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Random thoughts on Human Connection, Investing and Money Management

 

The Importance of Human Connection

What has become clear to me over the past two week is that we need to really clearly distinguish between Self Isolation, Social Distancing and Human Connection.

I have spoken to lots of people over the last couple of weeks, and it has been a great reminder about the importance of connection. Simply by lending an ear, properly listening, and being empathetic, we can be of great help to each other. I’ve had lots of really uplifting life chats with people, and I’d just really like to remind people to connect with others, however that looks in the coming weeks.

It is completely normal to be living a little in the future at the moment. This can manifest itself in many ways – anxiety, stress or even, frustration. Be self-aware, and know when to take it easy on yourself, and take a break – do something that makes you happy.

As a business owner, I’ve had to give myself the space to think and be creative and not get too caught up in the “What if’s” or “Yeah, but’s” that our brains are often hardwired to move to.

 

Investing is Hard!

Just quickly, please note that this should not be taken as personal advice, but the principles will hold true for a lot of you.

To state the obvious, we are in the most significant period of uncertainty and volatility since the Global Financial Crisis ended around 2009.

This means that you investments, including your KiwiSaver, have likely seen large drops (depending on how you are invested), and it is highly likely we are going to see some more volatility to come yet as things are moving are a rapid pace. For a lot of New Zealanders, this is the first time seeing the impact of large global events have on investment values. KiwiSaver was a new investment type when the Global Financial Crisis hit, and therefore, balances were small.

It can be easy to react in times like these, and make decisions based on what you hear or read in the news. This is where having your ‘plan’ in place can help guide you. By being able to navigate to yourself back to your plan, and where you are really trying to head, you can anchor yourself to it, and try to remove the emotive responses to seeing your investment drop.

This is much easier said than done, when you start to see the numbers fall away! The natural reaction is to seek out ‘safer’ investments.

A couple of questions to ask yourself:

  1. How long is it until you need access to the money?
  2. How comfortable are you with seeing your investments change in value?

Ideally you would have already gone through this process, but as I said above, it’s easy to think how you would react, versus actually knowing how you would actually react when it happens.

If your time period is shorter-term (i.e. the next 1-2 years), due to wanting to buy a house, needing the funds to top-up your retirement, or to help keep a business afloat, you want to make sure that you are in relatively low-risk funds, to protect your capital in the short-term.

If your time-frame is longer term, you can ride this out, but you have to be willing to stomach more up’s and down’s in the shorter-term. The markets have shown us time and time again, that they eventually do recover – but we just do not know the time frame that this may take.

 

Time in the Markets v Timing the Markets

It can be tempting to think you can time the markets, by exiting when they are dropping, and buying back in just before they increase.

A few clients have rung me and asked me to call them when this is going to happen. My answer:

“I don’t know”.

There is a lot of luck with this strategy, as you have to be certain of when you are buying back in. And it is likely to be at a time when it looks like things are going to get worse. The headlines just before the recovery in 2009? “Markets could fall a further 50%” – ask yourself if you would really want to be buying back in at that point – the answer for most is that they would hold off.

Markets move fast – the recovery, when it does happen, often happens very quickly, and a substantial amount of the gains are made quickly.

 

Investing Now

If you are thinking of entering the markets, you are effectively buying more shares for your money than you were two weeks ago. Which means when the markets do recover, you get to capitalise on those gains. Simply by continue to contribute to your KiwiSaver, you will capture this impact.

A couple of things:

Keep some liquidity – Having some cash on hand is always important. Only invest what you can afford to be tied up.

Use dollar cost averaging to your advantage – this is where you don’t buy in all at once, but spread it over a period. This is partly for your own stomach, so if there is a significant drop just after you invest, you don’t feel the full amount at once. Buy buying in smaller amounts, regularly, you average out the price you are buying in. Trying to time the market involves luck, by doing the regular contributions, you can make yourself luckier.

 

Our Money Framework

The key – manage your money in a way that improves your life. That is our guiding vision.

Get clear on your life ‘map’ and priorities. This is your ‘plan’, and can help you make data driven decisions. Your plan may look different this week, than it did three months ago. Life changes, plans have to change to fit it. Where are you now? Where do you want to be?

Align your budget and money system to this plan. This always holds true, but now is a good time to look at ways to some liquidity (cash) to help you ride out any storm. This might be selling some things that aren’t useful anymore, or cutting back on some luxuries. Review your expenses (which should do annually) and just make sure that everything makes sense. To some extent, the cost to be “you” is sometimes relatively fixed around your living costs, but think about some contingencies there.

Review your debts and look to see if there are ways to consolidate, or restructure to get to lower interest rates. Credit Card balance transfers at 0% are always one to look for.

Align your investments to your life. Check in and make sure you are comfortable with the amount of risk you have in these – Is it too much? Are you comfortable with more?

Protect yourself from things that could have a big impact – do you have income replacement to pay you money if you are sick/injured and cannot work? If not, why not? Check-in on all of your insurances and make sure you have the cover you need, and not ones you don’t (for example, things like phone replacement or repayment insurance on your credit card are often expensive for what you actually get).

Finally, stay connected to those around you. Check-in on people and make sure they are okay, and support them where you can. Aim to genuinely ask a few people regularly, “are you okay?”

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