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Personal finance Olympics; Are you reading your statements?; Luxury or burden?; "The death of equities?" Hardly; Asset rich, cash poor in retirement

Personal finance Olympics; Are you reading your statements?; Luxury or burden?; "The death of equities?" Hardly; Asset rich, cash poor in retirement

By Amanda Morrall

1) Personal finance Olympics

Who knew? The fast growing and increasingly competitive personal finance blogging market has spawned its own "personal finance Olympics.'' I'm a bit slow out of the gate, plus the competition seems heavily weighted to the U.S. PF bloggers so I think I'll remain a spectator.  In any case,  here's the link for those interested in reading the submissions from the "Olympians" of debt reduction and saving.

On a separate note, Olympic junkies googling results and surfing related stories may want to update their spy software and virus protection applications. Marketwatch.com reports on the "search engine poisoning" phenomena that the Olympics has given rise to, with hackers using the popular sports event as an entry point for accessing confidential information on personal computers. Beware.

2) Double dipping

More than 700,000 building society members banking with Nationwide in the U.K. were stung twice for withdrawals on their VISA debit cards due to a human processing error. The mistake (put right eventually) put more than 50,000 into overdrawn status. This is a good reminder about checking your statements on a regular basis to square them with your actual credits and debits. You just never know.

3) Luxury or burden 

What can you live without?  Kristin Wong, writing for Getrichslowly.org, asks whether those little luxuries we treat ourselves to aren't really burdens in disguise and challenges herself to see if she can't give up her usual dependencies; fizzy drinks, takeaways, cable TV, car hires. It's Ramadan time again and as two of my colleagues forego food and water during daylight hours for a month, I'm tempted to see what I can give up myself and where I can grow my money. I'm already pretty lean on the expenditures so it looks like it'll be down to coffee or wine and more yoga instruction or book reviews.

4) Don't believe the hype

The "Death of Equities"? Sounds like a B grade horror flick or else a headline from 2009. Actually, the name derives from a cover story of Business Week magazine back in 1979 capturing the doom and gloom of the time which happen to precede one of the longest running bull markets for equities. It's a good reminder for investors to keep a level head amid the deafening roar of the bears out there. Forbes.com uses it as an example of how young investors today should not be deterred from taking advantage of well priced stocks, a greater proportion of which they'll likely require in their portfolios to compensate for dwindling pension provisions in the future.

5) Asset rich cash poor in retirement

Many Baby Boomers are finding out the hard way that a big freehold home with little in the way of other assets is no guarantee against poverty. Wellington financial advisor Liz Koh, in her latest blog for her business Moneymax, says Boomers in this position have a few options at their disposal:

There is nothing more terrifying than the prospect of running out of money late in life. Many elderly go without in order to avoid this situation and make their savings last as long as possible. Retirees living in their own homes are often asset rich yet cash poor. When the cash runs out, there are a number of options available to avoid living in poverty:

Sell the house and buy a cheaper one to free up cash. Often this is not possible as the house is already at the low end of the market and by the time selling and moving expenses are taken into account, there may be insufficient cash freed up. Elderly people are often very reluctant to give up a comfortable home.

Sell the house and rent. While this can result in a big amount of cash becoming available in the short term, rent is a huge expense which increases over time and quickly consumes the cash. The loss of certainty of occupancy can be a problem.

Borrow money from children. This can be fraught with difficulty if children are not able to contribute equally or if the loan is not properly documented.

Borrow from a bank. Banks will sometimes lend on an ‘interest only’ basis, however, that means having to meet the extra cost of interest payments each month.

Take out a home equity loan. This is usually a last resort option due to the cost of compound interest, but it can be a very effective solution for certain borrowers, especially those who are not concerned about leaving money for children.

While none of these options are ideal, they may be better than the alternative of living a miserable life. It is a matter of considering the positive and negative aspects and selecting the most beneficial option.

To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter @amandamorrall

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3 Comments

Equities or no equities - that is the question!
 
One of the problems with personal investing at the moment is the debate over whether inflation or deflation will take hold.  Not that it has to be one or the other, it could be that one happens followed by the other.  But there are a lot of conflicting words out there.
 
Equities do very well historically during times of high inflation but not very well in times of deflation.  Counting against equities at the moment are the stupendously huge money creation exercises - in that they haven't created very much of it.

Brian Gaynor wrote an article in the NZ Herald recently , where he demonstrated that across long periods of stagnation in equity markets , some shares ( quite a few , in fact ) rocketed upwards .
 
Clearly we're in the midst of great change , old media stocks such as newspaper companies & TV stations are to be avoided . As are heavy users of fossil fuels , AirNZ for example . Industries to profit from appear to be healthcare , online entertainment , and energy , and special commodities ( rare earths , lithium , etc. ) . Food production should do well too , as people still insisit on eating stuff ....
 
.... the trick to the stockmarket is quite simple really , only buy the ones that go up . And if some of yours go down , don't be so silly to buy them in the first place ....
 
Easy , peasy !

There is nothing more terrifying than the prospect of running out of money late in life.
Perhaps if we put a bit of effort in we could think of a few things more terrifying - but pendants to one side - I think there is an interesting if somewhat obvious point to be drawn from this statement.
 
IF I make the assumption that fear is not rational.
 
AND the above statement is also true (that running out of money is terrifying, aka. induces fear).
 
THEN I would conclude one of the major premises of modern economics - that financial markets are rational - cannot be true unless old people are excluded from them.