Investing Basics

The Benefits of Mutual Funds

March 10, 2017 By Twila Van Leer

If your rich uncle died and left you $1,000, what could you do with it that would increase its value?

You might opt to buy a share of stock in the largest business in the country, then the second largest, etc., down the line. You’d have used up the $1,000 before you got to the 20th stock, according to etrade.com.

Another option would be to buy a mutual fund. That would open the option to spread your $1,000 among a great choice of stocks and bonds. If you invest through an Individual Retirement Account (IRA) you might get launched for less than $1,000. Some funds are available for as little as $50 per month if you are willing to make an ongoing commitment. Mutual Fund managers invest your money in a wide variety of stocks giving you a better chance to have your investment grow over time.

Mutual funds are easy to buy, whether you are going it alone or hire a broker or financial planner to do the job. Once you are established with a fund company, a simple phone call or mouse click can initiate a purchase, although there are some “closed funds,” which will not accept money from new shareholders.

Selling also is easy. When you are ready to unload shares, you don’t have to find a buyer. Most mutual funds offer daily redemptions, so the company will give you your cash whenever you’re ready to sell. If you own closed funds, you also can sell when you choose.

You don’t have to worry about the safety of your investment if you turn your business over to a manager. The Investment Company Act of 1940, following close on the heels of the Great Depression, is the federal government’s way of safeguarding your money. Mutual funds are regulated by the Securities and Exchange Commission. You become an owner of the company, which must have a board of directors to protect member investors. Their job is to ensure that the company has the best possible managers and that shareholders aren’t overpaying for their services.

That’s good, but not foolproof. Mutual funds are not insured or guaranteed. You can lose money because your portfolio is based on all of its holdings. If they lose value, you will lose money. The odds of losing all your money, however, are slim. All of the stocks and bonds in your portfolio would have to lose value entirely for that to happen. Historically, the funds have done well.

Though you need some savvy to do effective investing, you don’t need to know how to read a company’s cash flow statement or be able to predict whether it might fail to meet debt obligations. You pay a fund manager to make those judgments and put your money where it will produce a return. Mutual funds are not assured and are subject to market vagaries like other investments, but they are a good choice for people who don’t have the money, time or interest to gather a collection of securities by themselves.

Retirement Wisdom From An Expert

July 20, 2016 By Twila Van Leer

Expert advice for successful retirement.

If anyone knows how successful retirement works, it’s Warren Buffet. Over a lifetime he has become a hallmark of profitable market investment. A recent article in The AARP Magazine shares 10 keys to his success.

Keep A Cash Reserve

Keep a reserve of cash for emergencies and for unexpected opportunities. A rainy-day provision is essential, especially as retirement looms. The end of a regular paycheck means changes in cash needs. Now you must rely on Social Security and whatever other nest egg provisions you have made over your work career. Embellish your emergency fund to take care of any financial challenges. Tap the fund to respond to lucrative investment opportunities.

Invest In Companies That Provide Essentials

Boring companies don’t get any attention at parties, but you may find that there are great long-term returns from companies in more mundane industries. You may think, for instance, that toilet paper, baby diapers and soap are not exciting investments, but Buffett has successfully invested in Procter & Gamble, which has become a world leader in this market segment. Those who put $1,000 into P&G stock in 1986 and reinvested their returns would have more than $32,000 to show for it today. Boring companies who become tops in their industry niche often provide better rewards to shareholders than attention-grabbing upstarts.

How Effective Is The Brand?

Brand loyalty is something to look for in wise investments. Loyal customers will pay more for a product they like. Coca Cola is an example. The logo is known around the world, making it the third most valuable global brand in 2015. Its initial success as a soda drink has financed its expansion into other marketing areas. Invest in strong brands to get larger returns.

Look For Good Fund Managers

Good management is a keynote of successful businesses. Buffett notes that most companies eventually have to survive a bad manager, but when there is a great leader, the company prospers. He points to the outstanding examples of Bill Gates at Microsoft, Steve Jobs at Apple and Jeff Bezos at Amazon. A great manager and a strong business model is an unbeatable combination.

Learn From Your Mistakes

Avoid mistakes, but learn from them. Even Buffett admits to investing mistakes. He experienced a loss of about $450 million in a Tesco investment when the company fell afoul of accounting problems. When such things happen, the best way to recoup is to study what went wrong. Search out the warning signs, suck up the loss and use the information to avoid further market losses. Keep a record of mistakes and they’ll be a guide to better investing.

Stick With What You Know

Stick with what you know. The investment market is huge and intimidating, but Buffett believes you can succeed without being an expert. He avoided the technology revolution in the 1990s and so did not lose big in the tech bust that followed. If you are more familiar with particular areas of the market, put your money there.

Increase Your Buying Power

Look for what will increase your buying power over time. Investments that produce consistent income and steady growth are best. In 2011, Buffett looked at gold as an example of a non-income producing asset, overshadowed by such investment opportunities as croplands and petroleum companies. Retirees benefit in particular from income-producing investments that keep up or hopefully exceed inflation and that provide sustained purchasing power.

Buy At The Right Price

Don’t overpay. Even if a company is successful, a share price that is too high is a bad investment. Wait until an industry has settled before investing. Buffett waited on investing in energy companies until stock prices plunged after the decline in oil and natural gas prices. Make a watch list of interesting stocks and see if valuations fall to more suitable levels. Patience is a virtue in the world of investments.

Use A Buy-And-Hold Approach

Don’t make the same decision over and over again. When you are frequently trading, it increases the chances for missteps. The buy-and-hold approach puts more emphasis on what stocks you purchase in the first place. You may not want to hold a stock forever, but minimize the number of decisions you have to make. The more opportunities you allow yourself to make mistakes, the more mistakes you’ll make.

Look For The Spirit Of Innovation

Don’t avoid revolutionary investments. The business world is full of visionary individuals looking for ways to improve things. One for-instance is the forward momentum at General Electric, a long-time leader in world business. The company saw the opportunity for snapping up a leadership role in the wind energy and turbine business and became a pioneer in the renewable energy industry. Look for the spirit of innovation as an indicator of strong investment possibilities.

Political Campaigns Spawn Economic Fallout

May 22, 2016 By Twila Van Leer

Political uncertainty causing economic angst. — Political uncertainty causing stagnant economy.

The rancorous 2016 election campaigns are having a negative effect on the country’s economy, the experts are concluding.

Manufacturing

Manufacturing has taken a dip, with the smallest improvement in sales since 2009 and the companies are blaming the political uncertainties for the difficulties. The Markit Economics manufacturing index fell to 50.8 in April, the lowest it has been since September 2009.

American Households

American households also seem to be retrenching as consumer confidence slides to the lowest level since last September. The unusual and more confrontational nature of the debates, rampant dissatisfaction with the major parties and the uncertainty of where the country would head under pending leadership all are factors.

Business Spending And Investing

Some businesses are delaying spending and investment decisions until there is more clarity about what might be on the minds of the various candidates vis a vis business regulation. Policies that might make a difference in bottom lines are still pending.

Presidential Nominees Positions

Donald trump, likely Republican presidential nominee, has thrown out such possibilities as putting big tariffs on Chinese imports, while Democratic front runner Hillary Clinton has waffled on some of the positions she has championed in the past that were pro-business.

Other Indicators

This sort of flux in political positions has caused a lull of sorts in business activity, economic experts say. Among other indicators, orders for business equipment were down by almost 3 percent in February. The Federal Reserve also has noted signs of increasing unease about the political situation as it makes surveys for the Beige Book. Eight mentions of the campaign were made in the three reports that have been published by the central bank so far this year. In 2012, the last general election year, there were two such mentions. In 2008, there were none.

consumer Angst

The University of Michigan’s monthly confidence survey also indicates more consumer angst about the direction of the country’s politics. The economy may be stagnant as it waits the outcome of the November balloting.

Plan Ahead For Retirement

May 21, 2016 By Twila Van Leer

What you should already be doing in planning for your retirement. — What you should already be doing in planning for retirement.

The decisions you make early in life can make a huge difference in what your retirement cushion will look like. Waiting until you are about to head out the door of your employment is way too late to start thinking about it.

Stay Married

It’s common to hear from both parties to a divorce that he /she “lost everything” in the process. That isn’t mathematically possible, but it’s safe to say that it’s rare that either partner benefits financially when there is a split. If you fall into the divorce pit (and some 50 percent of American couples do) remember to calculate the future needs of retirement as you divvy up the goods. Applying some sound common sense in the relocation process will help. Wiping out the entire proceeds from a divorce while setting up independently may leave little for the retirement years. A smaller living space, fewer immediate “wants,” a more economical car may be good alternatives.

Spend Less Than You Make

This bit of wisdom has been bandied about forever, but not enough Americans pay attention. Debt is simply impatience expressed through money. If you save the amount of a monthly payment for as many months as the purchase takes, you can pay cash and avoid interest.

Live Frugally

Used vehicles serve well for every day getting where you’re going. Mow your own lawn, make your own repairs when possible, make eating out a rare option. Just keep thinking about how good life will be when you are retired if you don’t spend it all when you aren’t.

Invest

Take what is left when you have lived frugally and put it into a savings plan that will offer some tax advantages. An investment counselor is a good idea if you aren’t really savvy about the market. Making changes in your savings program just for the sake of change may be counter-productive. It can be tricky. Before you sign up for something new, think first if it will fit into the long-standing plans you have been pursuing.

Investment Trends For Personal Finance In 2016

March 7, 2016 By Twila Van Leer

What’s happening in the world matters to your personal finances. The larger socioeconomic trends filter down to your own pocketbook whether or not you want them to. Following are current trends that may affect your finances over the next five years, according to the experts:

Interest income will continue to be dismal.

Cash and savings accounts are being affected by global debt, aging populations and low energy prices. Countries have lowered interest rates they pay on short-term notes, in some cases paying negative interest rates. That means the lenders have to pay a fee to own debt securities. The results trickle down to the individual. To offset, the experts advise that you modestly increase your allocation to global stocks and real estate.

Too much information can swamp you.

Technology makes an excess of data available through blogs, social media and emails. With so many options and relatively easy access to competitive products, analysis paralysis can cloud decisions. Turn off the “cookies” feature in your browser and avoid an overabundance of ads.

The costs of investing will continue to drop.

In the investing world, where so many factors are beyond the control of individuals, it is smart to lower expenses in hopes of increasing returns. But cost isn’t the only factor. Consistent savings, investment diversification and comfort with volatility are also to be considered. The experts say that instead of focusing solely on low fees, you should create an investment strategy that aligns with your goals.

Life insurance costs are going up.

Insurance companies earning less on their portfolios may opt for premium increases for whole and term life policies. The companies make their money on premium income and investment performance and they share the pain with customers when things are not going well for them. To counter, you might consider buying term insurance for the longest time span that makes sense to you. Term life, unlike whole life and other so-called permanent policies, has no cash component and usually expires after a set number of years, so it usually is cheaper. If you want permanent life insurance, look at a variably policy from a lower-cost but reliable provider. You then take a moderate risk over a longer time and grow the policy’s investment.