Posted on

Share market slumps

Notable share market falls

Written by R. A. Stewart

The share market has weathered several major storms in the past. While the pandemic was indeed a “Flash Crash” other downturns such as the “Dot-com Bubble” and the “Global Financial Crisis” (GFC) took much  longer for investors to recoup their money. Here are some well-known share-market tumbles since 2000.

Year Crash % fall Recovery Time (to previous peak)

2000: The Dot-Com burst -49% 7 Years

2007: The Global Financial Crisis -56% 5.5 years

2020: The Covid Pandemic -34% 5 months

2022: The 2022 Slump -25% 2 years

The Dot-com slump hit the tech sectors hard. The Nasdaq which is tech-heavy actually took 15 years to recover. The severity of the losses are dependent on which sectors investors had their money in. It is a stark reminder of the value of diversification.

The Global Financial Crisis was referred to as “The Great Recession.” It took steady gains for five years for the market to finally surpass its 2007 level.

The 2020 pandemic was described as the fastest bear market in history. It dropped 34% in just over a month then recovered quickly due to government stimulus and the rapid shift to a digital economy.

The 2022 slump was due to high inflation and high interest rates. This was a “grinding” beat market rather than a sudden crash. It took until early 2024 for the market to reach new all-time highs, largely fueled by the boom in artificial intelligence.

Managing your assets

During these times when the markets are falling, investors find themselves in the “Asset rich, cash poor” trap. They do not want to sell their shares on a falling market in order to cover basic living expenses. This happens when you have all of your wealth tied up in a share portfolio or a retirement fund and little money elsewhere.

It highlights the importance of diversification.

Strategies to weather the next share market tumble:

  1. Keep a buffer fund for emergencies. This is for unexpected expenses which crop up from time to time. It ensures that you are never in a situation where you need to sell shares when they are at the bottom.
  2. Diversify for assets. Not all of your assets will fall at the same time. Some of them such as bonds may hold steady during a share market slide.
  3. Check your investment settings

Changing from growth to balanced, or balanced to conservative funds during a share market tumble will lock in losses and make them permanent, but when you are making new investments, choose where to invest according to your timeline and the purpose for the money.

If you are looking to purchase a car within the next three years, then growth funds are not recommended. Balanced or conservative funds is a better option, but if you want to be safe then a separate personal bank account will do the job.

Share market ups and downs will occur from time to time and every decade has its events which triggered a fall in stock prices, but if you have organised your finances smartly you can weather any storm which any world event throws at you.

About this article

The content of 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

Posted on

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

Posted on

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

Posted on

Your investing risk profile and what it is.

Written by R. A. Stewart

Your risk profile is the level of risk you can take with your investments based on your personal circumstances and your timeline.

The number one question to ask before deciding where to invest your money is, “Will the loss of my capital affect my lifestyle?”

Here is an example of how this may occur. 

Suppose you are saving for a car and you decide to use an online investing platform such as sharesies or robinhood to save for that car. You also decide that you will invest your money in growth funds and your savings are going well for a while and just when you are a month away from  purchasing your car, the market takes a dive. (as it has after Trump imposed tariffs on imports).

Your planned purchase of that car now has to be put on hold which has affected your lifestyle.

On the flip side of this is that you can purchase more unit trusts than previously so that when the market rebounds your savings will grow faster.

There are three options when investing in managed funds; growth, balanced, or conservative. 

Growth funds have the most potential to grow your money but they are also the fund with the most risk.

Conservative funds are the safest option but they are also the least profitable.

Balanced funds are a combination of growth funds and conservative funds.

Your risk profile will determine where you are going to invest your money and this is dependent on when you need the money.

This can be classified into any one of three categories:

  1. Long-term money
  2. Medium-term money
  3. Short-term money.

It is possible to fall into more than one category as an investor depending on when you need to access your money.

For example: Your retirement fund if you are young is classed as long-term money, but your rainy day fund is short-term money.

Long-term money is money needed after five years.

Medium-term money is money needed between 1-5 years

Short-term money is money needed within a year.

Long-term money may be money saved for a house-deposit or your retirement.

Medium-term money might be money being saved for an overseas holiday or a vehicle.

Short-term money might be money being reserved for unexpected bills which crop up or an overseas holiday you intend to take within twelve months.

There are so many investing apps available these days that setting something up for a specific savings project is a simple process.

The current share market falls should not be much of a concern to investors who are in the correct type of funds. Your financial plan has to consider the worst case scenario of a share market crash. Hopefully, a 1987 Black Monday type of crash will not happen.

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 blog/website/ebook.

Check out my other articles on www.robertastewart.com