The President last night announced a big change to the way Americans could save for retirement. Instead of the traditional pensions, IRAs, or 401Ks. This new plan dubbed MyRAs offers a basic way for people who have never saved before to start saving, it offers protection of principal, and invests your money in the government securities investment fund. What you give up for this protection is any chance of a real increase in the value of your principal. You will just barely beat inflation with the current return. After taxes you might not have any growth. It is good that you are wanting to save and develop a good way to have more income in retirement. This might not be the best course of action though.
It seems a good idea for those wanting to start investing and without any easy way to do so before. I think it is closer to privatizing social security or shoring up social security with individuals saving their own money. I am very much in favor of individuals saving and investing on their own for their needs and wants. Each individual can make his own choice about where to put his money and how to use it. Instead of letting the government decide what is a good investment, you can choose the investments that fit you and the companies you think are doing well. MyRAs good start but we can finish stronger than that.
We still have much to find out about MyRAs and the effects it will have but if you really want to start saving and growing wealth for retirement you need a different approach. Young people like myself should be putting in at least 10% of income in savings, preferably more. I aim for 25%, it is doable. You just have to be disciplined. Cutting expenses that are unnecessary extravagances. This could be eating out everyday or buying a new pair of shoes weekly. Those buys add up and by sacrificing a little now, it can make the difference between retiring early or working through retirement. Saving 25% in four years you would hopefully have a years worth of income and a little extra. This is a nice cushion if you need to change jobs, lose your job, or a medical emergency. If none of that happens then it will just continue to grow and grow for use later.
MyRAs are probably not the future and your own investing choices will make you more money and help you out more but if you are new it could be a good way to start be diligent and saving money for emergencies and retirement. Saving and investing can make you very wealthy in the end but only with hard work.
Wednesday, January 29, 2014
Tuesday, January 28, 2014
Christmas Earnings Are Here
The long awaited season of announcements from companies is upon us. Companies are now reporting the traffic, revenue, and results from the busiest time of year. Fourth quarter earnings are important to decision makers and investors. If the American people did not spend well it is a poor sign for the overall health of the economy because as consumers, if we don't consume it means we don't have the money to pay. It also shows us investors the companies that might have performed better or worse than expectations because of poor management. Remember though that one earnings doesn't mean the end but it does mean a more careful eye should be applied.
So far the earnings are mixed, some companies have done really well from sales and cutting costs. Others were beat by competitors pricing or differing tastes in the overall economy. Any earnings beat is healthy for you as an investor. They might not have performed exceptionally in sales growth but if management made tough decisions and makes the company stronger and leaner it might not be a sell but a buy. It shows the tenacity and skillfulness of management. If and its a big if they have no turn around plan except cutting jobs or expenses it is time to jump from that investment into something more stable.
From what I have seen and heard I think consumers were out in force buying and buying. The economy has done better, people's stock portfolios were up, and there were good sales going on in stores. i am just one person and we will see the whole picture in a few days. This will set the trend for the coming year. If companies did really well they might take it as a sign to expand and hire. If the season did not turn out as well then companies will have to figure out a way to get customers in and find ways to turn around the economic trend.
The companies that have already announced like Apple and AT&T both beat estimates. That is probably a good sign, two big companies had higher revenues and profits for shareholders. The two companies are also connected in what they sell which means that phones were probably a big gift this year.
The information I have seen shows that the economy did extraordinarily well this lsat year and will probably do great this year too unless another factor comes along and changes the direction. This is why we must be diligent investors and constantly consuming information to make money. Its just the right thing to do when money is on the line and it makes us better investors. Involved investors are the best investors. Make sure you look at your investment's earnings report this quarter. You never know when you need to make change in your portfolio.
So far the earnings are mixed, some companies have done really well from sales and cutting costs. Others were beat by competitors pricing or differing tastes in the overall economy. Any earnings beat is healthy for you as an investor. They might not have performed exceptionally in sales growth but if management made tough decisions and makes the company stronger and leaner it might not be a sell but a buy. It shows the tenacity and skillfulness of management. If and its a big if they have no turn around plan except cutting jobs or expenses it is time to jump from that investment into something more stable.
From what I have seen and heard I think consumers were out in force buying and buying. The economy has done better, people's stock portfolios were up, and there were good sales going on in stores. i am just one person and we will see the whole picture in a few days. This will set the trend for the coming year. If companies did really well they might take it as a sign to expand and hire. If the season did not turn out as well then companies will have to figure out a way to get customers in and find ways to turn around the economic trend.
The companies that have already announced like Apple and AT&T both beat estimates. That is probably a good sign, two big companies had higher revenues and profits for shareholders. The two companies are also connected in what they sell which means that phones were probably a big gift this year.
The information I have seen shows that the economy did extraordinarily well this lsat year and will probably do great this year too unless another factor comes along and changes the direction. This is why we must be diligent investors and constantly consuming information to make money. Its just the right thing to do when money is on the line and it makes us better investors. Involved investors are the best investors. Make sure you look at your investment's earnings report this quarter. You never know when you need to make change in your portfolio.
Sunday, January 26, 2014
Thoughts on Last Week's Market Drop
The DOW, Nasdaq, and S&P all had a very tough week. One of the worst percentage drops since 2012. It is a big deal to lose all gains from a month in a single week but we are still not in a correction (normally considered a drop of 10%). The stocks were hurt from some bad earnings reports and fears that China has slowed down significantly. All things to be worried about but I'm not convinced that it is time to get out of stocks and hide your money in cash.
China announcing that they had a major slowdown could be real and especially if they are not telling the whole truth with their numbers. As if they were softening the blow a bad numbers report could bring about a sign for a downturn in the economy. Yet I always think China is inflating there numbers and they could be just adjusting numbers down to get back more in line with reality. I still think that the United States economy continues to pick u every so slightly.
Now onto the poor earnings reports, some of them were bad and some of them were above expectations. I think the companies with bad earnings reports should be looked at more closely especially if you owned them. That could be a sign of one needing to close their position or at least reevaluating it. This owning stocks sure is work having to reevaluate and constantly check in on your investments. To be a good investor and actually make money so you can retire early that is what it requires. Knowing everything and acting when it is necessary. Some of these might just be minor hiccups or unexpected expenses that occurred. One bad earnings report should not be a reason to get out of stocks completely or even one stock.
My advice is to always keep watch of changing market news but really focus on the timeframe for your investments. A person in his 20's has a timeframe of over 30 years and should realize that a small hiccup does not destroy plans. If you don't need that money tomorrow it might not be worth it to sell and pay a fee and then buy back a stock when you think it has reached its lows. Very few people get lucky in predicting lows and highs. It is better to stick with an investment that you have thoroughly vetted rather than constantly pushing your money around.
I had a cousin who when younger had some money in an investment account. Every so often her broker would call and say you have to sell this position and move to this position because it will go up more. This continued for several years and finally she was back to her original investment, doing the math she discovered that she would have been just as fine keeping her original investment. What she ended up doing was just making her broker very rich. This is one reason why I believe I can't time the market. I can get somewhat better deals but I don't buy and sell as a day trader because that is a good way to lose money.
Just remember about the last week if the stock market did go down all the way it won't matter if you have all that money in cash. Ride it out if you have picked a great company and don't need the money soon. Closer to retirement it does matter but if you are closer to retirement you really shouldn't have all your money in equities either. Young people don't panic, your investments will be fine. There are many years left to go.
China announcing that they had a major slowdown could be real and especially if they are not telling the whole truth with their numbers. As if they were softening the blow a bad numbers report could bring about a sign for a downturn in the economy. Yet I always think China is inflating there numbers and they could be just adjusting numbers down to get back more in line with reality. I still think that the United States economy continues to pick u every so slightly.
Now onto the poor earnings reports, some of them were bad and some of them were above expectations. I think the companies with bad earnings reports should be looked at more closely especially if you owned them. That could be a sign of one needing to close their position or at least reevaluating it. This owning stocks sure is work having to reevaluate and constantly check in on your investments. To be a good investor and actually make money so you can retire early that is what it requires. Knowing everything and acting when it is necessary. Some of these might just be minor hiccups or unexpected expenses that occurred. One bad earnings report should not be a reason to get out of stocks completely or even one stock.
My advice is to always keep watch of changing market news but really focus on the timeframe for your investments. A person in his 20's has a timeframe of over 30 years and should realize that a small hiccup does not destroy plans. If you don't need that money tomorrow it might not be worth it to sell and pay a fee and then buy back a stock when you think it has reached its lows. Very few people get lucky in predicting lows and highs. It is better to stick with an investment that you have thoroughly vetted rather than constantly pushing your money around.
I had a cousin who when younger had some money in an investment account. Every so often her broker would call and say you have to sell this position and move to this position because it will go up more. This continued for several years and finally she was back to her original investment, doing the math she discovered that she would have been just as fine keeping her original investment. What she ended up doing was just making her broker very rich. This is one reason why I believe I can't time the market. I can get somewhat better deals but I don't buy and sell as a day trader because that is a good way to lose money.
Just remember about the last week if the stock market did go down all the way it won't matter if you have all that money in cash. Ride it out if you have picked a great company and don't need the money soon. Closer to retirement it does matter but if you are closer to retirement you really shouldn't have all your money in equities either. Young people don't panic, your investments will be fine. There are many years left to go.
Wednesday, January 22, 2014
Movers and Shakers Interviews
CNBC, one of the many business news websites you should get information from, has many movers and shakers at Davos on their show in the next few days. They are interviewing them and getting lots of good information about the company and trends. As good listeners this might be the best way to get the feel of Davos without having to be there.
Now you must take te CEOs with skeptical thinking because the CEOs want to spread good news and mitigate any bad news about the companies they run. You can do more research from what you hear and see if it lines up with data. Listening to the CEOs is a good way to get information that might otherwise take hours. Just make sure to vet the information completely.
Tuesday, January 21, 2014
Davos: World Economic Forum
A group of wealthy, successful, and global people all together makes for a very important event. One that needs to be followed closely. The meetings and deals made this week at Davos will make waves in the business and political field. A smart and wise investor like yourself will follow all news closely but when groups of major decision makers get together it makes it of the utmost importance to follow even closer. The CEOs and leaders here are discussing their ideas about what is coming in the new year and what they feel about the outlook. This year the business leaders are optimistic but hesitant about certain things that could change the landscape like regulations and political changes. A PricewaterhouseCoopers (one of the big four accounting firms) annual survey finds that 39% of CEOs think earnings for their company will go up this year. As good investors keeping up with changing information, we should really focus on the forum and the ideas discussed.
It is a great place for the major stakeholders to meet new people the can build stronger businesses. I might not have access to all the information provided there because I did not attend, I can know that it is important and something to watch. Any news of possible deals or themes in the forum can have an impact on stocks and investing. Companies whose stock you own attend the Forum and you hear that the CEO met with a major distributor and a major politician in an emerging market you might think that they are making headwinds in gaining new sales and in new areas. This might be a time to buy more stock especially if you have free cash on hand.
Davos is an expensive ticket and means that you are something if you go. It can really change a company's direction when they go. That is why knowledgable investors pay attention to discussions andy themes at Davos and really any major event with thousands of movers of the economy, everyone should pay attention and make decisions about future events. I will probably comment about any important thing I hear that happens in Davos this year. I'm thinking emerging markets, free trade and regulations, and the world's poor will be important this year to movers and shakers at the forum.
It is a great place for the major stakeholders to meet new people the can build stronger businesses. I might not have access to all the information provided there because I did not attend, I can know that it is important and something to watch. Any news of possible deals or themes in the forum can have an impact on stocks and investing. Companies whose stock you own attend the Forum and you hear that the CEO met with a major distributor and a major politician in an emerging market you might think that they are making headwinds in gaining new sales and in new areas. This might be a time to buy more stock especially if you have free cash on hand.
Davos is an expensive ticket and means that you are something if you go. It can really change a company's direction when they go. That is why knowledgable investors pay attention to discussions andy themes at Davos and really any major event with thousands of movers of the economy, everyone should pay attention and make decisions about future events. I will probably comment about any important thing I hear that happens in Davos this year. I'm thinking emerging markets, free trade and regulations, and the world's poor will be important this year to movers and shakers at the forum.
Wednesday, January 15, 2014
How Much to Invest
Short Answer: As much as possible
Long Answer: The key to building wealth for most people is investing money saved from working and investing that saved money wisely. So if we know that saving money is key then to build even more wealth for our retirement and future generations is to save more money than others and as much as possible. Every penny that you don't spend should be put into an account and earn interest. Not only should you just save what is leftover after spending but you should rethink how you spend money and spend less today so you can spend more in the future after earning interest from the saved money. The saved money shouldn't be under your bed or in a bank, it should be in a trading account. One that you can really put your money to work. Saving money in the bank is not a bad place to put your money if you need it in under a year. The bank is safe and you will have easy access to that capital. But the bank will not grow your money more than inflation and might even take away buying power with inflation.
Putting your long-term money in stocks and bonds you can beat inflation and earn money for future use. It is risky to put your money in stocks and bonds. The money might not be there exactly when you need it or it might be completely gone from a bad investment. That is why you have to really study your investments and chose wisely. Several bad stock choices can ruin your retirement fund and no longer would you be on track to have the quality of life in retirement. For more information on investing wisely click here.
Knowing how to invest is important but another key to building wealth is putting lots of money into your investments. Let's say you put in $10,000 each year into your portfolio and you could have well over a million dollars in 35 years when you are ready to retire. At 6% interest rate and compounded annually your account will hold $1,258,070 after only putting in $350,000. Money and investments do better in the long run because they have more time to reap the rewards of compound interest. If you only save for the last ten years before retirement your investments would not gain as much or you would need spectacular returns that are few and far between to reach retirement goals. Starting early is key, if you start with your first job saving as much as possible you build a strong base and start a lifelong investing habit. Even you can just save $1,000 a year for the first few years it is still better than saving nothing and making it up later.
Remember wise and smart investors know the investments that are worth putting money in and save as much as possible early and often to take the most advantage of compound interest. A very powerful force and almost magical in how it grows money. Slow at first but grows like a snowball down the hillside. Anything saved is better than nothing saved.
Long Answer: The key to building wealth for most people is investing money saved from working and investing that saved money wisely. So if we know that saving money is key then to build even more wealth for our retirement and future generations is to save more money than others and as much as possible. Every penny that you don't spend should be put into an account and earn interest. Not only should you just save what is leftover after spending but you should rethink how you spend money and spend less today so you can spend more in the future after earning interest from the saved money. The saved money shouldn't be under your bed or in a bank, it should be in a trading account. One that you can really put your money to work. Saving money in the bank is not a bad place to put your money if you need it in under a year. The bank is safe and you will have easy access to that capital. But the bank will not grow your money more than inflation and might even take away buying power with inflation.
Putting your long-term money in stocks and bonds you can beat inflation and earn money for future use. It is risky to put your money in stocks and bonds. The money might not be there exactly when you need it or it might be completely gone from a bad investment. That is why you have to really study your investments and chose wisely. Several bad stock choices can ruin your retirement fund and no longer would you be on track to have the quality of life in retirement. For more information on investing wisely click here.
Knowing how to invest is important but another key to building wealth is putting lots of money into your investments. Let's say you put in $10,000 each year into your portfolio and you could have well over a million dollars in 35 years when you are ready to retire. At 6% interest rate and compounded annually your account will hold $1,258,070 after only putting in $350,000. Money and investments do better in the long run because they have more time to reap the rewards of compound interest. If you only save for the last ten years before retirement your investments would not gain as much or you would need spectacular returns that are few and far between to reach retirement goals. Starting early is key, if you start with your first job saving as much as possible you build a strong base and start a lifelong investing habit. Even you can just save $1,000 a year for the first few years it is still better than saving nothing and making it up later.
Remember wise and smart investors know the investments that are worth putting money in and save as much as possible early and often to take the most advantage of compound interest. A very powerful force and almost magical in how it grows money. Slow at first but grows like a snowball down the hillside. Anything saved is better than nothing saved.
Tuesday, January 14, 2014
What's an expensive stock
A few months ago I was listening to the radio and a person was commenting on the value of Tesla stock. They said something very interesting that Tesla was worth more than x amount of Ford stock and y times more than General Motors but only had sales of z amount. They thought Tesla was extremely overvalued because of their stock price. This is not the case that price does not make a stock expensive or cheap. The price of the stock has to do with the amount of shares outstanding, earnings per share, and how many people want to buy/sell that stock.
Back to the Tesla example, the reporter did not know anything about stocks or he never would have said such a stupid comment. Tesla is worth today at the end of trading $19.8 billion, has 122.6 million shares outstanding, and is trading at $162. Ford on the other hand is trading at $16.45 much less than Tesla's share price but Ford is worth $64.7 billion and has 3.9 billion shares. So see all those numbers are different and that is why evaluating a share on its share price is not smart. Each stock has its own number and makes for an inconsistent comparison.
There is a better choice to value a stock that is consistent across companies or at least more consistent. It is by no means a perfect fit because there are many different techniques. The most commonly accepted is the Price to Earnings ratio (P/E ratio). This takes the company's stock price and divides it by the company's current earnings. This puts it in a number that means the same thing for each company. When looking at our example again Tesla's P/E ratio is nonexistent because they lost money in the last year while Ford on the other hand is trading at a P/E ratio of 11.6. Now when we compare the value of the two stocks we see a huge difference and can make comparisons that make sense. Ford is trading at a reasonable valuation and Tesla is trading on possible future growth. Tesla is an expensive stock because it did not make money last year. That might change this quarter or the next.
The poor reporter might have meant that Tesla stock was being trading on speculation and had a much higher valuation than Ford and General Motors. But in his reporting he specifically mentioned share price and compared it as such. Let's try and be smart traders and end this financial illiteracy. Make sure you don't get sucked into a stock just because it is cheap in share price. The valuation could still be way above what is normal or a cheap valuation. Price should have nothing to do with decision making on investing in a company unless price is compared to some other number in the company's financial report.
Back to the Tesla example, the reporter did not know anything about stocks or he never would have said such a stupid comment. Tesla is worth today at the end of trading $19.8 billion, has 122.6 million shares outstanding, and is trading at $162. Ford on the other hand is trading at $16.45 much less than Tesla's share price but Ford is worth $64.7 billion and has 3.9 billion shares. So see all those numbers are different and that is why evaluating a share on its share price is not smart. Each stock has its own number and makes for an inconsistent comparison.
There is a better choice to value a stock that is consistent across companies or at least more consistent. It is by no means a perfect fit because there are many different techniques. The most commonly accepted is the Price to Earnings ratio (P/E ratio). This takes the company's stock price and divides it by the company's current earnings. This puts it in a number that means the same thing for each company. When looking at our example again Tesla's P/E ratio is nonexistent because they lost money in the last year while Ford on the other hand is trading at a P/E ratio of 11.6. Now when we compare the value of the two stocks we see a huge difference and can make comparisons that make sense. Ford is trading at a reasonable valuation and Tesla is trading on possible future growth. Tesla is an expensive stock because it did not make money last year. That might change this quarter or the next.
The poor reporter might have meant that Tesla stock was being trading on speculation and had a much higher valuation than Ford and General Motors. But in his reporting he specifically mentioned share price and compared it as such. Let's try and be smart traders and end this financial illiteracy. Make sure you don't get sucked into a stock just because it is cheap in share price. The valuation could still be way above what is normal or a cheap valuation. Price should have nothing to do with decision making on investing in a company unless price is compared to some other number in the company's financial report.
Mergers and Acquisitions
Today's big market news was a Japanese firm buying Jim Beam, Charter offering $37.4 billion for Time Warner, and Google buying Nest. Three big acquisitions in just one day makes for a frenzy on the floor. It's normally a good sign for the economy when M&A picks up. But what do you do when you invest in a company and another firm buys your firm and you get stock and/or cash for your investment. It could be good for you or it could be devastating.
The first thing that should happen is find and study the terms of the deal. One has to know if the new firm is gutting the company bought, wanting to expand the company, changing the direction of the company, and you have to know if the company acquiring your company is a good company that is worthy for your investment. Does this new company throw off your investment strategy? If it does you will have to reconsider the balance of your portfolio and move stoics around until it gets back to normal.
In my portfolio, another firm bought out my firm and I had to sit down and see what the new firm had to offer and if it fit in with the direction I wanted for my portfolio. It did not truly fit in very well. The new firm did not pay a dividend (not the sole reason I was invested in the other but because of the balance it provided some paying dividend, some not), it went in a different direction, and I did not like the managers as well. It was in the same sector and was a well run company. But in the end I had to end my position in the new firm and invest money in a different company that fit better with my portfolio.
Again the big thing about investing is knowing the direction of the firm and knowing everything about your firm.
The first thing that should happen is find and study the terms of the deal. One has to know if the new firm is gutting the company bought, wanting to expand the company, changing the direction of the company, and you have to know if the company acquiring your company is a good company that is worthy for your investment. Does this new company throw off your investment strategy? If it does you will have to reconsider the balance of your portfolio and move stoics around until it gets back to normal.
In my portfolio, another firm bought out my firm and I had to sit down and see what the new firm had to offer and if it fit in with the direction I wanted for my portfolio. It did not truly fit in very well. The new firm did not pay a dividend (not the sole reason I was invested in the other but because of the balance it provided some paying dividend, some not), it went in a different direction, and I did not like the managers as well. It was in the same sector and was a well run company. But in the end I had to end my position in the new firm and invest money in a different company that fit better with my portfolio.
Again the big thing about investing is knowing the direction of the firm and knowing everything about your firm.
How to invest your money
To gain money and not lose money in investments is a difficult thing at times. You might put money in a great company and the next day they announce they are going bankrupt. As an investor with real money at stake you should never want this to occur. So how does one minimize this constant risk of losing money. It isn't a simple fix but one that can be done. Here are things you should do before and during putting money in investments
- Foremost do not put al your money in one investment. It looks bad and does nothing to minimize risk. It makes it the riskiest because it could all be gone tomorrow. The companies products might not be the spectacular change they wanted, the markets desires for products could change, technology makes their product obsolete, or any number of factors can make the investment go bad.
- Learn about different sectors. The market is full of sectors and sub sectors and each one has a different time to shine in the business cycle. You can always try and beat the market in knowing what the current business cycle is or you can take the wise man's approach and invest in all the sectors all the time. This is smarter because asking 10 market professionals what the current cycle is and you get 10 different responses. Be wise and just go ahead and put money in each one.
- Study each company. Putting real money in an investment should warrant time and study about where the money should go. If it doesn't then you should view the investment as a gamble. It is because without studying you have no idea what the outcome will be. Key to investing never gamble. You should have complete confidence in a company before you even think about giving them your money. Remember it is your money and you are entrusting it to them to grow and in the end make you money. A fool and his money are easily separated. Don't be the fool
- And know each and everything about the company. After choosing a possible company you should research everything. Each product they have and the possibility for growth. The segments that the company operates. The cash flows from each company, the debt, the managers, the direction the company is going. When someone asks what the forward looking guidance for the company is you should know it to see if they miss or beat the street's analysis. It might take time but you don't want to lose money. There is a reason why investment firms hire so many people to do research and why those research reports are long. It is because it matters and can change the direction of your portfolio. It can also mean being market average and beating the market as a whole.
- Buy and hold is good. If the market research you did was accurate and you trust it, your investments should do splendidly and grow each and every year. This does not mean never trade a stock but it does mean don't trade a stock lightly instead do careful analysis again and see if the investment has changed significantly for you to switch to a new investment. Don't get fooled and constantly change investments to only have your profits go to your broker. Careful analysis and thought out decisions make for a wealthy individual
- Pick companies people need. Sometimes the best investments are those companies that people have to use or buy. These are items that even in a recession hold up in sales. They might not be the skyrocketing Amazon or Google stock but they are your dependable stocks that with good management will serve well in being in your portfolio. And yes you shouldn't put all your money in these either.
These are a good six ways to choose investments and tools to analysis investment choices. I will discuss on later blog posts how to use financial tools to analysis and decide the best investment choices for you. Go out there and start learning about companies and making wise investment choices.
Monday, January 13, 2014
This Blog
I foresee this blog being about my take on market news, investment strategies, how to save, how much to save, and anything else I can reasonably blog about that deals with economics or finance.
I won't have much new information but will mostly be a commentary or helpful advice that I might have for anybody that will listen. Hopefully what I blog about can help you discover smart investing strategies, make you change your mind on saving, and will make you a savvier, financially minded person.
Trade well and smart my friends.
I won't have much new information but will mostly be a commentary or helpful advice that I might have for anybody that will listen. Hopefully what I blog about can help you discover smart investing strategies, make you change your mind on saving, and will make you a savvier, financially minded person.
Trade well and smart my friends.
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