How to Invest in Bond Funds or Bonds, Why You Should
When You Purchase a Bond or Bond Funds; What Happens
Investing in bond funds or bonds are two different entities. When you purchase a bond, you are loaning your money to a corporation or to the government.
In exchange for loaning your money, you will receive the promise of regular interest payments. The bond will also be given a maturity date.
When the bond matures, you will be given your principal investment back. This will include several years’ worth of interest on that principal.
You can use a bond to live off the interest (although, in such a case, you would need to have invested quite a bit of money).
Alternatively, you could reinvest the interest, or use the bond for the purpose of balancing out a stock portfolio. This would work, because bonds are generally income investments, and stocks are generally growth investments.
Individual Bonds or Bond Funds as Income Investments
Income investments give you interest, and growth (or equity-stock) investments give you capital gains investment returns, if you have chosen your investments wisely. Therefore, usually when stock prices are up, bond prices are down, and vice versa.
This is one reason stock investors add bonds or bond funds to their portfolio. As the stocks go down the bonds go up and can balance out the portfolio’s bottom line.
Many people think that because bonds pay interest, they are 100% safe, because you can never lose your principal investment. This is not true!
The price of a bond (which is separate from the paid interest of a bond) can fluctuate. You can lose your principal if the price of your bond were to fluctuate to nothing (zero).
"There is an Important Difference Between Stocks and Bonds" -Lois
This is where bond ratings come in: there are high-yield bonds, and there are high-quality bonds. You must know the difference between the two, before you start to place your money into bonds.
Bond Ratings – Some Are Called “Junk”
The higher the interest rate of a bond, the lower that bond is rated— this is known as a high yield bond. The lower a bond is rated, the higher the interest will be that is paid on that bond.
This is why some financial advisors recommend that you buy short-term bonds, so that your bond can “mature” before its price decreases.
The highest-yielding bonds are usually the lowest-rated, high-yield bonds are called “junk bonds”. These are rated “C” by ratings services.
On the other hand, the lower the interest rate of a bond, the higher that bond is rated—this is known as a high-quality bond. High-quality bonds, which usually do not have high yields, are generally rated “A” or above by investment rating services, such as “Moodys”. There are several bond
rating services.
RATING DEFINITION’S: S&P MOODY’S
——————————————-
Highest quality and grade. Prime. Maximum safety. AAA Aaa
Bonds which are judged to be of the best quality. They carry the smallest degree of investment risk. The obligor’s capacity to meet its financial commitment on the obligations is extremely strong.
————————————————————————————————-
High quality. High grade. AA Aa
Bonds which are judged to be of high quality by all standards and only differ in small degree to the highest graded bonds. The obligor’s capacity
to meet its financial commitment on the obligations is very strong.
————————————————————————————————-
Upper medium quality and grade. A A
Bonds which possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. They are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor’s capacity to meet its financial commitment on the obligations
is strong.
————————————————————————————————
If you are an individual investor who is purchasing a bond, it is usually
best to stick with a bond that has a rating of “A” or better. (see the “Summary,” at the end of this article).
BONDS DIFFER, BASED MOSTLY UPON WHO ISSUES THEM:
- Government-issued bonds are called Treasury Bonds.
- Corporation-issued bonds are called Corporate Bonds.
- State- or Local-issued bonds are called Municipal Bonds, or “Muni’s,” for short; this type of bond is generally exempt from all state and
local taxes.
Individual Bonds Versus Bond Funds
Purchasing an individual bond can be an overly complex endeavor, and generally requires a large sum of money at hand. To fund even a single bond, you will often need at least $10,000 (but sometimes less).
Institutions, such as pension plans and insurance companies, will often purchase bonds. But they also have teams of people who can thoroughly analyze which bonds to buy, along with when it is best to buy—and sell—them.
Some Investors Use Bond Funds to Balance Their Portfolio -Lois
Individuals don’t have this kind of investigative power, and it would require an individual with a lot of individual bonds. Therefore, you need a lot of money—for your individual “bond portfolio” to be considered diversified.
An alternative would be to invest in bond funds, in Treasury Bonds or Muni’s. You can invest in bond funds, which is significantly different from an individual bond.
The obvious difference is that an individual bond is just what its name implies—i.e., one bond—while a bond fund is a collection of individual bonds. Before you invest in bond funds, start a series of simple ways to save money first.
Another big difference is that, while an individual bond will mature, a bond fund never matures. (Remember, you can cash-in on your bond when it matures and get your principal investment back).
If you invest in bond funds, it is best to look for one whose individual bonds have average, short-term maturities. As investors get older the tendency to invest in bonds more than stocks, because the fluctuation in prices tends to be lower. Disclosure: I do invest in bond funds, as well as other investments.
SUMMARY
- There are high-yield bonds and high-quality bonds.
- High-yield bonds pay higher interest rates but are not very stable; the highest yielding bonds are known as “junk bonds.”
- High-quality bonds pay lower interest rates but are usually more stable than high-yield bonds.
- Bond prices fluctuate: a low-quality, high-yield junk bond’s price could even fluctuate to zero; this would cause you to lose your principal, should you have invested in such a bond.
- The highest-quality bonds are rated “Aaa” and “AAA,” by Moody’s and Standard and Poor’s rating services, respectively; and the lowest-quality bonds are rated “C” (junk), by the same two services
- To decrease your chances of landing a bond with a price that fluctuates too low, it is best to buy short-term bonds.
- There is big difference between individual bonds and bond funds; one important difference is that, while individual bonds mature, bond funds never mature.
Lois Center-Shabazz | Course Delta Agency
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How To Find High Performing Mutual Funds For A High Performance Portfolio
Finding high performing mutual funds investments for a high performing portfolio is simple when you have a little research. Great mutual funds are a result of a stock market that has been going up consistently for the past few years, and is posed to continue on the current positive course. Therefore, now may be the time to research quality mutual funds.
Mutual Funds
1. Definition of High Performing Mutual Funds
There are literally thousands of quality mutual funds to research, the small list below will get you started. First there are a few things you should know. Mutual funds are used for your 401k, regular savings or investing.
You can purchase most high performing mutual funds from an online. Buy from brokers such as Fidelity Investments, Charles Swab, TD Ameritrade.
Or you can go directly to individual mutual fund company websites such as Vanguard Mutual Funds, T. Rowe Price, American Century, Parnassus, Permanent Portfolio and others. These are all low cost mutual funds.
Those I mentioned here happen to be among the largest companies, but there are many others to choose as research candidates. Most of the discount brokers offer free mutual fund research as well as Yahoo Finance, MSN Finance, and Google Finance all under the mutual fund channel.
Understand How to Research Mutual Funds From a Money Strategist
2. Finding High Performing Mutual Funds
To find high performing mutual funds you must look at cost of the fund, returns, tax Rate, and asset allocation are 4 of the major categories I look at when I research a mutual fund.
There are many more you will find when you read mutual fund reports listed on the financial websites, and in the prospectus.
It is imperative that you know what you are buying before you buy it. Re-Read the prospectus of the mutual fund you are interested in several times prior to purchase decisions.
All of the following mutual funds mentioned are no-load funds. The following facts are current as of March
2011, they were taken from several mutual fund rating companies.
3. Cost Or Expense Ratio of Funds
Cost is most important for high performing mutual funds because the performance of mutual funds go up and down over time as do most investments.
The lower the cost, the more money goes to your investment. If your mutual fund goes way down, a high cost may be challenging. A reasonable cost almost goes unnoticed if the fund performs well over time.
Learn All The Details of Mutual Funds, Schedule a Discovery Session
Keep as much of your investment as possible by focusing on low cost mutual funds. If you are a beginner it is good to focus on mutual funds that are listed as low cost and low risk.
Most of these funds do not require a load or upfront cost unless you cancel the fund before 30-90 days. Each fund varies, read the individual fund prospectus.
4. Returns of Mutual Funds
High performing mutual funds have high returns and are calculated after all costs are deducted. A great one year return may be a fluke. I like to look at the longer returns of the mutual fund. After all, an investment is the increase in value of an instrument over time.
I prefer to look at the 5 and 10 year return of mutual funds to get a broader picture. If the 1 and 3 year returns are high also, that may be the sign of a winner.
Bear in mind you must read the recent news and statistics of your mutual fund, because past performance is no guarantee of future performance.
5. Allocation of Mutual Fund Assets
You don’t need a lot of mutual funds if you choose quality, since a mutual fund usually consists of a diverse mix of stocks. There are different types of mutual funds. So if you choose to own some they should be of different asset allocation groups, to avoid overlapping investments.
Some of the different types of asset allocation groups are: Large Growth, Small Growth, Large Value, Short-Term Bond, Mid-Cap Value, Diversified Emerging Markets and many more.
When you go into an online investment area read about each different type of mutual fund available. If you are a beginner it may be a good idea to study the low risk, low cost mutual funds first.
6. Taxes Paid on Mutual Fund Profits
All of the funds listed below have low turnover, and therefore low tax rates. The turnover rate is the rate at which stocks in the fund are bought and sold. If the stocks are kept long term, they will be subject to long term capital gains tax, which is amongst the lowest taxes to be paid.
7. These are current Mutual Funds with Top Standings in the Respective Categories
Portfolio 1
Parnassus Equity Income Portfolio (PRBLX)
Type: Large Blend
Risk: Below Average
Yearly Expense Fee: .99
Return To Date: 3.7%
Return 1 year: 17%
Return 3 year: 5.9%
Return 5 year: 7.3%
Return 10 year: 7.0%
www.parnassus.com
Permanent Portfolio fund (PRPFX)
Type: Conservative Allocation
Risk: Above Average
Yearly Fee: .93
Return To Date: -.07%
Return 1 year: 20.4%
Return 3 year: 8.0%
Return 5 year: 9.5%
Return 10 year: 11.0%
www.permanentportfoliofunds.com
Yacktman Fund (YACKX)
Type: Large Blend
Risk: Average
Yearly Fee: .93%
Return To Date: 1.7%
Return 1 year: 8.47%
Return 3 year: 12.1%
Return 5 year: 9.4%
Return 10 year: 11.82%
www.yacktman.com
These are just a few examples of high performing mutual funds, there are many. You will find the quality mutual funds when you do your research.
This is not a solicitation to buy a mutual fund. These are only mutual fund suggestions for you to research. Read the mutual fund prospectus before you consider purchasing a mutual fund. Most are available online, at each mutual funds website.
These mutual funds were given a top rating by at least 7 different mutual fund research sites.
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9 Great Ways to Understand Mutual Funds
How to Understand Mutual Funds
Understand mutual funds by beginning with the definition of a mutual fund, and then going on to understand the different types of mutual funds.
A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt.
The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part
ownership in the fund and the income it generates.
What Are Mutual Funds Used For?
Mutual funds are investments that are generally long-term investments that are used for general savings, retirement savings, and college fund savings.
Mutual funds are purchased because they are professionally managed, diversified investments, an affordable investment, and liquid.
Some have up front fees to purchase and or sell called loads. Some have no-loads, but all have yearly management fees from as low as .2 to 8%.
I prefer fees less than 1% with no-loads. There are good mutual funds that fall into all categories.
Mutual funds make money when dividends are paid, usually every 3 months to every 12 months. Capital gains are usually every 12 months. Mutual funds also make money when the NAV value of the fund increases. The NAV is the Net Asset Value of the mutual fund, similar to the price of a single share of stock.
There are many types of mutual funds within these nine types of mutual funds. Here are the 9 different major types of mutual funds. The risks of mutual fund investing runs the gamut of very low to very high and many levels in between within one type of fund. Do your research thoroughly before investing in order to understand mutual funds.
I have invested in mutual funds for at least 30 years now, and they have served me well.
The 9 Different Types of Mutual Funds:
1. Allocation
Risk: Low to Medium
Allocation funds are a combination of stock and fixed income securities and are subject to the risks involved in each of these security types. Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. In general, the bond market
is volatile and fixed income securities that carry the interest rate, inflation, price volatility and other risks.
2. Alternative
Risk: From Low Risk to High
The fund may invest in securities that may have a leveraging effect (such as derivative and forward-settling securities) which may increase market exposure, magnify investment risks, and cause losses to be realized more quickly.
3. Commodities
Risk: High
The commodities industry can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions.
4. International Equity
Risk: Medium to High
Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market, or economic developments, all of which are magnified in emerging markets. These risks are particularly significant for funds that focus on a single country or region.
Make absolutely sure your budget is in order before you begin to understand mutual funds and start investing.
5. Money Market Mutual Funds
Risk: Very Low
A money market mutual fund is a type of fixed income mutual fund that invests in debt securities characterized by their short maturities and minimal credit risk. You could lose money by investing in a money market fund. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Before investing always read a money market fund’s prospectus for policies specific to that fund.
6. Municipal Bond Mutual Funds
Risk: Very Low to Low
The municipal market can be affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal securities. Interest rate increases can cause the price of a municipal bond to decrease.
7. Sector Equity Mutual Funds
Risk: Medium to High
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Sector funds can be more volatile because of their narrow concentration in a specific industry.
8. Taxable Bond Mutual Funds
Risk: Very Low to Medium
In general, the bond market is volatile, and fixed income securities carry interest rate risk. As interest rates rise, bond prices usually fall, and vice versa. Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.
9. U.S. Equity Stock Mutual Funds
Risk: Low to Medium
Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.
You will understand mutual funds when you begin with understanding the different types of mutual funds.
Lois Center-Shabazz | Course Delta Agency
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Your 3 Investment Stops To Start Investing
Don’t Let Negative Thinking Place You in Investment Stops, Start Investing Now
Here are 3 investment stops to start investing money for retirement, savings, vacation or just a rainy day. It is essential if you want to ever retire, you must know how to invest.
The 3 Major Investment Stops
I don’t have enough money to invest.
I have to pay off my bills first.
I have money to invest, but I am afraid.
What is stopping you from starting to invest? Three of the most common investment stops are listed above. What can you do to start yourself to invest?
There are many inexpensive ways to start investing. You can open an investment account with a broker that sells shares or partial shares of stocks.
You can open a mutual fund account with a mutual fund company that will allow you to start with a small amount of money. And finally, you will have to shed some old baggage about investing, for example, “I will start investing when I get my bills paid off,” or “I am afraid to invest.”
Start With the Right Investment Priorities:
Invest in the right car
Invest in the right home
Learn comprehensive investing in mutual funds, credit scores, budgeting,
saving money, and student loans. Learning low debt strategies is essential.
You don’t have to have a lot of money to start an investment account.
There are mutual fund companies that will allow you to start an investment account for as little as one hundred dollars. You can add as little as twenty-five dollars a month.
The monthly additions work to significantly increase your account due to dollar cost averaging. Low-cost, low-risk mutual funds have a tendency to be less complicated than stocks. But, low-risk dividend paying stocks of stable companies are a good research vehicle as well as mutual funds.
There are companies that will allow you to invest in a few shares or partial shares of stock starting with as little as eight dollars a month. Then, adding eight dollars a month to your account to purchase these shares or partial shares of stocks .
I have to pay off my bills before I start to invest.
It is a good idea to have your debt well under control before you start to invest. The interest rates on outstanding debts sometimes are in excess of the interest rates on investments. Coupled with compounded interest, high debt payments can be excessive.
There is an easy way to invest after you have your bills under control, that is to treat your investment as “just another bill.” Before you know it, you will have a significant investment account.
Do you have plenty of money to invest, but you are simply afraid? I think the term for that is, “fear of the unknown.” That is probably the easiest investment stop we address in this article.
Study the investment tutorials in my eBook and course; Step by Step Car Buying Tips for Women, that can save your financial life. You can download it instantly, and the eBook is practically free, the price is so low.
Then, you can go on to understand high level home buying tips, so you buy the best house for the best prices. Now move on to my free discovery session and enjoy the preponderance of money information there.
Lois Center-Shabazz | Money Strategist | Personal Finance Coach
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Stock Research Tips
Use this stock research information to start your stock research and investment in equities, including mutual funds.
Equity Securities
One of the first stock research tips you should know is; an investment in a stock issued by a company is an equity security. There are individual equities or stocks and you can purchase equities in mutual fund shares when the mutual fund is made up of stocks.
I personally feel beginners, but many seasoned investors are better off investing in mutual funds – mainly because they have expert management. But, you must understand individual equity securities before you start to invest in mutual funds.
Earnings and Profitability
Check to see if your company has earnings. Then check to see if there has been a yearly increase in earnings for the past five years. After earnings verify the company has a profit. To the novice investor, it seems that a company cannot exist without profits.
But, companies can and they do. Some companies get their start with venture capital funding, this funding is paid to companies as high as 5, 10, 50 million dollars and up.
Some companies make good on their venture capital funding, pay the investors, and make a profit, and some don’t. This is what happened with the dot-com bombs of recent years, many of those companies had venture capital funding.
Some of them were given millions of dollars without having a company, earnings, or lest I say, profitability. Only a few of those companies persisted, developed products, and turned a profit. Since this is the highest risk level of a new venture company, it is best to invest in these companies after they have proven products and have turned a profit.
P/E or Price to Earnings Ratio
First look at the company’s earnings as they stand-alone. Does the company even have earnings? How can a company even exist without earnings? During the recent dot-com craze of the late 90’s , many of the companies’ stock prices increased dramatically in just a few hours to a few days, after going public, but yet the companies had no earnings.
The reason they were able to debut on the stock market, was in part, as I mentioned above, because of funding from private sources or venture capital companies. After going public, their stock prices dramatically increased because of speculation that they would have future earnings.
The Internet was and still is relatively new. Some companies have made a lot of money and real earnings on the Internet in a relatively short time, or it seemed relatively short compared to the standard brick-and-mortar companies, as they are called.
Actually, many of the Internet companies that are making a lot of money with real earnings had been in existence for a few years, some developing for quite a few years behind the scenes, before they went public.
What was the clue that investors had that the dot-bombs (as I call them) had no earnings. Inexperienced investors could have looked at their P/E or price to earnings ratios. It was not uncommon to see a price to earnings ratio of 300 or 350 for some of these companies! Now that is high! In contrast many value companies have price to earnings ratios of 15, 20, or 30.
P/E or price to earnings ratio: Calculations
To calculate the price to earnings ratio, divide the stocks latest price by the earnings for the past four quarters.
Example:
$20 current stock price = $10
$2 past earnings per share
This is called the trailing PE because it is based on the companies past earnings. You can also figure out the companies projected earnings with the same formula, just substitute the projected earnings figure with the past earnings figure.
Price to Book Ratio
The price to book ratio compares the companies price to its assets.
Example:
$20 current stock price = 100% price-book ratio
$2 book value per share
If the company sells for more than its book value, investors think highly of the company. If it sells for less, investors don’t think much of the assets. Some people buy undervalued stocks, that is, stocks selling below book value because they feel they are getting a bargain.
Sometimes when you hear media reports about a stock you will hear them mention that the current stock is “selling below book value.” Some people use that as a clue to start research on that stock.
Debt Ratio
Since the Enron stock scandal, other companies have been audited by the Securities and Exchange Commission, and had to restate their earnings or have voluntarily restated their earnings. Another fundamental they have had to restate is debt. Low debt is a fundamental that many investors use to purchase a stock.
In light of the Enron scandal, some companies have admitted to hiding debt in various ways. In order to understand most of the fundamentals of a company, you will need to read the annual report, and the quarterly reports. Look for things that don’t add up, that don’t make sense or just seem “padded.”
The debt ratio; is the liabilities of the company minus the total shareholders equity. 30% debt-equity ratio is considered low debt.
Example:
10 million total liabilities = 20% debt-equity ratio
50 million???
Compare debt to your house mortgage, if you have no mortgage, and therefore no debt on your home, the less you depend on your income to sustain it. You primarily have maintenance cost and taxes. Debt is a good measure of a company’s stability because the less debt a company has the less it has to depend on financing to sustain itself.
If debt is used wisely and the company can handle the payments easily, debt is not a problem. There is always the potential for problems if the company has high debt and their core products stop selling or have to be recalled for some reason, and they can’t make their debt payments. Conservative investors usually opt for low-debt companies.
Dividend Payout Ratios in Equity Investments
Tells how much of a companies profits are paid out in dividends. Older more established companies pay high dividends, where newer growth companies invest back into the company for growth and development of new products.
Example:
$2 dividends per share = 50% dividend payout
$3 earnings per share
Dividend payouts more than 50% means the company is not reinvesting much back into the company.
Industry Leader/Company Leader
Check to see if the company is in a leading industry, and that the company is a leading company in its industry. You wouldn’t want to invest in an industry that is going out of business, or a company that is doing the least business out of all companies in its industry.
You can find leading industries and leading companies categorized in major financial newspapers. Leading companies are also mentioned on televised financial news reports.
Stock Investment Management
Analyzing the company management is not a quantitative measure, but it is an indicator. Research the company management to see if they have been successful developing products for their company in the past, or if they have successfully developed other companies or products.
Read about them in online proprietary stock reports, read their history in sec (securities and exchange commission) reports, read about them in your brokers online reports. Some financial newspapers and magazines will also feature reports on company management. Jack Walsh, the former CEO of General Electric is an example of great company management, as touted by the press.
Read Annual Reports for Stocks
There are several places to study the companies you are interested in researching. First, start with the company annual report. You can call the investor relations of the company and order a report. Also, some financial newspapers provide a place where you can order annual reports.
Just check the stock section of major financial newspapers. Some annual reports are available online. Check with your online service or your online broker service to see if you can get annual reports online. You can also use “Edgar” online. Use “Edgar” at: www.sec.gov/edgar/quickedgar.htm
The Securities and Exchange Commission provides Edgar. Using “Edgar,” you can do company research. You can read annual reports, quarterly reports, mutual fund annual reports and mutual fund prospectuses. There is even a tutorial to teach you to use Edgar, at the Edgar website.
Long-Term Hold
Why do stocks work best when held long term? It takes time for a company to develop a product, it takes time for a company to market and sell a product, and so it takes time for a stock to move up in price. With that said, even though you research investments before buying them, buy and hold does not mean, buy and ignore.
You should periodically evaluate the companies you hold to verify that it has not taken a bad turn, and stands to go bankrupt. You can also monitor your investments with company news using financial newspapers, financial news on television, and online financial news. There are companies that go bankrupt periodically.
If you research your company well and make an informed decision to purchase your company stock, invest in companies with high value, and monitor your company periodically, your chances of losing money with a bankrupt company should be slim.
Summary: What factors should you consider in your investment research?
Long term investing
Low taxes on investments
Strong quality companies
Great company management
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——————-
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.
15 Golden Rules of Personal Finance Security
Secure Your Personal Finance Security With These 15 Golden Rules
1. Your employment provides your wealth
Your personal finance security starts with getting the best job possible, and keeping that job is your primary path to wealth. Consistent paychecks over time will fund your savings, retirement, emergency and college accounts. Taking courses and jobs that train you to move upward are the best ways to consistently increase your salary over time.
2. Don’t assume you can replace your wealth
If you understand that every single dollar you accumulate, whether it is from employment, inheritance or any other windfall is precious and you manage it as though it were your last. People who don’t understand this, acquire money, sometimes large sums and spend it foolishly because they feel there is always more where that came from. This is not necessarily true, many don’t find this out until they want to retire and realize spending retirement money before they retire or simply not saving enough, is a major source of elderly poverty.
3. Create a bulletproof portfolio for security
Learn the basics of investing. Here you can choose low cost, low risk investments for your retirement and other investments. There are many investments that are easy to understand and easy to monitor. Monitoring your own investments gives you peace of mind.
4. Recognize the difference between investing and speculating
Investing is placing money in a vehicle that will grow over time — provided you choose wisely. Speculating is more like gambling, or placing money in investments you don’t have a clear understanding of, and hoping they make money over time.
5. Speculate with money you can afford to lose
When you go to a gambling casino, you would not gamble with money you need, like your house note. The same is true with speculating, since it has a tendency to be high risk investing, make sure it is small enough so a loss will not impact your finances.
6. Don’t depend on any one investment, institution, or person for your financial advice
The more you research, the more you learn, the least likely you are to be cheated by an adviser or institution. Remember Bernie Madoff, when questioned, all of his clients said they used him because they trusted him. They did not do their homework on his company and hence, he stole their personal finance security. A check at finra.org, would have shown he was not a registered investment adviser.
7. No one can predict the future
If anyone tells you that an investment will go up with 100% certainty be very suspicious of this person. If anyone gives you a definite percentage the investment will go up, be suspicious. Many investments have past histories, but even those cannot tell you with certainty what the future will be.
8. Whenever you are in doubt about a course of action, error on the side of caution
After doing a lot of research and you still have doubts about a person or institution to invest with, you may want to consider other options.
9. Don’t ever do anything you do not understand
Some brokers will tell you, I know you don’t understand this investment, but just take my word, it will work out. If you don’t clearly understand what they are clearly selling you, wait until you can. You cannot buy personal finance security, but you can use your common sense to keep yourself safe.
10. No one can move you in out of investments consistently with precise and profitable timing
Moving in and out of investments is expensive. Every time you buy and sell an investment, there are cost. Anywhere from home sales to buying stocks or mutual funds. Some cost are far greater than the gains on the product. Investment growth happens over time, the longer you wait the more you make, and the less cost you will pay, due to long term capital gains.
11. Use leverage with caution
When someone goes completely broke, sometimes it is because they used borrowed money. The more money you have to borrow to invest, the more likely you are to get higher interest rates or low quality investment products. The lower your debt, the better chance you have to save money for investing.
12. Beware of tax-avoidance schemes
Every so many years companies come up with financial products that help you to avoid taxes. If it seems too good to be true, it probably is, so be cautious. Sometimes these products are disallowed years after they are put in place, and you will lose your deductions.
13. Enjoy yourself with a budget for pleasure
While it is important to save and invest for general purposes and retirement, it is also important to budget in fun. Fun as in vacation fun or weekend fun, of course within the confines of your budget.
14. Live within your means
My motto is, “Live Within Your Means, and Your Life Will Mean Something”. This will save you money, pain and heartache in the future. The more you place limits on spending within your budget, the better you will feel all around; financial, emotional and mental stability. This is the summation of personal finance security.
15. Protecting your assets with insurance and estate planning is essential
After saving, investing, and having a fun vacation, it is absolutely necessary to protect all you work for or it can evaporate with one bad event. A car accident or home disaster can loose everything if you are not properly insured. Your estate plan will protect your loved ones.
Lois Center-Shabazz | Course Delta Agency
Personal Finance: Author, Blogger, Course Creator, Money Strategist
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Mastering the 5 E’s of Investing
Basic Investing
Basic investing is a concept all of us should know, but few I speak to seem to know the importance. Many of us have already given up on our deepest life dreams. But I think we should all consider starting a financial resolution.
It’s impossible to turn on the television and not see commercials with yet another famous celebrity touting some magic weight-loss plan.
It is important to be physically fit, but it’s also important to be financially fit, including basic investing.
Women take time off to care for children and other family members, and as a group we are paid less money than men for the same job. According to 2004 labor statistics, as of 2016 the percentages are about the same:
–White women earned 76 cents for every dollar men earned
–Black women earned 71 cents for every dollar men earned
–Latina women earned 59 cents for every dollar men earned
–And Asian women earned 86 cents for every dollar men earned
The number of marriages per year is decreasing. Women often outlive their husbands, and divorce rates are hovering around 50 percent.
This translates into women spending some part of their adult life alone. And even if we do find prince charming later in life, that doesn’t mean he will be financially educated or understand the essentials of investing for savings, retirement, or education.
Thus we have to take the initiative and learn how to become financially savvy and understand many useful and, at least, basic types of investing.
Confidence is key when managing your money and the only way to get confidence is to be knowledgeable. Msfinancialsavvy.com has a lot of tools to help you get started in your quest for financial security, such as tutorials, calculators, and various articles written by experts.
There is also a book for the beginner investor, Live Rich Save Money! From Stocks to Mutual Fund Research in 47 Wonderful Way by Lois Center-Shabazz, which has great tips to help you manage your money. Go her for your free investing book excerpt.
It’s sad but true that many of us graduate from high school and college never really understanding how to manage our money. The first step to financial freedom and prosperity is to master the 5 E’s of Investing.
Educate – Learn all you can about how money works. Msfinancialsavvy.com is a great place to start. The site has a lot of information to help the novice investor on her way.
Emancipate – There are a lot of pessimists around who will intentionally or unintentionally give you bad information. Free yourself from internal and external negative influences.
Evaluate – Smart savers and investors make good decisions by observing and weighing the pros and cons of each situation. They learn about money and the market through research and observation.
Emulate – Savvy investors and savers are participating in job-sponsored 401ks, contributing to Roth IRA, budgeting and diversifying investments. Copying some of these proven strategies can help you on your road to financial success.
Empower – Once you have educated yourself on your money and have come up with a personal strategy, you will feel empowered in your decisions about your financial future.
It is important to master the 5 E’s of Investing now. The earlier you start investing and saving the more you gain.
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Saving Money is the First Key to Get Started
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Mastering the 5 E’s of Investing
Protect Yourself From Investment Fraud
Protect Yourself From Investment Fraud For Now and in The Future!
Some of you are active investors, want to be active investors in various investment vehicles and some of you will be indirectly affected by stocks, bonds, mutual funds or other investments. Those investments could come to you via your 401k plan, an inheritance or other means. My point is anyone could be exposed to the financial markets intentionally or unintentionally. Because of this, you need to know how to protect yourself form investment fraud.
The Enron company (stock symbol – ene) “stock” scandal has been widely reported in the news in October 2001. The company stock went from $83 to .25 cents in just one year. According to the widely televised news reports one possible reason was accounting improprieties.
The most widely speculated impropriety was over-reporting of earnings by some officers. While downright false accounting reports by major companies are rare, and difficult to detect, you need to protect yourself from these types of scandals. We ask the following questions and attempt to answer them here. How do these scandals occur? Who is most vulnerable to stock scandals? How can investors protect themselves from this and other types of stock scandals?
Although most investment firms and products are ethical and legal, investment schemes and frauds do exist within the securities industry. Con artists are quick to pick up on the newest hot investment prospects and the latest technology trends and use them as a basis for fraudulent investment schemes. Bernie Madoff of Madoff Investments is probably one of the most famous investment fraud schemes.
Many of those schemes are very enticing and very difficult to spot. Almost all of them depend on trusting investors willing to believe the con artist’s claim without question. It may be difficult to identify fraudulent schemes, but there are some red flags you can pay attention to and avoid becoming a victim. Here are some pointers.
- Deal only with firms and individuals you have researched and trust.
- Be skeptical of any investment opportunity that comes about as a result of an unsolicited telephone call, Internet offering or even a television advertisement if the product cannot be easily researched. Never invest without doing some research about the opportunity. The Federal Communications Commission regulates telephone solicitations and automated calls under the Telephone Consumer Protection Act. Provisions of that act require a person making calls to identify themselves and the name of the entity on whose behalf the call is being made.
They must also give you the telephone number where the person or entity may be contacted. Other provisions require the entity to place your name on its no call list upon a written request and prohibit unsolicited calls between 9:00 p.m. and 8:00 a.m. Obtain additional information by contacting the Federal Communications commission, www.fcc.gov or 1919 M Street NW, Washington, DC 20554,
phone- 1 (888) 225-5322. Verify that your broker is certified and/or licensed through the CFP board or Finra. The Certified Financial
planner is not necessary, just good, but being registered or licensed is the law.
- Beware of glowing promises of high returns. Ask yourself why the promoter is so eager to share this opportunity with you, and remember that if it sounds too good to be true, it probably is.
- Don’t invest in a product you don’t understand, do your reserch, do lots of reading. There are many online investment portals where you can learn basic investing.
- Carefully analyze promotions offering high returns by investing in the latest technology developments. The promise of high returns is a red flag for investment fraud.
- Resist the temptation to invest “right now” because “tomorrow will be too late.” Don’t be surprised if they follow that line by “We will have someone there within the hour to deliver the prospectus and pick up your check.” Another line is, “I will have my supervisor call you and explain everything”.
- Never believe a salesperson when he says, “You don’t have to read the prospectus or contract. That’s just for the lawyers.”
- Do not give out your social security number, credit card or bank account information to people who solicit you.
- Look for audited financial statements and review them carefully. Be leery of the absence of audited financial statements and scrutinize unaudited financial statements carefully because an expert third party has not attested to their accuracy. Question any financial statement projections to see if the expenses and profits appear reasonable.
- Take notes of your conversations with your broker-dealer agent or investment advisor representative. Include the dates and times.
- Always..always..always….read and understand the legally required offering documents; ask questions and insist on reasonable answers. Seek advice from a knowledgeable friend or consult with your financial advisor, and invest only after you have satisfied yourself that the risk in this particular investment agrees with your financial objectives. You can read the recent news on a stock, research here for stocks, and here for mutual funds, Fidelity Investments is a major firm that has a large, easy to use research section.
- Save all records of transactions and correspondence. Never part with original documents.
- When considering equity securities prices below five dollars per share or unit and a market value of $250 million, these are penny stocks or microcap stocks. The risk of buying these stocks are extremely high. Be sure you receive, read and understand the lawfully required consumer protection information prior to conducting any business, read here to understand why microcap or penny stocks are, in many cases fradulent stocks.
- Slick promoters know how to make investment fraud sound legitimate and inspire your confidence. That is why they succeed so often. If you feel you have been victimized, report the matter to your state corporation commission, division of securities and retail franchising. On the national level you can contact the Securities and Exchange Commission (SEC), or the National Association of Securities Dealers, inc. (NASD), via the websites. You might also want to contact an attorney to determine your rights or file an arbitration claim. Your prompt complaint may keep others from being defrauded and increase your chance of getting your money back.
Related Links:
Understand basic investing with this award-winning eBook
Understand that you need a basic plan before you start investing
Building Wealth While Investing in the Stock Market
Building Wealth While Investing in the Stock Market
You can build wealth while investing in the stock market, but you better know how.
For many new or beginner investors, I speak to, building wealth while investing in the stock market appears to be a mystery. Even though there are many different types of stocks, only a few seem to be aware of this fact. I typically get the same response when I question them, and that is, aren’t all stocks high risk? The answer, of course, is no, but proving that to them, has at times been difficult.
A few years ago a personal finance magazine profiled people who died and left a sizable amount of money behind in stocks. That wasn’t so unusual considering the large increases many retirement accounts saw in the previous stock market booms. What was unusual was, each of the individuals who died with tremendous amounts of money started with very small accounts.
Their stories were as follows. One woman died and left twenty-two million dollars in stocks. She started investing forty years prior , with just five-thousand dollars. For most of her life, she lived modestly in an apartment, and when she died she left the money to her favorite charity, which was her lifetime goal.
The next person was a gentleman profiled on the nightly news. He died and left a thirty-six million dollar stock investment account. When his neighbor was interviewed about the money he left her,(almost three-hundred thousand dollars), she was asked if she knew how much money he had when he died. She said she had no idea, and she didn’t think he did either since he visited her regularly to watch cable TV.
It turned out that he did not have cable TV in his home. The authorities felt, considering his circumstances when he died, that he did not understand the value of his investments which were mainly in stocks. He did not leave a will for the remaining amount of invested money, and he lived modestly.
The next story was also on network news, it was about a woman who died and left two-hundred million dollars in an investment account. She inherited a stock market account from both her mom and dad, several years prior to that, and held them in the accounts.
The television reporter interviewed her neighbor in her low-income modest neighborhood, where the investor died with weeds growing around her tiny quaint home. She stated in the interview she had no idea her neighbor had any money at all.
Well, the moral of the story is not that you will get rich in the stock market. But, “time is a virtue with stocks and investing.” Starting with a modest amount of money, you can end up with a substantial amount of money over time. If you add to that amount of money monthly, you can increase your investment even more. This is called dollar cost averaging.
Holding onto your stock investments long-term is what is meant by, guess what? long-term investing. To invest in stocks you must do a lot of research and study. There are low-risk dividend paying stocks you can start with, but you must first understand what that means by studying.
Use our Retirement Calculator to estimate how much you will need to save monthly so you can retire with an adequate monthly income.
Don’t forget to ask for your social security statement every few years. It will show you the small amount you will get from social security when you retire. It will also show if you accept your social security retirement too early, you will substantially reduce your lifetime monthly payout. You can get a social security statement from www.ssa.gov, or call your local office.
For most Americans, you will notice that the amount you will get for social security retirement will not be enough to live a dignified life. You must have a supplemental income.
Because you cannot depend on Social Security, the government wants you to treat it as a supplement to your retirement. In most cases it will not be enough to live off for 15, 20, or 30 years. Most Americans cannot live on the social security payments they receive now.
Recent media reports have shown that elderly women are returning to the workforce, because well, guess what? Not enough retirement money. Many are divorced or widowed and never felt they would have to worry about divorce, widowhood or money in their old age.
Don’t get caught in this trap! Plan for your financial future now. Study the information in MsFinancialSavvy.com, return to our website daily to use my ebooks and articles on investing, budgeting, and savings.
Start with my Easy Budget Planner to get your finances where they should be. Don’t be afraid of the stock market or other investments long term to supplement your retirement, but do your homework.
Related Link 1: Stock Research Tips
Related Link 2: Reading a Stock Annual Report
Reasons to Read an Annual Report Before Investing in Stocks
Read an Annual Report
If you read an annual report of an interested stock, it will be one of the most thorough analysis of a company you will find. Most annual reports are filled with beautiful pictures and testimonies from satisfied customers, but this does not deter from the real purpose of the report, which is to give an objective and thorough overview of the company. The annual report is a valuable and necessary analysis tool for both current and potential investors interested in measuring value and risk of a company. The Securities and Exchange Commission (SEC) requires companies to send investors an annual report every year.
What do annual stock reports include?
- A five-year comparison of selected financial data;
- A consolidated Balance Sheet, an Income Statement, a Cash Flow Statement, and a statement of changes in stockholders’ equity for the past two years;
- A management discussion and analysis (MD&A) of results and changes over the last two years; and
- Notes to the financial statements that describe accounting policies as well as providing more detailed information in such areas as taxes, pension plans, business segment and geographical breakdowns, related party transactions, and future financial obligations.
- Major aspects of the report an investor should review are the-Income Statement, Cash Flow Statement, and Balance Sheet.
Where should you begin your analysis and research with an annual report? To start, look at:
- Sales, earnings, and various profit margins (from the Income Statement);
- Debt levels and the composition of current assets (from the Balance Sheet); and
- Actual cash flow versus reported income (from the Cash Flow and Income Statements).
- Lawsuits and complaints about the company
The annual report is the single most complete and useful analysis of a public company available.
How do you acquire an annual report?
- Investors holding individual stocks are automatically sent an annual report of the companies they own shares in, every year.
You can call the toll-free number of investor relations department of a company and request an annual report.
- You can download an annual report from the website of some companies.
- Edgar (SEC/Edgar), the financial database of SEC filings, contains the required annual SEC filings—the 10-K report—for most U.S. companies. Search: www.sec.gov/edgar/searchedgar/companysearch.html
The annual report is probably not only the most objective view of a company you will obtain, but it also contains valuable information to help predict a companies future.
Microcap Stocks and The Risk to The Investor
Microcap Stocks and The Risk to The Investor
The term “microcap stock” applies to companies with low or “micro” capitalizations, meaning the total value of the company’s stock. Microcap companies typically have limited assets. For example, in recent cases where the SEC suspended trading in microcap stocks, the average company had only $6 million in net tangible assets–and nearly half had less than $1.25 million. Microcap stocks tend to be low priced and trade in low volumes.
Where Do Microcap Stocks trade?
Many microcap stocks trade in the “over-the-counter” (OTC) market and are quoted on OTC systems, such as the OTC Bulletin Board (OTCBB) or the “Pink Sheets.”
>OTC Bulletin Board: The OTCBB is an electronic quotation system that displays real-time quotes, last-sale prices, and volume information for many OTC securities that are not listed on the Nasdaq Stock Market or a national securities exchange. Brokers who subscribe to the system can use the OTCBB to look up prices or enter quotes for OTC securities. Although the NASD oversees the OTCBB, the OTCBB is not part of the Nasdaq Stock Market. Fraudsters often claim that an OTCBB company is a Nasdaq company to mislead investors into thinking that the company is bigger than it is.
>The “Pink Sheets”: The Pink Sheets–named for the color of paper they’ve historically been printed on–are a weekly publication of a company called the National Quotation Bureau. They are electronically updated on a daily basis. Brokers who subscribe to the Pink Sheets can find out the names and telephone numbers of the “market makers” in various OTC stocks–meaning the brokers who commit to buying and selling those OTC securities. Unless your broker has the Pink Sheets or you contact the market makers directly, you’ll have a difficult time finding price information for most stocks that are quoted in the Pink Sheets.
How Are Microcap Stocks Different From Other Stocks?
Lack of Public Information: The biggest difference between a microcap stock and other stocks is the amount of reliable, publicly available information about the company. Larger public companies file reports with the SEC that any investor can get for free from the SEC’s Web site. Professional stock analysts regularly research and write about larger public companies, and it’s easy to find their stock prices in the newspaper. In contrast, information about microcap companies can be extremely difficult to find, making them more vulnerable to investment fraud schemes. The SEC has proposed new rule changes that will increase the amount of information brokers must gather about microcap companies before quoting prices for their stocks in the OTC market.
No Minimum Listing Standards: Companies that trade their stocks on major exchanges and in the Nasdaq Stock Market must meet minimum listing standards. For example, they must have minimum amounts of net assets and minimum numbers of shareholders. In contrast, companies on the OTCBB or the Pink Sheets do not have to meet any minimum standards.
Risk: While all investments involve risk, microcap stocks are among the most risky. Many microcap companies tend to be new and have no proven track record. Some of these companies have no assets or operations. Others have products and services that are still in development or have yet to be tested in the market.
Choosing An Investment Professional
Choosing an Investment Professional
Are you the type of person who will read as much as possible about potential investments and ask questions about them? If so, maybe you don’t need investment advice. But if you’re busy with your job, your children, or other responsibilities, or feel you don’t know enough about investing on your own, then you may need professional investment advice. But, beware, choosing an investment professional may be more difficult than you think; when you think Bernie Madoff. There are many investment professionals working who you should avoid.
Investment professionals offer a variety of services at a variety of prices. It pays to comparison shop. You can get investment advice from most financial institutions that sell investments, including brokerages, banks, mutual funds, and insurance companies. You can also hire a broker, an investment adviser, an accountant, a financial planner, or other professional to help you make investment decisions.
Some financial planners and investment advisers offer a complete financial plan, assessing every aspect of your financial life and developing a detailed strategy for meeting your financial goals. They may manage, or receive commissions from the companies whose products or services you are getting, how much they will cost, and how your investment professional gets paid.
In contrast to investment advisers, brokers make recommendations about specific investments like stocks, bonds, or mutual funds. While taking into account your overall financial goals, most brokers do not give you a detailed financial plan. Brokers are generally paid commissions when you buy or sell securities through them.
Brokerages vary widely in the quantity and quality of the services they provide for customers. Some have large research staffs. Others specialize in particular types of companies, for example, companies that are new and have never been in business before.
A discount brokerage charges lower fees and commissions for its services than what you’d pay at a full-service brokerage. But generally you have to research and choose investments by yourself.
A full-service brokerage generally costs more, but the higher fees and commissions pay for a broker’s investment advice based on the firm’s research.
The best way to choose an investment professional is to know what type of services you need. Once you know that ask your friends and colleagues whom they recommend. Try to get several recommendations, then arrange a face-to-face meeting. Make sure you get along. Make sure you understand each other. After all, it’s your money.
WARNING!! Before You Invest Always Check with the SEC and Your State Securities Regulator:
>Is the investment firm registered with the regulatory agency? Go to finra.org/brokercheck
>Is the investment registered with securities regulators? Go to sec.gov
>Have investors complained about the investment in the past? sec.gov
>Have the people who own or manage the investment been in trouble in the past? Go to investor.gov
>Is the person selling me this investment licensed in my state?
>Has that person been in trouble in my state, or with other investors in the past?
