Archive | October, 2012

Is Investment Timing Important?

18 Oct Investment Timing

When it comes to investing, you’ll hear different opinions about whether timing the market is possible to do over the long term. The people on either side of the argument all have their facts as to why they are right. I’m not going to debate this in this article. What I do want to do is look at it from another angle – how important is investment timing?

Investment Timing

photo credit: h.koppdelaney via photopin cc

If you’re in your 20’s or 30’s and have a small balance in your superannuation fund, whether the markets go up or down next year doesn’t really matter. Even if you get the timing right and are all in (or all out) of an asset class, the actual return you could make (in dollar terms) is quite low. so if you’ve got $20,000 invested and can get an extra 10%, you stand to make $2,000. Now, that will add up over the long term thanks to compound interest, but that’s not the only thing to consider.

On the other hand, if you’ve got $1,000,000 and can make (or not lose) 10%, that equates to $100,000 – a much bigger amount.

So when it comes to market timing, the only reason we’re concerned is because we want to maximize our returns and minimise our losses.

I suggest that this becomes more important to those people who are ten years either side of retirement. They’re at a stage of life where they’re more interested in looking after their capital – they don’t want to take unnecessary risks with it – hopefully they’re saving enough to be on track for a comfortable retirement without needing to take big risks.

So for these people, taking risks is not something they need to do. And history shows us that people are more concerned about losing money than they are with making it. So for these people, a conservative approach could work well. I’m not advocating putting everything in cash, but am suggesting they don’t try and time the market to try and chase the best return – they’ve got the most to lose!

Slow and steady is the best approach here.

A 10% drop on a million dollar portfolio is much more significant than on a $30,000 portfolio.

As they get closer to their expected retirement date, the thing they’re most concerned about is the predictability of their final retirement nest egg. They don’t want the potential value to fluctuate by 10 or 20% in the year they want to retire.

Or in the year after they retire.

So for these people, certainty is very important.

So perhaps something to consider for people close to retirement is how much fluctuation they’re prepared to accept in their capital.

The risk / return theory suggests that in order to achieve a higher return, you need to accept a higher level of risk. One aspect of risk is fluctuation in your capital.

So if you need to achieve a higher return in order to achieve your investment goals, you must accept that your capital will fluctuate in value more.

Is this acceptable to you?

The ideal position to be in is one where you have enough money saved when you’re five years away from retirement that you can accept a lower investment return – and lower risk – and still achieve your desired lump sum of money when you retire.

Some Ideas To Help You Make More Money

4 Oct Ideas to help you save more money
Ideas to help you save more money

Pressure on the piggy bank?

We’re all looking for ways to make more money. In this article I’ll show you ways you can increase your income. Not all of these will be relevant to you – just pick the ones that suit.

And in some cases, the best option is not to make more money, but to reduce what you spend!

Also, remember that it doesnt’ matter how much you earn – if you have poor money management skills, you’ll still wasted your money no matter how much you earn.

  • Do you have an extra room that isn’t being used that can be rented out, perhaps to a boarder or student?
  • Can you trade tasks with other people. For instance, do you have a skill that’s valuable to someone else. I know of people who do babysitting in exchange for receiving something else of value (a lawn being mowed).
  • Do you have skills that can be used to create extra income? Can you cook, or do gardening or odd jobs for your neighbours?
  • Can you get a part time job so you work at nights or on the weekends? A friend of mine parks cars (in addition to his day job).
  • Are you paid adequately for what you do? No matter what job you do, check to make sure that you’re being paid fairly for what you’re doing. Could you negotiate a pay rise from your current employer, or get a job somewhere else that will pay more>
  • Can you work overtime at your job to earn more money?
  • What about a garage sale? We’ve all got stuff laying around the house that we don’t use any more. Could you hold a garage sale and sell a lot of your junk to make some extra money?
  • Check all the bills and statements you receive. We recently found a discrepancy in our electricity bill that had resulted in us being charged around $300 more than we should have. Needless to say we got this fixed and reversed.
  • Are you eligible for any government allowances? Many people are unaware of what they’re entitled to. Remember, the rules change all the time so even if you weren’t eligible in the past, you may be able to claim something now.
  • Can you stop waste? I think we’re all guilty of having more than we need. Are there areas you can cut down on in order to reduce your spending?
  • Along the same lines, consider planning your meals a week in advance. Only buy the groceries that are necessary for the week and stop any impulse buys. And don’t shop on an empty stomach – that always ends up costing you more!

These are just a few ideas to help you get ahead and improve your financial position. Remember, when it comes to financial planning, the little things add up over time and become big things, so even if you start small, it’ll still be a help in the future.

You may not like some of these ideas, but in some cases they may be necessary. If you simply can’t reduce your expenses and find yourself spending more than you earn, the only other option available to you is to earn more. And if the only option there is to find a part time job, then you need to do it!

Financial Planning Tips To Get You On The Right Track

3 Oct Financial Planning image - Dollar Sign

Financial Planning image - Dollar SignThe following ideas are intended to give you ideas to begin your financial planning journey. When you make the decision to make financial planning part of your daily routine, it will not appear so tough. Starting your financial journey could be the hardest thing. These suggestions will certainly assist encourage you to make financial planning one of your primary objectives.

Financial Planning Tip # 1 Repay Debt

One of the most significant aspects battling against financial planning is personal debt, particularly credit card personal debt. If something begins as a little personal debt it could develop into a larger debt due to the fact that you were not reducing the debt regularly!

Financial planning implies you have a plan and paying personal debt must be the very first objective of your plan.
The main benefit of reducing and repaying your debts is that you then have more money to invest for your future. In addition, your living costs become lower because you no longer have debt repayments to make.

Financial Planning Tip # 2 Start Investing

An important principal is to start investing. Financial planning implies that you are saving and planning  for the future, so you will certainly wish to take cash you make today and buy investments for the long term.  Areas you can invest into include the stock exchange, in bonds, IRAs, 4019k) or a blend of all of the above. Saving your cash with the aid of financial management and good discipline will certainly help your nest egg to grow.

Financial Planning Tip #3 – Have Goals

In my experience, the number 1 reason people don’t save is because they have no goals for the future. Without goals, there is nothing to motivate you to defer spending today in exchange for a greater benefit in the future.

Take some time to set out some concrete goals – things that are important for you. It could be a holiday, new car, maybe even a career change!

Financial Planning Tip # 4 Spend Less Than You Earn!

This is easy to understand but not as easy to put into practice! This is due to the fact that many people prefer to buy new things and want the latest and greatest TV, Phone etc without thinking about the long term consequences.

Regardless, you can’t get ahead financially if you’re spending more than you earn. It doesn’t make sense, does it!

I’ve met some people who spend more than they earn, and fund this by increasing personal debt. This isn’t sustainable and will only end in a bad way. Which brings me on to my next tip…

Financial Planning Tip # 5 Know where Your Money Goes

Budgeting is another financial concept that many people struggle with. You will not have the ability to save unless you’re aware of where your money is going and you are in a position to influence your spending.

You must make a record of all the money that comes into, and out of your household. This may be difficult to do initially, but once you start it, it gets easier over time. It’s not until you know where your money is going that you can begin to take steps to re-prioritise your spending so that an adequate amount of money is being saved for your future.