Filed under: Business, economy, Education, Family, Finance, Investing, middle class, Money, Retirement, stocks | Tags: Business, economy, Education, ETFs, Family, Finance, Investing, middle class, Money, Retirement, stocks
During the recent crash in late 08 and early 09, retirement accounts experienced massive losses, however many professionals on Wall Street made a killing because they had tools that were available to them that weren’t available to the middle class in their 401k’s. Is this fair? Pro’s were shorting the market and buying the double and triple weighted ETFs that bet against the market, and profiting from everyone else’s losses. They were simply following the trend of the market (which was lower) and made a nice living, before having to cover (their shorts) and be in cash, ready to get long (buying low from a fundamental standpoint) again. This really burns me up knowing that the working class of people were burned and taken advantage of and no one can do anything about it. Some people had to come out of retirement or prolong their wish to retire for a few more years because of this.
There needs to be more options available to employees of companies that offer retirement plans such as the ability to be in cash at appropriate times, stock alternatives (including the ability to be short), and the same ETFs that were used against them (this levels the playing field). Most employees are in mutual funds in their retirement accounts which preach being invested for the long haul, but they all got burned as well do to the lack of liquidity in the funds and no one actively managing their accounts. Change needs to be made and it needs to happen soon! Employers need to offer a variety of plans and be flexible with the choices of employees. Also, employees need to be able to make changes as frequently as possible as they see changes going on with the economy and our country. The working class needs to start paying closer attention to their money being invested. Oh and by the way, those retirement fund managers got paid their fees regardless of performance because their goal is to be a sales person first and grow their asset base because it’s more money in their pocket. It’s time to be aggressive and push for equal rights with investing your money and your future wealth!
Filed under: Business, Economics, economy, Finance, Investing, middle class, Money, stocks, Trading | Tags: Business, Buy and Hold, Dividend, Economics, ETFs, Finance, Growth stocks, Investing, Money, stocks, Taxes, Trading, Value stocks
Many investors and Wall St. professionals argue whether the traditional ‘buy and hold’ philosophy to investing still works in today’s society and economic times. This argument still holds merit with dividend paying stocks over the long haul as it adds to the annual return. Typically these ‘value stocks’ have good balance sheets and have a good business model with consistent earnings, although they aren’t high flying growth stocks that can return high double digit returns. Another factor to consider is if the taxes go up for capital gains, both long-term (1 yr or longer) and short-term investing/trading (less than a year) or on the dividends paid out to investors. Tax law changes can significantly affect the annual returns for shareholders. With the recent drop in the markets in 08 and early 09, many bargain hunters started buying for the long haul as they scooped up shares on the cheap, hoping to not see these share prices that low for many years to come.
So the question is, how far out should you be looking to hold investment positions and when is the appropriate time to sell and be in cash? There are many factors that can affect stock returns such as: competition, the value of the dollar vs foreign currencies, the business/economic cycle, geo-political factors, commodity prices, the Federal Reserve raising interest rates to fight inflation, presidential/govt tax reform and initiatives, earnings season, employment data, consumer spending and confidence, manufacturing data, GDP-imports and exports, and yes even the weather…yes hurricanes, unseasonable weather, etc. There are other factors as well, but the above list covers the majority. Sometimes it’s best to be in cash when the markets rally significantly and you see returns that are in the double digits or if things are a little shaky on the economic front.
When looking at growth stocks, it’s a different ball game. You want to get in when the numbers are good and the company is growing at significant double digit rates, but you want to get out when signs are showing that the company is slowing and missing earnings targets. Growth stocks typically don’t pay a dividend as they reinvest their earnings into the company and the valuation and P/E (Price to Earnings) ratio of these companies are generally higher than dividend paying, value stocks. Growth companies typically lack competition, have a few hot, trendy products and have more pricing power which accelerates their earnings and boosts the stock price significantly. At some point, the accelerating growth of a company comes to an end, and the stock will experience massive sell-offs. Many companies at this point look to implement a dividend but the P/E drops and the stock becomes more of a value stock and doesn’t see the big price swings as it did before. This is a natural maturation of all companies and you don’t want to be caught long in a stock that transitions from a growth to a value stock as it could be quite painful to your portfolio.
In closing, you have to pay attention to your stocks that you’re invested in (do your homework). You could also consider ETFs if you don’t have the time to follow individual stocks or if you want a slightly less risky way to play the trend. You also want to stay diversified to protect your downside or as a trend goes against your recent gains. Always have a plan in mind and an exit strategy if things dramatically change on your original plan or philosophy and that means to be flexible. Lastly, as you have significant gains, you may want to trade around a core position. As the stock goes up, sell a little of your position and as it comes down, buy it back cheaper. If you got in to a loser, cut and run from it ASAP and stick with your winning trades.
Filed under: Business, Family, Finance, Investing, middle class, Money | Tags: Education, ETF, Finance, Investing, IRA, middle class, Money, Mutual Funds, Retirement, stocks
So, have you made back your money from what you lost in mutual funds and your retirement accounts from the collapse in late 08 and early 09? Anything bother you about this process? Let’s go into more detail about what mutual funds are really all about other than ‘for the long haul’…Window dressing that is ethically questionable at best, investing at the wrong time-anytime, inactive management, no choice over top holdings or sectors, lack of trend buying and tools that aren’t available to the middle class such as short selling or ETFs, and then there are those FEES, regardless of performance! So, if that statement isn’t eye opening to you and doesn’t upset you, then I don’t know what does?!
Let’s explain Window dressing. This is what all mutual funds do at the end of each quarter. They buy the winners (stocks that have beaten their earnings projections and are growing their revenues at an accelerated rate.) They also sell the losers (stock that have underperformed and missed Wall St. estimates on the top and/or bottom line.) Then they mail you a proxy at the end of the quarter stating which stocks are their top holdings. If you are following the market, you’ll see almost all winners and scratch your head and say ‘how did my fund only perform at this small rate when I have all winners?’ The trend continues of buying winners into the first week of the new quarter and also into the companies newest quarterly earnings report. Now you ask, ‘what is my true performance of the fund and how can they state they made the % that they claim to make?’ Simple, you still get the dividends reinvested of the fund, they pool new money from your contributions, and they sell the winning stocks when the fund makes money on the upswing in ‘dressed’ stocks. So you really should be making more money than what they are telling you, but since you’re not managing your own accounts, you have to just trust in the fund manager and accept their lazy fund performance.
If you want to stay in mutual funds, you will have to sell them when they’ve had a nice run. Then take your money and buy a niche fund that you anticipate will do well, get more diversified into a few more funds (spread the risk out), go international or maybe get more conservative like investing in a bond fund to preserve what you made and wait for a dip in the market or your old fund. The problem is you can’t be in cash or bet against the funds unless you actively manage it yourself or certain ETFs or other investment options are available to you.
So what do you do now? Well for starters, pay attention to the market and economy and start researching ways that you can avoid taxes and penalties by moving your money out of mutual funds and rolling over your retirement accounts into a rollover IRA or Roth IRA. Take a look and educate yourself on ETFs (Exchange Traded Funds). If you have some time, look over the quality of individual stocks and start following 5-10 stocks that have excellent balance sheets and quarters of revenue (top line) and EPS (bottom line) growth. Study the trends of the stocks and ETFs and start positions in them as they pull back. In other words, if you want to start making money, you’re going to have to do it yourself. So take control of your wealth and your future because no one else is going to care more about your money than you!
Filed under: Business, Education, Family, Finance, Investing, Money | Tags: Education, Family, Finance, Investing, Money
Ok, so you did your part in setting aside money and budgeting time for choosing the right investments but you didn’t choose a broker yet and there are numerous discount brokers out there. Which one do you choose? For many young, novice investors price is the main attraction, however if you’re choosing the $4 commission companies, do they offer enough tools to meet your needs? Many companies lure you in with 25 free commissioned trades or you get a few free trades per day for the first few weeks or even a month free trial. If you go out to a few of the brokers websites, they usually have a link comparing the major discount brokers, but they are going to emphasize their positives and may not include the stuff that benefits the other brokers over them. After all, there are lots of things to consider: trading in extended hours (before and after regular trading hours), inactivity fees, differing prices for market and limit orders, real-time streaming quotes, minimum balances on opening accounts, fees for closing/transferring out of the account (that’s something many people don’t look at until later but it’s important), local branches with phone support, and margin rates (borrowing money from the broker to invest)-be careful with this…not recommended but sometimes necessary to be able to short stocks or get in to options trading (these are advanced trading features). There are other things that I didn’t mention that are important but these are the main questions that you need to ask to get started and could influence your decision as you get more involved in the market. I googled the words-’broker comparison’ and got the following link from fool.com: http://www.fool.com/investing/brokers/compare.aspx. This link seems to be unbiased and has many of the major discount brokers included on there. It doesn’t include all the info that you need, but it’s a start. You can also click on the ‘More info’ link from each section.
When you finally decide, you’ll have to fill out an application. Many are done online but you can have a packet mailed to you or you can print, fill out and mail in. You will need to include your personal information including your social security number or taxpayer ID number, local bank information (or a voided check), along with choosing a beneficiary. You’ll also need to decide what type of investment account you are setting up– individual brokerage account, joint account, IRA, college savings account, etc. Once you’ve finished the application online, you’ll need to link your bank to the brokerage account. They will deposit a few small change (cents) deposits in your account and you will need to contact your bank in a few days and verify the amounts and then return to the brokerage account (with your new user ID and password) and verify it on the site. If you mail a check with money, your brokerage account will notify you when your account is open with the money and also give you your user ID and password. Then you’re set to start investing. Don’t forget to add money incrementally (set up a monthly or quarterly plan to add more money). Good luck to you and happy investing!
Filed under: Business, Education, Family, Finance, Investing, Money | Tags: Finance, Income, Investing, Money
My goal is to reach the younger, middle class worker/family that needs some guidance on what to do, so my focus is more on stocks and ETFs and less on the other stuff. Ok, so you have an interest in investing as the market is low, but you have a problem…you don’t have a lot of money and you don’t know where to start in regards to choosing an investment (or which stocks to choose). I tell beginners that every $500 can be dedicated towards 1 stock position, but they ought to wait until they get $2,500 so they can be diversified over a broad number of sectors otherwise it’s considered gambling. Some will argue the stock market is already gambling, and that may have a little accuracy to it, but diversification is very important and helps cushion the downside risk. Also, once you’ve reached your financial goal and are ready to open a brokerage account, you want to continue to add money incrementally as you earn it and on market dips. I’ll talk about specific brokers in a different blog.
There are a few items that you’ll need to do in order to get started or questions to ask yourself before you get started and they are: do I have the time to do research, track gains/losses, willing to pay taxes on gains or dividends, willing to part with the money for that specified period of time, analyze/evaluate your risk level, decipher between a trade and investment, look at fundamentals vs. technicals, do I know how to read and interpret financial statements and yearly/quarterly filings with the SEC? Once you’ve answered these questions or checked off these items, then you should be ready to go. I’ll elaborate on some of these in future blogs, but these are all important things to know and do before and during investing. Also, you want to stay diversified over various sectors-financials, food, healthcare, tech, retail, advertising, construction, autos, energy, etc. Sectors usually trade in sinc with each other with economic news and you don’t want to get caught being overly invested in 2 or 3 of the same pattern-based sectors, otherwise your portfolio could be in a world of hurt?
The next point of emphasis is to shy away from penny stocks (stocks that are $2/share and under). There’s a reason why the stocks are that cheap and they didn’t get there because things are working well in the company and they have a bright future. You want to focus on stocks that institutions will put their money into because that is what moves a stock higher. We are just a small fish in a big pond and we want to find the stocks before the big players get involved. Another point of clarification is that stocks don’t start off as penny stocks and then rise to $50-60/share, all the time. That’s a needle in a haystack scenario and it can happen, but your percentages of finding a grand slam like that in investing is like watching a grand slam in baseball…doesn’t happen very often! Naturally the cheap stocks are attractive to people because they can afford to buy more shares. Stocks that are under $5 per share in a normal market are there because they have declining business models, lots of debt on the balance sheet, probably no dividend or had it slashed, poor credit ratings, and frankly aren’t the best companies in that particular sector (losing market share). Institutional investors will reward stocks of companies that have the large market share, a sexy product or pipeline, pricing power (ability to raise prices-monopolistic) and feel the company will have accelerating revenue growth in the future, and possibly pays a dividend. There are probably a few other reasons but these are the main reasons on what differentiates a cheap $5 stock and one that has moved from $15 to $25 in the same sector. Institutional investors are the ones that use market orders to buy and sell a large lot of shares at a time and that’s where you see the big upside and downside swings in the stocks.
If you don’t have the time to do things or answer the questions listed above, but you’re still interested in investing and stay astute on news releases, the economy, etc. then you should consider investing in ETFs. These are cheaper, lower fee, highly liquid funds that trade like stocks that have sector-based diversification (energy ETF, financial ETF, etc.) and if you catch a hot sector before the big institutions do, you can make some serious money on these without the risk of picking 1 stock and having it not pan out for you. Most institutions place big financial bets on the sector and the ETFs are the ones that can see the largest gains by just calling the right sector. You still want to look at the top holdings in the ETF before investing because a few stocks could be the largest percentage players in that ETF. Until next time…
Filed under: Business, Education, Family, Finance, Investing, Money | Tags: Finance, Income, Investing, Money
Can you trust your financial adviser? I’m not trying to slam the profession, however I was offered a job as a financial adviser a few years back and am glad I turned it down. There are many thoughts going through my head right now as this blog is being posted. Too often financial advisers are pressured to ‘make the sale’ and focus on getting ‘yes’ out of people that have money and not enough time is focused on making sure that the best time and investments are made for each client. Also, too often mutual funds are pushed to the front of the advice game and most are from the company that is giving the advice, rather than choosing the best funds from a variety of companies. Financial advisers rely on referrals of existing clients and most are paid on a commission scale with some having a base salary to fall back on. They focus on making a strong, friendly relationship with the client, which is how they try to get 6 to 8 referrals out of each client. Advisers are also trained to say similar phrases such as, ‘we’re in it for the long-term’, and ‘look at the long-term performance’ and ‘with this monetary, hypothetical situation, you could’ve made this amount of money over this pd of time’ and ‘funds are safe because they are diversified’.
Many advisers don’t know their own funds well enough to tell you the top stock holdings which can add up to 25-30% of the funds overall performance. Part of the reason for this is because less focus is on choosing quality funds and more focus is on getting the money out of the client so the investment professional (in the same company) can choose the holdings within the company recommended funds, and so the adviser can get their cut of the lump sum investment. They also get their annual cut regardless if you are making money or losing money in your fund(s) performance and they often don’t time the market on dips, when adding new money.
The upside to a financial adviser’s job-the earnings potential doesn’t have a ceiling and you can be rewarded for hard sales work. The referrals will get easier and easier as you build up a strong client base and your reputation grows. You also get clients handed over to you as veteran advisers get promoted into a new position or they retire or leave the profession. The company usually has incentive programs built in for all advisers and how the company performs, financially for the quarter or year. A strong, competitive benefits package is usually offered to the advisers, including some paid vacation time, quality health benefits, and a nice retirement plan with a significant company match. Training and continuing education courses are also offered to the advisers to keep them up to date on new investment products and licensing updates.
In regards to positives of being a client to an adviser, you get at least 1 meeting per year where you review your financial situation and plan out some financial goals. You can make some suggested changes to your portfolio however often times the adviser will try to sway you in their ‘professional’ direction based on your risk level, age, time frame, and needs. Financial Advisers are certified professionals, it’s just that they don’t get a chance to choose the details of the funds offered from the investment side of the firm but have a general working knowledge of the managed funds within the company.
So in closing, be careful with whom you’re giving your money to and don’t be afraid to ask questions about your investments. After all it’s your hard, earned money and you deserve quality attention on your particular investment choice. By no means am I saying you’ll always make money every year, but you at least want someone who’s willing to step up to the plate for you and help customize a package that meets your needs and someone who you can trust.
Filed under: Business, Education, Family, Finance, Investing, Money | Tags: Finance, Income, Investing, Money
First evaluate your lifestyle. Many of you are living at or above your means. Start thinking small…what can I cut back on, e.g. drinking Starbucks every day, cell phone minutes, tv programming, high speed internet, bottled water, dining out 3-4 nights per week. At the end of the month, once you’ve cut back on some of these, you should have more money to set aside for investing. If you need to think larger, then look at refinancing your home at the current rates offered by banks, increase some of your deductibles from insurances, pay down some student loans or outstanding debt (may have to sacrifice in the short-term to have extra money in the intermediate or longer-term).
Your goal should be to set aside 10% of your take home pay. Don’t just leave this in your checking account either because you’ll find a way to spend it. Set up an online savings account or brokerage account that pays interest that is higher than your local, brick and mortar bank. Pay yourself every month consistently, like a bill into that account. You won’t miss that 10% when you get in to the habit of paying yourself every month to that account. Also, keep in mind that the account is earning you 5-6x the interest that you would get out of your local bank. I use ING Direct, but there are others out there that do the same thing. Your money will accrue in there over time. You also want to have an emergency fund handy and that can be the same savings account. You need this because if you ever need to file an insurance claim and have to pay a deductible, or you need new tires for your car or other causes that pop up in life that we don’t plan for. In summary, look at the online account as a place to store money temporarily for your goals and needs in the future.
The other option for you to do is to create another means of cash. Maybe do a hobby on the side that you can make some money from. Even simple things such as ironing shirts for professionals, or simple landscaping or baby/pet sitting for cash can help you out. You could also look at starting a business on the side or partnering with someone to help split the initial cost of starting up a business. Many home based businesses don’t cost much money to start, but they are focused more on relational marketing or MLM. Most of these business models already have a quality product, they are just looking to pay their 10-20% marketing expenses out to whoever decides to endorse it or share it with other people. If you have a web page established, you could look at promoting other company products and be paid through their online affiliate marketing agreements, simply by adding a link to your web page.
Finally, back to saving money…when the time is right and you’ve accrued enough money in your account (and still have enough to keep in there for emergency purposes), transfer the money so you can invest it in stocks or other riskier investments that have potential of earning you double-digit returns. My suggestion would be to build up at least $2,500 ($500 towards 5 diversified stocks) before you transfer that over and start investing. The reason for this is because you have to be able to buy enough of a position (shares) in a stock or another investment option to catch some significant movement and build wealth. You don’t have to buy all at once, but start a position on dips. You also want to keep adding money to your online account over time that way you can take advantage of stock and overall market pull backs. Before deciding which investments to get in to you need to decide on your risk level and factor in your age and time frame needed to invest. I’ll advise you more on that later. Just remember that you work hard and deserve to reward yourself with some left over money. Good luck to you and that’s all for now.
Filed under: Business, Education, Family, Finance, Investing, Money | Tags: Education, Family, Finance, Income, Investing, middle class, Money
Hi, I’m new to blogging but have some experience in investing and trading. Hopefully you’ll find my posts informative and educational. Feel free to provide feedback. Before you start investing, you need to set money aside each pay check for yourself and put it in a high interest, online savings account or brokerage account. You’ll need at least $2500 ($500 for 5 diversified stocks) to get started with investing. The next thing you’ll need to do is ask yourself if you have the time to do research, track your gains and losses, are willing to pay commissions and if you’re willing to pay taxes on any gains. You have to evaluate your risk level and then decide on which investments are right for you. Consider seeking financial advice. Also consider investing in ETFs and Index funds if you don’t have as much time to do research on individual stocks. These are similar to mutual funds by means of diversification but don’t have the fees and expenses and are much more liquid (you can get in and out of these like stocks). Once you’ve decided on all of these things, you’ll need to start doing research, study some charts and trends and read over some financial statements that can be found on any financial site-Yahoo, Google, MSN, marketwatch.com, investopedia.com, etc.
If you’re not ready to actively trade with real money, then join a game or league in investopedia.com and trade with virtual money. Good luck to you and happy reading and blogging.
