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You are here: Home / Archives for Finance / Investing

Investing

Value Of Money Changes

February 26, 2018 By Twila Van Leer

Money Changes
Think in terms of the future value of your dollar, not what it is worth at the moment
Do You Know The Time Value Of Money?

Wimpy, of the old cartoon show, Popeye, loves hamburgers, a passion that leads to his signature line, “I’ll gladly pay you Tuesday for a hamburger today.” This line leads us to our topic of discussion today. Will the dollar you have today be worth more tomorrow?

A dollar this year may be worth much more next year. The opposite of what Wimpy was suggesting. This variation in the value of our dollars is one of the fundamental principles of finance and you need to firmly establish it in your mind as you contemplate investing. Your $1 today invested wisely can be worth much more next year. The best advice you can take is to remember this forward -looking growth statement. You need to realize the value of every dollar that comes into your possession.

Using your money wisely can offset such factors as inflation. If you can invest and earn a dividend or capital gains on your dollar, you stay ahead of the decline in value related to inflation. Realizing the full potential of every dollar you have is key to building wealth. Think of dollars as seeds. You can eat them (spend) or sow them (invest.)

Think in terms of the future value of your dollar, not what it is worth at the moment.

Assume you are 30 years old and 35 years from retirement at age 65. That means that an investment you make now has 35 years to compound. If you invest at a good rate of return, you’ll have a good nest egg when you retire. The historic rate of return on the stock market is 12 percent. The return on bonds is slightly lower. A combination of both could predictably give you a return of 10 percent.

Using these variables and estimates, you could assume that failing to invest $20 today could cost you approximately $562 over 35 years. Adjusting for inflation, the cost could be closer to $140. Even so, your purchasing power would have increased some seven-fold.

Multiply $20 by whatever amount you are able to invest, and you can see that failing to invest now has significant impact on what you can expect to have in the future.

Seen in this context, you may reassess how much a seemingly small luxury you indulge in today can add up to a significant loss in the future. Think ahead.

Filed Under: Investing, Money Management, Personal Finance, Saving Money

Beginners’ Guide To Saving Money

February 24, 2018 By Twila Van Leer

Saving Money
Savings and investing both make for long-term personal financial health, but start with the savings.
Saving money is the keystone principle to financial success. It’s what makes it possible for you to take advantage of opportunities, such as going back to school, starting a business or buying shares of stock when the market crashes.

The logical questions are: How much should I be saving? What is the difference between saving and investing? What are the safest methods for saving?

There is a huge difference between saving and investing. Both should have a place in your financial planning, but they have different roles. It can make a difference in whether you experience a bare-knuckle survival through a recession or depression or sleep soundly knowing you have spare liquidity on hand. Knowing the difference is vital to building wealth and finding financial independence.

Many individuals have lost everything in an economic downturn despite having wonderful portfolios because they failed to appreciate the role of cash in their calculations.

Making money for you is not always the first role of cash.

Knowing the basic differences between saving and investing may help. Saving involves putting cold, hard cash away where it is safe and liquid. Some successful money managers suggest keeping a lot of cash hidden on hand to be a source of quick availability. Savings should be in FDIC-insured accounts, including U.S. treasury bills. Money market accounts are good, but money market funds require a careful look at the holdings and structure. Savings should be immediately accessible so you can deploy them with minimal delay according to circumstances.

During the 2008-09 economic meltdown, some hedge fund managers actually had their spouses getting as much cash as they could from ATMs because it appeared that the entire economy was going to collapse. Not widely publicized, such activity nevertheless showed the depth of the concerns.

The objective in saving is to keep ahead of inflation.

Now, about investing. That’s a process of using your money to earn a return. There is more volatility in the process than in saving, but it is the basis for building wealth. Learning the tricks of investing is a process and many helps are available, including the book, “How to Start Investing.” Professional help is available if you are a real novice. The trick is to start. Learn as you go.

Stocks, bonds and real estate are the most popular avenues for investing.

So, given the differences, how much of your income should you dedicate to each of these money-management techniques? Obviously, the answer is individual, but the bottom line should be: “As much as you can,” even to the extent of sacrificing some of your immediate desires to maximize your savings and investment options.

Put savings before investments (unless you receive a sudden windfall such as an inheritance, etc.) A good savings cushion will fund your investments. The two primary purposes for savings are as a hedge against the loss of income, through a layoff, downturn, illness or for special purposes such as a house down payment, car or other big-tab item. Ideally, you should have six months of coverage for essential living costs. That will give you a sense of security that you can’t get from the market, which can be extremely volatile in the short-run.

You shouldn’t consider investing until your savings program will give you the assurance of being able to take care of emergencies and/or saving for the items that will take more than five years to pay for. Having health insurance should take precedence over investing as well. Without it, a single health incidence could wipe you out.

Savings and investing. Make both a matter for long-term personal financial health. But start with the savings.

Filed Under: Investing, Money Management, Personal Finance, Saving Money

Bach Learned Financial Facts Early

January 25, 2018 By Twila Van Leer

Bach Learned Financial Facts Early
According to Bach, consistently investing a portion of one’s income, a strategy he calls “paying yourself first,” is the key to building wealth.
Self-made Millionaire David Bach got the best financial advice of his life when he was seven. His Grandmother, Rose Bach, helped him purchase his first stock – in McDonald’s – and taught him some personal finance facts that ruled his life.

What she told him was that “There are three types of people in the world: Those who come to McDonald’s and eat here, as you are now, and spend money; those who work here for minimum wage; and those who invest in the company. The investors get rich.”

“The experience of thinking like an investor at the age of seven changed my whole life,” says Bach, who co-founded AE Wealth Management. Consistently investing a portion of one’s income, a strategy he calls “paying yourself first,” is the key to building wealth.

In his New York Times best-selling book “The Automatic Millionaire, “ Bach shares the secret: “Becoming rich requires nothing more than committing to and sticking with a systematic savings and investment plan. Compound interest should lure would-be investors if nothing else does, he points out. “The sooner you put your money to work, the better.”

He and other experts advise that, rather than trying to pick stocks, you begin with investing in a tax-advantaged retirement account such as a 401(k) or an IRA or Roth IRA. A second step could be looking into index funds, which offer diversity at a low cost and pretty consistently deliver good long-term results.

He advises that if you are hoping to get your kids off on a good path financially, you follow Grandma Rose’s approach. Help them buy a share of stock in a company they know and then continue to encourage them to build on that small beginning. “It will change their outlook on everything” for a lifetime.

Filed Under: Building Wealth, Investing, Money Management, Personal Finance

Millennials Shun Investment Markets

October 30, 2017 By Twila Van Leer

Millennials Investing
Millennials tend to shy away from the usual investment markets to a greater degree than other age groups
When it comes to personal finances, today’s Millennials tend to shy away from the usual investment markets to a greater degree than other age groups, according to research by Wells Fargo.

The bank surveyed more than 1,700 individuals relative to financial literacy and opinions about the investment markets. Twenty percent of those in the Millennial age group (20 to 36) said they would never invest in the markets. Another 53 percent said they would be uncomfortable making such investments.

That raises concern among the experts that the Millennials won’t be ready for retirement when it rolls around. The prevalence of student loans in the age group is a factor. The average debt is now $34,144, up 62 percent over the past 10 years. Repayment often runs well into the prime earning years.

Wells Fargo devised a Positive Financial Indicator to determine how well an individual is faring financially. The five attributes of those in good financial shape are: Having enough money to put some into savings; saving specifically for retirement; a perception of being in control of finances; taking an active role in setting and achieving goals; and the ability to pay monthly expenses without strain.

Those who score higher on the indicator tend to be happier and more confident about finances, the bank found.

The survey also indicated more healthy attitudes among the Millennials who communicate with parents and grandparents on financial issues.

Filed Under: Investing, Millennials, Money Management

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