One of the continually ignored areas of investing is rebalancing. It's a bit above the media's head and it's not particularly exciting. As a result, they bypass it to focus on the next hot stock, sector or where they think the market is heading. Nevertheless, it's a key part of portfolio management.
Rebalancing is the act of bringing your portfolio back to its desired asset mix by taking profits out of certain outperforming investments and re-investing those returns in underperforming assets.
Rebalancing on a periodic basis helps align your investments with your goals. It imposes discipline on investing and prevents you from trading based on emotions. Most of all it's about controlling risk in a disciplined manner. Investors will sometimes battle their advisers about rebalancing and usually it's about feelings.
2. Financial and mental wellbeing go hand-in-hand (September, 2020)
Tom Hartmann, managing editor of the Sorted website at CFFC, said the line between financial and mental wellbeing was not hard to draw, with anxiety levels typically easing when people sort their money situations.
Being in an unhelpful financial situation can have a negative impact on our mental health. Conversely, if we're struggling with our mental health, sometimes our finance management falls by the kerb. It can start to feel like a vicious cycle.
So being conscious of how financial health and mental wellbeing are connected, openly acknowledging that, and seeking help early on if you're facing financial difficulties is really important.
The Canny View Column has been running for five years. Photo / Supplied
3. The IPO Saga (July, 2019)
An IPO occurs when a former private business decides to take on external investors, either by having the founder sell some of their shares or by issuing new shares to raise money for expansions by listing those shares on a stock exchange or an over-the-counter market.
As an IPO investor you are supplying capital to the economy which can help grow real businesses. You could be lucky and get to enjoy the dream of repeating the experience early Kiwi investors had with firms such as a2 Milk, Auckland International Airport and Fisher & Paykel.
However, the biggest downside for the potential IPO investors is dealing with volatile price fluctuations along the way and it is not an exaggeration to say that there were many volatile periods, sometimes lasting for extended lengths of time. According to CNBC from 2000 to 2018, the six-month absolute and excess return for IPOs has been negative.
Of course, to the true long-term investor, this wouldn't matter as long as the look-through earnings kept increasing. Sadly, when you look at average investor behaviour, a lot of shareholders don't behave this way. Rather than valuing the business and buying accordingly, they look to the market to inform them. They don't understand the difference between intrinsic value and price.
4. Is property still the golden egg? (November 2018)
New Zealand's house prices have been ranked the most overvalued in the developed world behind only Hong Kong. The Kiwi housing market was also deemed to be the fifth most at-risk among OECD nations, according to an Oxford Economics report. The report considered New Zealand's house prices to be overvalued by a rating of 179 in its valuation index, with only Hong Kong rated higher at 203.
Many have been not just predicting the downfall of the New Zealand residential property market – but expecting it! Some reasons why the market would crash in New Zealand was stated by Forbes:
- Interest rates have been at all-time lows for almost a half-decade;
- Mortgages account for 60 per cent of banks' loan portfolios;
- Nearly half of mortgages have floating interest rates;
- Australian and Chinese buyers are inflating the property bubble;
- The New Zealand dollar is overvalued
5. The ups and downs of downsizing (October, 2017)
If your family has grown up and flown the nest and you're moving closer to retiring, it's likely that you've at least thought about downsizing your home.
For some, downsizing can be for practical reasons. For others, it might be a desire to be closer to their children if they've relocated, or it might simply be the desire for a change of scenery as they move into the next chapter of their life.
Moving to a new house is both a major financial and emotional consideration at any point in your life, so make sure you have considered exactly what you will get out of downsizing before making the decision to do so.
Our thanks to you
Before closing this article, we want to take a moment to convey heartfelt appreciation to the readers of this column. In the past five years, so many of you have reached out to us with questions on financial matters, and some of you have sent your gratitude for this column. Thank you for your support.
•Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
•The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
