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You are here: Home / Archives for Investing

Investing

Understanding The Dow Index

October 28, 2017 By Twila VanLeer

Following the dow index helps keep you informed of your investments.
Following the dow index helps keep you informed of your investments.
When the Dow Jones industrial average goes up – or down – is that cause for you to celebrate – or mourn?

The Dow Index

The Dow is considered a symbol of either euphoria or despair for investors. But how much should you pin investing decisions on this fluctuating indicator of the country’s financial status? This summer the Dow hit a record high, for the first time in a year, which is considered a long time in that particular measure. The reasons, according to the gurus, included an economic slump in China and Britain’s vote to leave the European Union.

To put such things in their proper perspective, it might be well to understand the Dow Jones index and what it means to your personal finance efforts.

The index, initiated in May 1896, draws data from 30 big companies, which represent a broad selection of industries. On the list are large banks such as Goldman Sachs and JPMorgan Chase, industrial giants such as Caterpillar, Apple and Walt Disney Co. Of the original members, only General Electric remains.

To put this summer’s high into perspective, it didn’t represent any huge change for the better: just two-tenths of a percent above the previous high. In the six months before it hit the high of May 19, 2015, it hit a record 10 times.

Standard and Poor’s Index

Standard and Poor’s index, by contrast, has 500 members. The two indexes differ in how they value the stocks they track. Relatively small changes in just a few of the Dow stocks can make a difference.

The Dow is price-weighted, while the S&P is market-weighted. Member companies with the largest value on the stock market make the biggest impact on the index. Apple, the most valuable publicly traded company in the world at $531 billion, can move the index more than any other S&P member.

So, when the Dow goes up, what will it do to your funds? Probably very little unless the rise is significant. Don’t get too excited about the headline that says the “Dow is up” until you study more closely to see how much and why. And it’s the S&P average that means the most, since it has nearly 60 times more — $2.1 trillion compared with $36 billion – in its index.

Funds that are managed, which might be where your dollars fit, tend to track S&P more closely.

But for all its flaws, the Dow usually is right in line with the S&P. And the Dow tends to be more well recognized among investors. It offers a great at-a-glimpse of the market. As a gauge, it is safe to say then when the Dow is up, investors are up. When it’s down, they are down. It pays to pay attention.

Filed Under: Investing, Investing Basics Tagged With: Investing

Basic Economics Guide Investment Decisions

September 10, 2017 By Twila VanLeer

Investing is directly tied to the state of the economy
You invest money to earn a return. A basic understanding of how the overall economy of the country affects how well your investment will produce that return is helpful in making investment decisions.

“Investing 101,” a basic how-to book on putting your money to work, by Michele Cagan, is designed to help beginners. In the first chapter, she describes the elements of basic economics.

Investing is directly tied to the state of the economy. If consumers are spending money and the economy is growing, that’s a good time to invest. If money isn’t flowing into the basic economy, the returns are likely to be poor.

What makes the economy boom? Consumer spending and corporations prospering generally equal investments growing. Consumer spending, in fact, is the greatest contributor to the gross domestic product that keeps the economy flowing. And consumer spending, in turn, reflects other factors, such as the job market, inflation and others.

Investors who pay attention to the overall state of the economy will be more successful. Those most in the know can look ahead a little and create their investment strategy accordingly.

Today’s economy is enormously complicated and volatile. With 7.5 billion people sharing a world where information is instantaneous and interaction constant, making an educated guess about the economy at any given time is a challenge. Knowing the basics is one way to increase your chances.

Buying and selling are at the root. People buy things they value. Sellers base their prices on the perceived value of their products. Prices fluctuate based on demand. For instance, most Americans are currently paying less for gasoline than they did a few years ago. That’s partly due to complicated international factors that regulate gas production, but also because people are using less. The basic rules of supply and demand apply. If the supply increases, prices fall; if demand increases, prices rise.

Income is a major factor. You receive income from jobs, inheritances, investments, etc. Ideally, individuals learn to live within the income on which they can rely. Life changes can affect your income. For instance, retirement, which can reduce the sources on which you have traditionally relied. Wise saving and investments can help replace the lost work income.

Consumption, or how much of your resources you spend to live, makes a huge difference. If you consume more than you accrue in income, there is trouble ahead. Keeping a balance is the way to avoid debt and other issues.

Savings and investments are vital to meet emergencies and to provide for retirement. In the 1960s, Americans saved 6 to 10 percent of their income. The figure has seriously declined until few Americans have the same cushion. Many have zero resources to fall back on when they need it. Saving some money and, ideally, making it work by wise investing is the solution.

Filed Under: Investing, Investing Basics Tagged With: Investing

Retirement Wisdom From An Expert

July 20, 2016 By Twila VanLeer

Expert advice for successful retirement.
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.

Filed Under: Building Wealth, Investing, Retirement Tagged With: Investing, money management, Retirement, Saving Money

Budgets Should Include Savings

June 21, 2016 By Twila VanLeer

Recording every penny you spend lets you know how much goes to non-essentials.
Recording every penny you spend lets you know how much goes towards non-essentials.
Personal financial security almost always is built upon a foundation of creating and sticking to a budget. And a budget line dedicated to savings is extra insurance that you are on solid ground, no matter how much you make.

Tracking your spending is a necessary preliminary to creating that budget. Start by recording every penny you spend. And be prepared to be surprised at how much of your money is going into such things as movies, potato chips and other non-essentials.

Sticking To Your True Needs Leaves More For Savings

Once you have a true picture of how you are spending what you earn, the next step is to set a realistic budget that covers all your needs. That is needs, not wants. Needs vary from family to family, but for almost everyone, they include housing, food, water, shelter, clothing and education. The list of “wants” is long and variable, but often includes fast foods, meals out, expensive clothing, over-expensive cars, fancy cell phones and electronic gadgetry.

Engage Your Family In Setting The Budget

Let them help make up the shopping lists and then go through them to see what you can realistically do without. An occasional “fling” can be accommodated, but be sure they stay occasional and don’t become embedded in the budget by default.

Start A Savings Plan

Through your employment you may have access to a 401(k) account. Or set up an IRA (Individual Retirement Account), which is another way to enjoy tax benefits while you save. Keep retirement in mind. It comes sooner than you’d think. Save as much as you can and increase the amount as children grow up and leave home or as your earnings increase.

Consider What Is Practical In The Way Of Education

Too many Americans face retirement with student loans still weighing them down. It may be that you can achieve career goals without a four-year university degree. If you have to borrow to pay for higher education, keep these figures in mind: The typical monthly payment for loans escalates with the type of training you desire, from $54 for vocational school; $60 for an associate degree; $184 for a bachelor’s degree; $220 for a master’s degree; $280 for a college professor; $530 for a professional degree; and $840 for a physician.

Certainly don’t settle for less than you desire, but approach higher education with your eyes open. Start planning early, warn children they may have to work while they go to school, do your best to encourage them to perform well in high school as a springboard to scholarships and other support.

Filed Under: Budgets, Education, Saving Money Tagged With: Budgeting, Investing, money management, Saving Money

Political Campaigns Spawn Economic Fallout

May 22, 2016 By Twila VanLeer

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.

Filed Under: Business, Investing, Security, Spending Habits Tagged With: business, economy, Investing

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