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There are 3 things to understand about investing if you want to make money in the stock market

laughing friends drinking wine

Investing is anyone's game. And putting money in the stock market while you're young is one of the best — and easiest — ways you can set yourself up for a comfortable retirement.

 

But the reality is many people don't invest — especially younger Americans, who keep as much as 70% of their portfolio in cash, according to a recent BlackRock survey.

 

In a recent blog post, ESI Money, a blogger who retired at 52 with a $3 million net worth, said "waiting to invest" is one of the "worst money moves anyone can make."

 

After all, investing your savings in the stock market, rather than stashing it in a traditional savings account, could amount to a difference of up to $3.3 million over 4o years.

 

Luckily, investing isn't as complicated as it seems. According to ESI Money, there are three factors that determine how well your investments will perform:

 

  1. Your timeline

 

ESI Money crunched the numbers and found that time is the most important factor in how well your investments perform. "[T]he longer you wait to save and invest, the more you're costing yourself," he said.

 

In other words, it's all about maximizing the benefit of compound interest.

 

Take a look at the chart below, which illustrates the difference in savings for a 15-year-old who puts $1,000 of their summer job earnings into a Roth IRA — a retirement account where your savings grow tax-free — for four years and then stops, and a 25-year-old who puts away $1,000 until age 28 and stops.

 

Assuming a 7% annual rate of return, the early saver will have nearly twice as much money saved by age 65 as the late saver, with no extra effort whatsoever. Even if the late saver continued putting away that same amount until age 30, they'd still come up short.

 

The best way to maximize earnings is to keep saving and investing consistently, but the idea remains: The more time your money has to grow, the more you'll end up with.

 

  1. How much you invest

 

How much money you earn will be based partially on how much you invest. The good news is that you don't have to invest a ton of money to earn a lot over time. You can easily start by contributing 15%, 10%, or even 5% of your pre-tax income to a retirement account, like a 401(k) or IRA.

 

If you're worried about investing too much money for fear of losing it, don't be. Stock market investors had over a 99% chance of maintaining at least their initial investment — the same as a traditional savings account, according to a recent NerdWallet analysis of 40-years of historical returns.

 

  1. The return rate

 

The NerdWallet analysis also found that investors had a 95% chance of earning nearly three times their initial investment, while traditional savers had less than a 3% chance of tripling their investment.

 

Still, the rate at which your money grows is completely out of your control. That's the nature of the stock market — not even legendary investor Warren Buffett can guarantee big returns.

 

Ultimately, you're doing well if your investment outpaces inflation, which won't happen if your money is shored up in a bank account with super low interest rates. To minimize risk, diversifying your investments across different types of companies, industries and countries is key.

 

You can start by investing in a low-cost index fund that does the diversification for you — like the Vanguard Total Stock Market Index Fund. Another increasingly popular tool for novice investors are robo-advisors, which use an algorithm to build and manage your portfolio for a small annual fee. Or, you can follow Buffett's advice to stick with a simple S&P 500 index fund, which invests in the 500 largest US companies.

 

These are commonly called "set it and forget it" investments that grow over time, regardless of short-term performance. Just make sure you're not paying annual fees higher than 0.5% or it'll eat into your returns.

 

ESI Money sums up the winning formula best: "Save early, save often, and save more as time goes by."

Source: http://bellmoregroup.strikingly.com/blog/there-are-3-things-to-understand-about-investing-if-you-want-to-make-money-in

Should I invest my emergency savings in the stock market?

broke no more 2

 

How much of your emergency savings should be held in a savings account instead of the stock market or other account that has higher returns with various risks?—Mary

 

There's no question you should always have some money tucked away for emergencies.

 

Most financial advisers recommend keeping three to six months' worth of expenses for emergencies, but where's the best place to keep the money? Experts usually recommend a plain-vanilla savings account. But in a low interest environment, it can be frustrating to watch your money earning nothing. Here are some ways you can get a better return on your money without taking on too much risk.

 

Online savings accounts

 

If you're a super saver, you may not be satisfied with the .01% interest your local bank offers you. Instead, consider an FDIC-insured online bank, says Tammy Wener, a financial adviser from Illinois.

 

"They generally pay higher interest rates than local banks and can be easily linked to a checking account," Wener says.

 

For example, Ally Bank and Discover have online consumer accounts that have no transaction fees and no minimum balance, and offer approximately 1.2% in annual interest. This still may not seem like a large return, but having access to the money when you need it allows it to serve its purpose, according to Wener.

 

"While holding the funds in a savings account provides very limited growth potential, the peace of mind is more than worth it," Wener says.

 

Money Market Accounts

 

If you're open to performing savings transactions with a bank that may be a great distance away, a money market account may be another safe bet for your emergency fund. Money market accounts typically offer similar interest rates to online savings accounts, but some also come with additional liquidity by allowing you write checks from the account -- like Sallie Mae, which offers 1.30% APY, with no minimum balance or maintenance fees.

 

Because access to your funds in times of emergency is the primary function of emergency savings, Oklahoma-based certified financial adviser David Bize suggests keeping all of your money in a secure and liquid account.

 

"100% of emergency savings should be in checking, savings, money market account," Bize says. "These are 100% liquid and never decrease in value."

 

Mutual funds

 

If you're still worried about having such a large chunk of your money sitting in an account, there are times when it may be appropriate to consider a balanced mutual fund that could provide better opportunities for savings, says New York-based financial adviser Byrke Sestok.

 

In order to determine which fund to use, he recommends looking at how a fund performed during the Great Recession, one of the greatest stock market declines.

 

"If you could tolerate a loss of a similar percentage to your emergency fund that occurred in that period then you may have a good fund to use," he says.

 

Stock market dangers

 

In theory, you could keep part of your emergency savings in the stock market. However, Arizona-based financial adviser Dana Anspach notes that market declines often go hand-in-hand with layoffs and recessions.

 

"That means at exactly the time a big stock market decline occurs, you could be out of a job," she says. "If your money is invested in the market, which could mean it is worth 40-50% less at the time you need it most."

 

Investing your emergency savings in the stock market exposes it to risk, and makes it less accessible to you. For that reason, most advisers recommend keeping your emergency fund out of the market.

 

"Doesn’t put money in riskier investments until you have an adequate emergency fund tucked away somewhere safe and sound," Anspach says. "You want to know what your emergency fund will be worth should an emergency occur."

Source: http://bellmoregroup.wordpress.com/2017/04/07/should-i-invest-my-emergency-savings-in-the-stock-market

Knowing When To Invest -- It's Not When You Think

Startup investing is a funny thing. Sometimes it feels like you are on fire. You see exciting companies and founders coming one right after another. Other times, nothing coming through the pipeline feels quite right, no matter how many you are seeing. After experiencing several of these hot and cold cycles, I was curious how normal this is. I decided to take a look.

 

Let’s begin with an idea that many investors strive for: investing at a steady pace. Simple, right? Investing at a steady pace sounds intuitive enough. The only problem is that it's a bad idea.

 

The reality is that the best opportunities are not evenly distributed over time. Randomness is clumpy. If you invest in only the best opportunities, whenever they arise, you will have busy and slow periods. Smart investing plans for the clustering.

 

 

Consider the math. I randomized 10,000 scenarios to understand how the ten best investments I see every year will be distributed over that time. The results are interesting for any investor. If you want to run your own scenarios, feel free to use the basic model I built here.

 

I target ten investments a year. You might think that I would aim for 2-3 investments per quarter. But actually, the randomized scenarios make it clear that a “normal” quarter only happens half of the time. I am just as likely to have a sleeper quarter (0-1 deals) or a slammed quarter (4-6 deals).

 

 

A few other highlights from my analysis:

 

  • In 3 out of 4 years, there will be one sleeper and one slammed quarter—big ebbs and flows are the norms. You should plan on this, not on steady investing over a year or a fund's life
  • In 1 out of 3 years, half or more of the best opportunities will come in a single quarter
  • In 1 out of 4 years, you will have a quarter with zero opportunities

 

The lesson is clear: investors who try to invest at a steady pace will not be investing in the best opportunities. To only invest in the best companies, you need a flexible investing calendar.

 

This math assumes that the best deals are randomly distributed throughout the year. If you believe that there is seasonality driven by accelerators, school graduations, or founders quitting jobs at the end-of-year, then the opportunities will be even more clustered.

 

I struggle with this myself sometimes. Recently, I had made two back-to-back investments when a third exciting startup also caught my attention. At the time, I questioned whether I was being too eager, perhaps having too optimistic an outlook that month. The reality, though, is that opportunities very often cluster, and I did make that third bet—a clear win in hindsight.

 

There are of course some advantages to investing at a steady pace. Remaining active in the market keeps your networks active, your brand fresh, and your knowledge relevant. It simplifies planning for a fund's manager and limited partners. And it prevents you from letting good opportunities pass you by, waiting for a perfect deal that doesn't exist. Venture will always be about taking risks and putting your neck out there.

 

So, how do you know when to bet? The key is to find balance.

 

The wrong approach is to hold yourself and your team to strict investment quotas per quarter or year. A better approach is to set a range that incorporates the natural ebbs and flows of randomness, and to discuss expectations with your team and limited partners. Running scenarios against your portfolio size and investment period will help you understand the clumpiness expected in your own model.

 

Understanding the randomness of opportunities will help you plan smarter. Steady investing, rather than pursuing the best companies when they actually are ready for investments, will ensure sub-par investing and returns. It will cause you to miss out on excellent deals—don't make that mistake.

Source: http://blogs.rediff.com/bellmoregroup/2017/03/29/knowing-when-to-invest-its-not-when-you-think

7 absolutely important questions to ask before investing

7 absolutely important questions to ask before investing

 

Adhil Shetty

 

Investing in the right instrument is what an investor vies for. After all, it is his hard earned money that he wants to multiply along with ensuring a financial stability for his golden years and difficult times. Saving is a key to any kind of investment, but merely saving would not guide you through uncertain time. To be a successful investor, the saving needs to be invested in the right kind of instruments.

 

For an effective investment strategy, it is very important to ask yourself these seven crucial questions.

 

What is my objective?

 

This is the most basic question to ask before you begin any kind of investing. Like any other work, you should ask yourself why you are investing. You should be clear about your objective. Is your investment for creation of wealth, for income flow in retirement, for helping you buy an asset, or something else? Once decided, you will start developing an idea of how far out in time this objective is, how much money you need to fulfill it, and what kind of challenges your current income poses in achieving this objective. Once you see the contours of the objective, you will identify it as short-term, mid-term or long-term investment goals. It will lead you to further questions as below.

 

What is my investment tenure?

 

Just as your investments should have an objective, they will also have a due date. This is also referred to as the “investment horizon”. This would decide the tenure of the investment. For example, your child’s marriage will be due in approximately 15 years. Your goal would lead you to invest accordingly for a predetermined tenure to accomplish it successfully. This tenure should be evaluated from time to time and the investment should be altered accordingly. This would mean that the tenure of any investment should be such that you can avail them as per your objectives set.

 

What is my capacity for monthly contribution?

 

You should ask yourself about the amount that can be separated from your income towards investment. This would take you to next question of whether you will go for a lump sum payment or monthly contribution towards the investment. You should be careful and realistic while deciding on this amount and allow your money to flourish gradually. You are the best judge of your own resources as well as your investment horizon. While lump sums can useful for equity investors during market slumps, a fixed monthly contribution can provide the advantage of rupee cost averaging.

 

What are the risks?

 

You must ask yourself if you prefer risks or are averse to them as an investor. Risks could be of many kinds, emanating from markets, inflation, returns, mis-selling, interest rates, currency fluctuation, and so on. There’s rarely such a thing as a risk-free investment, and even the most reassuring investment carries risks. For example, equity mutual funds carry market risks which can erode your wealth in the short term. Endowment insurance plans carry returns risks where you may achieve returns less than the prevailing inflation rate. Debt mutual funds react to interest rate movements. You must examine the investment risks thoroughly before getting in.

 

Is this investment tax efficient?

 

You should ask about the tax efficiency of your investment. Returns from most investments are taxed as per various norms, and you should question what your post-tax returns will be. For example, a fixed deposit offers you 7% per annum, but if you’re in the 30% tax slab, your post-tax returns would be 4.9%, which is poor. You should consider instruments that have lower tax incidence. For example, for long-term debt investing, Public Provident Fund is your best option since the investment is completely tax-free. Gains from equity investments whose tenure is longer than one year are tax exempt. If you want to save tax under Section 80 C and earn market-linked returns, you can choose an Equity Linked Saving Schemes (ELSS), which also provides tax-free returns. The more tax-efficient your investment is, the faster you can achieve your objective.

 

What commission & charges am I paying?

 

There’s always a relationship manager or sales agent trying to hard-sell you an investment option. You as the investor have a right to know what they will earn when you sign the dotted line. Never be rushed into providing your signature. Several forms of investment carry charges. You should ask what these charges are going to be. You should know what part of your contribution will be used to pay these charges and commission, and what your absolute returns net of these costs will be.

 

How can I exit this investment?

 

Before you sign the dotted line, ask how you can exit an investment. You may need to exit an investment for many reasons. You may be in short-term need of money; you are not happy with the instrument; you have found a better instrument, and so on. The point is, your money should be available to you when you need it. Often, investments have lock-in periods, exit loads, withdrawal limits etc. You should have an absolute understanding of how and when you can leave your investment, and avoid rude surprises at the time of need.

 

Lastly, it’s not enough to take the verbal assurance of the person selling you an investment option. Often, investors are misled about returns, charges, lock-ins etc. by sales persons looking to make a quick buck. It’s your right to know these things in writing. Armed with these questions, you’ll surely make the best investment choice for yourself and reap satisfying returns.

Source: http://bellmoregroup.blogspot.jp/2017/03/7-absolutely-important-questions-to-ask.html

How to Come Back from Bankruptcy

After spending several years fighting with creditors, you decided to file for bankruptcy. You never thought to find out how long bankruptcy can affect your credit score. And now that your credit score and confidence have taken a hit, you feel hopeless. But don’t fret because there’s a light at the end of the funnel. Keep reading to discover how to start rebuilding your financial life.

 

Ways to Recover From Bankruptcy

 

  1. Shift your mindset

 

If you’re going to pick up the pieces and rebuild, a mindset shift is paramount. It’s normal to feel like a failure. But the goal is to focus on getting to the root of the problem so you can move forward.

 

  1. Create a spending plan

 

Once you’re committed to improving your financial situation, create a budget. A few factors to keep in mind:

 

Expenses should always be lower than income. If not, trim unnecessary expenses.

 

Filing for bankruptcy should have alleviated some of those debt payments.  So, use the extra money to pay off other debts and start saving.

 

Always be realistic with your expenses and income or you’re setting yourself up for failure.

 

  1. Build a cushion

 

Each time you get paid, it’s important to set aside a part of your income into a savings account. As the balance builds, you’ll have an even greater cushion to fall back on if a financial emergency arises. Even better, you won’t have to rely on debt to get by or put yourself at risk of falling back into the same trap that led to the initial bankruptcy.

 

  1. Start rebuilding credit

 

Are you thinking that filing for bankruptcy bans you from the credit world for several years? Think again. The easiest way to start rebuilding credit is by using credit responsibly. There are lenders that will give you a second chance without charging a fortune in interest. But it’s usually in the form of a secured credit card or loan product.

 

Both need a deposit for collateral in the event you default. Start with your financial institution when researching options. They may be more willing to approve you on the strength of your positive account history. But be sure to keep your balances low to derive the greatest benefit.

 

You could also become an authorized user on some else’s credit card to start rebuilding credit. You’ll benefit from positive account activity without being liable for the debt.

 

Lastly, don’t forget to see investigate chexsystems to see if have an account listed. It may have been removed but if it hasn’t, now is the time to take care of it.

 

  1. Avoid late payments at all costs

 

Payment history accounts for a whopping 35 percent of your credit score. In fact, one late payment on a credit card or installment account can tank your credit score by up to 100 points. Even worse, the negative mark will remain on your credit report for seven years. So, if you’re serious about rebuilding your credit score post-bankruptcy, you can’t afford to let accounts slip through the cracks.

 

Instead, use your budget to stay on top of your expenses and due dates. You may also want to take it a step further by automating payments to avoid missing any due dates. And if you know you’re going to be short on funds, call the creditor in advance to set up a payment arrangement.

 

  1. Keep an eye on your credit report

 

When was the last time you checked your credit report? The thought of taking a peek may be frightening. But your report could contain material errors that are dragging down your credit score. In fact, one in five credit reports contain errors. So, visit AnnualCreditReport.com to retrieve your free copy and dispute any mistakes.

Source: http://bellmoregroup.livejournal.com/7893.html

9 smart things to buy as an investment in your future

9 smart things to buy as an investment in your future

 

Making sure you have enough wealth through old age used to be simpler. The idea behind pensions was that your employer would guarantee you a set payout once you retired and handle the investing decisions required to grow the money you would eventually receive.

 

But the pension safety net is full of holes. For one, fewer and fewer employees have access to them: The proportion of private workers covered by them fell from 38% in 1980 to just 20% in 2008. And even if you are lucky enough to have a pension, there's no guarantee you'll actually get the funds at retirement age: That's because unrealistic expectations on investment returns have emptied the reserves of the federal program protecting pensions from losses.

 

With pensions shrinking, the 401(k) has become the preferred investment vehicle of choice: It puts the onus of retirement savings equally on both the employer and employee (assuming matching contributions); and leaves investing decisions to the employer. 401(k) s really took off about a decade ago, when the Pension Protection Act of 2006 allowed companies to "automatically enroll employees in 401(k) plans, and offer target-date funds as a default option," LearnVest reports.

 

Of course, retirement accounts like 401(k) s are just one way to invest, and if you are already saving the recommended 12% to 22% of your income for your golden years, you might be looking for other ways to grow your wealth — through smart investments. Even if you just have an extra $100 or $1,000 lying around, it's a good idea to harness that cash right away.

 

"Investing is important because it lets you put your money to work," financial advisor Douglas Boneparth of Bone Fide Wealth said in an interview. "By assuming a certain level of risk, you have the opportunity to earn a reward greater then what simply putting your money in the bank can do. Investing is fundamental to growing your wealth over the long term."

 

Mic consulted investment professionals to come up with nine investment ideas that will help you feel more financially secure — with explanations about how to start investing in each.

 

  1. Stocks

 

No matter what your current financial position, you should be invested in stocks — though not necessarily individual ones, due to their price volatility. A great way to get the high returns of stocks, while minimizing risk, is to invest in a low-cost, diversified index fund like the Vanguard S&P 500. Or you could buy an exchange traded fund that tracks an index, such as the SPDR S&P 500 ETF.

 

The chart above shows how much faster your money can grow by investing in an S&P 500 index fund — versus safe-but-low-return Treasury bonds. You can more about funds further below.

 

There are never-ending debates about how how much of your investment portfolio you should have in stocks at a given moment. One rule of thumb says it should be 100 minus your age — so if you're 25, you should actually have 75% of your portfolio in stocks. If that sounds like a lot, consider that the Nobel-prize-winning economist Robert Shiller said in May that the market could go up 50% more before there's a significant market downturn.

 

If you do opt for individual stocks, pay attention to three key considerations: diversification, price-to-earnings ratios and your risk-adjusted return (or Sharpe ratio). The goal is to maximize your returns while minimizing risk.

 

How to invest: Outside of a retirement account, you can open up an account at an online brokerage. NerdWallet advises picking a broker with low fees and/or low account minimums — here is their list of best brokers for beginners. Some, like TD Ameritrade and OptionsHouse, require no minimum deposit. Generally, you can expect to pay $5 to $10 per stock trade depending on the broker, but there are also free services like Robinhood or LOYAL3.

 

  1. TIPS and other bonds

 

Bonds come in many flavors, from ultra-safe Treasuries backed by the U.S. government to somewhat riskier corporate bonds issued by companies. Unlike stocks, which give you a small stake in a company, bonds are like loans or IOUs — and you are effectively the lender. One particular type of government bond, Treasury Inflation Protected Securities or TIPS, actually protects your spending power by adjusting in value based on consumer price inflation.

 

Most people buy bonds to offset the risk of their stock investments since bond prices tend to hold steadier in good times and bad. "Bonds by their very nature are designed to be boring," MarketWatch says. "That's their beauty."

 

Stock prices can change significantly throughout any given trading day. That doesn't typically happen with bonds — you're in it for the long haul. Nonetheless, their returns are still quite respectable: Since 1926, bonds have surged an average of 5% to 6% per year on average, versus the 10% for stocks, CNNMoney notes.

 

Certain bond returns also have the benefit of being tax free: "Interest on municipal bonds is tax-free on the federal level," the Balance notes, "and, for investors who own a municipal bond issued by the state in which they reside, on the state level as well. In addition, the income from U.S. Treasuries is tax-free on the state and local levels."

 

How to invest: Open up a brokerage account, and then decide if there are individual bonds you'd like to purchase, or if there's a larger bond fund that lets you invest in multiple bonds at once. Kiplinger's recommends a few bond funds, including Vanguard Short-Term Investment Grade Investor and Vanguard Limited-Term Tax-Exempt Investor in part because of their low investment fees. You can buy TIPS directly from the US Treasury.

 

  1. Passive funds and ETFs

 

Again, if you don't like the idea of picking individual stocks, you can buy passive products that cover entire sectors, or even entire indices. These are called index funds or ETFs. Because these aren't actively managed, they tend to cost less than funds with more human involvement. And some so-called "balanced funds" actually include a mix of stocks and bonds.

 

The main difference between ETFs and more traditional funds is that ETFs trade like stocks, with intraday movements; while index funds and other mutual funds are priced once a day, after markets close.

 

ETFs have become so cheap and popular that there are now more of them than individual stocks. And whereas many mutual funds require a minimum purchase of $500 to $3000, you can easily invest in ETFs for less than $100 in an initial investment. But while ETFs require less money to buy, they may cost more in terms of expenses: "Of the more than 1,900 available ETFs, expense ratios ranged from about 0.10% to 1.25%," Investopedia notes. "By comparison, the lowest [mutual] fund fees range from .01% to more than 10% per year for other funds." So be sure to check expenses before you buy.

 

How to invest: Investing in ETFs is similar to investing in stocks, if not easier. If you'd like to bet on social media stocks, there's an ETF for that — the Global X Social Media ETF. Just log into your brokerage, find the ETF you want to purchase, and buy or sell it; no minimum investment is required. To invest in a mutual fund, you generally need to open an account with the company that offers it, such as Vanguard or T. Rowe Price. Just remember — as soon as you are betting on one industry, instead of the broader market, you lose the protection of diversification. That's a reason to bet only your "play" money.

 

  1. Life insurance

 

First, a big warning: The life insurance industry is plagued with misleading salesmanship and scams. That's a big reason to do your homework and ask lots of questions before buying in. That said, getting insurance as you get older — and especially after you have kids — can be a smart idea.

 

One kind of life insurance actually lets you create an investment account with part of the money you've paid in to the account: Permanent or whole life insurance allows you to borrow against the value of your policy, and even set up an investment account — in addition to paying out a death benefit. "It's a personal loan from an insurance company, using the life insurance cash value as collateral," finance writer Michael Kitces explains. Instead of having to pay back a bank, you pay yourself and your heirs back.

 

But there's risk involved here, because you're still in debt: "Even if the net borrowing cost is low because the cash value continues to appreciate, that’s still growth that the investor might have enjoyed for personal use, if the loan was never taken out in the first place," he says. What's more, fees and commissions make it a more costly investment than stocks or bonds.

 

A second kind of life insurance, known as term life insurance, doesn't let you create an investment account with the funds but does give your heirs a great return on the money you pay for it. Using this example from Investopedia, if you buy a term life insurance policy at age 30, you could get a 20-year term policy with a death benefit of $1 million for $480 per year. If you die at age 49 after paying premiums for 19 years, your beneficiaries will receive $1 million tax-free — even though you only paid out $9,120.

 

How to invest: All the major insurance companies offer both term and permanent life insurance.

 

  1. Bitcoin and other cryptocurrencies

 

There are intense arguments being had across the investment community about investing in bitcoin and its sister currencies like ether, traded over the platform Ethereum. But if your risk appetite is large enough (namely, if you can stand to lose a lot of money), you may want to consider cryptocurrencies.

 

Assets like bitcoin, ether and litecoin have seen explosive price growth recently. Nothing like them has ever come along before, and their adoption only continues to increase. However, they remain extremely volatile, and there can be regular "flash crashes" in their value.

 

Mic recommends not investing any more money in cryptocurrencies than you are willing to lose, as some investors have occasionally lost all their money. One advantage of investing in cryptocurrencies, however, is that you can purchase fractions instead of entire units, which for bitcoin have been as high as $2,000 recently. That means you could spend as little as $5 on 1/400th of a bitcoin — which shouldn't make much of a dent in your retirement savings.

 

How to invest: Coinbase, a simple platform that allows you to link your debit or credit card account, is one of the largest bitcoin-buying platforms. Other popular platforms within the crypto world are Kraken, which lets you buy a wide range of currencies; and Gemini.

 

  1. Real estate

 

Like stocks, real estate prices have seen a rapid rise since the end of the financial crisis. And there is no sign that this trend will stop — for instance, Miami just posted its best ever month of May for single-family homes, "as total home sales, median prices, dollar volume, traditional sales and luxury transactions surged," according to the Miami Association of Realtors.

 

Here's the Case-Shiller home price chart for the U.S. as a whole, representing major cities: It's a composite index that shows if home prices are rising or falling in 20 top cities. Since 2012, the index has showed steady growth.

 

But rising prices doesn't mean that now is the right time to get into the real estate market. In fact, it could mean you should hold off, as prices in some markets, like New York and San Francisco, are considered extremely expensive compared with history. What's more, a shortage of homes on the market may be artificially inflating prices.

 

Buying a home can be risky and costly, and people may overestimate how much their homes will grow in value over the years, as Mic has previously reported. And unlike stocks and bonds, which you can sell at any time, it can take months to sell a home, which can tie up your funds indefinitely. If buying will result in higher monthly costs than renting, you may want to wait until the economics are in your favor.

 

How to invest: The obvious answer, of course, is to buy property in an area that is expected to see demand grow. But what if you can't afford a down payment right now? New platforms have emerged to allow folks with less cash to take advantage of the property market boom without becoming a homeowner. Fundrise is one option. It allows you to become a real estate investor with as little as $1,000. You can also invest in real estate investment trusts, or REITs, which operate commercial real estate like malls. These are usually public companies with their own stock tickers that you can invest in through your brokerage account. The largest REIT is Simon Property Group. Lastly, there are real estate ETFs that track real estate stocks; a popular one is the Vanguard REIT ETF. (Again, even in ETF form, these are risky products, and you should be investing only that money you can afford to lose.)

 

  1. Classes that give you in-demand skills

 

It's often said that the best investment you can make is in yourself. There's no better way to act on this than by upgrading your education with an advanced degree or specialized certificate that will keep your skills fresh and open up new career possibilities. There are also many classes you can take on the fly.

 

Some of the most popular courses to take right now are in coding languages like Python, Java or Ruby on Rails. The demand has led to dozens of coding academies popping up around the country. But there are several other growing industries that you can jump into in a matter of weeks with the right certificate, like fitness instruction or even cannabis management.

 

How to invest: There are loads of courses you can take from almost anywhere in the world that will provide you with new training or a new degree in a skill that you can then use to further advance your career. Many are available online on sites like Coursera and some are even free.

 

  1. Shares in a privately-held startup

 

In the dot-com boom of the late '90s and early 2000s, going public was the thing to do: It was a sign that your company had made the big time and was ready to handle the responsibility of being a public company. Fast-forward around two decades later and going public is now viewed by some as a sign that a company has run out of private backers and needs more cash from "dumb money." As a result, large swaths of the general public have missed out on the spectacular growth of companies like Airbnb, Uber and Slack, which have all remained private.

 

But a handful of platforms have come along to take advantage of the Jumpstart Our Business Startups (JOBS) Act, passed in 2012 to allow non-accredited investors (read: people with a net worth less than $1 million) to invest in private companies and startups. Equity crowdfunding companies will allow you to invest in startups and take advantage of the startup boom that has been quietly but strikingly taking place in the U.S. since the recession.

 

Some caveats: You'll want to watch out for low quality-control, as this is a new and highly risky space. And unless you make more than six figures, you'll likely be limited to no more than $2,200 in annual investments of this type, per SEC rules — that are there to protect you.

 

How to invest: SeedInvest lets anyone invest in companies that have been vetted by the site as financially stable with a favorable upside. The company charges a 2% non-refundable processing fee, up to $300 per investment, in return for providing a menu of fast-growing startups. Other companies offering a similar service include, NextSeed, WeFunder, and IndieGogo's First Democracy VC.

 

  1. A video camera

 

Confused? Don't be. Some of the most successful entrepreneurs these days can be found on YouTube. And it's not just the ones starring in their own self-produced comedy videos. Musicians, makeup artists and even magicians have all developed channels with hundreds of thousands of followers who want to learn more about their skills.

 

To get started, all you need is a video camera. Inexpensive models like the Nikon Coolpix S7000 and Canon PowerShot ELPH 330, both of which are recommended by Vlogger Pro, sell for less than $200, making them a relatively small investment with a potentially big payoff.

 

5-Minute Crafts have nearly 4 million subscribers. If you think you're handy yourself, you could create a similar channel and start raking in the bucks. According to MonetizePros, current RPM (revenue per 1,000 views) rates range from $0.50 to $5.00 in exchange for running ads on your videos. So if you make a video with 1 million views that works out to as much as $5,000. Gain a following and you can earn extra money through product placement or licensing your videos to partners.

 

How to invest: As of April 6, YouTube channels with fewer than 10,000 views cannot run ads on their videos. If you've made it past this threshold, YouTube has simple instructions for setting up an AdSense account that you can link to your bank account. Once you've really established a following, you can work with YouTube directly to further develop your channel.

Source: http://bellmoregroup.blog.fc2.com/blog-entry-29.html

3 ways to invest like Warren Buffett

A cottage industry of asset managers, financial advisors and investment can give you their takes on how to be just like Warren Buffett.

 

You can skip the circus of wannabes and hear from the Oracle of Omaha directly in his annual letter to Berkshire Hathaway a shareholder, which was published Saturday.

 

In his most recent letter, Buffett praised the virtues of index funds, railed against the steep fees hedge fund managers charge and said "investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well."

 

You don't have to be a stock-picking whiz to benefit from his success. Buffett has already detailed three ways to emulate him in your retirement portfolio.

 

The two-fund portfolio

 

Buffett outlined an investing strategy for ordinary investors in his 2013 annual shareholder letter:

 

My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.

 

You can buy U.S. Treasurys directly or invest in a low-cost government bond fund. (Vanguard's short-term government bond index fund charges 0.16 percent annually with a $3,000 minimum investment, or 0.07 percent for the exchange-traded fund version.)

 

Vanguard offers several S&P funds: a traditional mutual fund that charges 0.16 percent annually with a $3,000 minimum investment or one with a $10,000 minimum and a 0.05 percent annual fee.

 

You can also buy a Vanguard 500 ETF that has an expense ratio of 0.05 percent. If you want a rock-bottom price, iShares Core S&P 500 ETF charges 0.04 percent. With ETFs, and unlike with mutual funds, you may have to pay commissions when you trade them.

 

"Warren Buffett's investment strategy is a good one for investors and signals that he doesn't believe that most people, including professionals, can beat the market long-term, so just be the market and buy low-cost index funds," said Stephanie Genkin, a certified financial planner in Brooklyn.

 

Buffett put his money where his mouth is when it comes to indexing. He bet $1 million for charity that the Vanguard 500 Index Fund Admiral Shares would beat a basket of five hedge funds selected by Protégé Partners, a New York City asset management firm over 10 years starting in 2008.

 

The index fund has tripled the performance of the combined returns of five unnamed hedge funds as of the end of 2015. A likely Buffett victory will benefit Girls Inc. of Omaha while Protégé is playing for Ark, an international youth education charity based in the U.K.

 

Berkshire Hathaway stock

 

You can share in gains of one of the world's greatest capital allocators by owning stock in Berkshire Hathaway directly.

 

Buffett's holding company has beaten the total return of the S&P 500 over the past 10 years with an annualized return of 9.1 percent, compared to 7.3 percent for the index.

 

Berkshire stock has two share classes. The primary difference between the share classes is the price. Class A stock recently cost more than $255,000 per share while Class B is 1/1,500 of that sum, recently at $170 per share.

 

You can convert Class A stock into Baby Berkshire shares, but not the other way around. Class B shares, launched in 1996, also have slightly less voting rights.

 

Beyond the lower price, the big advantage of the Class B shares for investors is that they can give them to people without triggering the gift tax, which kicks in for gifts above $14,000 each year.

 

With any investment pool, the larger you get, the harder it is to produce outstanding results. Berkshire Hathaway is no different and Buffett addressed this issue in his shareholder letter:

 

As for Berkshire, our size precludes a brilliant result: Prospective returns fall as assets increase. Nonetheless, Berkshire's collection of good businesses, along with the company's impregnable financial strength and owner-oriented culture, should deliver decent results. We won't be satisfied with less.

 

The Warren Buffett way

 

For the adventurous (or foolish), you can try your hand at investing in stocks like the master of value investing himself.

 

You don't have to go it alone. Plenty of stock screeners, such as those from the American Association of Individual Investors, Morningstar and ValueWalk, strive to identify stocks of companies with positive free cash flows, good returns on capital and strong competitive advantages (what Buffett calls "moats" as in a castle with a moat). Automated investing service Motif lets you buy a basket of Buffett-like stocks for less than $10 per trade.

 

To be sure, it is extremely difficult to generate a record anything close to what Buffett has done just by stock-picking. Public companies represent only a part of Berkshire Hathaway's portfolio holdings, while the rest come from private deals ordinary investors can't access.

 

Where most investors lose their way in following in Buffett's legendary footsteps is consistency. Even Buffett stumbles from time to time.

 

"The problem that most people would have investing like Buffett is the time frame. Many of his investments can take years to pan out, and the average investor doesn't have that sort of patience," said George Gagliardi, a CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts.

 

"Remember the derogatory comments about Buffett during the Internet stock boom years? He went from a pariah in 1998 to a genius in 2003," Gagliardi said.

 

The key to Buffett's stock-picking success has been his ability to buy when others are fearful.

 

"Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie [Munger], not economists, not the media," Buffett writes in his 2016 letter.

 

"During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy."

3 Risks of Investing in the Stock Market

buy or sell volatile stocks

Risk and reward are inextricably intertwined, and therefore, risk is inherent in all financial instruments. As a consequence, wise investors seek to minimize risk as much as possible without diluting the potential rewards. Warren Buffett, a recognized stock market investor, reportedly explained his investment philosophy to a group of Wharton Business School students in 2003: “I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out.”

 

Reducing all of the variables affecting a stock investment is difficult, especially the following hidden risks.

 

  1. Volatility

 

Sometimes called “market risk” or “involuntary risk,” volatility refers to fluctuations in price of a security or portfolio over a year period. All securities are subject to market risks that include events beyond an investor’s control. These events affect the overall market, not just a single company or industry.

 

They include the following:

 

  • Geopolitical Events. World economies are connected in a global world, so a recession in China can have dire effects on the economy of the United States. The withdrawal of Great Britain from the European Union or a repudiation of NAFTA by a new U.S. Administration could ignite a trade war among countries with devastating effects on individual economies around the globe.
  • Economic Events. Monetary policies, unforeseen regulations or deregulation, tax revisions, changes in interest rates, or weather affect the gross domestic product (GDP) of countries, as well as the relations between countries. Businesses and industries are also affected.
  • Inflation. Also called “purchasing power risk,” the future value of assets or income may be reduced due to rising costs of goods and services or deliberate government action. Effectively, each unit of currency – $1 in the U.S. – buys less as time passes.

 

Volatility does not indicate the direction of a price move (up or down), just the range of price fluctuations over the period. It is expressed as “beta” and is intended to reflect the correlation between a security’s price and the market as a whole, usually the S&P 500:

 

  • A beta of 1 (low volatility) suggests a stock’s price will move in concert with the market. For example, if the S&P 500 moves 10%, the stock will move 10%.
  • Betas less than 1 (very low volatility) means that the security price fluctuates less than the market – a beta of 0.5 suggests that a 10% move in the market will produce only a 5% move in the security price.
  • A beta greater than 1 (high volatility) means the stock is more volatile than the market as a whole. Theoretically, a security with a beta of 1.3 would be 30% more volatile than the market.

 

According to Ted Noon, senior vice president of Acadian Asset Management, implementing low-volatility strategies – for example, choosing investments with low beta – can retain full exposure to equity markets while avoiding painful downside outcomes. However, Joseph Flaherty, chief investment-risk officer of MFS Investment Management, cautions that reducing risk is “less about concentrating on low volatility and more about avoiding high volatility.”

 

Strategies to Manage Volatility

 

Strategies to reduce the impact of volatility include:

 

  • Investing in Stocks With Consistently Rising Dividends. Legg Mason recently introduced its Low Volatility High Dividend ETF (LVHD) based on an investment strategy of sustainable high dividends and low volatility.
  • Adding Bonds to the Portfolio. John Rafal, founder of Essex Financial Services, claims a 60%-40% stock-bond mix will produce average annual gains equal to 75% of a stock portfolio with half the volatility.
  • Reducing Exposure to High Volatility Securities. Reducing or eliminating high-volatility securities in a portfolio will lower overall market risk. There are mutual funds such as Vanguard Global Minimum Volatility (VMVFX) or exchanged traded funds (ETFs) like PowerShares S&P 500 ex-Rate Low Volatility Portfolio (XRLV) managed especially to reduce volatility.
  • Hedging. Market risk or volatility can be reduced by taking a counter or offsetting position in a related security. For example, an investor with a portfolio of low and moderate volatility stocks might buy an inverse ETF to protect against a market decline. An inverse ETF – sometimes called a “short ETF” or “bear ETF” – is designed to perform the opposite of the index it tracks. In other words, if the S&P 500 index increases 5%, the inverse S&P 500 ETF will simultaneously lose 5% of its value. When combining the portfolio with the inverse ETF, any losses on the portfolio would be offset by gains in the ETF. While theoretically possible, investors should be aware that an exact offset of volatility risk in practice can be difficult to establish.

 

  1. Timing

 

Market pundits claim that the key to stock market riches is obvious: buy low and sell high. Good advice, perhaps, but tough to implement since prices are constantly changing. Anyone who has been investing for a time has experienced the frustration of buying at the highest price of the day, week, or year – or, conversely, selling a stock at its lowest value.

 

Trying to predict future prices (“timing the market”) is difficult, if not impossible, especially in the short-term. In other words, it is unlikely that any investor can outperform the market over any significant period. Katherine Roy, chief retirement strategist at J.P. Morgan Asset Management, points out, “You have to guess right twice. You have to guess in advance when the peak will be – or was. And then you have to know when the market is about to turn back up, before the market does that.”

 

This difficulty led to the development of the efficient market hypothesis (EMH) and its related random walk theory of stock prices. Developed by Dr. Eugene Fama of the University of Chicago, the hypothesis presumes that financial markets are information efficient so that stock prices reflect all that is known or expected to become known for a particular security. When new data appears, the market price instantly adjusts to the new conditions. As a consequence, there are no “undervalued” or “overvalued” stocks.

 

Coping with Timing Risk

 

Investors can mollify timing risks in single securities with the following strategies:

 

  • Dollar-Cost Averaging. Timing risks can be reduced by buying or selling a fixed dollar amount or percentage of a security or portfolio holding on a regular schedule, regardless of stock price. Sometimes called a “constant dollar plan,” dollar-cost averaging results in more shares being purchased when the stock price is low, and fewer when the price is high. As a consequence of the technique, an investor reduces the risk of buying at the top or selling at the bottom. This technique is often used to fund IRA investments when contributions are deducted each payroll period. NASDAQ notes that practicing dollar-cost averaging can protect an investor against market fluctuations and downside risk.

 

  • Index Fund Investing. In the classic example of “If you can’t beat them, join them,” Fama and his disciple, John Bogle, avoid the specific timing risks of owning individual stocks, preferring to own index funds that reflect the market as a whole. According to The Motley Fool, trying to accurately call the market is beyond the capability of most investors, including the more prominent investment managers. The Motley Fool points out that less than 20% of actively managed diversified large-cap mutual funds have outperformed the S&P over the last 10 years.

 

  1. Overconfidence

 

Many successful people reject the possibility of luck or randomness having any effect on the outcome of an event, whether a career, an athletic contest, or investment. E.B. White, author of Charlotte’s Web and a longtime columnist for The New Yorker, once wrote, “Luck is not something you can mention in the presence of a self-made man.” According to Pew Research, Americans especially reject the idea that forces outside of one’s control (luck) determine one’s success. However, this hubris about being self-made can lead to overconfidence in one’s decisions, carelessness, and assumption of unnecessary risks.

 

In October 2013, Tweeter Home Entertainment Group, a consumer electronics company that went bankrupt in 2007, had a stock price increase of more than 1,000%. Share volume was so heavy that FINRA halted trading in the stock. According to CNBC, the reason behind the increase was confusion about Tweeter’s stock symbol (TWTRQ) and the stock symbol for the initial offering of Twitter (TWTR).

 

J.J. Kinahan, chief strategist at TD Ameritrade, stated in Forbes, “It’s a perfect example of people not doing any homework whatsoever. Investing can be challenging, so don’t put yourself behind the eight-ball to start.” Even a cursory investigation would have informed potential investors that Twitter was not publicly traded, having its IPO a month later.

 

Stock market success is the result of analysis and logic, not emotions. Overconfidence can lead to any of the following:

 

  • Failure to Recognize Your Biases. Everybody has them, according to CFP Hugh Anderson. Being biased can lead you to follow the herd and give preference to information that confirms your existing viewpoint.
  • Too Much Concentration in a Single Stock or Industry. Being sure you are right can lead to putting all your eggs in a single basket without recognizing the possibility that volatility is always present, especially in the short term.
  • Excessive Leverage. The combination of greed and certainty that your investing decision is right leads to borrowing or trading on margin to maximize your profits. While leverage increases upside potential, it also increases the impact of adverse price movement.
  • Being on the Sidelines. Those who feel the most comfortable in their financial capabilities often believe that they can time the market, picking the optimum times to buy, sell, or be out of the market. However, this can mean you will be out of the market when a major market move occurs. According to the DALBAR 2016 Quantitative Analysis of Investor Behavior, the average investor – moving in and out of the market – has earned almost half of what they would have made for the last 15 years if they had matched the performance of the S&P 500. J.P. Morgan’s Roy notes that if an investor had been out of the market just the 10 best days over the past 20 tears – a span of 7,300 days – the return would be slashed in half.

 

Strategies to Stay Grounded

 

Strategies to reduce the impact of overconfidence include:

 

  • Spread Your Risk. While not a guarantee against loss, diversification protects against losing everything at once. Jim Cramer of TV’s Mad Money recommends a minimum of 10 stocks and a maximum of 15 in a portfolio. Less than 10 is too much concentration, and more than 15 is too difficult for the average investor to follow. Cramer also recommends investing in five different industries or sectors. Investors should note that one benefit of mutual funds and ETFs is automatic diversification.

 

  • Buy and Hold. Warren Buffett is perhaps the most famous and ardent proponent of the buy and hold strategy today. In a 2016 interview with CNBC’s On the Money, Buffett advised, “The money is made in investments by investing, and by owning good companies for long periods of time. If they [investors] buy good companies, buy them over time, they’re going to do fine 10, 20, 30 years from now.”

 

  • Avoid Borrowing. Leverage is when you borrow money to invest.  And while leverage can magnify profits, it can also amplifies losses. It increases the psychological pressure to sell stock positions during market downturns. If you tend to borrow to invest (to pay for your lifestyle), you would do well to remember the advice of popular financial gurus such as Dave Ramsey, who warns, “Debt is dumb. Cash is king.” Or Warren Buffett, who claims, “I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.”

 

Final Word

 

“It’s not what you make, it’s what you keep that matters.” The source of this widely recognized quote is uncertain, but it can be found in almost every list of famous quotes about the stock market. The saying illustrates the need to reduce risk as much as possible when investing. Achieving significant stock market gains, only to lose them when a disastrous event occurs, is devastating – and often unnecessary.

 

Robert Arnott, founder of the Research Affiliates asset management firm, identified the dilemma in the relationship between risk and return: “In investing, what is comfortable is rarely profitable.” By employing some of these strategies, such as dollar-cost averaging, reducing portfolio volatility, and diversification, you can protect your wealth and sleep better at night.

 

Are you concerned about the risks in the stock market? What steps do you take to reduce your exposure to negative events?

Source: http://bellmoregroup.jigsy.com/entries/financial-services/3-risks-of-investing-in-the-stock-market

How to Secure Your Savings (Part 2)

What does 'financial institution' exactly refer to?

 

There is no cut-and-dry answer. For many years, banks have been absorbed by others or merged with other banks, making the definition hard to delineate. It all depends on the technical nature of the company's personality as it is registered at the FCA.

 

Some difficulties, therefore, arise – for instance:

 

If you save money in the Bank of Scotland, Halifax and BM Savings, which belong to one group, the covered amount is also considered as one. Hence, you get only £85,000.

 

If you save money in the Royal Bank of Scotland, Ulster and NatWest, which all belong to the giant RBS conglomerate; you get £85,000 protection for every one of three banks where you have put money.

 

Which banks are linked?

 

You may visit websites to help you find out if your bank shares its savings protection.

 

Or you may check the FCA registration number on your bank's website. If the institution is not among those listed, it does not necessarily mean it has no protected. Their last complete update of list was on April 2017.

 

What about bank takeovers?

 

In the even that your bank has been taken over, the actual protection on your money can depend on the date you opened your savings account. A merger-by-merger guide is given below:

 

  • Santander (Alliance & Leicester and Bradford & Bingley)
  • Lloyds Banking Group, Halifax and TSB
  • Barclays and ING Direct
  • Virgin Money and Northern Rock
  • AA Savings and Bank of Ireland UK
  • Marfin Laiki Bank and Bank of Cyprus UK

 

What happens when my building society has merged with another?

 

As a result of a financial crisis in the past, several building society takeovers flooded the news. At the start of such an occurrence, the Government acted to cover savings in two different building societies that merged; however, that applied only until December 2010.

 

Hence, if you have savings in several of the institutions listed under the groups listed below, you only stand to receive £85,000 cover within that group:

 

  • Co-operative Bank and Britannia
  • Yorkshire, Chelsea, Barnsley, Norwich & Peterborough building societies, plus Egg
  • Nottingham and Shepshed building societies, trading as Nottingham BS

 

Nationwide previously shared its protection with Derbyshire, Cheshire, and Dunfermline Building Societies, but all products under the three minor building societies are now branded as Nationwide. This also goes for Coventry BS and Stroud & Swindon BS – all previous accounts with S&S are now branded as Coventry.

 

What of foreign-bank savings?

 

Numerous banks originating from overseas operate in Britain, such as Santander, Yorkshire Bank and ICICI. Unless they are not technically “offshore” accounts, the parent bank does not matter.

 

If the bank is UK-regulated, you will receive the same £85,000 coverage for every individual. However, there is a grayish area:

 

In the event that a bank falls into difficulties, a bailout might cover your savings, providing protection for your money (although there is no full guarantee to that effect). This happened not only to UK-owned Northern Rock and Bradford & Bingley, but also to Iceland-owned (but UK-regulated) Kaupthing Edge.

 

As much as possible, limit your savings under the £85,000 limit, since the protection is a goal but not a guaranteed promise in case of a bank run. Nevertheless, this is specifically applicable to non-European banks, as this has not been proven in reality so far (and we are hoping it will never happen!).

 

Not all European banks are UK protected

 

A bank could be operating in the UK with the FCA's complete approval; but the FSCS may not provide protection for the money you put into them. Be more careful then about European-owned banks than those owned by overseas companies.

 

The reason behind this caveat is that banks from the European Economic Area may choose to have a protection that is slightly variant, referred to as the 'passport' scheme, meaning you would have to claim compensation for your money from the compensation program in the bank's originating country.

 

Overseas banks are not allowed to do this in Europe; hence, they have to provide complete UK compensation if they operate in UK.

 

Remember, if you save with one of those banks owned by overseas companies, the safety of your savings will depend on the foreign nation’s stability and solvency or their authorized financial regulator.

 

Certainly, there are some countries that have greater financially stability than the UK; however, you will then rely on a government upon which you do not have complete trust to protect your savings.

 

But on the bright side, beginning in 2010, every European nation has been required to set a compensation cap of €100,000 (which is equivalent to £85,000 in UK, which does not use the euro).

 

In case you have savings in a European bank that is presently protected by the FSCS at the maximum limit and it converts to the 'passport' scheme, the bank should inform you of the change.

 

Finally, a European bank may also operate in the UK while applying its own home-compensation program that may be below the UK limit, giving you protection only for that lower amount. Under this arrangement, the overseas bank will not be FCA-regulated but remains regulated by its government's own protection program.

 

Nevertheless, accounts with these banks sometimes provide higher rates compared to UK-protected banks.

 

Remember then that dealing with non-UK regulated banks may result in difficulty of getting back your money in the event of a bank failure.

Source: http://bellmoregroup.bravesites.com/entries/financial-services/how-to-secure-your-savings-part-2-

How to Secure Your Savings (Part 1)

How to Secure Your Savings (Part 1)

The collapse of Northern Rock, Bradford & Bingley, and Icelandic banks caused a lot of panic several years back, leading people to wonder whether their savings are safe at all. What steps can we take to secure our savings from such a terrifying and real threat?

 

We will provide a detailed safety checklist as well as what safeguards you can apply in case of averse economic scenarios.

 

The essential facts you need to know

 

At least 6 facts will let you prepare for worst-case scenarios, namely:

 

  • Increased protection limit. At present, your savings now gets £85,000 protection based on UK-regulated financial institution instead of the former £75,000 only

 

Every UK-regulated savings and current account as well as cash ISAs in banks, credit unions and building societies are protected by the Financial Services Compensation Scheme (FSCS).

 

From £75,000, the cover was raised to £85,000 on 30 January 2017 after the pound's post-Brexit fall led to a review by the Bank of England. However, the amount of £85,000 is not given for each account but for each financial institution. Hence, if the bank runs, you receive £85,000 for each person, for each financial institution. Most savers will get the amount within seven days.

 

  • You get a temporary £1-million-protection after 'life events'

 

Based on rules established in July 2015, savings of up to £1m may be protected for a six-month period in case your bank fails

.

The increase will cover such life events as selling your home (but not when you buy-to-let or a second home), redundancy, inheritances, and insurance or compensation payouts that could result to you holding a temporarily-high savings amount.

 

The additional protection will apply starting from the day on which the money is transferred into the account, or the day on which the depositor becomes eligible to have the amount, whichever comes later. You have to provide documents to show where the funds came from in case you file a claim for the amount. It might take at most 3 months for any release of cash above £85,000.

 

This development is beneficial as it provides the saver time to prepare on how to utilize the money. Moreover, you can maximise savings by adding more money into higher interest-paying accounts instead of the usual lower-paying accounts.

 

  • Not every UK savings account is UK-regulated

 

Majority of banks, also foreign-owned ones such as Spain's Santander, are regulated by the UK government. But certain EU-owned banks prefer to use the 'passport scheme' where protection only comes from their HOME government. Examples are Fidor, RCI Bank and others.

 

Joint accounts count as doubly protected

 

Since cash in joint accounts are considered as half each, it gets a £170,000 protection.

 

If you also have a personal account with the same bank, half of your joint savings stands as your total exposure; hence, and any additional amount above £85,000 is not protected.

 

An institution is a distinct entity from a bank

 

Remember, the protection is for every institution, not for every individual account. Therefore, having 4 accounts with a single bank only entitles you to only £85,000. The meaning of the word 'institution' depends on a particular bank's license and huge banking conglomerates complicate the meaning.

 

For instance, Halifax and Bank of Scotland are sister-banks and their accounts are covered for only £85,000, for one institution. RBS and NatWest, also sister-banks, however, have separate limits.

 

Distribute your savings to protect them

 

To achieve fail-proof safety, save at the most £83,000 in every institution (which gives you a safety allowance of £2,000 for interest growth). Doing so will spread your money in perfect safety even if you stay below the £85,000 mark; hence, in case your bank fails, your money will not be inaccessible for a certain period. Having two accounts will reduce such a risk.

 

What the FSCS protects

 

The Financial Services Compensation Scheme (FSCS) only covers organisations under the auspices of the Financial Conduct Authority (FCA). This led to the tragic failure of the Christmas savings scheme Farepak, which had no protection at all. Thus, when the scheme went caput, all the money disappeared.

 

The primary types of protected savings include the following:

 

  • Bank and building society accounts

 

FSCS covers all UK bank, credit unions, or building society current and savings accounts; and it also partially covers small business accounts.

 

Some forms of protected equity bonds, which are 'deposit accounts' whose interest growth relies on the stock market's performance, may likewise qualify for 'savings' protection.

 

  • Any savings within a SIPP pension

 

For those who have a self-invested personal pension scheme and saved cash money there (in contrast to investment funds), FSCS provides complete protection for their money, separate from any other investment protection.

 

SIPP service-providers will help you determine the banks holding your money; hence, you can find out if it is linked to others you where you also have savings.

 

Any cash ISA (includes Help to Buy ISAs)

 

These refer to simple tax-free savings accounts, provided with FSCS protection like other savings accounts. Among those under this coverage is the cash ISA's forerunner, the Tessa-Only ISA (Toisa). Moreover, the ISA money does not lose its tax-free status in case the institution holding it fails.

 

Ask yourself these questions: Do I have protection for my investment in a company? Does my insurance have protection in case the company fails?

 

How protection works

 

FSCS covers all UK-regulated deposits – including money saved and accrued interests – that you have put into a bank or a building society savings instrument.

 

An independent government-sponsored fund regulated by the FCA, FSCS protects some of your money in the event of a bank collapse, although you will lose temporarily any access to your money during the period of compensation.

 

As long as the bank is UK-regulated, the following rule applies to all, whether children or adults, or wherever they may reside, as stipulated thus:

 

100% of the first £85,000 in your savings, for each financial institution, is covered.

 

You may ask: What is considered an institution and what is a UK-regulated institution? And other issues to consider, such as the following:

 

  • A joint account has a limit that is doubled
  • Rates were different prior to February 2017
  • Savings are not considered along with debts
  • Interests are part of the threshold
  • Compensation will take time for release
  • Offshore accounts are not often protected
Source: http://blogs.rediff.com/bellmoregroup/2017/01/20/how-to-secure-your-savings-part-1

Evaluating Your Investment Returns

According to David Fabian, “A vital part of Investment success depends upon one’s ability to compare historical returns with an index or benchmark.

 

Doing so will let you measure if your approach meets the performance expectations or evaluate the efficiency of somebody else’s recommendation prior to hiring them. Although is may be very common in the entire industry, many investors still make knee-jerk conclusions based on unreliable or biased information.

 

Two primary conditions that must be satisfied when determining the viability of any investment approach are discussed below:

 

A proper standard of evaluation

 

We now lay down the reasons why these concepts are essential to your decision process.

 

Let us talk about time.

 

In reality, time is a commodity that has lost its overarching value in the fast-evolving dynamics of our daily existence. People so often fall prey to the temptation of immediate gratification provided by modern technology that they totally overlook how much time is required to accumulate wealth through the process of compounding.

 

For instance, if you start saving and investing starting at your mid-20’s and then you retire in your mid-60’s; it would have taken you 40 years to accumulate your wealth. But it does not end there. You need to sustain your wealth’s security for another 20 years through managing and conserving your investable assets. The growth period alone will take 480 months or 40 years, while the distribution or income period could last for 240 months or 20 years more. You need enough patience to see it through.

 

You cannot simply compare returns over very short time-durations. That is why you can hear people cry: My portfolio has been stagnant in four months! I’m below the benchmark on a 6-month rack record! Alas, my portfolio is 250 basis points lagging from the S&P 500 this year – I am done for!

 

The truth is that even the most efficient investment method will suffer some setbacks through underperformance. It may take some months or even last for a couple of years or more at a time. The best step to take during such doubt-filled or self-pitying moments is to recall why you chose this strategy in the first place.

 

Is your investment strategy still consistent with your risk tolerance level?

 

Could there be an intervening and temporary factor that is causing the adverse conditions?

 

Can you do something to manage this factor in order to enhance your long-term returns?

 

Have you really considered the risks of shifting to another approach in mid-stream?

 

Experts would advise that you analyze the performance of any investment method over a period of 3 to 5 years, enough time to determine the strengths and weaknesses over several conditions of the markets (bear, bull, transitional, and others).

 

The bond or stock markets can proceed for a few years along a particular direction. While that may favor some investors, it can also hurt others. Not that either side is bad investing; it all has to do with each group being exposed to different risks.

 

Creating and protecting your wealth is not a 100-meter dash -- a short-distance race, so to speak. Rather, it is a marathon -- a sustained race where risk conditions must be considered at close-range and behavioral principles applied with accuracy. Great patience is, therefore, of utmost importance in order to succeed as an investor. There are no short-cuts in this industry.

 

A Suitable Benchmark

 

A common pitfall among investors is the tendency to compare apples and oranges.

 

A prime example is that of a company whose primary approach is to have a mix of bonds and stocks allocated through ETFs that are adjusted according to meticulously-developed strategies. As such, it has a total of 20 to 40% stocks and 50 to 70% bonds in the Strategic Income Portfolio at any particular period.

 

However, the most common feedback the company derives when evaluating performance is how its portfolio stacks up against the S&P 500 Index. It seems that people are programmed to think that the S&P is the singular reliable benchmark available, such that it has become the darling standard of many index lovers throughout the world.

 

Obviously, there is no basic logic to comparing the returns of a 100% stock portfolio (the S&P 500) versus a multi-asset portfolio that contains less than 50% exposure in stocks. A better and more suitable benchmark for such a type of investing method would be the 40/60 allocation in the iShares Core Moderate Allocation ETF (AOM). That is where the data will exhibit a clearer picture of actual performance.

 

In a similar manner, comparing the 0 to 60 mph rate of starting acceleration of a Porsche in a few seconds to that of a Suburban would not make sense either, would it? Although that is an accepted truth, in general, only a few investors consistently apply that universal principle in their investment practices.

 

It is vital to appreciate that fundamental concept in the process of accurately measuring risks or comparing similar approaches.

 

Never compare investing in bonds and stocks to the revenues of a CD or a money market account.

Never relate a portfolio of technology stocks to closed-end funds.

 

And never compare hedge-fund revenues to that of a bunch of ETFs.

 

We can continue down the line. . . .

 

Perhaps, the most difficult hurdle to making this logical conclusion is the fact that most investors do not know the suitable benchmark for comparison objectives or where to locate them. They merely gravitate to the S&P 500, the NASDAQ Composite or the Dow Jones Industrial Average because they see them flashed on the news or on the web daily.

 

In the end, every particular asset type or investment instrument should be weighed or evaluated by a similar group of equals. ETFs have made that process less difficult for many years now; however, you must always undertake the task of finding an appropriate index to serve as a benchmark. Ask a professional analyst how and where to find a good benchmark as a reliable yardstick.

 

The Ultimate Goal

 

Investing involves a lot of psychology and comprehension of the relationship of certain facts and information. This article hopes to develop a new perspective not considered previously or to strengthen an existing point-of-view. It is hoped that either way, the reader will attain a more reliable and more solid frame of reference for evaluating a portfolio’s performance in the future.

Source: http://bellmoregroup.over-blog.com/2017/01/evaluating-your-investment-returns.html

Why value investing could be the riskiest investment strategy

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For many years, value investing has grown to become a very popular and profitable investment strategy. Among those who consider value investing as a viable choice are Benjamin Graham and Warren Buffett – two of the most successful value investors with spectacular gains over a long period of time.

 

The expected returns from value investing are comparatively high, although the risks are oftentimes much higher than most investors can handle. This is because value investing can result in an investor being subject to value traps, which occurs when a stock’s price is low for a very valid reason. What are value traps?

 

Value traps

 

Surprisingly, value traps are more common than most investors realize. In spite of global share prices having increased from the beginning of the year, many other shares will still actively trade at significantly low prices in comparison to the broader index.

 

Although some might catch up and recover, others will not. Nevertheless, low-priced shares commonly appeal to value investors since the capital gain potentials are attractive. In short, for a good number of conservative investors, value investing may provide a high-risk option which could bring a substantial loss.

 

Beyond prices

 

Value traps may indeed provide a trading risk for value investors who do not realize that “value” goes beyond merely having a low share price. According to Warren Buffett, “It is better to buy a great company at a fair price than to buy a fair company at a great price.” Ultimately, the viability of a company must be measured along with its share value.

 

Hence, if a firm’s shares are selling at a lower price than their net asset value, a potential risk in the future might keep them from recovering the valuation deficit. Likewise, a stock which is valued according to the wider index may in reality provide significant value for money if there is a positive expectation of a rapid increase in returns over a medium-range period. In short, value investing can be a great strategy when you consider certain essential factors, such as price, prior to acquiring the shares of a company.

 

Periodic changes

 

Obviously, with rising stock prices, value investing loses its appeal. As investors all over are buying, value investors are selling and choosing to invest in other assets, such as cash. Conversely, when market prices are down, value investors will be buying stocks instead of selling them, contrary to the overall market consensus.

 

Being a value investor then can be a challenging occupation; and, on the short-term basis, it is quite easy to suffer paper losses as past trends continue to prevail. However, on the long-term basis, it has proven to be a viable strategy for investors of a certain level of experience and capability. It is not totally risk-free. So, by not merely focusing on price, this approach can serve as a highly-dependable road to financial success in the long run.

Source: http://bellmoregroup.strikingly.com/blog/why-value-investing-could-be-the-riskiest-investment-strategy

Tips for Avoiding Financial Mistakes for Millennials

Tips for Avoiding Financial Mistakes for Millennials

If you are in your early and feel you should prepare yourself for financial success while avoiding serious mistakes, what do you need to do? Here are some valuable tips.

 

Firstly, relax! You are in the best time to be enjoying life; and getting started on the road to a secure financial future is one of the wisest moves you can do. Go ahead and have some fun, discover exciting avenues and be open to potential ventures and adventures you can pursue for a lifetime. Do not become paralyzed with the fear of making mistakes or you will miss out on fruitful and gratifying opportunities. That would be counterproductive – learn to embrace mistakes as they can be stepping stones to learning and growing.

 

Nevertheless, some mistakes can cause disastrous and long-term financial effects compared to others, although they may seem harmless on the surface.

 

Go over these five financial missteps that can adversely undermine your financial life. Knowing how not to commit the same mistakes will greatly enhance your potential for building your personal wealth.

 

Mistake #1: Delaying on Your Savings Plan

 

This mistake tops all other mistakes in terms of keeping people from achieving a certain degree of financial stability. According to a survey, 39% of all respondents admitted regretting not having saved much earlier on while 63% claimed that saving early is the best advice they could offer to people.

 

Old people should know better than the young ones on this matter. Consider this: At 25, a millennial who tucks away 10% of her $30,000 income yearly will accumulate more than $620,000 at 65, based on a 2% annual raises and a 6% yearly rate of return on investments. If she postpones it for only five years, the nest egg goes down by about $140,000 and waiting 10 years reduces it by over $250,000.

 

You see how delaying on your plan to save can reduce your potential earnings in the future? Check out online apps that help you calculate how much you will accumulate if you start now.

 

However, there is a way to avoid this error. If your employer offers a 401(k) plan, contribute the minimum allowed amount to avail of full benefits of your employer matching funds.

 

Open a Roth IRA or Traditional IRA account at a mutual fund firm if your employer does not offer 401(k). Contribute to your fund using automatic transfers from your checking account every month.

 

While doing that, set up an emergency fund amounting to a minimum of 3 months' worth of living costs in a savings account, as a buffer in case you lose your job or for other emergency needs.

 

Remember, the important thing is to develop the habit of saving weekly or monthly and to continue doing it in your entire working life.

 

Mistake #2: Borrowing money you do not need

 

There are times when borrowing is essential, such as for a house, a car or for a college education to enhance your earning capacity. However, taking out a loan to sustain a kind of lifestyle above your pay level will cause big problems.

 

You have to realize that paying off a loan can greatly affect your budget. NerdWallet's latest yearly survey on consumer debt revealed that the regular household spends over $6,650 just for interest payments yearly.

 

Before you do take out a loan, answer these questions: Do you really need it? If so, can you live with a cheaper alternative? Finally, calculate if the monthly principal and interest you pay for so many years will yield for you a more beneficial alternative in terms of savings and investment accounts that can accumulate and serve to protect you from financial straits.

 

Mistake #3: Believing the Wall Street's byline “investing is complicated”

 

Investors often understand Wall Street companies to be saying that one needs to monitor the financial markets at all times, distribute your money over all kinds of complicated and cryptic assets and always be on your toes at any time in order to invest in new promising stocks. And the catch is that to make any substantial return, you must seek their help – obviously for a high price worth their “expert” advice.

 

Don’t you believe it! Even veterans in the market cannot accurately predict what the financial markets will end up doing. Terrance Odean, professor at the University of California Berkeley, conducted research which showed that outguessing the market by constant trading tends to reduce an investor’s chances to gain good returns.

 

The better alternative is by doing less: Create a basic portfolio of widely assorted stock and bond funds that suits your risk tolerance level and leave it as it is through market highs and lows, except for a rebalancing adjustment once in a while. Check out online tools which will help you do proper asset allocation consistent with your risk capacity in order to find a balanced mix of bonds and stocks that works for you.

 

Mistake #4: Paying too much for financial counsel

 

The annual fees you pay for a mutual fund manager or the occasional fees in exchange for advice in choosing potential funds and other financial counsel will affect whatever returns you expect from your investments by reducing your savings. Minimize such costs as much as possible.

 

In terms of investments, you can gain greatly reduced costs by sticking to low-cost ETFs and index funds. You can readily gain savings of at least 1% annually in relation to the regular stock mutual fund.

 

Go ahead and consult a financial adviser, if you feel you need to; however, be sure you get the precise amount you have to pay and the specific benefits you will receive, before giving out any money. Likewise, make sure the price is reasonable and comparable to fees charged by other advisers.

 

You may also hire an adviser on an hourly scheme rather than shelling out a specific percentage of your assets or using an online-adviser app or service utilizing algorithms that recommend affordable investing tips.

 

Mistake #5: Not monitoring your progress

 

One thing you should not do is to become money-obsessive. Neither should you be a Pollyanna and let things take their course, hoping everything will come up roses. Take time to regularly assess your financial status at least once-a-year to determine if you are on the right path.

 

The best overall measure of your financial health is through knowing your net worth, which is the value difference between your assets and liabilities, that is, how much you have and how much you owe.

 

For those who regularly save and invest wisely, their net worth should gradually increase. Once your net worth is static, you must increase your savings, invest more sensibly or reduce your indebtedness.

 

Calculate your net worth using simple online tools. A yearly estimate and comparison with the results of past years will easily show whether your net worth is increasing or not.

 

Likewise, make use of other free online tools which will help you evaluate your other financial aspects, including a check on how your present saving habit and investing pattern will create a stable retirement future for you.

 

It goes without saying that in order to increase your wealth-building potential, you need to cultivate your talents and abilities to a point where you can earn and save more during your professional life. And remember the value of having a solid defense against the five mistakes mentioned here. Doing so will significantly enhance your chances of reaching your financial goals and spending a secure future.

Source: http://blogs.rediff.com/bellmoregroup/2016/12/31/tips-for-avoiding-financial-mistakes-for-millennials

How and When to be Average Joe or Average Jane

 

Most people fall in the so-called “average” or “median” range. After all things are counted and considered, the statistical middle-ground is where all things tend to gravitate – the world of the, sorry for the term: mediocre.

 

To be honest, no one wants to be mediocre, run-of-the-mill or commonplace. People in the city park may take selfies that are quite ordinary compared to people who challenge the heights of the Nepalese mountains or the Alaskan wilderness. People do not just want a few likes but viral likes, so it seems. We want to be among those who make an impression for being extraordinary. And that takes a lot of effort to achieve and sustain.

 

But as investors, the average can provide a lot of benefits.

 

The idea of being average is the very foundation of the biggest changes to investing in recent years – the surge of the passive index fund.

 

In the past, you (or a broker) selected a portfolio of stocks that has the potential to bring you wealth. The more adventurous investors opted for a chance to benchmark themselves (while the newspapers aimed for a chance to "score" the stock market). That gave birth to the index.

 

One possible choice is the ASX 200, which tracks the overall market performance, giving investors a view on how the total market value shifts in a day, a week, a month or a year. It is expected to rise by about 10% yearly, within a long-term period.

 

And, obviously, we are talking of averages -- the average firm and the average year. Choosing to buy an index-tracking fund, as investors usually do as a rule, is quite alright. You can expect to gain average return (minus some fees) over a long duration, enough to produce a sizeable profit in the end.

 

However, do not expect to get 10% yearly. Moreover, not all firms will gain a value growth by such an amount. Some can go broke. Others come up with the latest “hot product”. Some may exploit the advantages of their product and market, to offer years of market-crunching returns (for instance, Domino's share price). And there are also those that remain stagnant for ten years (check out Westfield).

 

The market can spiral downward sometimes. We all know how the last global financial meltdown brought the market down by over half its value from late 2007 to early 2009. That occurred after it had doubled in value from 2003 to 2007.

 

The idea of "average" provides a restful, promising relief for investors, which may not be absolutely true. Nevertheless, that is no reason to avoid it; for a 10% annual return across 30 years will convert an investment of $100,000 into $1.74 million.

 

So it is with real estate properties -- the quoted prices are national averages, which include stellar Sydney and lagging Perth and Darwin. At the very least, they are city-level average prices, such as those of inner- city apartments, harbourside mansions and suburban residential projects, everything that is traded in the market in a year.

 

Furthermore, for both assets and real property, the quoted prices reflect only those that actually moved from one hand to another and not the bulk of assets that were kept in a private safe or properties still in use by their happy owners.

 

Although it is not wise to be foolhardy, the average point (where half of the data is either above or below) presents a totally different picture. You need more than luck to get over the average-trap. Hence, if you can succeed in "buying" the average – that is, by using an index fund – you made the right initial step. Just remember that it will require big challenges along the way, whether you do buy or not.

Source: http://bellmoregroup.wordpress.com/2016/12/25/how-and-when-to-be-average-joe-or-average-jane

Effective growth investing lessons from master investors

How do you achieve sustainable growth in investing? One needs to choose those leading companies that are prepared to provide strong, consistent and long-term increases in profits and revenue. These are the firms that reward their shareholders with above-average market returns.

 

Apply these tips coming from some of the most experienced investing leaders. See how you, too, can discover the latest winning growth stocks and, thereby, make a fortune for yourself.

 

  1. Go for Quality

 

The best investment choices are often the best businesses you can find. David Gardner, popular investor and co-founder of Motley Fool says, "I look for the excellent, buy the excellent and add to the excellent in time. However, what I sell is the mediocre. That is my investment style."

 

Quality companies possess the most powerful competitive edge, the widest market potentials and a top-of-the-line management. They know how to be creative, trend-setting and pioneering. Most of all, they can build wealth for their shareholders and lead others to achieve their dreams.

 

2 & 3. Jump in as early as you can; and grab that basement-price offer

 

You can maximize your profit by investing early in a great business as more investors join in the harvest. Wealth abounds for those who practice this principle – especially for the 10- and also the 100-baggers – bringing on life-changing gains.

 

Nevertheless, many investors frequently hesitate to enter into the early-stage surge of best growth company stocks because they appear pricey, only to regret having missed the opportunity to gain in the end. While buying stocks in these quality businesses at high prices is an option, we can decide to go ahead and pay the premium for a quality acquisition. Setting your targets too low or just a notch or two below the optimum level might cause you to lose the opportunity to hit a multi-bagger.

 

  1. Invest on a long-term duration

 

Warren Buffett puts it this way: "My favorite holding period is forever." CEO and master investor, Tom Gardner, in fact, has established at Motley Fool at least a five-year holding time rule in an Everlasting Portfolio since he adheres to the effectiveness of holding stock on a long-term basis. In David Gardner’s words, as a prime mover of one of the most efficient high-growth investment-consultancy services in the world, the heart of this investment approach consists of “two keys. . ., stock by stock: In before the big majority of people, and out after the big majority of people”.

 

Aiming to buy stocks in businesses and holding on to them for years or even decades allows the power of tax-deferred compounded returns to our advantage.

 

  1. Those who win keep on winning

 

Tom and David Gardner reveal another winning advice: Invest in businesses and management groups with unequalled track record of success. In their tweeted message, they say:

 

“Our take on that famous disclaimer: ‘Past performance’ may turn out to be the single *best* determinant of future results we have can.”

 

Although it is not guaranteed, winning can be made into a habit. The force of momentum and the trusted experience developed in past successes tend to favor those who continue to face investment risks. And we do not refer to foolhardy risk-taking based on pride, but well-informed, facts-based choices born out of positive and strategic projections of a fruitful future.

 

  1. Let your portfolio speak your best to the world

 

David Gardner once gave this valuable advice: "Determine where the world is headed; and as soon as you can, get there." Your portfolio speaks of your aspirations, interests, specialization and profession – that is where your advantage lies. Above all, your portfolio runs parallel to the trajectory of your vision of the future—and with a more positive view, the clearer the vision is.

 

  1. Do not give up the fight

 

Growth investing can be frustrating at times; there will be moments when you harbor doubts and want to give up. Certain inexplicable short-term fluctuations and extreme bear market dips may wreak havoc on top-quality yet usually high-priced growth stocks, taking a toll on your emotions. Ultimately, the only path to success is to remain steadfast throughout any undesirable turn of event.

 

“The short-term will not teach an investor to learn enough – usually in a significant way -- to be so successful in the long-term,” according to Tom Gardner.

 

Be assured with the knowledge that everything will pass and, thus, you must expect the big-league companies to come out victorious after the dust clears up, remaining stable while the rest of the bunch lose their market share. With that in mind, consider such sell-offs as potential moments for strengthening your positions at even higher prices and enhancing your long-term returns.

Source: http://bellmoregroup.jigsy.com/entries/financial-services/effective-growth-investing-lessons-from-master-investors#builder

Making Thousands through IRA Investing Tips

For beginners as well as veterans in IRA investing, here are a few important things to consider. Newbie investors obviously need education in fundamental matters while long-time investors can always benefit from new ways to enhance their investment strategy.

 

So, how do you maximize returns from your IRA?

 

Choose what fits your goals: Traditional or. Roth

 

Should you go for traditional or for Roth IRA? While your traditional IRA contributions can be classified as tax-deductible, Roths use after-tax money; however, they provide tax-free withdrawals when you reach retirement age. To know more about either type of IRA, visit informative investment websites. Here are a few valuable tips on which to choose:

 

When you should choose a traditional IRA:

  • If you are within a higher tax bracket now, in contrast to your expected level when you reach retirement
  • If a tax break now is more preferable to you than tax savings when you retire
  • If you have no retirement plan sponsored by your employer because your income is too large to qualify you to directly contribute to a Roth IRA

When you should choose a Roth IRA:

  • If you want to stay in your present tax rate
  • If you want to diversify your retirement assets, aside from your pre-tax account such as a 401(k)
  • If you expect to use the money when you retire and would choose rather to keep it in that account to allow it to grow as long as you want (A Roth IRA will not demand a minimum distribution from a specific age.)
  • If you want all your money safely parked somewhere (You can withdraw your original contribution amounts in a Roth IRA at any time.)

 

Take full advantage of the tax benefits

 

To maximize returns from your IRA, choose the most appropriate types of stocks. Whatever stock whose value grows in time will provide higher gains for you in an IRA compared to a taxable brokerage account. Nevertheless, dividend-growth stocks will optimize the entire compounding capacity of investing in IRA; hence, you must utilize your IRA through buying individual stocks.

 

As an example, with two stocks often favored in many portfolios, such as Berkshire Hathaway and Apple, one can assign one in a traditional IRA and hold the other in a taxable brokerage account. Invest $5,000 in each one of these two accounts.

 

As of today, Apple pays a 1.9% yield in dividends, generating $95 from your $5,000 investment for a year. You will be charged a 15% tax in a taxable brokerage account, effectively giving you about $81 return. However, in a traditional IRA, you get a tax-free deal. Remember: You can now reinvest the entire $95 in more shares, whereas you have less to put back in a taxable account to work with. Although $14 is not that much, the compounding power of money works more in the former than in the latter, especially in the long-term.

To illustrate more clearly, under a 1.9% dividend yield for Apple and a stock gain of 8% annually, you will observe the difference in the gains of an initial investment of $5,000 over time:

 

Time Period

Taxable Account

Traditional IRA

1 Year

$5,481

$5,495

5 Years

$8,673

$8,810

10 Years

$13,726

$14,124

20 Years

$34,348

$36,301

30 Years

$78,536

$84,899

 

Your returns are more obviously higher over a longer period of time than otherwise, as seen in the difference above after 30 years. A $6,400 advantage, more or less, in a traditional IRA is definitely more preferable.

 

A $5,000 investment in Berkshire Hathaway, in comparison, would only take advantage from an initial tax deduction on your IRA contribution. As Berkshire has no dividend-yield payments, your investment in both kinds of accounts will grow by a fixed amount over time.

 

The young should invest aggressively now

 

Allocating too little money or not investing at all could be the worst mistake anyone can make in IRA investing, especially among young investors.

 

It is natural for millennials to be wary of investing in stocks, considering the early-2000s’ tech crash and the more recent Great Recession, and since many of these millennial investors had parents who lost their investments in the market.

 

You can use an accepted rule of thumb to determine the percentage of stocks to be included in your portfolio by deducting your age from 110. For instance, if you are 40, around 70% of your money invested must be in stocks. Using this principle will allow your portfolio to become more conservative as you near the retirement age. It is likewise worthwhile to note that ETFs and stock-based mutual funds can serve as good alternative investments if individual stocks do not appeal that much to you.

 

Just remember that stock investments will always involve volatility. Hence, in any particular year, a 10% drop in the stock market should be expected. Nevertheless, on the long-term, stocks will provide better gains compared to any other types of assets.

 

Lastly, most of all your investment money will never acquire greater growth opportunity in the long-term than they do in the present, no matter what happens to the market this week or this year. At 25, according to a conservative average of 7% annual growth rate over many years, one only has to invest $5,000 each year ($417 every month) to become a millionaire-retiree at 65. However, at 35, you need to set aside $15,800 each year, or $1,318 monthly, to reach the same level of wealth at 65.

 

In short, invest as much as you can and as early as you can since time is your most valuable asset, aside from your dollars.

Source: http://bellmoregroup.olanola.com/blog/43013505978/Making-Thousands-through-IRA-Investing-Tips