Enjoy the MoneyBlog? Stay up to date with the latest news and information with your free subscription to the MoneyClub. Sign up in the box on your right.
Lisa is the best selling author of
How do you invest in the sharemarket?
Investing in the sharemarket can be a great way to get ahead financially. However like all investment options there are many things to learn and be aware of.
Sharemarkets go through various cycles, periods of strong growth, periods no growth and even some with negative growth. If you are a passive investor the longer you invest the better and ideally you would need to allow a timeframe of at least 5-10 years to ensure you have enough time to average out the market cycles.
There are lots of different ways to invest in the sharemarket. Some of them are:
• Work with a stockbroker
• Do the research yourself and buy through one of the various internet sites
• Use one of the various software packages hat are available
• the NZX (NZ Stock Exchange) has some products which are bundles of shares
• buy managed fund which are a product with a number of different shares
• put a portfolio together with a financial adviser
You also need to think about how much time you want to spend on your investing. Generally the more time you put in the better the returns. This is because the more knowledge and skill you build up the more you lower your risk and increase your chances of success. If you want to spend limited time you might be better off using a managed fund or a professional advisor.
The most important thing to do when you are starting out is to do some homework so you better understand the options that are available to you. There are lots of books on investing in the sharemarket which you can either buy or get at your local library. One in particular that is good is Shares – 7 Ways to Beat the Market by Martin Hawes. This book has been written to help both novices and long-term investors.
There are introductory courses run at some of the local community colleges. You will often find these courses are run by some very experienced tutors who work in the field and like to teach. Also keep an eye out in your local papers for courses and seminars, and have a good search around the internet. Always check who is running the course, often the cheaper ones are cheap because they are trying to sell you something.
Most of all be thorough in your research and get good advice.
For further information
www.sharechat.co.nz has a daily sharemarket newsletter that you can subscribe to for free.
www.fundsource.co.nz a NZ research company
www.goodreturns.co.nz a general investment website
www.morningstar.net.nz a NZ research company
www.smartshares.co.nz a site for new investors run by the NZ Stock Exchange
Should I pay off my mortgage before I start investing?
This is a highly debated topic in the financial community, with some people for the idea and others against it. I personally think it depends. That’s not an overly helpful answer so let’s look at why….
From a purely financial or technical perspective you are usually better off paying your mortgage off before you start a savings or investment programme. This is because you pay your mortgage with money you earn after tax. Therefore being better off financially by investing you need to earn a return of approximately 10-12% gross per annum (about 7-8% after tax) depending on your personal tax rate. There are not many investments that will produce this level of return unless you take on a reasonable amount of risk and/or know what you are doing.
However, the reality is we are dealing with human psychology. This basically means that we are dealing with emotion, desire, discipline and other life factors. A good comparison is when we look at health. We all know that to loose weight that it’s a simple formula of eating less calories than we expend in energy yet many people find it hard to do. Its not because we don’t know what we should be doing, its more that we are more attracted to pleasure than pain and therefore its much easier for us not to do what maybe we should be doing.
People rarely do anything for purely financial reasons. I typically find that people will pay off their mortgages in the same time frame regardless of whether they are putting money aside for investment or not. In most cases I would recommend that, if you can afford it, pay off your mortgage faster than the standard 25 year term, and also contribute to a regular savings or investment plan. One of the positives about starting an investment plan while you still have a mortgage is that you start to get into the habit of savings, which is a great discipline to have to help you achieve your financial goals.
One of the concerns I have about waiting until you have paid the mortgage off, is that we Kiwis have a habit of trading up our houses as we can afford it. This can mean that we are not paying off our mortgages until much later in life which can mean that we start saving too late.
So in summary, whilst it may be better financially in most cases to pay off your mortgage before you invest, the reality is this is not necessarily the best overall option. Its about what you will do, not what you can do! From a holistic perspective most people are going to be far better off doing both.
Thinking of starting your own business?
Recently I had a question from one of our readers “I would like to open my own business, with little money, what things are crucial in the success of a business?” Having your own business can be a great way to get ahead financially; however it can be a lot of hard work and the buck stops with you! Here are some of the things you need to consider:
The business idea
You need to find an idea that is profitable. There are lots of great ideas out there but when you translate them into what needs to happen to make a sale, how many sales are likely given the market opportunity and how much profit you might make from a sale most of them don’t look that attractive. Having you own business may not soley be about the money for you however its important to look at whether you are happy with the possible return you may get for the time, effort and costs you put into your business.
Skills
The next thing you need to work out is what skills do you have and how do they fit with your proposed business idea. Understanding your strengths and weaknesses is very important. Usually when you start a business you have to do everything, however the key part of your business needs to be aligned with your key strengths.
Write a business plan
Far too few people write a business and marketing plan before they launch into business. The old saying that if “you don’t know where you are going any path will get you there” is very true. You don’t need to write War & Peace, however you do need to cover the key areas of your business. Your plan may only be a few pages but should include things like:
• Concept/idea
• Branding and marketing
• Key relationships, customers, strategic alliances
• Cashflow and funding
• Resources needed (staff, technology, stock)
• Your team (lawyer, accountant, financial adviser, business mentor, bank manager)
Motivation
Having your own business requires a lot of self motivation and discipline. Some things are going to work and some are not. You need to be totally focused and passionate about what you are doing to work through the tough times as you will have them.
Having your own business can be incredibly rewarding and can provide lots of benefits. It just a matter of doing some planning in the beginning so it’s a worthwhile experience for you and achieves what you want it to.
Some resources
Local libraries – it can good to keep your costs down and borrow rather than buy books
Community Education – there are many courses run around the small business space
www.smallbusinessexpo.co.nz – run in between April and June each year
www.biz.org.nz – a government run website with a vast amount of information and resources
www.businessmentor.org.nz – free business mentors for those in business more than 6months
www.homebizbus.co.nz – resources for those that run a home based business
Join the free
