sharemarket drop

It is important not to panic when the markets are falling as has been the case recently. Whether you have a grand or two in shares or have 1000s invested in the sharemarket, it is best to ride it out the storm and just let the markets bounce back in your favour as no doubt they will. That is if you had followed the basic rules of investing.

The most important rule is to never invest in the markets money which you cannot afford to lose. If you are saving for a house then the sharemarket is not the place to invest your money-you should instead go for more conservative investments. The worst thing that can happen if you had invested your house deposit money in the sharemarket is to find that the value of your investment is reduced when it comes time to withdrawing your money.

If on the other hand you were investing for your retirement then you can afford to take risks as this is a long term investment and you will be able to take advantage of the gains in the market which for decades have outweighed the falls. Some financial advisors would tell you to scale back to more conservative funds the closer you are to retirement but that all depends on how soon after retirement you actually need the money. This is particularly relevant for those with kiwisaver accounts (NZ retirement savings scheme). (Not necessarily applicable in your own country).

It is also important to diversify your investing so that your risk is spread out over several companies and industries. If you have the means to play the market directly then this is the most important rule to follow. It will help you to withstand a sharemarket down turn better because some companies fare better than others during an economic downturn.

This week’s sharemarket down turn is a timely reminder to exercise commonsense when investing money by not placing all of your eggs in the one basket and to ride out the storm.

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

Bob

www.robertastewart.com