Be aware of the risks of property investment

Few could deny the fact that New Zealanders have a love affair with direct residential property investment. Whether or not direct property investment is the right move for you is a complicated question. Some of the factors you need to weigh up include:

• Your current level of debt and financial assets
• Whether you have the time and money to put into managing a rental property
• Your goals and objectives
• How you would deal with a worst-case scenario
• The current state of the market, interest rates, etc.

If, after you have been through that process and you decide you would like to enter the market, here are some helpful tips to help you carefully manage the risks associated with direct property investment:

1. Always buy quality (look at location, tenant and lease as the three key factors)
2. Buy for income, not capital gain (favour security over speculation)
3. Diversify your property investment with the inclusion of other asset classes
4. Beware of lemons, e.g. specific-use properties or offices which are not functional
5. Be patient – do your homework (good property decisions are rarely based on emotion)
6. Work hard to secure the best lease terms possible
7. Be aware of what point in the property cycle you are buying or selling in (don’t follow the herd!)
8. Increase value by making improvements and increasing rent
9. Don’t forget about transaction costs – for example, if you intend to sell within two to three years, it may not be worthwhile when you take transaction costs into account
10. Remember that ‘location’ and properties change over time.

What are a Trustee’s Responsibilities?

According to the CCH book “The Trustees Handbook” the most important responsibility is knowing your duties through knowing the Trust Deed.

In knowing the Trust Deed you must understand what your powers are and fully understand that the Trust is there for the BENEFIT of the BENEFICIARIES, NOT the Trustees.

How much paperwork is involved in running a Trust?

Five of the important set-up, management and administration procedures are:

1. A secure but accessible place to keep the Trust Deed

2. A Schedule of Trust property

3. A Minute Book to record the business of the meetings of the trustees and to record resolutions (decisions)

4. An IRD number and a GST number if required

5. A bank account to separate the Trust business from personal business

Source: The Trustees Handbook, Ed. 2, 2007, CCH New Zealand Ltd

Three Ways to Save Thousands on your Mortgage

This is a question not often asked, but easily answered.  The first choice to make is to make paying off the mortgage a priority, don’t just let the money go out on a regular basis and accept that it will take 25 years to pay it off.

1.  Pay an extra amount per month/fortnight – this can reduce the mortgage by YEARS depending on how much extra you pay, even $20 will help.

2.  Have a revolving credit portion that is able to be paid within a year, focus on it, do it and then when the year is up do it again, with another portion from the floating or fixed portion.  You will need to have GOOD BUDGETING SKILLS and drive to make this work.

3. Don’t buy outside of your means to start with, this is by far the most important part.  Before you get a mortgage, think about different scenarios and how you would cope financially, PLAN!  What happens if you can’t work?  What happens if you can only work part-time? What happens if the interests rate go up? KNOW YOUR LIMITS AND STICK TO THEM.

Happy house-hunting…

Investopedia: Term of the Day – Ponzi Scheme

What does it mean?

A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop.

Investopedia says…

The Ponzi scam is named after Charles Ponzi, a clerk in Boston who first orchestrated such a scheme in 1919. A Ponzi scheme is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. One difference between the two schemes is that the Ponzi mastermind gathers all relevant funds from new investors and then distributes them. Pyramid schemes, on the other hand, allow each investor to directly benefit depending on how many new investors are recruited. In this case, the person on the top of the pyramid does not at any point have access to all the money in the system.

For both schemes, however, eventually there isn’t enough money to go around and the schemes unravel.

Read more: http://www.investopedia.com/terms/p/ponzischeme.asp?partner=TOD04#ixzz1tBDKjmdq

Time is on your side: The power of compound interest

Taking advantage of the power of time and compound interest is one of the basic building blocks in developing an effective regular investment plan.

Compound interest simply means re-investing all the interest you earn each month. In this way, you can earn interest on your interest, as well as on your capital. As a result, your savings grow much faster.

Consider a savings plan where you invest an initial sum of $500 and then $100 each month for 30 years. This equates to a total investment of $36,500, but the final value will be around $86,000 if the earning rate is 5% after tax.

If your savings achieved an annual earnings rate of 7% after tax, the $36,500 invested would be worth over $121,000 at the end of the thirty years…mainly because the investment earnings have been compounded (or reinvested), thus increasing the rate at which the savings grow. (To achieve the higher earnings rate, a diversified portfolio should be used.)

Obviously the longer you let your investment go on earning for you, the greater your reward will be in the end. However, you don’t have to be invested a long time for the benefits to show up.

To get compound interest working as efficiently as possible for you, and to ensure the savings involved actually happen, it is helpful to make the payments into your chosen investment on a regular basis.

Many people opt to do this automatically, having an amount deducted each pay or each month and credited to their investment plan. Regular payments, as well as being convenient, give compounding its best chance to work for you.

By Judi Galpin – DecisionMakers (Manawatu) Limited

Be aware of the risks of property investment

Few could deny the fact that New Zealanders have a love affair with direct residential property investment. Whether or not direct property investment is the right move for you is a complicated question. Some of the factors you need to weigh up include:

• Your current level of debt and financial assets
• Whether you have the time and money to put into managing a rental property
• Your goals and objectives
• How you would deal with a worst-case scenario
• The current state of the market, interest rates, etc.

If, after you have been through that process and you decide you would like to enter the market, here are some helpful tips to help you carefully manage the risks associated with direct property investment:

1. Always buy quality (look at location, tenant and lease as the three key factors)
2. Buy for income, not capital gain (favour security over speculation)
3. Diversify your property investment with the inclusion of other asset classes
4. Beware of lemons, e.g. specific-use properties or offices which are not functional
5. Be patient – do your homework (good property decisions are rarely based on emotion)
6. Work hard to secure the best lease terms possible
7. Be aware of what point in the property cycle you are buying or selling in (don’t follow the herd!)
8. Increase value by making improvements and increasing rent
9. Don’t forget about transaction costs – for example, if you intend to sell within two to three years, it may not be worthwhile when you take transaction costs into account
10. Remember that ‘location’ and properties change over time

By Judi Galpin

The Great Financial Paradox

Reblogged from Live Well, in Best Health, with More Wealth:

Anyone who wants to build wealth or achieve financial freedom and independence needs to seriously consider the act of charitable giving, even before “having the money to do it.” I realize that this probably the most counterintuitive financial advice you’ve ever heard, but giving 10% of your income towards charitable causes can greatly multiply your ability to earn, to build financial freedom and to even create wealth.

Read more… 366 more words

Interested to see your thoughts... Where did this Law of Contribution come from? Have you tried it?

Economic Stimulus: Investopedia Term of the Day

For APRIL 13, 2012

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Economic Stimulus

What does it mean?

Attempts by governments or government agencies to financially stimulate an economy. An economic stimulus is the use of monetary or fiscal policy changes to kick start a lagging or struggling economy. Governments can use tactics such as lowering interest rates, increasing government spending and quantitative easing, to name a few, to accomplish this.

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Investopedia says…

The term economic stimulus became an everyday economic term following the recession created by the 2008-2009 Credit Crisis, which caused most, if not all, of the world’s
Read more »

Copyright © 2012 – All rights reserved. Investopedia ULC

 

Preparing your financial survival kit

Natural disasters are unpredictable and in many cases can be life changing for those caught up in them. The recent disasters around the world, including Christchurch, Japan and as of this morning Sumatra, have got many Kiwis talking about and actively putting their survival plans in place.

Whilst the main emphasis should be placed on preparing for the immediate survival of your family from a natural disaster, for example meeting points, food and water, we shouldn’t overlook the financial needs and possible financial issues that will arise as soon as you’ve established your loved ones are ok.

Consider that banks could be disrupted, limiting access to cash. Government assistance, insurance, and other financial relief (which may or may not cover your total loss) may not return you to the financial position you have previously enjoyed.

Ultimately, you’ll remain responsible for most if not all of your debts and other financial obligations, and as soon as disaster hits, you’ll start to feel the pressure. However, it won’t hurt as much if you are prepared.

Consider the following tips to help manage your financial situation:

• Make copies of important records and documents, and keep them in a secure place, preferably away from your home and out of your immediate area. Items should include credit card numbers, insurance policies, financial records, tax records, loan and mortgage documents, deeds and titles, wills and trusts, prescriptions and medical records, emergency contact lists.

•  Some experts suggest using technology, such as digital images to record your financial profile. Combine these images with the documents above, scan them, and store them online e.g. using ‘Cloud Space’ (online data backup accessible anywhere in the world) or a USB Flash Drive which you could use to store your data and then give to family or friends out of town for safe keeping.

•  Compile and maintain a one-page financial contacts list. This list should include the phone numbers of companies you may need to contact, as well as your account numbers. Include numbers for your bank, insurer, mortgage lender, consumer credit lender, investment companies, lawyer, accountant and anything else you can think of.

•  Maintain a fireproof and waterproof lockable box or container with important recent financial documents you can quickly grab should you have to flee. Include recent bank credit card and investment account statements; your key financial contacts list; tax returns; mortgage and insurance information; and a supply of cash.

•  Ensure you have access to cash. Carry your EFTPOS and credit card with you at all times. Build an emergency balance in your cheque or savings account that you can tap into if a crisis hits. Consider applying now for an emergency line of credit; for example a revolving credit facility on your mortgage or an overdraft on your check account – the idea being that you only access these funds in an emergency. Just make sure you don’t incur any fees on this service while you are not using it.

•  Review in depth your home owner’s or renter’s (i.e. contents) insurance policy with your insurer. Ensure you understand every clause in your basic and/or special insurance policies and what the outcomes would be if you needed to claim on these policies. If you are in certain high risk areas, consider adding flood or earthquake insurance. Don’t overlook special coverage necessary for computers, home offices, jewellery, artwork or other expensive items not included in your basic insurance policy.

•  Have spare keys cut and stored away.

Most importantly – get started today.

This article is based on ‘Preparing A Financial Survival Kit’ by Broderick Perkins

What is the difference between an Accountant and a Financial Adviser?

There are some fundamental differences between these two professions, one is backwards looking (accountant) and the other is forward looking (financial adviser).

The financial adviser can help you get where you want to be financially in the FUTURE. A financial adviser will write you a plan with actions to enable you to meet your goals, ensuring firstly that they achievable.  They can help with:

• RISK REDUCTION (income protection insurance, house insurance, trauma insurance, life insurance etc)
• ASSET PROTECTION (Family Trusts, Wills, Enduring Powers of Attorney)
• INVESTMENT choices
• DEBT REDUCTION plans and MORTGAGE/LOAN applications.

If you don’t know your starting point, how will you know if what you changed worked?

The answer to that is the accountant.

The accountant can determine your earnings, business setup, tax obligations, tax rates etc  They are helpful in defining the NOW financial picture.   The accountant is concerned with taxation liabilities, business cashflow and financial management on a day to day basis.

So, do you need help with tax or legal financial obligations, or do you want an overall plan for your financial future?

 

Do I Need a Family Trust?

This is a question that we as advisers are often asked. Over the years Trusts have been widely used for a variety of reasons, from removing ownership for risk reduction, to ordering family inheritances for families to ensure fairness and safety, to just needing more control over finances with reference to a guide (a Trust Deed).  They are also different types of trusts, but we are only referring to the concept of a trust here, not specifics as that is something to be discussed a professional.

The first questions you need to ask are:

• Do I have wealth that needs protecting?
• Do I own my family home?
• Do I have an inheritance coming to me?
• Am I potentially going to enter a second “relationship”?

If you answered yes to any of the above it is time to start looking further into your requirements.  The main purpose of a trust is to have a separate entity that can manage the wealth gifted to it and do it in a manner that you so determine when you establish the Trust Deed.

*The Trust Deed sets out the rules around the Trust, it tells you such things as:

*Who the Settlor is (the person/s establishing the Trust and gifting the wealth)

*Who the Trustees are (the people/company appointed to manage the Trust)

*What the rules are that bind the Trust (who is allowed to take income or capital, what purpose it is allowed to be used for.

*Who the Beneficiaries are (the people/companies the Trust is allowed to give funds to and if the Trust is dissolved who is entitled to the proceeds)

If you do think you need you would like to talk further about this to a professional, we can give you help with knowing which questions to ask and the types of information you really should have sorted before meeting with your solicitor.

A Family Trust needs to be part of an overall plan for your financial future, and this is where a financial planner/adviser can help.  If you would like to talk about what is involved with writing a plan please contact one of our advisers for more details.

The information above is very general in nature and is not meant to be taken as specific advice. 

How to be a millionaire by 65 – Stuff.co.nz

RICHARD MEADOWS

Who wants to be a millionaire? An absurd question. Whiling away your golden years in comfort and style is much easier when you’re perched atop a million-dollar nest-egg.

Unfortunately for many of us, our wealth creation strategy is limited to buying a weekly Lotto ticket and then praying for divine providence.

So it may come as a surprise that just about anyone can become a millionaire by retirement age, with a few caveats of course.

If you’re short on time here’s the big secret right now: regular savings payments, a sensible investment plan and the power of compounding interest.

That may not have been the magic bullet you were hoping for, but the figures are really rather exciting.

If you’re neither self-employed nor a financial whizz kid, the obvious investment vehicle for retirement is KiwiSaver.

That’s because it allows you to siphon off the maximum amount of other people’s money, from both your employer and your fellow taxpayer.

Using the handy www.sorted.org.nz KiwiSaver calculator, we can run the numbers based on the median salary, which according to Statistics New Zealand is $41,600.

Step one: Start young and set your employee contributions at the top rate of eight per cent – a paltry $3,328 a year, or $64 a week.

Step two: Put your cash in a balanced fund, keep on working, and wait patiently for 40 years.

Step three: Profit! Your retirement nest egg has now grown to $1.1 million. Congratulations, and welcome to the millionaire’s club.

We could end it right there.

But if it was that easy, you’d be seeing a lot of wrinklies zooming around in souped-up, gold-plated mobility scooters. The heartbreaking truth is that few make it.

Millionaires are tricky beasts to track down,

Sponsorship of Active TaeKwanDo Academy – Hibiscus Coast

DecisionMakers was pleased to sponsor Active TaeKwonDo Academy by way of a brand new laptop to assist with their growing administration. Active TaeKwonDo was established in 2011 and is a non profit organisation operating on Auckland’s Hibiscus Coast (Rodney) providing education and training in this most physical of sports. Active TaeKwonDo creates a positive yet disciplined environment for young people to learn and grow. TaeKwonDo also teaches focus and concentration – two skills that can help with better decisionmaking in many aspects of life.

 We are proud to support organisations like Active TaeKwonDo and look forward to watching them grow and thrive.

http://www.facebook.com/profile.php?id=100001411921926#!/ActiveTaeKwondo

DecisionMakers Sponsor Sunnybrae Bowling

DecisionMakers was pleased to sponsor the Sunnybrae Bowls DecisionMakers Men’s Open Triples tournament for the 9th year. Yet again we were extremely lucky that the weather held off until the very last minutes of the fourth round of games. The excitement was high at prize giving with no teams coming in with four wins, meaning that any of the 6 teams with three wins could have taken top honours. In the end, a local team from Sunnybrae took the win.

Failed gold bullion dealer owes $3m – Stuff.co.nz

MATT NIPPERT

A director whose gold bullion firm failed owing investors nearly $3 million is described by the company’s liquidator as a “pretty naive” businessman whose conduct raises serious questions.

Grace Holdings NZ, trading as Bullion Buyer, ceased operations last month after informing investors all funds had been lost by a rogue trader and preacher based in Florida.

The Serious Fraud Office began investigating the company after complaints from investors and shortly after the company’s sole director Robert Kairua appointed Grant Reynolds as liquidator.

Simon McArley, general manager of financial markets and corporate fraud, said financial information obtained from the company was still being analysed.

Kairua did not return BusinessDay calls.

BusinessDay understands investigators from the Ministry of Economic development’s National Enforcement Unit have also started their own probe.

The first report by Reynolds was published on February 15 and lists 65 investors from Invercargill to Remuera who were owed $2m by the firm.

But Reynolds said since that report was prepared, claims from investors have continued to flow in and the total amount owed is now closer to $3m.

Company assets are limited to two bank accounts containing $65,000.

Bullion Buyers allowed investors to purchase leverage gold options, meaning changes in the price of the precious metal magnified potential returns or losses.

Reynold’s report said Kairua blamed the collapsed on the rogue activities of the firm’s lead trader, the Florida-based Gus Eli Geldman, who made large unauthorised trades in September causing huge losses.

Geldman is presently in a United States prison after being convicted of fraud offences unrelated to Bullion Buyer.

Reynolds said he was concerned about the delay between the large September losses and the appointment of a liquidator in February, although he had yet to lay a complaint with authorities about the matter.

“It’s pretty naive for the director to continue trading since September. He should have stopped right then and there and crystalised losses rather than blindly carrying on and incurring more losses,” he said.

© Fairfax NZ News

Investopedia: Cash Flow Statement

Cash Flow Statement

 

What does it mean?

One of the quarterly financial reports any publicly traded company is required to disclose to the Government and the public. The document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter.

Investopedia – Market Capitalization

The total dollar market value of all of a company’s outstanding shares. Market capitalization is calculated by multiplying a company’s shares outstanding by the current market price of one share. The investment community uses this figure to determine a company’s size, as opposed to sales or total asset figures.

Frequently referred to as “market cap”. 

Change of Name – Henderson TR Pacific Trust

The following is only a notice for current clients with this investment:

Henderson TR Pacific announced this week that the Company’s name has been changed to Henderson Asian Growth
Trust plc. The change of name took effect on 1 March 2012. The new London Stock Exchange dealing code is
‘HAGT.LN, while the mnemonic on the NZX remains HRP.NZ The board has decided to change the name of the
Company so it more accurately reflects the style and purpose of the Company.

Onepath WIN New Zealand Fund Manager of the Year – Morningstar

OnePath won the overall New Zealand Fund Manager of the Year Award.

“The winners in the New Zealand Morningstar Awards have all shown themselves to be outstanding stewards of their investors’ capital,” said Morningstar Australasia Co-Head of Fund Research Chris Douglas. “Their expertise, skills, and resources have enabled them to provide top-notch risk-adjusted returns for their investors over both the past year and the longer term. OnePath’s achievement is a testament to the quality of the firm’s processes and people, and to the consistent results the fund manager has produced for investors in its funds.”

Click here for details of the other winners, methodology, and testimonial commentaries.

More Information/Comment
Chris Douglas
Co-Head of Fund Research
Morningstar Australasia
+64 9 915 6783

+61 21 824 449
chris.douglas@morningstar.com

Five Questions to ask a Financial Adviser

1. Disclosure Statement please?

2. What does your level of qualification mean? Is it to the Government required level?

3. This is my situation, do you think you can help me?

4. How do you charge? Are the different services charged differently?  i.e. fees, commission, mix of both?

5. Why do you think you are the best person to help me?

After this, if you don’t feel comfortable it may be time to try someone else.  Your financial adviser needs to know everything about you and if you don’t feel comfortable with them it will be hard to share the information and you won’t get the best from their service.  We are all different, that is okay, just find the one who is right for you.