Imagine there is a bank account that credits your account each morning with $86,400. It carries over no balance from day to day.
Every evening the bank deletes whatever part of the balance you failed to use during the day. What would you do? Draw out every cent, of course?
Each of us has such a bank. It's name is TIME.
Every morning, it credits you with 86,400 seconds.
Every night it writes off as lost, whatever of this you have failed to invest to a good purpose.
It carries over no balance. It allows no over draft. Each day it opens a new account for you. Each night it burns the remains of the day.
If you fail to use the day's deposits, the loss is yours. There is no drawing against "tomorrow."
You must live in the present on today's deposits. Invest it so as to get from it the utmost in health, happiness and success!
The clock is running!! Make the most of today.
To realise the value of ONE YEAR, ask a student who failed a grade.
To realise the value of ONE MONTH, ask a mother who has given birth to a premature baby.
To realise the value of ONE WEEK, ask the editor of a weekly newspaper.
To realise the value of ONE HOUR, ask the lovers who are waiting to meet.
To realise the value of ONE MINUTE, ask a person who just missed a train.
To realise the value of ONE SECOND, ask someone who just avoided an accident.
To realise the value of ONE MILLISECOND, ask the person who won a silver medal at the Olympics.
Treasure every moment that you have! And treasure it more because you shared it with someone special, special enough to spend your time with. And remember time waits for no one.
Yesterday is history. Tomorrow is a mystery. Today is a gift. That's why its called the present.
Sunday, October 5, 2008
Wednesday, October 1, 2008
A Second Chance (and Thoughts) on the Bailout Vote
By Jay Newton-Small / Washington Wednesday, Oct. 01, 2008
After voting against the Bush Administration's controversial $700 billion bailout package, Representative Elton Gallegly, 64, a California Republican, got on a plane to fly home to Los Angeles for Congress's three-day break in observance of the Jewish holidays. By the time he got off the plane late Monday, he'd lost $50,000 in retirement savings. "And I'm getting to the point in my life where I can't start over," Gallegly laments.
Though he says he doesn't regret his "No" vote, Gallegly is adamant that the House must pass a bill to stabilize the nation's fragile financial markets. Whereas phone calls to his office were once running 40 to 1 against the bill, now they're "a mixed bag. There are a lot of folks who, for good reason, are very concerned about their 401(k)s and their retirement savings, and it's a very serious and legitimate concern," he says.
It's amazing what a 778-point drop in the Dow Jones Industrial Average, wiping out $1.2 trillion in equity, can do to change public opinion. An ABC News/Washington Post poll taken following the failed vote showed that 88% of Americans are concerned that the collapse of the bill could worsen the economic turndown and that 51% are confident that a bill will eventually pass. And where the people go, politicians very quickly follow. Most members explained their votes opposing the bill Monday as a reflection of their constituents' anger about a rescue package for Wall Street. "Since the vote, it's about half and half," Representative Tim Murphy, a Pennsylvania Republican who voted against the bill, says of the calls coming into his office. "Half say, Do something — I'm worried about my business or my retirement; and the other half still say, Don't vote for the bailout."
House members already having second thoughts about their votes will probably soon have a chance to change them. But rather than wait for their Hill colleagues to take the plunge again, the Senate is expected to try to build momentum by taking up virtually the same bill Wednesday night, with two key sweeteners added on: a measure increasing from $100,000 to $250,000 the maximum amount in individual-bank-account deposits that the Federal Deposit Insurance Corp. (FDIC) will guarantee, and an extension of tax incentives, popular with GOP members, for such things as alternative energy, business R & D and the prevention of more people from becoming subject to the Alternative Minimum Tax. As further incentive, Securities and Exchange Commission chairman Chris Cox Tuesday eased mark-to-market accounting rules that have forced financial institutions to value all distressed mortgage-backed securities on their balance sheets at fire-sale prices. The move has been sought by many House Republicans hoping to help get the paralyzed credit markets flowing again, though critics say any such change would be a step back for transparency.
The new bill is expected to pass the Senate easily, with both John McCain and Barack Obama coming back to Washington to cast their votes, but the House remains a hurdle. The add-ons should help with Republican votes, but the tax extenders are unpopular with moderate, or so-called Blue Dog, Democrats, who are deficit hawks and have never liked that the estimated $100 billion extenders are only half paid for. House Speaker Nancy Pelosi has made it clear that she wants to see the GOP make up the shortfall of 12 votes by sending, in conjunction with her Senate colleague Harry Reid, a letter to President Bush outlining their intention to keep working to craft a truly bipartisan solution, in spite of the bitter feelings left over from Monday's debacle. Still, she may lose some Blue Dog votes by attaching the tax bill. And while House Majority Leader John Boehner green-lighted this newest legislation, his credibility on Capitol Hill isn't great after only 37% of his party conference followed his lead in supporting the bill Monday.
Success in the House will depend on persuading ambivalent Republicans like Gallegly and Murphy to change their votes. And business groups have wasted no time in launching a full frontal assault to do just that. "You want a complete meltdown with the financial system? Bluntly, clearly and crisply that would be a catastrophic event. So that's what we're trying to avoid," says Bruce Josten, executive vice president of the U.S. Chamber of Commerce, which represents 3 million U.S. businesses. The chamber is just one of several associations, representing American business large and small, that are writing letters, getting members to write letters, holding conference calls, organizing trade groups and courting the media as part of a massive lobbying push for the bailout bill. "We are using every arsenal available to us to get the business community's outrage heard," Josten says.
Indeed, the business groups' online campaign has been so intense, the House e-mail server has been crashing ever since the bill failed. Their first target is the marketing of the legislation, and specifically how it is described. "It's not bailout, so you've got to get your term right," snaps Josten. That means Congress is working to pass a workout, a rescue package, an economic-stabilization plan. And Republican and Democratic Senators alike paraded across C-SPAN Tuesday doing what they could to underline that the crisis is not about helping fat cats on Wall Street but saving average Joes from economic calamity. "The waitress isn't getting the tips that she depended on to bring home for her family and the challenges her family has," said Senator Robert Menendez, Democrat of New Jersey, on the Senate floor, gesturing to a blown-up photo of a rather pathetic-looking waitress next to him.
But they still have a ways to go in persuading some members. "Some of the calls for 'Yes' we're now getting are being ginned up by outside groups," says Representative Devin Nunes, a California Republican who voted against the measure. "All these people who have their hand in the cookie jar are trying to get Paulson to bail them out."
The House is expected to vote Thursday or Friday on the measure. In the absence of true House GOP leadership, it's anyone's guess if the bill will pass this time around, though the turning of public opinion is helping. The Senate going first should place additional pressure on House members to get it passed. That, and the specter of an even more brutal market meltdown if the House actually fails a second time around.
After voting against the Bush Administration's controversial $700 billion bailout package, Representative Elton Gallegly, 64, a California Republican, got on a plane to fly home to Los Angeles for Congress's three-day break in observance of the Jewish holidays. By the time he got off the plane late Monday, he'd lost $50,000 in retirement savings. "And I'm getting to the point in my life where I can't start over," Gallegly laments.
Though he says he doesn't regret his "No" vote, Gallegly is adamant that the House must pass a bill to stabilize the nation's fragile financial markets. Whereas phone calls to his office were once running 40 to 1 against the bill, now they're "a mixed bag. There are a lot of folks who, for good reason, are very concerned about their 401(k)s and their retirement savings, and it's a very serious and legitimate concern," he says.
It's amazing what a 778-point drop in the Dow Jones Industrial Average, wiping out $1.2 trillion in equity, can do to change public opinion. An ABC News/Washington Post poll taken following the failed vote showed that 88% of Americans are concerned that the collapse of the bill could worsen the economic turndown and that 51% are confident that a bill will eventually pass. And where the people go, politicians very quickly follow. Most members explained their votes opposing the bill Monday as a reflection of their constituents' anger about a rescue package for Wall Street. "Since the vote, it's about half and half," Representative Tim Murphy, a Pennsylvania Republican who voted against the bill, says of the calls coming into his office. "Half say, Do something — I'm worried about my business or my retirement; and the other half still say, Don't vote for the bailout."
House members already having second thoughts about their votes will probably soon have a chance to change them. But rather than wait for their Hill colleagues to take the plunge again, the Senate is expected to try to build momentum by taking up virtually the same bill Wednesday night, with two key sweeteners added on: a measure increasing from $100,000 to $250,000 the maximum amount in individual-bank-account deposits that the Federal Deposit Insurance Corp. (FDIC) will guarantee, and an extension of tax incentives, popular with GOP members, for such things as alternative energy, business R & D and the prevention of more people from becoming subject to the Alternative Minimum Tax. As further incentive, Securities and Exchange Commission chairman Chris Cox Tuesday eased mark-to-market accounting rules that have forced financial institutions to value all distressed mortgage-backed securities on their balance sheets at fire-sale prices. The move has been sought by many House Republicans hoping to help get the paralyzed credit markets flowing again, though critics say any such change would be a step back for transparency.
The new bill is expected to pass the Senate easily, with both John McCain and Barack Obama coming back to Washington to cast their votes, but the House remains a hurdle. The add-ons should help with Republican votes, but the tax extenders are unpopular with moderate, or so-called Blue Dog, Democrats, who are deficit hawks and have never liked that the estimated $100 billion extenders are only half paid for. House Speaker Nancy Pelosi has made it clear that she wants to see the GOP make up the shortfall of 12 votes by sending, in conjunction with her Senate colleague Harry Reid, a letter to President Bush outlining their intention to keep working to craft a truly bipartisan solution, in spite of the bitter feelings left over from Monday's debacle. Still, she may lose some Blue Dog votes by attaching the tax bill. And while House Majority Leader John Boehner green-lighted this newest legislation, his credibility on Capitol Hill isn't great after only 37% of his party conference followed his lead in supporting the bill Monday.
Success in the House will depend on persuading ambivalent Republicans like Gallegly and Murphy to change their votes. And business groups have wasted no time in launching a full frontal assault to do just that. "You want a complete meltdown with the financial system? Bluntly, clearly and crisply that would be a catastrophic event. So that's what we're trying to avoid," says Bruce Josten, executive vice president of the U.S. Chamber of Commerce, which represents 3 million U.S. businesses. The chamber is just one of several associations, representing American business large and small, that are writing letters, getting members to write letters, holding conference calls, organizing trade groups and courting the media as part of a massive lobbying push for the bailout bill. "We are using every arsenal available to us to get the business community's outrage heard," Josten says.
Indeed, the business groups' online campaign has been so intense, the House e-mail server has been crashing ever since the bill failed. Their first target is the marketing of the legislation, and specifically how it is described. "It's not bailout, so you've got to get your term right," snaps Josten. That means Congress is working to pass a workout, a rescue package, an economic-stabilization plan. And Republican and Democratic Senators alike paraded across C-SPAN Tuesday doing what they could to underline that the crisis is not about helping fat cats on Wall Street but saving average Joes from economic calamity. "The waitress isn't getting the tips that she depended on to bring home for her family and the challenges her family has," said Senator Robert Menendez, Democrat of New Jersey, on the Senate floor, gesturing to a blown-up photo of a rather pathetic-looking waitress next to him.
But they still have a ways to go in persuading some members. "Some of the calls for 'Yes' we're now getting are being ginned up by outside groups," says Representative Devin Nunes, a California Republican who voted against the measure. "All these people who have their hand in the cookie jar are trying to get Paulson to bail them out."
The House is expected to vote Thursday or Friday on the measure. In the absence of true House GOP leadership, it's anyone's guess if the bill will pass this time around, though the turning of public opinion is helping. The Senate going first should place additional pressure on House members to get it passed. That, and the specter of an even more brutal market meltdown if the House actually fails a second time around.
Monday, September 29, 2008
Without a Bailout Plan, What Will the Cost Be?
By Justin Fox Monday, Sep. 29, 2008
By voting down the proposed $700 billion financial bailout package — and causing a spectacular stock market rout — a majority of members in the House of Representatives made a clear statement that they didn't want to put taxpayers on the hook for the failures of financial institutions.
But there's a catch: taxpayers are already on the hook for the failures of financial institutions, and it's possible that the bill will actually be larger without bailout legislation than with it. That's because the regulators who mind the financial industry — the Federal Reserve, Treasury and FDIC — will keep doing what they've been doing: stepping in to prevent the chaotic failure of banks and other large financial institutions. This means continuing to put hundreds of billions of taxpayer dollars at risk, but in a way that adheres to no clear plan of action and doesn't require members of Congress to explicitly approve their actions.
On Monday afternoon, Wall Street basically stopped trading to watch TV — mainly CNBC — to see how the House of Representatives would vote on the $700 billion bailout package. When it first started looking like the bill would fail, the Dow plummeted 389 points, or 3.6%, in just seven minutes. If it had continued at that pace for much longer, this would have been perhaps the most harrowing day in stock market history. It didn't, but things were still really, really bad. The Dow ended the day down 778 points, or 7%, and the S&P 500 — a better measure of the overall market — was down 107 points, or 8.8%, its worst performance since the 1987 market crash. And markets for bonds and short-term loans were, for the most part, nonexistent.
So what happens now? On Capitol Hill, House leaders said they'll try again soon. Treasury Secretary Henry Paulson practically begged for a revised deal in his brief appearance after the market carnage. "Our tool kit is substantial but insufficient," he said. The market's traumatized reaction today may change some minds and some votes.
In asking Congress 11 days ago for the authority to spend up to $700 billion to buy troubled assets, Paulson and Fed Chairman Ben Bernanke were hoping to share some of the responsibility and the blame — and get the freedom to boost companies that weren't already on the brink of failure. Instead, they're back to being crisis managers for the moment — and maybe for the duration of the crisis.
That's not all bad, especially now that most of the endangered financial institutions are commercial banks. The Federal Government has clearly defined that authorities take them over, merge them out of existence or shut them down — whereas it had to make things up as it went along with investment banks Bear Stearns and Lehman Brothers and insurer AIG. That's why the demise of giant banks Washington Mutual and Wachovia, arranged over the past week by the FDIC, occurred in a far more orderly fashion than the non-bank meltdowns.
But orderly isn't the same as cheap. To get Citigroup to absorb Wachovia, the FDIC agreed to share the risk on a $312 billion portfolio of loans (Citi has to eat the first $42 billion in potential losses; anything above that hits the FDIC fund).
Also, the fact that every big FDIC deal so far in this crisis has been different — IndyMac was allowed to fail, with only insured deposits safe; WaMu was seized, but all depositors were protected; and Wachovia was sold in a deal that protected both depositors and owners of the company's bonds but left shareholders with very little — has left investors guessing about the fate of the rest of the banking world. Hardest hit in today's market sell-off were regional banks like Sovereign Bancorp and National City, perhaps because they seem too small to get special FDIC treatment.
Federal authorities are going to keep doing whatever they can to keep the financial system from collapsing. Taxpayers will bear the risks and the costs of that, whether Congress votes to put them there or not. And it's possible — although nobody can know for sure — that this ad hoc approach will end up costing more than an up-front $700 billion bailout.
By voting down the proposed $700 billion financial bailout package — and causing a spectacular stock market rout — a majority of members in the House of Representatives made a clear statement that they didn't want to put taxpayers on the hook for the failures of financial institutions.
But there's a catch: taxpayers are already on the hook for the failures of financial institutions, and it's possible that the bill will actually be larger without bailout legislation than with it. That's because the regulators who mind the financial industry — the Federal Reserve, Treasury and FDIC — will keep doing what they've been doing: stepping in to prevent the chaotic failure of banks and other large financial institutions. This means continuing to put hundreds of billions of taxpayer dollars at risk, but in a way that adheres to no clear plan of action and doesn't require members of Congress to explicitly approve their actions.
On Monday afternoon, Wall Street basically stopped trading to watch TV — mainly CNBC — to see how the House of Representatives would vote on the $700 billion bailout package. When it first started looking like the bill would fail, the Dow plummeted 389 points, or 3.6%, in just seven minutes. If it had continued at that pace for much longer, this would have been perhaps the most harrowing day in stock market history. It didn't, but things were still really, really bad. The Dow ended the day down 778 points, or 7%, and the S&P 500 — a better measure of the overall market — was down 107 points, or 8.8%, its worst performance since the 1987 market crash. And markets for bonds and short-term loans were, for the most part, nonexistent.
So what happens now? On Capitol Hill, House leaders said they'll try again soon. Treasury Secretary Henry Paulson practically begged for a revised deal in his brief appearance after the market carnage. "Our tool kit is substantial but insufficient," he said. The market's traumatized reaction today may change some minds and some votes.
In asking Congress 11 days ago for the authority to spend up to $700 billion to buy troubled assets, Paulson and Fed Chairman Ben Bernanke were hoping to share some of the responsibility and the blame — and get the freedom to boost companies that weren't already on the brink of failure. Instead, they're back to being crisis managers for the moment — and maybe for the duration of the crisis.
That's not all bad, especially now that most of the endangered financial institutions are commercial banks. The Federal Government has clearly defined that authorities take them over, merge them out of existence or shut them down — whereas it had to make things up as it went along with investment banks Bear Stearns and Lehman Brothers and insurer AIG. That's why the demise of giant banks Washington Mutual and Wachovia, arranged over the past week by the FDIC, occurred in a far more orderly fashion than the non-bank meltdowns.
But orderly isn't the same as cheap. To get Citigroup to absorb Wachovia, the FDIC agreed to share the risk on a $312 billion portfolio of loans (Citi has to eat the first $42 billion in potential losses; anything above that hits the FDIC fund).
Also, the fact that every big FDIC deal so far in this crisis has been different — IndyMac was allowed to fail, with only insured deposits safe; WaMu was seized, but all depositors were protected; and Wachovia was sold in a deal that protected both depositors and owners of the company's bonds but left shareholders with very little — has left investors guessing about the fate of the rest of the banking world. Hardest hit in today's market sell-off were regional banks like Sovereign Bancorp and National City, perhaps because they seem too small to get special FDIC treatment.
Federal authorities are going to keep doing whatever they can to keep the financial system from collapsing. Taxpayers will bear the risks and the costs of that, whether Congress votes to put them there or not. And it's possible — although nobody can know for sure — that this ad hoc approach will end up costing more than an up-front $700 billion bailout.
My Best Investment
This morning, over breakfast at the hostel, I recognised a guy I saw in a bar last night on Sodermalm. “Hello”, I thought to myself. That’s a bit freaky. And then as I got on the train this morning, I recognised another guy I’d seen in a bar a few nights ago. And then today I saw a young guy and a girl I recognised from Narvik last week. And then tonight, wandering around Sodermalm, I recognised the woman who I’d seen playing at one of those lunchtime concerts. I’m beginning to think Stockholm isn’t that big after all. Or maybe it’s just that the experience of this trip is so intense that I’m remembering everything quite vividly? Or maybe I’m spending too much time in bars? I’m not actually…
The woman from the concert smiled at me, in recognition that I was one of the faces she also recognised from the concert. To be honest, her band was pretty boring, even if they did perform a song by former Perth band, “The Waifs”. Although “Little Failures” received a great write-up in one of the local freebie newspapers, they absolutely did nothing for me. It was two chicks and their guitars (with a bloke on bass) singing mournfully depressing tunes without too much passion. Fine if you like that kinda stuff, but it’s just not me.
The second act, though, was excellent. Looking like a cross between two other famous Swedish singers, Shirley Clamp and Helen Sjoholm, Anna Ericksson sang with strength and passion. Although she could do with a bit of work on her stage presence, I was really very moved by her singing and songwriting. A little bit like “Everything But The Girl”, in some respects, she had a male pianist accompany her. I was most moved when she sang a couple of those deep, dark, depressing numbers in a minor key that only the Swedes, it seems, know how to do best. Magic stuff.
Unfortunately, the rain started to come down half way through her performance. But it was nice summer rain, and I just sat there enjoying getting wet. Back in Sydney I would have run for the hills without an umbrella, darting from awning to awning to get through in the wet. On holiday, though, when it rained again later, I just stood under an awning and waited for it to end. It’s a wonderful feeling NOT to have to worry about time.
Oh, and also, I guess it’s because there’s a decided lack of awnings on Swedish buildings. I guess it’s because of the problems snow would cause. It seems, though, whenever it rains, an umbrella appears above every Swede, as if by magic.
Otherwise it’s been a day of sight-seeing thanks to the Swedish public transport system. I’ve got to say the best value investment I’ve made on this trip is the month long public transport card. I’ve used it heaps already. This morning, I hopped on the train for a while to see some of the outer suburbs, and then this afternoon, I hopped on Bus 47 to Waldemarsudde for a bit of sightseeing around Djurgaden. When the bus route came to an end, the bus driver said to me, “This is the end of the line. You can get off here, or you can come back with me in five minutes”. I took a couple of photographs, stretched my legs, and was straight back on the bus. It’s excellent value if you’re ever gonna visit Stockholm.
I also went for a quick look at the area I’m moving into for the next few days: near Skanstvus T-Barnen on Sodermalm. Within eyeshot of the famous Globen, it seems like a really nice area, and the accommodation looks good from the outside. The area seems a little bit groovy, a little bit up-market, nice record shops, a little bit leefy, and the bars seem a little bit lezzie. I’ll be right at home :)
It’s my last night at Fridhemsplan because I made friends today with a bloke who has moved into my room in the hostel. He’s very chatty, and we spoke about our respective travel plans, including his which has involved riding a bike all the way from Hamburg. “So where is your wife”, he asked me, and of course I replied I don’t have one, nor do I have children. “Me neither”, he told me, adding that his last girlfriend preferred 5-star holidays to “the crazy cycle holidays I like”.
jamesobrien.id.au
forty-something bloke from sydney who is reasonably happy with life at the moment
The woman from the concert smiled at me, in recognition that I was one of the faces she also recognised from the concert. To be honest, her band was pretty boring, even if they did perform a song by former Perth band, “The Waifs”. Although “Little Failures” received a great write-up in one of the local freebie newspapers, they absolutely did nothing for me. It was two chicks and their guitars (with a bloke on bass) singing mournfully depressing tunes without too much passion. Fine if you like that kinda stuff, but it’s just not me.
The second act, though, was excellent. Looking like a cross between two other famous Swedish singers, Shirley Clamp and Helen Sjoholm, Anna Ericksson sang with strength and passion. Although she could do with a bit of work on her stage presence, I was really very moved by her singing and songwriting. A little bit like “Everything But The Girl”, in some respects, she had a male pianist accompany her. I was most moved when she sang a couple of those deep, dark, depressing numbers in a minor key that only the Swedes, it seems, know how to do best. Magic stuff.
Unfortunately, the rain started to come down half way through her performance. But it was nice summer rain, and I just sat there enjoying getting wet. Back in Sydney I would have run for the hills without an umbrella, darting from awning to awning to get through in the wet. On holiday, though, when it rained again later, I just stood under an awning and waited for it to end. It’s a wonderful feeling NOT to have to worry about time.
Oh, and also, I guess it’s because there’s a decided lack of awnings on Swedish buildings. I guess it’s because of the problems snow would cause. It seems, though, whenever it rains, an umbrella appears above every Swede, as if by magic.
Otherwise it’s been a day of sight-seeing thanks to the Swedish public transport system. I’ve got to say the best value investment I’ve made on this trip is the month long public transport card. I’ve used it heaps already. This morning, I hopped on the train for a while to see some of the outer suburbs, and then this afternoon, I hopped on Bus 47 to Waldemarsudde for a bit of sightseeing around Djurgaden. When the bus route came to an end, the bus driver said to me, “This is the end of the line. You can get off here, or you can come back with me in five minutes”. I took a couple of photographs, stretched my legs, and was straight back on the bus. It’s excellent value if you’re ever gonna visit Stockholm.
I also went for a quick look at the area I’m moving into for the next few days: near Skanstvus T-Barnen on Sodermalm. Within eyeshot of the famous Globen, it seems like a really nice area, and the accommodation looks good from the outside. The area seems a little bit groovy, a little bit up-market, nice record shops, a little bit leefy, and the bars seem a little bit lezzie. I’ll be right at home :)
It’s my last night at Fridhemsplan because I made friends today with a bloke who has moved into my room in the hostel. He’s very chatty, and we spoke about our respective travel plans, including his which has involved riding a bike all the way from Hamburg. “So where is your wife”, he asked me, and of course I replied I don’t have one, nor do I have children. “Me neither”, he told me, adding that his last girlfriend preferred 5-star holidays to “the crazy cycle holidays I like”.
jamesobrien.id.au
forty-something bloke from sydney who is reasonably happy with life at the moment
Saturday, September 20, 2008
The best investment I'll ever make: Turning $10,000 into $20 million
Written by Paul Merriman
August 07, 2000
No, that's not a typo. In 1994 I made an investment that is likely to grow from $10,000 to more than $20 million and you can do something similar. I'll tell you how, however, this plan comes with a caveat: you probably won't live long enough to see the final payoff.
This is a really neat investment idea and I can't resist sharing it with my friends, colleagues, clients and readers. And I hope some of them will be motivated to follow this example to create something with their assets that will make a big difference in the long run.
With that mysterious introduction, let me tell you how this started. In 1994, my son, Jeff, became a proud father. I decided I wanted to do something really extraordinary for my new grandson, Aaron. I spent quite a bit of time thinking about what it might be. Simply making good long-term investments wasn't a big enough challenge to get my juices flowing. For this project, I wanted to think in really big, even preposterous, terms.
Finally, I established five ambitious goals for my gift to Aaron. First, I wanted to make a one-time investment that would give Aaron a comfortable retirement when he reaches age 65. Second, I wanted to make sure the money would be there at that time and not be used for anything else in the meantime. (I took some flack from several people for this. But it's my money and my plan and I get to set the rules!) Third, I wanted my investment to grow without any tax liability on the income. Fourth, I wanted this investment to eventually provide at least $20 million for charity. And fifth, I wanted to do all this for only $10,000! That was ambitious enough for me, and with the help of Jeff and a couple of professional advisors I found a way to accomplish all that.
OF TIME AND TRUST
Besides the $10,000, this turned out to require only three essential tools: time (lots of it), a trust and a variable annuity. A trust is a legal entity that holds assets and is strictly governed by the documents that establish it. A variable annuity, which I discuss later in this article, is a product that combines the investment potential of mutual funds with the tax advantages of an insurance policy.
To obtain enough time for this to work, you have to get a little more creative, like forming a grandson-grandpa team. Aaron has the time, but not the financial resources. I have the resources and the ability to plan, but I don't have enough time left. However, put us together and you have a winning combination.
With the help of Jon Barwick (206-283-4300), a Seattle financial planner, and Doug Lawrence (206-626-6000), a Seattle attorney, Jeff and I have worked out the details. I made a gift of $10,000 to an irrevocable trust for Aaron's benefit. This gift is not taxable to Aaron. Jeff and his wife, Barrie, are the trustees. Since Jeff and Barrie are the trustees they cannot gift any money into this trust without tax consequences, but anyone else can add to Aaron's account. (Any year that contributions are made the trustee must submit a simple tax return.) If Jeff did wish to make a gift himself he would have to appoint another trustee.
Under the direction of the trustee, Aaron's trust invested the $10,000 in a variable annuity. Jeff is the trustee as long as he is able, and the trust document tells how successor trustees may be appointed. Because the investment is in a variable annuity, it can compound on a tax-deferred basis. The trust is set up so that Aaron can't touch this money until he is 65 (in the year 2059). That will leave Jeff free to concentrate on very long-term investments, which we expect to provide a compound rate of return (CRR) of 10 to 12 percent over the decades ahead.
As trustee, Jeff chose to invest 50 percent of the money in a U.S. stock portfolio, and 50 percent in an international stock portfolio.
If these investments achieve a compound rate of return of 11.2 percent until Aaron is 65, the variable annuity will be worth $10 million. That's not bad for a $10,000 investment, but the best is still ahead. Under the terms of the trust, Aaron will receive 7 percent of the assets of the trust every year starting at age 65 and continuing as long as he lives. Hopefully the first check will be about $700,000. At an assumed inflation rate of 3 percent, that will be the equivalent of $135,00 in 2005 dollars. That won't make Aaron wealthy, but he'll have a comfortable retirement, especially if these payments are supplemented by his own savings and investments.
Meanwhile, if Aaron lives at least another 20 years after he starts receiving his annual distributions, and if the investments achieve a CRR of 11.2 percent, and he withdraws 7 percent a year, the variable annuity will be worth about $23 million.
At the end of Aaron's lifetime, the assets remaining will go to charitable organizations with a tax-exempt status. Those organizations are to be determined by the trustee or trustees, who could be Aaron's children or grandchildren. Jeff and I think there's a good chance that a Merriman Family Foundation will be formed by that time, and the remaining assets could go into it, with the earnings and proceeds directed to various charitable causes by our descendants. If a family foundation is established it will even be possible to reasonably compensate the family members for running the foundation.
WHAT'S WRONG WITH THIS PLAN?
Jeff and I think this is an excellent plan, but some friends and other financial advisors (the two are not mutually exclusive, by the way!) have been critical. Friends say we should provide an "escape clause" by which Aaron could get the money before age 65 if, for instance, he is disabled or has huge medical expenses. Several of my colleagues have been critical of tying up money so irrevocably, for so long. "A lot of things can change in 65 years," they say. And of course they are right.
I realize that factors beyond my control, Jeff's control or Aaron's control could potentially unravel these plans or place some huge obstacle in the way of their realization. One real possibility is that Congress will limit variable annuity investments or find a way to restrict or eliminate the tax-deferred treatment they get. However, this won't happen without a lot of opposition from the powerful insurance lobbies. I assume (and hope) that any new law on annuities would contain a "grandfather" clause for existing contracts. In any case, I would bet all the money I have that the tax laws will change in some significant ways before the year 2059. There is absolutely no way to know now what those changes might be.
In over half a century on this planet, even my harshest critics would have to admit that I have learned a few irrefutable facts. And one of them is that the future is always uncertain. If you can't act until you know every fact, including those that can't be known, you will always be on the sidelines, never in the game. The total cost to me for this was the initial $10,000 deposit plus the costs of establishing the trust, which were less than $1,000. I can't think of any investment I'd rather make with $11,000.
A BUM DEAL FOR AARON?
Are we doing Aaron a disservice by locking the money up tight until his 65th birthday? Possibly we are. For instance, if Aaron dies before age 65, he won't receive a penny from the trust. If he lived only 65 years and six months, his long-awaited "pension" would be his for only the last half-year of his life. Some people think that is harsh and unfair. In addition, whatever family Aaron leaves behind at his death will get no benefit from this trust other than possibly the right to help give it away to charity.
Intentionally, we set up this trust so that it does not let Aaron off the hook. He will still need to provide for his family's security through prudent investments and insurance. He will need to earn a living and take care of whatever financial needs he has until age 65 without any help from this trust. And even when he is 65, Aaron won't suddenly have great wealth at his disposal.
WINNING THE LOTTO AND MORE
But look at the other side of the equation. Just about anybody who won a $10 million Lotto jackpot, with the money to be distributed over 20 years at $700,000 a year, would consider himself or herself very fortunate. We in essence are giving Aaron that winning Lotto ticket, with an added feature you won't find in standard lotteries: The annual distribution will never stop no matter how long he lives. And because the payout to Aaron is based on the assets of the trust the last day of each year, that payout could grow every year. Try to find a Lotto deal like that!
We think this trust will give Aaron something else important: A very real financial incentive to live a long and healthy life. He'll also have some peace of mind about retirement. We think that if he saves a "normal" amount of money through a working lifetime, he may be able to fund his own "early" retirement at the age of 50 or 55, with the trust distributions kicking in when he's 65.
Finally, the ultimate disposition of this trust's assets will be to charity and Aaron may indirectly have much to say about that disposition. We hope this will prompt Aaron to think of himself as someone who plays an important role in society, encouraging him to pay close attention to charitable organizations and social needs. Through this trust, he will ultimately have the ability to direct a very significant amount of wealth to organizations he wants to support.
We cannot know in advance how Aaron will respond to this gift. But we hope it will give him opportunities he wouldn't otherwise have in life. And it gives me great pleasure to be able to establish a legacy that will continue to benefit him and society long after I am gone.
YOU CAN DO THIS, TOO
I hope there are other people as excited about this concept as I am. And I hope some of them will want to use this example to establish some very long-term investments for their own children, grandchildren, nieces or nephews. I'm starting with $10,000, but a similar plan could be put in place for as little as $2,500. However, I think that is a practical minimum because of the legal costs of establishing a trust and the minimum investments required in most variable annuities.
For those who are interested, I have obtained permission to make copies of our trust document available. We are not offering this in order to give legal advice, and we don't recommend its use except as a starting point for discussion with your attorney and financial advisor. Nevertheless, we think anyone who wants to consider following in our footsteps could benefit from having a copy of the document we are using. If you want a copy, go to http://www.fundadvice.com/trust.html.
WHY A VARIABLE ANNUITY?
The variable annuity is the ideal investment for a plan like this, deferring taxes until the income is disbursed, in this case 65 years. In the meantime, the money can be invested in a portfolio of worldwide equities. With such a long time horizon, we think our chances of success are excellent. Variable annuities have become quite popular since 1986 when Congress wiped out most other tax shelters. These can be useful tools for some investment needs and a review of the product may suggest whether this is a suitable vehicle in your own case.
ANNUITIES 101
At its core, an annuity is a contract between an investor and an insurance company. The simplest type is a single-payment fixed annuity. You pay the insurance company $500,000, for instance, and the insurance company promises to pay you a fixed amount every month for as long as you live. The amount is based on your age and on an assumed investment return. The insurance company takes the risk that you might live much longer than average. It offsets that risk by making very conservative assumptions about the return it can get on your money. You take the risk that you'll die before you collect as much as you paid in (though many policies will pay the difference to your heirs or a beneficiary). And you take the risk that you could have achieved a higher investment return yourself instead of turning your money over to the insurance company.
Most annuities sold as investment products have an "accumulation phase" that lasts years or even decades before the insurance company begins making regular payments. What happens during that time depends on whether an annuity is "fixed" or "variable."
DON'T FIX IT...
In a fixed annuity, the insurance company promises to credit the account by some guaranteed minimum interest rate, usually relatively low, during this accumulation phase. The actual rate is often higher than the guaranteed rate but it is always less than the insurance company expects to make on its own relatively conservative investments.
As investors and savers became more accustomed to having choices and higher returns, and especially as interest rates soared in the late 1970s and early 1980s, the fixed annuity lost some of its popularity. Fewer people wanted to tie up their money at a fixed rate of return. Thus was born the "variable" annuity. What varies is the investment return that builds up the account. Variable annuities offer investors the chance for substantially higher returns than those of fixed accounts, along with the lack of a guarantee and the chance that the returns could be lower than fixed-rate annuities.
Variable annuities have one other important advantage over the fixed variety. In a fixed annuity, the underlying assets are owned by the insurance company. If the insurance company should fail, creditors could eventually seize the money that backs the annuity contracts. This means investors in fixed annuities should be especially careful to do business with only the safest and soundest insurance companies-and those are not necessarily the ones that will offer the highest rates to attract new money. By contrast, the assets behind a variable annuity are not owned by the insurance company and creditors cannot make any claims on those assets. Those assets are separated, giving investors an added measure of safety.
In effect, a variable annuity is a shell inside which you can invest in equities and have the taxes deferred. If you imagine a non-deductible IRA without any limit on contributions, you'll have the idea. The annuity contract will let you invest in one or more private mutual funds, technically known as "subaccounts." These funds are private because they are available only to the insurance company's annuity accounts, even though they may be managed by large mutual fund companies and even though some funds attempt to "clone" the portfolios and performances of some of their most popular mutual funds.
Most people who buy variable annuities do so in order to defer taxes on their retirement savings. For this purpose, variable annuities have another advantage over many other retirement plans. While the rules of IRAs and 401(k) plans require you to start withdrawing the money when you reach age 70 1/2, many annuities will let you delay the start of the payoff stage until you are 85.
However, annuities come with several disadvantages. I think these disadvantages make this product appealing only to investors who can plan to leave their money in the annuity for at least eight to 10 years. The disadvantages fall into the categories of tax traps, limited investment options, fees and more fees. And they stack the deck against investors who change their minds or need their money back sooner than they had planned.
TWO TENDER (TAX) TRAPS
The first tax trap facing annuity investors is common to IRAs and 401(k) plans: An IRS penalty for withdrawals before you are 59 1/2 years old. If you take money out before that age, you'll be slapped with the IRS' 10 percent penalty in addition to regular income taxes on your withdrawal. Second, investors in high tax brackets should understand an idiosyncrasy that variable annuities share with IRAs, 401(k)s, Keoghs and other retirement plans: Capital gains on investment sales lose their favorable tax treatment (the maximum 15 percent tax rate) inside a retirement plan.
Normally, for example, a long-term capital gain of $2,000 would be taxed at 15 percent (unless of course the taxpayer is in a lower bracket), leaving $1,700 of the gain for the investor. But within an IRA or a variable annuity, that gain will eventually be taxed as ordinary income, at your top tax rate, when you withdraw it. Under today's tax law, that could be as high as 35 percent, leaving you with only $1,300. The difference is $400 on a $2,000 gain and $2,000 on a $10,000 gain-more than most of us want to donate to the government if we have a choice! The full implications of this for any individual investor are impossible to assess without knowing what future tax rates will be. However, for long-term investors, this may be a price worth paying for the tax-deferred buildup inside an annuity.
WHAT ARE MY OPTIONS?
Outside of retirement plans, you can invest in anything, including thousands of mutual funds. But inside a typical variable annuity, your choices are much more limited, just as they are in 401(k) plans. You'll have several investment options, as if you invested in a small family of mutual funds. You may have your choice of stock funds, bond funds, balanced funds and sometimes sector funds. If you're making a long-term commitment (as you should if you are buying an annuity) you should be sure to find one that has enough investment choices to meet your needs.
AND SPEAKING OF FEES...The biggest drawback of variable annuities is the complex matrix of fees that cut into your principal and erode your return. Typically these fees may be disclosed in fine print when you sign a contract but they are buried in your periodic statements so you hardly know what's happening to you. One quarterly annuity statement we studied recently contains an entry every month that says "policy processing" without explanation and without any number attached. That's a pretty underhanded way to collect fees, in my opinion, and it's one of my gripes about the insurance business. This is why I think it's vital to understand the types of fees and to shop carefully. If you do that, you can find low-cost variable annuities (four of which I'll suggest in a moment).
Most variable annuities have four types of fees. First are "mortality and expense" fees unique to insurance companies. These annual charges average 1.25 percent to 1.7 percent of the assets in an account. Despite the name, most of this money pays sales commissions to brokers, salespeople and financial planners. In effect, the only thing an investor gets in exchange for this fee is the right to have a tax-deferred investment. That is why I believe adamantly that annuities should not be used, as they frequently are, within already tax advantaged accounts such as IRAs and Keogh plans. Putting an annuity inside a tax-sheltered retirement plan is simply paying a high price, and paying it again every year, for something that you already have!
Second, most annuities come with a fixed annual charge of $15 to $40 to cover the costs of administration. Third, you'll pay a charge based on the assets on each subaccount to cover fund management. Pay close attention, as these fees vary widely. The total of these three fees often exceed 2.25 percent per year, significantly higher than those of a typical mutual fund. The fourth fee is called a surrender charge. It's really a stiff penalty to discourage investors from withdrawing their money in the early years of the policy-before sales commissions have been covered by the other fees you've paid. Surrender charges typically are in effect for four to six years and often require you to forfeit 6 to 8 percent of any money you take out in the first few years. Sometimes, the percentage declines by one percentage point per year.
THE LOW-COST ROUTE
Fortunately for cost-conscious investors, three large investment houses, Vanguard (800-522-5555), Dimensional Fund Advisors* and Schwab (800-838-0650), have developed essentially no-load, low-cost variable annuities. None has any surrender charge for early withdrawals.
*DFA annuities are available only through approved advisors. To find one, go to www.dfaus.com and click on "Find an advisor".
August 07, 2000
No, that's not a typo. In 1994 I made an investment that is likely to grow from $10,000 to more than $20 million and you can do something similar. I'll tell you how, however, this plan comes with a caveat: you probably won't live long enough to see the final payoff.
This is a really neat investment idea and I can't resist sharing it with my friends, colleagues, clients and readers. And I hope some of them will be motivated to follow this example to create something with their assets that will make a big difference in the long run.
With that mysterious introduction, let me tell you how this started. In 1994, my son, Jeff, became a proud father. I decided I wanted to do something really extraordinary for my new grandson, Aaron. I spent quite a bit of time thinking about what it might be. Simply making good long-term investments wasn't a big enough challenge to get my juices flowing. For this project, I wanted to think in really big, even preposterous, terms.
Finally, I established five ambitious goals for my gift to Aaron. First, I wanted to make a one-time investment that would give Aaron a comfortable retirement when he reaches age 65. Second, I wanted to make sure the money would be there at that time and not be used for anything else in the meantime. (I took some flack from several people for this. But it's my money and my plan and I get to set the rules!) Third, I wanted my investment to grow without any tax liability on the income. Fourth, I wanted this investment to eventually provide at least $20 million for charity. And fifth, I wanted to do all this for only $10,000! That was ambitious enough for me, and with the help of Jeff and a couple of professional advisors I found a way to accomplish all that.
OF TIME AND TRUST
Besides the $10,000, this turned out to require only three essential tools: time (lots of it), a trust and a variable annuity. A trust is a legal entity that holds assets and is strictly governed by the documents that establish it. A variable annuity, which I discuss later in this article, is a product that combines the investment potential of mutual funds with the tax advantages of an insurance policy.
To obtain enough time for this to work, you have to get a little more creative, like forming a grandson-grandpa team. Aaron has the time, but not the financial resources. I have the resources and the ability to plan, but I don't have enough time left. However, put us together and you have a winning combination.
With the help of Jon Barwick (206-283-4300), a Seattle financial planner, and Doug Lawrence (206-626-6000), a Seattle attorney, Jeff and I have worked out the details. I made a gift of $10,000 to an irrevocable trust for Aaron's benefit. This gift is not taxable to Aaron. Jeff and his wife, Barrie, are the trustees. Since Jeff and Barrie are the trustees they cannot gift any money into this trust without tax consequences, but anyone else can add to Aaron's account. (Any year that contributions are made the trustee must submit a simple tax return.) If Jeff did wish to make a gift himself he would have to appoint another trustee.
Under the direction of the trustee, Aaron's trust invested the $10,000 in a variable annuity. Jeff is the trustee as long as he is able, and the trust document tells how successor trustees may be appointed. Because the investment is in a variable annuity, it can compound on a tax-deferred basis. The trust is set up so that Aaron can't touch this money until he is 65 (in the year 2059). That will leave Jeff free to concentrate on very long-term investments, which we expect to provide a compound rate of return (CRR) of 10 to 12 percent over the decades ahead.
As trustee, Jeff chose to invest 50 percent of the money in a U.S. stock portfolio, and 50 percent in an international stock portfolio.
If these investments achieve a compound rate of return of 11.2 percent until Aaron is 65, the variable annuity will be worth $10 million. That's not bad for a $10,000 investment, but the best is still ahead. Under the terms of the trust, Aaron will receive 7 percent of the assets of the trust every year starting at age 65 and continuing as long as he lives. Hopefully the first check will be about $700,000. At an assumed inflation rate of 3 percent, that will be the equivalent of $135,00 in 2005 dollars. That won't make Aaron wealthy, but he'll have a comfortable retirement, especially if these payments are supplemented by his own savings and investments.
Meanwhile, if Aaron lives at least another 20 years after he starts receiving his annual distributions, and if the investments achieve a CRR of 11.2 percent, and he withdraws 7 percent a year, the variable annuity will be worth about $23 million.
At the end of Aaron's lifetime, the assets remaining will go to charitable organizations with a tax-exempt status. Those organizations are to be determined by the trustee or trustees, who could be Aaron's children or grandchildren. Jeff and I think there's a good chance that a Merriman Family Foundation will be formed by that time, and the remaining assets could go into it, with the earnings and proceeds directed to various charitable causes by our descendants. If a family foundation is established it will even be possible to reasonably compensate the family members for running the foundation.
WHAT'S WRONG WITH THIS PLAN?
Jeff and I think this is an excellent plan, but some friends and other financial advisors (the two are not mutually exclusive, by the way!) have been critical. Friends say we should provide an "escape clause" by which Aaron could get the money before age 65 if, for instance, he is disabled or has huge medical expenses. Several of my colleagues have been critical of tying up money so irrevocably, for so long. "A lot of things can change in 65 years," they say. And of course they are right.
I realize that factors beyond my control, Jeff's control or Aaron's control could potentially unravel these plans or place some huge obstacle in the way of their realization. One real possibility is that Congress will limit variable annuity investments or find a way to restrict or eliminate the tax-deferred treatment they get. However, this won't happen without a lot of opposition from the powerful insurance lobbies. I assume (and hope) that any new law on annuities would contain a "grandfather" clause for existing contracts. In any case, I would bet all the money I have that the tax laws will change in some significant ways before the year 2059. There is absolutely no way to know now what those changes might be.
In over half a century on this planet, even my harshest critics would have to admit that I have learned a few irrefutable facts. And one of them is that the future is always uncertain. If you can't act until you know every fact, including those that can't be known, you will always be on the sidelines, never in the game. The total cost to me for this was the initial $10,000 deposit plus the costs of establishing the trust, which were less than $1,000. I can't think of any investment I'd rather make with $11,000.
A BUM DEAL FOR AARON?
Are we doing Aaron a disservice by locking the money up tight until his 65th birthday? Possibly we are. For instance, if Aaron dies before age 65, he won't receive a penny from the trust. If he lived only 65 years and six months, his long-awaited "pension" would be his for only the last half-year of his life. Some people think that is harsh and unfair. In addition, whatever family Aaron leaves behind at his death will get no benefit from this trust other than possibly the right to help give it away to charity.
Intentionally, we set up this trust so that it does not let Aaron off the hook. He will still need to provide for his family's security through prudent investments and insurance. He will need to earn a living and take care of whatever financial needs he has until age 65 without any help from this trust. And even when he is 65, Aaron won't suddenly have great wealth at his disposal.
WINNING THE LOTTO AND MORE
But look at the other side of the equation. Just about anybody who won a $10 million Lotto jackpot, with the money to be distributed over 20 years at $700,000 a year, would consider himself or herself very fortunate. We in essence are giving Aaron that winning Lotto ticket, with an added feature you won't find in standard lotteries: The annual distribution will never stop no matter how long he lives. And because the payout to Aaron is based on the assets of the trust the last day of each year, that payout could grow every year. Try to find a Lotto deal like that!
We think this trust will give Aaron something else important: A very real financial incentive to live a long and healthy life. He'll also have some peace of mind about retirement. We think that if he saves a "normal" amount of money through a working lifetime, he may be able to fund his own "early" retirement at the age of 50 or 55, with the trust distributions kicking in when he's 65.
Finally, the ultimate disposition of this trust's assets will be to charity and Aaron may indirectly have much to say about that disposition. We hope this will prompt Aaron to think of himself as someone who plays an important role in society, encouraging him to pay close attention to charitable organizations and social needs. Through this trust, he will ultimately have the ability to direct a very significant amount of wealth to organizations he wants to support.
We cannot know in advance how Aaron will respond to this gift. But we hope it will give him opportunities he wouldn't otherwise have in life. And it gives me great pleasure to be able to establish a legacy that will continue to benefit him and society long after I am gone.
YOU CAN DO THIS, TOO
I hope there are other people as excited about this concept as I am. And I hope some of them will want to use this example to establish some very long-term investments for their own children, grandchildren, nieces or nephews. I'm starting with $10,000, but a similar plan could be put in place for as little as $2,500. However, I think that is a practical minimum because of the legal costs of establishing a trust and the minimum investments required in most variable annuities.
For those who are interested, I have obtained permission to make copies of our trust document available. We are not offering this in order to give legal advice, and we don't recommend its use except as a starting point for discussion with your attorney and financial advisor. Nevertheless, we think anyone who wants to consider following in our footsteps could benefit from having a copy of the document we are using. If you want a copy, go to http://www.fundadvice.com/trust.html.
WHY A VARIABLE ANNUITY?
The variable annuity is the ideal investment for a plan like this, deferring taxes until the income is disbursed, in this case 65 years. In the meantime, the money can be invested in a portfolio of worldwide equities. With such a long time horizon, we think our chances of success are excellent. Variable annuities have become quite popular since 1986 when Congress wiped out most other tax shelters. These can be useful tools for some investment needs and a review of the product may suggest whether this is a suitable vehicle in your own case.
ANNUITIES 101
At its core, an annuity is a contract between an investor and an insurance company. The simplest type is a single-payment fixed annuity. You pay the insurance company $500,000, for instance, and the insurance company promises to pay you a fixed amount every month for as long as you live. The amount is based on your age and on an assumed investment return. The insurance company takes the risk that you might live much longer than average. It offsets that risk by making very conservative assumptions about the return it can get on your money. You take the risk that you'll die before you collect as much as you paid in (though many policies will pay the difference to your heirs or a beneficiary). And you take the risk that you could have achieved a higher investment return yourself instead of turning your money over to the insurance company.
Most annuities sold as investment products have an "accumulation phase" that lasts years or even decades before the insurance company begins making regular payments. What happens during that time depends on whether an annuity is "fixed" or "variable."
DON'T FIX IT...
In a fixed annuity, the insurance company promises to credit the account by some guaranteed minimum interest rate, usually relatively low, during this accumulation phase. The actual rate is often higher than the guaranteed rate but it is always less than the insurance company expects to make on its own relatively conservative investments.
As investors and savers became more accustomed to having choices and higher returns, and especially as interest rates soared in the late 1970s and early 1980s, the fixed annuity lost some of its popularity. Fewer people wanted to tie up their money at a fixed rate of return. Thus was born the "variable" annuity. What varies is the investment return that builds up the account. Variable annuities offer investors the chance for substantially higher returns than those of fixed accounts, along with the lack of a guarantee and the chance that the returns could be lower than fixed-rate annuities.
Variable annuities have one other important advantage over the fixed variety. In a fixed annuity, the underlying assets are owned by the insurance company. If the insurance company should fail, creditors could eventually seize the money that backs the annuity contracts. This means investors in fixed annuities should be especially careful to do business with only the safest and soundest insurance companies-and those are not necessarily the ones that will offer the highest rates to attract new money. By contrast, the assets behind a variable annuity are not owned by the insurance company and creditors cannot make any claims on those assets. Those assets are separated, giving investors an added measure of safety.
In effect, a variable annuity is a shell inside which you can invest in equities and have the taxes deferred. If you imagine a non-deductible IRA without any limit on contributions, you'll have the idea. The annuity contract will let you invest in one or more private mutual funds, technically known as "subaccounts." These funds are private because they are available only to the insurance company's annuity accounts, even though they may be managed by large mutual fund companies and even though some funds attempt to "clone" the portfolios and performances of some of their most popular mutual funds.
Most people who buy variable annuities do so in order to defer taxes on their retirement savings. For this purpose, variable annuities have another advantage over many other retirement plans. While the rules of IRAs and 401(k) plans require you to start withdrawing the money when you reach age 70 1/2, many annuities will let you delay the start of the payoff stage until you are 85.
However, annuities come with several disadvantages. I think these disadvantages make this product appealing only to investors who can plan to leave their money in the annuity for at least eight to 10 years. The disadvantages fall into the categories of tax traps, limited investment options, fees and more fees. And they stack the deck against investors who change their minds or need their money back sooner than they had planned.
TWO TENDER (TAX) TRAPS
The first tax trap facing annuity investors is common to IRAs and 401(k) plans: An IRS penalty for withdrawals before you are 59 1/2 years old. If you take money out before that age, you'll be slapped with the IRS' 10 percent penalty in addition to regular income taxes on your withdrawal. Second, investors in high tax brackets should understand an idiosyncrasy that variable annuities share with IRAs, 401(k)s, Keoghs and other retirement plans: Capital gains on investment sales lose their favorable tax treatment (the maximum 15 percent tax rate) inside a retirement plan.
Normally, for example, a long-term capital gain of $2,000 would be taxed at 15 percent (unless of course the taxpayer is in a lower bracket), leaving $1,700 of the gain for the investor. But within an IRA or a variable annuity, that gain will eventually be taxed as ordinary income, at your top tax rate, when you withdraw it. Under today's tax law, that could be as high as 35 percent, leaving you with only $1,300. The difference is $400 on a $2,000 gain and $2,000 on a $10,000 gain-more than most of us want to donate to the government if we have a choice! The full implications of this for any individual investor are impossible to assess without knowing what future tax rates will be. However, for long-term investors, this may be a price worth paying for the tax-deferred buildup inside an annuity.
WHAT ARE MY OPTIONS?
Outside of retirement plans, you can invest in anything, including thousands of mutual funds. But inside a typical variable annuity, your choices are much more limited, just as they are in 401(k) plans. You'll have several investment options, as if you invested in a small family of mutual funds. You may have your choice of stock funds, bond funds, balanced funds and sometimes sector funds. If you're making a long-term commitment (as you should if you are buying an annuity) you should be sure to find one that has enough investment choices to meet your needs.
AND SPEAKING OF FEES...The biggest drawback of variable annuities is the complex matrix of fees that cut into your principal and erode your return. Typically these fees may be disclosed in fine print when you sign a contract but they are buried in your periodic statements so you hardly know what's happening to you. One quarterly annuity statement we studied recently contains an entry every month that says "policy processing" without explanation and without any number attached. That's a pretty underhanded way to collect fees, in my opinion, and it's one of my gripes about the insurance business. This is why I think it's vital to understand the types of fees and to shop carefully. If you do that, you can find low-cost variable annuities (four of which I'll suggest in a moment).
Most variable annuities have four types of fees. First are "mortality and expense" fees unique to insurance companies. These annual charges average 1.25 percent to 1.7 percent of the assets in an account. Despite the name, most of this money pays sales commissions to brokers, salespeople and financial planners. In effect, the only thing an investor gets in exchange for this fee is the right to have a tax-deferred investment. That is why I believe adamantly that annuities should not be used, as they frequently are, within already tax advantaged accounts such as IRAs and Keogh plans. Putting an annuity inside a tax-sheltered retirement plan is simply paying a high price, and paying it again every year, for something that you already have!
Second, most annuities come with a fixed annual charge of $15 to $40 to cover the costs of administration. Third, you'll pay a charge based on the assets on each subaccount to cover fund management. Pay close attention, as these fees vary widely. The total of these three fees often exceed 2.25 percent per year, significantly higher than those of a typical mutual fund. The fourth fee is called a surrender charge. It's really a stiff penalty to discourage investors from withdrawing their money in the early years of the policy-before sales commissions have been covered by the other fees you've paid. Surrender charges typically are in effect for four to six years and often require you to forfeit 6 to 8 percent of any money you take out in the first few years. Sometimes, the percentage declines by one percentage point per year.
THE LOW-COST ROUTE
Fortunately for cost-conscious investors, three large investment houses, Vanguard (800-522-5555), Dimensional Fund Advisors* and Schwab (800-838-0650), have developed essentially no-load, low-cost variable annuities. None has any surrender charge for early withdrawals.
*DFA annuities are available only through approved advisors. To find one, go to www.dfaus.com and click on "Find an advisor".
Sunday, September 14, 2008
STARTING A BUSINESS? WHAT NEW (AND EXISTING) BUSINESS OWNERS SHOULD KNOW
Starting a business can be overwhelming enough trying to get up and running but when you think about all the tax requirements, your cup may runneth over. Here is what you must know in order to start your own business on the right foot and avoid paying penalties and interest which can cost more than paying an accountant to do things right the first time.
WHAT FORM OF BUSINESS SHOULD YOU SET UP WHEN STARTING YOUR BUSINESS?
There are several different options including a sole proprietorship, partnership, corporation, S corporation or limited liability company. In general a sole proprietorship works fine if you are very small, not too profitable and aren’t concerned about legal liability issues. A partnership is like being married to the other partners. If you aren’t that cozy with them, you may want to set up another type of entity. Corporations are best suited for business owners who want personal legal protection and have profit available beyond what they will need for their personal use. See http://www.dgoodmancpa.com/smallbusinessretirementplan.htm for an example of what you can do with that available profit tax deferred until retirement. S Corporations are best when you are operating at a loss and want business owner legal protection. Limited liability companies will protect the business owner from personal legal liability and, if structured properly, can be a partnership, corporation or owner for federal income tax purposes.
DO YOU NEED AN EMPLOYER IDENTIFICATION NUMBER (EIN) WHEN YOU START YOUR OWN BUSINESS?
You need an employer identification number if you have employees, have a qualified retirement plan, operate as a corporation or a partnership, or need to file employment or excise tax returns. You do not need an employer identification number if you are a sole proprietor and don’t meet any of the requirements above.
WHAT METHOD CAN YOU USE TO ACCOUNT FOR YOUR INCOME AND EXPENSES WHEN YOU START YOUR SMALL BUSINESS?
The two most common methods are cash and accrual. The cash method in general allows you to report income and expenses in the tax year you receive it. The accrual method in general allows you to report income and expenses in the tax year you earn or incur it even if you haven’t received payment or paid it yet.
WHAT KINDS OF FEDERAL TAXES WILL YOU OWE WHEN STARTING A BUSINESS?
All businesses must file a return. The form used depends on what form of business you set up when starting your business. The federal income tax is a pay-as-you-go tax. In general you must pay the tax as you earn or receive income during the year to avoid penalties and interest if your tax liability for the year exceeds $1,000 including self employment tax for sole proprietors, partners and S corporation shareholders. Corporations should make estimated quarterly payments if they expect to owe $500 for the year. Estimated tax payments are due quarterly. Penalties and interest can be hefty so you should make sure you comply in order to avoid wasting money on IRS penalties.
WHAT TAXES ARE DUE IF YOU HAVE EMPLOYEES IN YOUR SMALL BUSINESS?
Your small business must pay social security and Medicare taxes, federal income tax withholding, federal unemployment tax along with your state and local income taxes. The associated tax returns for reporting these taxes are in general filed quarterly. Your business is entrusted to pay these taxes on behalf of your employees and not only do you have penalties and interest that you will pay for not filing them timely but can also be committing a crime due to the fiduciary responsibility. You need to be sure you know what you are doing here as the consequences could be costly.
WHAT RECORDS SHOULD YOU KEEP WHEN YOU START YOUR BUSINESS?
Except in a few cases, the law does not require any specific kinds of records. The most important thing to ask yourself is can you go back to all of the original receipts from the number on your return. If you were to be asked by an IRS agent to provide all the details of a certain number on your return, and you can not do that, you will be at his whim on whether he will allow that deduction. An efficient accounting system with a solid audit trail which has been reconciled is the safest way to be sure you have done this.
These are just some questions you may have regarding starting your new business. If you have more, e-mail me at dianne@dgoodmancpa.com and I will help you muddle through the tax and business issues you may have. After all, those of us that have our own business know it’s the only way to go but getting up and running can be a bit of a challenge.
This article was intended to provide general information about starting a business. It does not contain all the rules and exceptions that may apply to your situation. If you have further questions regarding starting a small business, I can be reached at www.dgoodmancpa.com.
Coming Soon - Year End Tax Planning and Preparation
CONTACT INFORMATION:
Dianne Goodman, CPA
Comprehensive Small Business Solutions, PC
505 323-2307
1 866-531-3035 toll free
http://www.dgoodmancpa.com
You have permission to reprint what you just read. Use it in your ezine, at your website or in your newsletter. The only requirement is to include the following footer...
Starting a Business? What New (and existing) Business Owners Should Know by Dianne Goodman, visit http://www.dgoodmancpa.com for more content like this.
About the Author
Dianne Goodman, CPA –Specializes in servicing Small Businesses and Individuals. Visit www.dgoodmancpa.comfor relevant and current information on a variety of financial and tax issues focusing on small businesses and individuals or call at 1-866-531-3035
WHAT FORM OF BUSINESS SHOULD YOU SET UP WHEN STARTING YOUR BUSINESS?
There are several different options including a sole proprietorship, partnership, corporation, S corporation or limited liability company. In general a sole proprietorship works fine if you are very small, not too profitable and aren’t concerned about legal liability issues. A partnership is like being married to the other partners. If you aren’t that cozy with them, you may want to set up another type of entity. Corporations are best suited for business owners who want personal legal protection and have profit available beyond what they will need for their personal use. See http://www.dgoodmancpa.com/smallbusinessretirementplan.htm for an example of what you can do with that available profit tax deferred until retirement. S Corporations are best when you are operating at a loss and want business owner legal protection. Limited liability companies will protect the business owner from personal legal liability and, if structured properly, can be a partnership, corporation or owner for federal income tax purposes.
DO YOU NEED AN EMPLOYER IDENTIFICATION NUMBER (EIN) WHEN YOU START YOUR OWN BUSINESS?
You need an employer identification number if you have employees, have a qualified retirement plan, operate as a corporation or a partnership, or need to file employment or excise tax returns. You do not need an employer identification number if you are a sole proprietor and don’t meet any of the requirements above.
WHAT METHOD CAN YOU USE TO ACCOUNT FOR YOUR INCOME AND EXPENSES WHEN YOU START YOUR SMALL BUSINESS?
The two most common methods are cash and accrual. The cash method in general allows you to report income and expenses in the tax year you receive it. The accrual method in general allows you to report income and expenses in the tax year you earn or incur it even if you haven’t received payment or paid it yet.
WHAT KINDS OF FEDERAL TAXES WILL YOU OWE WHEN STARTING A BUSINESS?
All businesses must file a return. The form used depends on what form of business you set up when starting your business. The federal income tax is a pay-as-you-go tax. In general you must pay the tax as you earn or receive income during the year to avoid penalties and interest if your tax liability for the year exceeds $1,000 including self employment tax for sole proprietors, partners and S corporation shareholders. Corporations should make estimated quarterly payments if they expect to owe $500 for the year. Estimated tax payments are due quarterly. Penalties and interest can be hefty so you should make sure you comply in order to avoid wasting money on IRS penalties.
WHAT TAXES ARE DUE IF YOU HAVE EMPLOYEES IN YOUR SMALL BUSINESS?
Your small business must pay social security and Medicare taxes, federal income tax withholding, federal unemployment tax along with your state and local income taxes. The associated tax returns for reporting these taxes are in general filed quarterly. Your business is entrusted to pay these taxes on behalf of your employees and not only do you have penalties and interest that you will pay for not filing them timely but can also be committing a crime due to the fiduciary responsibility. You need to be sure you know what you are doing here as the consequences could be costly.
WHAT RECORDS SHOULD YOU KEEP WHEN YOU START YOUR BUSINESS?
Except in a few cases, the law does not require any specific kinds of records. The most important thing to ask yourself is can you go back to all of the original receipts from the number on your return. If you were to be asked by an IRS agent to provide all the details of a certain number on your return, and you can not do that, you will be at his whim on whether he will allow that deduction. An efficient accounting system with a solid audit trail which has been reconciled is the safest way to be sure you have done this.
These are just some questions you may have regarding starting your new business. If you have more, e-mail me at dianne@dgoodmancpa.com and I will help you muddle through the tax and business issues you may have. After all, those of us that have our own business know it’s the only way to go but getting up and running can be a bit of a challenge.
This article was intended to provide general information about starting a business. It does not contain all the rules and exceptions that may apply to your situation. If you have further questions regarding starting a small business, I can be reached at www.dgoodmancpa.com.
Coming Soon - Year End Tax Planning and Preparation
CONTACT INFORMATION:
Dianne Goodman, CPA
Comprehensive Small Business Solutions, PC
505 323-2307
1 866-531-3035 toll free
http://www.dgoodmancpa.com
You have permission to reprint what you just read. Use it in your ezine, at your website or in your newsletter. The only requirement is to include the following footer...
Starting a Business? What New (and existing) Business Owners Should Know by Dianne Goodman, visit http://www.dgoodmancpa.com for more content like this.
About the Author
Dianne Goodman, CPA –Specializes in servicing Small Businesses and Individuals. Visit www.dgoodmancpa.comfor relevant and current information on a variety of financial and tax issues focusing on small businesses and individuals or call at 1-866-531-3035
20 Small Business Tips, For Success
These are just some general tips to keep in mind as you design/operate your small business:
1. Take the time out to explore and understand whether or not you are compatible with running our own business. Some people are just plain happier and better off financially on the other end of the paycheck.
2.Get your personal finances in order. Before you jump into the entrepreneurship world, get your own money matters squared away.
3. Pick your niche. Many small business owners succeed in businesses that are hardly unique or innovative. Take stock of your skills, interests, and employment history to select the business that is best suited for you.
4. Benefit from your business plan. The exercise of creating a business plan is what pays the dividends. Answer the tough questions now before the meter starts running.
5. Do not think you need bankers and investors at the outset of your business. The vast majority of small businesses are bootstrapped.
6. Acquire the proper background. In the early months and years of your business, you will have to acquire many skills. Gain the background you need to oversee all facets of your business well, but determine what tasks you should outsource or hire employees.
7. Remember that nothing happens until a sale is made – How many good products go nowhere because they do not reach the shelves? Sales drive your business. You will need a good marketing plan to sell your product or service.
8. You have to see a customer to know one. N o matter how busy you are, spend at least 25% of your time with customers. You cannot make the proper business decision without understanding their viewpoint.
9. Solve your customers’ problems. The best way to satisfy your customers is not by selling them products but by giving solutions to their problems. There is a big difference.
10.Quality takes minutes to lose but years to regain. Quality is not a destination, it is a never ending journey. After you have strayed from quality’s path, your journey maybe sidetracked forever.
11. Put profitability first, rewards seconds. In small businesses, profitability must come first. Find out how to measure your cash flow and understand key financial ratios.
12. Hire supporters. If you intend to create a growing business, your number one duty is to assemble a great team of employees.
13. Do not do it alone. Find such help from small business peers, a mentor, even trade associations. They can help take some of the trial and error of beginning your business.
14. Vendors are partners too! Treat your vendors like customers and watch your partnership grow.
15. Make use of benefits. Understand how to provide insurance and other benefits for your employees and cut your tax bill at the same time.
16. Ignore regulatory issues at your peril. Federal, state, and local governments require licenses, registrations, and permits. Obey them or face losing your business.
17. Know the tax laws. Invest in understanding tax issues that affect your small business.
18. It’s the people! Whatever happens to a small business happens at the hands of the people who work for it. The evolution of the business is a result of their efforts.
19. Fast, good, cheap. Pick any two. Serious trouble awaits those who attempt to be all three in the market place. Stick with what you do best.
20. Develop a passion for learning. As your business grows, you need to change and grow along with it. One common denominator can be found in all successful business owners and that is a passion for learning.
by: Dave Ryan
1. Take the time out to explore and understand whether or not you are compatible with running our own business. Some people are just plain happier and better off financially on the other end of the paycheck.
2.Get your personal finances in order. Before you jump into the entrepreneurship world, get your own money matters squared away.
3. Pick your niche. Many small business owners succeed in businesses that are hardly unique or innovative. Take stock of your skills, interests, and employment history to select the business that is best suited for you.
4. Benefit from your business plan. The exercise of creating a business plan is what pays the dividends. Answer the tough questions now before the meter starts running.
5. Do not think you need bankers and investors at the outset of your business. The vast majority of small businesses are bootstrapped.
6. Acquire the proper background. In the early months and years of your business, you will have to acquire many skills. Gain the background you need to oversee all facets of your business well, but determine what tasks you should outsource or hire employees.
7. Remember that nothing happens until a sale is made – How many good products go nowhere because they do not reach the shelves? Sales drive your business. You will need a good marketing plan to sell your product or service.
8. You have to see a customer to know one. N o matter how busy you are, spend at least 25% of your time with customers. You cannot make the proper business decision without understanding their viewpoint.
9. Solve your customers’ problems. The best way to satisfy your customers is not by selling them products but by giving solutions to their problems. There is a big difference.
10.Quality takes minutes to lose but years to regain. Quality is not a destination, it is a never ending journey. After you have strayed from quality’s path, your journey maybe sidetracked forever.
11. Put profitability first, rewards seconds. In small businesses, profitability must come first. Find out how to measure your cash flow and understand key financial ratios.
12. Hire supporters. If you intend to create a growing business, your number one duty is to assemble a great team of employees.
13. Do not do it alone. Find such help from small business peers, a mentor, even trade associations. They can help take some of the trial and error of beginning your business.
14. Vendors are partners too! Treat your vendors like customers and watch your partnership grow.
15. Make use of benefits. Understand how to provide insurance and other benefits for your employees and cut your tax bill at the same time.
16. Ignore regulatory issues at your peril. Federal, state, and local governments require licenses, registrations, and permits. Obey them or face losing your business.
17. Know the tax laws. Invest in understanding tax issues that affect your small business.
18. It’s the people! Whatever happens to a small business happens at the hands of the people who work for it. The evolution of the business is a result of their efforts.
19. Fast, good, cheap. Pick any two. Serious trouble awaits those who attempt to be all three in the market place. Stick with what you do best.
20. Develop a passion for learning. As your business grows, you need to change and grow along with it. One common denominator can be found in all successful business owners and that is a passion for learning.
by: Dave Ryan
5 keys to making money online
Would you believe there are tens of thousands of people who have found ways to make money online? Not only that, but their incomes are significant and growing, due to little competition and low cost of entry. If I can do it, then there is no reason why you can't. You can literally begin making money right away.
There are many, many, opportunities online, but here are the 5 factors you really need to consider, to guarantee your success:
1. Set your goals.
As with any business you need to set goals. Goals help you visualize where you want to go, and keep you motivated when you get up in the morning. You goal may be to earn $500 or $10000 a month, it may be to take that dream vacation, or it may be to give up your job. These are all great goals. It is imperative that you write them down and reread them often. You need a short term goal - e.g monthly goal, to keep you motivated from day to day and a longer term goal 1-2 years - to keep you on track and prevent you from chucking it in. I am confident that if you adopt a positive attitude and embrace your goals then you will soon be making money online.
2. Take time to research.
As I alluded to earlier there are many people making money online - and there are thousands of different businesses that you can try. The internet is a mine field of information and “making money online” opportunities are not difficult to find. However you will need to decipher the genuine opportunities from the scams. Many online promises are just methods to extract money from you. Some do's and don'ts
DON'T fall for the “get rich quick schemes” that promise huge returns in record time
DO try and email or telephone for more information
DO search online for feedback on the opportunity e.g. try name of opportunity + scam
DON'T part with money without consulting a friend you can trust and/or sleeping on it.
3. Find something that you like.
You're the boss now - so do yourself a favor and choose something you enjoy. This will greatly enhance your chances of success. A few things to consider:
Do you enjoy writing?
Do you enjoy talking to people?
Do you enjoy working on the computer?
Do you have a flair for sales?
Are there particular things that you are passionate about e.g sports, music?
Do you want to be contactable 24x7?
Do you want to have flexible/fixed hours?
Personally I like to work on my computer on my own time and my choice of internet business matches this. Find out what suits you, and you can weed out the business ventures which are not for you. Don't settle for second best - choose something you are comfortable with.
4. Find something worth your while.
While it is a good idea to avoid the sales pitch that promises the sun, moon, and stars; it is also important that you don't take the safe option - that guarantees $5 an hour for sending emails, filling our surveys, or licking stamps. These amount to you underselling yourself, because the opportunities of making money on the internet are so much greater. Look for systems which offer a good monthly return for a few hours work a day - if you find something with a residual income all the better.
5. Anything for an easier life!
One of my motivations for venturing into internet marketing was to create an easier life for myself. As I sat in my day job I used to think - “There must be easier ways to make money” - and there are! Earning a living online means that you have the luxury of working from home and choosing your own hours. It is important that you can exploit these perks, by being able to take time off, take extra vacations and spend more time with your family. You need to avoid the 40-50 hours a week for the sake of your sanity.
You have taken the first step by reading this article - you now just need to act upon it. I wish you the very best in your online endeavors.
by: Keith Kingston
About the author:
Keith Kingston is a highly successful affiliate marketer who is dying to share the methods he uses with you. Find out today about his guaranteed way to make money online at http://www.earnmoremoneyonline.com
There are many, many, opportunities online, but here are the 5 factors you really need to consider, to guarantee your success:
1. Set your goals.
As with any business you need to set goals. Goals help you visualize where you want to go, and keep you motivated when you get up in the morning. You goal may be to earn $500 or $10000 a month, it may be to take that dream vacation, or it may be to give up your job. These are all great goals. It is imperative that you write them down and reread them often. You need a short term goal - e.g monthly goal, to keep you motivated from day to day and a longer term goal 1-2 years - to keep you on track and prevent you from chucking it in. I am confident that if you adopt a positive attitude and embrace your goals then you will soon be making money online.
2. Take time to research.
As I alluded to earlier there are many people making money online - and there are thousands of different businesses that you can try. The internet is a mine field of information and “making money online” opportunities are not difficult to find. However you will need to decipher the genuine opportunities from the scams. Many online promises are just methods to extract money from you. Some do's and don'ts
DON'T fall for the “get rich quick schemes” that promise huge returns in record time
DO try and email or telephone for more information
DO search online for feedback on the opportunity e.g. try name of opportunity + scam
DON'T part with money without consulting a friend you can trust and/or sleeping on it.
3. Find something that you like.
You're the boss now - so do yourself a favor and choose something you enjoy. This will greatly enhance your chances of success. A few things to consider:
Do you enjoy writing?
Do you enjoy talking to people?
Do you enjoy working on the computer?
Do you have a flair for sales?
Are there particular things that you are passionate about e.g sports, music?
Do you want to be contactable 24x7?
Do you want to have flexible/fixed hours?
Personally I like to work on my computer on my own time and my choice of internet business matches this. Find out what suits you, and you can weed out the business ventures which are not for you. Don't settle for second best - choose something you are comfortable with.
4. Find something worth your while.
While it is a good idea to avoid the sales pitch that promises the sun, moon, and stars; it is also important that you don't take the safe option - that guarantees $5 an hour for sending emails, filling our surveys, or licking stamps. These amount to you underselling yourself, because the opportunities of making money on the internet are so much greater. Look for systems which offer a good monthly return for a few hours work a day - if you find something with a residual income all the better.
5. Anything for an easier life!
One of my motivations for venturing into internet marketing was to create an easier life for myself. As I sat in my day job I used to think - “There must be easier ways to make money” - and there are! Earning a living online means that you have the luxury of working from home and choosing your own hours. It is important that you can exploit these perks, by being able to take time off, take extra vacations and spend more time with your family. You need to avoid the 40-50 hours a week for the sake of your sanity.
You have taken the first step by reading this article - you now just need to act upon it. I wish you the very best in your online endeavors.
by: Keith Kingston
About the author:
Keith Kingston is a highly successful affiliate marketer who is dying to share the methods he uses with you. Find out today about his guaranteed way to make money online at http://www.earnmoremoneyonline.com
Wednesday, September 10, 2008
Banking on good news for investors
As Royal Bank of Scotland (RBS) becomes the latest bank to announce record losses, Nick Raynor, an investment adviser at The Share Centre, suggests that these bad results for banks could mean good news for investors.
He says, ‘Despite the pre-tax loss felt by RBS being the second biggest in banking history, investors should be relieved that things aren't as bad as they feared. Last week the shares were trading up 4 per cent, which continues RBS's strong resurgence after shares hit a low of 144p: an overall increase of 65 per cent since mid-July.
‘Those investors who have been trading the shares may now want to sell out and move on to pastures new, while long-term investors would be wise to continue to hold. Shareholders who backed the rights issue are likely to be smiling the most as they are currently showing a near 20 per cent profit.’
The last two weeks have seen a mixed bag of results for banks. However, Raynor points out that investors in RBS, Lloyds TSB and Barclays should be encouraged by their decision not to cut dividends.
Raynor says, ‘Although RBS's losses were huge, they were not as bad as expected, and the company has gone some way to shore up its debts. Lloyds TSB on the other hand is currently offering good value for investors, and Barclays remains one of our preferred banks given its international operations and large trading arm, Barclays Capital.’
Jennifer Lowe
He says, ‘Despite the pre-tax loss felt by RBS being the second biggest in banking history, investors should be relieved that things aren't as bad as they feared. Last week the shares were trading up 4 per cent, which continues RBS's strong resurgence after shares hit a low of 144p: an overall increase of 65 per cent since mid-July.
‘Those investors who have been trading the shares may now want to sell out and move on to pastures new, while long-term investors would be wise to continue to hold. Shareholders who backed the rights issue are likely to be smiling the most as they are currently showing a near 20 per cent profit.’
The last two weeks have seen a mixed bag of results for banks. However, Raynor points out that investors in RBS, Lloyds TSB and Barclays should be encouraged by their decision not to cut dividends.
Raynor says, ‘Although RBS's losses were huge, they were not as bad as expected, and the company has gone some way to shore up its debts. Lloyds TSB on the other hand is currently offering good value for investors, and Barclays remains one of our preferred banks given its international operations and large trading arm, Barclays Capital.’
Jennifer Lowe
Tuesday, September 9, 2008
Forex Profits by buying and selling at the same time?
This article is one of a series which looks at the advantages and weaknesses of trading using the hedged, grid trading system to trade volatile markets.
We will look at how money can be made by breaking a number of trading truths or principles; * cut your losses and let your profit run and * there is nothing to gained by entering into buy and sell deals at the same time.
The hedged grid trading system uses the principle that one should be able to cash in at a gain no matter which way the market moves. No stops are therefore required at all. The only way this is logically possible is that one would have a buy and sell active at the same time. Most traders will say that that is trading suicide but let's take some to look at this more closely.
Let's say that a trader enters the market with a buy and sell active when a currency is at a level of say 100. The price then moves to 200. The buy will then be positive by 100 and the sell will be negative by 100. At this point we start breaking trading rules. We cash in our positive buy and the gain of 100 goes to our account. The sell is now carrying a loss of -100.
The grid system requires one to make sure that cash in on any movement in the market. To do this one would again enter into a buy and a sell transaction. Now, for convenience, let's assume that the price moves back to level 100.
The second sell has now gone positive by 100 and the second buy is carrying a loss of -100. According to the rules one would cash the sell in and another 100 will be added to your account. That brings the total cashed in at this point to 200.
Now the first sell that remained active has moved from level 200 where it was -100 to level 100 where it is now breaking even.
The 4 transactions added together now magically show a gain:- 1st buy cashed in +100, 2nd sell cashed in +100, 1st sell now breaking even and the 2nd buy is -100. This gives an overall a gain of 100 in total. We can liquidate all the transactions and have some champagne.
There are many, many other market movements that turn this strange buy and sell at the same time� activity into gains. These will be covered in future articles and are covered in a free grid trading course which is available at the expert-4x.com website for those traders whose curiosity has been aroused.
There will be more on the hedged grid trading articles to be issued regularly. Please watch Forex Article Collection for future articles.
About the Author
Mary McArthur is a Trader associated with expert-4x.com. She provides the main input into the page rated Forex Trading Blog forextradeoftheday.com and assists with the educational and trading alert services provided by forextradersupportservices.com. She is considered an expert of the hedged grid system and has co authored a free grid trading course on expert4x.com
We will look at how money can be made by breaking a number of trading truths or principles; * cut your losses and let your profit run and * there is nothing to gained by entering into buy and sell deals at the same time.
The hedged grid trading system uses the principle that one should be able to cash in at a gain no matter which way the market moves. No stops are therefore required at all. The only way this is logically possible is that one would have a buy and sell active at the same time. Most traders will say that that is trading suicide but let's take some to look at this more closely.
Let's say that a trader enters the market with a buy and sell active when a currency is at a level of say 100. The price then moves to 200. The buy will then be positive by 100 and the sell will be negative by 100. At this point we start breaking trading rules. We cash in our positive buy and the gain of 100 goes to our account. The sell is now carrying a loss of -100.
The grid system requires one to make sure that cash in on any movement in the market. To do this one would again enter into a buy and a sell transaction. Now, for convenience, let's assume that the price moves back to level 100.
The second sell has now gone positive by 100 and the second buy is carrying a loss of -100. According to the rules one would cash the sell in and another 100 will be added to your account. That brings the total cashed in at this point to 200.
Now the first sell that remained active has moved from level 200 where it was -100 to level 100 where it is now breaking even.
The 4 transactions added together now magically show a gain:- 1st buy cashed in +100, 2nd sell cashed in +100, 1st sell now breaking even and the 2nd buy is -100. This gives an overall a gain of 100 in total. We can liquidate all the transactions and have some champagne.
There are many, many other market movements that turn this strange buy and sell at the same time� activity into gains. These will be covered in future articles and are covered in a free grid trading course which is available at the expert-4x.com website for those traders whose curiosity has been aroused.
There will be more on the hedged grid trading articles to be issued regularly. Please watch Forex Article Collection for future articles.
About the Author
Mary McArthur is a Trader associated with expert-4x.com. She provides the main input into the page rated Forex Trading Blog forextradeoftheday.com and assists with the educational and trading alert services provided by forextradersupportservices.com. She is considered an expert of the hedged grid system and has co authored a free grid trading course on expert4x.com
Making Money by breaking ALL the Forex Trading rules
When I started my trading career I attended a 3 day forex trading course which gave me a mere introduction to this great and fascinating money making activity. I was given some good advice during this course but I have since found that there are more many more ways to skin a cat than sticking to hard a fast Forex trading rules. If all traders are sticking these common trading beliefs one has to ask the question why do so many fail?
One of the Golden rules of Forex trading I was told is Never, but never, trade without a stoploss. I took this rule very much to heart and started trading with stops. Like most beginners my stops were way too tight and small and I got stopped out time and time again. As I gained experience and started trading the bigger price waves I started trading bigger stops. I soon realised that the bigger your stop the higher your success rate. However I also soon found out that the gains made on nine successful transactions when using big stops can very quickly be wiped out by one or two big losses. So I went through a very frustrating time when my stops were too small for my good transactions (the stops were hit and then my targets soon after) and way too big for my bad transactions (allowing big stops when the direction was totally wrong). You soon start thinking that brokers are there just to hunt your stops. This is always an emotive subject for debate amongst forex traders.
One day I started thinking the unthinkable. Why not trade without a stoploss at all? Is it possible to make money trading with no stoploss orders? I set about developing a technique to do just that. It took a few years of experimenting, but I now have a profitable no stop forex trading technique. I can't tell you the relief of not caring which way the price moves (as long as it moves). Yes, it is possible to cash on any move in the market. For more information, which is freely available, on this great technique why not Google stop forex trading or visit informative sites like www.expert-4x.com or www.forextradersupportservices.com
Other rules that were worthwhile breaking in the course of developing this technique were: let your profits run and cut your losses or always trade in the direction of the main trend. These will be subjects of future articles which give more information on the development of the No Stop forex trading system.
This is the first in a series of seven articles on the No stop forex trading technique which will be published in this article directory on a regular basis. Make sure that you do not miss any of them.
About the Author
Find out how you can make money trading the no stop forex trading technique from Mary McArthur who is a Forex trader with http://www.forextrading-alerts.com She also assists with management of http://www.forextradersupportservices.com Mary is considered an expert of the system and has co authored a forex trading course available on the above sites and can be contacted at info@expert4x.com
One of the Golden rules of Forex trading I was told is Never, but never, trade without a stoploss. I took this rule very much to heart and started trading with stops. Like most beginners my stops were way too tight and small and I got stopped out time and time again. As I gained experience and started trading the bigger price waves I started trading bigger stops. I soon realised that the bigger your stop the higher your success rate. However I also soon found out that the gains made on nine successful transactions when using big stops can very quickly be wiped out by one or two big losses. So I went through a very frustrating time when my stops were too small for my good transactions (the stops were hit and then my targets soon after) and way too big for my bad transactions (allowing big stops when the direction was totally wrong). You soon start thinking that brokers are there just to hunt your stops. This is always an emotive subject for debate amongst forex traders.
One day I started thinking the unthinkable. Why not trade without a stoploss at all? Is it possible to make money trading with no stoploss orders? I set about developing a technique to do just that. It took a few years of experimenting, but I now have a profitable no stop forex trading technique. I can't tell you the relief of not caring which way the price moves (as long as it moves). Yes, it is possible to cash on any move in the market. For more information, which is freely available, on this great technique why not Google stop forex trading or visit informative sites like www.expert-4x.com or www.forextradersupportservices.com
Other rules that were worthwhile breaking in the course of developing this technique were: let your profits run and cut your losses or always trade in the direction of the main trend. These will be subjects of future articles which give more information on the development of the No Stop forex trading system.
This is the first in a series of seven articles on the No stop forex trading technique which will be published in this article directory on a regular basis. Make sure that you do not miss any of them.
About the Author
Find out how you can make money trading the no stop forex trading technique from Mary McArthur who is a Forex trader with http://www.forextrading-alerts.com She also assists with management of http://www.forextradersupportservices.com Mary is considered an expert of the system and has co authored a forex trading course available on the above sites and can be contacted at info@expert4x.com
Monday, September 8, 2008
Predicting Stock Market Movements
I've been thinking about starting a stock market prediction business. Clearly, there is a huge market for timely and accurate information of this type, and just as clearly, predicting the future is much easier than dealing with the realities of whatever is actually happening at the moment. If investors could know what's going to happen next, they could develop a plan to deal with it in the present. Maybe Wall Street could help me get this new business up and running!
What's that? Wall Street institutions already spend billions predicting future price movements of the stock market, individual issues & indices, commodities, and hemlines. Really? Is that right also? Economists have been analyzing and charting world economies for decades, showing clearly the repetitive cyclical changes and their upward bias. Funny then, or strange would be more accurate, that the advice generated by the oracles of Wall Street seems to assume that the current environment, good or bad, will be everlasting. Isn't it this kind of thinking and advising that prolongs the downturns and "bubbles" the advances---in all markets?
If it were true that our favorite pinstriped product pushers can actually predict the future, why would investors do what they do in response to the predictions? Why would financial professionals of every shape and size holler: "sell" at lower prices, and "buy at any price" when market valuations surge upward? Shouldn't lower prices be the call to the mall? Most Wall Street soothsaying has a short-term focus that dwells upon today's market conditions; most Wall Street glossies emphasize the long-term nature of investment programs, and encourage investors to apply patience to the program they decide to use for goal achievement. Why is the advice so out of sinc?
The reason for the emphasis confusion is simple: it's easier to play to the emotion of the moment than it is to look beyond--- even though we all know that a directional change will be along eventually. Regardless of the direction, Wall Street advice will always fuel the operative emotion: greed or fear! Wall Street's retail representatives never go against the grain of the consensus opinion--- particularly the one projected to them by their superiors. You cannot obtain independent thinking from a Wall Street salesperson; it doesn't fill up the "Beemer".
Here's some global advice that you will not hear on the street of dreams: Sell into rallies. Buy on bad news. Buy slowly; sell quickly. Always sell too soon. Always buy too soon. And by the way, who do you think is buying and selling the securities you have been told to dump or to hoard?
No self respecting guru would ever refute the basic truths that the market indices, individual issue prices, the economy, and interest rates will continue to move in both directions, unpredictably, forever. Hmmm, this is where you need to focus your attention if you want to get through the investment process with your sanity. You need to expect and plan for directional changes and learn to use them to your advantage. Tranquilizers may be necessary to get you through the first few cycles, but if you have minimized your risk properly, you can actually thrive on the long-term predictability of the markets.
The risk of loss cannot be eliminated. A simple change in a security's market value is not a loss of principal just as certainly as a change in the market value of your home is not evidence of termite damage. Markets are complicated; emotions about one's assets are even more so. Cyclical changes in all markets are just as predictable conceptually as knowing approximately where you are within a cycle is knowable actually. The key is to understand what your securities are expected to do within the cyclical framework. Now there's a knowledge business with no Wall Street practitioners!
Predicting individual stock prices is a totally different ball game that requires a more powerful crystal ball and an array of semi legal and illegal relationships that are unavailable to most investors. There are just too many variables. Prediction is impossible, but probability assessment has enormous potential. Investing in individual issues has to be done differently, with rules, guidelines, and judgment. It has to be done unemotionally and rationally, monitored regularly, and analyzed with performance evaluation tools that are portfolio specific.
This is not nearly as difficult as it sounds, and if you are a shopper, looking for bargains elsewhere in your life, you should have no trouble understanding the workings of the stock market. There are only three decision-making scenarios that investors need to master if they want to predict long-term success for their portfolios.
The "Buy" decision has two important steps: Step one allocates the available investment assets, by purpose, between Equity and Income securities, based on the goals of the investment program. It is done best using The Working Capital Model. Step two establishes strict selection quality measures and diversifies properly within each security class. Investment Grade Value Stocks are the low-risk equity champions; long-term, non-gimmick, managed CEFs produce the best income/diversification mix available in readily tradeable form.
The "Sell" decision involves setting reasonable targets for profit taking for all securities in the portfolio. Loss taking decisions must not be undertaken out of fear, and must be avoided during severe market downturns. Understanding the forces causing market value shrinkage is important and a highly disciplined hand at the emotion control button is essential. There is no such thing as a good loss of capital.
The "Hold" decision is most common, and it regulates and moderates the process, keeping it less than frantic. Continue to hold onto fundamentally strong equities and income securities that are providing their normal cash flow. Hold weaker positions until the appropriate cycle (market, interest, economy) changes direction, and then consider whether to sell or to buy more.
Wall Street spins reality in whatever manner it can to make most investors unhappy, thus increasing new product sales. Your confusion, fear, greed, impatience, and need for a quick panacea fuels their profit engines, not yours. Learn how to deal unemotionally with Wall Street events and shun the herd mentality... that'll fix 'em.
About the Author
Steve Selengut http://www.sancoservices.com http://www.valuestockindex.com Professional Portfolio Management since 1979 Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
What's that? Wall Street institutions already spend billions predicting future price movements of the stock market, individual issues & indices, commodities, and hemlines. Really? Is that right also? Economists have been analyzing and charting world economies for decades, showing clearly the repetitive cyclical changes and their upward bias. Funny then, or strange would be more accurate, that the advice generated by the oracles of Wall Street seems to assume that the current environment, good or bad, will be everlasting. Isn't it this kind of thinking and advising that prolongs the downturns and "bubbles" the advances---in all markets?
If it were true that our favorite pinstriped product pushers can actually predict the future, why would investors do what they do in response to the predictions? Why would financial professionals of every shape and size holler: "sell" at lower prices, and "buy at any price" when market valuations surge upward? Shouldn't lower prices be the call to the mall? Most Wall Street soothsaying has a short-term focus that dwells upon today's market conditions; most Wall Street glossies emphasize the long-term nature of investment programs, and encourage investors to apply patience to the program they decide to use for goal achievement. Why is the advice so out of sinc?
The reason for the emphasis confusion is simple: it's easier to play to the emotion of the moment than it is to look beyond--- even though we all know that a directional change will be along eventually. Regardless of the direction, Wall Street advice will always fuel the operative emotion: greed or fear! Wall Street's retail representatives never go against the grain of the consensus opinion--- particularly the one projected to them by their superiors. You cannot obtain independent thinking from a Wall Street salesperson; it doesn't fill up the "Beemer".
Here's some global advice that you will not hear on the street of dreams: Sell into rallies. Buy on bad news. Buy slowly; sell quickly. Always sell too soon. Always buy too soon. And by the way, who do you think is buying and selling the securities you have been told to dump or to hoard?
No self respecting guru would ever refute the basic truths that the market indices, individual issue prices, the economy, and interest rates will continue to move in both directions, unpredictably, forever. Hmmm, this is where you need to focus your attention if you want to get through the investment process with your sanity. You need to expect and plan for directional changes and learn to use them to your advantage. Tranquilizers may be necessary to get you through the first few cycles, but if you have minimized your risk properly, you can actually thrive on the long-term predictability of the markets.
The risk of loss cannot be eliminated. A simple change in a security's market value is not a loss of principal just as certainly as a change in the market value of your home is not evidence of termite damage. Markets are complicated; emotions about one's assets are even more so. Cyclical changes in all markets are just as predictable conceptually as knowing approximately where you are within a cycle is knowable actually. The key is to understand what your securities are expected to do within the cyclical framework. Now there's a knowledge business with no Wall Street practitioners!
Predicting individual stock prices is a totally different ball game that requires a more powerful crystal ball and an array of semi legal and illegal relationships that are unavailable to most investors. There are just too many variables. Prediction is impossible, but probability assessment has enormous potential. Investing in individual issues has to be done differently, with rules, guidelines, and judgment. It has to be done unemotionally and rationally, monitored regularly, and analyzed with performance evaluation tools that are portfolio specific.
This is not nearly as difficult as it sounds, and if you are a shopper, looking for bargains elsewhere in your life, you should have no trouble understanding the workings of the stock market. There are only three decision-making scenarios that investors need to master if they want to predict long-term success for their portfolios.
The "Buy" decision has two important steps: Step one allocates the available investment assets, by purpose, between Equity and Income securities, based on the goals of the investment program. It is done best using The Working Capital Model. Step two establishes strict selection quality measures and diversifies properly within each security class. Investment Grade Value Stocks are the low-risk equity champions; long-term, non-gimmick, managed CEFs produce the best income/diversification mix available in readily tradeable form.
The "Sell" decision involves setting reasonable targets for profit taking for all securities in the portfolio. Loss taking decisions must not be undertaken out of fear, and must be avoided during severe market downturns. Understanding the forces causing market value shrinkage is important and a highly disciplined hand at the emotion control button is essential. There is no such thing as a good loss of capital.
The "Hold" decision is most common, and it regulates and moderates the process, keeping it less than frantic. Continue to hold onto fundamentally strong equities and income securities that are providing their normal cash flow. Hold weaker positions until the appropriate cycle (market, interest, economy) changes direction, and then consider whether to sell or to buy more.
Wall Street spins reality in whatever manner it can to make most investors unhappy, thus increasing new product sales. Your confusion, fear, greed, impatience, and need for a quick panacea fuels their profit engines, not yours. Learn how to deal unemotionally with Wall Street events and shun the herd mentality... that'll fix 'em.
About the Author
Steve Selengut http://www.sancoservices.com http://www.valuestockindex.com Professional Portfolio Management since 1979 Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
tips and trick how to make consistent profits with online trading
Day trading the stock market involves the rapid buying and selling of stocks on a day-to-day basis. This technique is used to secure quick profits from the constant changes in stock values, minute to minute, second to second. It is rare that a day trader will remain in a trade over the course of a night into the next day. These trades are entered and exited in a matter of minutes.
The main question that most people ask when it comes to day trading is simple: Is it necessary to sit at a computer watching the markets ALL day long in order to be a successful day trader?
The answer is no. It's not necessary to sit at a computer all day long. There are a number of factors to consider, but generally the rule of day trading is to trade when everyone else is trading. In other words, trade in the morning.
As with all financial investments, day trading is risky � in fact, it's one of the riskiest forms of trading out there. The stock prices rise or fall according to the behavior of the market, which is entirely unpredictable. Day traders buy and sell shares rapidly in the hopes of gaining profits within the minutes and seconds they own those particular stocks. Simple to do in theory, harder to do in practice.
If you are constrained by a small amount of capital, you may not be able to buy large amounts of a stock, but buying only a small amount can add to the risk of a loss. And, obviously, it is impossible to predict with certainty which stocks will result in profits and which in losses. Even the best of traders must learn to accept both outcomes.
It's also important to know that in day trading, it is the number of shares rather than the value of shares that should be the focus. If you day trade, you WILL face losses, but even for the more expensive stocks, the loss should be marginal, because prices do not usually fluctuate to an extreme degree over the course of just one day.
The day trading industry deals in a large variety of stocks and shares. Here are just a few:
Growth-Buying Shares� shares made from profit, which continue to grow in value. Eventually, these shares will begin to decline in price, and an experienced trader can usually predict the future of this type of share.
Small Caps� shares of companies which are on the rise and show no signs of stopping. Although these shares are generally cheap, they are a very risky investment for day traders. You'll be safer to go with large caps and/or mid-caps, which are much more secure and stable thanks to a premium.
Unloved Stocks� company stock that has not performed well in the past. Traders buy these shares in the hopes of generating profits if and when the stock rises in value. As with small caps, unloved stocks can be a risky choice for day traders.
These examples are NOT your only options when it comes to day trading stocks. The best way to determine which type of stock is right for you is to invest some time for careful research, a knowledge of market patterns, a solid strategy, and a disciplined trading plan.
The key to successful day trading is to be prepared. Know as much as possible about the industry before you begin actually trading. You need to learn to trade ONLY when the market gives the right signals, and ONLY when the volume of activity in the market supports a successful trading opportunity.
About the Author
Markus Heitkoetter is a 19 year veteran of the markets and the CEO of Rockwell Trading.
For more free information and tips and trick how to make consistent profits with online
trading,visit his website www.rockwelltrading.com.
The main question that most people ask when it comes to day trading is simple: Is it necessary to sit at a computer watching the markets ALL day long in order to be a successful day trader?
The answer is no. It's not necessary to sit at a computer all day long. There are a number of factors to consider, but generally the rule of day trading is to trade when everyone else is trading. In other words, trade in the morning.
As with all financial investments, day trading is risky � in fact, it's one of the riskiest forms of trading out there. The stock prices rise or fall according to the behavior of the market, which is entirely unpredictable. Day traders buy and sell shares rapidly in the hopes of gaining profits within the minutes and seconds they own those particular stocks. Simple to do in theory, harder to do in practice.
If you are constrained by a small amount of capital, you may not be able to buy large amounts of a stock, but buying only a small amount can add to the risk of a loss. And, obviously, it is impossible to predict with certainty which stocks will result in profits and which in losses. Even the best of traders must learn to accept both outcomes.
It's also important to know that in day trading, it is the number of shares rather than the value of shares that should be the focus. If you day trade, you WILL face losses, but even for the more expensive stocks, the loss should be marginal, because prices do not usually fluctuate to an extreme degree over the course of just one day.
The day trading industry deals in a large variety of stocks and shares. Here are just a few:
Growth-Buying Shares� shares made from profit, which continue to grow in value. Eventually, these shares will begin to decline in price, and an experienced trader can usually predict the future of this type of share.
Small Caps� shares of companies which are on the rise and show no signs of stopping. Although these shares are generally cheap, they are a very risky investment for day traders. You'll be safer to go with large caps and/or mid-caps, which are much more secure and stable thanks to a premium.
Unloved Stocks� company stock that has not performed well in the past. Traders buy these shares in the hopes of generating profits if and when the stock rises in value. As with small caps, unloved stocks can be a risky choice for day traders.
These examples are NOT your only options when it comes to day trading stocks. The best way to determine which type of stock is right for you is to invest some time for careful research, a knowledge of market patterns, a solid strategy, and a disciplined trading plan.
The key to successful day trading is to be prepared. Know as much as possible about the industry before you begin actually trading. You need to learn to trade ONLY when the market gives the right signals, and ONLY when the volume of activity in the market supports a successful trading opportunity.
About the Author
Markus Heitkoetter is a 19 year veteran of the markets and the CEO of Rockwell Trading.
For more free information and tips and trick how to make consistent profits with online
trading,visit his website www.rockwelltrading.com.
When All Stocks Are Value Stocks - Think QDI
Value stocks are those that tend to trade at lower prices relative to their fundamental characteristics than their more speculative cousins, the growth stocks; they have higher than usual dividend yields and lower P/E and P/B ratios. So when all stock prices are down significantly, have they all become value stocks? Or, based on the panicky fear that tends to overwhelm media and financial experts alike, haven't they all taken on the speculative characteristics of growth stocks?
Well, to a certain extent they have, because the lower value stock prices go, the more likely it is that they will eventually experience the 15% ROE that typifies the classic growth stock. Interestingly, by definition, growth stocks are expected to be associated with profitable companies, a fact that speculators often lose site of. There are three features that separate value stocks from growth stocks and two that separate Investment Grade Value (IGV) stocks from the average, run-of-the-mill, variety.
Value stocks pay dividends, and have lower ratios than growth stocks. IGV stock companies also have long-term histories of profitability and an S & P rating of B+ or higher. Would you be surprised to learn that neither the DJIA nor the S & P 500 contains particularly high numbers of IGV stocks? Still, since 1982, value stocks have outperformed growth stocks 62% of the time. So when an ugly correction has a makeover, it's likely that all value stocks transform themselves into growth stocks, at least temporarily.
Will Rogers summed up the stock selection quandary nicely with: "Only buy stocks that go up. If they aren't going to go up, don't buy them." Many have misunderstood this tongue-in-cheek observation and joined the buy-anything-high investment club. You need dig no further than the current lists (June '08) of "most advancing issues" to see how investors are buying commodity companies and financial futures at the highest prices in the history of mankind.
This while they are shunning IGVSI (Investment Grade Value Stock Index) companies that have plummeted to their most attractive price levels in three to five years. Many of the very best multinational companies in the world are at historically low prices. Wall Street smiles knowingly (and greedily) as Main Street hucksters tout gold, currencies, and oil futures as retirement plan safety nets. Regulatory agencies look the other way as speculations worm their way into qualified plans of all varieties. Surely those markets will be regulated some day--- after the next Bazooka-pink, gooey mess becomes history.
How much financial bloodshed is necessary before we realize that there is no safe and easy shortcut to investment success? When do we learn that most of our mistakes involve greed, fear, or unrealistic expectations about what we own? Eventually, successful investors begin to allocate assets in a goal directed manner by adopting a more realistic investment strategy--- one with security selection guidelines and realistic performance definitions and expectations.
If you are thinking of trying a strategy for a year to see if it works, you're being too short-term sighted--- the investment markets operate in cycles. If you insist on comparing your performance with indices and averages, you'll rarely be satisfied. A viable investment strategy will be a three-dimensional decision model, and all three decisions are equally important. Few strategies include a targeted profit taking discipline--- dimension two. The first dimension involves the selection of securities. The third?
How should an investor determine what stocks to buy, and when to buy them? We've discussed the features of value and growth stocks and seen how any number of companies can qualify as either dependent upon where we are in terms of the market cycle or where they are in terms of their own industry, sector, or business cycles. Value stocks (and the debt securities of value stock companies) tend to be safer than growth stocks. But IGVSI stocks are super-screened by a unique rating system that is based on company survival statistics--- very important stuff.
In the late 90's, it was rumored that a well-known value fund manager was asked why he wasn't buying dot-coms, IPOs, etc. When he said that they didn't qualify as value stocks, he was told to change his definition--- or else. IGV stocks include a quality element that minimizes the risk of loss and normally smoothes the angles in the market cycle. The market value highs are typically not as high, but the market value lows are most often not as low as they are with either growth or Wall Street definition value stocks. They work best in conjunction with portfolios that have an income allocation of at least 30%--- you need to know why.
How do we create a confidence building IGV stock selection universe without getting bogged down in endless research? Here are five filters you can use to come up with a listing of higher quality companies: (1) An S & P rating of B+ or better. Standard & Poor's combines many fundamental and qualitative factors into a letter ranking that speaks only to the financial viability of the companies. Anything rated lower adds more risk to your portfolio.
(2) A history of profitability. Although it should seem obvious, buying stock in a company that has a history of profitable operations is inherently less risky. Profitable operations adapt more readily to changes in markets, economies, and business growth opportunities. (3) A history of regular, even increasing, dividend payments. Companies will go to great lengths, and endure great hardships, before electing either to cut or to omit a dividend. Dividend changes are important, absolute size is not.
(4) A Reasonable Price Range. Most Investment Grade stocks are priced above $10 per share and only a few trade at levels above $100. An unusually high price may be caused by higher sector or company-specific speculation while an inordinately low price may be a good warning signal. (5) An NYSE listing--- just because it's easier.
Your selection universe will become the backbone of your equity asset allocation, so there is no room for creative adjustments to the rules and guidelines you've established--- no matter how strongly you feel about recent news or rumor. There are approximately 450 IGV stocks to choose from--- and you'll find the name recognition comforting. Additionally, as these companies gyrate above and below your purchase price (as they absolutely will), you can be more confident that it is merely the nature of the stock market and not an imminent financial disaster.
The QDI? Quality, diversification, and income.
About the Author
Steve Selengut http://www.sancoservices.com http://www.kiawahgolfinvestmentseminars.com/ Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
Well, to a certain extent they have, because the lower value stock prices go, the more likely it is that they will eventually experience the 15% ROE that typifies the classic growth stock. Interestingly, by definition, growth stocks are expected to be associated with profitable companies, a fact that speculators often lose site of. There are three features that separate value stocks from growth stocks and two that separate Investment Grade Value (IGV) stocks from the average, run-of-the-mill, variety.
Value stocks pay dividends, and have lower ratios than growth stocks. IGV stock companies also have long-term histories of profitability and an S & P rating of B+ or higher. Would you be surprised to learn that neither the DJIA nor the S & P 500 contains particularly high numbers of IGV stocks? Still, since 1982, value stocks have outperformed growth stocks 62% of the time. So when an ugly correction has a makeover, it's likely that all value stocks transform themselves into growth stocks, at least temporarily.
Will Rogers summed up the stock selection quandary nicely with: "Only buy stocks that go up. If they aren't going to go up, don't buy them." Many have misunderstood this tongue-in-cheek observation and joined the buy-anything-high investment club. You need dig no further than the current lists (June '08) of "most advancing issues" to see how investors are buying commodity companies and financial futures at the highest prices in the history of mankind.
This while they are shunning IGVSI (Investment Grade Value Stock Index) companies that have plummeted to their most attractive price levels in three to five years. Many of the very best multinational companies in the world are at historically low prices. Wall Street smiles knowingly (and greedily) as Main Street hucksters tout gold, currencies, and oil futures as retirement plan safety nets. Regulatory agencies look the other way as speculations worm their way into qualified plans of all varieties. Surely those markets will be regulated some day--- after the next Bazooka-pink, gooey mess becomes history.
How much financial bloodshed is necessary before we realize that there is no safe and easy shortcut to investment success? When do we learn that most of our mistakes involve greed, fear, or unrealistic expectations about what we own? Eventually, successful investors begin to allocate assets in a goal directed manner by adopting a more realistic investment strategy--- one with security selection guidelines and realistic performance definitions and expectations.
If you are thinking of trying a strategy for a year to see if it works, you're being too short-term sighted--- the investment markets operate in cycles. If you insist on comparing your performance with indices and averages, you'll rarely be satisfied. A viable investment strategy will be a three-dimensional decision model, and all three decisions are equally important. Few strategies include a targeted profit taking discipline--- dimension two. The first dimension involves the selection of securities. The third?
How should an investor determine what stocks to buy, and when to buy them? We've discussed the features of value and growth stocks and seen how any number of companies can qualify as either dependent upon where we are in terms of the market cycle or where they are in terms of their own industry, sector, or business cycles. Value stocks (and the debt securities of value stock companies) tend to be safer than growth stocks. But IGVSI stocks are super-screened by a unique rating system that is based on company survival statistics--- very important stuff.
In the late 90's, it was rumored that a well-known value fund manager was asked why he wasn't buying dot-coms, IPOs, etc. When he said that they didn't qualify as value stocks, he was told to change his definition--- or else. IGV stocks include a quality element that minimizes the risk of loss and normally smoothes the angles in the market cycle. The market value highs are typically not as high, but the market value lows are most often not as low as they are with either growth or Wall Street definition value stocks. They work best in conjunction with portfolios that have an income allocation of at least 30%--- you need to know why.
How do we create a confidence building IGV stock selection universe without getting bogged down in endless research? Here are five filters you can use to come up with a listing of higher quality companies: (1) An S & P rating of B+ or better. Standard & Poor's combines many fundamental and qualitative factors into a letter ranking that speaks only to the financial viability of the companies. Anything rated lower adds more risk to your portfolio.
(2) A history of profitability. Although it should seem obvious, buying stock in a company that has a history of profitable operations is inherently less risky. Profitable operations adapt more readily to changes in markets, economies, and business growth opportunities. (3) A history of regular, even increasing, dividend payments. Companies will go to great lengths, and endure great hardships, before electing either to cut or to omit a dividend. Dividend changes are important, absolute size is not.
(4) A Reasonable Price Range. Most Investment Grade stocks are priced above $10 per share and only a few trade at levels above $100. An unusually high price may be caused by higher sector or company-specific speculation while an inordinately low price may be a good warning signal. (5) An NYSE listing--- just because it's easier.
Your selection universe will become the backbone of your equity asset allocation, so there is no room for creative adjustments to the rules and guidelines you've established--- no matter how strongly you feel about recent news or rumor. There are approximately 450 IGV stocks to choose from--- and you'll find the name recognition comforting. Additionally, as these companies gyrate above and below your purchase price (as they absolutely will), you can be more confident that it is merely the nature of the stock market and not an imminent financial disaster.
The QDI? Quality, diversification, and income.
About the Author
Steve Selengut http://www.sancoservices.com http://www.kiawahgolfinvestmentseminars.com/ Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
Sunday, September 7, 2008
Good News For Income Investors
Looking for good news in today's markets is like searching for the proverbial needle in a haystack. Needless to say, practically all investment grade equities and nearly all closed end funds that specialize in providing regular recurring monthly income have been reduced in market value by this prolonged correction. The quake has spread in all directions from its financial epicenter, and the mounting doom and gloom has taken its toll on even the most rational investment decision makers. Try to keep in mind that the purpose of income investing is the income that your portfolio produces not an increase in the securities' market values---
So here's the good news (and for anyone with a 40% or higher income asset allocation, or an income portfolio being used for living expenses), it really is very good news. Base income levels, from the beginning of the stock market correction in June '07 until mid-July '08, have barely changed at all. In fact, they have probably risen in properly asset allocated portfolios. I have examined the regular recurring monthly income distributed by 56 taxable income CEFs and 61 tax-free income CEFs, and the conclusions are pretty remarkable.
In spite of the fact that the vast majority of my favorite monthly income producers are lower in market value than I would like, the amount of income they are distributing to shareholders has not moved lower meaningfully--- even though the Federal Reserve has reduced interest rates by approximately 60% during the past twelve months. Here are the numbers: (1) 48% of the taxable-income CEFs are distributing precisely the same amount per share as they did a year ago. Fourteen issues have increased their payouts and fifteen have reduced them.
The net result is a decrease of just fourteen cents (2.5% of the total monthly payout). The average current yield on the portfolio, as of mid July '07, is 9.86% without considering any capital gains distributions. Additionally, the group is selling at market prices that reflect an average discount of nearly 11% from NAV. Is that special or what? The bonds, preferred stocks, government securities are priced 11% below their current market values.
(2) The numbers are similar with regard to the 61 tax-free income CEFs: 46% have not altered their payout over the past twelve months; eighteen have reduced their payout slightly, and 15 have increased the monthly dole. The net difference for the group over the past year is less than one cent, or a percentage change of two-tenths of one percent. Remarkable. This group is selling at an average discount from NAV of 9.1% and has a current tax-free yield of 5.51%.
(3) Of 117 individual issues, about half have produced stable income. The others have accounted for a total payout reduction of less than 15 cents--- a measly 1.7%. Why is this amount of little consequence? Two reasons really.
First of all, a properly asset-allocated income portfolio does not disburse all of the base income it receives, so there is income available to reinvest in more shares of income producing securities. This process assures a growing cash flow to calm your fear of rising prices. The other reason is a bit more hypothetical. The Fed has lowered rates significantly, a process that normally produces higher prices for income securities. Eventually, those lower interest rates (even if global pressures convince politicians to take back some of the reductions) should produce higher prices (i.e., profit taking opportunities) in these securities.
Admittedly, even if your asset allocation has been fine tuned for years, lower portfolio market values in this area make stock market valuation shrinkage feel even worse. But the value of stable cash flow becomes painfully clear for investors who misguidedly depend on capital gains for their spending money. Properly asset allocated portfolios contain enough base income generators to pay the bills. The purpose of capital gains is to produce proportionately more base income generators.
The purpose of this email is simply to bring some needed sunlight into an investment environment that is far gloomier than I think it needs to be. If you want the details, you'll have to request them personally.
About the Author
Steve Selengut
http://www.sancoservices.com
http://www.kiawahgolfinvestmentseminars.com/
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
So here's the good news (and for anyone with a 40% or higher income asset allocation, or an income portfolio being used for living expenses), it really is very good news. Base income levels, from the beginning of the stock market correction in June '07 until mid-July '08, have barely changed at all. In fact, they have probably risen in properly asset allocated portfolios. I have examined the regular recurring monthly income distributed by 56 taxable income CEFs and 61 tax-free income CEFs, and the conclusions are pretty remarkable.
In spite of the fact that the vast majority of my favorite monthly income producers are lower in market value than I would like, the amount of income they are distributing to shareholders has not moved lower meaningfully--- even though the Federal Reserve has reduced interest rates by approximately 60% during the past twelve months. Here are the numbers: (1) 48% of the taxable-income CEFs are distributing precisely the same amount per share as they did a year ago. Fourteen issues have increased their payouts and fifteen have reduced them.
The net result is a decrease of just fourteen cents (2.5% of the total monthly payout). The average current yield on the portfolio, as of mid July '07, is 9.86% without considering any capital gains distributions. Additionally, the group is selling at market prices that reflect an average discount of nearly 11% from NAV. Is that special or what? The bonds, preferred stocks, government securities are priced 11% below their current market values.
(2) The numbers are similar with regard to the 61 tax-free income CEFs: 46% have not altered their payout over the past twelve months; eighteen have reduced their payout slightly, and 15 have increased the monthly dole. The net difference for the group over the past year is less than one cent, or a percentage change of two-tenths of one percent. Remarkable. This group is selling at an average discount from NAV of 9.1% and has a current tax-free yield of 5.51%.
(3) Of 117 individual issues, about half have produced stable income. The others have accounted for a total payout reduction of less than 15 cents--- a measly 1.7%. Why is this amount of little consequence? Two reasons really.
First of all, a properly asset-allocated income portfolio does not disburse all of the base income it receives, so there is income available to reinvest in more shares of income producing securities. This process assures a growing cash flow to calm your fear of rising prices. The other reason is a bit more hypothetical. The Fed has lowered rates significantly, a process that normally produces higher prices for income securities. Eventually, those lower interest rates (even if global pressures convince politicians to take back some of the reductions) should produce higher prices (i.e., profit taking opportunities) in these securities.
Admittedly, even if your asset allocation has been fine tuned for years, lower portfolio market values in this area make stock market valuation shrinkage feel even worse. But the value of stable cash flow becomes painfully clear for investors who misguidedly depend on capital gains for their spending money. Properly asset allocated portfolios contain enough base income generators to pay the bills. The purpose of capital gains is to produce proportionately more base income generators.
The purpose of this email is simply to bring some needed sunlight into an investment environment that is far gloomier than I think it needs to be. If you want the details, you'll have to request them personally.
About the Author
Steve Selengut
http://www.sancoservices.com
http://www.kiawahgolfinvestmentseminars.com/
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
Risks by the foreign exchange on Forex
The Forex is essentially risk-bearing. By the evaluation of the grade of a possible risk accounted should be the following kinds of it: exchange rate risk, interest rate risk, and credit risk, country risk.
Exchange rate risk. Exchange rate risk is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. For the period it is outstanding, the position will be subject to all the price changes. The most popular measures to cut losses short and ride profitable positions that losses should be kept within manageable limits are the position limit and the loss limit. By the position limitation a maximum amount of a certain currency a trader is allowed to carry at any single time during the regular trading hours is to be established. The loss limit is a measure designed to avoid unsustainable losses made by traders by means of stop-loss levels setting.
Interest rate risk. Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book. This risk is pertinent to currency swaps, forward outright, futures, and options (See below). To minimize interest rate risk, one sets limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the dates of the delivery, gains and losses. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.
Credit risk. Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party. In these cases, trading occurs on regulated exchanges, such as the clearinghouse of Chicago. The following forms of credit risk are known:
1. Replacement risk occurs when counterparties of the failed bank find their books are subjected to the danger not to get refunds from the bank, where appropriate accounts became unbalanced.
2. Settlement risk occurs because of the time zones on different continents. Consequently, currencies may be traded at the different price at different times during the trading day. Australian and New Zealand dollars are credited first, then Japanese yen, followed by the European currencies and ending with the U.S. dollar. Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments.
Therefore in assessing the credit risk, end users must consider not only the market value of their currency portfolios, but also the potential exposure of these portfolios. The potential exposure may be determined through probability analysis over the time to maturity of the outstanding position. The computerized systems currently available are very useful in implementing credit risk policies. Credit lines are easily monitored. In addition, the matching systems introduced in foreign exchange since April 1993 are used by traders for credit policy implementation as well. Traders input the total line of credit for a specific counterparty. During the trading session, the line of credit is automatically adjusted. If the line is fully used, the system will prevent the trader from further dealing with that counterparty. After maturity, the credit line reverts to its original level.
Dictatorship risk. Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Although theoretically present in all foreign exchange instruments, currency futures are, for all practical purposes, excepted from country risk, because the major currency futures markets are located in the USA. Hence, traders have to realize that kind of the risk and be in state to account possible administrative restrictions.
About the Author
Tomas Anderson is the editor of www.go-see.info - a free Article Directory, where anyone can submit articles or find free content for the website.
Exchange rate risk. Exchange rate risk is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. For the period it is outstanding, the position will be subject to all the price changes. The most popular measures to cut losses short and ride profitable positions that losses should be kept within manageable limits are the position limit and the loss limit. By the position limitation a maximum amount of a certain currency a trader is allowed to carry at any single time during the regular trading hours is to be established. The loss limit is a measure designed to avoid unsustainable losses made by traders by means of stop-loss levels setting.
Interest rate risk. Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book. This risk is pertinent to currency swaps, forward outright, futures, and options (See below). To minimize interest rate risk, one sets limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the dates of the delivery, gains and losses. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.
Credit risk. Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party. In these cases, trading occurs on regulated exchanges, such as the clearinghouse of Chicago. The following forms of credit risk are known:
1. Replacement risk occurs when counterparties of the failed bank find their books are subjected to the danger not to get refunds from the bank, where appropriate accounts became unbalanced.
2. Settlement risk occurs because of the time zones on different continents. Consequently, currencies may be traded at the different price at different times during the trading day. Australian and New Zealand dollars are credited first, then Japanese yen, followed by the European currencies and ending with the U.S. dollar. Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments.
Therefore in assessing the credit risk, end users must consider not only the market value of their currency portfolios, but also the potential exposure of these portfolios. The potential exposure may be determined through probability analysis over the time to maturity of the outstanding position. The computerized systems currently available are very useful in implementing credit risk policies. Credit lines are easily monitored. In addition, the matching systems introduced in foreign exchange since April 1993 are used by traders for credit policy implementation as well. Traders input the total line of credit for a specific counterparty. During the trading session, the line of credit is automatically adjusted. If the line is fully used, the system will prevent the trader from further dealing with that counterparty. After maturity, the credit line reverts to its original level.
Dictatorship risk. Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Although theoretically present in all foreign exchange instruments, currency futures are, for all practical purposes, excepted from country risk, because the major currency futures markets are located in the USA. Hence, traders have to realize that kind of the risk and be in state to account possible administrative restrictions.
About the Author
Tomas Anderson is the editor of www.go-see.info - a free Article Directory, where anyone can submit articles or find free content for the website.
Preventing Investment Mistakes: Ten Risk Minimizers
Most investment mistakes are caused by basic misunderstandings of the securities markets and by invalid performance expectations. The markets move in totally unpredictable cyclical patterns of varying duration and amplitude. Evaluating the performance of the two major classes of investment securities needs to be done separately because they are owned for differing purposes. Stock market equity investments are expected to produce realized capital gains; income-producing investments are expected to generate cash flow.
Losing money on an investment may not be the result of an investment mistake, and not all mistakes result in monetary losses. But errors occur most frequently when judgment is unduly influenced by emotions such as fear and greed, hindsightful observations, and short-term market value comparisons with unrelated numbers. Your own misconceptions about how securities react to varying economic, political, and hysterical circumstances are your most vicious enemy.
Master these ten risk-minimizers to improve your long-term investment performance:
1. Develop an investment plan. Identify realistic goals that include considerations of time, risk-tolerance, and future income requirements--- think about where you are going before you start moving in the wrong direction. A well thought out plan will not need frequent adjustments. A well-managed plan will not be susceptible to the addition of trendy speculations.
2. Learn to distinguish between asset allocation and diversification decisions. Asset allocation divides the portfolio between equity and income securities. Diversification is a strategy that limits the size of individual portfolio holdings in at least three different ways. Neither activity is a hedge, or a market timing devices. Neither can be done precisely with mutual funds, and both are handled most efficiently by using a cost basis approach like the Working Capital Model.
3. Be patient with your plan. Although investing is always referred to as long- term, it is rarely dealt with as such by investors, the media, or financial advisors. Never change direction frequently, and always make gradual rather than drastic adjustments. Short-term market value movements must not be compared with un-portfolio related indices and averages. There is no index that compares with your portfolio, and calendar sub-divisions have no relationship whatever to market, interest rate, or economic cycles.
4. Never fall in love with a security, particularly when the company was once your employer. It's alarming how often accounting and other professionals refuse to fix the resultant single-issue portfolios. Aside from the love issue, this becomes an unwilling-to-pay-the-taxes problem that often brings the unrealized gain to the Schedule D as a realized loss. No profit, in either class of securities, should ever go unrealized. A target profit must be established as part of your plan.
5. Prevent "analysis paralysis" from short-circuiting your decision-making powers. An overdose of information will cause confusion, hindsight, and an inability to distinguish between research and sales materials--- quite often the same document. A somewhat narrow focus on information that supports a logical and well-documented investment strategy will be more productive in the long run. Avoid future predictors.
6. Burn, delete, toss out the window any short cuts or gimmicks that are supposed to provide instant stock picking success with minimum effort. Don't allow your portfolio to become a hodgepodge of mutual funds, index ETFs, partnerships, pennies, hedges, shorts, strips, metals, grains, options, currencies, etc. Consumers' obsession with products underlines how Wall Street has made it impossible for financial professionals to survive without them. Remember: consumers buy products; investors select securities.
7. Attend a workshop on interest rate expectation (IRE) sensitive securities and learn how to deal appropriately with changes in their market value--- in either direction. The income portion of your portfolio must be looked at separately from the growth portion. Bottom line market value changes must be expected and understood, not reacted to with either fear or greed. Fixed income does not mean fixed price. Few investors ever realize (in either sense) the full power of this portion of their portfolio.
8. Ignore Mother Nature's evil twin daughters, speculation and pessimism. They'll con you into buying at market peaks and panicking when prices fall, ignoring the cyclical opportunities provided by Momma. Never buy at all time high prices or overload the portfolio with current story stocks. Buy good companies, little by little, at lower prices and avoid the typical investor's buy high, sell low frustration.
9. Step away from calendar year, market value thinking. Most investment errors involve unrealistic time horizon, and/or "apples to oranges" performance comparisons. The get rich slowly path is a more reliable investment road that Wall Street has allowed to become overgrown, if not abandoned. Portfolio growth is rarely a straight-up arrow and short-term comparisons with unrelated indices, averages or strategies simply produce detours that speed progress away from original portfolio goals.
10. Avoid the cheap, the easy, the confusing, the most popular, the future knowing, and the one-size-fits-all. There are no freebies or sure things on Wall Street, and the further you stray from conventional stocks and bonds, the more risk you are adding to your portfolio. When cheap is an investor's primary concern, what he gets will generally be worth the price.
Compounding the problems that investors face managing their investment portfolios is the sensationalism that the media brings to the process. Step away from calendar year, market value thinking. Investing is a personal project where individual/family goals and objectives must dictate portfolio structure, management strategy, and performance evaluation techniques.
Do most individual investors have difficulty in an environment that encourages instant gratification, supports all forms of speculation, and gets off on shortsighted reports, reactions, and achievements? Yup.
About the Author
Steve Selengut http://www.sancoservices.com http://www.kiawahgolfinvestmentseminars.com Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
Losing money on an investment may not be the result of an investment mistake, and not all mistakes result in monetary losses. But errors occur most frequently when judgment is unduly influenced by emotions such as fear and greed, hindsightful observations, and short-term market value comparisons with unrelated numbers. Your own misconceptions about how securities react to varying economic, political, and hysterical circumstances are your most vicious enemy.
Master these ten risk-minimizers to improve your long-term investment performance:
1. Develop an investment plan. Identify realistic goals that include considerations of time, risk-tolerance, and future income requirements--- think about where you are going before you start moving in the wrong direction. A well thought out plan will not need frequent adjustments. A well-managed plan will not be susceptible to the addition of trendy speculations.
2. Learn to distinguish between asset allocation and diversification decisions. Asset allocation divides the portfolio between equity and income securities. Diversification is a strategy that limits the size of individual portfolio holdings in at least three different ways. Neither activity is a hedge, or a market timing devices. Neither can be done precisely with mutual funds, and both are handled most efficiently by using a cost basis approach like the Working Capital Model.
3. Be patient with your plan. Although investing is always referred to as long- term, it is rarely dealt with as such by investors, the media, or financial advisors. Never change direction frequently, and always make gradual rather than drastic adjustments. Short-term market value movements must not be compared with un-portfolio related indices and averages. There is no index that compares with your portfolio, and calendar sub-divisions have no relationship whatever to market, interest rate, or economic cycles.
4. Never fall in love with a security, particularly when the company was once your employer. It's alarming how often accounting and other professionals refuse to fix the resultant single-issue portfolios. Aside from the love issue, this becomes an unwilling-to-pay-the-taxes problem that often brings the unrealized gain to the Schedule D as a realized loss. No profit, in either class of securities, should ever go unrealized. A target profit must be established as part of your plan.
5. Prevent "analysis paralysis" from short-circuiting your decision-making powers. An overdose of information will cause confusion, hindsight, and an inability to distinguish between research and sales materials--- quite often the same document. A somewhat narrow focus on information that supports a logical and well-documented investment strategy will be more productive in the long run. Avoid future predictors.
6. Burn, delete, toss out the window any short cuts or gimmicks that are supposed to provide instant stock picking success with minimum effort. Don't allow your portfolio to become a hodgepodge of mutual funds, index ETFs, partnerships, pennies, hedges, shorts, strips, metals, grains, options, currencies, etc. Consumers' obsession with products underlines how Wall Street has made it impossible for financial professionals to survive without them. Remember: consumers buy products; investors select securities.
7. Attend a workshop on interest rate expectation (IRE) sensitive securities and learn how to deal appropriately with changes in their market value--- in either direction. The income portion of your portfolio must be looked at separately from the growth portion. Bottom line market value changes must be expected and understood, not reacted to with either fear or greed. Fixed income does not mean fixed price. Few investors ever realize (in either sense) the full power of this portion of their portfolio.
8. Ignore Mother Nature's evil twin daughters, speculation and pessimism. They'll con you into buying at market peaks and panicking when prices fall, ignoring the cyclical opportunities provided by Momma. Never buy at all time high prices or overload the portfolio with current story stocks. Buy good companies, little by little, at lower prices and avoid the typical investor's buy high, sell low frustration.
9. Step away from calendar year, market value thinking. Most investment errors involve unrealistic time horizon, and/or "apples to oranges" performance comparisons. The get rich slowly path is a more reliable investment road that Wall Street has allowed to become overgrown, if not abandoned. Portfolio growth is rarely a straight-up arrow and short-term comparisons with unrelated indices, averages or strategies simply produce detours that speed progress away from original portfolio goals.
10. Avoid the cheap, the easy, the confusing, the most popular, the future knowing, and the one-size-fits-all. There are no freebies or sure things on Wall Street, and the further you stray from conventional stocks and bonds, the more risk you are adding to your portfolio. When cheap is an investor's primary concern, what he gets will generally be worth the price.
Compounding the problems that investors face managing their investment portfolios is the sensationalism that the media brings to the process. Step away from calendar year, market value thinking. Investing is a personal project where individual/family goals and objectives must dictate portfolio structure, management strategy, and performance evaluation techniques.
Do most individual investors have difficulty in an environment that encourages instant gratification, supports all forms of speculation, and gets off on shortsighted reports, reactions, and achievements? Yup.
About the Author
Steve Selengut http://www.sancoservices.com http://www.kiawahgolfinvestmentseminars.com Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
Forex - What is it?
The international currency market Forex is a special kind of the world financial market. Trader’s purpose on the Forex to get profit as the result of foreign currencies purchase and sale. The exchange rates of all currencies being in the market turnover are permanently changing under the action of the demand and supply alteration. The latter is a strong subject to the influence of any important for the human society event in the sphere of economy, politics and nature. Consequently current prices of foreign currencies evaluated for instance in the US dollars fluctuate towards its higher and lower meanings. Using these fluctuations in accordance with a known principle “buy cheaper – sell higher” traders obtain gains. Forex is different in compare to all other sectors of the world financial system thanks to his heightened sensibility to a large and continuously changing number of factors, accessibility to all individual and corporative traders, exclusively high trade turnover which creates an ensured liquidity of traded currencies and the round - the clock business hours which enable traders to deal after normal hours or during national holidays in their country finding markets abroad open.
Just as on any other market the trading on Forex, along with an exclusively high potential profitability, is essentially risk - bearing one. It is possible to gain a success on it only after a certain training including a familiarization with the structure and kinds of Forex, the principles of currencies price formation, the factors affecting prices alterations and trading risks levels, sources of the information necessary to account all those factors, techniques of the analysis and prediction of the market movements as well as with the trading tools and rules. An important role in the process of the preparation for the trading on Forex belongs to the demotrading (that is to trade using a demo-account with some virtual money), which allows to testify all the theoretical knowledge and to obtain a required minimum of the trade experience not being subjected to a material damage.
About the Author
Tomas Anderson is the editor of www.go-see.info - a free Article Directory, where anyone can submit articles or find free content for the website.
Just as on any other market the trading on Forex, along with an exclusively high potential profitability, is essentially risk - bearing one. It is possible to gain a success on it only after a certain training including a familiarization with the structure and kinds of Forex, the principles of currencies price formation, the factors affecting prices alterations and trading risks levels, sources of the information necessary to account all those factors, techniques of the analysis and prediction of the market movements as well as with the trading tools and rules. An important role in the process of the preparation for the trading on Forex belongs to the demotrading (that is to trade using a demo-account with some virtual money), which allows to testify all the theoretical knowledge and to obtain a required minimum of the trade experience not being subjected to a material damage.
About the Author
Tomas Anderson is the editor of www.go-see.info - a free Article Directory, where anyone can submit articles or find free content for the website.
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