Let’s have a look at the financial trends for this month, in New Zealand and all over the world.
Globally this week finished on a high, with the S&P 500 rounding up at 4.4%, the best week after week gain in half a year. In the meantime, security yields declined to the lowest marks in two years. Expectations of an improved Fed rate cut, expectations that the U.S. and Mexico can achieve an arrangement to evade taxes, and improved valuations, all helped stocks move higher.
Financial data had mixed reviews as the strengths of the services sector were counterbalanced by the weakness of the production lines. The job market fared lower than expected, however, the unemployment graph has been steady at a fifty year low. As per the current speculations we expect a balanced mix of positives and negatives. That being said, it is believed that the steady economic, growing corporate profits and low interest rates means there is a likelihood of the market moving in a positive direction outweighing the current risks.
Meanwhile in New Zealand,
The Kiwi economy has grown by 0.6 percent in OND quarter in 2018. This trend was driven by the improvement in the financial standing of the service sector (up by 0.9%), with higher rates of growth for the transport, postal, and storage sector along with the retail trade and accommodation industry. The production sector barely grew by 0.2%. The fundamental industries tapered by 0.8% in the OND 2018 quarter. In the event of disruptions at the Pohokura oil and gas area having a continual effect on the value-added output in the mining sector, the economy grew by 2.8% in the year 2018.
Speaking of market fluctuations, let’s look at some of the low-risk investments in the year 2019.
A good practice while investing in a financial asset is to evaluate the returns, the duration of the investment, the risk factors and your current financial standing. Let’s dive into the details.
SHORT TERM INVESTMENT
Short term investment has an investment period of 1 to 3 years. It is low risk, which means the chances of you losing the money are minimal. It is low on volatility which means the value of your asset is fairly stable. This type of investment can expect returns of around 2-3%, annually. Savings account, fixed-deposits are good examples of this type of investment. Liability insurance or car insurance for young drivers will somewhat fall under this category as well. If you are new to investment this could be your entry-level investment in the market. Short term investments mean that the assets can be liquidated when required while yielding you reasonable returns.
MEDIUM TERM INVESTMENT
Medium-term investment has an investment period of 4 to 6 years. It carries a medium risk, which means there is a possibility of losing a small sum of your money. It also is susceptible to medium volatility, as the value can drop or rise by 20% a year. Medium-term investments can yield a return of 4 to 5% every 10 years. One of the examples can be managed funds, which gives you better returns as compared to a savings account over the same period of investment. The downward falls in the rate can be covered over the term of the investment. It is also possible to increase the investment easily. This type of asset is ideal for someone who can handle some risk in favour of letting their investment grow over the medium investment period.
For the long term investment, the investment period is 7 years or more. The risk with this type of investment is also high, with the possibility of negative returns for 4-5 years out of 20. The volatility is high as the value can fluctuate by 40% annually; the returns expected on this type of investment vary between 5 to 6% per year. Direct shares, managed investments and superannuation funds (money that your employers put in for your retirement, during the tenure of your employment) are good examples of long-term investment. What one can expect with this type of investment is long term returns higher than any bank savings, and the ability to make up for the negative returns over the duration of the term.
Let’s look at some of the options one can invest in:
HIGH RISK – HIGH RETURN
Shares and property (85%) + fixed deposit or savings (15%), this type of investment will yield an approximate return of 5%, is highly volatile and expected loss can be 4-5 years in 20 years. Investment property calculator comes in handy for real estate investments.
STEADY GROWTH – MODERATE RISKS
Shares & Property (70%) + savings or fixed deposit (30%), this type of investment will yield expected returns of around 4.8%, is moderately volatile and can have 3 years of negative returns in 20 years.
LOW GROWTH – LOW RISK
Shares + Property (30%) + Saving & Fixed deposits (70%), this type of investment will yield expected returns of around 3.8%, carries a low risk, just 1 year of negative returns in 20 years.
CASH INVESTMENTS – ALMOST NO RISK
100% in deposits, this type of investment has close to no risks, can yield expected returns of around 2.7% annually with zero negative returns in 20 years.
To put it simply, the current market conditions are conducive for investing and there is no such thing as a ‘No Risk Investment’. Every investment carries some risk. Hence it is essential to have a fair grasp of the market, the investment options available and your current financial standing and risk-taking capacity before investing. Looking at investments from a tax planning and preparing GST returns perspective is a good practice as well.
To simplify it even further, see if you can explain to a friend the current market conditions, the asset you are investing in, the means by which the asset will generate returns and how the returns will make their way to you. If you can’t, do not invest or gain thorough knowledge before you do!