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Investing Doesn’t Take Genius Intelligence, Just Common Sense

A quote that’s attributed to Albert Einstein goes something like this; “Insanity is doing the same thing over and over and expecting different results.” Going by what Mr. Einstein says, it would be easy to assume that most investors are insane because of the fact that they’re constantly trying to predict when to enter and exit specific markets, pick outperforming stocks and are always on the lookout for the next “hot” fund manager to come along.

These are the same investors that rely on top mutual fund recommendations, listen to the advice of a broker who says that they have the skills to ‘beat the market’ and over-weigh their portfolio with asset classes that don’t make sense, including gold. They also rely much too heavily on financial media for information and tips on things like market direction, interest rates and stocks.

Many of these same people are also overly obsessed with every single thing that anyone has to say about investing guru Warren Buffett. The fact is, Mr. Buffett really doesn’t have any special insight into the market but simply happens to be an astute investor who studies prolifically, makes investments for the long-term and places very little focus on current market events.

In fact, a quote from Buffett really underlines his opinion about listening to pundits and trying to follow current market trends; “Forming macro opinions or listening to the macro or market predictions of others is a waste of time.” In other words, Warren Buffett is telling investors to ignore pundits and market trends, something the financial media emphasizes with abandon. In fact, much of the information you’ll find coming out of the mouths of financial media analysts comes from the comments of pundits about everything from market correction to the “best stocks to buy right now”.

Another quote by Mr. Buffett is definitely much more valuable for the everyday investor, and goes like this; “The know nothing investor who both diversifies and keeps his cost minimal is virtually certain to get satisfactory results.”

If you’re looking for investing advice the simple truth is that trying to “play” the markets, sniffing around for “stock tips” and listening to the excess of media outlets and their talking heads is probably the worst way to do it.

If someone “in the know” deigns to give you advice about how to pick stocks and tells you to do it the “same way Warren Buffett does it”, all you need to do is tell them that you are as you buy your stocks and bond index funds with low management fees and hold onto them for the long term.

It’s time to Review your 401(k)

A 401(k) plan is, for many people in the United States, the very keystone of their retirement plan. Now more than ever, especially due to the fact that defined benefit plans are disappearing, many Americans have the responsibility of making their own decisions about their finances and, in most cases, doing so with very little professional assistance. These decisions are vitally important and can make or break a person’s retirement plans.

The bad news (worse news?) Is that a recent study has shown that the average 65-year-old has a 401(k) that equals about $25,000, barely enough to maintain a young, healthy person’s lifestyle let alone an older person who is leaving the workforce for good.  Another problem is the fact that most people don’t review the selections that their plan gives them or don’t reallocate their portfolio, something that can lead to long-term holdings that don’t jive with their risk tolerance and time horizon.  Unfortunately, even when they have excellent tools available, most people don’t take advantage of them.

Every company has what they call an “advisor of record” on their staff when they have a 401(k) plan. This person has a fiduciary responsibility to help investors by offering them a diversified mix of securities as well as a high level of advice. Unfortunately this advice is usually not continuous and not as high a level as necessary and many workers are left with a 401(k) plan that is unattended and doesn’t grow nearly as well as it could.

Now for a little good news. (Finally.) A number of independent provider firms are starting to spring up that offer ongoing money management of 401K plans in many businesses. In most cases these firms don’t need the input of the employee to move their funds outside of their particular plan and don’t subject the plan holder to taxable consequences.

Many of these firms offer online tools to investors or give them the ability to get advice from professional third-party managers, people who can not only choose investments wisely but also rebalance their portfolio or help the 401(k) holder to do it themselves. These tools can help someone to analyze their 401(k)s performance, manage their track records and expenses and help them with selecting the best choices. They can also be used to analyze choices and select the proper asset allocations, as well as help them procure services that will help them to create a personalized retirement plan and put that plan’s strategy into action.

It should be noted that most of these firms act as independent providers, are not paid by investment companies and give their subscribers access to competent financial advisors. It’s then up to the investor to do their due diligence and investigate all of the various online tools that are available and manage what they have already saved.

The simple fact is that the stakes these days have never been higher for retirees. When it comes to getting the maximum out of your 401(k) plan the most important thing you can do is manage it well and, if you can’t, find someone that can. Don’t assume that just because your company is offering it to you that they are running it correctly and ask questions, do research and make sure that your nest egg isn’t falling out of the tree.

The best ways to choose mutual funds – Part 2

Hello and welcome back for Part 2 of our 2-part blog series on how to choose the best mutual fund. We hope that Part 1 was able to give you some valuable info and advice that you have already used in your efforts to choose mutual funds that are best for your financial lifestyle and, if you are ready for more, we are as well so let’s get started with Part 2. Enjoy.

When investing in mutual funds is always a good idea to do some type of qualitative analysis. Morningstar, a Chicago-based investment research firm that compiles and analyzes fund, stock and general market data, has a 5 tier scale that they use that gives their customers an idea about how a mutual fund is achieving. Using this a prospective mutual funds buyer can see some of the factors that have changed over time for a particular fund, information that will definitely give them better odds for success.

It is also important to weigh the impact that any fees will have on your overall gain when evaluating a possible mutual fund choice. For example, if one fund costs 1% but you have another that costs 0.1%, the former fund is going to have to make up 0.9% of the difference when picking stocks, something that is not easily overcome by many fund managers.

There are index funds that use market benchmarks to track how well they’re doing including Standard & Poor’s 500 index. These are generally cheaper than actively managed funds that, in order to outperform the index, need to rely heavily on management talent.

Many experts will advise that you look at fees towards the end of your evaluation and not get too hung up on them too early in the process. In some cases fund managers may subsidize or even waive fees. Some investors make the mistake of screening out mutual funds based on either their fees or expense ratios before they consider the type of investment or the style of the mutual fund that they are preparing to buy, a costly mistake in some cases.

It is also advisable to be cautious when investing in a mutual fund that has had a high turnover rate. This rate is the percentage of holdings in a portfolio that have changed over the past year. If you find that a mutual fund’s holdings have changed completely over the course of the year through buying and selling they would have a 100% turnover rate. On the other hand, some will have a turnover rate that is less than 10%. The type that you choose depends on the type of investor that you are in the amount of risk that you’re willing to take. Most mutual fund experts will tell you that it’s best to seek out funds that have a turnover rate of less than 40% because those with turnover rate of 50% or more are going to have a difficult time producing a return due to the increased costs of trading.

It’s very important that you also take a look at the fund manager of any fund that you’re considering. If you find one that has a manager that has been there for at least five years you will more than likely have found a mutual fund that is been handled with consistency and discipline. Without the information that it funds manager can give you it can be difficult to determine the performance that a specific mutual fund will have. For example, if you look at the 10 year returns of a specific fund but the current fund manager has only been there for a year it’s possible that they are following a completely different strategy and that the previous 10 years’ worth of results mean absolutely nothing.

Speaking of a fund managers strategy, the simple fact is that a sound fund will generally not abandon its investment strategy, even when the current market would dictate that the approach was unwise. During the bear market of 2008 for example financial companies were hit quite hard but funds designed to include financials in their mix did just fine. The same thing happened in 1999 when  internet stocks were all the rage. Some fund managers purchased these even though they had no earnings. Simply put, it is unwise to deviate from a proven strategy solely based on what the market happens to be doing any particular time.

While we realize that these 2 blogs aren’t the end-all and be-all to mutual funds, we believe that they both included some very valuable information that the typical investor can use to determine what mutual funds will be the best for their portfolio. Just like with any other investment it is always important to  you do your due diligence, research your mutual fund choices as well as you can before you purchase and purchase with your head, not with your gut. Best of luck and make sure to come back and visit us again sometime very soon. See you then.

The best ways to choose mutual funds – Part 1

If you want to invest in mutual funds but you don’t know where to begin you’re not alone. With nearly 8000 different types of mutual funds that can be purchased either from a mutual fund firm, through some type of financial advisor, directly by the consumer or at a brokerage firm, the choice can be quite difficult and daunting. When you include all of the different types of share classes the number of mutual funds actually rises to just over 22,600 different kinds. It’s for this reason that we put together a small blog about some of the best ways to choose mutual funds. We hope this advice will be valuable in your search for the mutual funds that are best for your financial situation. Enjoy.

Lydia Sheckels, the chief investment officer at Wescott Financial Advisory Group in Philadelphia, PA  advises that people looking for mutual funds should definitely not be like the typical shopper who heads to their local grocery store without a list. What she is alluding to is that the typical mutual fund investor is much like a person without a shopping list who goes up and down the grocery store aisles trying to figure out exactly what they want to purchase. It might work for groceries but it’s not exactly a great idea went shopping for mutual funds. Better, she says, to know exactly what you’re looking for because if you don’t you will more than likely choose a mutual fund based on its latest performance, a factor that could very well change for the worse in the years to come.

Anyone who’s interested in investing in mutual funds should also take an honest account of the type of investor that they are. A conservative investor may not be able to deal with the fact that a fund can wildly go up and down in value whereas a more aggressive investor might be willing to tolerate this volatility as long as the manager of the fund is capable of generating excellent long-term returns.  There are also certain companies that some people may not wish to invest in due to moral or ethical reasons and those reasons should be kept in mind when investing.

It is believed that investment allocation is the  biggest determinant of a portfolio’s performance and accounts for over 94% of its return. It is for this reason that it is a good idea to have several different types of mutual funds in your portfolio. For example, there are many different types of asset classes that are represented by mutual funds and they all can perform differently. Having several different types, just like having several different investment vehicles in your portfolio, will help you will to protect your investment against losses.

It is also a good idea to become familiar with the different types of fund styles.  Mutual funds can be classified according to their investment style, the size of the companies that they contain and so forth. There are also small-cap, medium-cap, large-cap, value, growth and blend funds and you would do well to know which type that you want and how many before you make any purchase decisions.

Since we all know that past performance is not a guarantee of future results, any past performance that you see touted by a mutual fund should of course be regarded with at least a small grain of salt. There are many financial experts who believe that fund rating systems that rely on past performance to determine future gains are not useful at all because of the  cyclical nature of mutual funds.

Of course as with any investment vehicle you would do well to do as much research into a particular mutual fund as possible, ask opinions from experienced financial advisors who specialize in mutual funds and use the regular amount of caution when making your investments. And, as with all investments, your best bet to come out ahead is to hold onto your mutual funds for as long as possible.

There’s much more to come so please make sure to come back soon and join us for Part 2. See you then.

Money Management Tips for Budding Entrepreneurs

There comes a time in a person’s life when one wants to go ahead and take the risk on starting their own business. Gaining financial stability is something that almost everyone dreams of, and many believe that starting their own business would make this a reality. Many employees save their hard-earned money to make this dream come true.

Not all businesses end up raking in money—this is a fact. Establishing a new venture requires hard work, perseverance, and of course a lot of cash. Managing your own business is far more difficult compared to having a regular 9 to 5 job. It’s a good thing that employees can actually invest on profitable stocks or goods in the market while working fulltime. The only important thing to remember is to invest on reliable markets or companies, to avoid losses that would cost them more. Since the stock market is at an all-time low nowadays, experienced investors find gold and silver investments more profitable and secure. Companies like Bullion Vault allow private investors to access international bullion markets conveniently and securely.

Those who are eager to start their business, however, can use these money management tips from business gurus at {Entrepreneur.com} and Wayne Liew:

You need to have separate bank accounts. One of the biggest mistakes budding entrepreneurs make is they keep their personal and business money in one account. This spells disaster as it could be difficult to tell how much you actually have and how much your business does.

Never mix credit card purchases. When it comes to using “plastic money”, it is imperative to have one credit card for business expenses alone and a separate one for personal use.
According to {Wayne Liew Dot Com}, a new entrepreneur should set realistic financial goals. Setting a goal allows an entrepreneur to track the progress of their business, no matter how big or small it is. It also lets them know where they are currently at and helps them plan their next steps.

Tips on Sticking with Your Budget

There are times when major expenses cannot be avoided. You may want to reward yourself with a new car, go on a vacation or buy a bigger house. Your first impulse might be to take out a loan to pay for this; but, it that the wise thing to do? If you have developed the habit of monitoring how much money you make monthly and how much you spend on your expenses, you will know much you can put aside for future expenses.

At the end of the day, creating a budget and sticking to it is the best way to manage your finances. It may not be easy sticking to it but once you have developed the discipline, you will appreciate the freedom it will give you from borrowing money every time a major expense comes along.

Here are a few tips that can help to stick to your budget:

  1. Prioritize Savings – Determine how much of your take home pay you want to put into your savings account. Once you have chosen that figure, try your best to stick to it. Say it’s 30%. Once you get your pay check, take away the 30% and deposit it in your savings account. What you have left is your budget for your expenses and you must try your best to live within that.

 

  1. Use your credit card wisely – When you go out for shopping, remember that using your credit card does not give you the license to go berserk in buying. Remember that you will be billed for every purchase you make and will be charged with interest should you fail to pay on time. Using the credit card has its advantage. It saves you from carrying actual cash plus you earn rewards as you use them. A wise tip in credit card use is this – do not spend on something you don’t have money for at that moment. Do not treat it as a loan that you can pay for “in the future”. Pay your credit card bill in full and not just the minimum amount due. That way you can avoid surcharges and other interests.

 

  1. Do away with bad habits – Smoking and drinking are not just bad habits, they are expensive ones as well. Cut them out and put your money to better use.

 

  1. Share the responsibility – If you are not the sole breadwinner, share the budgeting responsibility with others – your spouse, roommate or family members who are earning as well. If you see others being careless in their spending, chances are you would be too. If you all have your own responsibilities in keeping the budget, you would be each other’s check and balance.   

Next time you want to buy the latest gadget in the market, look into your personal financial statement and see if that expense can fit into your budget. Chances are it will if you know where to look.

Personal Finance Advice That Takes Only Minutes To Read, But Will Help For Years To Come

Do you desire to make life-long financial changes for the better? This is something you can do, but you must invest some research time. There is thankfully a ton of advice to been had here in this article.

Paying off any credit cards that have high interest rates should be your priority as you seek to pay down your debt. While you may personally prefer to pay all your debts at the same rate, zeroing in on those with high interest rates benefits you in the end. This is very important, since credit rates are expected to rise soon.

From every check, take out savings first. Saving the money that is “leftover” will leave you with zero savings. Knowing this money is put aside for savings, it helps you to create a budget and avoids the temptation to spend it.

Young people wanting to build up their savings can go far by understanding and taking advantage of the magic of interest compounding. Get yourself a good savings account and set aside a portion of your earnings.

Being aware of the value of one’s possessions can help prevent financial loss. When you sell a vintage item, you may gain some personal wealth.

Plan for your taxes so you can get on a better track with personal finance. Think about the investments of pre-tax income you can make through your employer. Keep some money away for medical expenses. Sign up for any employer-matching 401K programs offered at work. Wisely using your earned money makes good financial sense.

Give yourself a monetary allowance so that you do not completely deprive yourself while building up your savings account. Use the budget to purchase things that you want. When you hit your budget limit for the month, you should understand that you are done with entertainment purchases until the next month’s budget begins. Your budget will remain in tact, and you’ll still be fairly happy.

You may not know it, but when you pay full price, you are paying too much. Don’t feel like you need to be loyal to specific brands, and concentrate on buying only when you have a coupon handy. As an example, if you usually purchase Tide laundry detergent, but presently have a money-saving coupon for Gain, purchase the Gain and save some money.

If you are barely surviving, it might be a good idea to get overdraft protection. Although you may have to pay a little extra each month, the fee for overdrafting could be as much as $20.

One way to save money is to cut off your cell phone. While this is not the most popular way to save money, cell phones are not a necessity. Actually, your smartphone and PDAs are a matter of convenience more than anything. Look at your plan and see if it is possible for you to cut some of the costs, at least.

In order to get the most out of the property that you own, take steps to control the cash flow in to and out of it. Keep track of your income and how much you spend so that you can see how your property is doing after every billing cycle. Be sure you have a firm property budget established to refer to as a guideline.

Set up a bank account that automatically takes a few dollars each month and saves it if you want to save quite a bit of money. This is an excellent strategy which helps you to manage your money much better each month. It is also helpful if you are saving for a big event in the future, such as a wedding or a special vacation. 

You should now have a clearer understanding about personal finance. With all the information provided by this article, you now have the necessary knowledge to manage your promising financial future. All that remains up to you is to be determined and strong willed to build a strong financial future for yourself

Financial Spread Betting is a Unique Investment

Financial spread betting is a unique investment, and one that is heavily employed in the United Kingdom.  Most investors are used to the typical price point of an investment.  Meaning, they invest a certain amount of money initially, and when they cash out their investment, they expect that future price point to be much higher.  Essentially that is your reward for the opportunity loss of capital tied up within an investment.  However, spread betting derives its profits from the difference between the two price points, rather than the prices themselves. 

It is important to understand though that spread betting can be both an attractive investment, and one that has its risks as well.  Stamp duty and capital gains taxes can be quite hefty in the UK, and these investments are exempt from both.  However, note that just as in the US (and many other countries) tax laws are known to change each year.  Any sort of tax relief is enough to get me to start paying attention to an investment vehicle.  However, it is not one without risks. Spread bets are leveraged investments, traded on margin that at any time could create a loss that is greater than your initial investment.  Typical stock purchases limit your losses to your initial investment only, so you need to be extra careful if you aren’t familiar with spread betting.  Spread betting platforms such as Finspreads have a how-to guide and tutorial to help you along.  Other sites like City Index have a wonderful platform for trading these sorts of investments, and are currently offering a significant training credit.

Personal Finance for Young Professionals

Investing to improve your personal finance can be a particularly tricky situation and there are different roads to achieve this common goal. It is entirely dependent on you to decide how you want to save your money, but we will surely lead you to get the best routes!

Investment market is the best way to save some money as well as discover some returns. Many young professionals think of the present only and fritter away money in chase of happiness now. However, what they forget that the infinite future lays ahead when they would also need to meet other commitments in life. Therefore, it is always wise to plan for your future now and here.

Story of Dave Ramsay

You must plan for your financial stability unusually early in life. In fact, you must think about it as soon as you are out of the hallowed portal of college! You can darned well see the example of Dave Ramsay who became the youngest brokers to enter the Graduate Realtors institute in Tennessee.

Nevertheless, with the Tax reform Act initiated in 1986, Dave’s financial support began to falter. Dealing in notes led him to bankruptcy. He was not left with any finance in hand, but he was not running low in spirits. He analysed his awkward plight and put his book out called Financial Peace to assist young Americans towards financial security. Dave Ramsay has been instrumental in preaching the tit-bits of financial investing via television and radio.

In a dilemma- mutual fund or 401k plan

Most young professionals are in a dilemma as to where and how to achieve financial security. Most people will encourage them for stock and mutual funds, but before that, he must line up his salary and budget. He must organize the budget such that it is not particularly tough but is still not extremely flexible. Employers will also provide you with 401k plan, which cpuld be a compelling choice because your employer will give you the idea that will fit your availability of funds, but yet again, you must know where your money is being invested. Do not use 401K plan in the emergencies, as it would cost you penalty taxes.

Mutual funds are exceptionally strong options for people who want to invest further on. For example, a young professional can invest in small rise with calculated risks or high growth with many risks. There is the multi-sector, short-term corporate and so on investment category.

Use the credit card judiciously

Many young professionals overused the credit cards and quickly caught up themselves in the dire financial situations. Use credit card with a responsible approach and do not be trapped in the marketing gimmicks of shopkeepers.

Attain information about investing

Try to understand the distinctive schemes yourself and keep your eyes and ears open to different financial schemes to save the hefty fees of the financial adviser or broker.

Some Myths on Personal Finance

The best way to increase your financial stability is by doing a thorough evaluation of your savings and spending. This way you will be able to find out how you may save on your existing earning so that you may have better funding in your account. Here, are some of the common myths that you get to learn along with the rational basis or even lack of it in them.

Myth 1# Investing in stocks and mutual funds is truly necessary

Most people will inform you to invest in stocks and mutual funds. However, if you have to invest do so after appropriate assessment of your financial position. Every other person may feel a different way to invest, and there is no reason why one must only invest in mutual funds or stocks. One can make steady interests from saving accounts also by maintaining a stable balance.

Myth 2# Investing in property is better than taking on lees

Another popular myth that is passed on from one to another is that it is better buying a property instead of renting one. Often there are many cases where it is more advantageous to buy a house, but in case you are not particularly keen on your credit do not try to buy a house. The equated monthly instalments will be substantially higher than what you may actually spend on renting the same property. Again, you may obtain interests if you had invested the same amount in your account in some other place.

Myth 3# Closing credit card accounts will save money

Closing credit card accounts is yet another factor that you may do, but think about stuff like paying off the dues in regular intervals instead of in one shot. You can choose not to use your credit card instead of closing your credit card account. Moreover, you can use the card in emergency and this way you will learn to use the credit card judiciously.  

Myth 4# You cannot get a loan if you have poor credit or debit details

This is an absolute myth, and there is actually no rational reasoning in it. There are loans that are specifically made for people with poor scores. Many people take personal loans to reduce the burden of finance. This helps the person to remove personal debts and pay against only one loan.

Myth 5: I am too young or too old for retire plans

Most people ignore their retirement plans because they think they are too young, but youth is the best time to take a retirement policy.

This is the time to take action now, and if needed you can take the help of your financial adviser.

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