Articles by Janet Xuccoa

Developing dollar$ and $ense in teenagers

Over the last couple of months, I’ve made steady progress writing my second book called “Money 101”.  Just like my first book, it’s a bit of a guide, only this time is on to how to handle the green stuff opposed to Family Trusts.  What’s different about this book from a lot of the other books on the shelves is it concentrates on different money topics for different ages.  For example, it helps you think about how you might teach your children about money, what you might be doing with your own money before you get married and the type of money future you might create when you are hooked up with a nearest and dearest.  It also has a section on how to survive a divorce and finally, I’ve devoted some pages to planning for future retirement. 

As I’ve just finished writing a bit of the book on the topic of helping Teenagers with the moo la I thought I’d give you a sneak preview…

pre$$ure time

Whilst the world has changed over the centuries, one thing remains the same; Teenagers are subject to lots of peer pressure.  Pressures to appear cool, to have the right clothes, to listen to the right music, to be seen in the right places, even to drive the right car.  When you think about it, we were subjected to the same pressures.  We all wanted to be accepted and fit in and the desire to be one of the ‘cool kids’ was never so high as when we were Teenagers.

But the Teens of today aren’t subject to just peer pressure.  There’s the pressure to have a cell phone, an iPad and iPod, and Eftpos card and even a credit card.  Yep, they face a whole lot of forces that we weren’t subject to and these temptations can have the ability to really tie them up financially if they aren’t handled correctly.  That’s where the help and guidance of Parents come in.

$kills to be learnt

It’s far too glib to say Teenagers just need to learn how to handle money.  There’s a lot more to it than that.  As I see it (and in no particular order), Teens need to be able to:

• See through the hype of advertising and brand buying;
• Identify the cost of instant money from credit companies;
• Distinguish betweens wants and needs;
• Know how to shop around to stretch the dollars;
• Be aware of the traps of hire purchase and personal loan contracts;
• Understand the power of delayed gratification;
• Value the secret of compounded interest;
• Realise the dangers of using credit cards;
• Grasp concepts of budgeting and goal setting; and
• Be aware of pressures to spend and keep up with their friends.

Looking at this list you might think you had to learn the above so nothings different for the Teenagers of today than from the Teenagers of your generation.  Only you are forgetting one important point – credit is incredibly easy to obtain today.  Try getting credit 20 odd years ago at the age of 16.  Nowadays, credit is chucked at Teenagers. But what is borrowed has to be repaid and frequently that lesson isn’t learnt until Teenagers are well and truly tied up in credit knots.

how parent$ can help

In my new book, I’ve taken the above list and expanded on it much more fully.  For the purposes of this article however, I need to keep things short due to space. 

Succinctly, I think Parents can help Teens by letting them see, hear and participate.  Parents need to let their kids see they are in control of their own money situations.  If Teens see unpaid bills and a ‘don’t care attitude’ over the dollars, whatever you say will fall on deaf ears.  Let them see you have a healthy respect for money, that you know how to manage the household income, that you work towards achieving money goals such as stashing cash for something in particular, that you’re a saver opposed to a spender.   Likewise, let your kids hear you openly discussing money and priorities with other family members.  If they hear this, they will get to know that having discussions about money is normal, natural, something that should be happening within a family unit. Additionally, there is nothing like doing to increase learning.  If you can involve your Teen in some of your money discussions, this will go along way to building their knowledge and skills.  It might be as simple as saying we have XXX number of dollars to hold a birthday party, lets see what things we need for the party and how far we can stretch the dollars.  The exercise can be fun as well as educational. 

Finally, encouraging and helping your Teen get a part time or summer job will be invaluable.  Now this point won’t sit well with all Parents.  Often they think their Teen is so busy that they don’t have time for work.  Or they want their Teen to concentrate on their schooling and not divert their attention.  But this type of thinking can do more harm than good.  Part time work is, in my opinion, vital to assisting your Teenager develop into an independent human being who does well financially later on in life.  The benefits of a part time job are numerous.  First, your Teen will acquire a work ethic being the understanding that nothing comes from doing nothing.  Secondly, earning money will instil a sense of capability and pride.  Thirdly, going to work when they don’t particularly want to will help them develop a sense of self discipline. Fourthly, they will understand and appreciate the actual value of earning a dollar.  Finally, when Teenagers earn their own money it gives them an opportunity to manage those hard earned dollars.  My new book elaborates on these points and in particular, gives tips on how Teens can practice good money management.

$ummary

I’m hoping the above is of help to Parents dealing with their Teens.  I know at the best of times it can be a somewhat challenging exercise akin to orchestrating and managing a military battle, dealing with a Teenager as they struggle for their own autonomy and independence.  But preserving and teaching Teenagers about money will be one of the biggest advantages a Parent can ever bestow on their child.  This is because money is something that will be present throughout a child’s life and the lessons learned early on, will go along way to setting them up to having either a relatively successful financial future or not as the case may be.

If from reading this article you want to gain an understanding of your own financial affairs and future, then you might want to contact us.  We can help you identify where you are personally and put some money goals in place.  We’ve helped thousands of New Zealanders over the years and this in turn has assisted them in providing for and helping their own children.  Remember when it comes to money, there’s only one name in the money game.  That’s Gilligan Rowe & Associates.  So if you need help, call us on (09) 522 7955 for a free chat.

Until I meet you, I wish you short spendings and long earnings as the Russian Money Barons say.

Ciao.    Janet

Professional Trustee Services
Gilligan Rowe + Associates LP
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

P.P.S.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

© Gilligan Rowe & Associates LP

Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

Over the coffee cups recently my girlfriends and I started to discuss how our personalities affected the way we looked at things in the world.  My Bestie said she thought I was one of the most black and white people she had ever met.  The others agreed.  Black and white probably does sum me up pretty well.  I certainly do put things in boxes and see them in absolute terms.  This of course can have its drawbacks because lets face it, life doesn’t come in Tiffany boxes with cute bows on it.  Life is full of colour, including distinct shades of grey.  On the other hand, black and white can help us get what we want, how we want and when we want.  A little black and white never hurt anyone I think and this is especially pertinent when it comes down to attracting money and getting the money future we want.  In that vein, here are some black and white thoughts I have about attracting the dollars and sense into your life.

b & w rule 1

TV, radio, internet, seminars, books, advertisements, seminar gurus and management consultants all tell us to ‘empower others’.  For the most part, the majority of us are pretty good at this.  We try hard to make others feel good about themselves, about what they are doing.  Women score especially high in this area.  But how about empowering ourselves?  When was the last time you gave yourself a good talking to and said “if you want a different money life and future you can have it?”  We’re very good at empowering and believing in others but are pretty poor at putting belief and true faith in ourselves.  If you want to attract money into your life, the first step is to create a belief in yourself, truly, deeply believing you deserve to have the money life and future you want.

b & w rule 2

Ever heard the saying ‘what you think is what you create?”  Humans are pretty good at self sabotage.  I know because I see this all the time with people who haven’t mastered the technique of controlling their minds.  You have to be on guard against your own thoughts.  Self talk and thoughts have enormous power.  They can either hurt or help you.   They can repel or attract the money life and future you want.  This means you have to constantly watch what you think.  The next time that little Gremlin on your shoulder says “you can’t get that, it’s impossible to do, only other people can do that” kick him to touch.  You deserve much better than that.   

b & w rule 3

I love to run.  I run just about every day of my life.  I run in parks, on beaches, through forests and of course, on tread mills.  It doesn’t matter whether I am in my home town or travelling.  My running shoes come with me and I just put those shoes on and as Nike says “just do it”.  The thing I love about running is the absolute feeling of body control.  I feel all my muscle groups when I run, I feel my breathing, I feel in total control.  Now not everyone loves to run.  I get that.  But most people have something in their lifes which makes them feel fabulous.  If you can envisage feeling like that when you have your financial life under control, when you attract the money you want into your life, you will be a whole lot further along the running track to creating the money future you want.

b & w rule 4

“Nothing came from nothing” is another saying that springs to mind.  Believing in yourself, channelling your self talk and thoughts and envisaging how great you are going to feel when your money life and future is sorted is all well and good but nothing is going to come of all that great self work without taking some action.  You need to actually do something to attract that those dollars into your life.  This is where the final B and W Rule comes in.

b & w rule 4

When we started out in life, our mothers and fathers taught us how to walk, talk, eat, etc.  Mostly however, they never taught us how to deal with money.  They never taught us how to manage and attract the money future we wanted.  They never taught us the essential rules of building assets and money options.  Why?  Simple.  They weren’t taught themselves.  Our education system doesn’t do us proud in this area either.  So we are left to struggle and make financial mistakes along the way.  Not exactly a winning recipe in Master Chef terms to get ahead.  So what action should you take to get in control of your financial life and create the financial future you want?  How’s this for a suggestion – sit down with someone to work out the position you are in now, where you want to go and how you’re going to get there?  Do a little dreaming, learning and planning with someone qualified to help you.  Get a money programme in place so you can gain some control over what you are doing on a weekly and monthly basis.  A programme we offer to clients at Gilligan Rowe & Associates is called Life On Line.  An essential requirement in my view to getting what you want, how you want and when you want when it comes down to the moo la.

summary

If you’ve read this article you will understand attracting dollars into your lives isn’t exactly rocket science.  Me thinks what it requires mostly is a Black and White approach.  To get what you want, how you want and when you want starts with you staring in the mirror, taking a deep breath, deciding that someday is actually today and calling in the Money Team which is where we come in.  We are all things Money.  It may be that you need to clean up some debt.  It may be that you have some surplus funds but don’t know what to do with them.  Whatever your situation is, we can help you just as we’ve helped thousands of New Zealanders over the years.  Remember when it comes to money, there’s only one name in the money game.  That’s GRA.  So if you need help, call us on (09) 522 7955 for a free chat.

Until I meet you, I wish you short spendings and long earnings as the Russian Money Barons say.

GOOD INTENTIONS

 For many of us, each New Year starts off with good intentions.  We make New Year Resolutions and expand great energy in the first couple of weeks achieving our goals.  Around February or March, our motivational levels dwindle and our every day lives take over.  Needless to say, those New Year Resolutions get put on the back burner.

With the above in mind, I decided New Years Eve not to make any Resolutions for 2012.  Yep, I’m having a year off.  Well … sort off.  What I thought I’d do instead is make some subtle changes to my every day life.  And because those changes are slight in nature and easily able to be incorporated into my daily routine, I reckon this year I’ve got a chance of pulling them off.  Just to give me extra focus, I thought I’d share them with you.

stopping the leakage

Isn’t it amazing how our money is spent almost before we earn it?  Pay packets get drained just as soon as they get filled.  Bills spring up from nowhere.  In a bid to stop unnecessary spending, I’m going to concentrate on a monthly and then a weekly budget.  I’m putting in goals with respect to spending and saving.  I’m intending to plan my travel so I save on petrol, take brown paper lunches so I conserve my lunch money and whilst the good weather lasts, have friends over for bbqs to halt the drain via the entertainment fund.  And to help me do my planning and analysing of where my well earned gold coins go, I’m going to use the Gilligan Rowe & Associates Life OnLine programme.  An amazing programme which is easy to use and understand.  It tells you where you are right now with your money and shows you where you will go.  It enables you to set goals and plot your progress toward retirement.  Free to all GRA clients just a one off setup fee.

organising the bankers

I’ve advocated this for a long while and with my budget in place, I’m going to revisit it.  It’s the 3 Banks 3 Bank Account Rule.  The first account is held at say National Bank.  It receives your salary and pays your bills by automatic payment.  The second account is held at another Bank.  Maybe ASB.  It receives by automatic payment a percentage of your salary.  This account has no eftpos on it.  It is a pure savings account.  Never to be touched.  Most importantly, for obvious reasons, this account shouldn’t be held with a Bank that you have any debt facilities operating at.  The third account is held at yet another bank. This account will also receive by automatic payment a percentage of your pay.  Unlike account 2 however, on this account you will have eftpos loaded because this is where you will do your discretionary spending.  Again, you should have this account at a Bank where you do not hold any debt.

The beauty of running Account 2 as above is besides from paying everyone else, you pay yourself each and every time you receive your salary.  This is only right because who on earth works 40 to 100 hours a week, without paying themselves?  Not only that but if you try to save funds after you’ve paid everyone else, you very rarely achieve your savings goals.  Why?  Because we all live to what we are paid – well at least most of us do.

To increase efficiency, rather than using your eftpos card fin Account 3, try taking a set amount of cash out each and every week.  Keep that in your wallet and you will be conscious of your spending when you start to see it dwindling down.

dealing with the insurances

Ever notices how we put lots of energy into getting our insurance policies all set up but then never review them.  I intend to take a real look at the type of insurances I’ve got in March and look at alternative products.  If I can get the same or better benefits at reduced rates, then maybe I will.  This is especially so with medical insurance where there is just so much competition. If my broker is reading this article, expect a call and a directive to do some research for me.

looking at the mortgages – interest rates

Much has happened in the interest rate market.  Right now I’ve got a mortgage on floating and I’m going to have to decide whether to fix or float.  This isn’t an easy decision given the goings on in Asia, America and Europe.  Then again, the Reserve Bank left our OCR at 2.5% this week and the word on the street is it isn’t moving until September 2012 or later.  This of course will depend on where inflation is sitting, how the rebuilding of Christchurch affects the market and where our dollar is sitting.  Maybe I will float a portion of the loan and also fix a bit.  I need to run the numbers and talk to my broker.  If I can save interest costs over the next couple of years, I’m intending to do so.  That would certainly help towards my saving goals. If you are already using Life Online put in different interest rates to reflect the changes, this way you can determine if you can afford the increase in fixing rather than floating.

wills and trusts

We’ve had a bit of a change in our family in the last couple of months. This is going to necessitate a change to my Will.  Not a difficult exercise but one most people put off or at least put to the end of their lists.  But I really want to sort it out because I don’t want to take a chance of the people I love not benefiting should I depart planet terra firma earlier than I expect.  Note to self – call lawyer.

At the time of dealing with my Will, I’m going to look over my Trust and Memorandum of Wishes.  Lots of changes have come into play this year, especially in the gifting regime and I want to ensure I have truly crossed all T’s and dotted all I’s as this is going to be imperative to ensure my assets are protected when the Trust is looked at in the future.

Summary

The above list doesn’t look that onerous.  It involves a little work for me via Gilligan Rowe & Associates products and services.  My insurance broker, loan specialist and lawyer will also have to do their bit but taken over the next two months, they are small jobs which once completed, could make a large difference to where I end up at the end of the year.  That of course is where we come in.  We are all things money.  We are able to help you take control and plan your finances.  We are able to help you get ahead.   If you need any assistance, just call us.  Remember there’s only one name in the money game.  That’s GRA. Until I meet you, I wish you short spendings and long earnings as the Russian Money Barons say.

Ciao.    Janet

Professional Trustee Services
Gilligan Rowe + Associates LP
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

P.P.S.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

© Gilligan Rowe & Associates LP

Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

The art of marketing in business

Marketing can take a day to learn but a lifetime to master.Harry Beckwith

In my last blog I focused on people, relationship and selling.  This time round, I thought I’d give you a couple of nuggets on the science and art of marketing.  More of this will come out of the seminar we are proposing in early December 2011.  Watch our site for details on this.  In the interim, here are some golden nuggets, in no particular order:

Golden Nugget #1

Every business has to have customers and move products and/or services to survive.  That doesn’t however mean you to have to sell all products and all services and try to be everything to everyone.  Chose the products and/or services you really want to sell.  Choose wisely.  Choose those that people want and that make you money. 

Golden Nugget #2

Just because you can sell a product and/or service, doesn’t mean you should.  Be very clear about what your key products / services are.  Become an expert in the products and/or services you are selling. 

Golden Nugget #3

Check how your brand looks.  What does it say about you and your company?  How do people view the brand?  Brands often change over time.  Others stay the same.  Is it time for you to have a brand change?  Does your brand need a re-vamp?  Ask members of the public and your own clients and staff and they will tell you how they perceive you company and its brand image.  Listen and take action if warranted.

Golden Nugget #4

Half the money that people spend on advertising is wasted.  The problem is, they never know which half.  Have you identified what form of advertising works for your company and brand?  Lots of companies think chucking the marketing dollar around will automatically generate business.  Wrong.  You need to be sure what your marketing dollar spend translates into business dollars.  You also should know what advertisements and methods work the best for your business.

Golden Nugget #5

Finally, do you know how to actually write up a marketing advertisement that grabs attention and promotes action by potential clients and customers?  Do you understand that messages should be on your website and through your social media sites?  This is just so powerful you can’t afford not to be acutely aware of these matters.

Summary

Harry Beckwith said ‘To sound like an expert, hire one’.  I’d like to add to that quote.  To sound like an expert hire one or at the very least, imitate one.  On that note, remember to look out for our upcoming seminar where the expert Heather Smith is going to share with you some of her secrets.  She wouldn’t be such a bad person to imitate when it comes to marketing.

Until I talk to you next time, remember spend short and earn long.

Ciao.  Janet

Professional Trustee Services
Gilligan Rowe + Associates LP
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

P.P.S.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

The art of making money

in business

Recently someone asked me what were the secrets for running a successful business?  At first I thought the answer was obvious.  Successful businesses make money.  But in order to make money, what are the fundamentals of a money producing business?  This takes a bit of thinking about because each business is different.  What is the same however is the majority of successful money making businesses have common building blocks:  a strong CEO, a solid management team, great staff, ahead of the game research and development, innovative marketing, reasonably advanced technology, sound legal counsel, commercial accounting advice, workable banking relationships, good cash flow, stream line processes and of course, products and services clients want.

With the above list in mind, I thought I’d write a couple of blogs, noting my thoughts in relation to each building block.  Starting with the idea that for a business to not only survive, but prosper, I’ve jotted down my ideas in respect of moving products and services to clients.

Golden Nugget #1

Being in business means you should be attempting to build long term relationships.  Business relationships shouldn’t be likened to a speed dating exercise.  Take some time with people.  They will appreciate and value it.  Don’t short change them on the time commodity.  If you do this, you short change yourself and your business.

Golden Nugget #2

So often I see people selling to a client.  I don’t think this works.  When you are trying to demonstrate your goods and services, feel from the heart and work with the mind.  Clients don’t buy goods and services with their heads.  They buy them with their hearts.  You don’t have to sell at a client.  Simply seek to understand your client’s needs. Stand in their shoes.  Attempt to feel what they are feeling.  Only then can you really hear what they are saying.  Only then can you truly understand what they want and what they need. 

Golden Nugget #3

Passion and excitement are catchy.  If you don’t feel interested, committed and enthusiastic about what you are offering to a person, how on earth do you think you’re going to communicate the message that they need your goods or services?  Indifferent, apathetic personalities don’t promote your business in a good light.  So get energized about your day and what your business can offer your clients.

Golden Nugget #4

People like honesty.  This means they like to know the cost as well as the value of what they are getting.  Never be afraid to be upfront about these things.  Explain the benefits of your services and products and be transparent with your fees.  Doing this builds trust which in turn builds a strong business relationship. If you are uncomfortable talking prices, practice. 

Golden Nugget #5

Offer people a variety of price points in respect of your goods and services. Be inventive when it comes down to charging.  Sure offer a complete price for your goods and services but if appropriate, offer a variety of ways of pricing.  Maybe pricing per widget or per job or per process in a job, is appealing to your clients.  Do some client surveys to find out.  Whichever method you choose, ensure your clients are clear on the pricing and what they are getting. Remember you’re trying to build a repeat business relationship so transparency is vital.

Finally, let me leave you with a quote from Jeff Bezos … “If you build a great experience, clients tell each other about that. Word of mouth is very powerful”.  In light of this, I say choose your business footsteps wisely.

Until I talk to you next time, remember spending is short and earning is long as the Russian Money Baron say.

Ciao. Janet

Professional Trustee Services
Gilligan Rowe + Associates LP
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

P.P.S.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

Secrets of wise investing

part iII

In my last blogs (Part I and II) we covered some points people should consider when investing their gold and we looked at the different types of investments people could make.

In this last part of the series of Secrets of Wise Investing, we are going to look at what type of investment delivers the highest returns.  Is it paper or bricks and mortar?

residential property or shares

A debate has raged for years as to what type of investment provides the best returns.  The discussion is frequently fuelled by bias, data being skewed and mis-information.

If you asked Donald Trump and Warren Buffett what asset produces better returns, you can bet one of your last dollars Trump would say property and Buffett would cite shares.  But remember, each of these men is an expert in their respective fields. For my part in this debate, I thought I’d show you both sides of the same coin.  To give you a balanced view, I’ve held discussions with Peter Corban.  He’s with First NZ Capital and is an Authorised Financial Adviser.  Should you wish to discuss any aspect of investing be it shares or bonds, you can email him at peter.corban@fnzc.co.nz.  He’s a mine of information.

Three arguments

I’ve always held the view that over the long term, well located properties and shares provide about the same returns. Other people however think this isn’t correct. Rather, they will point to graphs which show shares out do property in the long run.  The proponents of this school of belief hold that if property did indeed out perform shares, companies would simply invest in property rather than making their own products because those companies would make more money from bricks and mortar than they would running their businesses.  Interesting point to ponder.

Irrespective of what school of thought you subscribe to, comparing the returns does not just involve looking at data and forming an opinion.  You need to consider risk, leverage and human behaviour.

RISK

When thinking about risk, I’ve historically believed and still believe good residential property is not as volatile as shares.  As such, I don’t think property is as susceptible to risk as what shares are.   My reasoning for this view is several fold.

First, the property market comprises a mixture of individuals being home owners and pure investors.  Consequently, if a downturn in the residential property market occurred, only a portion of individuals (frequently investors) would leave the property market. Ultimately the people who stayed in the residential property market would enjoy a level of safety as to the value of their investment because the market wouldn’t completely collapse.  I don’t believe the same can necessarily be said of the share market. Those in the share market camp however raise opposition to my belief.  They correctly state two of the largest investors in the share market are Superannuation Funds and other companies.  Super Funds won’t leave the share market.  They are generally mandated to have funds in it.  They also have a very long time frame perspective, effectively forever so they tend to hold onto their investments rather than exiting the market.  Accordingly, share market advocates believe the prices of shares wouldn’t plummet because Super Funds and other companies wouldn’t exit the market if there was a down turn.  This is undoubtedly a convincing perspective.

There is a second reason why I believe shares tend to be more susceptible to risk than property.  When there is a downturn in the economy, investors often cash in their shares. Investors have no emotional tie to their shares, like people do to homes, so feel little compunction about cashing up.  This selling off can have a negative effect on the price of the share.  In other words, there is little safety netting in share prices and the share market unlike what I believe there is in property.  Others would argue however that even if investors did exit the market, companies would buy other companies shares if the share prices drops too much.  Thus companies would replace private investors on the basis that it is easier, quicker and most importantly cheaper, for a company to buy a rival company rather than starting a new operation or expanding organically.  In other words, there will be a buyer around to buy the shares hence there is somewhat a safety break on the share price falling.  There could be some merit in this argument as well.

The third reason I believe property is less volatile than shares is because individual companies (being the issuer of shares) can come and go.  Housing on the other hand is an essential need for humans. As such, there will always be some demand for housing as a necessary economic good whereas share investing is not an essential to sustaining human life.  Conversely however, I know that companies are essential to sustaining human life.  They employ people and produce the goods and services we need. Without companies, who would supply life’s essentials?  Who would pay people’s wages? For example, the three absolute essentials (Maslow Hierarchical Pyramid of Needs) of life are food, clothing and shelter. Where would we buy our food from if Woolworths and Foodstuffs didn’t exist?  Where would we get our milk from if Fonterra wasn’t around? Who would supply our clothing if Hallensteins, Glasson, Kathmandu, The Warehouse, etc weren’t on the planet?  Where would the raw materials to build our houses come from (eg: cement, plasterboard and other building products) if Fletchers didn’t exist?  Who would run our phone services if Telecom and Vodafone didn’t dominate our world space?  And what about internet services?  Can you even imagine a world without Microsoft and Google? Finally, where would our shops live if AMP and Westfield didn’t build shopping malls for us to visit and buy life’s essentials?  Yes I have to concede.  Companies are essential to our living and as such, the share market is also essential because the share market enables capital to be raised by those companies which in turn, enables them to supply us with the daily goods and services we need to live a reasonably hassle free life.  Without the share market and companies we would be living off the land, leading a subsistence life.  Impossible for this girl for sure.  So maybe my argument the property market is absolutely essential for life and the share market isn’t might not be as water tight as initial thought.

leverage and human behaviour

So what about leverage and human behaviour?  Do these factors influence whether returns from property are better than those one can gain from investing in shares?

Turning our minds to leveraging, it seems that in this country at least, individuals are more comfortable with borrowing to purchase property than they are shares.  Conversely, Banks are more comfortable with lending on property and more reluctant to facilitate borrowings on shares.

As I’ve noted in Part I of this series, the magic of leveraging is all about borrowing money to increase the returns on your investment.

To demonstrate, let’s assume you purchase a property for $100,000.  You contribute $20,000 of your own money to the purchase price and you borrow the remaining $80,000.  This means your debt to asset ratio is 80%. Within 7 years the property has increased in value by 25% so it is now worth $125,000. This means you have made $25,000 on your initial investment of $20,000.  Another way of looking at it is you’ve just made a 125% return on your initial capital investment. On the basis that you now have an asset now worth $125,000 and a liability (money owing to the bank) of $80,000 your debt to asset ratio has decreased down to 64%. 

Taking this to the next level, at this point in time, if you are a property investor, you would approach the bank and request to borrow further funds to purchase another property and you would then start the process over again. However, remember you are in a much better starting position than you were previously.  When you bought your first property, your debt to asset ratio was 80%. Now it’s 64%.  This means you have more equity when you approach the bank to fund your second property purchase.  This increase in equity will mean the bank is more amenable to lending you the funds to complete this second property investment.

On the basis that you purchase correctly and structure your borrowing and tax right, you can continually increase your equity and investments via leveraging.

To take full advantage of this process, you should only ever put down a minimum amount of cash on a property and the property must be purchased at the right value and in the right location.  You need to ensure you do not buy dubious property as this can destroy your returns and overall decrease the value of your investments.

So the secret wise property investors know is that leveraging is best to engage in when the property market is on the rise. They also only leverage on properties situated in areas which they are sure are going to increase in value and they build in their own safety nets.

Overall leveraging is about investing very little of your own money, using other peoples money, knowing your market, enjoying price increases, clearing your borrowings and stashing your gold away.

To be fair, you need to be aware of the downsides to leveraging.  This practice only works in a rising market.  If the property market falls (as it has done in USA) and you have borrowed heavily your debt to asset ratio will rise.  You may also have difficulty in selling the property which means you can be left with no assets, large debts and migraine headaches.  Lastly, you should remember that you need to have some cash in the bank in case your tenant walks out owing you rent or you lose your job.  Loss of a tenant or your employment doesn’t stop the Bank demanding their monthly mortgage payments.

I also need to make a disclosure at this junction.  My above examples and associated ratios, assume the rental income that would be received, would be equivalent to the rates, insurance, maintenance and mortgage interest that would be incurred.  In other words, there is no net cash flow going outwards.  This is not always the case.

summary

Standing back and looking at the initial arguments, I don’t think we’ve been able to establish property returns out perform the returns shares can and do deliver.  Nor have we been able to determine shares out run property. 

What we have been able to identify however is that people feel more at ease borrowing to purchase property than they do shares.  When we borrow to purchase property, we are no longer comparing apples with apples.  Rather, we are comparing the returns an apple orchard can generate with one single tree.  Clearly that’s not fair because the bases that we are then computing the returns on, aren’t exactly the same.

Overall, it’s my personal view that a little of everything is a good thing.  Stash some cash, buy some shares in strong companies and purchase some property, at sharp prices, with the fundamental of real estate in mind.  That way, all bases are covered.

Regardless of what vehicle you use to build your wealth, one things for sure – investing takes time and patience.  It involves well thought out goals and strategies and a diligent pursuit of financial objectives.  It starts however with obtaining great advice and carefully constructing a money plan.  This is something we can help you with at Gilligan Rowe & Associates.  We are able to help you evaluate your choices and make your decision.  We are all things money.  If you need any assistance, just call us.  Remember there’s only one name in the money game that you need to recall.  That’s GRA.

Until I meet you, I wish you short spendings and long earnings as the Russian Money Barons say.

Ciao.

Janet

Professional Trustee Services
Gilligan Rowe + Associates LP
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

P.P.S.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

Secrets of wise investing

Part II

In my last blog (Part 1 of Secrets of Wise Investing) I threw out some nuggets of information that I thought people should consider when investing their gold. In this blog, I’m going to tell you a little about the different types of investment choices you could make.

Investment choices

There are many types of assets a person could invest in - far too many for me to cover in this short space.  In the main however, I have found the majority of people invest in cash, property, bonds and shares.  In an attempt to help you decide what investment is appropriate for you, I have explained below a little about each class of asset.

• Cash – Probably the greatest benefit cash bestows is liquidity.  This means it’s on hand and available whenever you need it.  That’s especially handy in emergency situations.  The second biggest plus in putting your cash safely in the Bank is there’s very little risk in losing your money.  Sure a Bank can go bust but that’s a pretty rare occurrence. 
• As we know, there is a relationship between risk and return hence whilst there’s little risk to placing your gold in a Bank, the returns you’ll receive on that deposit investment, tend to be minimal.  In fact, money kept in a bank account usually provides one of the lowest returns of asset investment.  This return can be so poor that over time, inflation can be greater than the return the cash actually produces.  Eventually, the return can be eroded in its entirety.
• If you are putting funds into a bank, you might chose to put them on term deposit. This will mean that you’ll have to wait for a definitive period of time, before you can gain access to your cash.  Thus, term deposits aren’t 100% liquid although in saying that, you can often forgo interest and take a penalty if you chose to cash up your term deposit before its maturity date.
• You’ll always want to aim for your cash earning as much interest at possible. As such, you should keep an eye on the rates borrowers of funds have to pay.  If borrower interest rates are on the rise it‘s likely deposit interest rates will also increase.  If this is occurring in the market place, consider putting your cash on short term deposit or take a spread of terms. That way, if deposit rates rise, your money won’t be stuck on a low interest rate for very long and you’ll have the ability to take advantage of the increased deposit rates being paid by the Bank.

• Bonds – companies and Governments frequently issue bonds to assist with running their operations or getting a specific project off the ground.  A bond is akin to an IOU. 
• The Issuer will issue the bond to the Bond Holder (say Mr Smith) for a specific amount (called a par value), at a certain interest rate (called a coupon rate) and for a definite time period (called a maturity date). 
• During the time the Bond Holder possesses the bond, the Issuer will pay him interest, often bi annually. The Bond Holder will receive their initial investment back once the bond matures.  It’s a bit like a time Term Deposit
• The Bond Holder may sell their bond before it matures.  They will do this on what is known as the ‘secondary market’.  When the Bond Holder goes to sell their bond on the secondary market, they will likely end up selling at either a ‘premium’ or ‘discount’ to the purchase price. 
• To demonstrate, let us say Mr Smith purchased a bond for $1000.  Its coupon rate is 7% and it matures on 1 April 2014.
• Prior to 1 April 2014 Mr Smith decides to sell his bond.  At the time, interest rates are only 5%.  This means a prospective purchaser would be willing to pay a premium to Mr Smith for the bond.  Mr Smith is thus able to sell his bond to Mr Brown for $1,050 Mr Brown has paid Mr Smith an extra $50 to acquire the bond. He has done this because the bond will pay interest at 7% whereas if he invested his money in the bank he would only get 5%.  Accordingly, Mr Brown is willing to pay a premium to Mr Smith to achieve a 7% interest rate of return on his money. Once Mr Brown buys the bond, the Issuer will pay the coupon rate (interest) on the $1,000 bond to him at 7%.  When the day of maturity of 1 April 2014 arrives, the Issuer will repay Mr Brown the initial investment of $1,000.
• Conversely, let us assume that prior to 1 April 2014 interest rates have risen to say 9%.  Mr Smith needs funds so he sells his bond.  Because interest rates have risen over and above the coupon rate, the bond is not as attractive as before.  Mr Smith sells his bond for say $950 to Mr Brown. This means Mr Smith has had to sell his bond at a discount.  Mr Brown was wiling to pay only $950 for the bond because he could have put his money elsewhere and achieved a 9% return on it whereas the return he is now going to receive on the bond is only 7%. At the date of maturity, the Issuer will repay to Mr Brown the face value of the bond being $1000.  Prior to maturity, Mr Brown will receive only 7% on his investment but he will pick up the extra $50 on maturity of the bond which equates to an overall return of 9%.
• Clearly because bonds pay out interest on a regular basis, they can be a good source of income.
• But you need to be aware that if interest rates move, the value of your bond can fall. They are also subject to inflation risk.
• The small print on bond applications needs to be carefully scrutinised.  This is because not all bonds are created equal.  For example, an Issuer may have the ability to call for repayment of the bond before it matures.  If this occurs, the Bond Holder may receive only the par value back. This  could perhaps occur when interest rates fall and the Issuer identifies they can buy back the bonds and then issue further bonds at a lower coupon rate thus saving themselves from paying out higher returns.  Alternatively it could occur if there was a right of early repayment when and if a change of control (eg: a takeover) occurred. 
• There might not always exist a prospective purchaser to buy your bond, hence they are not as liquid as cash.
• There are several different classes of bonds as well.  For example ‘junk bonds’.  Never make the mistake that all bonds are therefore created equally.
• Overall if you are thinking of purchasing this type of investment, I recommend you do so through an Authorised Financial Adviser such as your stockbroker as they will be familiar with the bond market.  One such person whom I have spoken to and who has helped me write this blog is Peter Corban.  He is very familiar with these types of investments and he is with First NZ Capital. You can contact Peter via his email address at Peter.Corban@fnzc.co.nz if you need assistance.

• Property – just like there are many different types of bonds, there are several sub categories to the property class of investment.
• For example there is the residential market, the industrial market, the comercial market, the leasehold, etc.  Additionally, within each sub category there are different categories.  To illustrate take the residential property market.  Within this market there are apartments, town houses, stand alone houses, joined together units, etc.  To add more confusion to the mix, each of these will have their own particular market.  A town house in Remuera or Park Lane for example will be a different price than one in Royal Oak or Islington.
• The first rule of thumb when investing in this asset is to truly know your objective and your market.  You should understand why you are purchasing and what you are purchasing.
• You might wish to simply buy a home and live in it.  Alternatively, you may wish to purchase a property for rental investment purposes.
• Irrespective of your reasons for purchase, you should be aware of some buying rules.  For instance, try to buy below market price as this instantly gives you capital gain if you achieve this.  Additionally, don’t over capitalise your property when completing alterations and renovations as you won’t get the extra funds you have put into the property back when you come to sell it.  Buying rules are crucial if you wish to make money in property.  For this reason, I recommend completing a property education course which teaches the rules of property investing.
• Regardless of your objective, I believe you should be aware of the demographics of the neighbourhood, the existing and proposed amenities in the neighbourhood, the prices other properties have sold for, the average rent charged in the area, etc.
• You should also understand supply and demand of a neighbourhood.  For instance, if you purchase a property in a well known area where supply is limited and demand is high, you can expect to pay a premium for that property as many other buyers will be wanting to purchase the home.  Conversely, when you want to sell the property, you would expect to have a ready market and not have too much trouble selling the property on.
• They say location is everything when purchasing a home.  What they mean by this is you can make a greater capital gain by purchasing the worse house in the best street in the premium neighbourhood than you can by purchasing the best house in the best street in a less than desirable suburb.  Always aim to buy your personal home in the best suburb you can afford.
• You should also think about what is driving the demand in any given area.  Properties situated in suburbs that are close to the centre of any city and close to good schools have historically been more expensive than those homes in suburbs further away from a city’s core. This occurs because people value their time and educational facilities.  Accordingly, they will pay more to reside in a suburb where travelling distances are short to their work (city centre) and their children’s schools.
• Likewise you need to consider what drives property prices in the area you are intending to purchase in.  Mostly property prices rise over time but some house prices rise quicker than others. This is because there is not a natural cap on prices or the ceiling on the prices is fluid and able to move upwards.  This tends to occur when the people in the area you have a home in, are able to afford those increased prices.  For example, if a person has a job they will have an income. This helps them borrow funds from a bank which in turn, enables them to have enough money to purchase the property. From this you should gather that it is important to purchase property in cities rather than in rural communities if one of your objectives is to grow your financial wealth because it is cities which have employment opportunities.
• Like most investments, timing is an important factor to take into account when purchasing or selling your asset.  You want to aim to purchase at a time when the property market is depressed and prices are low.  Conversely, if you are going to sell the property, you want to sell it when prices are high as this is when you will make the most money. 
• Of all the categories of investment you could make, property is one of the least liquid as it can take more time to sell the asset than say cashing in your term deposit.
• Unlike other forms of investment, many people leverage to purchase property.  This means they use their own money and other people’s money to complete the purchase.  For example, a person may have in cash 20% of the purchase price but they may borrow from a Bank the additional 80% of the funds required to buy the property.  The return the property produces however is not simply on the individual’s 20% deposit.  Rather it is on the whole 100% of the money used to purchase the property. 
• Being able to leverage can be a benefit this class of asset bestows over other assets.  This is because it’s often easier to leverage to purchase property than it is to purchase shares. This is because Banks tend to be more reluctant to lend to an individual who wants to use the funds to purchase shares and more willing to lend to facilitate the purchase of bricks and mortar.
• Overall, people perceive the investment into property less risky than the investment into shares. This occurs because individuals think that as they can see and touch their asset, the asset is a more solid investment than say shares.  One must remember however, property markets can and have dropped.
• To ensure you make the right property purchase, I recommend getting a good real estate agent who truly understands the market you are thinking of buying in.  You will also need a lawyer who is competent in conveyancing.
• If you are intending to purchase a property for rental or trade or development purposes, you will also need an accountant who understands structures and can advise you on the tax issues.  This is absolutely imperative.

• Shares – a share is an ownership unit in a company.  It represents part of the overall value of the company.  Usually it entitles a shareholder to a proportionate slice of the company profits.  When profit’s are paid out, they are referred to as a dividend.
• Most shares are extremely liquid, but shares in smaller companies may be less liquid.
• Your risk profile, your desired returns, the time you have available to meet your personal financial objectives and diversification are all important matters you need to consider when purchasing shares.
• Just like the property market, there are markets within markets when considering shares.  For example you can invest in domestic shares or international shares.  You need to understand exactly what you are purchasing and you need knowledge of the company you are purchasing shares in. 
• Share investing is probably one of the more risky types of investments a person can make in terms of day to day volatility.  This is because shares are listed on stock exchanges and trade throughout the day, at whichever prices buyers and sellers are willing to transact at the time.  This volatility can be caused by the actual activities the company undertakes, the positive or negative publicity a company’s management can receive or simply the industry the company operates in.
• In the short term, the returns from shares can vary widely but in the long run, the returns will tend to be higher than those received from other forms of investment.  The ultimate return of course depends upon the success of the companies the shares are purchased in and how long the shares are held.

• Diversification to curtail risk is a very large factor sensible share investors practice.  Accordingly, they will often hold mainly ‘blue chip’ shares, being shares issued by companies that are perceived to be relatively solid, rather than say “start-up” enterprises, which may be more speculative.  By purchasing blue chip shares, the risk of volatility of returns and erosion of capital decreases.  Companies that issue these types of shares often deal in necessary goods such as electricity.

• Some investors buy only in companies they really like.  As Mae West said ‘“too much of a good thing can be wonderful”.  That however is not the way to going about building your wealth in the share market.  Share investing can be complex in terms of the range of companies that are available to invest in.  As such, it is vital to engage a qualified Share Broker / Authorised Financial Advisor to advise you.  You need to build a sensible share portfolio that is tailored to your needs and in order to do this, you need personal, informed, unbiased advice and assistance.  A person I have found knowledgeable and helpful is Peter Corban who is with First NZ Capital. You can contact Peter via his email address at Peter.Corban@fnzc.co.nz if you need assistance.

Summary

There’s an old saying … “different stokes for different folks”.  That saying is a truism when it comes to choosing what you will invest in.  For my part however, I prefer to practice the lessons I‘ve told you about in Part I of this series of Secrets of Wise Investing.  In particular, I believe in diversification so that my bases are covered.  As such, I have placed my money in cash, shares and property. I have chosen these types of investments because I believe everyone should have some cash at their disposal, I’m comfortable with the ups and downs of the share market and I enjoying being able to swing half a cat around my Parnell bricks and mortar pad.

In our next and final part of this series, we are going to explore what type of investment provides you with the highest returns.  You may well be surprised at this outcome.

Professional Trustee Services
Gilligan Rowe + Associates LP
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

P.P.S.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

Secrets of wise investing
part i

They say if you give a man a fish, you feed him for a day but if you teach a man how to fish, you feed him for a lifetime.  Growing your wealth is no different.  With that in mind, I’ve noted some pertinent things you should consider when trying to grow your own pile of gold. 

Money Personalities

It’s essential to know your own money personality.  It can either help you climb up the wealth ladder or take you to the bottom of the deep, dark, blue sea.  If you missed this topic in our previous blog click here and check what money personality you have.

Risk Profiles

When it comes to investing, most people understand the market they’ve invested in could go up or down. In other words, there is always a degree of volatility in the market. Volatility  is how your investment  may fluctuate rather than the potential of the complete loss of your invested capital.  Some people are willing to accept this volatility.  For others however, their willingness to accept this risk is low   This is what a risk profile is all about.  It signifies your tolerance to and acceptance of volatility.  Just like it’s vital to know your money profile, understanding your risk profile is also imperative as it will determine what investments (eg: cash, shares, property, etc) are best for you. 

Check below as to what your risk profile is.

• Conservative - You won’t want to take on much risk at all.  Because of this you accept the return on your investment will be low.  The effects of inflation won’t concern you much, providing your initial capital investment remains protected.  Ultimately you’re a very low risk taker.
• Moderately Conservative - You’re still a low risk taker but you’ll want to obtain better returns than what a conservative investor would seek.  Whilst wanting better returns, you’ll still want to protect your initial investments so won’t be prepared to enter into more aggressive investment opportunities. 
• Balanced - This person will be prepared to accept some risk in order to achieve the investment returns they require. You’ll be interested in diversification and be willing to look at investments which take medium and long term to come to full fruition.  If you fit into this category, you’re a calculated risk taker with an average risk profile.
• Moderately Aggressive - You are prepared to accept ups and downs on your investment and incur moderate risk in order to obtain your required returns.  You are likely to have the goal of accumulation of assets.  Generally you’re thought of as a high risk taker.
• Aggressive - If you have this risk profile you will be happy to tolerate volatility in order to achieve higher returns.  Accumulating wealth will be more of a goal that capital protection.  Often you will have a long time horizon.  You’ll be thought of as a high risk taker if you fit into this category.

Risk and Returns

One of the secrets of wise investing involves understanding the correlation between risk and return.  The higher the risk, the greater the expected return on your investment. So if you have a high tolerance for risk, you’ll expect to ride out the ups and downs of your investment and reap the rewards for sitting out those nail biting moments.  Conversely, if you’re a person with a low risk profile, you’ll prefer to invest in things that give you steady growth and peace of mind.  In return for this serenity, you’ll expect to receive less return than someone who was willing to take on more investment risk. Below is a diagram which captures risk and return.

diversification

There’s an old saying – never put all your eggs in one basket.  Diversification is the epitome of this maxim.  Put simply, diversification is about attempting to reduce risk.  It’s a secret all intelligent investors know and practice.

Ever wondered why street vendors sell hot dogs and gelato?  It’s because a person might feel like a hot dog on a cold day and only want to eat an ice-cream on a hot day.  By selling both products, the street vendor caters to all markets and reduces their risk of losing money on any particular day.

When it comes to investment, diversification is about investing your money into different types of assets in the hope that if one investment loses money or the returns aren’t as high as expected, the other investments you have will make up for those losses you’ve sustained or lower returns you’ve experienced. 

Sensible investors not only diversify between different asset classes, but also within an asset class.  For example, an investor may choose to have some cash around.  They may then decide to have cash in a current savings account and in a fixed term deposit account.  By undertaking diversification within the asset class of cash, they are able to have liquid funds immediately at their disposal and achieve a higher rate of interest by having some funds invested for a definitive period of time.

You might think when one market falls, all investment markets will fall.  History however has shown that different markets rarely rise and fall at exactly the same time.  Hence, if one of your investments doesn’t do so well, diversification should help to moderate the effect on your total investment returns because another type investment will still perform.

RISK AND RETURN TRADE OFFS

Clever investors appreciate the relationship between risk and return.  Generally speaking, to achieve higher returns, you need to accept a higher risk of the loss of your capital invested or of returns not being achieved.  This is because the assets that offer those high returns are usually more volatile than those producing low returns.  Of course, you need to be aware of your risk profile to feel comfortable with what risk / return trade off you chose when making your investment choice.

One issue people frequently encounter is that their risk profile is at odds with their money objectives.  For example, a person may have a low risk profile, have only a short time to invest and may want to achieve high returns on the capital they invest.  This causes a conflict because an investment that is often recommended to generate high returns is share investing.  Whilst shares have the potential for high returns, they are also an investment with a high chance of price volatility in the short term.  Thus, the person with the low risk profile is being asked to undertake a higher risk investment.  Consequently, a tension exists between a person’s risk profile and the returns they seek.

TIME, RISK AND RETURN

Besides from the matters canvassed above, smart investors understand the secret of time and how this inter-relates to risk and returns. They take the time horizon into account when planning their financial goals.  Investors who are young have time on their side.  They tend to be willing to take on more risk when they invest because there will be time to make up for lost returns should their investments fall.  Ultimately they have the time to ride through economic cycles and the volatility of the markets.  Conversely, those investors who have less time to invest and see returns mature, will be more comfortable with taking a more conservative approach and taking on less risk because there simply isn’t the time to make up for their investments failing to achieve the returns they seek. 

Emotions

Finally, the savvy investor is acutely aware of their emotions and the danger of making decisions based on what they are feeling.  Without a doubt, everyone wants to back a ‘winner’ and no one invests their hard earned gold with an objective of losing it or making minimal returns.  Unfortunately, investments can’t have a good day, every day.  Markets move up and down.  This means the value of your investment can differ from day to day.

Those investors who aren’t aware of their emotions base their investment decisions on their feelings. More often than not, they react to how they feel their investment is performing rather than sticking with their chosen investment strategy.  When an investor makes a decision based upon their feelings and mood, it can result in an incorrect decision being made.  By way of illustration, an investment that may have done well historically could fall in value for a period of time.  This may cause an investor to feel despondent.  Consequently they make the decision to sell their investment when in fact they should have just stayed the course and held their investment.

Warren Buffet is acutely aware of the danger of basing investment decisions on emotions.  He is known for saying “we simply attempt to be fearful when others are greedy and greedy when others are fearful”.  What he was pointing out was his consciousness of the emotive cycle investors go through.  That cycle involves 14 distinct stages as the diagram below depicts.


 

Most investors start their emotional journey at the optimistic rail way station.  As the returns on their investment rise, they travel through to the euphoria stage.  At this point in the cycle, they will be thrilled to have made their investment.  That feeling however quickly turns when markets start to fall.  At this point in their journey, an inexperienced investor can move from feeling excited to anxious.  Outright panic and despondency can set in and the investor can react to their feelings and sell their investment.  This selling decision can be much to their peril.  This is because markets do recover and when they regain their strength, the investment will start to increase its returns. Experienced investors will not permit this to occur.  They will not react to their emotions.  Instead, they will stay with their investment strategy. Thus, they will leave their despondency behind and move to feeling optimistic again as and when their investment returns begin to pick up.

Summary

Above are some considerations Investors should think about when it comes to investing.  In my next blog, I will touch on the different investment choices an Investor can make and some things they should consider about those investments prior to them spending their gold.

Professional Trustee Services
Gilligan Rowe + Associates LP
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

P.P.S.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

© Gilligan Rowe & Associates LP

Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should  act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.