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Teaching your kids about basic financial literacy?

Tony Ryburn — Thu, 12 Jan 2012 01:06:50 +0000

I’ve recently been asked for advice on how parents should teach their kids about the stock market. But while I’m all for encouraging the next generation to find out about share investing, I actually think parents need to take a couple of steps back and ensure that young people have a good grounding in basic financial concepts before they even start thinking about investing in equities.

Over the years I’ve helped many families with their household finances, and continue to be surprised by just how many people put finance in the “too hard” basket.

The thing is, basic financial concepts are just that – basic – and anyone can understand them. But the important thing is to start learning early so it all doesn’t seem too daunting later on.

An idea that helps kids learn about money is to extend the idea of giving them pocket-money. The idea is to increase the amount of pocket money but make your child responsible for paying for various small things that you would have otherwise purchased for them. As they get older and demonstrate that they can spend responsibly, the budget can be increased to cover larger items like clothing.

One of the most important concepts I think we need to teach young people is the difference between short-term, medium-term and long-term financial goals – and how your priority actions for each timeframe will probably differ.

Below are some tips I’ve shared with young people in the past that might help you get started talking to your kids (or grandkids) about their own financial priorities and timeframes.

Short term: set yourself up for success

Understand where your money is going. Keep track of all your incomings and outgoings over 2-3 months. Are you spending more than you’re earning? What proportion of your income goes on essentials (rent, travel, bills and groceries) and what proportion is on discretionary spending (going out, shopping, etc).

Once you understand where your money’s going, establish a savings account that allows you to make withdrawals without penalty. Set up automatic payments that directs a portion of your discretionary spending into to this account each payday so you can’t forget to contribute. Adjust your discretionary spending so that your remaining funds last you until next payday.

Your savings account is not for your retirement, it is your fund for unexpected expenses such as car repairs, and also your pot for those “must haves” such as an iPad or a holiday.

Don’t borrow. If there is not enough money in your savings account for what you want, wait until there is! That will stop you from committing a cardinal financial sin – borrowing money. A little patience will pay handsome dividends over your lifetime. For example if you have on average $1000 on your credit card over the next 20 years at a 15% interest rate you will pay over $3000 in interest. How much better off you would have been if you had waited until you had that $1000 in your savings account!

The only exceptions to the ‘don’t borrow’ rule are if it is for something that will create lasting value that exceeds the interest you will pay. For example a loan to buy a house that will appreciate in value (and save you the cost of renting), or a student loan that will enable you to learn new skills.

Medium term: think bigger picture

Consider saving for those big commitments. What are your financial goals for the next few years? Would you like to buy a property or set up a business, perhaps? If so, you’ll most likely need to start saving for the longer term. Set up a separate account with high interest rates and don’t be tempted to dip into this pot of money early.

Longer term: the road ahead

Consider other investment options. The share market, investment property, bonds… The list of investment options for the longer term (which generally means retirement) seems endless and you will need to think carefully about what’s right for you.

Nevertheless, the most important thing when considering these types of investment options is to only invest money that you are prepared to put away for the long term. While money invested in the share market, for example, will usually outperform most other investments over a period of many years, there will be times when the investment underperforms. That means that if, for example, you need to withdraw money during a period of underperformance, you will crystallise a loss that otherwise would have been recouped when the market picked up.

In my next post I’ll be discussing how to get kids started in the stock market, if and when they’re ready.

Two brokers can be better than one …

Andrew Bird — Fri, 23 Dec 2011 01:14:35 +0000

I wanted to let you know about something that Sharesight offers that other portfolio management solutions don’t.

And that is that Sharesight operates completely independently from your broker, planner or any other investment service that you may use – while still enabling one or all of them to have the level of access you would prefer. This means you can have more than one broker viewing and advising on your portfolio, either with ‘read only’ or ‘full access’.

For you as their client that’s a huge benefit, because most brokers or planners use proprietary portfolio management systems that are limited by the fact that they can’t link with, or view, any others. (And can I just point out that while these systems may offer some of the functionality that Sharesight provides, none are, in my view, as sophisticated or user-friendly).

So how can enabling multiple access can be an advantage?

Of course it all depends on your investing style, but many people find that using multiple brokers offers a range of benefits.

These can include comparing research and recommendations, the ability to access different specialist functionality provided by different brokers and the general benefit of not putting your eggs in one basket, so to speak. Not to mention that, as we all know, playing two suitors off each other can increase their level of interest!

A recent conversation with Sharesight subscriber Jonathan illustrated this perfectly.

He found that the service from his broker was dropping off, and when he gave his broker read-only access to Sharesight, the broker didn’t use it.

However, he added a second broker and hey presto! Now both of them use it. This way, both brokers can see what the other is recommending (nothing like a bit of healthy competition!). Jonathan has found this has improved service and responsiveness from both brokers considerably.

At the same time, he’s also discovering additional ‘soft information’ that he would have been unlikely to find otherwise.

For example, one broker will say “oh, that stock was recommended because his firm did the capital raising for that company”.

This sort of intelligence can add an extra dimension and real value to the decision-making process.

If you want to give multiple brokers a try, here are a few tips:

Use the new ‘contract note importer’ — It makes it really easy to keep track of your trades and the system will make a note of which broker made each trade. (click here to find out more).

If you do decide to give two (or more) brokers a try through Sharesight, be sure to use the custom tagging feature (this can be set up in the Performance Report to track one broker’s recommendations against another. This makes it easy to compare the performance of each broker’s picks and decide which suitor you like best!

Lastly, if you want good service from a broker you need to be prepared to reward them for good research or advice. If you try and get good research from a full service broker and then put all your trades through an online discount broker, don’t expect the flow of information to last very long.

But don’t take our word for it. If you think you’d benefit from the insights of more than one broker, get onto it today and throw Sharesight into the mix to make sure you get the best that both can offer.

Why accurate performance measurement matters

Andrew Bird — Tue, 22 Nov 2011 20:16:11 +0000

It’s not uncommon to see stock market performance being described inaccurately in the press. But an article in today’s (23/11/11) Financial Review in the Portfolio section entitled “Cult of Equity is losing its Followers” by John McDuling is one of the more confused I have seen. Here are the opening paragraphs:

To say that the past two decades have been kind to investors in equities is an understatement.

Between October 1991 and October 2011, Australian shares returned investors 433 percent, including dividends, or 22 per cent per annum.

That is way ahead of more defensive assets such as cash or bonds, according to analysis by Commsec’s Craig James.

He says if $100,000 had been invested in stocks 20 years ago it would have been worth $804000 at the start of this year. That same $100,000 would have appreciated to just less than $305,000 in cash.

The article basically goes on to say that returns are unlikely to be as good in the next 20 years. Well, yes, I can almost guarantee they won’t be 22% p.a. But they haven’t been 22% over the last 20 years either.

The problem is that the return presented of 433 percent return over twenty years is not 22 percent per annum using compounded growth. The author has simply divided 433%/20 years = 21.6% which is the simple growth rate (similar to the simple growth in Sharesight) but it is highly misleading in this context. Using compound growth, which allows you to compare it to the way other investments are presented, the annual return is 8.7%, a far more reasonable number and actually slightly below long term equity returns. 100K compounded at 22% over 20 years would be $5,336,000! If you are Warren Buffett this sort of return is possible but it is certainly far higher than the overall market in the last 20 years.

A long run figure of 8.7%, however is perhaps not so unreasonable over a long period. The Future Fund has a target return of inflation + 5%. With inflation RBA inflation goals of 2 to 3% this implies 7 to 8% annual growth over the long term. A bit lower than than the last 20 years but no drastically so.

Why does all this matter? Well all the current crop of articles with this theme (and I have seen many as the market has declined) result in investors potentially underestimating the growth potential of the market relative to its history and moving out of equities at precisely the wrong time. It could prove to be a very expensive decision for investors. This is why we are so passionate here at Sharesight about investors understanding their true return. We think it’s critical to successful portfolio management

It’s important to know your returns and set some realistic expectations about future growth. With high single digit growth rates the magic of compounding will see your investments grow very nicely indeed if you are prepared to give them the time to deliver.

Update: 2:25pm
In the online version of their article the Fin have corrected the calculation and have now put 8.7% as the annualised return into the story. Obviously someone else has pointed out the error but the story makes even less sense now! See here for the link.

How does Sharesight operate in the Cloud?

Tony Ryburn — Mon, 17 Oct 2011 04:57:10 +0000

Hi folks

In my last blog I promised to tell you a bit more about how Sharesight’s portfolio management service operates in the Cloud. I explained that because we are in the Cloud our servers do all the work and you do not have to worry about viruses, downloading share portfolio software onto your computer, keeping it up-to-date, backing up data so you don’t lose it or running out of space on your computer.

So, without getting too complicated about it, what actually happens behind the scenes to give you all these advantages?

Well firstly, when I say ‘our servers do all the work’ I don’t mean that we have a big computer sitting in our office storing all your data and doing all the calculations. That would be far too risky! What would happen if we had a burglary or a fire, or our computer broke down, or we had an earthquake that wrecked the place or maybe a major power cut?

Our servers are located in highly specialised, professionally operated data centres. They have state-of-the-art systems to make sure all our data, including yours, is stored in a way that deals with the risks I have just mentioned. They have many ways of doing this but in particular they ensure that they have high levels of physical security and all the data is stored on multiple servers in multiple locations.

The other major risk is that someone might hack into your data. To guard against this your important information – your password and credit card details – are encrypted so that this information is not intelligible to a hacker. You will have seen the letters HTTP before. HTTP is short for ‘Hyper Text Transfer Protocol’ and it is basically a protocol, or set of rules, for sending individual messages securely across the internet. You will also have seen the letters SSL or ‘Secure Socket Layer’ which is designed to ensure a secure connection between you and our Servers. Together these two protocols are known as HTTPS.

Sharesight uses HTTPS to provide you with the highest level of security. However HTTPS can slow down the time it takes to load each page and for this reason Sharesight, by default, uses HTTPS only on your payment and login pages. However customers on our Investor and Expert plans can choose to enable HTTPS on all Sharesight pages.

So does all this jargon mean that we at Sharesight absolutely guarantee the security of all your information 100%?

Your data is very secure but no one can ever guarantee 100% security. What we can say is that unless you happen to live in Fort Knox, your data is a lot more secure with us than it would be on your home computer.

Is Sharesight in Cloud Cuckoo Land?

Tony Ryburn — Wed, 28 Sep 2011 22:02:33 +0000

No we are not!

We are all down-to-earth characters here at Sharesight and definitely not in cloud cuckoo land – but we are ‘In the Cloud’.

We have encountered a lot of confusion from our customers about what being ‘In the Cloud’ means. Some ask us questions like ‘how do I transfer Sharesight onto my new computer’? Or ‘my computer is stuffed – does that mean all my Sharesight data is lost’?

Most of you know more about cloud computing than this of course but we do encounter a lot of people who are worried by exaggerated stories about the risks of Cloud Computing.

This is the first in a series of articles that will look at Cloud Computing. My aim is to keep it really simple to help our customers who do not have a good handle on Cloud Computing. I will look at:

What is Cloud Computing?
How does Sharesight operate in the cloud?
How do you benefit as a Sharesight customer?
How Cloud based services can join forces to offer you benefits you have never dreamed of
Finally I’ll look at perceived disadvantages of The Cloud and set your minds at rest.

So let’s get started.

What is Cloud Computing?

This is a big topic so to keep things manageable I will just focus what matters to you as an individual Sharesight customer.

Because Sharesight operates ‘In the Cloud’ it means that when you use Sharesight you don’t use your computer – you use ours! That is a bit of an exaggeration of course because you do have to turn your computer on to use Sharesight. But it doesn’t do much more than act as a messenger. Your computer sends a message to Sharesight when you log on. Sharesight then sends a copy of all your information to your computer. When you log off again nothing is stored on your computer.

This is why it doesn’t matter if your computer packs up. Well, it does of course, but not as far as your Sharesight data is concerned. You can use any computer you like, anywhere in the world, to see your Sharesight portfolio because all it has to do is be a messenger.

Sharesight’s servers do all the thousands of calculations that are needed keep your portfolio up to date and make sure it is securely stored and backed up.

I’ll tell you a bit more about servers in the next article because they play a very important part in making sure your data is secure, does not get lost and is available to you when you want it.

The main message that I want to leave you with from this first article is that because Sharesight operates in ‘The Cloud’ it can look after all the nuts and bolts. This is not another of my exaggerations! I think it is actually an understatement because Sharesight in the cloud takes a big weight off your shoulders. You do not have to worry about downloading software onto your computer, keeping it up-to-date and having a software licence. And you don’t have to worry about viruses, backing up data so you don’t lose it or running out of space on your computer.

In short, you are left free to concentrate on the fun part – getting the best return you can from your investments and exploring all the benefits Sharesight offers.

We have had another share market collapse. So what?

Tony Ryburn — Wed, 14 Sep 2011 02:42:22 +0000

My top 5 points to ponder before you act

By Tony Ryburn Sharesight founder and managing director.

Just when we thought the worst was over, the share market takes another tumble.

I know we have to be mindful about what is happening overseas but things are much better in Australia and NZ so what is the problem?

If, like me, you are not sure what the problem is we are in good company. Retail king Gerry Harvey was recently quoted as saying ‘Australians should be as happy as pigs in shit with low unemployment and a resources boom, but instead they’re scared to spend money’.

So it looks like we are not spending money and we are taking it out of the share market as well. But where is all this new-found cash going? If it’s reducing debt great, but if you think it might be safer under the bed because the share market is heading south, here are my top 5 points to ponder before you take action.

The share market is volatile – you knew that before you invested. Dramatic gains can be offset by equally dramatic losses. But history shows very clearly that in the long run our markets produce good returns with gains exceeding losses.
Don’t over-emphasise what happens today. It is human nature to do this but current events, good or bad, are not the way to gauge what will happen in the long run.
To ensure you can maintain a long-term focus, only invest cash that you are sure you will not need for short-term requirements.
If the market takes a tumble you have made a paper loss; not a real one. Ask yourself if you know a better place (under the bed?) to put your money than in share market – especially when it is at low point! As long as you don’t bail out you are guaranteed to participate 100% in the inevitable bounce back!
Finally remember that doing something is not necessarily better that doing nothing. Besides doing nothing is easier and in the case of the share market, may well produce a better result.

Sharesight for Oldies the Young at Heart

Tony Ryburn — Wed, 07 Sep 2011 04:48:56 +0000

One of the issues we are grappling with at Sharesight is how we can better help the many older folk who have diligently built up substantial share portfolios over their lifetime.

Many older folk stand to benefit significantly from Sharesight because their larger portfolios are very demanding to maintain without the automated service Sharesight offers. Unfortunately this creates a Catch-22 because many older folk have had limited opportunity to become confident with computers or online services like Sharesight. So going online to manage their share portfolio is, understandably, a bit daunting.

While we strive to make Sharesight as simple and intuitive as possible, it is clear that some people are still struggling with it. The good news is that that we already have a feature that can help! And customer feedback is that many people are finding this really valuable.

Our sharing feature allows adult children or relatives of older folk to help them manage their portfolios in Sharesight. This allows a Catch-22 to be converted into a win/win so why not take advantage of it? Sharesight portfolios can be shared on a read-only or full-access basis. Full-access allows the person with whom the portfolio is shared to update and amend the portfolio as necessary.

Of course, this feature is also useful for people of any age who wish to share their portfolio with others e.g. members of a share club, your financial advisor or your accountant.

So if your share investment records are a bit of a mess but you find the prospect of setting your portfolio up in Sharesight a bit daunting why not get a trusted friend or family member to give you a hand? It takes less than a minute to record each share investment in Sharesight because most of the time-consuming work like recording all the dividends and making adjustments for things like share splits is done for you automatically. Sharesight also has an excellent import function for shares recorded in a spreadsheet. Once your portfolio is set up it will run on autopilot with minimal user input required.

Talking of older investors, I recently read an article urging people of retirement age or older to sell up their share portfolios and invest their savings in a few deposit accounts with reputable banks. Two main reasons were advanced for this suggestion.

The first was that shares can be volatile and should therefore be regarded as a long term investment unsuited to older folks. I agree that shares are volatile and you should take a long-term approach, but I do not agree that this makes shares unsuitable for retired investors– even those well-beyond retirement age. For investors young and old, the key thing is to ensure you never get into a position where you are forced to sell shares in a market downturn.

The second reason was that older investors should simplify their affairs so that the administrator of their estate and the beneficiaries under their will are not left with a complicated, poorly –documented portfolio of shares to unravel.

As our customers know, a portfolio in Sharesight will provide a complete and clear record of everything an executor of a will and beneficiaries will need to know.

Sharesight Server Upgrade & Outage Notice

Marcus Baguley — Wed, 24 Aug 2011 09:09:37 +0000

Sharesight will be offline for approximately 2 – 3 hours while we upgrade our servers. The expected outage will commence at 7.30am NZT on the 25 August 2011. We apologise for any inconvenience that this may cause.

Edit – The upgrade is now complete

Additional Info:

What’s included in the update?

This upgrade contains primarily ‘behind the scenes’ changes to ensure that Sharesight continues to be as fast, secure and reliable as possible.

We are moving to a new server infrastructure which includes dedicated load balanced application and database servers. The new architecture will offer speed improvements and also greatly improve our capacity as our user base continues to increase. The new architecture also offers improved scalability and redundancy.

Edit – Post upgrade stats indicate that average portfolio load times are around 30% quicker.

We Don’t Know How Lucky We Are

Tony Ryburn — Thu, 18 Aug 2011 04:08:12 +0000

When you consider that investors in many, if not most, countries round the world face a comprehensive capital gains tax on shares, our Kiwi customers can be grateful that they don’t have to put up with anything other than their Foreign Investment Fund (FIF) regime, ridiculous though it is.

Many of the countries without a comprehensive capital gains tax regime have half-baked alternatives that look every bit as unwieldy as the FIF regime so Kiwis are lucky compared to most of the rest of the world.

Our Aussie customers do have a comprehensive capital gains tax regime but the fact that both NZ and Australia allow for franking/imputation credits is cause for rejoicing because there has been a worldwide trend away from imputation/franking credits. Australia and NZ are about the only OECD country that still allows imputation credits. I’m sure that in many countries taxes are lower to partially compensate for this but ‘partially’ is the operative word.

Imputation/franking credits eliminate the double taxation of company profits that would arise if companies paid dividends from their after tax profits only to have these dividends taxed again in the hands of the investor.

Your Sharesight Taxable Income Report will show you at a glance the extent to which imputation/franking credits have reduced your tax liability and which of your investments have had Withholding Tax deducted.

Imputation/franking credits only apply to locally sourced income, so dividends from a company with offshore operations are taxed based on the full amount of the dividend which therefore reduces the after-tax return of the dividends they pay. The net result is that imputation/franking credits favour locally generated income and provide an extra incentive to local companies to pay strong returns to shareholders.

P.S.
Sharesight is proud to have Australian and NZ shareholders and to further the spirit of trans-Tasman cooperation it would be great if the NZ Government would allow Australian franking credits to be recognised in NZ and vice versa!

Importing your portfolio just got easier

Scott Ryburn — Tue, 09 Aug 2011 22:50:37 +0000

We know from the feedback that we get that the biggest challenge for many new customers is getting their historic portfolio set up Sharesight. One of our goals is to make it as easy as possible for you to get your data into (and out of) Sharesight. Last week we released some improvements to our file importer to make it compatible with a much broader range of spreadsheet files.

The first step is getting a list of all of your trades into a spreadsheet. Thankfully this is easier than it sounds as most online brokers allow you to export a copy of your trading history in a form that can be opened up in a spreadsheet program such as Microsoft Excel.

Provided that your spreadsheet contains one row per trade and one column per attribute (price, quantity, date etc) it is now much easier to import this data into Sharesight.

Importing your data in two easy steps:

1. Save your file in CSV format

Once you have the data in a spreadsheet, you need to choose ‘Save As’ and save the file as a CSV file. CSV stands for ‘comma separated values’ and is basically just a plain text file without any extraneous formatting information.

2. Upload to Sharesight

To access the file importer, click ‘Add New Security’ then click ‘Bulk Import’ and click on the ‘Import CSV’ button.

Once you have selected your file to upload you may need to specify what piece of information is contained in each of the columns you want to import.

You have the chance to add, modify, or delete any data before it is finally imported into your portfolio. Sharesight won’t let you import invalid data, but if there are any problems they will be clearly highlighted so that you can fix them up.