Archive | Investing

Is ethical investing right for you?

Is ethical investing right for you?

The concept of ethical investing is on the rise and is now an important option for many personal investors.

There is a growing awareness in society about the impacts our lifestyle and our consumption have on environmental and social welfare. This concern now extends to personal investment and many investors are keen to explore ethical investing.

What is it?

Ethical investing relates to the scrutiny that a managed fund manager places on the selection of assets, in relation to environmental and social aspects. This has resulted in a new sub-class of managed funds known as ethical funds.

These funds employ a sophisticated review process to screen investments and decide whether they qualify to be included in an ethical fund.

Positive and negative screening

In general, there are two methods applied to ethical investment selection.

  • Positive screening – where the fund manager is proactive in sourcing companies that abide by high ethical standards.
  • Negative screening – which takes a more passive approach based on excluding companies with poor ethical practices.

Beyond these general categories, each fund manager may implement more specific criteria for making selections.

Independent standards

The popularity of the ethical investing movement has led to the formation of an industry body known as the Responsible Investment Association Australasia. This body sets out standards for fund managers to apply in their investment selection process, so that personal investors can have confidence in a fund’s ethical bona fides.

Would an ethical fund suit you?

Despite the layer of extra scrutiny involved, ethical fund performance can generally be comparable to funds without ethical screening, so they can be a worthwhile fund category for many investors to consider.

Your adviser is well equipped to discuss the ethical fund options with you and how they can be incorporated into your portfolio.

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How to decide where to invest

How do you decide where to invest?

There are a number of things to consider when you are deciding where to invest – whether it be property, shares, cash or something else.

Troy explains the basics including goals, diversification, asset classes, cash flow and capital growth.

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Don’t be afraid of market volatility

Don't be afraid of market volatility

Investing in shares or property can feel a bit nerve-racking sometimes. Especially when you can see valuations change on a daily basis, like with the stock market.

In this video, I give you a few things to consider when markets get volatile.

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What’s the difference between personal exertion income and passive income?

What's the difference between personal exertion income and passive income?

Knowing the difference between personal exertion income (e.g. your salary) and passive income (e.g. investment returns) is vital to achieving financial independence. Once you obtain a sufficient level of passive income for your needs, you will have far more choices available to you – such as whether you want to continue to work or not.

And that’s a pretty good choice to have.

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The power of regular investing

The power of regular investing

Investment markets fluctuate from hour to hour, day to day, month to month and year to year. Sometimes they perform well, the value increases and money is earned. And other times value decreases, often over shorter periods of time, and money is lost.

With all that volatility, one of the things you need to consider when investing is how to smooth out those ups and downs and lower your risk, over the longer term.

Timing the market is a challenging (if not impossible) way to do it. Trying to decide when the market has reached a low, so that you can buy a stock at an attractive price is hard.

In fact it’s a strategy that many believe is nothing more than a bit of an educated hunch. No one can pick the bottom of the market perfectly every time. If you get it wrong, there can be a lot to lose. It’s a gamble.

“It’s a mug’s game to try to pick the right stock at the right time.”
– Troy Collins

Time in the market is more important. As long as you have time available to you, in terms of your investment time horizon, a safer and more secure strategy is to invest a pre-determined amount on a regular basis, regardless of the price.

That means you buy when the market is low, when it is moderate and when it is high.

It’s called dollar cost averaging.

 

The power of regular investing - graph

As markets fluctuate over the short term, by investing on a monthly basis, you’ll end up buying during both the ups and the downs. But over the long term, that rollercoaster averages out.

Say, for example, you have a lump sum of $30,000 to invest. You could invest it all now, or even a significant portion, say $20,000 now. If you time the market (i.e. take an educated guess) correctly, you can make good gains. But it you get it wrong, the losses can be large and could take years to recover from.

Alternatively, if you invest $1,000 / month over the next few years, you are the able to ride out both the highs and lows of the market. Yes, you could miss out on some opportunities, but if you’re after a low-risk strategy, it may be a better option.

Another important part to this strategy is that it creates a system for investment. Once the investment strategy is in place (e.g. equities, property, global, and local) the system just works every single month and you don’t need to think about it.

Then you can focus on managing your cash flow – both from your investment returns and from your remuneration. This is actually the area that can make or break you.

Ultimately, it is the combination of the discipline of regular investing, the growth and income of your portfolio and the discipline of managing cash flow at the backend, that is what gets real results.

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Should I repay my mortgage or should I invest?

Should I repay my mortgage or should I invest?

A common question we get asked at Collins Financial Group, is “Should I repay my mortgage or should I invest”.

The short answer is, “it depends”. But there are a few things to consider before you decide the best option for you. Troy will explain more in this short video.

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What is share market volatility?

What is share market volatility?

With share market volatility a daily part of news headlines, it’s only natural to be concerned about how the fluctuations might be affecting the value of your investments. It can also be tempting to move your money into less risky investments.

Everyone has heard of the term “market volatility” but what is it exactly?

Market volatility is the term given to the investment market when prices go up and down – this can sometimes be sudden and unexpected. The cause of volatility is anything that could potentially affect company earnings.

The Global Financial Crisis in 2008 is a perfect (albeit extreme) example but it highlights how volatile share prices can be.

When it comes to dealing with the volatility, it is important not to get distracted by short term movements in financial markets – even the good ones.  Instead, it is best to stick to your long term strategy based on your circumstances, risk tolerance, goals and recommendations from your adviser.

In most cases, the longer you stay invested, the more likely it is that you will ride out the highs and lows of market volatility.

Investment markets can and do change overnight. They are affected by other markets, the publication of annual and bi-annual results; political and economic changes around the world – and rumours! But that doesn’t mean you have to change with them.

Here is some information to help you stay focused on what’s important.

Stay calm

Do not rush any investment decision.

Diversify your investments

It’s notoriously difficult to predict what’s going to be the best performing asset class in any given year. Diversifying investments across asset classes allows you to benefit from each year’s best performing asset classes. It can also help you smooth out the volatility of your returns.

Spend time in the market

One of the most powerful features of long-term investing is the ability to benefit from compound returns. By staying invested, as opposed to regularly entering and exiting the market, your investments have more time to grow and earn returns.

Monitor and review your investment strategy

Like most things in life, it’s a good idea to regularly review your financial plan to make sure it is still right for your current financial situation.

Seek professional financial advice

We can help ensure your strategy meets your needs, and even help you update it as your circumstances change. With a clearly defined strategy and goals, you can have the confidence you need to withstand market fluctuations.

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The KISS (keep it simple stupid) method

The KISS (Keep it Simple Stupid) Method

Have you ever heard the acronym, KISS – Keep it Simple Stupid or more politely, Keep it Simple Silly?

I was on a flight from Brisbane to LA recently and I had the privilege of sitting next to a successful business man who told me he is living his dream (his words). He had packed up his young family living in Mackay, QLD and made a lifestyle change to live in Cenmore, Canada, not far from the ski mecca of Banff.

We had a great conversation during the 13 hour flight, between watching movies and reading books. He asked what I do and I responded with the typical response, “I’m a Financial Planner!”

He then proceeded to explain to me that he took advice from an adviser (loose description) a few years ago and invested half a million dollars in a speculative stock. He has held the stock now for 6 years and it has gone nowhere, but “one day it will go through the roof” (he hopes).

Interesting.

Many investors, I mean gamblers, try to make a quick buck out of buying a speculative stock or investment they know nothing about.

I explained to my new friend that you can do very well by keeping it simple and investing in high yielding funds and stocks or investments that will consistently pay strong dividends. Once you have secured yields, you can then focus on growth over the medium to long term that will reward you for your patience and persistence.

I’m a strong believer in focusing on cash flow first. If you have cash flow, you can be less concerned with what the price does in the short term. As history shows, good quality investments will go up over the medium to long term.

The challenge for my new friend and people who invest in speculative investments is that they rarely provide the investor with income returns. He has held this stock, the price has gone nowhere and he has received zero income return over the last 6 years.

However the average annualised dividend yield for a quality, blue chip fund or stock over the last 6 years, is in the range of 4% to 7%.

So, if he had invested his half million dollars in a quality, blue chip fund or stock, he would have received a cash flow return of approximately $25,000 per year (at 5% yield).

That’s $150,000 over 6 years, and assumes no additional benefits from dividends reinvested over the 6 years.

So with zero capital gain, my new friend could have added $150,000 in cash flow return plus the the capital gains, by sticking with boring, simple, quality investments.

It’s important to know what you want to achieve, think with the end in mind, and understand why are you investing. Returns are important but you first need to know why you are investing.

Work out the ‘Why’ first (Direction), then the ‘How’ (Control), and finally ‘What’ (Choice). Once you understand these three elements, you are ready to start the process of investing in quality, reliable investments.

Keep it simple stupid!

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