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.

Trading

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.

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)?

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

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.

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. 

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.

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?