Doubt or Optimism?

How do you feel about investing? Doubtful or optimistic?  Invariably there is always some doubt when it comes to making investments.  Term deposits are maturing but rates really aren’t that good now and the rate for cash on call is even worse.   Share prices have risen strongly, but will they stay up or rise further or even fall again.   Commercial property has taken a real hit over the last couple of years.   The housing market is down from the November 2007 peak but up from the low earlier this year.   Some bankers believe it could fall again next year.   So what do you do?

A natural inclination for investors is to be bullish or optimistic at the top of markets, bearish or doubtful at the bottom, and unsure in between.   Remember the optimism a few years ago in the housing market and what about the optimistic prices paid for dairy farms.   How did you feel about the share market in March 2008 when it seemed that Armageddon and another great depression were upon us?  Did you rush out and buy shares? After all, they were on sale at fire sale prices and everyone loves a bargain!

It should be the other way round.   We should be optimistic at the bottom and doubtful or more cautious at the top.   The problem is we don’t know when the markets are at the top or at the bottom which means we spend most of the time with a certain amount of doubt and uncertainty.   The worse thing we can do, and this applies to most things, is to do nothing, procrastination is after all, very easy. 

It is always a great idea to have a financial plan, and implement recommendations made in the plan.  Remember, there is no such thing as a “free” financial plan.  These are invariably commission driven.  Expect to pay for a plan, and the time taken to prepare a plan.  Taking into account interview times and fully personalising a plan with tailored solutions it will take several hours to prepare.  If it is a template driven plan as used by a number of large advisory firms using para planners where it is almost like painting with numbers, it will take a matter of minutes to prepare.  You pay for what you get.  A fee based adviser will be able to identify areas of concern or weakness in your current situation.  They should then be able to refer you to specialists to carry out for example estate planning, tax planning or risk protection, i.e insurance.

The most common area of risk for households is the risk of the not being able to work through illness or accident.  Income can be protected by taking out an income protection policy.  Sure there is a cost to do this, but can you afford not to? Most households will be financially devastated and take months if not years to recover, if the main bread winner for some reason is unable to work for any longer than three months.  Don’t skimp and try to save by taking a long stand down period.  As you lay in bed following major surgery or illness, it is comforting to know that you still have an income source! It is much better to be on claim with a four week stand down, rather than a thirteen week or longer stand down.

Pay off any mortgage or non tax deductible debt first.  This is an easy way of obtaining a good return and it comes at no risk.   There is no easier time to pay off a non tax deductible mortgage when interest rates are low.  Take advantage of this, so you can pay off the principal as fast as possible.  Once your debt is cleared, it is the time to start investing seriously.  Start by accumulating monies into a call account, and build up a reserve which can be used for emergency purposes, or when your income reduces unexpectedly.  Once this is in place, you are then in a position to seriously save for the longer term.  It is always a good idea to use flexible low cost investments for this and avoid locked in funds.

The biggest mistake many people who want to get ahead financially is to rush off and make a purchase often committing to large mortgages on over priced investment properties.   Often this occurs after going along to one of the numerous get rich through property seminars held in most parts of the country.  This locks people into years of debt and restricts their financial choices for years.  For them, financial freedom may just be a dream!