Tag Archives: investing

Annuities for Retirees: What to Consider Before You Invest

Annuities can be purchased directly from an insurance company or from other financial institutions (including banks) that act on behalf of the insurance company. In exchange for your investment, the insurer agrees to make periodic payments for a set time period. It’s important to remember that some annuities may lose value. These products are not insured by the FDIC or the FDIC-insured bank or savings institution that may offer them.

There are different types of annuities. A “fixed annuity” provides a fixed payment, often monthly, until the investor dies. It typically guarantees no loss of principal (the amount invested). A “variable annuity” also guarantees payment for a set period, but the payment amounts will fluctuate based on the market performance of the investment option you choose. With a variable annuity, you also risk losing principal as well as earnings, although some variable annuities guarantee the return of your initial investment for an additional fee.

If the income payments are deferred to some later date, the annuity is typically described as a “deferred annuity.” If the payments begin immediately and continue for life, the annuity may be referred to as an “immediate life annuity.”

On the plus side, annuities provide another investment option if you’ve reached your contribution limit on your other retirement accounts, such as 401(k) plans. And, at retirement, the guaranteed payments can provide extra income. But, as with any investment, be aware of the potential pitfalls and make an informed decision.

Know the key features and costs of the product and make sure they fit your needs. Read the literature to understand the most important facts and risks, including the potential for loss, if any.

“A sales representative who talks to you about purchasing an annuity is required by federal law to ask you questions about your investment goals, current finances and future retirement plans,” said Kara Ritchie, an FDIC Policy Analyst who specializes in consumer issues. “If the representative doesn’t discuss whether the product is suitable for your needs and goals, take your business elsewhere.”

Experts generally say that annuities with guaranteed principal and income are more suitable for older investors than annuities that may, through market performance, lose value. The latter include variable-rate, deferred-payment annuities and equity-indexed annuities (those tied to the stock market), which might not make sense for many investors close to or in retirement.

Also, before you sign a contract, make sure you understand the cost of getting your money back early. Many investors with variable annuities are surprised to learn that they must pay hefty “surrender charges” if they try to withdraw money early, cancel their contract, or replace an existing annuity with a new one.

Deal only with a competent, reputable sales representative. Most annuity sales representatives are trained professionals. However, there have been reports of sales representatives who have been poorly informed or have used false or misleading tactics to sell annuities. How can you improve your chances of getting good advice?

Work with a sales representative licensed by your state government’s insurance regulator. If the sales representative offers variable annuities, he or she also must be licensed to sell securities. For information on whether a sales representative is properly licensed or has a history of disciplinary problems, contact your state securities regulator and the National Association of Securities Dealers, a self-regulatory group for the securities industry.

“Annuities are generally sold on a commission basis, so it’s important to find a sales representative who puts your interests ahead of his or her own,” added Ritchie.

Proceed carefully before replacing an existing annuity with a new one. A sales representative may suggest investing in a new annuity paying a higher return or replacing a deferred annuity with an immediate life annuity to provide monthly income now instead of later. These actions may make sense for some people. However, it can be expensive to change annuities. Make sure you consider the contract terms as well as early withdrawal penalties and other charges prior to making a change.

What if, soon after purchasing an annuity, you have “buyer’s remorse” or find another annuity with better terms? Your annuity may have a “free look” period during which you can cancel without penalty. If yours doesn’t and you still want to cancel, determine all the surrender charges and penalties and proceed with caution.

Forex Trading: A Beginner’s Guide

Businesses operating in foreign countries face risks caused by fluctuations in the value of currency when they need to buy or sell to another country. Foreign exchange markets offer a way to hedge this risk by coming up with a fixed rate for the transaction at a set time in the future. A trader accomplishes this by buying or selling currencies in the forward or swap markets.

Usually at this time; banks lock in a rate for the business owner to know the exact exchange rate, helping them mitigate their company’s risk. The futures market, to some extent, can provide a method for hedging currency risk, based on the actual currency and size of the trade involved. Currency values are constantly fluctuating due to changing demand and supply factors.

Therefore, there is a chance to bet against the changing values by either buying or selling a currency against another hoping that the one you buy becomes stronger or the one you sell weakens against its counterpart. There exist two different characteristics to currency as an asset class:

  • Earning the interest rate differential 
  • Gaining value in the exchange rate

Over time, banks came up with proprietary desks to help them trade and were soon followed by international corporations, wealthy people, and hedge funds. The Internet led to the creation of a retail market for individual traders to access Forex markets either via banks or brokers. The interbank market is a compilation of several banks that trade with each other globally. Since the banks themselves accept credit risks and sovereign risk, they have numerous internal auditing processes for their safety.

The pricing mechanism is determined by supply and demand so a rogue trader cannot control the price of any currency. Attempts are underway to have an Electronic Communication Network (ECN) that will bring traders into a centralized exchange for more transparent pricing.

Banks can still remain decentralized. Traders who have direct access to Forex banks are, obviously, not as exposed as retail traders dealing with unregulated Forex brokers. The foreign exchange market is the largest in the world and therefore the most liquid, hence entering and exiting a position in major currencies becomes easier.

Owing to the liquidity and ease of entrance/exit, brokers and banks offer leverage, which gives a trader power to control very large positions with little of their money. Forex markets also trade round the clock. Forex trading is a macroeconomic endeavor and one needs to have insight in the economies of different countries and how they are interconnected.

Currency trading is referred to as an “active trader’s” opportunity, which is a kind of opportunity that best suits brokers because active markets are nimble and that means they make more money. Currency trading is also referred to as leveraged trading and traders can open an account with less money than is needed for stock trading.

Traders with limited funds, through swing trading and day trading in small amounts can play the Forex markets, while those with larger pool funds and longer-term horizons may prefer a carry trade. For both cases, timing is very important.  

The Forex market (also known as Foreign Exchange or FX) is among the most thrilling, fast-paced markets you can ever find. For quite some time, central banks, financial institutions, hedge funds, corporations, and the super wealthy dominated foreign exchange trading in the market.

The introduction of the internet changed everything and has made it possible for average individuals to participate in the buying and selling of currency, even from the comfort of their living rooms via online brokerage accounts.  Daily currency fluctuations are not usually significant. A lot of currency pairs do not move more than one cent in any given day, which translates to a currency value change of not more than 1%.

Therefore, foreign exchange can be termed as the least volatile financial market in the world. In that case, most currency speculators depend on the availability of huge leverage to boost the value of expected movements. Leverage can go as high as 250:1 in the retail forex market. Higher leverage tends to be very risky.

However, the deep liquidity and round the clock trading enables foreign exchange brokers to make high leverage a standard in the industry, making the movements more meaningful for the currency traders. The presence of high leverage and extreme liquidity contributes in spurring the forex market’s speedy growth and has also made it an attractive investment for many traders. The positions can be easily opened or closed in minutes or even held for a longer time.

Currency prices are usually determined by objective considerations of the forces of demand and supply; Manipulation is almost impossible, thanks to the size of the market—largest players like central banks cannot alter the prices whenever they want. There are numerous opportunities for investors in the foreign market.

Nevertheless, to make it there, a currency trader must know the basics that influence currency movements. This Forex tutorial aims at offering a foundation for traders or investors who are newbies in the foreign exchange markets. The basics of exchange rates are covered, along with the history of the market and any other major details that you should know before participating in the market. You will also find tips to help you start trading currencies and various tactics that you can employ for your success. 

How to Invest in Mutual Funds

A new mutual funds investor must decide between passive or active management, stick to a plan, understand fees and choose where to buy funds. Would you like to mimic the market or try and beat it? This is not a difficult decision to make. One approach is more expensive than the other and does not necessarily offer better results. Actively managed funds are those that are managed by professional managers.

These managers research and buy with a goal of beating the market. There are fund managers that have done this successfully over the short term. However, it is not easy to outperform the market regularly over the long term. Because of the involved human touch, these funds cost more.

Passive investing is simpler and often delivers better results. Many people opt for passive investing because there are fewer fees involved and it is cheaper. The index fund is the most common passive investment.

Patience pays; have this in mind when considering your budget. To be on the safe side, make sure that you can leave the amount you have decided untouched for five years or more. These questions should help you as you come up with a budget: How much do you need to begin?

Mutual fund providers always have a minimum amount set. It is the least amount you can open an account with and start investing. Other brokers have not set a minimum amount while for others it could be anywhere from $500 to $3000.

How should you invest the money? What should you settle on as your initial mix of funds? Older investors should not ride out risky bets because they are closer to retirement age. Stocks require that you have a brokerage account, but mutual funds give several options.

If you contribute to a 401(k) or any other employer-sponsored retirement account, you are probably already investing in mutual funds. Another alternative is to purchase the fund directly from the company that created it such as BlackRock Funds or Vanguard. A wise idea would be to look for an online brokerage and buy from them. Many of them offer a wide selection of mutual funds. If you opt for a broker, consider the following:

  • Fund choices
  • Affordability
  • Educational and research tools
  • Ease of use

Understand and Analyze Fees

Active vs Passive: actively managed accounts offer great services, but the cost is also high. 

Regardless, companies charge you an annual fund management fee, among other costs related to running the fund. This fee is usually a percentage of your invested cash and is called the expense ratio. It is difficult to determine these fees upfront, but you should at least try to understand them because they can greatly reduce your returns over time.

Mutual funds do not usually have commissions, but transaction fees may be involved. There is also a sales load. After determining your preferred mutual funds, start thinking about managing your investment. It would be wise to rebalance your portfolio yearly so that you can keep it in line with your plan of diversification. Another thing is, try to stick to a plan and do not chase performance. Always remember that, “past performance is no guarantee of future performance.”

When it comes to choosing mutual funds for your investment portfolio, you have so many options and this can be overwhelming. Every investor’s situation is different, but it is always a wise decision to go with funds whose investment strategy you understand and those that are compatible with your portfolio. Another good idea is to be up to par on the fees you must pay and the overall quality of the fund.

Before you start buying shares, consider your reasons for investing. Do you have financial goals? Are you looking for a current income or long-term capital gains? When you have clear goals, it becomes easier to choose the right fund to help you achieve that goal.  For instance, money market funds are the best for short-term goals. Bond funds are great for goals to be achieved in a few years.

If your goals are long-term, stock funds may suit you just fine. Another thing to consider is risk tolerance. Will you be okay will dramatic swings or are you looking for a conservative investment? For the former, stock funds may be a better choice for you while for the latter, you may want to investigate bond funds.

You should also ask yourself this question, “do you care more about outperforming the benchmark index of your fund or does your investments’ cost matter more?” Index funds are the way to go if you answered, “cost”.

Finally, consider the amount you have available for investing, how you should invest it and taxes. The internet makes it so easy to find funds. Most mutual fund companies now have websites and you can always Google search a specific fund family or fund. If you still have not decided on a fund company, search for specific terms based on your preferences. 

There are many online services that will help you identify different possibilities.

  • Kiplinger and Morningstar
  • LipperLeaders 
  • MAXFunds 
  • FundReveal

Brokerages are also great sources of information and they offer guides. You can buy mutual funds through financial planners, banks, a broker, or insurance agents. You will be required to pay a load (commission fee). Some companies allow you to buy their mutual funds directly from them—most no-load funds are bought directly.

You can buy no-load funds from brokers as well. Mutual funds can be bought through no- or low- transaction free programs. These programs (sometimes called fund supermarkets) usually provide multiple funds from various companies. They offer consolidated record keeping which includes all the sales they have made.

Fidelity’s FundNetwork, Vanguard’s FundAccess, and Schwab’s OneSource are good examples of these programs. Once you know the fund you want to purchase, look at the price. Many shares are priced using their Net Asset Value (NAV); that is, the assets of a fund minus its liabilities. The value of a single share in the fund is the NAV per share. This is the number you will see quoted in newspapers or online.

Mutual funds allow individual or small investors access to portfolios that are professionally managed. Every shareholder proportionally participates in the losses and gains of the fund.  Shares (mutual fund units) can be redeemed or purchased at the current NAV (net asset value) per share of the fund. To determine a fund’s NAV, the total value of the securities is divided by the total amount of shares.

A mutual fund is an actual company and an investment. When a mutual fund investor buys shares, he is buying a portion of the mutual fund company and its assets. Mutual funds collect pools of money from investors and use the money to purchase securities such as bonds and stocks. The performance of the securities bought determine the mutual fund company’s value.

Basically, when an investor is buying a mutual fund’s share, they are buying its portfolio’s performance. Mutual funds usually hold many different securities and, therefore, give their shareholders the benefit of diversification at a low price.

How to Outperform the Stock Market?

Albert Einstein once said there is nothing more powerful than compound interest. Apply that logic to buying a stock in the stock market, and you can double your money in ten years. Further leverage that logic by putting 5% down on a home, and you can possibly multiply your money by four times, eight times… even twelve times in those same ten years!

Need Proof?

Let’s say you have $10,000 and want to find the best return for your investment. You can certainly put your money in the stock market, and if your stock goes up by an average of 7% per year, your $10,000 nest-egg will be worth nearly double after 10 years. ($19,472 to be exact.) Not bad for passive income!

However, if you take that same $10,000, and apply it as a down payment toward a 200,000 home that appreciates by half the rate of the stock market (3.5% a year average), your home will be worth over $282,000! Even if you get an interest-only loan, your initial $10,000 investment will be worth over $92,000 after selling the home and paying off your loan! If your home appreciates at the same rate as the stock market (an average of 7% per year), and your initial $10K investment that bought a 200,000 home, will parlay into owning a $384,000 home! Pay off your $190,000 loan, and you’ll be sitting on $194,000 in cash!

If you’re wondering about monthly payments, you have two options: If this is for a home you will live in, the monthly payments will likely be the same as you would be paying in rent anyway, and there are additional tax benefits that haven’t even been discussed in this article. If you buy this property as a rental property, your tenant’s rent payments should more than cover your mortgage payment. (There’s nothing more beautiful than letting someone else pay for your real estate investment. You just can’t do that in the stock market, but it’s done all the time in Real Estate.) If you’re still in doubt, you might want to read a couple other well-known books — “The Wealthy Barber” by David Chilton, “Rich Dad, Poor Dad” by Robert Kiyosaki, or “How to get Rich” by Donald Trump. If you don’t feel like running out and buying a book right now, feel free to listen to a free recording where a Colorado real estate investor shares his secrets to success. Listen to the free recording at: http://www.automatedhomefinder.com/education/investments101.php

Too much risk?

Yes, there is risk, but it is doubtful that your risk is any higher than the risk involved with investing in the stock market in the first place. The higher the risk, the higher the reward, and real estate has been a time-proven investment vehicle for millions of wealthy individuals — Donald Trump, Warren Buffett and David Chilton (“The Wealthy Barber” himself.)

How to get started:

If you’d like to explore the idea of investing in real estate in your area, simply look up a buyer-agent in your area, or start a search on the internet and start a couple real estate searches to see what kind of home you can get in your area. If you’re not sure how much home you can afford, your Realtor can help, or put you in touch with a lender who can.

If you have money that you would like to invest to help grow your overall finances, you might have considered a high interest savings account in a bank, the stock market, bonds, and so forth. Of course, the fastest way to make profit (but also the riskiest) is by using the stock market. It is for this reason that people putting money into stocks should have as much information on them as possible to help them avoid losing it all.

1. How Trades Work on The Stock Market

If you are looking to do just one, or many, trades you will need to get a stockbroker. Brokers can also offer advice about that stocks to trade and the condition of the market. These full-service brokers charge a relatively high commission. To cut costs, many people use discount brokers that charge significantly less. The downside being that you don’t get expert advice, but if you’re willing to forgo that pleasantry you might want to rely on the fact that most brokers will not do a trade that is not profitable.

2. Brokerage Services

Brokers often engage in online trading and can even provide you with assistance for your trades. This is known as broker assisted trading and some brokers offer options like Interactive Voice Response System for placing orders by telephone and wireless trading systems for making orders by using web-enabled cellular phones or other handheld devices. They take their job very seriously and are always connected  to be able to make a trade.

3. Track Stock Market Movements

Most brokers will put forth the extra effort to be able to allow their clients to place orders over the internet. Special software may also be available to help clients see charts and graphs. The entire system is password protected and usually doesn’t cost a lot more. This can be very convenient and save you time and money.

4. Stock Orders Also, What They Mean

Market Order – The instruction to buy or sell at the current market price

Stop Order – Instructs the broker to trade at a specific price

Limit Order – Instructs the broker to trade at a given price or better

GTC – This stand for good until cancelled. Your desire to buy or sell will be executed until you say stop.

5. The Stereotypical Trade

Your average trade takes place in something called round lots, multiples of 100. While it’s possible to trade other amounts of stocks, but this kind of trade is called an odd lot. Trading software can handle both types of orders, but odd lot orders are slightly more difficult to fill than the most common trade denomination.

The key to using options to increase your stock market profits is that you must be able to correctly predict both the direction that the stock will move, and the approximate time frame in which the move will take place.  If you miscalculate on either of these values, you will either break even, or loose. On the other hand, if you are correct, your profits may well exceed three times the amount you would have made with just a straight investment in the stock.

An option gives the owner the right but not the obligation to purchase something. More specifically, stock options are financial instruments that come in four varieties: Long or Short positions on a Put or Call.

Long means a person purchases a Put or a Call. Short means a person sells or writes a Put or Call. Option writing is a more advanced topic so this course will focus on the more common long or option buying, and the following descriptions assume all positions are long.

A Put is the instrument that profits when the underlying stock declines in price. When the stock goes down, the value of a Put goes up. A Call is the reverse of a Put. The value of a Call goes up when the stock increases in price.

As you can see, if you expect the stock price to go up, you buy a call. If you expect the price to go down, you buy a put. There are two more parts to an option that need to be covered. First is the expiration date.

All options have a date in which they expire or become worthless. Remember that an option gives the owner the right to purchase something. This right is for a limited amount of time.  Depending on the stock, different options might be available for several consecutive months into the future, or there may be a couple of months skipped. The specific day of the month that an option expires is always the third Friday of the month, unless it is a holiday, in which case the expiration is on Thursday.

The second element is the strike price. This is the price that the option will be exercised at. Again, an option is the right to buy something, and the price at which something is bought is the strike or exercised price. Depending upon the option, these prices may be incremented by $2.50 up to $10.

This all adds up to a lot of choices when it comes to buying an option. Calls or puts plus different expiration months, and multiple strike prices within each month is a lot of different decisions.

With the abundance of choices, the number of contracts traded for a specific option can be small for a stock that is not particularly popular in the news. This fact my limit your trading opportunities or may result in a large price spread between the bid and ask prices.

If you can identify certain situations that will influence the stock price within a defined time period, you may be able to use stock options to triple your returns. Many investors have found such patterns and are making excellent profits by carefully selecting the right stock options.

How to Choose Stocks

Everyone wants to see growth from their stocks. That is why they take their funds from the bank and start investing them. Many first-time investors remove their funds with a feeling of trepidation and anxiety. The stock market is a volatile storm where many drowned.

The first step is to learn how to buy a stock.  Many investors jump right in learning investment strategies and adopting techniques that worked for others, before learning the simple steps to buying a stock.  Without a good understanding of the rules of buying a stock, it becomes impossible to make the strategies work.

The strategies do work but only when the investor chooses the right stocks for their own portfolios.  The strategies do not tell investors what to buy and when to sell. They are only meant to tell investors how to manage their stocks. First, the investor must buy some stocks.

Step #1: Read the Wall Street Journal

The Wall Street Journal is not the only paper that can help investors. The business section of your local paper can often offer tips that will never make it into the Wall Street Journal.  However, The Journal can teach new investors the lingo, and the basics of the markets.  The more you read, the more familiar the markets become, and the easier it is to research stocks.

Step #2: Pick Industries

No one expects an investor to build a portfolio with a few stocks from mining, a couple from manufacturing, a drug developing company, a foreign natural resource harvester, and a marine biology firm.  This is foolish investing.  Instead, investors should focus on one or two industries and learn everything they can about that industry.

There are many places to research.  Sometimes a simple place like finance.yahoo.com or Morningstar.com can provide all the resources needed to find an industry you will not tire of.

Step #3: Decide How Much to Invest

This is one of the hardest parts of investing. Many people have a set amount to invest. They experience some success and hit pay load. Then the temptation sets in. If they had invested $10 000 instead of $1 000, their payoff would have been 10x higher. What if they had of invested $100 000?  This type of thinking is dangerous.

Never invest more than you can lose is a nice mantra, but in the real world, resisting temptation is much harder.  As the year’s past, some investors start counting up the intangible money they may have earned if they invested more. This leads to frustration instead of joy when a stock does well.

Eventually, they start investing more than they can afford to lose. Then, they lose it –

Step #4: Avoid the Crowd

Some new investors believe the best way to buy a stock is buy whatever is hot now. They skip through websites and financial papers until they find something that is hot. Unfortunately for them, they have not yet met the Bull or the Bear.

Buying hot stocks is only for people who can determine why that particular stock is hot at the moment. Buying on an impulse or gut feeling is just as dangerous.  By the time a stock is hot, the real investors have already bailed, having made their money, and are leaving before the crash.

These four steps will help a new investor buy a stock which should perform well, instead of buying a stock that bottoms out within a few weeks.

Today, many people want to know how to buy stocks to increase their net worth. When it comes to making your purchase, there are several options available today. In the old days, you had to call up your financial advisor or stockbroker and let them place the order for you.

They would then phone in your order to someone on the stock exchange, who would locate a stockholder of that company willing to sell those shares to you. That was then; this is now. Nowadays, you can almost always make the purchase yourself via the internet.

Very simply, today there are many websites that allow active trading for a minimum fee. Keep in mind, however, that for each transaction you pay a fee. Many an investor has lost a great deal of money active trading, by merely being forced to pay a fee for each transaction.

While the fees generally don’t seem like whole lot (1-2% of the total) they can add up in a hurry when you are making a lot of transactions; especially if your investments are losing money or barely breaking even. The best strategy is to only buy a stock when you are sure it’s a sound long term investment. This way, you don’t have to pay the fees associated with active trading, and you also have much less risk from the day to day wild swings of the market.

How can you be sure of its long-term worth? While there are certainly several ways to go about doing this, the essential skill you need to have is knowledge of how to read a financial statement of a company. Very simply, you need to determine how well a company has been doing over the past ten years.

This is probably the most important factor, because if a company has been running profitably for at least ten years (preferably more) they are a good bet to keep doing well. These are usually not the stocks getting all the hype; very simply, most investors like the fly by night companies that have the potential to spring up and make a million bucks overnight. unfortunately, you will most often lose more money with these companies than you will ever make, because of the uncertainty factor.

Of course, you can still go through a traditional stockbroker to make your purchase. Remember that they are paid by commission for each transaction they make.

Often, they will try to encourage you to buy a stock, even if the outlook isn’t particularly profitable, so they can pocket some money for the transaction. Never trust a broker for your financial future; you need to know how to do your own research and determine which stocks are the best pick.

The bottom line is there are several methods for how to buy stocks. You can either invest online or through a broker; but no matter which method you elect to pick, make sure that the company you are investing in has good profits for the foreseeable future.

Avoid active trading when buying stocks, as that can be a very risky proposition. Active trading is like gambling; very few active traders ever win long term investing in stocks this way. Do your research, find the stock that’s right for you, and only then should you worry about how to buy stocks.

How To Build Wealth During Turbulent Stock Market Turmoil

There is Much Greater Geo-Political Instability Today than 20 Years Ago

In mid-2006, the global markets corrected a great deal. In the U.S., the Dow plummeted 4%, the Nasdaq about 6%, and the S&P 500 about 5% in a single week. European stocks posted their biggest drop since May 2003, and the FTSE 100 in the UK had its biggest two-day loss in 3 years. And that was just the beginning of very turbulent times in the global stock market that destroyed billions of dollars of capital. On the other hand, during this time, in Asia, the HK Hang Seng index was up 22% for the year, the South Korean index was up 55%, the Australian markets were up 31%, and China was up 50% over their 12-month lows.

Then for the rest of the year, the U.S. and global markets grew even further and almost every investor had long forgotten about these drops until a historic 9% single day drop in the Shanghai markets triggered a global market decline in the 1st Quarter, 2007 (though the explanation truly is not this simple).

When we experienced the first drop in 2006, the U.S. was allocating $2 billion to shore up its borders, major conflict still was raging in Iraq and Afghanistan, and Venezuela had increased the top royalty rates on oil to 33% from 16.67% after raising this rate from just 1% in October, 2004. In Bolivia, Evo Morales had followed his friend Chavez’s lead in protecting national assets and nationalized his country’s oil and natural gas resources. And in Mexico, political unrest, according to Subcomandante Marcos, was the worst since 1994 as Mexico neared its next Presidential election. Still that wasn’t even the worst of it.

In Iran, the threat of nuclear confrontation with Israel and the United States loomed, and in the U.S., record trade deficits, and a falling dollar waited ahead.

Well despite the recent buoyancy in the global markets, I still believe that we may see the worst to come. Why? Just read the paragraph above. Nothing much has changed in 2007 from back then regarding the above. So, in response, I have been shifting significant portions of my client’s assets into several areas for protection. But not just for protection but to profit greatly when more turbulence hits.

When severe market corrections occur, the biggest mistake individual investors make is to panic sell during these market corrections and then buy back in after the market bounces back significantly. That’s the worst thing you could do – Sell low and buy high -yet millions of investors responded exactly in this manner. But yet if you are mainly invested in Europe and the U.S., you need to rebalance your portfolio now because you will be punished for such short sightedness when other major corrections occur in the future or if this current one continues after a slight bounce higher this past week.

So, what is an Investor to Do?

The first thing one needs to do is to stop listening to the advice of large investment firms. Investment firms will tell you that it’s impossible to time the market and that to remain fully invested always is a much better strategy. First of all, if you go back and read my blogs for the past couple months where I repeatedly warned people to prepare for a market correction, and specifically told people to start buying inverse funds on the U.S. index you’ll know that it is possible to predict market corrections. After all, I wasn’t the only person saying this.

The reason most investment firms tell you that it’s impossible to market time is that often they don’t get paid on non-invested assets, and even when they do, who would ever want to pay management fees on cash? Recently, friends asked me to look at their portfolios and to provide them with advice. What I saw was predominantly domestic portfolios (i.e. if the investor lives in the U.S. almost all the stocks our American stocks, if the investor lives in Singapore, almost all the stocks are Singaporean stocks, if the investor lives in London, almost all the stocks are U.K stocks, etc.). These are the types of portfolios that will get punished again in the future.

I remember reading an article in 2006 about a big producer at another American firm that shifted 70% of all his client’s assets into China, but all through Chinese mutual funds. I hate mutual funds and the thought of owning mutual funds in emerging markets (but that’s an article for another time). People should always own stocks, not mutual funds. Mutual funds are the lazy way out and you’ll get punished for being lazy. It’s just not the way to benefit from these rapid growth markets. In fact, I’m certain that when the Chinese markets corrected these past couple of weeks, all of these managers client portfolios were severely punished.

So where should your money go? Due to all the political unrest, I’m looking at the defense sector. And due to all the geopolitical unrest, I’m looking at precious metals. Given the global market corrections, I’m looking for continuing opportunities in China of course, as well as some in Brazil, Mexico, Vietnam, France, Australia, the U.K. and Canada. However, the best protection in turbulent markets is really yourself.

What do I mean?

The single most critical factor for building wealth is undoubtedly to learn how to do it yourself.

If you think about it, when was the last time a friend of yours ever told you, my financial consultant saved me so much money during these recent corrections it’s unbelievable! All I ever heard when I worked at these firms during strong downturns, was every single one of my clients is down 25% this year. Yet I know lots of individual investors that manage their own money that will come out of these recent corrections just fine.

To tell you the truth, the best protection your stock portfolio has against a strong market downturn is your own brain. Financial consultants that work at large firms neither have the time to adequately protect your portfolio against strong downturns and the bottom lines of the firms they work for are not adequately motivated by protecting accounts against market turbulence.

When turbulent markets happen, all the myths that global investment firms propagate are exposed. Market timing is bad; diversification is bad; foreign markets are risky; and asset allocation, not individual stock selection is important- all come to light for what they are myths. Even if the Shanghai markets corrected 9% in one day of which some of these losses were recently recouped by rebounding markets, this correction is irrelevant if all the stocks you’ve bought in the Chinese markets were up 70% to 100% at the time the correction came.

During turbulent times, you’ll see that diversification is not important, but that selecting the right individual stocks in the right individual markets at the right time is what is truly important. Most financial consultants will try to spin losses by saying that diversification saved your portfolio from further losses, but the fact of the matter is that if they had been focused on the right stocks in the right asset classes in the right markets, instead of possibly having all profits wiped off the board by this recent correction for the fiscal year 2007, you would still be sitting on some decent profits. So, what’s the best advice I can give you for protecting your stocks during turbulent times? Three words – Do it yourself.

13 Great Ways to Invest Small Amounts of Money

Investing is wise. But in most cases, a lot of money is needed and this locks some people out. If you are one of those people, you’ll be happy to know that investment does not always require lot of money. It is possible to start small and move up from there. Here are some of your options if you do not have much money. 

High-Yield Savings Account

Money in your savings account earns interest. However, most conventional banks pay a very low interest. Online banks, on the other hand, give high-yield savings accounts. 

Commission-Free ETFs and Funds

Securities are hard to invest in because brokerage companies require you to pay a fee to sell and buy the stocks. Given the amount they charge, it is only cost-effective for people who trade a lot of shares at once. 

Companies such as Charles Schwab and Fidelity now have a list of securities that can be traded without a commission.

Low Cost ETFs and Mutual Funds

Apart from commission-free securities, there are those whose expense ratios are low. One low-cost option is the index fund. 

401K Plan

Employer-sponsored retirement plans like 403b and 401K allow you to direct a portion of your income to another account and use it to invest in mutual funds. 

Even if your salary is low, you can contribute as little as 1% at first. 

Stash

This app helps you invest very little money. The best thing is being able to purchase fractional shares of ETFs and stocks. You only need $5 or more to start. 

Acorns

This is another app where you contribute your spare change for investment. You can start today for only $1 per month and for free if you are a college student. Link it to your bank account so it can round up your purchases and invest the difference for you. 

Betterment

Betterment is one of the most popular robo advisors in the world of investing. You don’t need a minimum balance and the annual fee is as low as 0.25%.

Robinhood

You can sell or purchase securities using this app. It even allows you to trade cryptocurrencies and options at no fees. A minimum account is not required but you should have $2000 if you want to get a margin account. 

WiseBanyan

This is one of the best investing apps. It offers free financial advice and a platform for trading ETFs. The minimum balance required is only $1. There are other paid services but they are completely optional. 

SoFi Invest

SoFi also gives financial advice and lets you invest for free. If you are managing your own investments, you will only need $5 to get started.

M1 Finance

M1 is a great option for new investors with limited funds. They don’t charge fees and have no set investing minimum.

Peer-to-Peer Lending

This involves lending your money to people through online platforms such as Prosper and Lending Club. 

Dividend Reinvestment Plans

When you receive dividends, consider reinvesting them by purchasing more shares.

How Much Money Can You Make from a $500,000 Portfolio?

Everyone has to stop working at some point in their life. When that time comes, they will have to dig into their retirement savings. Some have enough and can live comfortably; but others are not so lucky.

People now live a little longer and, depending on how long you live, you may need income for 30 or more years. So, how much should a retiree save?

Will $500,000 Be Enough?

To be honest, this would not be enough for many people today. But you can get sufficient income with a good investment portfolio. 

Suppose in your first year of retirement you want to earn about $50,000. The average Social Security payment is $17,000. So now you have to earn $33,000 from your $500,000 portfolio. 

Another assumption here is that income will increase with inflation and the investment portfolio will, therefore, have to increase. The portfolio should protect your savings and, at the same time, grow at a higher rate than your yearly withdrawals. So be sure to find the proper balance between fixed-income investments and stocks. 

Many financial advisors typically recommend the 4% rule to their clients when it comes to withdrawals. According to this guideline, you should never withdraw over 4% of your income in a year. 

If you have saved $500,000, you will either have to live on very little or go against the 4% rule. 

Here are some possible $500,000 investment portfolios and their potential income.

20/80

20% equities, 80% fixed income

  • 10% US Equities
  • 10% International Equities
  • 10% US Treasuries
  • 15% Global Bonds
  • 15% Corporate Bonds
  • 5% TIPS (Treasury Inflation-Protected Securities)
  • 10% Mortgage-backed Securities
  • 20% Cash and CDs
  • 5% Other Bonds

With this example, you will place your portfolio into 80% fixed income and 20% equities. 

When you inject that much money into fixed income securities, your portfolio will be protected in the event of a stock market crash. But still, this portfolio may not generate the amount of income you will need as a retiree. 

50/50

50% equities, 50% fixed income

  • 25% U.S Equities
  • 25% International Equities
  • 20% U.S Treasuries
  • 10% Global Bonds
  • 10% Corporate Bonds
  • 15% Cash and CDs

Half of the funds in fixed income and half in equities would make a better portfolio. This kind of portfolio is likely to generate an average of 8.4% in annual returns over time. That is $42,000 annual income. However, more equity means a higher risk. 

40/60

40% equities, 60% fixed income

  • 20% U.S Equities
  • 20% International Equities
  • 20% U.S Treasuries
  • 20% Global Bonds
  • 10% Corporate Bonds
  • 10% Cash and CDs

With such a portfolio, principal will be preserved and the portfolio might even grow. 

The average annual return would be about 7.8%.

100% Fixed Income

  • 20% U.S Treasuries
  • 20% Global Bonds
  • 15% Corporate Bonds
  • 10% (TIPS) Treasury Inflation-Protected Securities
  • 10% Mortgage-backed Securities
  • 20% Cash and CDs
  • 5% Other Bonds

While a portfolio like this is protected from market downturn, its growth may not be enough to offset withdrawals. 

Annuity Option

Annuities are not for everyone but could be a good option for retirement. You can even get $33,000 annually with less than $500,000. 

Blue-Chip Stocks Guide: Should You Buy in During a Market Downturn?

Even when the market is volatile, blue-chip stocks don’t stop being a significant part of investment plans. When you hear of blue-chip companies, think of the huge stable companies—pillars of the economy. They make up big portions of many investment portfolios because they are low-risk. 

The coronavirus is greatly affecting the market—and not in a good way. Many investors have no idea what to do with their portfolio. Blue-chip stocks are selling at a much lower price and it may be wise to buy them during a downturn. 

What Are Blue-Chip Stocks? 

It is hard to come up with a perfect definition for blue-chip stocks. So, to help you understand, here are the characteristics of companies in that category.

Large market cap: they are big fish in the stock market. Large-cap stocks are those with a market cap of $10 billion and over. 

History of stable earnings: the blue-chip status is not achieved overnight. These companies have built a reputation for decades. 

Good growth prospects: once they become blue-chip companies, these businesses don’t stop there. They focus on future growth.

Market leadership: the companies are known even to non-investors.

Why Invest in Blue-Chip Stocks?

Even when the market is shaky, blue-chip stocks remain to be a great investment. Their characteristics ensure a high chance of outlasting a market downturn. 

The prolonged effects of a recession and a huge decrease in revenue are enough to kill most companies. But the extensive borrowing and deep pockets of blue-chip companies will keep them open even in the worst of times. 

Here are some blue-chip companies that have lived through market downturns:

  • DuPont
  • JPMorgan Chase
  • Cigna
  • McKesson
  • Pfizer 

Buying Blue-Chip Stocks

You can easily get a blue-chip stock if you own a brokerage account for selling and buying stocks in the U.S.

Follow the steps below:

  • Conduct an extensive research on blue-chip stocks.
  • Pick a blue-chip company that you like.
  • Place an order in your account.

Where to Get Blue-Chip Stocks

If you have access to Nasdaq or NYSE stocks or an investment app, you can purchase blue-chip stock. Many experts recommend the following top brokers. 

  • Webull
  • TD Ameritrade
  • Fidelity Investments
  • SoFi Wealth
  • Public

A List of Blue-Chip Stocks

Finding a comprehensive list is not that simple. But you can start at the Dow Jones Industrial Average (DJIA).

Here are a few blue-chip companies:

  • 3M Company
  • American Express Company
  • Apple Inc.
  • The Boeing Company
  • Cisco Systems, Inc.
  • The Coca-Cola Company
  • The Walt Disney Company
  • Johnson & Johnson
  • Nike, Inc.
  • Visa Inc.
  • Walmart Inc.

Blue-Chip Vs Large-Cap Stocks

All large-cap stocks are not blue-chip stocks. Some large-cap stocks are not strong enough. Generally, many large-cap stocks make a safe investment. But market capitalization should not be your only determinant. Not every company will stay big. 

Blue-Chip Funds

There are mutual funds and ETFs whose sole focus is blue-chip stocks—think S&P 500 funds. 

Blue-chip funds make an awesome investment and a diverse fund will help your portfolio when the market is volatile. 

Why Investing in Yourself First Is the Best Investment You Can Make

To grow your wealth, you need to invest consistently and wisely. You can’t just keep the money in a savings account. 

There are different ways to invest your money—some prefer businesses, others real estate and others the stock market. It all depends on your life goals, the amount of money you have and what works for you. 

But there’s one asset that everyone has and should invest in before anything else: yourself. 

What Does This Mean?

Investing in yourself can be defined as putting in resources such as money and time into becoming a better version of yourself. Instead of putting all your focus on material possessions, you find assets and opportunities that increase your knowledge, affecting you in a positive way. 

The goal is to become better with each passing day for your family and yourself. If you invest in yourself, you will notice an improvement in your hobbies, career, finances and a general happiness in your life. 

Why Should You Invest in Yourself?

Investing in yourself will cause you to acquire skills and knowledge that will affect the returns of whatever you decide to do. Your knowledge will be diversified, you’ll have more business/career choices and have improved decision making. 

Learning should be a continuous process. 

Investing in Yourself

Here are four key areas that are crucial in your self-investment journey. 

Invest Your Time

How do you invest your time? This is a question you have to ask yourself and answer it if you want to succeed in your financial life. You get limited time—everybody does—and it is good to know how to manage it. 

Many people would love to have enough money to retire. But they think that it is too hard to attain that. Investing, to them, seems too difficult. 

What they don’t know is that time is key. 

  • Getting super rich overnight is almost impossible. 
  • Compound interest will get you your dream portfolio; if you start early.
  • Spend time learning all about investing. 

Invest in Knowledge

Nobody wants to sit and learn after a tiring day of work and dealing with life. But if you want your financial future to be better, you need to expand your knowledge. 

  • Schools don’t teach finances or investing properly.
  • You can’t trust every piece of information that you get from the media. 

Without knowledge, you will be following information blindly and this can cost you a lot. Read blogs and books, listen to experts in various fields and podcasts. 

Invest in Your Physical Health

What good is financial freedom if you won’t enjoy it? Have regular checkups, eat well and exercise. Even when life gets too busy, squeeze in time to take care of your health. 

When you are healthy, you will be motivated and be in a position to make great choices. 

Invest in Your Emotional Health

You will not accomplish much when in distress. Learn to relax and spend time with yourself. Sleep well, pray, meditate and, when overwhelmed, step back for a minute. 

401k Retirement Plans Explained

401k retirement plans are special types of accounts, financed through pre-tax payroll deductions. The funds in your account are invested in various ways. Your funds can be invested through any number of stocks, mutual funds, and other ways, and it is not taxed on any capital gains or interest until the money is pulled out or withdrawn. Congress approved this retirement savings plan in 1981, and its name was rooted from the section of the Internal Revenue Code that contains it, which is obviously, section 401k. One great advantage of this retirement plan is that the tax treatment is complimentary. Moreover, capital gains, interest and dividends are not levied until they are pulled out or withdrawn.

In terms of its investment customization and flexibility, 401k retirement plans offer employees and workers an extensive array of options and preferences as to how their property and assets are invested through time. Moreover, many businesses and companies permit employees to obtain company stock for their 401k retirement plan at a cut rate. However, many pecuniary consultants and counselors are not in favor of holding a significant percentage of your 401k plan in the shares of your boss or manager.

So what are 401k plans? If you are like most people, you probably have questions about your 401k retirement plan. You may be wondering how a 401k actually takes place, precisely what a 401k retirement plan is, or how you can be capable of stimulating the diminishing balance in your 401k plan. So how does a 401k plan actually work? If your company offers a 401k retirement plan, you can agree to join. You can also have the selection option of choosing the amount of funds you wish to put in from an inventory of funds presented in the 401k plan. Your payment will routinely be deducted from your pay check before taxes.

Every worker can invest up to a defined proportion of his wage into a 401k plan. Your involvement, along with any coordinated contributions from your employer, are then endowed into your chosen funds. These funds will produce interest before being taxed, and can be withdrawn when you reach 60 years of age. At this point in time, you must pay the income tax on the withdrawn funds. Furthermore, there are methods and means wherein you can pull out your funds before age 60. However, these early withdrawals frequently call for a penalty in conjunction with the payment of taxes.

A 401k retirement plan is an employer-subsidized retirement plan, and it is categorized into two groups: defined benefit and defined contribution. With this defined benefit plan, the employer pledges to give a distinct sum to those who want to retire and those who meet specified eligibility standards and measures.

A 401(k) plan is an employer sponsored plan. The employer makes direct contributions to the account that are deducted from the employee’s paycheck. Most companies will match the paycheck contribution up to a certain percentage. In general, the contributions are before tax dollars and grow tax deferred until they are withdrawn. After-tax contributions are also allowed.

You should contribute as much as you can to your 401(k). Don’t overextend yourself, but you don’t want to waste the opportunity to deposit tax free, tax deferred money and have it matched. The amount the company matches you for is free money. Don’t let it go.

In 2005, the maximum before tax annual contribution that an employee can make is $14,000. If the employee is over 50 years of age, he or she can contribute $16,000. The limit is set to increase by $1,000 in 2006.

Your 401(k) is simply an account; you chose the investments within the account. There is usually an array of mutual funds presented to you, but you must decide the allocations. There is no one to advice you when it comes to role fees and expenses that will affect your overall returns.

First, decide how much risk you are willing to assume. How much volatility within the portfolio can you stand?

If you are in your 20’s and early 30’s you have the time to be aggressive with your investments. The time factor allows you to recover from slumps in the stock market. As you age, your investments should become more conservative to protect your earnings.

Many 401(k) plans have tools, such as online calculators and worksheets, which help you in determining how much risk you should accept. The best tool is often to seek the advice of a competent financial planner. It is worth it to hire a planner to evaluate your assets and earning ability if the end result is a comfortable retirement.

If you find that you are in need of money, most plans will allow you to borrow up to 50% of your vested balance, but not over $50,000. You usually have to repay the money with interest within five years. The interest payments go into your account, so you are paying yourself the interest. There are downsides, though.

The money you have withdrawn as a loan isn’t appreciating. The original contributions were made with pre-tax dollars, but the money you payback is after-tax. If you don’t pay back the money it will be considered a normal distribution, and taxed and penalized.

If you leave the company, in most cases you will want to take your 401(k) with you. You can role it over into another company’s 401(k) plan program or into your own IRA at a brokerage. With an IRA, you will have more control over your account, and better investment options.

Whatever you do with your IRA, make sure that you follow all procedures to the point. You don’t want to accidentally withdraw your money and have to pay the taxes and penalties. This is a very costly mistake.

If you are an entrepreneur, you can open an individual 401(k). This gives you the option of investing thousands of dollars more than in other kinds of self-employment retirement accounts. An individual, or solo, 401(k) is available to businesses that only have the owner and spouse as employees. This means that if you work for someone else and have a business on the side, you can open an individual 401(k).

15 Startling Reasons Why Your 401(k) May Be Your Riskiest Investment

Financial institutions have a distinct genius for marketing. They are able to get millions of Americans to hand over their money with very little thought taken, very little knowledge of the so-called investments offered, and even less control of their investments.

When the evidence is plainly presented, it becomes overwhelmingly clear that putting money into 401(k)s and similar qualified plans is not investing at all–it is one of the riskiest gambles for most individuals. Read the following reasons why I say this, and ask yourself if it’s time to reconsider your 401(k).

  1. Limited Opportunity For Cash Flow

Qualified retirement plans, such as 401(k)s and IRAs, do not provide immediate cash flow, which means that you cannot benefit from them through velocity and utilization. The theory is that letting the money sit allows it to compound, but for most people this really means that it stagnates. Most people will not choose to utilize these funds even when a particularly compelling opportunity arises that will make them far more than the 401(k) would, even accounting for the penalties. This means that numerous legitimate opportunities are passed by as people stay “in it for the long haul.”

  1. Lack of Liquidity

The money is tied up with penalties attached for early withdrawal. Although there are a few technicalities that allow penalty-free withdrawals, the restrictions are so numerous that very few know how to get around them.

  1. Market Dependency

The performance of the funds is dependent upon market factors that most individuals do not have the knowledge nor the ability to understand or mitigate. This means that your retirement plans are based on unknowable projections, making for a dangerous and uncertain planning environment. Uncertainty causes fear, and fear leads to mistakes, worry, scarcity, and ultimately lost hopes and dreams. Do you want to live your ideal life only if the market cooperates?

  1. The Match Myth

“Take the match–it’s a guaranteed 100 a year, based on an average return of 8 annually, but that means that some years will be lower, some will be higher. If in one year your fund is down 10%, you’re tapping into your principal to take your interest withdrawal. At that point, you have only two choices: 1) start withdrawing principal, or 2) leave the money alone until your funds are up again.

  1. No Holistic Plan

I’ve witnessed on many occasions people whose finances are in shambles and although they have much more pressing needs, they diligently contribute to their 401(k). They’ve been convinced to do so, of course, because of the match, tax deferral, etc. It’s like a person trying to take care of a scraped knee when their wrist is slit. What they really need is a macroeconomic approach to their finances that will help them identify, prioritize, and manage all pieces of their financial puzzle, with all pieces coordinated and working together.

  1. Neglect of Stewardship

Ultimately, the most destructive aspect of 401(k)s is that they cause many individuals to abdicate their responsibility, abandon self-reliance, and neglect their stewardship over their own prosperity. People think that if they just throw enough money at the “experts” that somehow, some way, and without their direct involvement they will end up thirty years later with a lot of money. And when things don’t turn out that way they think they can blame others–despite the fact that they only have themselves to blame.

Conclusion

Qualified plans are promoted on such a wide scale because those promoting it have vested interests–and their interests don’t necessarily coincide with yours.

If you currently contribute to a 401(k), stop and think about it for a minute. What is it really doing for you, now and in the future? The desire to save money for retirement is wise and prudent, but after reading the above, do you think it’s possible to find other investment philosophies, products, and strategies that would meet your financial objectives much more quickly and safely than a qualified plan? Are you really comfortable exposing yourself to this much risk? How can you mitigate your risk, increase your returns, and create safe and sustainable investments? How can you create more control and better exit strategies, reduce your tax burden, and increase your cash flow?

Your financial future depends on your answers to these questions.

Contrary to what is taught in popular financial media, 401(k)s and other qualified retirement plans are one of the riskiest investments for most people. Increase your wealth by learning 15 secrets that the media and conventional retirement planners don’t want you to know.

How to Invest in Stocks

The stock market can be intimidating for beginners. Stocks are different from certificates of deposit, money market funds, and saving accounts. Their principal value can either fall or rise. Lack of emotional control or sufficient knowledge may see you lose a lot of money. Why Start Now? If you start earlier, you will gain more. Money grows with time. Here are steps to guide you as you begin the journey. Before you invest in anything, it is always important to assess your financial situation and ensure that you can handle the new activity. Consider the following: Employment: your income and job should offer you some sense of security as you start investing. Debt: do not start investing if you have a huge amount of debt. Pay off some of it or all. Family situation: ensure a stable family situation first—one without a sudden change that requires money. Household budget: include your investment ventures in your budget.

Know the reason for investing and determine whether it is for a long-term or short-term goal. Create a cash reserve—not subject to risk of any kind. It should be equal to three or more months’ worth of living expenses. This reserve will come in handy in case of an emergency. It will also help you stay calm if your risky investments drop. With an emergency fund in place, start by investing in a retirement account. This could be an IRA or a 401(k). Retirement accounts make great investments because they are long-term and tax-sheltered. Start Your Investment Journey with a Low-Cost Online Service – Robo advisor services are perfect for investors who are not into DIY. They build an ideal portfolio for you based on your risk tolerance and needs. With an online stockbroker, you will be doing the trading. This means selling, buying, and researching. Start with ETFs (Exchange Traded Funds) or Mutual Funds – Funds are usually professionally managed so stock selection will not be on you. Your only job is to determine the amount of money you would like to invest in a certain fund/group of funds. Mutual fund investing is hassle-free, but you can make it even better with index funds. There is no chance of you outperforming the market. However, you also cannot underperform it.

This is perfect for new investors. Dollar-cost averaging typically means buying into investment positions gradually as opposed to all at once. If you have a certain amount of money for investing, do not pour it all in. Inject it into the fund gradually. Investing in ETFs and mutual funds is safe—even for novices. But to go beyond that, you must learn as much as possible. Read books, the Wall Street Journal, and even take a course. Invest Gradually in Individual Stocks – Dollar-cost averaging is not available for stock investing. You will need to come up with something of your own. Make sure you diversify, never put all your eggs in one basket. Spread out your capital. If you do not understand stock market basics, information on stock trading will not make sense to you. Some phrases such as intraday highs and earnings movers may not mean anything to you and, for the most part, they should not. Long-term investors, especially, do not have to understand these words or even the stock market in general.

But if you plan on trading stocks, understanding the stock market is a must—or at the very least, know the basics. The stock market consists of exchanges, think Nasdaq and the New York Stock Exchange. Stocks are usually listed on an exchange and it is like a market for the stock shares. Sellers and buyers come together to trade. This exchange tracks the price, demand, and supply of the stock. But a stock market is not like any other market. You cannot decide to go and pick whatever shares you want from the shelf.

Brokers represent individual traders. The Nasdaq and NYSE open at 9:30 a.m. and close at 4:00 p.m. Depending on the broker, after-hours and premarket trading sessions are available. Sometimes you will hear people say that the stock market is up or down. They are talking about one of the key market indexes. A market index monitors the performance of a certain group of stocks. The group of stocks represents a sector of the market (e.g. technology) or the whole market. You may have heard of the Dow Jones Industrial Average, Nasdaq composite and the S&P 500 which are commonly used. These indexes are used by investors to benchmark their portfolio’s performance, and sometimes, they help them make trading decisions. 

Many investors know to create a diversified portfolio and to hold on to their stocks through thick and thin. Those that involve themselves in stock trading, however, love the action. Trading in stocks means selling and buying frequently to try and time the market. Stock traders seek to benefit from short-term events by buying at a low or selling for profit. Day traders are those that trade several times a day while active traders trade several times a month. These types of traders research extensively and follow the market obsessively. Bull Vs. Bear Markets – neither of these animals are friendly but the bear is the real symbol of fear in the stock market. Bear market: stock prices falling 20%+ across multiple indexes. Bear markets come after bull markets and vice versa. They both indicate the beginning of a bigger economic pattern. In short, a bull market is good news while a bear market is not. Historically, bull markets last way longer than the average bear market. Market Crash Vs Correction – stock market correction: when the market falls by 10%+. Stock market crash: a sudden sharp drop in prices. Do not let a crash worry you. Stock markets will always rise in value. Focus less on the short-term and more on the long-term. Bear markers are unavoidable.

But with diversification, your portfolio is protected from market setbacks. If you begin investing as a teenager, you will have a great financial advantage when you are an adult, even with small returns. Do not let today’s uncertainty and bad news about the stock market stop you. Downturns are normal in the market. What Barriers Should You Expect as an Investing Teen? Before you get too excited and start calling stockbrokers, here is something you should know: teens cannot open their own brokerage accounts. You will come across so many investing apps, such as Robinhood, that make the process easier for teenagers. However, even those require you to be 18 years old. There is nothing anyone can do about this because the restriction is required by law. But it does not mean that you are completely locked out.

You can use a custodial account—have an adult in your life open and maintain it for you. With that type of account, you will be investing through your guardian until you are 21 (or 18 in some states). How Do Custodial Accounts Work? A parent opens the custodial account and gifts money into it. The maximum amount they can give is $15000 (as of 2020). You can then use the money in the account to invest. The parent is the one who will be making the actual trade, though. You cannot contact your account broker and management control only belongs to your parents. Do not be discouraged— you can still be part of the process by choosing investments and asset classes. After a thorough assessment, these are some of the best services offering custodial accounts. 

E*TRADE, Ally Invest, and Charles Schwab. Most people choose to invest for the long-term, which is a fantastic idea. You can decide to do that as well and set up a retirement account. Opening one as a teenager means that your money has time to grow. And with compound interest, your funds will keep on accumulating. All you need is an income to contribute to your account. A traditional IRA allows you to contribute a maximum of $5,500 a year as a teenager (as of 2018). These work pretty much like traditional IRAs. The maximum contribution per year is $5,500. The main difference between the two is that Roth contributions are not tax-deductible. You can also withdraw money at any time (after 5 years) and you will not be penalized. Unfortunately, your account is not tax exempt. Your first $1050 income will be tax-free, the next $1050 will be taxed at 10% and anything above $2100 will be taxed at the marginal rate of your parents. What to put in your account? The best thing to do is begin with stocks then dive into low-cost mutual funds. Your parents may say no to a custodial stock account. In that case, see if they will agree to a high-yield savings account.

Online ones are the best and here are some good examples: Capital One, Ally Bank, CIT Bank, Discover, and Navy Federal Credit Union. Hopefully, you already have a checking account. Connect it with a micro savings app. You will be saving and investing anytime you make a purchase. Investing in small-cap stocks can be a smart move for the long-term investor. To optimize their returns, the investor must know when to buy them. Some people are wise and avoid market timing. However, there are tactical and strategic moves they can make to change the fund allocation in small-cap stocks when the opportunity presents itself. There are investors that select an appropriate mutual fund allocation for small-cap stocks and stick to it for the entire period. Occasionally, they rebalance the portfolio; quarterly or annually. Nonetheless, active investors can, in smart ways, alter the exposure of small-cap stock funds for the purpose of improving performance in the long-term. In rising rate environments, small-cap stocks in the U.S have outperformed the large-cap stocks—according to history. These rising rates are observed when the Federal Reserve is no longer reducing interest rates to facilitate the economy or when an economy is starting to recover.

Another time when you should consider buying small-cap stocks is when the market appears to have been down for quite some time. That is, when the market is at a low point and not much optimism left for quite some time. It will not be easy to guess this one correctly but when there is extreme pessimism you can easily feel it and see it on the international and local media. In a growing economy, smaller companies have the potential to rebound faster than the larger ones. Their general fate is not directly tied to economic factors such as interest rates to facilitate their growth. Small companies are like small boats in the water, they can navigate better and move faster than the huge ocean liners. With smaller companies, decisions on new services and products are also implemented faster because their potential obstructions, layers of management, and committees are fewer. Large companies do not have this advantage. When the economy is emerging from recession and experiencing growth, small-cap stocks can respond quicker to this new positive environment and even grow at a faster rate than the large-cap stocks.

Small companies usually raise their capital by selling shares. Large companies, on the other hand, do so by issuing bonds. Because small companies are not really that dependent on bonds when funding projects and expanding operations, high interest rates do not negatively affect their ability to grow. In the years following the 2003 and 2009 recessions, results were mixed. In 2003, small-cap stocks led mid-cap stocks and large-cap stocks. In 2009, the results were different as mid-cap stocks led and small-cap stocks barely won over large-cap stocks. Your takeaway here should be that averages or rules of thumb do not apply all the time. Even after reading about the benefits of small-cap stocks, consider where the information has been sourced from research further on this subject. Investment apps help you manage your investments in the financial market. Most of them offer amazing services at affordable fees, which saves investors a lot of money in the long run. Now you do not have to call your stockbroker to trade. You can do it with a few taps on the screen. All things considered, here are the best investments apps in 2020. Many investors in the U.S are familiar with TD Ameritrade—a large brokerage firm. Its app is the best compared to all others because it has a wide range of options and is great for beginners and pros alike. The default app is ideal for intermediate and beginner traders. The professional level one is more suited for experts. 

The benefits you will enjoy including commission-free ETF and stock trades and zero-base fee option trades. Key Features – Name of apps: TD Ameritrade Mobile and thinkorswim. No minimum deposit. Investments types: bonds, mutual funds, ETFs, options, stocks and much more. Account types: different account types including education, retirement and standard. Pros – For experts and beginners. Advanced trading platforms have no extra fees. Cons – Schwab is acquiring TD Ameritrade. Fidelity: Runner-Up – This one offers extensive resources for investors with long-term goals. The mobile app can be used with Google Assistant and Apple Watch. Key Features – Name of app: Fidelity Investments. No minimum deposit. Investment types: fractional share investing, mutual funds, ETFs, stocks, etc. Account types: education accounts, retirement, brokerage, etc. Pros – Fractional share investing. Lots of mobile app features. Most account types are supported. Cons – Phone trades are charged a $12.95 fee. Ally: Suitable for Beginners. The platform is easy to use, and they do not have a minimum required balance. Key Features – Name of app: Ally.

No minimum deposit. Investment types: mutual funds, bonds, options, ETFs, stocks, etc. Account types: self-directed and managed portfolios. No physical location. Pros – Investing and banking in one app. Forex trading app. Cons – Limited features on mobile app. Webull: Best Free. This one is relatively new, but its mobile app is nothing short of impressive. Key Features – Name of app: Webull: Stocks, Options & ETFs. No minimum deposit. Investment types: cryptocurrencies, options, ETFs, and stocks. Account types: IRA and brokerage accounts. Pros – Community area. Paper trading. Advanced charting features. Cons – Additional subscription for real-time data streams. Limited investment types. Acorns: Ideal for Automated Investment. Acorns is fun to use but its fees are a bit high. Key Features – Name of app: Acorns: Invest Spare Change. No minimum deposit. Investment types: bond ETF and stock fractional share investing. Account types: checking accounts, retirement, robo-advisor brokerage. Pros – Simple, automated micro-investing. Gamified app experience

Cons – Monthly fee for all accounts. SoFi: Ideal for Learning. If you want to start small and have access to investment education, try SoFi. Key Features – Name of app: SoFi Invest Money & Buy Crypto. $1 minimum deposit. Investment types: cryptocurrencies, ETFs, and stocks. Account types: cryptocurrency, retirement, and self-directed and managed portfolios. Pros – Fractional share investing. Member events. Cons – Lack of advanced research tools. Limited investment assets.