Find us on Google+ My Sensible Cent: September 2012

Sunday, September 23, 2012

The Seven Deadly Blunders Investors Make

In any investment option, there are several mistakes that may lead to its failure. As an investor it's important to know some of the mistakes that investors before you have made. If you wonder why some investment din't work, below are some of the greatest and most common investment blunders that could have led to  their collapse.

1. Thinking that the future performance can be predicted by past returns of an investment.
This is one of the hardest things to figure out, since, even the smartest and most experienced investors have been a victim of this mistake. Most people assume that just because an investment did well in the past, it will still do great in the future. This is not always true because of two factors.
One, the value of the good investment has already been incorporated in the asset's price and
Two, the investment success may have been due to just sheer luck.
However there are always some investments that will do better than the market.

2. Putting everything in one basket.
Every investment despite how solid it may seem always has a risk of failing. It may be hard but try to be a diverse investor to be on the safe side. A real diversification is where you invest in different types of assets; you must also make sure there is negative or no correlation between them. This means that a change in value of one product should give an opposite reaction to the other.

3. Mistaking a business for an investment.
A business will need a lot of your time, expertise and attention, while an investment less time is required. a person with a full time job is not suitable for a business since he/she does not have a lot of time to attend to it e.g. a small apartment with few units is an investment, while a large boarding house with hundreds of boarders is a business since it demands lots of your attention.

4. Not considering your investment horizon.
Investment horizon is the time duration you are expecting to liquidate your investment. A good investment is where you can access your money when you need it. This investment blunder is most experienced in the stock market. Basically stocks should be profitable after some time but this does always happen since values fluctuate. This makes you wait for years or you may even be forced to turn your assets into liquid. A minimum of ten years is the best minimum investment horizon for stocks. Before you decide your investment option study both your short-term and long-term needs and choose an investment that you can withdraw without much loss.

5. Not thinking about effects of inflation.
When setting your financial goals, keep in mind the effects of inflation. Inflation negatively affects an economy; a not so well planned investment may even collapse.

6. Getting the wrong information.
This is a common mistake some investors make; they get information from unreliable sources and jump into investing their money. Go to a professional who will accurately answer all your questions, so that you can have all the knowledge before you make any decision.

7. Greed
Greed is one important trait in investment. Warren Buffet advised that you should be greedy when others are afraid. However, too much greed can only hasten the rate at which you lose your money. When the deal is too good, think twice', you have heard this many times before. Before you invest your hard earned money in that investment that seem so good and profitable think carefully about it or you may end up losing you money. This is because some of those investments are not really good

Conduct a thorough research on the area you intend to invest, think carefully, dont rush, then make sure you avoid the above investment blunders in order to keep your investment alive.

Thursday, September 20, 2012

What are you Buying?

The annoying question investors are always asked, by their friends, is “what are you buying?” I’ m saying “annoying”  because I know how it feels when all people ask you is your opinion on which stocks to buy while yourself you are so mixed up you don’t know where to start. Obviously you are not buying anything at the moment and your investment cash is “resting” in an online brokerage accounts.

Before figuring out how to answer your friend (another stranded investor) on what to do with his/her cash he they enventually lose it, you should take care of yours first. Here are a few ways to park your money in relative safety and take home at least a small return even as you decide what to buy:

When You have $50,000 lying uninvested in an online brokerage account
Your expected return on the$50,000: zero (most brokerage firms needs much higher balances before they can give a token amount of interest)
When you put the money in high-interest savings account trading like a mutual fund
Your expected return on the $50,000: at 1.2% (Renaissance High Interest Account, fund code ATL5000)
Supposed annual return/gain: $600
Risk factor: Normally covered by deposit insurance
When you settle on a short-term bond ETF
Expected return: 1.25%
(Claymore 1-5 Year Laddered Government Bond ETF, CLF-TSX)
The theoretical annual return: $625 (assuming this ETF's share price is flat)
Risk factor: Income paid is very low risk, but unit price could decline if rates rise.
You use a one-year GIC
Expected return: 1.75% (various small banks and trust companies)
Risk factor: typically covered by deposit insurance
Hypothetical annual gain: $870

The World Money Show - 3rd to 5th October, Sheraton Chicago

Three Days in Chicago Makes You a Better Investor and Trader

This October 3-5, 2012, at the Sheraton Chicago Hotel, you'll have the chance to join over two thousand of your fellow investors and traders in Chicago for a three-day event that will have a substantial impact on your success in today's volatile markets. We're bringing together investors and traders, like you, from around the world with one goal in mind—to help you make better investing and trading decisions to help you profit in the coming months.

Summary of Events
A plethora of quality investing education to choose from with over 100 workshops, panel presentations, and special events available all under one roof! A variety of topics offer something for all investors and traders.

Experience deluxe accommodations and amenities at the Sheraton Chicago, as well as award-winning restaurants, all within easy walking distance to the best shopping and entertainment that the Windy City has to offer.
Who Should Attend
The MoneyShow provides a unique opportunity for attendees to become informed about trading and investment choices, to hear respected market specialists, to question speakers and exhibitors, and to observe, evaluate, and compare.

I would advice any (prospecting) investor to register here for free and sweeten your journey to success.

Investment Tips: How to Gauge Your Risk and Rewards

Many people dream of making it big in the investment world today. What you must always do before you make any decision regarding an investment is to weigh the risks and the rewards expected. Understanding the relationship between risk and reward is your first step, with that knowledge you can now start your investment.

People are always concerned about the amount of money they stand to gain, forgetting that investment is a risk taking endeavor. You should, at all times, gauge whether your investment is going to lose your hard earned money or grow it substantially. Therefore, before making any investment decision, understand your risk tolerance. What is more important to you? It is the safety of your investment or the growth of your money.

Determining the risks and rewards of a particular investment opportunity is mandatory and in order to do that, you will need to ask yourself the following two questions questions.

*What are your investment goals?

Consider if your investment project will meet your target. A good example is you don't want to have less retirement funds just to reach your investment ambitions.
The elements that determine whether you will achieve your investment goals are:

  1. The amount you have invested. In most cases the bigger the amount you invest the greater the reward expected.
  2. The duration invested. You need to know how long the investment will take to give its rewards.
  3. Rate of growth or return.
  4. Taxes, inflation, deduction fees etc
Some investment take years to yield profits while others are short term. If you want to increase your reward, you must increase the money you have invested and the length of time invested.
Most investors find a good amount of risk in their portfolio is a good way of increasing their potential of achieving their financial goals. They diversify their portfolios with their investments in various degrees of risk, With the hope of taking advantage of the rising market and protect themselves from great losses in a down market.

* How much risk are you willing to accept for your investment?

The thought of losing money can be the biggest nightmare to anyone. So before you start investing your money think of how much trouble you will go through if the worst happen. If you are going to spend sleepless nights worrying about your money, then that's not an advisable idea. But keep in mind the lesser the risk the lower the reward.


There is no laid down degree of risk an investor should take. This is a very personal decision that you have to make. However a young person can afford a higher risk compared to an older person, this is because a young investor has a lot of time to recover if a disaster strikes. For example if you have five years to retirement, you don't have much time left to recover if you suffer a loss.
But remember a very conservative approach to an investment may mean you will not meet your target.

Investors can have control over some risk in their portfolios by a proper mix of bonds and stocks. Experts think portfolio more heavily weighted towards stocks is much riskier than a portfolio that favors bonds
However risk is a part of investing - you cannot avoid it. As an investor you need to find your level of comfort and then build your portfolio and goals.

Tuesday, September 18, 2012

Understanding Investment and its Risk

Most of us can earn money, but saving and investments is what counts the most. In today's modern world investing has become an important thing. In this post, I will share some of the things to consider before you invest your hard earned  money.

You should always make investments in a sane and safe manner. Before you decide to invest your hard earned money, remember to set aside your daily and monthly expenditure. You should also set aside all the necessary amount of money to cater for your bills, at the end of every month. Only a certain percentage should go to investments. Your short term and long term investments should not negatively affect your daily lifestyle or even liquidity. But remember you will have to cut down your spending, if you really want to meet your investment goals every month.

Investments methods can be classified according to the time duration over which the yield may be expected and according to the degree of risk involved.
This means you have an option to either choose between high risk and low risk or between short term and long term investment risk.
The different types of investments and their risk
Generally, investment can be categorized under financial and non-financial instruments.
*Financial instruments:Equities. They are traded in the stock market. When you buy your stocks you become a partial owner of that business. This is a good long term investment option.Bonds. When you buy a bond, it's like you are lending money to government or a private company. You will receive your interest on money. Bonds are safe, with a stable income and a low risk.Deposits. A common way of getting surplus funds is by investing in government schemes, recurring deposits ,banks etc. however the return is low since the risk is low

*Non-financial instruments
Real Estate. It's a profitable investment option since markets have been predicted to go up in the near future.Gold. Despite the market's going down gold prices have risen making it a good investment option.

Note: All investments should always be done keeping in mind the age of the investor. A younger person can take a bigger risk compared to an older person. However, "never risk more than you can afford to loose."
You must always do a comprehensive research and study on the options available before you invest in them. As I always say, invest your time before you invest your money. Investment is a risky undertaking, but again, you can't get anything if you don't risk. This applies to money and life in general.

Why you Should Consider Buying Index Funds Instead of Stocks

Index funds investment is often referred to as a passive investment. Funds invested do not need an active management like other funds. There are many reasons as to why an investor may opt for one particular form of investment as opposed to another. However, if you are considering investing and is torn between investing in Stocks and buying Index funds, below are a few reasons why you should  consider buying index funds instead of stocks.
Lower costs of investment
Analysis of historical data is just enough to make you as an investor realize that to get the best out of an investment, you should minimize costs. Buying an Index fund is a convenient way to lower these costs. A good choice in this case is a passive index fund investment; the active stock investment is quite costly.
Buying stocks require a great deal of research, this results in a a higher turnover. Indexed funds have low turnover which means reduced brokerage and trading fees unlike in stocks. The limited research costs and lower trading fee associated with indexed funds is one good reason you should buy an index fund. In the long run, this lowers the cost of investment translating to a higher ROI.
Lower risks involved
Buying index funds sounds a safer investment, because your portfolio can be invested in different companies. This will translate into translation a well-diversified portfolio of your stocks. You can invest in ten companies or have your stock portfolio investment spread in several in thousands of other companies from the ten companies. This provides an investor a chance to diversify risks associated with single stocks by constructing your investment from index funds. In overall, buying index funds lower the overall risks of your investment portfolio.
Lower tax base
Index funds have lower turnover compared to stocks and other mutual funds. This passive investment buys and sells within the portfolio than actively managed stock funds. Because of the lower turnover, index funds attract lower tax rates. This is accrued to the long term distribution of capital gains and minimized distribution of capital.
Additional bonuses
With index funds, you will understand what you own; you will know exactly what your investing manager is investing in unlike an active stock. This will earn you a lot of bonuses

Friday, September 14, 2012

Are You Saving or Investing?

There are usually two kinds of people – those who have something extra after paying all their monthly expenses and those who don’t.
Let me assume that you belong to the former; otherwise the discussion which follows may be a bit advanced. Now, what do with the left over cash?
  1. Do you stash it in your bank account and spend it whenever you need to buy something big like an iPod, a camera, an LCD TV?
  2.  Do you make a fixed deposit once you get that lump sum payment?
  3.  Do you buy houses, shares, mutual funds or other investments?
3.  is an Investment, 1. is a Saving 2. is, according to me, a Saving  but others will think that it is a form of investment. There are some differences.
The difference between saving and investment is quite clear to comprehend but with citation of relevant examples to support the aspect of each case. It could be simpler than ever imagined even though some people still equate savings to investments. However, given their intrinsic value makes them very distinct financial disciplines.
First, when you invest you create a greater chance of losing what you have invested in case of a calamity unlike when you save, your money remains in banks and federal securities. Money in an investment receives no compensation as a result of a calamity that may lead to loss of your principal. However, saved money must be fully compensated for inclusive of interests if a loss occurs.
In an investment, your money become unavailable to you for use in an emergency unlike in a saving plan where the cash saved is readily accessible. If you are not going to need money in the nearest future, invest in stock markets etc. But if you are going to need the money, don't invest. Instead save it.
Investments generally yield high rate of returns depending on the nature of the activity you have invested in. On the other hand, savings have low rate returns as it relies on bank interest rates or returns on deposit securities.
What you are doing with that extra cash will only be considered as an investment if, and only if, it can significantly grow your money above inflation, after taxation. Remember, when inflation is quoted at around 5%, it’s actually around 6.5% per annum. Therefore, to realize any real returns on your investment, your money will need to grow above that.
I know someone is ready to present evidence that some financial institutions pay around 8% interest on fixed deposit. Reduce that interest by 30% (tax) and you will notice you are only having 5.6%. This still falls below benchmark (6.5% inflation rates).
The focus of every investment is increasing your net worth and achieving financial goals in the long term basis. It offers an opportunity for a greater ROI. However, as the amount of ROI increases and so is the risk of potential loss of the principal invested. This is quite the opposite to your savings i.e. the risks involved with the amount saved are minimal. Majority of savings are insured with the federal deposit security insurance companies.
Value appreciation is quite evident with investments like purchase of market bonds and securities. These investments earn some intrinsic value with time depending on how much you invest. (Note iPods, cars, computers etc, are not investments, they depreciate rather than grow in value.)
Equity/balanced mutual fund units and shares are investments. Their risks are high, but have the potential to grow far beyond inflation. Gold and other commodities are investments too, and so is paintings (art), real estate etc.
Investment can also give returns in terms of cash flows, which are earned on a regular basis. Cash flows are often described as “passive investments” as you do not have to work for it. Dividends (from shares), royalties from books, rent (from real estate) etc are some sources of regular income.
Savings, however, depend on currency value which in reality depreciates with time.
In a nutshell, savings are all that money you have stashed in your bank account, under your pillow and in fixed deposit accounts. The money is often easy to access, are less risky, earn little or no interest and gradually eaten away by inflation.
Savings are your present. Investments are your future. Bestride the two – invest around 40 – 60% of your earning and save the rest. You will always need your savings for your heavy purchases and to help you pay those extraordinary bills (like hospitalization, wedding, pregnancy etc), but do not do without investment either.
For a stable future, invest more. So how do you know that what you are doing is investment no saving? Checks:
  1. It should be able to grow above inflation
  2. It should have some element of risk
  3. It should appreciate in value – through value appreciation or cash flows
  4. It should have limited access
More on investment and savings: Differences Between Saving and Investing:

Monday, September 10, 2012

How to go Through an Interview Process?

 Following our graduation and the immediate introduction into the "Job-search Market", many questions crossed our minds, which is the best way to apply for a job? How do you write that killer CV? Who is employing inexperienced graduates e.t.c And when all these are said and done, the one major challenge we faced was "how to go through an interview process?", in case you get called for one (which was very rare).

The interview process is a new one to many of us but we are at that stage that they shall start coming in fast and furious. So what should you expect in an interview? I have attended only one interview after sending out a blanket application. But before I went I spoke to some of the people I know who have attended interviews before (including my attachment boss who was seeking a promotion in the company) and this is what they told me to expect:

1. Aptitude tests:
These are general-knowledge questions that are used to ‘gauge your IQ.’ These may cover a broad range of areas such as numerical prowess, word tests, reasoning tests and current affairs. Aptitude tests are common with firms such as PwC, Unilever, EABL, Bamburi and Deloitte who have an elaborate recruitment program. There are some online resources which offer practice on common aptitude tests.

2. Technical questions.
If you are called for an interview to a road construction company, best go fishing for Dr. Ndegwa’s (or whoever your lecturer was) Road Notes and read them! In an interview several questions will be thrown at you in regards to engineering. You may be asked for example, to “describe the several layers in constructing a road.” You may also be asked more technical things like what is the difference between a laterite and murram, but often it is the basics.

3. Your academics:
Remember the Chief Justice interviews? During interviews you will be placed on the hot seat. They will ask you why you got a D in structural dynamics. They will ask you why you had a straight A in high school and downgraded to Ds in campus and you expect to land the job. Kaa radar! You may also be asked how your training suits the company and answering this relates to No. 5 below. You may also be asked if you have undergone other training (computers, CPA, EIA etc). Another common question is “what new ideas/thing will you bring to the company if given the position?”

4. Trick questions:
These are usually just intended to knock you off balance and to see how you respond under pressure. I spoke to someone who went to an interview and was asked; “You have a 3 litre water bottle and a 5 litre water bottle, you want to fetch only 4 litres. How do you measure exactly five litres without pouring any water?” There is a right answer, yet depending on how sharp you are, you really do not have to give them the right answer. But DO NOT give a wrong answer, go round the bush and explain that you are nervous but if they gave you five minutes with a pen and paper you will answer it. Other common trick questions are the famous Google Interview Questions (Google this up for more).

5. What you know about the company:
Before you go for an interview go to the About Us page of the company if they have a website. Look up all the activities they do and how they do them. If they do water sewers, Google the process of water sewer design and be ready to explain it. Find out the directors, organization structure, date of formation of the fir, client profile etc. These questions will show you have an interest in working at the firm and it was not just a blanket application.

6. Salary expectations:
I still do not know how to answer this one! I mean, how much money do I want? Like ten million a month dammit! But my attachment boss advised me that you should first state “within your salary scale for entry level engineers”. If they insist you give them a figure, you say that you need to be comfortable at night; to cover your lunch and to pay for fare to work every morning so based on the current economy, X amount would be fine.

Watch out, you may get a call or email inviting you for a “small discussion” as it happened to me, but do not forget your papers (originals). Good luck in your interviews (they always end by saying we will contact you!)

==Courtesy of Bjey

Friday, September 7, 2012

Investment Option: Investing in Penny Stocks

What are Penny Stocks?

Perhaps you have asked yourself this question and many others in your quest to understand this investment option, penny stocks. Are they for first time investors or not? What is the risk of this investment options? And most importantly, are penny stocks for me?

Penny stocks, as the name suggests, is a stock with a value of $5 or less per share. Unlike regular stocks, penny stocks are not traded in the New York Stock Exchange.  They are, instead, traded through on over-the-counter markets via pink sheets (electronic quotation systems). Smaller companies with less than $5 million in assets or those that do not possess tangible assets like equipment and buildings are more likely to issue penny stocks than larger more established corporations.


When dealing in regular stocks, you are more likely to find their trading prices in your daily newspapers or online. However, determination of penny stock’s share prices is a bit complicated. In an archetypal transaction, your agent (broker dealer) , arranges a trade for you based on the bid price (the amount you are willing to pay for that particular stock) and the ask price (the price the seller is willing to sell the stock). The difference between the ask price and the bid price is the spread and it determines how much money you lose or make.

Risk and Profitability

The major risk with penny stocks is the complexity of the transaction. The fact that the commission to the broker is determined by the amount of spread can make it difficult for you to make money through penny stocks. For instance, the broker my further his/her own interest, not yours. Another risk is the fact that penny stocks are offered by start-up companies with no proven track record. This is risky, as you can lose your money faster than you invested it. Surprisingly, the gambling nature of penny stocks attracts investors who are eager to make some quick bulk cash and move out.

Why Invest in Penny stocks?

The reasons why a trader may want to get involved in penny stock trading is as diverse as the traders themselves.

Sometimes you are a new investor who would want to learn the basics of trading shares, and the low-priced penny stock investment seem to be the best starting place.

Advanced investors may also try their luck in this investment option to play pay with some risk money or hedge a position.

Maybe you have an inside information of the potential and prospects of a company you work at, and you want to invest in their stock before the business takes off.

Penny Stocks are exciting and fun, which is another motivating factor for others. It is kind of high-stakes hobby.

Despite all these varied reasons and ambitions, the main reason investors get involved in penny stock trading is to make some money to get rich or richer.

A combination of the above reasons may act together to push you into the penny stock market.

Why would you get involved in Penny Stock Trading?

  • To make money

  • Enjoyment/excitement

  • You have inside information of the profitability of the issuing company

  • To increase your portfolio risk/reward exposure

  • To hedge strategies

  • To diversify your portfolio

  • The ones big stock you held took a price drive forcing you into unintended penny stock holder

  • To learn how to trade in penny stocks or just stock trading in general

  • You do not want to be left out, penny stock is the talk of town

  • You strongly believe the issuing company’s value will explode

So, are Penny Stocks Suitable for Me?

The suitability of penny stocks as an investment option will depend on many factors, and you are the sole person who can ascertain if you need them in your investment portfolio.

Factors to consider include, but not entirely limited to:

  • Your investment and financial position

  • Your risk tolerance

  • Your investment experience level

  • Your expectations as far as returns are concerned.

My take

As the famous saying goes, a penny saved is a penny earned. However, when it comes to the high-risk penny stocks world, a penny invested can turn into a penny easily lost. If you don't have sufficient amount of money to invest in big stocks, you may be tempted by the low cost and invest penny stocks. However, you should do so with extreme caution.

Thursday, September 6, 2012

Financial Independence: How Much Money you Require to Retire?

Everybody is wishing to reach the ‘illusionary’ state of financial independence. I say illusion because, to some, we do not see it coming soon.
A few different paths can deliver you there, and I have always stayed focused on the fastest, straightforward path, which has reserved it top of my mind. I have stayed focused on reaching financial freedom. I look forward to that day I will simple say “I have made enough”. That day I will stop going to the office. The day I will sit down to ponder, not how to make more money, but how to spend the much I have. I long for this day, I really do.
It is not that I dislike my job and I am desperately seeking an escape route. Rather, I am a number-focused, goal-driven individual who enjoys and acknowledges the value of thrifty lifestyle. I truly believe that the world we live in would be a much better place if more individuals could achieve financial independence, allowing them to arrive at their full potential in the society by having more time to focus on their passion. If that involve keeping their present job, more power to them.
People often react differently whenever we discuss this topic, financial independence. Each time I initiate this discussion with family and friends (any gender and age) and tell them my aspiration to achieve financial independence at any age before 50, I regularly face a whole lot of doubt, a healthy dose of mockery, discomfort and even a bit of anger. And whenever you reach the part “around how much should have to retire?” the discussion heats up more.  Therefore, I sat down and thought, “why not bring up this topic in my blog and hear other people’s opinions?”
How Much Money Should I Have to Retire?
I know you are scratching your head, thinking of what you want and what you may need in the future. Relax! The math behind retirement is very simple – if you know some of these variables:
  • Your expenses
  • Your income
  • Your savings
  • Your age
  • The average inflation rate
Now you can come up with some rational estimate of how much money you should have to retire (or attain financial independence if you are so much scared of this word, “retirement”. To remain palatable to all the audience, let’s use these two phrases interchangeably). Retirement calculators like CNN Money’s retirement calculator or Firecalc will make your calculations simpler. What these resources help you solve is basically the quantitative computation of financial independence.
The Retirement Reality
Regardless of the hard numbers suggesting an objective amount of money to retire, reaching that number simply do not satisfy most of us (if not all). We (humans) keep our noses to the grindstone, and very few retire when they reach that number.
But why? It is often one or some combination of these factors:
  1. Ignorance or Disbelief: I may be poking into the eyes of some but, truth be said, the idea of early retirement or financial independence is not something have always considered. This mainly because, more often than not, we see people only retire when their reach the mandatory retirement age.
  2. Addiction: We are consumption addicts. We cannot split wants from needs and foresee our retirement years focused on expensive SUVs, golf courses, pricey travel, and whatever else we suppose we deserve.
  3. Fear: We have done the math and got the number, but we remain scared that we will still run out of money, the expenses for healthcare will blow up, inflation will speed up, or we may live to be ludicrously old. This has been fueled by some scary examples we have witnessed or playing the worst-case scenario in our heads.
  4. Contentment: We have done the math, and we have accumulated enough, but our jobs don’t suck that awful. A few of us in fact like them. Why not keep pegging away to put together that safety margin?
How Much Money do you require to Retire?
This begs the knowledge of:
“What you REQUIRE to retire, the savings level you want to ACTUALLY retire at, and what brings the difference between the two?”
By using the scary word “retire” all I mean is walking away from your current career/job. After that, what you choose to do with yourself is entirely up to you – whether it sitting at home, basking at the beach or starting your business!
For instance – I may know that I will achieve financial freedom when I hit $800,000 in savings. Am I going to walk away from my career once my savings hit that level? I can easily say I will now, but my situation in life and fear of some of the aforementioned might result in me not retiring until I garner $1 million or more.
The gap between what we need to retire and what we want to actuate the move is extremely fascinating to me. It essentially takes the numbers we have computed and then say “To hell with the numbers, it’s far from enough!” We then keep plugging away so that we can build that psychological cushion that will trigger us to call it quits one day.
You can now go ahead and determine what the calculators say you need to retire, subtract it from the saving level you will actually want to retire at and then ask yourself why the difference (if any)?

Wednesday, September 5, 2012

Investment Strategy: Portfolios and Diversification

It is always necessary to understand the different forms of securities, but it is even more important to clarify how their different characteristics can be harnessed to accomplish an objective.
Portfolio is a collection of different financial assets mixed and matched by an investor for the purpose of achieving an investment goal.  Items which are considered part of your portfolio include any personally owned assets like real estate, bonds, stocks and even cash. A portfolio, like any other financial management, can be done by the individual investors or by banks, financial professionals and other institutions which are connected to the finance industry. In all cases, when making the portfolio, the investor's time frame, risk tolerance and the investment objectives are often considered. The value of an individual asset can be an influence to the risk ratio of a portfolio which is referred to as an asset allocation. In other words, a portfolio is a very important collection of files which includes the list of financial assets.
Basic Types of Investment Portfolio
The aggressive investment strategies are particularly suited for those who are willing to stomach high fluctuations in stocks value (high risk takers). It will be composed of stocks with propositions of high risk or high reward. The stocks in this type of portfolio are highly sensitive when it comes to the overall market.
The second investment strategy is the defensive strategies which are somehow the opposite of the aggressive portfolio. This strategy is not highly sensitive to the overall market and it is not usually risky. The defensive or conservative strategy is particularly suitable for risk averse investors who put safety before any prospective gain. Conservative portfolios will generally consist mainly of cash and cash equivalents, or high-quality fixed-income instruments.
The income portfolio is more focused on the ways in making money via dividends or other kinds of distributions to the stakeholders. The companies which are included here are somehow the same to the companies in the defensive portfolio. However, they should be able to offer higher yields. Income portfolio is meant for individuals with a longer time horizon and an average risk tolerance. Investors who find these types of portfolios attractive are seeking to balance the amount of risk and return contained within the fund.
The speculative investment strategy is the riskiest investment portfolio. It is often considered as the closest kind of portfolio to pure gambling. This kind of finance portfolio is known to have more risk than all the other types of portfolios. A typical speculative portfolio would consist of high risk stocks and forex trading.
Portfolio Diversification
More often, investors do not usually employ a single investment strategy. They tend to mix and match their investment to come up with a hybrid portfolio which includes combination of various investments strategies. The hybrid portfolio is known to be the most flexible investment strategy.

Portfolio diversification involves the distribution of an individual's wealth to other various classes of asset such as debt, cash, property, equity, gold and more. Portfolio diversification can provide both benefits and risk to an individual. Now, many people would ask why they should use portfolio diversification. One major advantage of this is that they will not experience much loss if ever one of their portfolios experienced a problem because it will be counterbalanced by their other portfolio.
Different securities perform differently at any point in time, so with a mix of asset types, your entire portfolio does not suffer the impact of a decline of any one security. When your stocks go down, you may still have the stability of the bonds in your portfolio.

Tuesday, September 4, 2012

Money Saving Tips For Low Income Earners

Yesterday, I was chatting with a close friend on investment and savings and this is what she told me. “How on earth do you expect me to invest, leave a lone save, any money when I’m just struggling to feed my family and pay my bills.” This did not only came to me as a shock but also left me wondering, do low income earners save? And in case they do, just how much can you actually save from your peanut income?.
I’m very much afraid that some people are going to be shocked at sometime in their life. However little you earn, you need to save money to be able to invest and to cater for your future financial needs. Right now, saving may seem like an unfeasible task. But , I can assure you that if you don’t save something now, you are never going to get out of debt and will never have anything to invest.
If you have already launched your way to a debt free life, kudos!! You are on a right track to financial freedom and the next step now is to start saving. You should stop looking at saving as just a good thing to do but as an obligation to yourself and to your family.
With a low income, a family to feed and oodles of other responsibilities to attend to; your life may look so messy that the last thing you would want to think about is saving. However, saving is another responsibility which I urge you not to forget. Do not be confused or stressed by this assertion. You can still budget with the little you have and, to your surprise, be financially independent and happy.
  1. Budgeting: Budgeting your earnings, especially when you are on a low income, is financially wise. The budget will not magnify your earnings but will show you how much you earn. Crazy? By budgeting, you will have to list down all your sources of income. You will also get to know how you spend your cash and whether you spend more than you earn. With a good budget you will be able to get the best out of your small income and even set aside something little to invest.
  2. Prioritizing: Making a list of the commodities you require starting with the most basic. Of course food will top the list, followed by shelter, clothing, transport e.t.c So make sure you have enough food first.
  3. Stop Unnecessary Spending: Only buy things you actually need. Do not persuaded by the peer pressure to buy all the expensive brands in the market or be fooled by your longing for a classy jewelry. Do not buy anything which is just going to lie in the house unused.
  4. Go For Value: Do not just enter the shopping mall and pick whatever good you first lay your eye on. Take your time to window shop, compare different prices and bargain to ensure you are getting the best deal for every cent you spend.
  5. Planning Ahead: We all pay for the loads of regular bills: rent, water, electricity, TV etc, whether you are earning little or much. However, it is very essential, especially for low-income earners to plan ahead for these bills. Immediately yo receive that paycheck, it is good to list down and subtract all your bill expenses before embarking on any expenditure. This will offer some financial relief and ensure that you pay all your bills promptly. No body wants to explain to the landlord that you spent your rent on chocolate!!!
  6. Financial Discipline: You have finally come up with an organized budget and now you can make sense of every cent you earn, you should now stick to that budget. Being financially organized and sticking to your budget will not only help you cut on unnecessary expenditure; but will ensure that you spend within your means and certainly have something extra to put into your savings account. 

 Once you start saving, you will discover that it is very easy to do. In fact, the only question you will be asking yourself is why you didn't start early. However don’t kill yourself over that, it is not yet too late. Start saving now for a better tomorrow. You can’t invest if you do not save. Therefore, saving is the first process in the long road to financial freedom. 

Monday, September 3, 2012

Retirement Planning Has More than Buying Pension Plans

When Shakespeare posed the question: 'What is there in a name?' he considered a name as being insignificance. However, when it comes to investment and personal finance, names matters. No wonder fund houses constantly come up with catchy names to lure investors into different plans. Retirement plans and children plans, just to mention a few.
Names have so much influenced investment schemes that investors have come to believe that they only need to invest in pension plans or IRA plans for their retirement. But this is far from the fact that retirement planning is a totally different ballgame.
Is planning for retirement all about paying your IRA contribution and/or buying pension plans?
Certainly no. However, is not surprising to hear people talk of having bought a pension plan for their retirement.
Then, what is retirement planning all about? The heart of retirement planning is building of a corpus that will ensure you enjoy a rather cushy cozy life during retirement. You should start your retirement planning as early as possible, may be from your first day of employment.
The benefits of starting early are twofold: (i) You will take advantage of the power of compounding and (ii) It helps you overcome the vagaries of economic cycles. When Shakespeare posed the question: 'What is there in a name?' he considered a name as being insignificance. However, when it comes to investment and personal finance, names matters. No wonder fund houses constantly come up with catchy names to lure investors into different plans. Retirement plans and children plans, just to mention a few.
Names have so much influenced investment schemes that investors have come to believe that they only need to invest in pension plans or IRA plans for their retirement. But this is far from the fact that retirement planning is a totally different ballgame.
Is planning for retirement all about paying your IRA contribution and/or buying pension plans?
Certainly no. However, is not surprising to hear people talk of having bought a pension plan for their retirement.
Then, what is retirement planning all about? The heart of retirement planning is building of a corpus that will ensure you enjoy a rather cushy cozy life during retirement. You should start your retirement planning as early as possible, may be from your first day of employment.
The benefits of starting early are twofold: (i) You will take advantage of the power of compounding and (ii) It helps you overcome the caprices of economic cycles.
Your First Step
If you are in your late 20's or 30's, the first step is to buy a house. Yes, you got that right. Many critics of the real estate will point out to its lack of liquidity. This is quite a discouragement for any one who wants to earn a living from his investment.
To overcome this challenge, however, there are two things you should do: (i) Never pack all your funds in real estate. It has nothing to do with the "never put all your eggs in one basket" saying but you need to have some some liquid cash for your daily living. (ii) Never rely on fulfilling your immediate needs by cashing out on your house.
Through real estate you will build a capital, which is not only inflation proof, but one which will also adequately cater for your financial requirement during old age.
The matter doesn't end here, though. You can proceed to the next step which involves doing what the mutual fund or insurance companies do with your money while offering you a pension plan - building corpus. On your own or with the aid of a financial planner, you can build your investment corpus. Now, how will you build your retirement investment corpus?
  1. Buy Low Risk but Performing Stocks or Mutual Funds: Directly purchase low risk conservative stocks that are performing. Stocks are a good source of constant cash flow, through regular dividends, and their appreciation in value over time will accumulate into a good retirement corpus. However, if you are not a fun of stocks, you can invest in mutual funds.
  2. Invest In Gold Bullion: Gold has over time cemented its position as the preferred investment option among many successful investors. As the world move from one standard currency to another, gold investment has maintained its significance as an instrument which can generate returns capable of beating inflation. So, instead of stuffing your closet with gold ornaments, why not just go for the gold bullion?
  3. Invest in Quality Debts: These are debts issued by the government, either directly or indirectly. So invest in long-term bonds and fixed deposits which are offered by financial institutions from time to time. This will reduce your overall portfolio risk through portfolio diversification.
  4. Invest in New Products: Look out for new investment opportunities which are brought about by changes in economic scenario.
With your retirement corpus built, your retirement planning is 90% complete. The next step will be to deploy the capital. If desired, you can also buy annuity plans, after building that capital.

Saturday, September 1, 2012

Now is the Time to Refinance or Buy a New House

When we bought our house, some years back mortgage rates had gone up significantly. In fact, the rates a month before and a month after we bought our house were varied by more than one and a half points. Anyhow, our interest rate ended up at high of 6.25% for a 30-year fixed. I’ll admit it was quite good then. Now, it is not so great.
Now is the perfect time to buy a house or refinance. Following the housing bubble burst, housing prices have considerably dropped. And now that the mortgage rates have also went down, anybody in the market looking for a new house is very lucky. Wherever you go all you see is foreclosures and houses-for-sale and there are pretty good chances that you will get one at a golden deal. So, if you have decided to buy a new house or refinance here are a few quick tips to consider:
Be familiar with your FICO score:
I think it will be much easier to remember this; your FICO = the rate you able to get. Right now, even if your FICO score is below 650, your chances of getting a rate as low as 5.5% are high.
Fix any Errors In Your Credit Report:
When looking at your credit report, don’t be confined only to your score. Read the whole report carefully. If you notice any errors, glitches or mistakes, be sure to have them straightened out straight away so that they don’t diminish your chances of getting approved for a low interest rate loan.
Know Your Lender:
As I always advice, invest your time before you invest your money. Do your homework on your lender and make sure you are not paying more than necessary in fees, points and or origination cost.
Thoroughly inspect the house
Before you buy a house, make an effort to carry out your own independent thorough inspection. This will enable you understand what you are spending you hard earned cash on. If you are refinancing, it is good time to check and determine what your house is worth. Has it depreciated? Has it appreciated? How much?