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Taking stock and talking stocks

Anyone with a mediocre knowledge of investing will be familiar with the term “stock”. 

But few people are aware that there common stocks and preferred stocks. And they’re fundamentally different.

Stocks have been traded for over 400 years – the first common stocks were made available in 1602 through the Dutch East India Company. They form the building blocks of our modern-day economy and have taken on personalities of their own.

In a nutshell, here’s what we need to be clear about when it comes to working with preferred stocks and common stocks.

Both represent a piece of ownership in a company, and both are tools that we can use to try and profit from the company’s future successes. The differences come down to what privileges or rights we will enjoy and how risky our investments are.

The first key difference is in voting rights. Preferred stock owners do not have any say in how the company is run, whereas common stock owners enjoy voting rights. This is most often one vote per share-owned and allows a say in concerns like the election of board members who oversee management’s major decisions. Common stockholders can influence corporate policy and management decisions where preferred shareholders do not.

While they may have less say in the company direction and management, preferred shareholders have priority over a company’s income and are paid dividends before common shareholders. This offers slightly more investment security and predictability when a company performs poorly, as dividends are generally paid out more regularly and aren’t always paid out to common stockholders. In times of liquidation, the preferred shareholders have first dibs on assets and earnings.

Common stockholders are last in line when it comes to company assets, which means they will be paid out after creditors, bondholders, and preferred shareholders. In this way, preferred stocks are very similar to bonds. 

The payoff for common stockholders (the most popular form of stock allocation) is that the gains can be significantly higher in the long term if the company grows and finds a solid footing in the market as a profitable entity. They may not reap the rewards of dividends in the early days, but they stand to reap more in the long term.

Depending on your personal investment strategy and event horizons, it may be worth considering preferred stocks over common stocks or vice versa. It’s good to remember that preferred stocks can be converted into common stocks, but we can’t go in the other direction.

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Three ways to survive a bear market

What do you do when a bear attacks?

For many of us, we don’t live near any bears, so we’re likely to be unprepared. When it comes to a bear market, the situation is not too different. No one can predict a bear market, and for some it’s not even easy to recognise when a bear market begins and when it ends.

The general agreement is that bear markets are characterized by a consistent drop in the market, accompanied by negative investor sentiment. The more we work with markets and investing, the more frequently we are reminded that emotions are instrumental in driving the markets. Negative sentiment is, therefore, quite an important element of being in a bear market.

As we look at ways to bolster our investments in bear market conditions, here are a few strategies to employ (taken from Investopedia.com), but before you try any of them, make sure we’ve had a chat to understand your unique situation. If a bear rummages through a campsite, it’s possible for your tent to remain unscathed. Not everyone struggles in a bear market!

Keep calm… and move slowly

Just like the wilderness encounter, experts advise you to remain calm and make no sudden movements in the presence of a bear. The same is true of the stock markets. Sudden movements and panic decisions can cost you an arm or a leg…

Diversify

Diversification is almost like looking for a more solid footing and spreading out a little. This not only gives you more stability but it ‘keeps your head down’ and allows you to physically take up a little more space without placing yourself in a more precarious position. Being caught off guard can also mean that we’re caught off-balance. Diversification of stock allocations helps us ensure balance and encourages stability in our portfolio.

Only invest what you can afford to lose

Bear markets are often accompanied by other market downturns, with people in all sectors needing to tighten their belts and sharpen their pencils. There is less expendable income, making it even more important to focus on covering our bases first before extending our risk. It’s wise to have savings and investments, but we also need to put food on the table and take care of our everyday needs. Even small adjustments in the market (in the wrong direction) can be detrimental to your portfolio, and it will need time to recover. 

The markets always present opportunities, even in a bear market, but it takes a comprehensive strategy and a team of astute investors to survive. Don’t go it alone, and don’t dabble without weighing up the risks.

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Planning reduces anxiety

We don’t plan because we fear the future. We plan because we realize we can enjoy today more by reducing the anxiety of tomorrow. 

Most people accept that planning offers us a detailed proposal for doing or achieving something. When we plan, we map out the possible steps of our ideal life journey before taking them. Some of our biggest fears orbit around the unknown, so if we can clarify what our future might look like, our planning will reduce our anxiety.

Planning could be as large-scale as our long-term financial planning or building a family or business, but it could also be as simple as planning a weekend away or a simple trip to the shops!

Here are four tools that will help us in our planning.

1. Write it down

Journaling helps us to review our habits and routines regularly. For this to work, we need to be honest. We need to be able to look at different areas of our life and identify what we want to change.

Here are some questions to ask yourself when jotting down these ideas:

  • What do I want to do differently?
  • What do I want to do more?
  • How can I achieve my goals? 
  • How can I continue growing along the way?

2. Prioritize your values

When asked to write down the things that we value, it’s easy to create a list that includes many great values. These can be overwhelming to engage with, so we need to start with the full list and then begin to order them in terms of what we feel are most relevant and engaging to us in our current life-space.

As we grow and experience changes in our lives and responsibilities, these values might change in order of priority – writing them down and shuffling them around helps us maintain a sense of authenticity and accountability while reducing our anxiety.

3. Get support

Sometimes we can accomplish more, in less time, with help. Fortunately, we live in a time where we do not always need to engage in face-to-face conversations with real, live human beings for help. There’s a plethora of newsletters, blogs, podcasts and videos online that we can use to encourage us on our journey.

But, when it comes to holding us accountable, especially when life presents us with roadblocks, having support from family, friends, or a coach, or hearing stories of people who have faced similar challenges, can help us navigate them and reduce anxiety. 

4. Keep looking ahead

Planning your journey into the future can help you maintain your vision and reduce the anxiety of not seeing instant results. Looking ahead helps to keep us mindful of the bigger picture, the bigger plan.

Often we give up on plans because we want instant gratification and confirmation that what we’re doing is right, and that our approach works. 

It’s important to realize that progress is not only in achieving something. Just thinking about and working towards progress speaks volumes about your personality because you know the type of person you want to be, and you are committed to being that person every day.

Keep that in mind and celebrate it with a smile every day.

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One of the worst things to plan for…

In Western culture we have become very detached from the cycle of life and death. Only those who work in specific industries will be accustomed to the fragility of life, but for most of us it’s something that will happen in the unforeseen future, so we try not to engage with it too often.

The overwhelming emotional shock we feel when we lose a loved one, whether sudden or expected, is natural.

Inside of this tumultuous time, we are faced with the reality that life goes on, and we have to engage with paperwork, practicalities and an often-times pragmatic process that feels devoid of the emotional engagement we’re longing for.

If we can talk about the practical side before dealing with a loved one passing, we can be better prepared.

In most cases a Notice of Death needs to be filed, confirmation of the cause of death must be established and we will need to contact a funeral director.

Here are a few extra practical guidelines of which to be aware:

In the case of natural causes

Natural causes include cancer, heart attack and stroke as well as other illnesses. If your loved one loses their life while in hospital, the attending doctor would need to issue a Notice of Death. 

Where there is suspected foul play – especially when the death happens unexpectedly or at home – the police would need to be called to bring a forensic pathologist who will perform a post mortem and ascertain the cause of death before issuing the Notice of Death.

For someone who passes away while they are a resident at a nursing home, the Notice of Death would need to be completed by the last doctor in attendance (customarily handled by the nursing staff).

Your appointed funeral director will need this notice before being able to assist with the next steps. If the hospital does not offer mortuary services or if the body is to be cremated, finding a funeral director who can handle that responsibility is often the best option.

Should death occur overseas, there are funeral directors who are registered and authorised to make arrangements for exporting and importing remains. 

In the case of unnatural causes

If a fatal accident occurs, the police need to be called and a pathologist may be necessary to discern the cause of death. The Notice of Death we mentioned earlier is also issued here too.

When your loved one leaves due to unnatural causes, your funeral director will need to wait for the pathologist to be satisfied with their examination results before collecting the body. 

The last step is to prepare for life after the funeral. Life and funeral cover are invaluable products to help ease the stress of settling debts and covering extra expenses with a diminished income.

It’s essential to plan for these events and have conversations with your family and financial adviser before they happen to be in the best emotional and financial space to positively deal with this tragedy.

Source: SonjaSmithFunerals

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What lockdown taught us about wills

When lockdown happened, it happened fast. For some, there were only a few days to prepare for an indeterminate time of severe restrictions. For others, they had more to do and less time in which to do it.

Travellers were stuck abroad in foreign countries and had to follow equally foreign regulations. At times like these, risk cover and emergency funding are a crucial crutch when our finances and our freedoms are crippled.

Granted, few people have such extensive financial resources, and many experienced an even more challenging time after the economy was halted. There are legal documents that can give us extended peace-of-mind so that we have less to worry about. A will, last testament, and estate plan are documents that we can use to bolster our financial plan’s reach and health.

Here’s the thing about financial planning: we don’t plan out of fear; we plan so that we can extend our peace-of-mind. This is why wills form such a key role in our planning.

Global panic in early-to-mid 2020 led people worldwide to think about these documents, and requests for them to be drawn up or updated were aplenty. The risk of creating these documents under duress is that we can make mistakes, sometimes in what they cover and other times in their legitimacy when official procedures are overlooked (or not available as in hard lockdown).

We seldom have warning for life-changing events, and while it’s easy to say that ‘we should have planned’, we can be proactive after the event and choose to thoroughly investigate our plan right now – in our time of recovery and rebuilding.

Many of our notable companies who make these documents more readily available and ensure that they’re correctly adhered to in their compilation and execution made a plan during hard lockdown to ensure that their clients were adequately protected. This reminded us that it wasn’t impossible; it was just more challenging. 

As the pressure lifts (for however long), we have the opportunity to reassess our wills (and any other elements of our financial portfolios) and estate plans. We no longer live in the age of a handshake or a gentleman’s agreement. We live in a world striving for equality and freedoms that have the trade-off of potentially leaving us more exposed and vulnerable if we don’t have our responsibilities attended to.

As Mvuzo Notyesi, president of the Law Society of South Africa, says, “If you are a parent, a breadwinner, a homeowner and generally want to ensure that your affairs are in order, it is important that you have a valid will drafted by an attorney.”

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Anxiety and our money

Most of us would gladly jump at the opportunity to have more money. Very few people are likely to say that they would prefer to have less money…

One reason for this is that we can see how our future life and our current financial status are linked. And this leads to anxiety when thinking about financial futures. 

Although it is not easy, it is beneficial to develop and maintain a positive outlook toward money to exercise greater responsibility for building our future financial stability.

In a recent email, Carl Richards shared some of the following ideas on creating a plan to continue reaching our financial goals by reducing anxiety.

Step 1: Pay attention to your spending

Mastering our finances won’t happen overnight. We need to make a habit of keeping tabs on where our money goes. In short – we need to be more aware of our spending behaviours and habits.

Here are some of the best ideas on how to pay attention to spending:

  • Create a budget and follow a spending plan 
  • Record all transactions
  • Regularly check your card statements and stay present with what you’re buying

Step 2: Find wasted money

Most of us are accustomed to the idea of saving money that remains after all the spending. Hence, we find it challenging to find more money to save. Here the answer is not found in trying to make more money; instead, it’s to try and find money that we’re wasting.

We can find wasted cash by regularly reviewing credit card statements and cutting expenditure on things we don’t need anymore.

For example, if you’re being charged 250 bucks for a subscription fee on something you’re not using anymore (like a mobile data contract), cancel it and save that same amount every month. In a year, you will have saved over two-and-a-half grand!

Step 3: Automate savings

Setting up an investment vehicle and automating your savings can help establish the habit of saving. 

Most of our banks will help you link a savings pocket to your transactional account into which you can drop a couple of bucks each month. (aside: your bills can also be automated so that you deal with less paperwork in your life and further reduce money anxiety!)

When building wealth, we need to retain a positive attitude.

Working with a professional financial adviser will enable you to make informed decisions and discern what other areas of your financial plan can be activated and engaged with in order to reduce financial anxiety and replace it with financial peace-of-mind!

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Let food be thy medicine

…and medicine be thy food. Hippocrates adopted this philosophy around 2400 years ago!

Before fad diets and modern medicine, he recognised that food has the ability to keep us strong and healthy – both physically and mentally. A nutritious diet is fundamental to maintaining good health and well-being. 

Just remember that eating healthy isn’t just about cutting out meat and “going green” but about getting a well-balanced diet of different foods (in the right amounts) to give your body what it needs. 

While it may feel a bit expensive to maintain healthy eating habits, all it requires is a little more planning. In our modern world we have become increasingly reliant on convenient foods and have reduced the amount of time that we have for food preparation. This whole approach requires our commitment to putting a little extra time into this activity (unless we have the opportunity to employ someone to do it).

So it’s not just about reducing our current weight but more about being proactive and creating a healthy future for yourself… today.

Here are 5 more top reasons to start eating well:

1. Your self-esteem improves

Most of us don’t realise that what we eat affects how we feel and think. Much of our general health is dependent on a healthy gut microbiome, and if we’re putting heavy foods into our system that undermine the integrity of this central system, we will feel heavy and unbalanced. 

Eating more bananas, raw veggies, cucumbers, strawberries, grapefruits as well as more foods that contain vitamin B and are rich in antioxidants are good for so many reasons. Eating cultured or pickled foods are also really good for the gut! This all helps us boost our general sense of ‘feeling well’ and will improve our self-esteem.

Fresh, raw foods can strengthen hair, clear skin, whiten teeth and improve breath. We will also enjoy the anti-ageing effects of foods with calcium, vitamin A and K.

2. Your memory and overall brain function becomes better

Mariah Carey sang it best, ‘It’s all in your mind.’ Prioritizing your mental health is vital in your journey of self-development. Watching what you eat is key to that.

A nutritious diet with foods that have omega-3 fatty acids or vitamins can improve your brain functionality and memory. This includes wild salmon, blueberries, dark chocolate or avocados. 

Drinking green tea is also known to be good for enhancing your cognitive ability.

3. Improve your heart health

Studies recommend that healthier eating habits should be one of the lifestyle changes that you make. This helps reduce chances of cardiac arrest, diabetes, high cholesterol, strokes and enhances your overall heart health as a result.

Include green vegetables, almonds, peanuts, hazelnuts and sunflower seeds amongst other foods into your diet to boost your heart’s well-being.

4. Overall energy levels improve

According to the Harvard Medical Center, one of the benefits of a healthy, balanced diet is the ability to boost your energy levels. 

Some of the foods that will revitalize you and sustain your energy levels throughout the day are whole grains, vegetables, brown rice, sweet potatoes, oats, apples, unrefined carbohydrates, proteins, healthy oils and fats.

Limiting your alcohol intake and drinking more water can give you a sustained surge in energy.

5. You start to feel better

The relationship between food and mood has been studied extensively. According to Healthline, your brain responds to what you put into your mouth. 

So it behoves you to be mindful of what you eat if you want to improve your mood. Drinking lots of water and eating foods rich in minerals like magnesium, selenium, zinc, amino acids, fatty acids can help in alleviating depression and mood disorders.

Sources of these healthy minerals include eggs, black beans, soy, pork, chicken, broccoli and leafy greens like spinach, lettuce, swiss chard and collard greens.

We should embrace healthy eating as one of our essential life habits.

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The next best thing for investors…

Ray Dalio is an American billionaire hedge fund manager and philanthropist who has served as co-chief investment officer of Bridgewater Associates since 1985. As a thought leader and industry pioneer, he also founded the world’s largest hedge fund and firmly advocates that “diversification is a wonderful, mechanical, good way to reduce risk without reducing expected return.” 

So – what’s the next best thing for investors in our current market turmoil? 

Diversification.

Whilst it’s been a long standing ‘good-practice’ in financial planning and investment management, investors still find themselves overloading in areas as they follow market sentiment and forget to apply a diverse strategy to their stock, fund or asset class purchasing decisions.

Remember – much of our investment behaviour is highly emotional, no matter how hard we try to convince ourselves otherwise. With global politics, world markets and local business in a growing state of volatility, emotions are running high.

In an article for Business Insider, Dalio says that “… investors shouldn’t subscribe to the “dangerous bias” that the past is representative of the future, he said. “If you go through history, when you have some of these conflicts, you might have a different result.”

Depending on where you find yourself today, you might be hearing loud messages of ‘invest in property’, ‘buy gold’, ‘invest offshore’ or ‘switch to cash’. The markets are changing constantly and Dalio’s counsel is now more prevalent than ever.

“The most important thing investors can do to manage this risk is to diversify by asset class, country, and currency. Diversification doesn’t cost you anything. Because when your asset classes are going to – if you balance them right – have approximately equal expected risk-adjusted returns, so you can balance them, because they all compete with each other, so not one is necessarily clearly better,” he said to Business Insider.

The exciting thing about investing is there is always opportunity – we just have to know where to look, and cover our bases. There are no quick wins or shortcuts to growing our wealth.

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Who wants to save more?

This is not such an easy question to answer.

Many of us may shoot up our hands, quickly realizing that what follows is a tough call-to-action: “Then start saving!” So we shrivel back and think we’ll rather start saving next month, or when we get our next increase.

Others, already encumbered with tough monthly expenses, may take a slightly more cynical response off the bat, realizing that saving often feels like an impossible task in our current world-economy.

But deep down, most of us want to save more. We don’t have to be sold on the benefits of saving.

What we need is a workable solution to actually saving more! 

Self-help books on this topic are a dime a dozen, but here are some ideas from Behavioral Economist Wendy de la Rosa. She wasn’t happy with how much she was spending, and like many of us, felt like she couldn’t stop. Here are two behavioural changes that she employed in her own life to reduce her spending and increase her saving.

  1. Take aim at your small, frequent purchases

Big purchases are easy to reign in – but it’s the small ones that are a doozy. 

Eating out is a frequent purchase that many of us make regularly, but, savings-wise, it’s death by a thousand cuts. A lunch here, a smoothie there — it all adds up and decreases our savings ability. It’s not just the big dinners or take-outs for main meals, it’s the small snacks and convenience foods that we spend on when we haven’t put proper planning into our meal prep.

You may have other small ‘luxuries’ that you afford yourself, but if you spend longer than 30-seconds thinking about them, you could probably avoid them.

A helpful hack to reduce these is to switch from using a credit card for daily spending, and using cash or a capped debit card. Using a credit card to pay for meals on the fly or last-minute lunches keeps us detached from the accumulating costs until we receive our statement a month later. But, spending a finite amount of cash from our pocket or seeing our balance drop on our debit account keeps us far more in tune with just how much we’re spending and influences our behaviour.

  1. Commit your Future Self

De la Rosa says: “Fundamentally, we humans think about ourselves in two different ways: there’s our present self and there’s our future self. We have an optimistic view of our future selves. Our future selves are the one who will work out, who will call our parents more, who will save for retirement. And one reason we don’t save is because we believe that our future selves are going to take care of it. We forget that our future selves are actually the same as our present selves and that our present selves need to start doing this good thing now.”

Here’s a great hack that she offers – plan to save a percentage of your tax refund. It doesn’t have to be a massive amount, but it’s something! In their research they found that if they asked clients how much they would like to save BEFORE they received their refund, it was 10% more than those who were asked after they received their refund.

Our present self… is actually more likely to make better decisions than our future self! 

We can apply the same to our annual bonus, or payback from our rewards schemes. Deciding today, and committing to that, is far more effective than saving as an afterthought.

One of the key points to saving more is looking at the behaviours that need to change in our lives. Financial success is based on financial behaviours – not just knowledge. There is a lot of time spent on financial education, but if it doesn’t change our choices for the better – they’re just words on a page or sentiments in a conversation.

Start with one thing you’d like to change, and take it one behaviour at a time.

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Why Mental Health needs our attention

The journey of developing your life can be challenging on your mind and overall well-being. Prioritizing mental health can help us build the resilience we need to find fulfillment at work and in our personal relationships. 

Often we focus on physical health and the list of things we want to accomplish. It’s important to remember that our body and mind always work together. We need to take care of both!

What is mental health?

Being mentally healthy is defined by having positive characteristics in terms of how we feel, think and behave in daily life. It also influences our ability to cope with stress and conquer life’s challenges.

This doesn’t mean we no longer feel anxiety, frustration or stress. Rather, we learn to accept that hardships are part of life. Holding a healthy mental space empowers us to find ways of reacting better to whatever pain or challenges we face.

Learning to pay attention to your mental health will teach you to reframe your mindset – from preparing for the worst that could happen, to expecting the best that could happen.

Here are 3 practices to help develop and maintain a healthy mental space:

  • Remember to look inside

Introspection is a healthy habit to integrate into your daily routine. Being introspective also teaches you to be mindful of your thoughts and feelings as well as your actions.

Through practising introspection you’ll learn to identify thoughts and the physical or emotional sensations that tend to contribute to your cycles of stress and dis-ease. From there you’ll look to find solutions on how to address those sensations to more positive ones.

Meditation is one of the best ways to look inside. You learn to control your breathing and focus your mind. You discover that your thoughts are controlled by you and not the other way around.

  • Become more active

Again, your mind and body always work together. Improving your mental health comes with improving your body.

The wonderful thing about working out is that it can be done at home. The Coronavirus lockdown may have kept you indoors but you could still keep fit. Apps and videos of effective 5- to 10-minute daily workouts are in abundance. 

Keeping fit doesn’t only mean you need to pound weights or run long distances. Dancing, playing activity-based games with friends and family can also help you become more active and improve your physical health. The hormones that are released during these activities boost your mental health considerably.

Simple things like gardening or cleaning your home also contribute to your physical and mental health.

  • Have a purpose

Finding purpose and establishing a vision can help you create meaning in your life because you’ll have something that drives you. An inspiration that pulls you towards all that you wish to accomplish.

Purpose can be found in your work. You can choose to focus on work that challenges you to be more productive and improve your service to others. Volunteering in old-age homes, charities and non-profit organisations are other heartfelt ways to establish purpose in your life.

It’s also possible to find meaning in the relationships you build. Focus on building fulfilling and mutually beneficial relationships. Socialise more with people who will be empathetic and supportive and less with those who put you down and are constantly in competition with you.

Manage your expectations. Be patient and compassionate with yourself. Results will come even though it doesn’t seem like it now. We need to pay attention to our mental health because that is what helps us reframe our minds and look towards a happier future instead of focusing on the uncertainty and stress of our current situation.

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