Category Archives: Stocks

Basic Stock Market Information

Until I started writing about personal finance a couple of years ago, it was a topic that I really didn’t know a lot about. I avoided thinking about it; my view was that it was a complicated entity that I really didn’t think I could break into. Especially because, when I was old enough to even start thinking about it, the economy was horrible. I finished my undergraduate degree in December of 2007, right before the economy tanked and I ended up unemployed and miserable. I didn’t have money, so why did the stock market matter to me?

Then, I started writing about personal finance. I decided that it was time to start getting a grip on what the stock market was all about. I’m not going to lie, its not exactly the simplest thing to get a grasp on. But it’s not so crazy that the average person couldn’t learn at least a little bit about it. Today, we’re going to look at a few of the basic things that every ordinary person should at least understand about the stock market.

Long story short, the stock market is basically a place to trade company stocks and such at set prices. Stock is how much is invested into a company by original capital or by investors.  Basically people who buy stock are paying for part of the investment; you’re getting a piece of paper saying you “own” part of the company. This is why the stockholders have such a big say in what happens to a company; they literally own a “piece of the pie,” so to speak. The stock market is a compilation of all these various stocks (or shares, depending on who you ask the terms are used interchangeably).

Some people believe that the stock market is based on companies. While this is true, the stock market primarily fluctuates with people’s actions. People called brokers are buying and selling for people constantly. If people get nervous (like during the Great Depression), it affects everyone. If stock is not in high demand, the cost goes down, and that hurts the companies involved. This is why the market crashed in 1920’s; people panicked, pulled out their money, and then everything went downhill. If we aren’t educated about how markets work, we may make the same error again.

There are two terms that you may hear when looking at the stock market: bull markets and bear markets. A bull market is a market that is going up; a bear market is one that is coming down. Bulls and Bears came into stock market lingo in the 1800’s, and there is no certainty as to the origin. The most common explanation is that is based on the way each animal attacks; bears maul you and knock you to the ground, bulls charge into you and toss you in the air.

What other things would you like to know about the stock market? Is it something of interest to you, or is it something you just kind of ignore? Leave some thoughts in the comments, have a great day, and we’ll see you here next Tuesday on Money Walks.

Fundamental Analysis Investment Strategy

I’ve not done a lot of playing with the stock market, but I have done a bit of research and have a basic understanding of stock market strategy. Today we’re going to look at the most common marketing strategy, usually referred to as fundamental analysis. Fundamental analysis  focuses on the company that you are investing in and requires you, as an investor, to ask a certain set of questions about a company’s stock values. You then use the answers to determine if the cost of purchasing the stock is worth the future investment in that stock.

Now, finding this out can be difficult. Some of the questions that an investor may ask when using this approach may include:
- What’s the company’s current financial situation?
- Does the company have a strong future ahead of it or are there “red flags” that may cause the company to falter?
- How long do I plan on investing in the company? If the company may struggle in 5 or 6 years (because of the “red flags” you find with the question above), is that an acceptable amount of time for you to invest, or are you looking for a longer-term investment?
- How much has the company grown over the past year? 5 years? Decade?
- What’s the cash flow look like?
- Is the company involved in a hearing or cases based on their goods and services? Could that be a threat to quality and/or reliability?

At this point, people who use fundamental analysis may use an Excel sheet to play with numbers. If I were to become more involved in the stock market, I would use fundamental analysis purely because it deals with a lot of numbers. I love numbers, and messing around with them, and I feel that quantitative data is more definitive and tangible. But, that’s just me! I really should have become a researcher. Anyway, at this point, people who swear by this strategy start. There are different formulas and estimates that people use (usually using the net value of the company, the average increase in stock, and all of that sort of thing) in order to predict how well their stocks will grow in the future.

Fundamental analysis is great to use for long-term investing, but at the same time, there is a bit of a risk. What if you’re wrong? I know that’s a really pessimistic way to look at it, but if you’re going for the long haul, you really do need to be careful. There have been bankruptcies and such that investors may not have seen if they weren’t paying attention. The most important part of any investment strategy is follow-up. Keep an eye on the companies that you invest in. In an economy like the one we live in now, anything’s possible, so make sure that you aren’t blindsided and be on top of your investments. Like I said, fundamental analysis is the most common investment strategy, so it has to be working for those who use it, right?

Have a great week, and we’ll see you here next week, on our new posting day, Tuesday!

4 Economic Factors to Keep an Eye on in December

Good afternoon! I hope you’ve had a great week, and we’re glad to see you again here on Money Walks. October was one of the best months the American economy has had in a few years. Then, November happened. The economy started to go on the fritz and we all felt it.

Now, it’s December, and a few of those factors have cooled down a bit. The economy’s on the rise again. Today, we’re going to look at a few economic factors to keep an eye on this month, as they’ve already started to affect the economy (for better or worse) and we’re only two days in!

1. Unemployment. In November, employers added 120,000 new jobs to the market. Because of this huge influx, more people were able to get out of the unemployment pool. The unemployment rate, as of this morning, is 8.6%. This is the lowest that it has been since March 2009. Two and a half years ago. This has already affected the economy positively; as of 12 PM EST, the stock market was up 1%.

2. Europe. The European Union has been the center of attention for many economists as of late. Greece, Ireland, and Portugal have all been walking a fine line and economists have been predicting defaults that could have a catastrophic domino effect on the rest of the EU if it isn’t taken care of quickly. Germany has started to spearhead efforts to qualm the European debt crisis, and with Germany’s leadership and persistence, a solution is more likely to happen. If they continue to go forward with it, it may help to stabilize the economy world wide.

3. Retail Businesses. Retail has struggled more in the past two years than it ever has before; many popular chains have succumbed to bankruptcy due to the poor economy, the most recent of which being Borders Bookstores. November and December are popular months for retail merchants; with Black Friday and Cyber Monday spearheading the beginning of the holiday season, sales are always up a bit. Early estimates say that this Black Friday was more profitable than those that occurred over the last two years.

4. Automobiles. Cash for Clunkers, the government program implemented in 2009 where you could trade in your old car for cash toward a newer, more gas efficient and environmentally friendly model, gave the automotive industry a boost that they needed during that time. Now, there’s no incentives, but it appears that November was a huge month for the automotive industry; sales increased by and average of 13.9%, making it the best month for sales (other than the Cash for Clunkers surge) since September of 2008. What companies should you be watching? Chrysler made out the best by a landslide; their sales increased 45%, followed by Ford (20%), GM (15%) and Toyota (6.7%). These numbers are encouraging, especially because all of them are domestic automakers. These boosts put every domestic automaker in a position to gain market share in the same year; something that hasn’t happened in decades.

So, watching your stocks? You should be watching other economic factors too. Keep an eye on these in December; we may close out this calendar year better than we have in a few years. Have a great week!

CD’s or Money Market?

money-market.jpgScenario: So you’ve got a nice stash of cash just laying around and you want them to be put to work. You also figured that you didn’t want to be too aggressive buy investing directly in stocks and at the same time you don’t want to invest in long term either so that rules out mutual/index funds.

So then you ask, “should I put my money in a CD or a Money Market”?

Good question. In order to make the right decision, you have to define your goals and needs. Getting it wrong the first time is all it takes for it to cost you the big bucks so you want to make sure that you do your homework first.

For those who do not know, Certificate of Deposit or simply CD, are debt instruments issued by banks and other financial institutions to investors. In exchange for lending the institution money for a predetermined length of time, the investor is paid a set rate of interest.

While on the other hand, Money Market offers many of the same benefits as CD’s but with the added features of a checking account. As far as the interest rates go, they are fairly close. Last I checked, CD’s were running at 4.90% and Money Market at 4.80%.

Here are a short Pros and Cons of Money Market and CD’s.

Money Market:

Pros: Depositing money in a money market is as easy as depositing cash into a savings or checking account. Cash is immediately available for alternative investments so you’re a lot more flexible with Money Market.

Cons: Money Market’s interest rate is not fixed. The rate of interest is directly proportional to the investor’s level of deposited assets, not to maturity as is the case with certificates of deposit. Hence, money markets are disproportionately beneficial to wealthier investors.

Certificate of Deposit (CD):

Pros: The investor can calculate his expected earnings at the outset of the investment since the interest rate is fixed. Certificates of deposited are FDIC insured for up to $100,000 and offer an easy solution for the elderly who desire only to maintain their capital for the remainder of their life.

Cons: Not as flexible as Money Market and will be penalized for withdrawing before it reaches maturity. If the investor opts for a longer maturity and, thus, higher rate of interest, he will lose access to his funds and forgo alternative uses of his capital.

Final Analysis: So if you are absolutely certain that you will not be needing that $10,000 for the next year or so, then I say go for the CD, but if you are not sure, then Money Market is the way to go.

[photo credit]

Festival of Stocks Edition #33

stock-markets.jpgWelcome to the 33rd edition of the Festival of Stocks. I want to first thank George from FatPitchFinancials for letting me host this weeks edition, it’s been a pleasure. There were exactly 11 articles that made it to this edition and I broke them down into three categories. Stock tips and tricks, stock news and stock stats. Please take the time to view each article and also highlight any that you like. Okay without further delay, I present the Festival of Stocks #33.

First off, I would like to start off with a nice poem from Market Poetry, Now’s the Time to Trim.

Stock Tips and Tricks:

The Skilled Investor Blog says No Financial Software or Calculator can Predict the Future

WorldWide Sucess gives advice on how to Succeed with your Investments.

The Financial Whiz’s Investment Strategy.

The Time and Money Group breaks down the Anatomy of Stock Trade:Entry Techniques.

Stock News:

Financial Pragmatist on The Return of Volatility.

Sox First explains What Happens to the Company’s Stock Price when the CEO Buys a Mansion

Fat Pitch Financials brings up Warren Buffets Response to Shai Dardashtis question

Stock Stats:

Please Don’t Take Me Seriously gives a general review over the Eagle Plains Resources (EPL)

Trader’s Narrative takes a look at the Monster Worldwide(MNST)  

And that will conclude this edition of Festival of Stocks. I hope you enjoyed all the articles here. Don’t mess out on the next edition over at Stock Market Prognosticator. Have a great week!

Festival of Stocks Coming up

Hey guys, I will be hosting the Festival of Stocks edition #33 this up coming Monday. So if you have any good articles, then make sure to use this form to submit. If you have any questions regarding submission guidelines, then you can go here.

Roth IRA

investmentpic.jpgSo my last post from yesterday covered the basic fundamentals of what a Traditional IRA was. Today I want to cover Roth IRA and just like last post I want to keep it sweet and simple. So lets get started.

A Roth IRA’s main advantage is its tax structure. The contributions made to this account is only from earned income that has already been taxed, therefore it is not tax deductible. The total contribution for all IRA’s are limited and changes from year to year. This year the limit is at $4,000.00 for people 49 and under and $5,000.00 for people 50 and over. And starting in 2008, the contribution will increase to $5,000.00 for people 49 and under and $6,000.00 for people 50 and over. Here is a simple chart to see the previous and the future limits.

contribution-limit.JPG

Here are some Advantages and disadvantages:

Advantage:

  • At any time, the IRA owner may withdraw up to the total of his contributions without getting a penalty fee.
  • When a Roth IRA owner dies, and the spouse is the sole beneficiary of that Roth IRA and he or she also owns one, the surviving spouse may combine the two Roth IRAs into a single account without penalty.
  • If you are a first time home-buyer or paying qualified educational expenses, you are able to take out not only your contributions but also your earnings without a penalty( up to $10,000.00 in earning).
  • Lack of forced distributions based on age. All other tax-deferred retirement plans, including the Roth 401(k), require withdrawals to begin at age 70½, and impose an annual minimum distribution once withdrawals begin at any age beyond 59½. The Roth IRA is completely free of these mandates.

Disadvantages:

  • Contributions are not tax-deductible. This can be a disadvantage in the long run if you are making a decent amount of income. I suggest Roth IRA for people who are just started out and Traditional IRA for those who are making well over 80k.
  • With a Roth IRA, there are heavy penalties for early withdrawals of earnings. An unqualified withdrawal of earnings will result in federal income tax plus a ten-percent penalty on the amount.
  • Just a rumor but there is the risk that Congress over the next few years may decide to tax earnings on Roth IRAs.

So in general, Roth IRA has these following characteristics:

1.) Unlike Traditional IRA, contributions are not tax-deductible.

2.) Withdrawals are usually tax-free.

3.) At any given time, the Roth IRA owner may withdraw up to the total amount of his contributions.

Start saving for retirement asap, compound interest says so.

So here is the scenario:

Person A is 20 years old and has nothing start off with since he’s fresh out of school. But he has a decent job and he able to invest 100 dollars a week. He does this til the age 60.

  • Starts with $0.00
  • Invest $100.00 a week ($4,800.00 a year)
  • Interest rate going at 10%
  • 40 years to invest

Person B is 40 years old and has waited this long to wait to start saving for his retirement. He has some money saved up and is able to put down 15,000.00 dollars to start off with. Also, since hes much older, he makes more than person A and is able to put 200 a week. He does this til the age 60.

  • Starts with $15,000.00
  • Invests $200.00 a week ($9,600.00 a year)
  • Interest rate going at 10%
  • 20 years to invest

Lets put these numbers in the compound interest calculator I found in MoneyChimp.com and see how we do. 

So here are the charts.

Person A: 20yearoldinterest.JPG

 

 

 

 

 

 

 

 

Person B:40yearoldinterest.JPG

 

 

 

 

 

 

 

 

As you can see, although person B invested 15,000.00 more than person A, he still has no where near as much as person A when it comes time for retirement. The difference comes to a total of $1,631,152.20! This is all because person A decided to start 20 years before person B. Now that’s the power of compound interest baby!

I don’t think there is a “right” age to start saving for retirement but I do know that there’s no such things as starting too early. Most people think to themselves, “Retirement is long ways from now and I can afford to wait another year…”. Well if you keep thinking in that mentality, you’ll find yourself in person B’s shoes and miss out on millions of dollars.

As for myself, I don’t have a retirement savings account yet but if everything goes according to plan, I will by the end of this month. :) We’ll see.

How to invest with a low budget

large_image_investing.jpgIf you’re living on a tight budget like me, you can’t always put down a grand here or there on your investment plans. Say you’re only making about 20-25 thousand a year and you know you should start investing for the future, whether it’s for your children’s education or for your retirement savings. This is still possible even for people with small income if you invest in small doses. Investing in small doses can add up real fast if you invest on regular basis.

Looking at the past ten years, the stock market has an average return of 8%. Lets take S&P 500 Index for example. Say you invest only 10 dollars a week and we’re assuming that S&P 500 returns at an average of 8%, over the next ten years you’re looking at 8,000 dollars, if you’re fortunate and it goes for an average of 12% then you can expect about 10,000 dollars!

Also, if you meet the requirements and you’re not making that much money, the government can refund as much as 50% of what you put in! So say you were able to put in 1,000 dollars for your IRA or 401k account that year, you would get at least 500 of that back. Then, if you’re really a dedicated investor, you can put that 500 into next years investment :)

When investing with little money, you should look into mutual funds. Mutual funds can hold anywhere from a dozen to hundreds of stocks, so when a stock doesn’t do all so well the impact will not hurt your portfolio as much.

Here is a list of fund companies I found on MSN Money who accept small investors:

1.) Steward Funds.investing_pic.jpg

Minimum initial investment: $25

Minimum monthly investment: $25

2.) Amana Funds.

Minimum initial investment: $250

Minimum monthly investment: $25

3.) Hodges Fund.

Minimum initial investment: $250

Minimum monthly investment: $50

4.) TIAA-CREF.

Minimum initial investment: $100

Minimum monthly investment: $100

Mutual Funds 101

mutual-fund.jpgBuying a mutual fund may be the smartest decision you can ever make , however with over 12,000 mutual funds to choose from, it can also be your worst if you don’t know what your doing. If you’re thinking to invest in a mutual fund, then you’re in the right process of thinking, but you have to make sure that you do your research first. There are some things you should know before you get into investing in funds.

Things to know:
1.) What is a Mutual fund
2.) Different kinds of stock funds
3.) Importance of low expenses
4.) Don’t go after the “winners”
5.) Don’t be too quick to dump a fund
6.) Be aware of taxes

1.) A mutual fund is simply a collection of stocks and/or bonds. A mutual fund pools money from hundreds and thousands of investors to construct a portfolio of stocks, bonds, real estate or other securities, according to its charter. Each investor in the fund gets a slice of the total pie.

2.) The different kinds of stock funds includes growth funds, which buy shares of burgeoning companies; sector funds, which buy shares of companies in a particular sector such as technology or health care; and index funds, which buy shares of every stock in a particular index, such as the S&P 500.

3.) The importance of low expenses are crucial when looking for a fund. Companies add on these expenses to cover their expenses and to make profit of course so watch out for these. They don’t charge more a few percentage points a year, expenses may not sound substantial, but they create a serious drag on performance over time.

4.) Don’t go after the winners because stats show that funds that rank very highly over one period of time rarely finishes on top in the later ones. When choosing a fund, do some research and look for consistent long term results.

5.) Don’t be quick to dump a fund because every fund will have its off year. If you find your fund to be losing a little here and there don’t be so quick to dump it. Although you may be tempted to sell a losing fund, check to see its previous behaviors and see if whether it has trailed comparable funds for more than two years. If it hasn’t then be patient. However if earnings have been consistently below par, it may be time to move on.

6.) Be aware of taxes even if you don’t sell your fund shares, you could still end up stuck with a big tax bite. If a fund owns dividend-paying stocks, or if a fund manager sells some big winners, shareholders will owe their share of Uncle Sam’s bill. Tax-efficient funds avoid rapid trading (and high short-term capital gains taxes) and match winning trades with losing trades. Also don’t double pay your taxes!
Now here are some advantages and disadvantages of mutual funds:

Advantages:

  • Low start -You can get started for as little as $100, but 2000 – 3000 is the common minimum.
  • Diversification- Buying a mutual fund provides instant holdings of several different companies.
  • Liquidity- Like individual stocks, a mutual fund investment can be converted into cash upon your request, in other words, it gives you convenient access to your money.

Disadvantages:

  • The Wisdom of Professional Management- That’s right, this is not an advantage. The average mutual fund manager is no better at picking stocks than the average nonprofessional, but will charge you fees as though he/she is.
  • No Control- Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of somebody else’s car.
  • Dilution- Mutual funds generally have such small holdings of so many different stocks that insanely great performance by a fund’s top holdings still doesn’t make much of a difference in a mutual fund’s total performance.
  • Buried Costs- Many mutual funds specialize in burying their costs and in hiring salesmen who do not make those costs clear to their clients.

The key thing is to research research and research. You want to have a very good understanding of how all the fees work and review their prospectus. Their Prospectus should provide things such as fees, objectives, risks, etc. All in all, study and know what your putting your money into. There are many websites with very useful information and here are some that are updated pretty frequently. Have fun!