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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The world of investing is filled with colourful jargon and phrases that may seem strange if you don’t know what they mean. A great example of this is a “Bull market” and a “Bear market.” These two terms refer to market trends. A Bull market means that the market is headed up and it’s time to make money. A Bear market means that stocks are headed down and it’s time to be careful. But where do these terms come from? That is a question that is harder to answer than you think. There doesn’t seem to be any consensus of the origins of these terms, but there are some solid leads.

Some link the origin of Bear and Bull to a book written in the 1700’s called Every Man His Own Broker by Thomas Mortimer. The book describes the tendencies of some investors and links them to bears and bulls. The bull, as described in the book, was someone who might purchase huge amounts of stock with little or no money at all and hope to sell the stock for a profit before the time to pay for it came due.

A bear, on the other hand, sold stock or property that he didn’t even own yet, and then would be forced to scramble to find a way to obtain the goods before he was due to deliver it.

There are some interpretations of the phrases which are much more logical. When a bull attacks, he will use his horns and swipe up to cause damage, while a bear will attack you with his paws and swipe downward.

There is also a group that believes the use of the terms dates back to bear trappers and the practice of bear skin salesmen selling skins they didn’t have yet at a particular price, hoping the skinners would come to sell their kill for a lower price, so that the salesmen could take home the difference. And since a one-time staging of bull and bear fights was popular, the term bull was given to anyone who didn’t practice this.

One final possible origin is related to the ways the animals charge, with bulls moving at high speed forward and bears moving slowing and cautiously.

While the origins of the bear and bull market may never be known, the stories surrounding them are just as colourful and fun as the terms themselves.

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Mr Guild has written an interesting article about the current state of the US dollar. It certainly has been on the decline. When investing offshore, currency rates can have a huge impact on returns. Companies from other countries that have had a large percentage of their sales in the US are now feeling the pinch. MGW on the Australian stock market is an example of this. I personally have some investments in managed funds that are tied to the $US, however the importance comes when I intend to sell them. The decline in the US dollar has lowered the profits of some of these funds from my perspective. Anyway, I hope that you find the article below useful.

I don’t know if any of you know the old blues song from the 1930’s that goes “Once I lived the life of a millionaire…spending my money…I didn’t care. Taking my friends out for a mighty good time…buying bootleg liquor, champagne and wine. But then ooh…I fell so low…Had no friends and had no place to go…”

Today, it is as if the same song is being sung by the U.S. dollar. The U.S. dollar is being deserted one friend after another. One would expect the dollar to rally after its big decline, but it doesn’t. WHY?

More and more countries that have aligned their currencies to the U.S. dollar are re-examining the so called U.S. dollar peg.

China is being forced to do so by European and U.S. pressure. Hong Kong speculators are attacking the Hong Kong dollar peg to the U.S. dollar and forcing the Hong Kong government to defend it at great expense.

The six Middle East countries pegged to the U.S. dollar (Saudi Arabia, Kuwait, UAE, Bahrain, Oman and Qatar) that export a lot of oil and have historically tied their currencies to the U.S. dollar. This group has decided to institute a single currency by 2010.

Many other oil exporting nations have been interested in being paid Euros for their energy.

The new rich nations of the world that sell raw materials, or manufactured goods, are all wondering about the big buildup in dollars in their portfolios, and what they will do to diversify their risk. In addition to causing a decline in the value of their holdings, having too many dollars causes other problems.

When-non dollar nations accumulate large quantities of U.S. dollars, they must sterilize them to avert inflation (this is often done by buying U.S. dollar denominated debt). If the dollars are used to buy goods, it can end up importing inflation (especially if they buy goods from non dollar based countries that are rising in price).

Although the dollar can rally at any time, until the U.S. starts to face its fiscal and trade deficit problems, and the U.S. economy finds a bottom to the credit crisis…the currency will remain ‘Under Pressure’…(a popular 80’s pop song for those readers who may not be familiar with 1930’s blues tunes).

CHINA AND SOME OTHER SOVEREIGN WEALTH FUNDS ARE RAMPING UP THEIR STRATEGIC INVESTING IN METALS, ENERGY AND COMPANIES

Their focus is on acquiring mineral resources, energy resources and investments in private equity houses, where they can get big and cheap stakes in companies.

Today, it was announced that China is seeking to make major investments in a large number of private equity firms. This is logical, and it follows the pattern that they have set in the last few years. They have been accumulating MINERAL AND ENERGY assets in Africa and Latin America.

They do not mind investing in countries with corrupt governments or wars going on. They are more than happy to invest in stable African and Latin American countries like Tanzania, Kenya, Uganda, Brazil, Peru and others to secure raw materials. They are after nickel, coal, zinc, copper, iron ore, oil and precious metals.

Political risk is not their big concern. Their big concern is to get the raw materials to allow 300 million more Chinese (in the case of China), and countless more in other countries make the transition from countryside subsistence farming to urban dwelling and its blue and white collar jobs.

No wonder precious metals, base metals and energy continue to rise…the demand continues to grow. We estimate that there will be continued demand for years to come.

BETTER LATE THAN NEVER

The IEA (International Energy Agency) hints that its new crude oil forecast (to be announced soon) will be much higher than the previous price forecasts have been. Failing to buy the peak oil thesis for a long time, the IEA has been making low-ball estimates of global energy prices for the whole five years we have been shouting about higher oil prices. This was because they believed what the oil producing countries told them. Of course, the oil producing countries had a vested interest in trying to sell the world that they could increase production and keep oil prices down so consumption would stay high.

Now even the IEA has seen through this paper thin argument, and will announce that oil prices can go much higher because the amount of oil which can be produced in the world has PEAKED.

OUR THEMES

We remain gratified that our themes have worked out so well, and we continue to see most of them working in future months.

Energy-We are certain that energy which we predicted years ago could go to $100 by 2008 will get there soon. What then? At this juncture we believe that alternative energy and foreign energy companies may be more attractive than U.S. energy providers. We have investments in energy companies operating in Australia, Canada, India, Africa, the North Sea, Norway, South America and the Mid East. We continue to own oil, natural gas, uranium and renewable energy investments in the energy sector.

Base Metals-Although we remain bullish on base metals long term, for the short term we are concerned that a weak U.S. economy will cause base metals stocks to move sideways. We will not emphasize base metals stocks for the next few months for this reason.

Precious Metals and Currencies-The weakness in the U.S. dollar mentioned above is extremely salutary for gold and non U.S. currencies, and we remain very positive on them for the coming months. We own both gold royalty companies and the metal itself. We own several non-U.S. currencies, including the Canadian Dollar, British Pound, among others.

India-India has recently changed the investment regime for foreign investors. This may cause a short-term decline in Indian stocks, which we would be delighted to see. We believe that India holds huge promise over the long-term and we would like a lower price at which to add to our Indian positions.

China-China is best played through Hong Kong, and this has been a very successful area for us. We will use any market corrections (which usually appear at least once a year) to add to our Hong Kong based positions in Chinese companies.

Singapore and other fast growing countries-Here again we plan to wait and add on market corrections.

We look forward to your comments and we thank you for listening.

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These articles are for informational purposes only and are not intended to be a solicitation, offering or recommendation of any security. Guild Investment Management does not represent that the securities, products, or services discussed in this web site are suitable or appropriate for all investors. Any market analysis constitutes an opinion that may not be correct. Readers must make their own independent investment decisions.

The information in this article is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Guild Investment Management to any registration requirement within such jurisdiction or country.

Any opinions expressed herein, are subject to change without notice. In addition, there are many market, currency, economic, political, business, technological and other risks that are beyond our control. We make reasonable efforts to provide accurate content in these articles; however, some content and some of the assumptions, formulas, algorithms and other data that impact the content may be inaccurate, outdated, or otherwise inappropriate. In addition, we may have conflicts of interest with respect to any investments mentioned. Our principals and our clients may hold positions in investments mentioned on the site or we may take positions contrary to investments mentioned.

Guild’s current and past market commentaries are protected by copyright. Apart from any use permitted under the Copyright Act, you must not copy, frame, modify, transmit or distribute the market commentaries, without seeking the prior consent of Guild.

About the author:

Mr. Guild founded Guild in 1971. Prior to founding the company he was an analyst at a bank and a hedge fund. Mr. Guild is a recognized expert in the areas of international investing and economics. He has been a writer and speaker on economic issues for 30 plus years and has been widely quoted in the world media. He holds a BA in economics and an MBA with highest honors. For more company information please visit http://www.guildinvestment.com

Article Source: http://EzineArticles.com/?expert=M._Guild

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The concept of risk versus reward is the basis for investing. The same system of risk versus reward can be translated to almost every part of life. When you analyze a situation, you can determine the possible risks and rewards of doing something and decide what the best course of action is for you.

You probably have heard of the saying “If it seems too good to be true, it probably is”. This statement is so true. I have seen people lose life savings by investing it into financial scams. Conversely, there are others that take very little risks and find themselves falling behind the inflation rate. Determining your risk versus reward strategy for investing is a key factor to success.

The first thing investors of all types need to learn is that while the investment may be a fun and exciting thing to do, there is always a chance, no matter how slim, that you could lose every single dollar you invest. That is one kind of risk. The other kind is the risk of not meeting your investing goals that you have set for yourself. This is a dilemma that every investor must walk, determining your risk while trying to earn the reward.

The risk associated with investing can be caused by many different factors. Things like general economic conditions, the rising or falling of interest rates, management skills, world issues, disasters and inflation are just a few factors that can cause an investment to rise or fall.

Your age is a key factor in what you should invest in. If you are close to retirement, then you should not take many high risk strategies as you have little time to recoup your losses. Conversely, younger people can afford to take larger risks in investing, as they have their whole life to make it back up.  I know of people close to retirement now that have much of their investments tied into superannuation funds. They had a choice whether to go with cash or non cash. It amazes me that some of them, with a few months to go, still did not have their superannuation fund in cash. Every time the stock market takes a plunge, they are worried that it may crash and that their hard earned Super fund will dwindle in size. If they had their superannuation in cash, then any stock market fluctuations would not matter, so they could work their last few months stress free.

Doing proper research can make an investment a far lesser risk for the possible return in revenue. If you research the history, management skills and legality of an investment, and find them to be sound, then you may have an investment that will perform well with less risk.

Analyzing risk versus reward is a huge part of investing and if you are having trouble figuring out how much risk to take, ask for help. You don’t want to enter into investing with a blurry picture. The more you know about your personal situation, the better off you’ll be.

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Why should you bother investing at all when your neighborhood bank is a nice, safe place to put your money?  The answer: inflation and taxes.  If your savings, after taxes, doesn’t grow faster than the cost of living, its purchasing power will steadily erode.  Put another way, if you don’t find a way to put your money to work for you effectively, you’ll never be able to reach the financial goals you cherish.  In short, after you take care of your emergency savings fund, you need to become an investor.  The following example, which doesn’t even account for the take of taxes, will show you why:

Had your grandmother stashed $90 under her mattress 50 years ago, (the price of a decent-quality, three-piece bedroom set in 1945) that money today would buy little more than a set of sheets.  If she had invested that $90 in a bank savings account that kept even with inflation, she could still afford that roomful of furniture.  But if she had put her 90 bucks in the stock market, it would have grown to more than $25,000 today: enough not only for that bedroom set, but for a down payment on a second home to put it in.

If that story doesn’t impress you, here’s a scarier one: Investing wisely can mean the difference between retiring to a cushy house on the 18th green or retiring to a state-run oldsters’ home.  Saving, while extremely important, is essentially just putting money away for safekeeping.  Investing, by contrast, is using your money to produce more money. 

Are you thinking that you need a lot of money to invest?  You don’t.  Many equity mutual funds, which pool money from small investors and use it to buy stocks, accept initial investments as low as $500 or even $250.  More than 140 fund families let you in with $100 or less.  Most funds also let you invest as little as $50 or $100 a month.  You can also see what it’s like to be a stock investor by purchasing a single share of a company for, say, $30. 

If you haven’t invested a dime in your life, you’re not alone.  Millions and millions of people around the world don’t own any stocks or mutual funds.  Some of them have just decided that they don’t know enough to invest intelligently.  Others think that investing is too scary and worry about the possibility that they’ll lose money.  Still others think that investing in stocks and mutual funds is no different from playing the craps tables.  The truth is, it isn’t hard to learn how to invest, putting money into stocks or stock funds isn’t scary, and by investing defensively, you can protect yourself from losing money.  As for the craps analogy, it’s flat wrong.  Winning at dice means having good luck.  Winning as an investor means using your brains.

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Investing Tips Info is mainly concerned with financial investments. So from our point of view, if you invest in something then you put your money into the likes of equities (shares), property, bonds and/or fixed interest schemes with a view of making a profit.

Many people want to have financial freedom, but they do not want to work at it. They go to work to earn some hard earned cash, spend some money on bills and leisure and then complain that there is not any money left to invest.  If you are one of these people, then hopefully future posts within Investing Tips Info can help you get out of this annoying rut.

You have to set a structured plan in order to create successful investments.  There are many nitty-gritty details that need to be looked at down the track, but the first thing that you must do is to create detailed and realistic goals. If you cannot visualize what you want, then there will be no real purpose for you to invest.

Once you have written down your goals, you need to set a comprehensive budget. In my opinion, budgeting is the most important part of investing and financial freedom. If you spend more than you earn, then you will never get ahead. In your budget you will need to “pay yourself first”. If you read any decent book about making money, they will all say that you need to allocate at least 10 percent of your income into investments before allocating funds to bills and leisure.

It is important to compound your money made from investments. Your investment portfolio will grow exponentially if you just reinvest your profits.

One of the first books that I read about investing was “The Richest Man in Babylon” and it described much of what I have said in a somewhat amusing manner. I highly recommend that you get yourself a copy of that book too before you begin investmenting.

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