Par akahokita13 le 7 January 2017 à 10:10
For many years, value investing has grown to become a very popular and profitable investment strategy. Among those who consider value investing as a viable choice are Benjamin Graham and Warren Buffett – two of the most successful value investors with spectacular gains over a long period of time.
The expected returns from value investing are comparatively high, although the risks are oftentimes much higher than most investors can handle. This is because value investing can result in an investor being subject to value traps, which occurs when a stock’s price is low for a very valid reason. What are value traps?
Surprisingly, value traps are more common than most investors realize. In spite of global share prices having increased from the beginning of the year, many other shares will still actively trade at significantly low prices in comparison to the broader index.
Although some might catch up and recover, others will not. Nevertheless, low-priced shares commonly appeal to value investors since the capital gain potentials are attractive. In short, for a good number of conservative investors, value investing may provide a high-risk option which could bring a substantial loss.
Value traps may indeed provide a trading risk for value investors who do not realize that “value” goes beyond merely having a low share price. According to Warren Buffett, “It is better to buy a great company at a fair price than to buy a fair company at a great price.” Ultimately, the viability of a company must be measured along with its share value.
Hence, if a firm’s shares are selling at a lower price than their net asset value, a potential risk in the future might keep them from recovering the valuation deficit. Likewise, a stock which is valued according to the wider index may in reality provide significant value for money if there is a positive expectation of a rapid increase in returns over a medium-range period. In short, value investing can be a great strategy when you consider certain essential factors, such as price, prior to acquiring the shares of a company.
Obviously, with rising stock prices, value investing loses its appeal. As investors all over are buying, value investors are selling and choosing to invest in other assets, such as cash. Conversely, when market prices are down, value investors will be buying stocks instead of selling them, contrary to the overall market consensus.
Being a value investor then can be a challenging occupation; and, on the short-term basis, it is quite easy to suffer paper losses as past trends continue to prevail. However, on the long-term basis, it has proven to be a viable strategy for investors of a certain level of experience and capability. It is not totally risk-free. So, by not merely focusing on price, this approach can serve as a highly-dependable road to financial success in the long run.
Par akahokita13 le 31 December 2016 à 10:30
If you are in your early and feel you should prepare yourself for financial success while avoiding serious mistakes, what do you need to do?Here are some valuable tips.
Firstly, relax! You are in the best time to be enjoying life; and getting started on the road to a secure financial future is one of the wisest moves you can do. Go ahead and have some fun, discover exciting avenues and be open to potential ventures and adventures you can pursue for a lifetime. Do not become paralyzed with the fear of making mistakes or you will miss out on fruitful and gratifying opportunities. That would be counterproductive – learn to embrace mistakes as they can be stepping stones to learning and growing.
Nevertheless, some mistakes can cause disastrous and long-term financial effects compared to others, although they may seem harmless on the surface.
Go over these five financial missteps that can adversely undermine your financial life. Knowing how not to commit the same mistakes will greatly enhance your potential for building your personal wealth.
Mistake #1: Delaying on Your Savings Plan
This mistake tops all other mistakes in terms of keeping people from achieving a certain degree of financial stability. According to a survey, 39% of all respondents admitted regretting not having saved much earlier on while 63% claimed that saving early is the best advice they could offer to people.
Old people should know better than the young ones on this matter. Consider this: At 25, a millennial who tucks away 10% of her $30,000 income yearly will accumulate more than $620,000 at 65, based on a 2% annual raises and a 6% yearly rate of return on investments. If she postpones it for only five years, the nest egg goes down by about $140,000 and waiting 10 years reduces it by over $250,000.
You see how delaying on your plan to save can reduce your potential earnings in the future? Check out online apps that help you calculate how much you will accumulate if you start now.
However, there is a way to avoid this error. If your employer offers a 401(k) plan, contribute the minimum allowed amount to avail of full benefits of your employer matching funds.
Open a Roth IRA or Traditional IRA account at a mutual fund firm if your employer does not offer 401(k). Contribute to your fund using automatic transfers from your checking account every month.
While doing that, set up an emergency fund amounting to a minimum of 3 months' worth of living costs in a savings account, as a buffer in case you lose your job or for other emergency needs.
Remember, the important thing is to develop the habit of saving weekly or monthly and to continue doing it in your entire working life.
Mistake #2: Borrowing money you do not need
There are times when borrowing is essential, such as for a house, a car or for a college education to enhance your earning capacity. However, taking out a loan to sustain a kind of lifestyle above your pay level will cause big problems.
You have to realize that paying off a loan can greatly affect your budget. NerdWallet's latest yearly survey on consumer debt revealed that the regular household spends over $6,650 just for interest payments yearly.
Before you do take out a loan, answer these questions: Do you really need it? If so, can you live with a cheaper alternative? Finally, calculate if the monthly principal and interest you pay for so many years will yield for you a more beneficial alternative in terms of savings and investment accounts that can accumulate and serve to protect you from financial straits.
Mistake #3: Believing the Wall Street's byline “investing is complicated”
Investors often understand Wall Street companies to be saying that one needs to monitor the financial markets at all times, distribute your money over all kinds of complicated and cryptic assets and always be on your toes at any time in order to invest in new promising stocks. And the catch is that to make any substantial return, you must seek their help – obviously for a high price worth their “expert” advice.
Don’t you believe it! Even veterans in the market cannot accurately predict what the financial markets will end up doing. Terrance Odean, professor at the University of California Berkeley, conducted research which showed that outguessing the market by constant trading tends to reduce an investor’s chances to gain good returns.
The better alternative is by doing less: Create a basic portfolio of widely assorted stock and bond funds that suits your risk tolerance level and leave it as it is through market highs and lows, except for a rebalancing adjustment once in a while. Check out online tools which will help you do proper asset allocation consistent with your risk capacity in order to find a balanced mix of bonds and stocks that works for you.
Mistake #4: Paying too much for financial counsel
The annual fees you pay for a mutual fund manager or the occasional fees in exchange for advice in choosing potential funds and other financial counsel will affect whatever returns you expect from your investments by reducing your savings. Minimize such costs as much as possible.
In terms of investments, you can gain greatly reduced costs by sticking to low-cost ETFs and index funds. You can readily gain savings of at least 1% annually in relation to the regular stock mutual fund.
Go ahead and consult a financial adviser, if you feel you need to; however, be sure you get the precise amount you have to pay and the specific benefits you will receive, before giving out any money. Likewise, make sure the price is reasonable and comparable to fees charged by other advisers.
You may also hire an adviser on an hourly scheme rather than shelling out a specific percentage of your assets or using an online-adviser app or service utilizing algorithms that recommend affordable investing tips.
Mistake #5: Not monitoring your progress
One thing you should not do is to become money-obsessive. Neither should you be a Pollyanna and let things take their course, hoping everything will come up roses. Take time to regularly assess your financial status at least once-a-year to determine if you are on the right path.
The best overall measure of your financial health is through knowing your net worth, which is the value difference between your assets and liabilities, that is, how much you have and how much you owe.
For those who regularly save and invest wisely, their net worth should gradually increase. Once your net worth is static, you must increase your savings, invest more sensibly or reduce your indebtedness.
Calculate your net worth using simple online tools. A yearly estimate and comparison with the results of past years will easily show whether your net worth is increasing or not.
Likewise, make use of other free online tools which will help you evaluate your other financial aspects, including a check on how your present saving habit and investing pattern will create a stable retirement future for you.
It goes without saying that in order to increase your wealth-building potential, you need to cultivate your talents and abilities to a point where you can earn and save more during your professional life. And remember the value of having a solid defense against the five mistakes mentioned here. Doing so will significantly enhance your chances of reaching your financial goals and spending a secure future.
Par akahokita13 le 25 December 2016 à 03:40
Most people fall in the so-called “average” or “median” range. After all things are counted and considered, the statistical middle-ground is where all things tend to gravitate – the world of the, sorry for the term: mediocre.
To be honest, no one wants to be mediocre, run-of-the-mill or commonplace. People in the city park may take selfies that are quite ordinary compared to people who challenge the heights of the Nepalese mountains or the Alaskan wilderness. People do not just want a few likes but viral likes, so it seems. We want to be among those who make an impression for being extraordinary. And that takes a lot of effort to achieve and sustain.
But as investors, the average can provide a lot of benefits.
The idea of being average is the very foundation of the biggest changes to investing in recent years – the surge of the passive index fund.
In the past, you (or a broker) selected a portfolio of stocks that has the potential to bring you wealth. The more adventurous investors opted for a chance to benchmark themselves (while the newspapers aimed for a chance to "score" the stock market). That gave birth to the index.
One possible choice is the ASX 200, which tracks the overall market performance, giving investors a view on how the total market value shifts in a day, a week, a month or a year. It is expected to rise by about 10% yearly, within a long-term period.
And, obviously, we are talking of averages -- the average firm and the average year. Choosing to buy an index-tracking fund, as investors usually do as a rule, is quite alright. You can expect to gain average return (minus some fees) over a long duration, enough to produce a sizeable profit in the end.
However, do not expect to get 10% yearly. Moreover, not all firms will gain a value growth by such an amount. Some can go broke. Others come up with the latest “hot product”. Some may exploit the advantages of their product and market, to offer years of market-crunching returns (for instance, Domino's share price). And there are also those that remain stagnant for ten years (check out Westfield).
The market can spiral downward sometimes. We all know how the last global financial meltdown brought the market down by over half its value from late 2007 to early 2009. That occurred after it had doubled in value from 2003 to 2007.
The idea of "average" provides a restful, promising relief for investors, which may not be absolutely true. Nevertheless, that is no reason to avoid it; for a 10% annual return across 30 years will convert an investment of $100,000 into $1.74 million.
So it is with real estate properties -- the quoted prices are national averages, which include stellar Sydney and lagging Perth and Darwin. At the very least, they are city-level average prices, such as those of inner- city apartments, harbourside mansions and suburban residential projects, everything that is traded in the market in a year.
Furthermore, for both assets and real property, the quoted prices reflect only those that actually moved from one hand to another and not the bulk of assets that were kept in a private safe or properties still in use by their happy owners.
Although it is not wise to be foolhardy, the average point (where half of the data is either above or below) presents a totally different picture. You need more than luck to get over the average-trap. Hence, if you can succeed in "buying" the average – that is, by using an index fund – you made the right initial step. Just remember that it will require big challenges along the way, whether you do buy or not.
Par akahokita13 le 20 December 2016 à 12:32
How do you achieve sustainable growth in investing? One needs to choose those leading companies that are prepared to provide strong, consistent and long-term increases in profits and revenue. These are the firms that reward their shareholders with above-average market returns.
Apply these tips coming from some of the most experienced investing leaders. See how you, too, can discover the latest winning growth stocks and, thereby, make a fortune for yourself.
1. Go for Quality
The best investment choices are often the best businesses you can find. David Gardner, popular investor and co-founder of Motley Fool says, "I look for the excellent, buy the excellent and add to the excellent in time. However, what I sell is the mediocre. That is my investment style."
Quality companies possess the most powerful competitive edge, the widest market potentials and a top-of-the-line management. They know how to be creative, trend-setting and pioneering. Most of all, they can build wealth for their shareholders and lead others to achieve their dreams.
2 & 3. Jump in as early as you can; and grab that basement-price offer
You can maximize your profit by investing early in a great business as more investors join in the harvest. Wealth abounds for those who practice this principle – especially for the 10- and also the 100-baggers – bringing on life-changing gains.
Nevertheless, many investors frequently hesitate to enter into the early-stage surge of best growth company stocks because they appear pricey, only to regret having missed the opportunity to gain in the end. While buying stocks in these quality businesses at high prices is an option, we can decide to go ahead and pay the premium for a quality acquisition. Setting your targets too low or just a notch or two below the optimum level might cause you to lose the opportunity to hit a multi-bagger.
4. Invest on a long-term duration
Warren Buffett puts it this way: "My favorite holding period is forever." CEO and master investor, Tom Gardner, in fact, has established at Motley Fool at least a five-year holding time rule in an Everlasting Portfolio since he adheres to the effectiveness of holding stock on a long-term basis. In David Gardner’s words, as a prime mover of one of the most efficient high-growth investment-consultancy services in the world, the heart of this investment approach consists of “two keys. . ., stock by stock: In before the big majority of people, and out after the big majority of people”.
Aiming to buy stocks in businesses and holding on to them for years or even decades allows the power of tax-deferred compounded returns to our advantage.
5. Those who win keep on winning
Tom and David Gardner reveal another winning advice: Invest in businesses and management groups with unequalled track record of success. In their tweeted message, they say:
“Our take on that famous disclaimer: ‘Past performance’ may turn out to be the single *best* determinant of future results we have can.”
Although it is not guaranteed, winning can be made into a habit. The force of momentum and the trusted experience developed in past successes tend to favor those who continue to face investment risks. And we do not refer to foolhardy risk-taking based on pride, but well-informed, facts-based choices born out of positive and strategic projections of a fruitful future.
6. Let your portfolio speak your best to the world
David Gardner once gave this valuable advice: "Determine where the world is headed; and as soon as you can, get there." Your portfolio speaks of your aspirations, interests, specialization and profession – that is where your advantage lies. Above all, your portfolio runs parallel to the trajectory of your vision of the future—and with a more positive view, the clearer the vision is.
7. Do not give up the fight
Growth investing can be frustrating at times; there will be moments when you harbor doubts and want to give up. Certain inexplicable short-term fluctuations and extreme bear market dips may wreak havoc on top-quality yet usually high-priced growth stocks, taking a toll on your emotions. Ultimately, the only path to success is to remain steadfast throughout any undesirable turn of event.
“The short-term will not teach an investor to learn enough – usually in a significant way -- to be so successful in the long-term,” according to Tom Gardner.
Be assured with the knowledge that everything will pass and, thus, you must expect the big-league companies to come out victorious after the dust clears up, remaining stable while the rest of the bunch lose their market share. With that in mind, consider such sell-offs as potential moments for strengthening your positions at even higher prices and enhancing your long-term returns.
Par akahokita13 le 15 December 2016 à 03:25
For beginners as well as veterans in IRA investing, here are a few important things to consider. Newbie investors obviously need education in fundamental matters while long-time investors can always benefit from new ways to enhance their investment strategy.
So, how do you maximize returns from your IRA?
Choose what fits your goals: Traditional or. Roth
Should you go for traditional or for Roth IRA? While your traditional IRA contributions can be classified as tax-deductible, Roths use after-tax money; however, they provide tax-free withdrawals when you reach retirement age. To know more about either type of IRA, visit informative investment websites. Here are a few valuable tips on which to choose:
When you should choose a traditional IRA:
- If you are within a higher tax bracket now, in contrast to your expected level when you reach retirement
- If a tax break now is more preferable to you than tax savings when you retire
- If you have no retirement plan sponsored by your employer because your income is too large to qualify you to directly contribute to a Roth IRA
When you should choose a Roth IRA:
- If you want to stay in your present tax rate
- If you want to diversify your retirement assets, aside from your pre-tax account such as a 401(k)
- If you expect to use the money when you retire and would choose rather to keep it in that account to allow it to grow as long as you want (A Roth IRA will not demand a minimum distribution from a specific age.)
- If you want all your money safely parked somewhere (You can withdraw your original contribution amounts in a Roth IRA at any time.)
Take full advantage of the tax benefits
To maximize returns from your IRA, choose the most appropriate types of stocks. Whatever stock whose value grows in time will provide higher gains for you in an IRA compared to a taxable brokerage account. Nevertheless, dividend-growth stocks will optimize the entire compounding capacity of investing in IRA; hence, you must utilize your IRA through buying individual stocks.
As an example, with two stocks often favored in many portfolios, such as Berkshire Hathaway and Apple, one can assign one in a traditional IRA and hold the other in a taxable brokerage account. Invest $5,000 in each one of these two accounts.
As of today, Apple pays a 1.9% yield in dividends, generating $95 from your $5,000 investment for a year. You will be charged a 15% tax in a taxable brokerage account, effectively giving you about $81 return. However, in a traditional IRA, you get a tax-free deal. Remember: You can now reinvest the entire $95 in more shares, whereas you have less to put back in a taxable account to work with. Although $14 is not that much, the compounding power of money works more in the former than in the latter, especially in the long-term.
To illustrate more clearly, under a 1.9% dividend yield for Apple and a stock gain of 8% annually, you will observe the difference in the gains of an initial investment of $5,000 over time:
Time Period Taxable Account Traditional IRA 1 Year $5,481 $5,495 5 Years $8,673 $8,810 10 Years $13,726 $14,124 20 Years $34,348 $36,301 30 Years $78,536 $84,899
Your returns are more obviously higher over a longer period of time than otherwise, as seen in the difference above after 30 years. A $6,400 advantage, more or less, in a traditional IRA is definitely more preferable.
A $5,000 investment in Berkshire Hathaway, in comparison, would only take advantage from an initial tax deduction on your IRA contribution. As Berkshire has no dividend-yield payments, your investment in both kinds of accounts will grow by a fixed amount over time.
The young should invest aggressively now
Allocating too little money or not investing at all could be the worst mistake anyone can make in IRA investing, especially among young investors.
It is natural for millennials to be wary of investing in stocks, considering the early-2000s’ tech crash and the more recent Great Recession, and since many of these millennial investors had parents who lost their investments in the market.
You can use an accepted rule of thumb to determine the percentage of stocks to be included in your portfolio by deducting your age from 110. For instance, if you are 40, around 70% of your money invested must be in stocks. Using this principle will allow your portfolio to become more conservative as you near the retirement age. It is likewise worthwhile to note that ETFs and stock-based mutual funds can serve as good alternative investments if individual stocks do not appeal that much to you.
Just remember that stock investments will always involve volatility. Hence, in any particular year, a 10% drop in the stock market should be expected. Nevertheless, on the long-term, stocks will provide better gains compared to any other types of assets.
Lastly, most of all your investment money will never acquire greater growth opportunity in the long-term than they do in the present, no matter what happens to the market this week or this year. At 25, according to a conservative average of 7% annual growth rate over many years, one only has to invest $5,000 each year ($417 every month) to become a millionaire-retiree at 65. However, at 35, you need to set aside $15,800 each year, or $1,318 monthly, to reach the same level of wealth at 65.
In short, invest as much as you can and as early as you can since time is your most valuable asset, aside from your dollars.
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