spinofflive
Oh no (Image: Tina Tiller)
Oh no (Image: Tina Tiller)

MoneyFebruary 6, 2022

Why your financial New Year’s resolutions have already failed

Guest writer
Oh no (Image: Tina Tiller)
Oh no (Image: Tina Tiller)

Everyone wants to be better with their money, and it happens one step at a time.

If you made a resolution on the first day of 2022, chances are you’ve already given up on it. So say the University of Scranton researchers that found 80% of new year’s resolutions in the US don’t stick. Their study over two years revealed that nearly a quarter of participants ditched their enthusiastically penned resolutions – those golden nuggets designed to transform their lives – within the first week of January, and just 19% made them last beyond two years. 

Why do resolution revolutions crash and burn?

Psychologists have touted a tonne of reasons for why our freshly minted listicle resolutions don’t work. Setting a goal using an arbitrary date – like January 1 – doesn’t automatically mean there’s an unwavering conviction for creating meaningful change. The cognitive bias of a “fresh start”, one aimed to separate us from our past perceived failings, can quickly become a burden that eats into our precious time. And we can be time blind, believing the illusion that having a whole new year ahead means we have more time in our lives than we realistically have. 

Then there’s setting resolutions in areas of our lives that we think we should want to improve but are not genuinely committed to. Or we craft audacious goals without a plan packed with easy, achievable milestones – including planning for potential slip-ups. It can become overwhelming, and the new year’s resolutions can be quickly trashed.

Stop making it so hard and embrace being crap

None of this comes as a surprise to TEDTalk alumnus Christine Carter, the sociologist behind the one-minute trick to forming new habits (not as impossible as it sounds). The self-confessed “go big or go home” high-achiever found a way to forge a path through her own challenging resolutions. It started by her accepting that when she starts something new, she might just be a bit crap at it. 

Carter learned by doing and failing. No sooner had she set her “big, juicy goal” to train for a half marathon during March 2020 stay-at-home orders, she was bunking off her own training schedule. Why? Because she hadn’t been willing to be bad at it, she’d only been willing to be very, very good – to be an athlete – so her perfectionism became her greatest hurdle. 

So, on the days when motivation escaped her, Carter donned her shoes and ran for just one minute. She reasoned that one minute of minimal effort was still better than no effort at all. 

Mistakes can still lead to changing a habit

The key to changing a habit is knowing that one misstep needn’t signal permanent failure. Think about toddlers learning to walk – they don’t just fall once! That same Scranton study showed that of those who stuck to their resolutions, 53% slipped up an average of 14 times, but 71% concluded that their mistakes made them even more determined to reach their goals.

Topping a CBS poll for 2022 resolutions were, unsurprisingly, health and finance, and Carter’s one-minute principle works for both. When it comes to investing, creating new habits – especially using the one-minute daily tactic – can be simpler than you think. It can be applied to the practical tasks, like signing up for just one investing newsletter or blog, following a couple of investing social media accounts, scanning news articles about companies or trends that interest you, or signing up for an investing account so you can make your first investment. Many of the tasks or habits can be simple and quick.

Mistakes might be part of the journey

Do gear up for mistakes because you’ll probably make them; the best investors do! Our investors tell us they’ve made five main mistakes (and learned from them along the way). They’ve fallen for Fomo investing – where they’ve made irrational decisions based on the fear of missing out rather than reading up on a company or fund’s performance and plans. This can lead to inflated share prices of fad stocks and the potential to lose money when the bubble bursts. 

Some have fallen into the trap of believing that researching a company or fund is hard. It doesn’t have to be! Everything’s a Google search away – you can do it relaxing on a hammock from your phone! There’s plenty of information freely available from company reports, websites and media dedicated to the share markets and a tonne of blogs by experienced investors, analysts, and financial advisors talking about the top investing trends.

Other traps can be trying to time the market or day trading – both are proven time and time again to not work. These rely more on luck than anything, and trying to guess when a share price will rise or fall can be like gazing into a crystal ball. A good alternative for many people might be to consider the long game. This leads us to emotions: and how to keep them out of investing. There’s no need to panic buy or sell or let fear or greed guide your decision making. Instead, create a plan and stick to it. And let the share market ride out any ups and downs – because history shows us they usually do.

And the top mistakes investors tell us they’ve made is not starting to invest sooner or believing they did’t have enough money to get started. Time can be the secret sauce when it comes to investing, so the more of it you have , the longer the opportunity for compounding growth to work its magic. Your first investment can be small too. Start with the cost of a meal out and call it learning money, because, as investing legend Warren Buffett says, “the most important investment you can make is in yourself”.

Take your most important next step

As the saying goes, the best time to invest is yesterday, the second best time is today. So instead of growing a garden, why not just plant a seed? Line up your goals, make a plan and then take one very specific, infinitesimal, but important next step. 

Kristen Lunman is CEO and co-founder of Hatch, the digital investment platform that gives New Zealanders access to the US share markets. 

This article is for information only and is not financial advice. If you want support before making any investment decisions, consider seeking financial advice from a licensed provider. And remember, with investing, your money isn’t guaranteed to grow and there’s always a risk you might lose money.

Keep going!
Image: Tina Tiller
Image: Tina Tiller

MoneyFebruary 2, 2022

Maybe don’t check your Kiwisaver right now

Contributing writer
Image: Tina Tiller
Image: Tina Tiller

Stocks have dipped across the board in recent weeks, with investors expecting more volatility to come. Felix Walton explains what’s going on.

The first month of 2022 has been a rollercoaster for investors, with steep drops and sharp spikes defining stock markets across the globe.

In the media, economists have balked at shocking lows and cheered for miraculous comebacks. Last week, our NZX market hit an eight-month low – but that’s nothing compared to US markets, which face even bigger swings.

The S&P 500, which tracks the performance of 500 US companies, faced a shocking 7.5% drop from December to the start of last week, before bouncing back with a 1.73% increase by Friday.

While those single-digit percentages aren’t exactly sensational, for an index with a US$42.4 trillion market cap (that’s 12 zeroes, by the way) it’s a brain-meltingly enormous pile of money.

After two years of record highs, stock markets are entering 2022 in a much more pessimistic mood (Getty Images)

So what’s causing all this volatility?

There are a few things at play here, most prominently the looming threat of increased interest rates in the US.

When the pandemic started in 2020, the Federal Reserve cut rates to a fraction of a percentage as a way to increase spending and boost the economy. This is a common tactic to address deflation, when money is scarce, by reducing the cost of loans.

In fact, the Federal Reserve did the exact same thing after the 2008 financial crisis, which had a rippling effect that helped to stabilise the US dollar’s value by promoting higher spending.

The flip side of this is that, if left long enough, such low interest rates will almost inevitably cause inflation. That’s the issue that the US is facing right now, hitting a 7% inflation rate last month. This means the cost of goods and services is outpacing the value of the dollar, meaning its spending power is dropping fast.

To address this, the Federal Reserve needs to increase rates. It’s not a matter of “if”, it’s a matter of “when”.

This is scary for investors, as higher interest rates will cause a reduction in profits and therefore a reduction in the value of their investment. Even though these rate changes won’t have a material economic impact until at least a year later, the stock market will react much faster as investors race to cash out.

This all came to a head last week, when the Federal Reserve had scheduled its first meeting of the year. Many were expecting this to come with a rate increase announcement, which caused mass panic across the entire business sector.

Ultimately, that announcement never came. Instead, the Federal Reserve signalled its intention to increase rates at its next meeting in March. Given the severity of the situation, this coming increase could be the first of several throughout the year.

Tech is getting the worst of it

Though the entire market is experiencing volatility, it’s the tech sector that is really taking the hits. Amazon’s stock price is down 13.5% from December, while Netflix has tanked by 36% in the past month.

The technology sector in general may have been overvalued over the past year, as low interest rates and a worldwide technology boom have pushed tech companies to the forefront of our attention. Technology is seen as a growth area, and many investors are dissatisfied with how that growth has been forced to slow down.

It doesn’t help that after peaking in the public consciousness last year, cryptocurrency has experienced a massive crash since the start of December. After peaking at NZ$94,395 in November, the price of Bitcoin has plummeted to around $58,000, while other currencies like Ethereum are exhibiting similar losses.

Investors are discovering that technology isn’t a bottomless well of easy money, which has resulted in mass sell-offs.

But that’s only the tip of the iceberg

Investor uncertainty has been pushed even further by the situation in Ukraine. With Russia readying itself for an invasion, traders are fearing the possibility of a war in eastern Europe, though it’s still unclear how hostilities will unfold in future.

In an effort to deter an invasion, US president Joe Biden has threatened harsh sanctions on Russia, which are likely to ripple throughout all of Europe. Many European nations rely on Russian exports of gas and coal, which could be cut off if Russia were to butt heads with the United States.

This is not to mention the sheer cost of waging war, which would have a devastating impact on all nations involved.

This means that, for the next several weeks, volatility is to be expected. But that doesn’t mean things are falling apart.

The stock market is ultimately determined by people trying to predict the future. They’re a superstitious lot, and easily spooked. Though there are a lot of factors that could damage profits, none of these things have actually happened yet.

As the year continues, expect many of these losses to stabilise. If you need to check your Kiwisaver before then, have a drink first.