Investing Tips Information

How can ordinary, even low-income, if not poor, people become rich?  The answer to that question is as simple as it is mandatory:  Start by saving and investing something regularly, even if it is a modest amount, in anticipation of big returns in the future.  Saving and budgeting is the most important part of investing. If you spend more than you earn, you will always be broke.

Your persistent savings will add up with time.  One hundred dollars saved each year will cause your total savings to rise from $100 to $1,000 in ten years.  However, your net worth (or financial wealth) should grow, over time, by much more than the sum of your savings.  This is because of the power of compound interest.  This means that you should expect to receive on your savings some rate of interest (or return or appreciation) each year.  If you leave the interest in your account, your interest will “compound” because you will then receive in subsequent years interest on your savings, plus interest on the interest that you received in previous years. 

Again, if you save $100 for ten years and receive an interest rate of 10 percent, your total savings with interest will grow from $100 the beginning of the first year to $210 the second year ($100 of savings the first year plus $10 of interest on the first year’s savings plus $100 of new savings), to $331 the beginning of the third year, on to $1,594 the beginning of the tenth year.  In short, with compound interest you will have close to 60 percent more in net worth at the beginning of the tenth year than you would have had from the savings alone.

You can imagine with “interest on interest”—or compounded interest—your net worth will build progressively more rapidly with each passing year.  With sufficient savings, enough patience, and a reasonable rate of interest on your savings (or return on your investments),  you can imagine that your net worth (and resulting income level) in the future will be the envy of those who have chosen to spend all their income year after year on many things they could do without, or do with less of. 

To dramatically illustrate just how powerful compound interest can be in building wealth, suppose that you are a newly minted twenty-two-year- old college graduate, with a starting salary of, say, $30,000 a year, and you salt away a mere $2,000 the first year, and only the first year, on your job (which means that you will then save only 6.6 percent of your annual pre- tax income that one year).

Assume that you are able to secure an annual rate of return on the investment (above the inflation rate) of 15 percent until retirement.  Amazingly, your onetime investment will be worth, in the purchasing power of today’s dollars, $814,774 at age sixty-five and over $1.64 million at age seventy.

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Today you’re going to write down everything you owe your creditors.  That’s right, everything— from your student loans, to mortgages, to credit card debt, medical bills, auto loans, etc.  On a piece of paper, make a complete list of your obligations and here’s what you should write or type out on the sheet: Include the name and phone number of each creditor, your account number, the interest rate you pay, the total balance due, and the minimum monthly payment. 

Why Torture Yourself Listing All Your Bills? You need this information in black and white to get a realistic picture of where you are.  This info will also help you later when it’s time to negotiate with creditors or collection agencies.  Again, write down everything that you owe, even including credit cards that might have only $100 on them.  Don’t make the mistake of leaving those “small” bills out because “Oh, I’m going to pay that one off this month anyway.”  Just write down everything you actually owe as of today.

Many people have a rough idea about how much they owe their creditors.  But there’s no substitute for having true, accurate numbers - not guesstimates.  To fill in the proper figures on your written sheet, or your computer spreadsheet, you’ll have to go find your most recent statements and invoices from your creditors.  Take as much time as you need today to collect all this data.  It’s a crucial step in you getting your finances together.

It’s also a good idea to call the companies you owe and ask for the latest information about your debt, especially if you’re looking at statements that are more than a month old.  Even if the statements are current, you should call your creditors because some of the information on those statements may have changed.  For instance, you may have charged additional items since the closing date on your credit card statement, so now your debt is actually greater than your current statement indicates.  Also, you may have had a teaser rate or a lower interest rate in the past, and maybe that interest rate has now jumped.  Whatever the case, you need to have the most accurate information that is currently available. 

A Wake-Up Call: How Much Do You Owe?  The next step is for you to add up all your debts.  For some of you, seeing your total debt in black and white may be a scary thing: a wake up call to how deeply you are in financial bondage.  For others, seeing your total debt may offer relief: perhaps you don’t owe as much as you feared.  Whatever the situation, don’t panic.  Remember, you’re on the path to financial freedom now and if your goal is to get to “Zero Debt” status, keep plugging along - it will happen, and sooner than you think!

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Savings and money market accounts can be found at banks.  Money market funds are available through mutual fund companies.  All are lending investments based on short-term loans and are about the safest in terms of risk to your investment among the various lending investments around.

Relative to the typical returns on growth-oriented investments, such as stocks, the interest rate (also known as the yield) paid on savings and money market accounts, is low but does not fluctuate as much over time.

Bank savings accounts are backed by the federal government through Federal Deposit Insurance Corporation (FDIC) insurance.  If the bank goes broke, you still get your money back (up to $100,000).  Money market funds are not insured.  Should you prefer a bank account because your investment (your principal) is insured?  No.  Savings accounts and money market funds have almost equivalent safety, but money market funds tend to offer higher yields.

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Increasing numbers of corporations allow existing holders of shares of stock to reinvest their dividends (known as DRIPs) in more shares of stock without paying brokerage commissions.  In some cases, companies allow you to make additional cash purchases of more shares of stock, also commission-free. 

In order to qualify for most DRIPs, you must generally have already bought some shares of stock in the company.  Ideally, you bought these initial shares through a discount broker to keep your commission burden as low as possible.  Although DRIPs reduce your stock commissions on future purchases, DRIPs have their shortcomings:

1. You need to complete a lot of paperwork to invest in a number of different companies’ DRIP stock plans.  Life is too short to bother with these plans for this reason alone.

2.. Some companies that offer these plans are hungry, for whatever reason. They need to drum up support for their stock.  These investments may not be the best ones for the future.

3. DRIP plans don’t eliminate fees.  You still pay fees to buy the initial shares of stock, and many DRIP plans charge nominal fees for additional transactions and services.  Taking these shortcomings into account, you’re better off in the long run using professional money managers, such as those available through the best no-load, cost-efficient mutual funds.

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There have been many stock market corrections, and it seems as though we are in the middle of one now. Below is a discussion about the 1987 correction in the stock market.

The events of October 19, 1987, at the time, were looked upon as a full-fledged stock market crash. In retrospect, no depression or even a recession was sparked by this dramatic fall in prices, but the event is historic nonetheless. One of the aspects that made it so memorable is the fact that to this day, no one really knows what caused it. There are many different theories as to the reason of the correction, but its all speculation.

The ’87 correction, known now as Black Monday was the first ever global stock market crash. The final numbers are staggering, with the Hong Kong stock exchange losing over 45 percent of its value, the Australian stock market losing almost 42 percent of its value, the UK lost over 26 percent, while the New York Stock Exchange lost 22.6 percent.

The October 1987 fall ended up being the second biggest single day percentage drop in the history of the stock market. The biggest one day decline happened in 1914 when the Dow Jones lost just over 24 percent. This drop was attributed to the fact that the market had been closed for four months due to World War I prior to that day. The biggest point loss in history was the first day of trading after the attacks of September 11th, when the Dow lost over 680 points.

Starting in mid-August of that year, the Dow began to correct itself. A series of 100+ point drops plagued the market over the next two months, but the drops were always followed by recoveries. Even days before the October 19 drop, there had been a major dip, and the next day, stocks were back up. It wasn’t until the Black Monday collapse that stocks went down and stayed there.

Possible causes for the crash are usually broken down into a few different categories, including market psychology, illiquidity, overvaluation and program trading. Other possible causes for the correction are attributed to a major storm in the UK which happened on the previous Friday. The storm did not allow traders in the UK to finish their days work and this caused many in the US and around the world (especially in Hong Kong where the crash first started to happen) to sell.

While time has shown the events of October 1987 weren’t quite as bad as some had feared, dramatic market corrections are a part of investing and while they can be terrifying when they happen, they shouldn’t take a savvy investor by surprise.

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There is a lot of money to be made by trading the Forex, but it can be very risky. If you do not know what you are doing, you can lose a great deal of money. Having said that, if you invest some of your portfolio into the Forex market through a managed fund, then you can make money with it by using the experience of experts. Currently many real estate and world stock markets are going down in value, but having investments in currency can give positive returns during these tough times.  I actually have investments in a currency managed fund through Landau Securities.  By using a life bond, I do not need the large capital to enter the fund. I thoroughly suggest that you have a good currency fund, like the one offered by Landau Securities.

Because forex trading is such a complicated business, there are many systems in place to help new or cautious traders get involved without going bankrupt. There are mini accounts that let you invest only small amounts of money, and there are even automated accounts that let a computer program do it all for you. And in between those extremes is the managed forex account, which gives you full access to the market but gives you an adviser to help you navigate it.

A managed forex account is perfect for someone with no experience, or limited experience, in the forex market. It’s also good for someone who wants to invest but doesn’t want to go through all the studying and training necessary to do a good job of it himself. Furthermore, a managed account is a godsend if you want to invest but simply don’t have the time or the inclination to watch the market 24 hours a day.

Managed accounts always require a minimum investment of at least $10,000, and some have the minimum set as high as $250,000. This makes it off-limits to many individuals, especially considering you never want to invest more than you can afford to lose. It is mostly businesses and corporations that use managed accounts, though more and more well-heeled individuals are taking advantage of it in the 21st century.

The reason for the high minimum investment is that a managed account has to have someone managing it — an actual human being, that is, not a computer program. If the minimum investment were more reasonable, too many people would want managed accounts, and the managers wouldn’t be able to handle their client load. Having said that, you can enter a quality managed account through Landau Securities for a low entry point by using a life bond.

In general, a managed account is best for long-term investors. Someone wanting to get into the forex market, make a lot of money through aggressive, risky ventures, then get out again, would not benefit from a managed account. Most managers favor a conservative, slow-growth strategy, usually suggesting that investors stay with the program for two years to show real profits. (Most systems let you withdraw your money and quit whenever you want, though, with no penalties for doing so.)

There is a fee for managed accounts, of course; nothing comes for free. Usually the fee is based on the performance of the market, with the manager taking a percentage of your net profits each quarter. This fee is well worth it for many individuals, though, as they find a managed account gives them peace of mind with regard to where their money is being invested and what kind of return it’s yielding them.

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Jerry has written a guide to help those who are thinking about retirement. So that should mean anyone who is currently working, as you are never too young to plan your retirement.

A Guide to Saving for Retirement

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