Top tips on how to Make Smart Investment Decisions

Top tips on how to Make Smart Investment Decisions

Smart Investment Decisions

 

The process of making smart investment decisions is complex. While humility is a virtue in all parts of life, when it comes to making smart decisions with money, it serves as a vital layer of protection. When it comes to your money, there are no silly questions.

Remember that fellow student in university who raised his hand and asked the question that everyone knew the answer to? Remember how the class laughed and thought that person was dumb?

It turns out that person wasn’t dumb. That person was humble. Being humble, when it comes to money, is incredibly smart.

That Individual may very well have been Warren E. Buffett who, at the age of 86, still spends the majority of his day reading and learning. Why does he do this? To learn things he doesn’t already know.

The importance of Informed Investing

 

You would think that Mr. Buffett — one of the most successful investors in the history of investing — would know everything he needs to know by now. But if there’s that much stuff that Warren Buffett still doesn’t know, chances are we could also stand to learn a thing or two. It starts with being humble enough to raise our hands when we don’t understand something. Smart investment decisions are not made by simply screening past performance of a list of investment funds and picking one. Smart investment decisions are made when you, the investor, are making an informed decision and it helps when you have a financial planner that understands your requirements.

So if we want to continue to make smart investment decisions, consider this a lesson we can’t afford not to learn. I’m not suggesting you should start reading hundreds of pages a day far from it. What level of analysis goes into your investment decisions? Does your chosen financial planner provide you with a sufficient level of expertise, or have access to investment specialists. Are you receiving an ongoing service appropriate to your needs?

If there’s something in your portfolio you don’t understand, say something now. Having the humility to admit there’s something you don’t know is the smartest thing you can do.

Ref: Carl Richards

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7 Things to Do If Investment Markets are in Freefall

7 Things to Do If Investment Markets are in Freefall

INVESTMENT PLANNING
7 Things To Do If Investment Markets Are In Freefall
Pat Leahy, Certified Financial Planner
August 23, 2018

First things first, the investment markets are not in freefall as we type. Investment markets have been calm for the last number of years. So much so that some investors may have forgotten how frightening economic crises can be.

Looking at past economic crises, we can see that the markets have never told us precisely when, where, or how steep their short-term movements were going to be. But, they have reliably recovered and soared – usually without warning. Those who did not panic-sell at the bottom and then tried to guess when it might be “safe” to return were ultimately rewarded with healthy returns.

So let’s pretend we are in a state of emergency, with the following fire drill. Here are seven timely actions you can take when financial markets are tanking, and, hopefully, even when they’re not.

1. Don’t panic (or pretend not to). It’s easy to believe you’re immune from panic when the financial sun is shining, but it’s hard to avoid the ‘world-is-going-to-end’ news headlines during a crisis. An emotional decision made at the height of an emergency is likely to be an expensive one. Even if you only pretend to be calm, that’s fine, as long as it prevents you from acting on your fears.

2. Remember the past. We do know that history tends to repeat itself. History tells us that from 1900 – 2016, the markets have experienced a correction about once a year. Therefore, there are pretty good odds it will happen again. A market correction is when the markets decline by at least 10%. One way to ignore the doomsayers during market corrections is to heed what decades of solid evidence have taught us about investing: Capital markets’ long-term trajectories have been upward. Thus, if you sell when markets are down, you’re far more likely to lock in permanent losses than coming out ahead. Stick with the plan.

A History of Declines (1948 – December 2017)

 

TYPE OF DECLINE AVERAGE FREQUENCY AVERAGE LENGTH LAST OCCURRENCE
-5% or more About 3 times a year 46 days Jun.-16
-10% or more About once a year 117 days Feb.-16
-15% or more About once every 3 years 275 days Oct.-11
-20% or more About once every 6 years 425 days Mar.-09

Source: Capital Research and Management Co

3. Manage your exposure to breaking news. There’s a difference between following current events versus fixating on them. In today’s multitasking, multimedia world, it’s easier than ever to be inundated by breaking news. This ‘breaking news’ can make it challenging to retain your long-term perspective.

4. Review your investment portfolio regularly. When you planned your personalised investment portfolio, it was carefully structured around your lifetime financial plan. Typically, your investment portfolio should be globally diversified, allocated to various sources of expected returns, and sensibly implemented with a low-cost approach in an evidence-based manner.

“The key to successful investing is to get the plan right and then stick to it. This means acting just like the lowly postage stamp that does one thing but does it well. It sticks to its letter until it reaches its destination. The investors’ job is to stick to their well thought out plan (if they have one) until they reach their destination. And if they don’t have a plan, write one immediately.”

Larry Swedroe, Financial Author

5. Reconsider your risk tolerance (but don’t act on it just yet). When you create a personalized investment portfolio, you also commit to accepting a measure of market risk in exchange for those expected market returns. Unfortunately, during quiet times, it’s easy to overestimate how much volatility you can stomach. If you discover you’re miserable to the point of breaking during even modest market declines, you may need to re-think your investment plans, post-recovery.

6. Increase your market exposure – if you’re able. If, on the other hand, you discover you’ve got nerves of steel, market downturns (when the market flips from a bull to a bear and values drop more than 20% for a more extended period) can be opportunities to buy. This is not for the timid! This approach is implemented if you are investing with your long-range lifetime financial plan in mind and puts you well-positioned to make the most of the expected recovery.

7. Talk to us – we don’t know when. We don’t know how severe it will be, or how long it will last. But sooner or later, we expect the investment markets will correct or even downturn again for a while, just as we also expect they’ll eventually recover and continue upward.

We hope today’s fire drill will help you be better prepared for “next time.” We also hope you’ll be in touch if we can help. After all, there’s never a wrong time to receive good advice.

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Why Invest?- Some simple tips on why you should invest

Why Invest?- Some simple tips on why you should invest

Get advice when it comes your investment Ideas

Investment typically involves a trade-off between risk and reward. Benjamin Franklin once said “The investor’s chief problem – even his worst enemy – is likely to be himself”.

In practice, people make judgments and decisions that are based on past events, personal beliefs, and preferences.

Sometimes these beliefs can lead people away from rational, long term thinking. Financial planners and investors alike should learn that successful investing comes from reigning in emotions and overcoming their biases.

 

When it comes to investment what affects your risk tolerance?

  1. Your time horizon and liquidity needs is one such factor, such as how long will it be before you will need to withdraw 20% of your investment?
  2. Your net worth – this boils down to what you own minus what you owe. Are you including your retirement savings? The higher your net worth the more capacity you have to stand a market decline
  3. Investment knowledge and experience are a factor. The more knowledge you have about investing the higher your risk capacity will be as you should understand the importance of investing for the longer term. Market timing is an impossible strategy, unless you are Warren Buffett, and even he recommends staying the distance, even in times of perceived financial stresses.
  4. Income and savings, will determine the rate of return on your investments that is needed to maintain your current standard of living in your lifetime. Try estimating your annual living expenses and divide them by your available savings, investments and retirement funds. What percentage do you get?
  5. Attitude towards risk. Risk is defined as the possibility of loss or the uncertainty of an expected return. Higher expected returns require higher uncertainty of those returns. What is the worst twelve month percentage loss you would tolerate for your long term investments, before you would be inclined to sell or switch your investment?
Why have diversified investments?

Diversification is an investment technique that involves building a portfolio of funds that include exposure across different asset classes. History has shown that there is no way of predicting what asset class will be the star performer each year, or even within each asset class what sector will out perform. This is why diversification is key.

Investments; A long term strategy is best

Establishing financial goals and staying the course during market highs and lows can help you achieve your investment goals. We would all like to sell when the market has peaked, just before the market moves downward and then get back into the market at the bottom. The trouble is historic investment performance and investors experience of investment performance may not always be aligned due to investor emotions and biases. Is that a tongue twister?

Although investors cannot avoid all biases, they can reduce their effects. This requires understanding one’s behavioural biases, resisting the tendency to engage in such habits, and developing and following objective investment strategies and trading rules.

Please let us know if you think we can help you.

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Recommend a Resolution…..here’s 8 ideas

Recommend a Resolution…..here’s 8 ideas

Any time of the year is a good time to improve your bank balance. The beginning of the year is when many people make resolutions to live a healthy lifestyle. While these resolutions are great in themselves, you should also consider your financial health. How about concentrating on your personal finance’s and making financial resolutions now?

Making, and sticking, to these resolutions will help you feel better! Here are eight possible resolutions to help you get started……

1. Begin Saving
We all have heard this phrase “mighty oaks from little acorns grow”. When it comes to your financial life, small savings can help you create a great portfolio in the future. Do something that makes you save a little, for example, consider starting a monthly savings plan and set up a direct debit from one of your bank accounts.

2. Have an Emergency Fund
Apart from saving every month, have an emergency fund that you can use in case of an unexpected financial crisis. Having an emergency fund will give you the reassurance that you don’t need to break into your savings when you need money unexpectedly.

3. Review your Retirement Fund
You may think you are way too young to be talking about retirement but planning for it early will help you retire confidently (and probably a little sooner!). It is also worth noting that you can get tax relief on pension contributions, so a pension is not only a great way to save but it may also reduce your annual tax liability.

4. Is Your Insurance Coverage Adequate
In most cases, people get into financial crisis when unforeseen circumstances affect income and they don’t have adequate insurance cover to meet this shortfall. As you enter a new year with positivity and hope of good times are ahead, stay fully prepared. If you were forced to stop working due to ill health, do you have sufficient cover in place to provide for you and your family?

5. Have a Budget
You should always be aware of how much you are spending. Every month set aside money required to pay your bills and other expenses and transfer the remaining to your savings account. This will make you financially disciplined and help you save.

6. Reduce Debt
Take some time to sit down and make a list of all your debt. Start by clearing off the small debts first. This way, you will be motivated to pay off more. Also, consider the interest rate you are paying when deciding which debt to pay off first, whether it is clearing your credit card bill or closing a personal loan.

7. Think before you use your Credit Card
Simply put, when used right, a credit card can be invaluable. However before swiping your card, ask yourself if you will be able to repay the entire amount before the due date. If your answer is yes, go for it. If you pay your bill in full and on time every month, you won’t pay any interest on purchases. Remember, interest is charged on your outstanding balance and every cash advance. So, avoid any cash withdrawals on your credit card. Also, remember paying the minimum payment won’t help you clear your outstanding balance.

8. Close Unnecessary Bank Accounts
As long as your account is active, the bank may continue to charge fees and interest. New Year is all about letting go of the past, taking right decisions, and looking forward, why don’t you start by closing all unnecessary bank accounts that you no longer use.

So, prioritise your financial resolutions this New Year; they may be easier to keep than you think and the rewards more fruitful.

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Our Financial Planning New Years Resolutions – 2018

Our Financial Planning New Years Resolutions – 2018

If you made resolutions, chances are you have broken some of them by now. The usual suspects like lose weight, get in shape and stop smoking will fall by the wayside for many of us.

Your financial goals for 2018 should be measurable. How can you quantify them? It should help if you apply time limits to your aims also. This will increase the likelihood of you achieving your ambitions. Measurable and time-bound goals can provide you with a gradual stairs to reach your goal, rather than focusing on the daunting challenge of reaching a seemingly massive aim high in the distance.

It should help to identify how you would feel if:

  1. You achieve your target and
  2. You did not hit your target.

Does hitting the target fill you with a warm glow of satisfaction, or is it just, whatever?

If you fail to hit the target, will it knock you for six, or is it just a minor inconvenience?

I know from experience with clients that money is a powerfully emotive subject. One of the reasons that most resolutions fail is because they are expressed as I will, or will not, do something forever, starting now. Forever is a hell of a long time to commit to.

If you have a measurable, time-bound target, you can work back from that to determine what you need to do this week. Or today. Or this morning to move forward towards your goal. Instead of focusing on a big target at some point in the future, you only have to concentrate on right now. This works far better for most of us.

We have created an 8 point financial plan. Perhaps you would like us to create a tailor made plan for you.Contact us for more details.

We’d love to hear what your financial goals are, and maybe we can help you achieve them.

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