A financial education blog to share experiences on 401K, assets, budgeting, cashflow, early retirement, finance, financial freedom, investing, money management and retirement planning using posts, podcasts and video.
As a beginner investor, there is always one thought at the forefront of our minds, “what if I lose all that money”. This thought can sometimes paralyze us and hold us back from moving forward with educated decisions and opportunities to make those rewards.
Most beginner investors first start with the stock market. Considering this investment vehicle, lets look at the risks that you face as an investor. What most people don’t realize is that there are two forms of risk that reside in the stock market:
1. Market Risk
2. Company Risk.
Market risk is first of all something that none of us control and all investors, whether they are novices or experienced, are exposed to this risk. There are all sorts of conditions that influence the market, such as political, economical, cyclical, and day to day financial news. It is a general risk that the entire market faces and as a result stock prices go up and down. Of course there are exceptions but it is very rare to find a stock that is NOT affected by market risk every now and then. There is very little an individual investor can do about market risk so don’t waste your time analyzing it.
On the other hand, market risk can be narrowed down to sectors and industries and therefore the beginner investor can have some control over the choices they make. For instance the financial stocks have been hard hit the last 12 months, real estate and mortgage stocks are also likely to have gone down, whereas certain technology sectors have experienced gains. Factors such as interest rates and economical conditions can give you an indication of which sectors will suffer and those that may prosper.Â Within each sector and industry, there are many companies to choose from. Even if a sector is doing well, you then have the company risk to deal with.
The good news is that there is a way to minimize the risk to your stock investments. Instead of putting all your money into one stock, reduce the risk by diversifying your portfolio - select five or more companies. This way you have an average return from all the companies in your portfolio. Some will overperform and some may underperform from your expectations.
Picking the stocks and making a portfolio may be easy for some and relatively difficult for others. Depending on your experience and comfort level, you can either create your own portfolio or pick from portfolios that are already created for you by your investment broker.
Hopefully this was helpful to the beginner investors in our community. Let us know if you have any questions or comments to this post.
Do you think your character has any relationship with your finances?
Are you Purposeful (goals & objectives)? Are you Patient (saving)? Are you Responsible (borrowing)? Are you Moderate (balance & budgeting)? Are you Selfless (retirement)? Are you Reliable (credit)? Are you Courageous (business & investing)? Are you Punctual? (35% of U.S. FICO is based on this character) and the list goes on.
True Wealth & Prosperity can only be achieved by discovering and developing one’s hidden treasures:
âRegard man as a mine rich in gems of inestimable value. Education can, alone, cause it to reveal its treasures, and enable mankind to benefit therefrom.â
Of course development of hidden potentials (virtues) must be complemented with learning and implementing various elements of local economy in daily financial activities.
Couple weeks back, I wrote about stock investing tips and one of my final tips discussed using an online stock brokerage account once you get familiar with stock trading and have some experience behind you. To continue that topic, it would be helpful to know what features to look for in an online broker, as there are many options out there.
Whether you are a novice or seasoned veteran to online stock trading, here are some important features and points to keep in mind when you open an online stock trading account.
What trading tools do you need to conduct your research? Company historicals, independent market research, real time quotes, SEC reports, etc. Check to see what trading tools are provided by the broker, both free and premium tools, whichÂ may cost you.
What types of online trading are you planning to do, stocks, mutual funds, bonds, ETFs, retirement accounts, IRAs, etc.? Are these investments offered by the broker? What are the respective fees for each of these investments?
With the real estate market down and the economy falling into recession, there is a lot of attention on the stock market. Many people are looking at the stock market and hoping toÂ make short term and long term gains. There is no doubt opportunities to make money in the stock market and we should consider these options as well forÂ ourÂ investment portfolio.Â Here are 10 stock investing tips to keep in mind.Â
1. Long-term investment
Typically stock prices will go up and down and fluctuate even more in the short term. Don’t pay attention to the daily fluctuations in your stock. Always invest with the long term in mind.
Diversiy your investments with low, medium and high risk stocks. Pick some fixed income securities especially in fluctuating markets. As they say “don’t put all your eggs in one basket” applies here.
3. Online trading is quick and easy, online investing takes time
These days the internet has made trading so easy. With one click, you can buy and sell stocks from more than 100 online brokers with low commissions. However, this does not take the homework out of researching and making investment decisions.
4. Don’t gamble!
If you can’t afford to lose the money, then don’t gamble it on a stock purchase. Choose more conservative investments with low risk if you are worried about your money.
5. Don’t expect miracles!
If you come across some recommendations from a friend or broker that a stock is going to double in value in a few months - beware! Don’t go into the investment expecting this. If you are lucky and the stock does go up 50% or more, then consider selling and get your returns immediately.
1. Maintain a good credit score! It will save you thousands of dollars in the short and long term when you need to borrow money to buy a car or a home. Creditors will give you an interest rate and the loan amount based on your income and credit score.
2. Large sums of money should NEVER be left in a checking account or even a low-interest bank savings account. Rather, put the money into a high interest savings account (like an ING savings), money market fund, or other forms of short term high interest investments with a fixed return.
3. If you have an employer matching 401K plan, maximize your contributions, so that you double your money!
4. Set aside 10% of your paycheck towards some form of long term savings account, like a money market account, mutual fund, retirement plan, or 401K.Â As you pay amount increases, your contribution will also increase automatically. 10% will also ensure that you stay ahead of inflation.
5. One of the best investments you can make is to first pay off all your high credit card debts. Credit cards typically carry a high interest rate and by paying off these debts, you get one of the best returns available which also is tax-free.
Our first episode is to discuss “financial freedom” and what it means to you?
One definition of financial freedom is “a well-planned lifestyle where one no longer is required to work for income to cover their expenses”. Doesn’t this sound great? However, contrary to popular belief, it does not require being free of debt, as a debt payment is just another expense like food, travel, gas, and other living costs that all of us have. Typically, financial freedom or financial independence can be attained in one of two ways (or a combination of the two):
1. Earn enough passive investment income so that one can cover all their expenses.
Warren Buffet is all over the news again!Â This time it has to do with Wall Street and saving those Bond Insurers. The billionaire investor’sÂ offerÂ to help out troubled bond insurers rallied the markets and the Dow Jones industrials rose more than 130 points,Â easing some of the market’s concerns about further deterioration in the credit markets.Â Warren Buffet’s Berkshire HathawayÂ holding company has offered up to $800 billion in municipal bonds, primarily as a second level insurance. The last timeÂ we heard his name all over the news was when he donated a substantial amount of his money towards the Bill and Melinda Gates Foundation. That is just fantastic! We need more of the wealthy in this country to find charitable causes and foundationsÂ that will help to alleviateÂ poverty, reduceÂ diseases, provide universal education, bring about more equality, and reduce the increasing gap bewteen the rich and poor. Read the rest of this entry »
Recently my wife and I visited China and Thailand during November and December of 2007. It was an eye opening experience for me. Thailand was nice, the usual tourist spots, warm weather,Â sunny beaches, and yummy delicious Thai food. China, on the other hand, was a sight to see!Â Its not like any other place I have visited before, the culture, the people, the food, the historic places…Â OK,Â you probably don’t want to hear me ramble about my 5 week vacation right? There is something else we need to talk about - related to finance of course - the emerging China markets - or has it already emerged and positioned itself as one of the biggest, dominant, and powerful markets now? People, we need to look at China and if you are wondering how to profit in the Chinese markets, you better start your research now!
In summary the video posted here will show youÂ thatÂ a group of G7 leaders recently met in Tokyo to discuss the world economy.Â They state that theÂ Global economy could get worse and is mainly the cause of the crumbling US housing market.Â Presently the losses of the banks amount to approximately 100 Billion dollars in relation to this housing market down-slide.Â That is a lot of money!Â The G7 leaders were comprised of finance ministers from Japan, United States, Canada, Italy, Britain, Germany and France (for those who did not knowÂ what G7 is?) from which the Japanese and French leaders stated that they were not concerned about their regions as the fundamentals remained firm for the economical conditions in Japan and France.Â I would love to know why Japan and France are standing firm on their fundamentals and what is anticipated for their future economic conditions if the US market tumbles futher downward.
I am not sure how to take the comments made on this video and how to prepare ourselves for what is yet to come all because of the housing market debacle that was mainly generated from capitalistic greed.Â In many an instance I was privy to dealings with Real Estate Brokers who were selling overpriced homes to under qualified buyers.Â Â So the Brokers got rich on these innocent victims who only wanted to fulfil the american dream of buying a house in America and so did the banks by charging outlandish fees.
Have you heard of Jim Jubak? I have been reading recent articles and posts by Jim Jubak, MSN’s money man. He is touted by MSN as “The Web’s No. 1 investing columnist”.Â Look at his site on MSN Money, there is a ton of good information, but if you are a novice to finance and financial information, then it could be overwhelming.
Jim Jubak’s articles range from stock investing tips, to recession markets,Â bear markets, USÂ energy policy, banking crisis, how to profit from rising food prices, how to profit from the weakening dollar, China markets, Japanese markets, and a lot more. His articles are relatively easy to understand, but youÂ mustÂ have some knowledge of financial intruments and markets. If you are well versed with financial markets and financial intruments, then you will have no problem and will find lots of value in Jim’s articles. On the other hand, if you are a novice and are somewhat intimidated or find it difficult to grasp the content of Jim’s articles, then here is aÂ suggestion to help you learn more and become your own financial expert:Â pick an area that interests you, whether its the stock markets, bond markets, 401(K), rising oil prices, China, or one of the other areas that Jim reports on, review the article, and then post your questions and comments on this blog. Of course don’t forget to reference the article title and date. We can review the article and have contributing authors and experts engage in a discussion with you to help you learn and understand. Sounds good?