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Investments 101: Types of Investments

Summary
  • An introduction to various investment instruments and how to invest in these instruments
  • Stocks: it’s all about earnings and earnings growth, but there are other “external” factors
  • Mutual funds: a pooling of stocks
  • Exchange Traded Funds (ETFs)
  • Types of Accounts
    • brokerage account
    • retirement accounts
      • 401(k) Plan
      • Roth IRA
      • Traditional IRA
  • What we recommend: contribute to your 401(k) plan first, then open a brokerage account for after-tax investments, then augment retirement savings with either Roth IRA or Traditional IRA account

This article is an introduction to investments. We will cover equities such as stocks, mutual funds, and exchange traded funds (ETFs). Then we will discuss the types of account where you can buy and sell these types of equities to include a brokerage account, and various retirement accounts such as the 401(k) Plan, the Roth IRA (Individual Retirement Account), and the Traditional IRA.

As the title implies, this article is only the first of a series on Investments. Other articles that may be of interest to you include:

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Stocks

Stocks is one of the fundamental elements of capitalism. You buy shares of a company’s stock in the hopes of increased shareholder value over time in the form of price appreciation and/or dividend payouts.

So What Drives the Price of a Stock Higher?

Ah, isn’t that a million dollar question? There are lots of factors. The same factors can work against the stock price and drive it down. Here are a few:

Supply and Demand. Sounds obvious, right? As with most things, supply and demand drives the price. When there is more supply (shares of stock being sold) than demand (shares of stock being bought), the price goes down. Conversely, when there is more demand than supply, the price tends to go up.

MTN, a bull thesis proved right
MTN, a bull thesis proved right

So what drives supply and demand? There is supply from shareholders wanting to sell to lock in their profits, “profit taking” as it is called. Shareholders could also be selling because they are disappointed with the company’s earnings, reacting to some bad news, and/or exiting their positions due to devaluation of shareholder value. There is demand from buyers when they want to buy the stock when there are great earnings reports, promise of increased revenues, of increased profit margins, or of increased profit. Sometime these actions are based on facts, other times they are based on rumors. Whether the motivation is true or false, it’s all about the collective market perception of the company and the desirability of its stock.

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Avoiding the Impulse Buy

Summary
  • Nearly 40% of all money spent on e-commerce sites are the results of impulse buying – it’s big business
  • Impulse buying is bad. Left uncontrolled, it leads to credit card debt.
  • How to avoid impulse buying
  • Are you compensating for something?
  • We offer suggestions for alternative activities that are good for you
What is Impulse Buying?

The dictionary says:

im·pulse buy·ing
noun

 

Do you impulse buy?

Factoid: Nearly 40% of all money spent on e-commerce sites are the results of impulse buying.

The two most influential factors when making a spontaneous purchase are the special sale price (for a limited time) and free shipping.

Let us ask again, do you impulse buy? Be truthful to yourself now.

For business, impulse buying is a huge opportunity! There is a science behind encouraging consumers to do so. Read How to Sell to Impulse Buyers. Retailers describe these shoppers as emotionally-driven, favoring instant gratification, social status-conscious, and image-concerned, anxious, or less happy/depressed. Techniques that retailers use to encourage impulse buying include:

  • Special sale price, usually “for a limited time”. Why do you think that is?
  • Brick-and-mortar retailers place nick nacks near the checkout counters.
  • E-commerce sites with their easy to use web site with lots of impulse buying suggestions such as “Related items”, or “What others are buying”.
  • The one-click checkout makes it very easy. Too easy. Scary easy. One click and it’s yours. Money changes hands, yours into theirs. No longer do you have to put in your credit card info, your shipping address, confirm the item and quantity. Instead, it’s “bam!” And it’s done.
Warning! The "Buy now with 1-Click" button is conducive to impulse buying
Warning! The “Buy now with 1-Click” button is conducive to impulse buying – disable it now.
Why is Impulse Buying Bad?

Impulse buying is bad because it puts your ability to save money each month at risk, depletes your savings, gets you into and debt, and eventually erodes your freedom.

“Freedom?” You ask.

“Yes, freedom! Freedom to eventually do anything you want, any time you want, and being able to pay for it. And pay for it just once.”

“Paying for it just once?” You ask.

“Yes, just once. When you can’t live within your means, you’re going into debt.”

For most consumers, it’s usually credit card debt that gets them into trouble. When you’re in debt, you pay for the amount you borrowed (the principal) and interest on that principal. And your total payments snowball in comparison to the original amount borrowed. When you make a monthly payment, the first portion of that payment goes toward the interest for borrowing the principal. Then what remains go towards lowering the amount you borrowed. Let’s go through a couple of examples:

Continue reading “Avoiding the Impulse Buy”

Buying Stocks

Summary

  • Investment Rule #1: Buy low, sell high
  • Investment Rule #2: Be prepared for the prospect of losing your entire investment
  • Investment Rule #3: Have an exit strategy
  • Considerations for placing a stock buy order
    • what price, how many shares?
    • market order vs. limit order
    • all-or-none
    • day order or good-till -canceled
  • We’ll show you step-by-step process for buying stocks online

So you have done thorough research and have selected a stock for buying. In this article, we’ll discuss some considerations before you buy your first shares in the stock, show you how to execute a buy order on-line, discuss how to monitor your stock until such time you’re ready to sell your shares.

Considerations Before Placing the Buy Order

There are a few considerations before you go online to place a stock buy order. The first few considerations follow directly from our Seven Golden Rules for Successful Investing:

Investment Rule #1: Buy Low, Sell High.

#1. Buy Low, Sell High. It’s really that simple. That’s how you make money from buying stocks or just about any other investment. (Well, that and dividend payouts.)

Investment Rule #2: Be Prepared for the Prospect of
Losing All of Your Investment.

#2. Are You Prepared to Lose Everything? Make no mistake: stocks are very risky investments. When they say, “No pain, no gain.” What they also mean as a corollary is, potentially “All pain, All loss.” Are you prepared in the event that your investment goes to $0? Because it can. It has happened to me a few times. That’s a few times too many. If you cannot stomach a complete loss of principal, you should not be investing in individual shares of stock. Though still risky, mutual funds or ETFs might be better for you.

Investment Rule #3: Have an Exit Strategy.

#3. Have an Exit Strategy. Just like super spy James Bond would look for exits in case of threats when he goes into a building or a room. You need to formulate an exit strategy before you buy a stock. If the stock goes up, you need to have a concept of how high you would let it go. But, more importantly, if it goes down at what price would you head for the exits and lock in your gains? Or worse, if the price heads down is below your buying price, how low are you willing to “stomach” the paper loss? At what point would you realize your bull thesis is not working out, and would willing to sell your shares and take a loss? Some schools of thought say you should consider selling out if it drops 10% below your purchase price. The concept is that a 10% loss is better than a 25% loss, 50% loss, 75% loss, or 100% loss. And those heavier losses all begin with a 10% loss. Or you willing to cut your losses early and exit your position? Have a plan ahead of time, so you don’t get caught by surprise and having to make a decision when your emotions are high.

#4. What is the Going Price: Get a Quote. Using Advance Micro Devices, Inc. (ticker symbol: AMD), a manufacturer of computer chips, as our example, here is a free 15-minute delayed internet quote from Yahoo! Finance: https://finance.yahoo.com/quote/AMD/

Stock quote for AMD)
Stock quote for Advance Micro Devices, Inc (ticker: AMD) at Yahoo! Finance

Here are the information associated with a stock quote:

  • Current Price – shown here as $12.76, which is down $0.54 from the close of the previous/last trading day, or -4.07% change.
  • Previous Close – price of the last transaction at the end of the last trading day.
  • Open – price of the first transaction of the current/last trading day.
  • Bid – selling price is currently $12.79. The “x 27200” refers to the number of shares that is being sold.
  • Ask – buying price is currently $12.80. The “x 13600” refers to the number of shares that is being bought. The difference between the bid and asking price is the spread, which at the moment was $0.01. Typical for a heavily traded stock.
  • Day’s Range – the lowest and highest transactions so far in the current/last trading day.
  • 52 Week Range – the lowest and highest transaction in the last rolling 52 weeks.
  • Volume – the number of shares transacted so far in the current/last trading day.
  • Avg Volume – the average volume for a typical trading day.
  • Stock Chart – as shown here the 5-day candlestick chart, showing the historical trading prices for each of the last 5 days including today, along with the volume/total number of shares traded along the bottom horizontal axis.

For a real-time (non-delayed) quote, login to your brokerage account during normal trading hours.

Stock Market Hours. Normal hours for stock exchanges is Monday-Friday, 9:30 am to 4:00 pm. The exchanges are closed on the following holidays: New Year’s Day, MLK, Jr Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. And it closes early at 1 pm on July 3rd and Black Friday (the day after Thanksgiving).

#5. What Price? Obviously, this is the hardest question du jour. How much do want to pay for each share of stock? See Investment Rule #1 (above). Try to buy when the stock is selling at a discount, on days of market weakness when the most stocks are going down. Assuming there are no fundamental reasons that you know of why the shares are showing weakness, it’s even a better buy. It’s like buying something you would normally buy at a store for a discount. When you’re buying on weakness, you’re likely to achieve the Investment Rule #1 (see above).

Continue reading “Buying Stocks”

Discount Fares to Europe

Summary
  • Norwegian offers discounted airlines to Europe, as low as $385-$440 round trip for Spring and Fall departures
  • Non-stop service from U.S. Cities: Los Angeles, Oakland, New York, Miami, Orlando
  • European gateway cities include Oslo, Copenhagen
  • Best fares are in the Spring and Fall
  • As with discount airlines, meals are extra, carry-on baggage has limitations
  • It’s a great way to see Europe in the shoulder/off season if you have schedule flexibility and travel really light

Norwegian Air Shuttle ASA was a regional discount airline in Europe. In 2014, Norwegian started their new Boeing 787 Dreamliner non-stop service from select U.S. Cities to European gateway cities like Copenhagen and Oslo. Since then they added non-stop flights to select European cities such as Paris (CDG, ORY), London (LGW), and Madrid (MAD).

Norwegian Boeing 787 Dreamliner
Norwegian offers Boeing 787 Dreamliner non-stop service to Europe from select U.S. cities. (photo credit: Norwegian)

Norwegian current serves the following U.S. cities: New York (JFK, EWR, SWF), Providence (PVD), Ft. Launderdale, Orlando, Las Vegas, Los Angeles (LAX), Oakland (OAK), and Seattle (SEA).

We took a flight from Ft. Lauderdale, FL (FLL) to Paris Orly airport (ORY) in May 2014 and the service was efficient. The Boeing 787 Dreamliner was very comfortable for the 8+ hour non-stop flight.

Example Deals

The best deals can be found any time but the summer months. Norwegian does have occasional sales for more upgraded seats, but their claim to fame is the discounted “LowFare” in the Spring and Fall months. Buy early though, because once they fill a certain amount of seats, their fare prices start to creep up. Here are some example deals, as researched on September 23, 2017.

Example #1. Los Angeles (LAX) to London (LGW) non-stop for May 2018 is as low as $454 round-trip.

Norwegian Los Angeles (LAX) to London (LGW) non-stop for May 2018.
Norwegian Los Angeles (LAX) to London (LGW) non-stop for May 2018.

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Seven Golden Rules for Successful Investing

Summary

  • Investment Rule #1: Buy low, sell high.
  • Investment Rule #2: Be prepared for the prospect of losing your entire investment
  • Investment Rule #3: Have an exit strategy
  • Investment Rule #4: Do your homework, and do it often
  • Investment Rule #5: Lighten up as it goes higher
  • Investment Rule #6: Keep some cash on the side
  • Investment Rule #7: Diversify your investments, but don’t “diworsify”

Here are our seven golden rules for successful investing. Using these seven golden rules with your common sense and discretion will empower you with a more disciplined approach (less subject to the whims of emotional chaos) and make you a more informed investor.

Investment Rule #1: Buy Low, Sell High

Yes, it’s that simple. The difference is your gain. Isn’t this the reason why you invest?

And it does not necessarily have to happen in that order. You could sell high, and then buy low. “What?” You ask. Yes, that is the idea behind short selling a stock. More on that later. Not that we recommend it.

Corollary 1A. Make a Grand Entry: Buy on the Dip

Who does not like a bargain? If the company fundamentals remain the same, wouldn’t you rather buy the stock at a discount? For the same dollar-value investment, you get more shares. Whenever you buy at a lower price, you less likely to get shaken out during a pull-back, and when you finally sell, you’ll get a better return. Don’t chase the stock as it goes up. Resist the fear of “missing out” of the rally. Be patient. Be very patient. It will come down to favorable levels. And when the price does dip, be nimble and quick because the discount will not last long if it’s a desirable stock.

Corollary 1A. Make an Even Grander Exit: Sell Even Higher

When it comes to selling a stock, there’s a good feeling of closure. Hopefully, you’re able to sell it for a net gain. But wouldn’t it be even better if you could have sold it even higher than you did? If you’re nimble and on top of your investment homework, you can take advantage of momentary rallies as a result of good news, whether it’s specifically about your stock, the sector that it’s in, or the market in general. If you have the luxury, wait for these opportunities where the stock gets bid up, even reaching over bought conditions.

Investment Rule #2: Be Prepared for the Prospect of Losing Your Entire Investment

Make no mistake: stocks are risky investments. When they say, “No pain, no gain.” What they also mean as a corollary is, “All pain, All loss.” Are you prepared in the event that your investment goes to $0? Not to be so negative, but because it can. It has happened to me a few times too many. If you cannot stomach a complete loss of principal, you should not be investing in individual shares of stock. Mutual funds or ETFs might be better for you.

Continue reading “Seven Golden Rules for Successful Investing”

News: Majority of Millennials Are Happy Despite Financial Anxiety

Wells Fargo released some interesting news about Millennials’ personal finances: most are happy and they consider their lives meaningful. And those who are more engaged in their financial planning and investments are even more likely to consider themselves happy. Surprisingly, 73% either never plan to invest in the market, or will “never be comfortable investing in the market.”

graphic: Wells Fargo Bank study
graphic: Wells Fargo Bank study

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Job Interview: 5 Questions You Should Be Asking

Summary
  • A job interview is a chance to see if the company, the organization, and team is a good fit for your professional goals and objectives
  • We offer 5 questions you should explore:
    • Culture
    • Innovation
    • Collaboration & teamwork
    • Leadership
    • Mentoring
  • Finessing the questions: ask for concrete examples, ask multiple interviewers, listen with your eyes™, convey your engagement, relax and enjoy the moment
  • Follow through: don’t forget the thank you note
The Interview: A Two-Way Street

A job interview is a two-way street. The word “interview” has the prefix “inter”, as in interaction. The human resources specialist, hiring manager, supervisor, team mates are interviewing you to see if you would make a good addition to their company, their team, and their projects.

You, on the other hand, have the opportunity to reciprocate the information flow. Take the opportunity to assess if the organization is a good fit for you. To this end, there are numerous articles written for the new college graduate as they begin to interview for their first full-time job. Go ahead, google for those lists of questions, study them, and prepare to answer those questions first. But before you go to your first interview, be sure to consider…

The 5 Key Questions to Explore

In this article, we offer our suggested questions in five key subject areas that should be important to you:

  1. Culture
  2. Innovation
  3. Collaboration and teamwork
  4. Leadership
  5. Mentoring

We discuss how you can finesse the delivery of these questions. We offer our take on the spectrum of possible answers, what to expect, and how you can discern the answers along with non-verbal cues (and clues).

Continue reading “Job Interview: 5 Questions You Should Be Asking”

Setting Goals

Summary

  • Goals are like lighthouses for our lives: they help guide us to our life destinations, even through the foggiest moments of our lives
  • Setting goals is the first step to achieving goals
  • Analyzing your goals will give you insights as to why they’re important to you
  • Identify and take baby steps towards achieving your goals… day-by-day, week-by-week, month-by-month, stay true to your goals and you will achieve them
  • Review your goals regularly, prune outdated ones, let others grow depending on your current priorities and interests

Welcome to your goals.

Goals are like lighthouses for our life
Goals are like lighthouses for our lives: they help guide us to our life destinations. (photo credit: author)
Brainstorm Your Goals

Go for it. Let yourself go and identify goals of all sorts. You are unconstrained. Don’t limit yourself. Here are some ideas to help get your goal setting mood in order:

  • Educational goals: earn an MBA degree, learn how to write an iPhone app
  • Career goals: become a program manager, write a book, work abroad as an ex-patriot for a couple of years, win an Academy Award, win a Nobel Peace prize
  • Financial goals: pay off my student loan early, pay off my credit balance, buy my first home, pay off my mortgage
  • Financial/riches goals: save my first $100k, my first $1M… be financially independent, retire by age 50
  • New skills: learn SCUBA diving, learn downhill skiing, become a better photographer, learn how to sail
  • Experiential: go zip lining, go whitewater rafting on the Colorado River, go sky diving, go off-roading in an ATV or 4×4 vehicle, watch a night-time rocket launch from Cape Canaveral, see a solar eclipse
  • Travel: visit Australia, walk on the Great Wall of China, climb Mt. Kilimanjaro, see Machu Picchu, see all the U.S. National Parks
  • Material goals: own a Mercedes Benz SL roadster (fill in the blank with your dream car), own an ocean-front penthouse condo apartment in Miami’s South Beach
  • Family/relationship goals: I want to get married, I want to mend the relationship with my mom
  • Friendship goals: go to your high school 20-year reunion, take a “boys-only” vacation to Las Vegas
  • Spiritual: become a better Christian, volunteer for my church more, volunteer for mission work
  • Retirement goals: retire in Hawaii (fill in your dream destination), overland the world
Time Bounding Your Goals

Next step, put a time bound on the goal. For example:

  • achieve by the year 2025
  • achieve by age 40
  • achieve before you die

Then set these goals aside for a while. Take your mind off of them for a while… bookmark this page so you can return to it.

Continue reading “Setting Goals”

Budgeting 101 for College Students

Summary
  • Get some discipline and live within a budget: your financial well-being will thank you for a lifetime
  • Establish a budget:
    • focus on getting/staying out of debt
    • build up a “rainy day” savings fund
  • Some tips for living within a budget
  • Follow through and track your expenses: be accountable to your budget
  • Download: a sample monthly budget spreadsheet to help you jump start the process
Do you need a Budget?

Yes.

Do you remember the Disney-Pixar classic animation Toy Story, where Sheriff Woody says, “If you don’t have one, get one!”

“If you don’t have one, get one!”
“If you don’t have one, get one!”

He was actually talking about moving buddies, to safeguard Andy’s toys from being lost in the chaos of the residential relocation. The same advice holds true for a budget. So that your financial well-being does not get lost in the chaos of life, give yourself the discipline of a monthly budget. It will thank you for a lifetime.

Why Live Within A Budget?

Living within a budget is not sexy or cool. But it gives you freedom.

“Freedom?” You ask.

“Yes, freedom. Freedom to eventually do anything you want, any time you want, and being able to pay for it. And pay for it just once.”

“Paying for it just once?” You ask.

“Yes, just once. When you can’t live within your means, you’re going into debt.”

For students, it’s usually credit card or student loan debt. When you’re in debt, you pay for the amount you borrowed (the principal) and interest on that principal. And your total payments snowball in comparison to the original amount borrowed. When you make a monthly payment, the first portion of that payment goes toward the interest for borrowing the principal. Then what remains go towards lowering the amount you borrowed. Let’s go through a couple of examples:

Continue reading “Budgeting 101 for College Students”

Discover the Best Online Savings Account

Summary

  • Among the highest APR (Currently 1.15% as of Sept 2017)
  • No minimum opening deposit.
  • No minimum balance to waive monthly fee – in fact there is no monthly fee.
  • Interest is compounded daily and paid monthly
  • Easy online transfers to your other banks and financial accounts
  • Great customer service

We have been banking with Discover Bank for its Savings Account continuously since 2009. We have recommended our children to open a savings account with Discover. There is no testimonial or recommendation that is more honest than that. We have reviewed other bank’s savings accounts offerings (e.g., Ally), and tried other bank’s savings accounts (Capital One) briefly, but we have always moved those funds back to Discover Bank.

I researched Ally Bank a few years ago, but found that it was fraught in customer service issues. Meanwhile reviews for Discover Bank were positive, consistent with my first hand experiences over the years.

Comparison
Comparison from Discover.com web site
Here are some facts you should know

Discover Bank is purely an online bank. It has no physical or local offices that you can visit and talk to a banking specialist or “teller”. There are no drive-through windows either. Customer service via toll-free call is delightful and productive.

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