# Archive - Raiz Invest

September 2020
Want to save money? Here are 5 easy tips
Saving can be tough in this current environment, but that doesn’t mean you should give up on building a financial nest egg for you and your loved ones. While growing your savings undoubtedly takes a degree of effort, there are some simple ways to start on the path to financial security.

### Get on top of your budget

There’s little chance you’ll be able to save much money if you’re not keeping good track of your cash. This is why it’s important to create a budget -- and stick to it. When it comes getting your budget started, kick things off by taking a look at your income and expenses.  Once you’ve established your income -- payments like your salary and other types of capital gains -- figure out what you’re spending your money on. This includes fixed costs like rent and food as well as discretionary spend such as entertainment and non-essential shopping.

### Cut your expenses where you can

There’s no point in just having a firm grasp on where you’re spending your money - that’s only half the battle. The key is cutting spending so you can allocate more money to your savings. Although depending on your situation during the current economic environment, it may be a much harder time than usual to do this. Some common strategies include seeking out better deals on your regular payments -- things like bank and utility bills.  It could also pay off to switch to cheaper brands of clothing and food, or cut down on under-utilised subscription services.

### Consider a savings account

Once you’re on top of your household budget, a good way to take the next step on your savings journey is to open a savings account that offers high interest. You don’t need much money to open a savings account and you get to earn a small portion of interest on what you deposit. It’s worthwhile comparing savings accounts, allowing you to find the most competitive interest rates.

While a savings account is a fantastic way to get the ball rolling on achieving your financial goals, you may also want to consider investing if it makes sense for you. The Raiz Philosophy is to invest small amounts regularly, even in falling markets as this can help you to ride out the downturns in the market and is one of the keys to having a healthier balance over the long run. This principle is known as
Dollar Cost Averaging. Compounding happens when you let the returns on an investment build up so that you are earning return on your return. Given enough time to work its magic, it provides the potential to reach a stage in your life where your money is working hard enough to provide a substantial part of your income.

### Build an emergency fund

Building your savings should be about achieving your financial goals, but don’t forget to also prepare for when times get tough – the current coronavirus pandemic for example. This is where an emergency fund can be super helpful. Depending on your particular circumstances, you may need to build a sizeable emergency fund, or one that just needs to get you through a few weeks without regular income. Whatever you may need money for down the track, it makes sense to prepare for a financial shock in order to soften the unexpected bumps along the road.

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How Raiz calculates your investment performance
We often get asked “what is the performance or return of my Raiz investment”. Calculating how an investment is performing is typically done using one of two standard methods that you may have heard of before. One method is called Return on Investment (ROI) and the other is called the Internal Rate of Return (IRR).

### Return on Investment (ROI)

First, let’s look at ROI, which is the most basic way to measure the performance of an investment. Now typically ROI is used for simple investments where you make a single investment on a particular date and hold that investment for a period. To calculate ROI you would divide the change in the value of your investment for the period by the original cost of your investment, and the result is a percentage. The higher the percentage, the harder your investment is working for you. So, if you invested $100 and then 1 year later your investment was worth$110, we would calculate ROI as: $${110-100 \over 100}\times 100=10\%$$ The limitation of ROI is that it cannot account for many small investments made at different times. Each individual investment would have its own unique ROI and there is no easy way to combine them into a single percentage as even trying to take an ‘average’ would result in something quite meaningless. When you consider your Raiz account, because of normal market fluctuations, if you were to make a $10 investment when you first opened your account, it would make a different return than an investment of$10 made a year later. Let’s assume you have had your account open for two years. If the market fell 10% in the first year, and then goes back up by 20% in the second year, the investments made midway through the period would have a greater return than the ones made at the start. So attempting to use ROI in micro-investing situations such as your Raiz account simply does not work, as the investment is too complex, and we have not even begun to consider any withdrawals that you may have made during the period.

### So what about calculating performance using IRR?

Well, IRR can be used to calculate the estimated annual return of an investment that has
many different deposits and withdrawals made over time. It is the return that makes all your cashflows, in and out, equal to your current balance. Using our example above, where the market goes down 10% in the first year and then back up 20% in the second year, if we had made a $100 deposit in each of the two years, our account balance would grow to be$228. On a simple return this is roughly 6.8% p.a. However, the IRR to make the two $100 investments made at different times, equal to$228 after 2 years, is 9% p.a. This gives us a more representative return that considers multiple deposits over differing market conditions. If you’d like to see the maths, it is calculated as: $$100 \times 1.09^2 + 100 \times 1.09 = 228$$

### The downside of IRR

IRR is time consuming to calculate as it must be done through trial-and-error. It also needs to take into account every deposit and withdrawal made on an investment account since it was first opened. As you can imagine, we would need to do this for hundreds of thousands of customer accounts, and this would take an enormous amount of computational power to calculate. Even if it only took only 100 milliseconds for a computer to retrieve the data and calculate the IRR of one customer account, when we multiply that by 225,000 customer accounts, it would take 22,500 seconds. That’s a mind blowing 6 hours and 15 minutes of processing time to compute the IRR for the entire Raiz customer base. This means at the moment it is simply not practical for Raiz to use IRR in real-time while maintaining a good user experience.

### Our Solution

Our solution to this problem is that we use a modified calculation. Our modified calculation gives an approximation of the figure which could be achieved by doing the standard IRR. We do this by using your average balance over the period to calculate your returns. When the average balance is calculated, it takes into account all deposits and withdrawals, and by using this modified method, the calculation becomes simpler and quicker to run than an IRR calculation.

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How to bulletproof your finances in a recession
Australia has officially entered recession for the first time in nearly 30 years, and with the continued presence of COVID-19, we may be in for a protracted period of economic fallout. Despite the drop in economic activity, as a country we are still doing better than many other world economies – for the moment. That said, people are understandably concerned about the impact this recession will have on their everyday lives, as recessions typically bring a reduction in employment, reduced pay rises, and stricter lending requirements for loans and mortgages. As individuals a recession is something that is beyond our control, but what we can control is how we prepare for it. Here are some top tips to help recession proof your finances.

During a recession not all businesses are viable, and others need to cut their costs to survive. We are already seeing significant increases to the unemployment rate, and there could be more pain over the coming months as schemes such as JobSeeker and JobKeeper come to an end. Therefore, it’s a good time to consider updating your CV and social media profiles such as LinkedIn and sign up to job websites just to get a feel for the current market conditions. In the event you find yourself seeking alternative employment, you will be ready to immediately apply for opportunities as soon as they are posted, and with an increasing number of people chasing limited vacancies, you want to make sure you don’t miss out on the perfect role for you.

### Go frugal and create a monthly budget

My Finance tool to help you with this. My Finance is a free to use feature within the Raiz App. It provides you personalised insights and notifications on how you are spending.

A good way to generate extra cash flow is to spend some time checking that you are paying the cheapest price for everything that you purchase. Check to see where you can save money on ‘energy contracts’. By using comparison services like Raiz Energy, you could instantly save by locking in a cheaper supply agreement while also earning a bonus reward into your investment account or your emergency fund savings goal. Look at all your monthly subscriptions (such as gym access, internet access, mobile phone, Netflix etc). Make sure they have not increased their fees without you knowing, and that you are still getting value out of the service. In some cases, you may be able to switch to a lower cost plan with the same provider, or an alternative provider may offer a better deal. Check the renewal date on your car, health, and household insurance, and see if it is possible to get a better deal with an alternative insurer. People who remain loyal to an insurer year after year often miss out on hundreds of dollars’ worth in savings as premiums creep upwards. If you are buying online, look not only for bargains, but also make your purchases through Raiz Rewards, so you are earning a bonus ‘cashback’. With over 250 partners, you’re sure to find many brands and retailers you are already shopping with.

Put together a schedule of all the debts you owe, such as credit cards, car loans, mortgages etc and list them in order of highest interest rate to lowest. Your aim is to pay off the debt with the highest rate first before moving to the next debt. Try to pay off as much as you can afford now, and it may help you if times get financially tougher later. Alternatively, if you are unable to pay off your debts quicker, you may want to look at refinancing or consolidating your debts. Interest rates are currently at an all-time low, and there has never been a better time to move lender for a cheaper interest rate - there are deals to be had for those willing to make the move. As always, if you are struggling to make payments talk to your lender and ask how they can help. Many lenders can arrange negotiated repayment plans, or repayment ‘holidays’, especially if you have a good credit history of making regular payments in the past. It makes commercial sense for most lenders to work with their customers to help them repay the debt rather than having a customer default on a loan.

You should always be financially prepared for the unknown. To best protect yourself during a recession, build up an emergency fund that can get you out of trouble should an unexpected expense or loss of income occur. The general rule of thumb is to have between six to nine months worth of expenses saved up. This would normally be a saving or investment account which has instant access, and you can use the Savings Goal feature within Raiz to help you grow your own emergency fund. The aim is to build up this fund as early as possible but be strict with yourself and make sure you leave it untouched unless it’s to pay for a real emergency. This takes discipline, but you will be thankful it is there if the time comes and you need to use it.

### Play the long game on your investments

Investing is best viewed as a medium to long term strategy. Ultimately there are only two points in the investment cycle which matter, the price you paid to buy the investment and the price you get when you sell it. Everything else is the roller coaster ride that is the stock market. So, during a recession, buckle in and enjoy the ride, because it may be a wild time! Markets may see significant drops, but by making regular contributions to your investments you will reap the benefits of dollar cost averaging, and benefit from the opportunity of lower market prices when they occur. You can set this up on your Raiz account by creating a recurring investment within the Raiz App. Always keep in mind that you only really lose money if you sell your investment for less than you bought it for. While markets may go down, historically they have always recovered. It is also true to say that recessions do not last forever. The good news is that at some point in the future we are probably going to see market confidence return, it’s just that unfortunately no one can predict exactly when that will happen!

### The bottom line

Understanding your finances and having a plan of action puts you back in control in uncertain times. Your check list for success is:
• Don’t Panic, but remember you should always carry a towel
• Plan for the worst, while staying positive and hoping for the best
• Top up your emergency fund now to avoid relying on credit in the future
• Establish a budget and stick to it
• Investments are like pets, they are for life, not just for Christmas

### Don’t have the Raiz App?

Investing Basics: Types of Investments
In everyday life, we often refer to investing as putting time or effort into something that will provide a long-term benefit, such as an education. When we talk about investing from a financial perspective, we’re more concerned with investing money, with the expectation of generating an income or profit with a long-term benefit for you financially. Investing’s long-term benefits may place you on the path to the lifestyle you want to live. For most investors, growing their investments and savings isn’t about getting rich quick or buying private jets, it’s about creating financial security and freedom to choose the life they want to lead - to put them in control. Let's take a look at some of the most common types of investments people put their money into.

### Shares

One of the most well-known types of investments are shares. Put simply, when you buy a share you are acquiring a small piece of ownership in a company. You may have also heard shares referred to as stocks, and although they are often used interchangeably, there is a small difference. When a company sells a portion of its ownership, it does so by issuing stock. The stock in a company is then divided into shares. As you own part of the company, you are also entitled to part of the earnings of that company.  Profitable companies may therefore pay
dividends, which is a way of distributing the earnings of the company to its shareholders. In Australia companies pay a large proportion of their earnings out in dividends compared to many other countries in the world. You can purchase shares through a share market, which is essentially one big auction house, where buyers and sellers list their respective buying and selling price, and when agreed upon pass on ownership of shares. In Australia the main exchange is the Australian Securities Exchange (ASX). Just to confuse you, the share market can be referred to as both the stock market and stock exchange, but this is just finance people enjoying having different names for the same thing.

### ETFs

ETF stands for an Exchange Traded Fund. An ETF is essentially just a basket of different shares that are pooled together into a single financial product that can be traded on the share market. ETFs are especially important for Raiz members as they are the main investments in our portfolios. ETFs often track an underlying well-known index. An index is a hypothetical portfolio of shares that tracks a segment of the financial market. The S&P/ASX 200, for example, tracks the performance of the 200 biggest company stocks in Australia. So, an ETF that tracks the ASX 200 index will comprise the shares from those 200 companies and change in value in line with the index. One of the main advantages of ETFs is that for a low cost they give you exposure to many different companies, diversifying your investment. ETFs aren't limited to tracking just the share market, and are available for many different types of assets, such as bonds, cash and commodities.

### Property

Investing in real estate has a unique position in the investment field. Unlike the above investments, property is a physical, tangible object that you can see and touch. Demand and supply for property is the main driver of real estate prices. There are many factors which influence the demand for property, but location is the main one. The main factor that affects the supply of property is unemployment. Property investing is well understood by many. In Australia and many parts of the world there is a belief that property prices always rise. However, this may not be true and because there is no exchange where properties trade daily, their price is less transparent. The downfall of property is the high entry and exit costs, and having  to pay interest if you need a loan to acquire the property. The other downfall is the cost of maintaining the property. These costs create the possibility to lose money if your interest payments and maintenance costs are less than the income you earn from the rent and capital appreciation of the property. Property is also a highly illiquid asset, which means it’s difficult to convert the assets you own into cash.

### Cash

Cash is what you keep in your bank account. It represents the low risk, low reward option of the investment world. In Australia, many cash deposits are guaranteed by the government, so they are very low risk. When we talk about cash as investments, we focus on high interest savings accounts and term deposits. Term deposits are bank accounts where you cannot touch your cash for a specified number of months and usually receive a higher rate of interest. The advantage of keeping money in cash is that it provides certainty (as long as the Australia government can pay) that you will get your money back when you need it, however this comes at the cost of low returns, which can be very low. Currently we are living in a record low interest rate environment, with most of the interest earned from cash investments being wiped out by the increasing cost of living.

### Bonds

Put simply, a bond is a loan. When a company or government needs funds, they may issue bonds to borrow money. When you buy a corporate bond, you are lending money to that company for a set amount of time in return for regular interest payments. As well as the interest payments, your initial investment will be repaid to you on a pre-determined date, known as the maturity date. Think of it like taking out a loan from the bank, except the roles are flipped, with you paying the principal upfront and then receiving the interest payments. Bonds, like cash, are considered a more defensive investment since they provide you with a predictable income. Because there is more risk involved, bonds typically pay a higher interest rate than cash investments like term deposits. For example, if the company or government that issues the bond runs out of money and defaults on the loan, it's possible you won't get back the full amount you invested. Lending money to governments is safer than lending money to a company, and as such government bonds generally pay lower interest than corporate bonds. Some bonds can be traded on the share market, and there are even ETFs that track bond markets. Raiz uses two bond ETFs in our portfolios, IAF (Australian Government Bonds) and RCB (Australian Corporate Bonds).

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Understanding Risk
Life is inherently risky. Every decision you make, whether it’s getting into a car, going on a holiday, or moving house, carries some form of risk that things will not go as expected. But to dodge risk by locking yourself in a cocoon is to pay the highest price: you miss everything. In financial terms, we define risk as the chance that an investments actual gains will differ from its expected return - in other words, it’s the possibility you’ll end up losing money or making less than you hoped. In general for investing, the higher the expected return, the higher the risk. This is known as the risk-return trade-off.  There’s no such thing as a foolproof, high return investment, so you should always beware that a high return will also carry a high risk. Whilst risk is inherent to investing, there are strategies that can be used to manage it.

### Volatility

Volatility is used to measure how much the price of an investment varies. It's concerned with how fast an asset moves in value and is a measure of the risk of that asset. The higher the volatility the higher the risk. An example of a highly volatile asset is bitcoin, since its value often fluctuates up and down quite quickly.

### Diversification

We’ve all heard the phrase ‘don’t put all your eggs in one basket’. If we change this to ‘don’t put all your money in one investment’ we’d be talking about diversification. Every asset that you buy comes with the
market risk that it’s value could drop. There is always an unexpected event. So, by spreading the money in your investment portfolio across different assets, it can reduce the risk that all of them will fall in value at the same time. In colloquial terms, this would be referred to as ‘hedging your bets’. ETFs are an excellent and inexpensive way to achieve diversification because they give you exposure to stocks from many different companies. The Raiz portfolios are built from a selection of 9 ETFs, offering even more diversification as each ETF tracks a different set of assets, whether it’s domestic & international share markets, government & corporate bonds, or cash.

### Opportunity Cost

This is the risk that you make an investment decision, and then after the fact realise your money could have performed better elsewhere. This is a risk people often forget about when they keep their money in highly liquid, low returning cash investments. Yes, this eliminates some risks, but it can carry a heavy opportunity cost.

### Risk Tolerance

Your risk tolerance is how comfortable you are with taking risk. It describes how much risk you are willing to take on to achieve your investment goals. Understanding your risk tolerance is important, as if you take on too much risk, and are unable to stomach large swings in the value of your investment, you may panic from the stress and sell at an inopportune time.

### Investment Horizons (Timeframes)

An investment horizon, or timeframe, refers to the total length of time that you expect to hold an investment. Investment horizons can range from short-term, just a few days or months long, too much longer-term, potentially spanning years to decades. Superannuation is a common example of a long-term investment horizon. When investors have a longer investment horizon, they may be able to take on more risk, since the market has many years to recover in the event of a pullback. That’s why you will often hear the phrasing that in the long term, the market tends to go up. On the other hand, a shorter time horizon opens you up to the possibility that you may have to sell your investment during a market downturn, in effect forcing you to sell low. Therefore, investments with short time horizons should generally carry less risk to reduce the likelihood of the investment decreasing in value in the short term.  For example, a 2 month investment horizon should probably be in cash. Investment Horizon can be more important than Risk Tolerance when deciding which investments you should choose. Especially when the investment Horizon is very short or very long. The Raiz portfolios are built to match certain risk profiles, which range from conservative to aggressive. For an investment horizon that is short term (less than three years), a conservative portfolio option is probably the best choice to achieve your goal. See our blog on Which Raiz Portfolio Could Be Right For Me for more information on investment horizons and portfolio choice.

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Double Referrals in September!
For the entire month of September we are doubling the referral bonus you and your friends can earn! That’s $10 for you and$10 for your friend.  As a Raiz investor, you have already begun your investment journey. You have experienced how simply putting aside the spare change from your purchases, or investing a little extra each week, fortnight or month can bring you a step closer to financial freedom. Why not share this experience with your family and friends?

### Here’s how simple it is:

Step 1: Tap on the menu icon in the top left of the Welcome screen and select ‘Invite your friends’. Step 2: Share with your contacts or post your referral link to your favourite social media channels! If you access your Raiz account via web browser instead of the app, you will find the same options available in the menu on the left-hand side of the screen!

### Don’t have the Raiz App?

How to use your Raiz annual tax statement for your tax return

### Step 1 – Personalise your myTax return

Be sure to select “Interest”,” Dividends”, “Managed fund distributions”, and “Gifts, donations, interest, dividends, and the cost of managing your tax affairs” by ticking the corresponding boxes. This allows you to declare your numbers in the right place. Once you have done the above, click on [Next] within myTax and you will see the “Interest”, “Dividends”, “Managed fund distributions” and “Deductions” sections available for completion.

### Step 2 – Insert amounts from Annual Tax Statement.

Let’s begin with adding the interest from the Raiz Annual Tax Statement into myTax. Click on [Add/Edit] on the “Interest” section of myTax and enter the information as follows: After entering the “Interest” information, click [Save and Continue] and proceed to enter “Dividends” information as follows: After entering the “Dividends” information, click [Save and Continue] and proceed to enter “Managed funds distribution” information as follows: Note: If the amount shown at 18H on the Raiz Annual Tax Statement is in brackets, this means that you have made a capital loss on your Raiz investment in that financial year. If you make a capital loss, you can use it to reduce any capital gains you made in the same financial year from other investments. If you have not made a capital gain in the same financial year, you can use this loss to reduce a capital gain in a later year. If this occurs, you do not enter anything into 18H, and instead carry the loss forward to a future financial year and offset it against a future Capital Gains. Please consult a Tax professional regarding any questions you may have regarding Capital Gains and how they relate to your personal circumstances. After entering the “Managed funds distribution” information, click [Save and Continue] and proceed to enter “Deductions” information as follows: You have now successfully entered all information from the Raiz Annual Tax Statement into the myTax system.

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This is the expected dividend schedule for Raiz ETF's (FY2020/21)
Keen to know when your next dividends will be paid? See the dates below. In the 19/20 financial year, Raiz re-invested over \$11.7M in dividends back to our users.

### What is a Dividend?

As well as gains on market returns from investing, dividends (or distributions) is money paid by a company back to you, their shareholder, out of its profits. Raiz users choose to invest in one of our six investment portfolios, that comprises a mix of nine different exchange traded funds (ETF). The underlying stocks of these ETFs which make up the Raiz portfolios pay dividends from time to time. The ETF provider pays these dividends out, quarterly or twice yearly.  All dividends received by Raiz will be automatically re-invested back into your Raiz investment account, and your chosen portfolio. See our blog on
What is an ETF and how they differ. When they are paid out will depend on what portfolio you are on. Below is a schedule on when we expect dividends to be paid by the ETFs accordingly for the financial year ending 2020.

### A quick summary on each ETF payout:

• AAA (Cash) pays monthly
• IVV (S&P 500) pays quarterly
• IEU (S&P Europe 350) pays twice yearly
• STW (S&P 200) pays quarterly
• RCB (Corp. Bond) pays quarterly
• IAF (Composite Bond) pays quarterly
• ETHI (Sustainability) – pays twice yearly
• RARI (Responsible Investment) pays twice yearly
• IAA (S&P Asia 50) pays twice yearly

Important Information The information on this website is general advice only. This means it does not take into account any person’s particular investment objectives, financial situation or investment needs. If you are an investor, you should consult your licensed adviser before acting on any information contained in this article to fully understand the benefits and risk associated with the Raiz product. The information in this website is confidential. It must not be reproduced, distributed or disclosed to any other person. The information is based on assumptions or market conditions which change without notice. This will impact the accuracy of the information. Under no circumstances is the information to be used by, or presented to, a person for the purposes of deciding about investing in Raiz.   Past return performance of the Raiz product should not be relied on for making a decision to invest in Raiz and is not a good predictor of future performance.