Money Management

Keep Calm and Carry on Investing

It’s easy to invest when markets are running smoothly but when they fall your confidence can be sorely tested. More uncertainty in investment markets means more volatility and a need to review your investment strategy.  

Start with the basics. Focus on your goals and objectives. If you have long term investment goals, remind yourself not to get too distracted with short term changes in the market. Reversing your strategy will cause you to lose value and lose time – both key ingredients for achieving your goals. 

Review your attitude towards risk and reassess whether your investment strategy is a good fit for your risk tolerance. When things are going well in investment markets it is easy to take on more risk than you should. Find the right balance between risk and return so that you can achieve your goals while taking an acceptable level of risk. 

Stay diversified. Markets can change quickly, and moving all your investments into one asset class might work in the short term, but it means you are taking on more risk by having all your eggs in one basket. Don’t sell in a panic or you will crystallise any paper losses. Selling up and putting all your money into very safe investments will lower your return, possibly making your goals harder to achieve.  

Evaluate all the options you have. This might mean getting more information from an expert who you trust. Make sure that any advice you get is from someone with a balanced or independent point of view who can point out the downsides as well as the advantages of different investment options.  

Confident investors have a long-term plan that they stick to, they do their research, they aren’t swayed by emotions such as fear or greed, and they are successful at building wealth.

 

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Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Financial Independence for Women

There is an increasing trend for young couples to manage their money separately, unlike previous generations who pooled their financial resources. Women are becoming more financially independent, which is great, however there are a number of factors which mean that women lag behind men in the wealth creation stakes.

Despite the push for greater pay equity, women still earn on average around 9% less then men. Female-dominated occupations still have lower rates of pay and research has shown that men have a much better track record at negotiating higher starting rates of pay and pay rises. Many women take time out from the work force to look after children, which impacts on career progression and future income as well as their ability to save.

Women tend to be more adversely affected than men when relationships break down. Their lower earnings mean that it is more difficult for them to recover from an asset split and they are more likely to be left with young children, creating a financial burden which is not always fully covered by child support.

Lower earnings and time off work both have a negative effect on KiwiSaver contributions, which are a percentage of earnings. The ANZ bank recently estimated that the average 25 year-old woman is likely to retire with about $125,000 in KiwiSaver compared with $223,000 for a male. While this might not matter so much if couples combine their retirement savings, it is certainly an issue for single women and for women who manage their financial affairs separately from their partner.

In the long term, the issue of pay inequity will hopefully disappear, but for now, women need to plan ahead to make sure their retirement savings are on track. This may mean making additional contributions into KiwiSaver or another long-term savings product.

Liz Koh

Liz Koh

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Focus on Spending, Not Saving

There is no question that it is hard to save – and harder for some people than for others. While it might be prudent to save 10% of your income towards your retirement, not everyone has an income high enough to do this. A focus on saving often results in feelings of guilt, failure and inadequacy which lead to a vicious circle of saving even less, and feeling even worse. With a fixed income, it is the level of spending that determines how much is saved.

There are numerous articles offering critical advice on cutting out luxuries like coffees and smashed avocados on toast. Indeed, the weekly cost of these small luxuries when converted to an annual amount with a compound rate of return showing how much could have been earned if the money was invested, is a significant number, but not as significant as the big ticket items.

Look at anybody’s weekly budget and the big costs are housing (mortgage or rent), transport (car or public transport) and food. What is a reasonable amount to be spending in each of these categories? The problem is, many people don’t have good benchmarks against which to measure how they compare against an average household. What tends to happen is that people apply to the bank for a mortgage or a car loan and leave it up to the bank to decide whether the level of borrowing is sustainable. While it might be OK from the bank’s point of view, this doesn’t mean it is the right thing for the borrower. Banks should be acting in the best interests of their customers but how often are they doing this? Before you borrow money for big ticket items, look at the long term consequences of your choices and make sure you can still save.

 

Liz Koh

Liz Koh

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Investing with a Conscience

Investing in managed funds such as KiwiSaver is a great way to save for retirement. For investors with small amounts or who wish to make regular, small contributions, managed funds offer a cost-effective, simple solution with diversification to help reduce investment risk. One of the disadvantages of managed funds is the lack of transparency around exactly what your money is invested in. Fund managers don’t like giving away the full details of their investment strategy because, in a competitive market, that is how they get their edge. The performance of any fund will be determined by the mix of investments it contains, and giving away those details would be like Coca Cola giving away its secret recipe. For investors with a social conscience this is an issue, as we saw in 2016 when it came to light that many KiwiSaver funds were investing in companies that make cluster bombs, mines and nuclear weapons. The outcry that ensued prompted most KiwiSaver providers to take a good look at their investments and make changes.

A report just released by the Responsible Investment Association Australasia (RIAA) on New Zealand funds shows that since 2015, the value of funds managed with a responsible investment approach has increased from $79 billion to $183.4 billion. While the initial impetus for this came from investors wanting to avoid investments in armaments, the RIAA has found there is a growing social conscience around other issues such as climate change, human rights, corporate culture, diversity and a host of others. The good thing is that investing responsibly doesn’t mean loss of investment return and in fact, the RIAA notes that ‘a responsible investment approach delivers better investment outcomes’. Before investing in any managed fund, check their policy on responsible investment to keep the pressure on. It’s a win-win approach.

Liz-Koh-new.jpg

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Getting Back on Track

Here we are half way through the year, with distant memories of summer, the start of the New Year and all those resolutions that were made. In the middle of winter, everything seems like a hard grind. In the darkness and cold it is easy to let go of promises made to get fit, lose weight and save more. Whatever your goals, here are some simple tips to get you back on track.

  1. Measure your progress. There is a saying in management that what gets measured gets done. For financial goals, measurement is easily done in dollars. However, where most people fall down is they don’t look at the measures. Make a date for yourself once a fortnight or once a month to measure your progress.
  2. Review your goals. If your progress isn’t what you hoped it would be, break down your goals into small steps that can be easily achieved. The sense of achievement that comes from succeeding with a small goal is highly motivating. Reaching a big goal is nothing more than achieving a series of small steps that take you closer over time to your end goal.
  3. Focus on your results. Make a graphical representation of your goal that you can keep in a prominent place to remind you of your progress. A creative way to do this is to draw an image of a flower with each petal representing a dollar amount which is a small step towards your goal – whether it is debt reduction, savings or investment. As each step is achieved, colour in a petal until your flower is complete.

The difference between setting goals and achieving them is being able to change your habits. This requires time, persistency and discipline but once you change your habits, you will change your life.

Liz-Koh-new.jpg

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com