Investing Tips Information

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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 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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When the economy is booming it is easy to make profits as just about everything goes up in values. However, during the onset of recessions and depressions investing in any old thing will not work. In fact you should invest as if there is a recession about to happen all the time in my opinion.

James writes an article about recession proof investing, but I would have a different approach. I would always invest in mutual funds that make money whether the markets are going up, down or sideways. They are funds that deal in futures, currencies or other derivatives. Trading can be very lucrative during the onset of the recession, as the market can fall very quickly allowing for many good “short” profits to be made.  If you are not confident of trading though, then having some of your portfolio in mutual funds that invest in derivatives is the way to go. I invest in these types of funds via overseas investments.

Recession Proof Investing - Where to Make Money in a Recession

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Successful traders can make money whether the market goes up, down or sideways. However, there are some basic rules that apply to become a successful trader. To me they include good money management skills, discipline and a good frame of mind (trading psychology). Darlene Nelson has provided an article below that gives 3 lessons that she believes to be needed in order to become a successful trader. There are quite a few useful tips within it.

Three Lessons That Every Successful Trader Learns   by Darlene Nelson

LESSON 1. AVOID THE COMMON THIEF I have noticed that some people display a common error in judgment that can be devastating. It’s kind of like letting a thief into your home and saying, “please turn out the lights when you leave.” The next morning you wake up and the house is empty, the safe is open, and all your deeds are missing. A few days later you get a call from your pension plan coordinator who bears heart-wrenching news “there is nothing left in you account, do you still plan on using our services?”What is this thief? What could people do that would cause them to lose nearly everything before they wake up? The answer is: Many people will start out slow and each time they make a mistake they try to solve it with larger amounts of cash. Over time they can drain their bank accounts, brokerage accounts, pension funds, and every other source of money. Only then do they stop and say, “Oops, I guess my trading methods are not working.”

Do you mind if I make a suggestion? When you decide to invest in the stock market, it’s best to use only a portion of your money for “High Risk Investments.” What is a high-risk investment? Anything that you personally control that can lose value if you make a mistake! Let’s say you have $30,000 of available funds, don’t dive right in with the whole thing, how about starting out with 10%. That means you would start with $3,000. Then you ask yourself a few questions:

“Is it OK if I place this money at risk?” “Can I handle the possibility that I may lose this entire amount?” “Can I accept that risk without losing my mind and self?”

If you can answer each question with a YES, it is indeed risk money that you will be able to use and you will be able to handle the ups and downs of the market. If the money is too important, you will end up making all the wrong decisions because your choices will be made because of fear and worry, not logic and informed choices.

Once you have arrived at the amount you want to work with, use that for a while. Then, as you experience positive results, you might reconsider. You could add a little, if it fits your plan. However, if you are having a difficult time and you feel like you need more money to help you “make up” your losses. STOP. Don’t add another penny. I have seen so many people who are still confused about things; use hard earned cash to experiment in the market. When they have a few bad plays, they go back to their secure funds and get another cash infusion. They continue doing this until they have nearly exhausted everything. Then they finally decide that they need to go back to the basics and find out what’s wrong.

The common thief is thinking that you can solve investment problems by throwing more cash into the system. There is nothing wrong with starting out small and working with that money until it becomes a massive amount.

Don’t get me wrong; I am not trying to say that most people lose money when they start investing in the market. That’s not realistic, I know people that have done great and others that have not done great. I have spent many years teaching people how to invest in the market. That exposure has given me the opportunity to talk with all kinds of people with just as many different experiences in the market.

I realize that using the concepts presented in this series of reports works best when you have a little more than $2,000, but not too much more. I have worked with tons of people that started out investing in the market with $2,000 or less which grew to hundreds of thousands of dollars.

How do you avoid the common thief? Be careful and go back to the basics if things are not working.

LESSON 2. IF YOU’RE WRONG, EXIT QUICK AT A SMALL LOSS One of my favorite stock market instructors is Ryan Litchfield*. Ryan says something like this “IF YOU NEED TO EAT A TOAD, EAT IT FAST BEFORE IT GETS TOO BIG”. The same applies to investing in the market - if a play is going bad or if you discover that your investment choice is wrong, get out ASAP. When a play goes bad take your loss immediately before your small error becomes a big disaster.

Let’s say a stock has reached it’s resistance and has started falling, you decide to short some stock or sell a call with plans to buy back at a profit when the stock falls far enough. To your dismay, the stock stops moving down shortly after you get filled on your sell order and then that stock starts moving like a rocket - IN THE WRONG DIRECTION costing you money. By the end of the day, the stock price has broken up through resistance. That night when you look at the charts, you realize that the stock may continue to go up a lot, make the decision to get out fast. When the market opens the next day, wait a short while (at least until amateur hour is over) then if the stock has not moved back in the right direction - call your broker and close the play!

The problem is people depend on hope too long. The stock shoots in the wrong direction and they keep holding on, hoping and praying for a miracle, until the play gets way out of control and it becomes a substantial loss potential. If you stay in a losing play too long, you will end up riding that nightmare all the way to the poor farm.

If a play moves against you, get out while the cost is small. There is nothing wrong with taking a small loss by closing the play. It is impossible to be 100% correct, all of the time. The stock market has its own mind and it will act the way it wants, regardless of our desires. Rather than looking at losses as a bad thing, think them as the cost of doing business. For example:

A grocer orders 5,000 boxes of cereal because a major kid’s fair is coming to town. The fair is canceled and the grocer is left holding far more cereal than she can handle. She gets out a big sign that says: “Cereal 50% off, while supplies last, hurry in for the big savings.”

Will that grocer spend the next three days crying over the cereal disaster? Nope, it’s never going to enter her mind, she will just look at it as a cost of doing business. She knows that it is far better to sell the cereal at a small loss, so she can use her money and shelf space for the production of income. If she were to hang on to the cereal, refusing to sell at a loss, she could end up losing customers because they are getting old, spoiled products. Not to mention, she can’t buy other supplies because she has too much money into the cereal. Eventually she could be faced with an even bigger loss when she has to dispose of spoiled products that no one wants to buy.

There is nothing wrong with selling groceries at a loss, if that is what it takes to move the product, providing it does not happen too many times. Even if you take a loss, it is better get out. Just like the grocer, you still have your capital left for other products (plays), which will bring you profits in the future. And you can always make a profit by getting back into the stock as it provides you with another window of opportunity. If you get out of a play because a stock moves the wrong way you will be happy that you got out early when you see that it kept moving the wrong way. Sure, you had to get out at a loss but you rescued some of your money. You can take that rescued cash and do other plays without having to watch a loser play get worse day after day. Believe me - that’s no fun!

Everyone has a few bad plays, mixed in with their good plays. If you win seven out of ten times, you will be ahead of the game at the end of the month. If you are sure to keep the losses small, your account will go up 7 down 3 up 7 down 3 up 7 down 3. If you are not having enough successful plays, it’s time to stop, go back to the basics, go back to class, do more practice trades, and get back on track.

LESSON 3. EVERYONE PAYS FOR EDUCATION In life education always costs us something. We can learn by attending the school of hard knocks or getting a formal education. Either way, we will invest time, money, and energy. The stock market is no different than any other profession or opportunity: if you want to make a profit, you have to learn how. There are no short-cuts or easy tricks; if it was easy, then everyone would be millionaires. I have seen people lose $10,000, $20,000, $50,000 and even more before they finally get the message - you have to know the rules before you play the stock market game.

I teach many online, free, stock classes each week. These classes are intended to be introductions to stock market investment concepts. You can get enhanced education by attending one of my live classes. I invite you to come spend two days with me. I promise to share two information-packed days with you and other serious investors. Many students tell me that if they could start over again, they would have attended my live class when they were first invited, instead of “wasting months, wandering in the dark, guessing.”

When you attend my live workshop you will learn in two days what has taken me many years to discover. I am constantly updating the subject material and improving the tools so that I can be sure to teach you everything I can in two days. Join me, it’s going to be an exhilarating experience.

Happy Trading,

Darlene Nelson

About the Author
Darlene Nelson is a professional stock trader and educator affiliated with BetterTrades. Visit the BetterTrades website to find out about online stock market classes.

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