Find us on Google+ My Sensible Cent: July 2012

Tuesday, July 31, 2012

Evaluating Your Return From Employment

I understand pretty well that not all my audiences are entrepreneurs. There are a clique of those who are seeking employment either as their ultimate career option or just as a means of getting some cash to invest. With this in mind, I’m going to look at how best to evaluate a job offer once it is presented to you. You will have to bear with me if you feel I’m a little money driven, but this is the truth: “everything is business”. Therefore I wouldn’t advise you to venture into anything whose requirements surpass their returns.
You have been jobless for a while despite the level of experience and the quality of CV you possess. Finally, something good has just happened today - you have been called for a job offer. You are certainly overexcited and thrilled at the prospect of starting a new life. You are finally going to graduate from your “long-term job” of searching for a job.  You will agree o anything so long as it’s going to save the thought of going for another interview.
Whenever an offer is tabled, it’s always important to carefully evaluate it so as to make an informed decision to accept or reject the offer. You don’t want to rush into decisions which you will regret later. Consider the entire compensation – work environment, salary, perks, and benefits – not just the paycheck.  Take your time to ponder on this offer.  Weigh its cons and pros.
1.       Money Matters: Unless you are one special person committed to working for charity, you would want to consider this. This is often the first thing people consider and rightfully so.  It defines what you will take home at the end of the month and is the bulk of your recompense. Just make sure what you are being paid is satisfactory if not your worth. It may not be what you expected, but can you accept it without feeling insulted? Will it pay all your monthly bills? If your answer is no, the reject the offer straight away. You should be happy with your salary and the least must do is pay your daily expenses.
2.       Performance Bonuses: Most organization pay employees for their performance. For instance, in a sales job, your entire compensation may be in form of commissions. In other cases like pure engineering jobs, however, performance may be extremely difficult to quantify.  All the same, you need to be clear on what the company’s expectations are and the resulting payouts.  The bonuses can either be in form of commissions, salary increment or a promotion, just to recognize your contribution to the company’s overall performance.
3.        Benefits and Allowances: Find out what the employer is giving on top your salary. Get more details on life and health insurance coverage, disability, sick time, vacation, and other benefit programs. Get to know how much of your benefit plans your employer is going to pay and how much extra you will be required to remit.
4.       Travel and Working Hours: Make it clear the amount of time you are willing to put in t this job. Time is money – and whenever you invest your money, you would expect satisfactory returns. If you were used to working 35 hours a week and the new job require that you work 45 hours a week, check if you can honor such a schedule. If the work necessitates travelling, enquire how long this will take per week, the cost of such travels vs. compensation and can you commit to such a schedule? Also check the travel time to and from work, any parking fees and travel costs.
5.       Opportunity to grow: There is utterly no need to get into a company where your chances of career progression are nil. For starters, you will require checking if there is an opportunity to rise to your ideal position. Will you be contented working at the available position until the next one comes?
In conclusion, everyone has a different set of preferences. What may be good for you may not be good for another. All you need to do is sit yourself down and evaluate the job offer. Have a look at its pro and cons. Make sure the job fits your minimal standards and that it pays for every resource you spend on it – be it your health, financial resources or time. The return on investment also applies to employment. Just like any other investment option, in a job you invest your time, money, skills and life. Therefore, it is only fair if you get adequate return from these investment.

Saturday, July 28, 2012

Maximizing Your Investment Income

In the previous post, we discussed what income return is, how to identify and differentiate it from other types of returns.  In that post we covered the rationale behind making investment for income and the need to generate replacement income, more so if you are investing for retirement.
In general, a return is the money gained from your investment. For instance, if you buy a stock at $1000 and after one year you sell them at $1500, your return on investment is $500. You made a return on your investment because you sold your stocks at a profit. In percentage, your return is 50% ($500/1000).
A part from selling to realize profit, you may earn return if your investment generates some income on a regular basis. For instance you buy a residential house worth $100,000 and rent it out. The property then generates $10,000 in rent per annum.
In this case, you still own your property but receive a return of $10,000 annually. Therefore, your yearly return is 10 percent ($10,000/$100,000). It is this kind of return (income return) that is referred to as yield. Yield is the answer to “what guaranteed gain (return) will I get from my investment?”
Remember, when you are waiting to sell your property or investment position, the return is not guaranteed until the sale date. However, with regular steady income, you are sure of return.  Therefore, yield (income return) has no relation to the price of your property – whether it falls or goes up. It is all about receiving the money.
Weighing your investment Options
Yield concept is used in various investment decisions dealing with income driven investment options including bonds, rental property and even company stocks (in terms of dividends).
“Dividend Yield”, is simply an expression of your cash return (through dividends) if you were to buy the stock at that particular price.  The company issuing the share will have to pay you that dividend irrespective of the prevailing share market price. Therefore, if your investment objective is geared towards income, then yield is a vital parameter to look at when making investment choices.
Going back to our rental house example, assuming now you get an opportunity to buy another rental property for $500,000 and it will earn rent of $36,000 per year. A good amount of money, isn’t it?
You may be lured into thinking that this is more money ($36,000 compared to $10,000). However, the yield in this case is 7 percent ($36,000/$500,000) which is obviously lower than the 10% from the first property. Faced with these two scenarios, the best option (if you can access the required fund) is to buy 5 of the first units and earn $50,000 a year.
As said before, capital gains have their place in investment, but you will definitely require your investment to generate some income. The yield may be far more important to you than capital gains since it is this yield that will sustain you.
With all this in mind, it is therefore advisable to compare the different investment options available in terms of yield. This because you will get the most out of your investment through passive income as opposed to growing the asset value.

Thursday, July 26, 2012

Gold Rush: The Summer Olympics Lesson for our Businesses

The opening ceremony of the 2012 Summer Olympics is just around the corner, millions of fans around the globe will be “superglued” (literally) to their TV watching all kinds of sports (some which are rarely televised – fencing, for instance) and cheering on athlete’s, some we barely heard of.
In the broadest sense, these athletes participating in the Summer Olympics are small business owners. Athletics is a business, the athlete a business brand/product and their goal is to be the best in the world. To achieve this, an athlete must manage their timetable, build their relationship with agents, coaches, sponsors and fan, still be part of the society.  
How does this differ with an entrepreneur, a business man or an investor? You may find some differences but am going to focus on some similarities here. Let us look at the lessons an investor/business person can learn from the Summer Olympic athletes. I could find these three lessons for our business from the London Olympians:
1.      Keep setting new targets
For any athlete, a personal record (PR) is not considered a static point in life. Whenever they achieve a personal record, a new one is set – almost immediately. In business, success comes from stretching your goals just beyond what you think is possible. Whenever you achieve a goal set another, immediately. Having a clearly spelt out goal keeps you focused even when things seem unstable.
2.      Be flexible and swift
An athlete’s life can be quite unpredictable. You may work so hard for something but it keeps evading you before your own eyes.
I recently talked to my wife’s friend who was a Kenyan Olympic marathon team hopeful. For all the time I have known her, she has been working hard, waking up very early in the morning to train in the cold weather in Eldoret. She has one dream - to participate in the Olympics. Her completion time just fell short of the London Olympics qualification time at Kasarani Sports grounds. She was so disappointed but was prepared to start training for the next Olympic Games. That will be four years from now, if am not wrong.  She already has a four-year plan for herself and a renewed focus on her goal.  
Athletes endure wins, losses, ups and downs all for the love of the game and the focus on nothing but winning.
In business, you must be able to adjust, be willing to take the highs and lows along the way. Being flexible and agile and adapting to changing circumstances sets successful businesses apart.
3.      Be strategic. Stop saying “yes”
An Olympic athlete’s life is quite demanding. Outside training, the demand on their time is endless: appearances, media requests, the needs of their team mates, family obligations….just to mention a few.
To go through all these, the athlete needs to weigh and prioritize. You just cannot be everywhere at the same time. Similarly, in business you can’t take on everything from everybody.
Beginners often find it hard to reject an offer. They often console themselves with the notion that “beggars can’t be choosers”. You can deliver that consignment fast, attend a charity fundraiser, and even offer our products at a discount almost equal to if not more than the profit we would make. We can do all these to earn your business. However, this is business; you have invested something in it. You should build a good relationship with your clients for its growth. But, again, you do not want that same process to distract you from achieving your financial goals.
Saying “yes” is in itself not a bad thing. However, you need to think of how accepting the request will help you achieve your business goals. Is filling that request a strategic step in achieving your desired goal? Or will it be a distraction?

It is no surprise that most Olympic Athletes are successful business owners and investors outside their sports. The vital skills in athletics also serve them well when it comes to business. You may not be a gold contender in the upcoming Summer Olympics in London but you can at least take some lessons from these athletes to help you propel your business to a world-class level.

Wednesday, July 25, 2012

Investment Option: Why Invest in Forex Market?

If you are an investor interested in casting a wider net and expanding his investment portfolio, you may want to try something beyond the normal investment range. At that point when bonds and stocks just aren’t working out, there is only one investment option to try out – the Forex market.  If you are wondering what Forex trading is, well, Forex is simply a short form of “foreign exchange”. Forex market deals with the trading of one currency against another. Due to the fluctuations in the currency exchange rates, forex traders can either make a profit or a loss depending on which side they are. The prevailing exchange rates can either be favorable or unfavorable. Most investors consider forex trade risky but I believe the risk only come in when you actually do not understand whatever you are doing and thus rely on luck. With that said, then why would you want to venture in forex trade? The truth is, Forex investment offers many advantages that other investment options cannot.
1.       1. Fewer investment options
One of the benefits of Forex trading is that you are only presented with a few selections to choose from. You may only get 20 currency pairs to trade from a typical forex broker.  Compared to stocks which literally have thousands of choices to make, choosing a forex currency pair to trade is much simpler.
In the bond and stock markets, you may be easily overloaded with information. To come up with a decision (an informed one for that matter), you will have to study the company’s financial statement and even use other advanced criteria. In short, you must understand what is going on in the company and in most cases, to do so; you will need the advice of a professional. In foreign exchange, however, you only need to specialize in a small number of currency pairs.
2.       2. Trade with leverage
Another advantage of Forex trading is your ability to trade with leverage. Forex offers a larger leverage than any other financial market. While you can only get about 2:1 leverage in stock market, Forex traders can enjoy up to 500:1 leverage. This means, as a Forex trader you can control a huge amount of money with your small investment capital.
Even though this may look dangerous, Forex brokers employ it so that you will never lose more than you have invested. Every broker has his/her minimum margin requirement. Your account should always be above that balance and in case of a fall below it, the broker will simply close out that position and prevent your account balance from going into the negatives.
3.       Savings in Transaction cost
Stock brokers always go through an annoying process of having to pay a commission to the stock broker each time they transact. If you trade more frequently, these commissions will add up and badly eat into your profits. In contrast, it is possible to work with forex brokers who do not charge a dime for transaction.
This possible because most forex brokers are paid by the spread (the difference between the bid and ask price).  This difference is often nominal and therefore helps you save on your transaction costs when compared to other markets.
4.       3. Market size and liquidity
Forex market’s large market is an advantage on its own. In terms of number and money, forex is by far the largest market on earth with over $40 trillion in volume daily. This means the forex market is so huge that no single entity could corner it over a long period.
The large number of players involved increases the market’s liquidity. Whenever you offer a trade, it will be filled instantaneously.  
5.       4. Trading anytime
What about this? You can actually trade any time: early in the morning, late in the night or during normal working hours. The fact that forex trading does not have a central hub makes it possible for traders to access their trade, via a computerized exchange, 24/7.  A part from the weekends, you can trade all the time. This gives you more time to trade and make money and is even feasible for those investment starters who are still in full time employments.

Investing in Forex Trade
Even though forex trade has all these benefits, it is not for everyone.  If you really have interest in Forex and want to give it a try, it is would be wise you open a demo account with a forex broker.  You can then down load and install the trading platform on your computer and trade in demo mode until you feel comfortable. In the demo mode, you do not have to invest any money. Therefore, if you lose the play money and do not like the venture you will be free to quit with no loss.  Forex, just like any other financial market, offers you a chance to get rich but if you may also lose your investment. All you need to succeed in the Forex market is knowledge and discipline. If you are ready to learn and can stick to a particular investment strategy, then you can make plenty of cash.

Investment Options: Understanding Your Risk and Returns

It is every investor’s wish to put their money where there is maximum return on investment (ROI).  However, with globalization and fragility of today’s economy, people are now more worried about their investment risk than their returns -most people will opt for low risk, low returns investments. Despite this fear, there are still others who believe in risk taking while prospecting huge returns.
There are numerous investment options to put your money. Therefore it is necessary to understand these options, their returns as well as the risk associated with each of them. Decide which ventures to get into depending on your risk appetite. While investing, however, you must develop an investment plan and stick to it.
The type of investment will depend on your need and time horizon. If you plan to invest for retirement, you will find different retirement plans to suit your needs. If you desire to invest for other life events like child education, buying a luxury car or a house, there are different methods for you.
If you wish to know where to invest your hard -earned cash or the various investment and saving options available, then here is the right place for you.  In this blog, we will explore the various investment options and products available, the returns as well as risk associated with each of them. To invest your money, you ought to first understand your needs and explore your risk acceptance before deciding on which investment is suitable for you. One thing you should do as an investor is to diversify your portfolio. Below is a list of major investment options grouped according to their risk.
Safe Investments
  •  Fixed deposits
  • Savings account
  • Public Provident funds (PPF)
  • Government Bonds
  •   Post office schemes (KVP, NSC and MIS)
Moderate-Risk Investments
High Risk Investments:

Tuesday, July 24, 2012

Investment Vs Saving in a Bank: Which one is "Riskier"?

Last weekend, I was watching a romantic drama show on a TV channel and in one particular scene, the couple were talking about making investments.  The husband talked about how his friend is making over $10,000 per month on top of his regular job salary. He said the friend had requested they invest together. However, the problem, as he narrated, was that the capital required was outlandish (at least according to him). The investment would require each of them contributing a “whopping” $50,000. According to the husband, the prospected investment involved trading stocks. Despite the huge capital involved, the husband was still persuaded this could be a good idea. He therefore proposed that they share their part of this capital with his wife. He is to raise 50% (1/4 of the total amount needed for investment) of their share of the capital and the wife, the other 50%. The suggestion and the insurmountable capital required, astonished the wife and found it hard to support her husband on the idea of investing such large sum of money in stocks. She stood her grounds reasoning that stocks are far risky and are only comparable to gambling in that field.  She said she didn’t have that money and, come rain come sunshine, she wasn’t going to allow her husband to “gamble” with a whole $50,000. At that time, the young couple had a nursery school daughter.
This whole scene puzzled me. What disturbed me the most was the wife’s assertion that stocks were risky and comparison of stocks to gambling. Since the two have a kid, they must finance her needs too.  Therefore, proper investment would be one way of growing their money. At the end of the show, I sort the help of my mum to understand how the average person finance their own needs, for instance, house, kids’ education, car, etc if for them investment is too risky. My mum’s reply shocked me the most – they don’t know how and where to invest and see investment as a risky endeavor. The average person would rather stash cash in their bank’s saving accounts as it is “safer”.
In my view, however, putting your money in the bank is in fact “riskier” than making a prudent investment. Money saved in the bank accounts are often eaten away by inflation. The mean historical inflation rate per annum is around 3%.  It therefore follows that our money stashed in the bank accounts are being eaten away at this rate – 3 % every year.
The reputable investor, Warren Buffett once stated that risk originates from not knowing what we are doing. The risk we are talking about is promoted by the lack of knowledge. So, since most of us do not know that $50,000 today is not equal in worth to $50,000 tomorrow, next month or years later, putting your money in a savings account is not only “riskier” but assure way to devalue your hard-earned cash. It is therefore vital to get investment education through reading books, news and blogs on finance and investment and look for some alternative cautious investment which will enable our money grow. As a matter of fact, investments are not risky at all if you know what you’re doing.

Monday, July 23, 2012

Begin Your Journey to Financial Prosperity Now

The second half of the year is underway. Sometimes back, at the beginning of this year, we must have made some resolution for the various features of our lives. I know some of those resolutions include financial objectives, including growing our business, getting a new job, earning more money, getting out of debt, more aggressive investments, etc.
Only half of this year remains, and you may be wondering just what happened to those resolutions you made at the beginning of the year. If you don’t change anything, then you’re going to continue making these same resolutions next year and subsequent years. If we were to be honest with ourselves, we will unanimously agree that the main reason why we have not met our financial resolutions this year is because we are still waiting for money to start as off.

Investment Options: Mutual Funds Vs Unit Investment Trusts

Although both Unit Investment Trusts (UITs) and Mutual fund are both considered investment companies, mutual funds function differently from their UIT cousins.
Mutual funds and UITs represent two of the three categories of investment companies. The third type is Closed-end companies. Although mutual funds and unit investment trusts have some common characteristics, the major distinctions come through in their individual investment strategies and how each gets managed.
Basics of Unit Investment Funds
UITs act in part like a closed-end company and a mutual fund combined. The typical UIT issues units or shares that investors can cash in at some point in a later date. This feature marks the similarity between UITs and mutual fund. When an investor/shareholder requests for redemption, the UIT Company buys back the investor’s shares at a price that is close to the share’s net-asset value at that time.
Basics of Mutual Fund
Similar to a UIT, mutual funds allocates redeemable units in the fund company. Whenever the investor in a mutual fund wishes to redeem her units/shares, the fund company is required to buy back the shares at the existing net-asset value and distribute any profits to the investor within a period not exceeding seven days.
The Differences between UIT and Mutual Funds
Although they have many similarities, UITs differ from mutual funds in especially considerable ways. A Unity Investment Trust put their money in a smaller diversified-portfolio of securities and doesn’t actively trade its portfolio. That is to say, the UIT may invest in only 10 securities and then exploits a “buy and hold” tactic for those 10 securities for the entire life of the UIT. Mutual Funds, on the other hand, offer highly diversified portfolios and then actively trade the portfolio’s securities. A typical mutual fund may have 30, 40, 50 or more even securities in a single portfolio. When a Unit Investment Trust gets established it establishes its own end date. For instance, a UIT may invest in 30-year bonds, and so once the bonds mature, the termination date for UIT is also reached. In addition, just like a closed-end company cousin, UIT makes an opening public offering. The UIT allocates a fixed number of units during their public offering. On the other hand, Mutual funds’ shares are created based on the demand, hence they virtually unlimited number of shares to offer for trade. What's more? A UIT neither utilizes the services of managers (or advisors) nor do they have a board of directors. But Mutual funds have a BOD and managers at their helm and seek the services of professional investment advisors.
Investment Offerings
With the Unit Investment Trusts, two basic types exist – the fixed-income UIT and equity UIT. Various investment categories fall under these two core types, but that is the furthest UIT diversity can go. In contrast, mutual funds may be compared only to the United Nations. They offer investment options in equity products, fixed-income products, and virtually everything from the big ore mining companies of the Pacific to tiny Latin American growth-companies.

Sunday, July 22, 2012

Why You Should Invest in Income Generating Portfolios

Image courtesy
As a Civil servant in the early 1990s, John was among the top earners in his village (and the nearest town for that matter).  In fact he wasn’t just a top earner but an admired investor. During his workdays, he aggressively invested in land all over the country. John grew up with the belief that land investment was the way to go. If anything, he is now a happy owner of assets worth hundreds of thousands of dollars and has recovered his initial expenditure in buying the land several times over. John is an example of an investor many of us would like to emulate, right?

Friday, July 20, 2012

Non-Financial Benefits of Bankruptcy

Most individuals who have been considering the bankruptcy option view it strictly from a monetary perspective. Not surprisingly, the view is understandable. In any case, when you're filing for the bankruptcy, you are receiving serious debt relief after months (and maybe even years) of stress. However, there's a lot more to this process beyond the financial bit. Bankruptcy will surely touch on every aspects of your life.

Thursday, July 19, 2012

Investment Options: Investing in Stocks

At time comes when a company is need of some money, either to expand its work force, build a new factory or open up a new office. Whatever the need, the company has two choices available for raising this money: 1) to borrow the money or 2) by selling a stake in the company to investors. The first option is quite straight forward as it involves taking loans mostly from financial institutions and repaying it with some interest – so I won’t dwell much on that. For now, it is the second option which most interests me.  The selling of a company’s stake to investors is what you often hear them call “issuing of shares to the stock market”.
Whenever you buy a share of a stock, you are simply buying a part of the company and therefore become a part of its ownership. Just like any other owner, you lay claim to the company’s assets and every penny it earns henceforth.

Wednesday, July 18, 2012

Want to Invest in Bonds? Learn the Basics of Bonds

What are Bonds?
You must have heard about the government floating bonds to raise money for development or read about the bond market in your daily newspapers. However, if you are not actually sure what bonds are or how they work as an investment option then you are at the right place.
A bond is a form of investment where the investor gives loans to the Government, a corporation, federal agency or any other organization. As a result, bonds are at times called debt securities. Since the borrower (bond issuer) knows you are not going to lend them your hard-earned dollars without compensation, they (bond issuer) enters into a legal contract in which you (the bondholder) is paid some interest.
The agreement also compels the bond issuer to repay you all the money loaned at the maturity date of the bond. Most bonds have a specifically set maturity date - on this date, the bond must be paid back per value. However, the issuer has a right to redeem (to call bond) some of the bonds before the expiry of the fixed period subject to bond protection rules.

Tuesday, July 17, 2012

Why Consider Using Online Payday Loan Services

When is it necessary to take a payday loan?
You will once in a while find yourself in a financial dilemma, maybe because of a math error you made when checking and balancing your account or because the check you were relying on to push you forward has been delayed unexpectedly.  There are just several ways you can find yourself temporarily short of funds. Fortunately, there are ways of making it through to your next payday.
In a critical financial predicament, payday loan services will provide you with short-term loans to get you through to your next paycheck's arrival.

Payday Loans: What's The Pay?

Payday loan, as its name suggests, is the type of loan you go for when in need of immediate cash.
The loan is often short-term and is charged at higher rates due to this reason. Emergencies are bound to occur any time and if they necessitate instant money, then payday loans will be the best solution. These loans are favored by instant borrowers since they are easy to obtain and are also very convenient. If you need quick cash but are unable to secure a bank loan, may go for these loans.
However, they have some drawbacks. You ought to be very carefully when deciding to apply for payday loans, since some payday loan providers may charge you up to 500 percent in rates. You are expected to repay your loan within a short period (usually 2 weeks) together with this high interest.

Investment Option: IRA Investment

IRAs - Individual retirement accounts, enable you build tax-deferred savings for your retirement. An IRA is actually an account rather than an investment. You can just put about any type of investment into your IRA - CDs, mutual funds, stocks, bonds, cash and even gold.
Anyone below the age of 70.5 earning any form of legible income can open and invest in a traditional IRAs, which are probably the most admired IRAs.
For many people, the impediment of opening an IRA account is in the first place the hardest thing to overcome. However, your aspiration to cut your taxes may assist you get over that hurdle. Because you know, making that IRA contribution will add around $1,750 to your tax refund.