Author Archives: admin

Wealth Building and Dividends

Posted on by

“Systems are the vehicles that are going to take you to your goals—your goals are simply the destination.” James Clear

“We don’t rise to the level of our goals; we fall to the level of our systems.  Don’t share with me your goals; share with me your systems.” James Clear

Are you prepared for your financial future and to build wealth? There are many benefits of investing for the long term and to building wealth. Here is a simple and straightforward checklist to get started:.

  • Start early!
  • Investing starts with a plan
  • Investment plan starts with defining and identifying your financial goals.
  • Create a savings and investment plan based on your goals.
  • Two primary goals must be creating an emergency fund and building wealth for retirement
  • Develop good financial habits
  • Pay off high-interest debt first.
  • Participate in your company’s 401(k) plan and max out any employer match.
  • Understand your risk tolerance.
  • Understand investment fees and their impact on returns.
  • Research all investments thoroughly.
  • Check your investments regularly and maintain a diversified portfolio.
  • Avoid investment opportunities that sound too good to be true.

40% of stock market returns come from dividends

It’s interesting that most investors don’t know how powerful stocks that pay dividends are. Dividend stocks are stocks of companies which pay out a portion of their earnings to the shareholder in the form of dividends. Between January 1926 and December 2004, 41% of the S&P 500’s total return owed not to the price appreciation of the stocks in the index, but to the dividends its companies paid out.

An additional benefit is that, under the current tax laws, qualified dividends are taxed at lower rate instead of your standard income bracket rate which translates into more money in your pocket.

Investors know that the best dividend stocks aren’t those with a high yield, but rather are quality businesses that can grow over time and pass along profits to shareholders through the dividend, by repurchasing shares and reinvesting in the business.

Bottomline is that dividend-paying stocks have outperformed in the past and that they have a good chance of doing so in the future. The secret is to reinvest those dividends, and put the power of compounding to work in your portfolio.

To build wealth, investors need to account for a range of significant, real-world challenges, including:

  • Longevity
  • Inflation and rising costs
  • Fixed income vs. equity valuations
  • Low yields

With tens of billions of dollars trading hands every day on the New York Stock Exchange alone, it’s easy to lose sight that when purchasing a stock investors are effectively purchasing ownership interest in a business. Assume for a moment that you don’t get a quote every day for your shares in that business and that you can’t sell your ownership interest for several decades. Your focus would likely shift from price to value.

And the value of that business, whether publicly traded or privately held, is the present value of all future cash flows. After all, what is the point in owning a business – or any investment – if you’re never going to receive any cash from it? When a company generates positive free cash flow, it has several options; the company can hold cash in reserve, fund organic growth, make acquisitions, pay down debt, or return it to shareholders through dividends or stock buybacks.

Using dividends to pay your expenses and allow you to reinvest to get more income. You can achieve this by investing in excellent dividend-paying securities now and letting those dividends reinvest as you work towards your retirement.

References:

  1. https://www.investor.gov/sites/investorgov/files/2019-03/OIEA_Financial_Capability%20Checklist.pdf
  2. https://www.fool.com/investing/dividends-income/2006/09/19/the-secret-of-dividends.aspx
  3. https://advisor.morganstanley.com/christopher.f.poch/documents/field/p/po/poch-christopher-francis/WhyDividendsMatter.pdf

Long-Term Planning

Posted on by

“In preparing for battle I have always found that plans are useless, but planning is indispensable.” General Dwight D. Eisenhower. U.S. Army and Supreme Allied Commander

Dwight Eisenhower once said, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” In simple terms, great investors, same as great leaders, are proactive in building wealth and they follow a plan.

Most retail investors don’t plan and just react to market volatility and events. Instead, investors should engage in long-term financial planning from the beginning with the intent to anticipate problems and come up with solutions.

“Nobody ever created a plan to be broke, bankrupt, behind in monthly payments, drowning in insurmountable credit card debt, or a financial failure. Those things are what happen when you don’t create or follow a plan.”

Planning helps you prepare for the potential challenges and keep you on track. And with an effective action plan, you can boost your productivity and keep yourself focused. The benefits of an action plan are:

  • It gives you a clear direction. As an action plan highlights exactly what steps to be taken and when they should be completed, you will know exactly what you need to do. 
  • Having your goals written down and planned out in steps will give you a reason to stay motivated and committed throughout the project.  
  • With an action plan, you can track your progress toward your goal.
  • Since you are listing down all the steps you need to complete in your action plan, it will help you prioritize your tasks based on effort and impact.

Failing to plan means planning to fail. That’s why you should create a action plan before making any financial or wealth building decisions, and then stick to the plan.  Whether you are deciding on investing in cryptocurrencies or acquiring real estate for your business,  it’s smart to do so with a list or plan of action that has your budget in mind.

“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” – Pablo Picasso

A well-designed action plan can make it easier for you to track and realize your goals. For your personal goal, you can use an action plan to create a clear path to success.

An action plan is a document that lays out the tasks you need to complete in order to accomplish your goal. It also breaks up the process into actionable assignments based on a timeline. A good action plan will outline all the necessary steps to achieve your goal and help you reach your target efficiently by assigning a timeframe—a start and end date—to every step in the process.

Step 1: Define your end goal 

If you are not clear about what you want to do and what you want to achieve, you are setting yourself up for failure. Start by defining where you are and where you want to be. Analyze the situation and explore possible solutions before prioritizing them. 

Then write down your goal. And before you move on to the next step, run your goal through the SMART criteria. Or in other words, make sure that it is 

  • Specific – well-defined and clear
  • Measurable – include measurable indicators to track progress  
  • Attainable – realistic and achievable within the resources, time, money, experience, etc. you have
  • Relevant – align with your values and other wealth building goals 
  • Timely – has a finishing date or deadline

Step 2: List down the steps to be followed 

Once the goals are clear, the next step is to list all the tasks that you must perform to realize your goals and due dates. 

It’s important that you make sure that each task is clearly defined and is attainable. If you come across larger and more complex tasks, break them down to smaller ones that are easier to execute and manage. 

Step 3: Prioritize your tasks and add deadlines

It’s time to reorganize the list by prioritizing the tasks. Some steps, you may need to prioritize as they can be blocking other sub-steps. 

Add deadlines, and make sure that they are realistic. Consult with the person responsible for carrying it out to understand his or her capacity before deciding on deadlines. 

Step 4: Set Milestones 

Milestones can be considered mini goals leading up to the main goal at the end. The advantage of adding milestones is that they give you something to look forward to.

Start from the end goal and work your way back as you set milestones. Remember not to keep too little or too much time in between the milestone you set. It’s a best practice to space milestones two weeks apart.  

Step 5: Identify the resources and time needed

Before you start working on your tasks, it’s crucial to ensure that you have all the necessary resources at hand to complete the tasks. And if they are not currently available, you need to first make a plan to acquire them. 

This should also include your budget, any advisors and determine the cost of each task if there are any.  

Step 6: Visualize your action plan

The point is to create something that you can understand. Make sure that your action plan clearly communicates the elements – tasks, deadlines, resources, etc. This should be a working document that is kept updated and adjustable. 

Step 7: Monitor, evaluate and update

Allocate time to evaluate the progress you’ve made. You can mark tasks that are completed on the final action plan, bringing attention to how you’ve progressed toward the goal.

An action plan can also make it easier for you to monitor your progress toward your goals, allowing you to keep your projects on schedule and, if applicable, within budget.

“Have a bias towards action – let’s see something happen now. You can break that big plan into small steps and take the first step right away.” – Indira Gandhi

References:

  1. https://www.lifehack.org/900263/reactive-vs-proactive
  2. https://resources.franklincovey.com/blog/paradigms
  3. https://creately.com/blog/diagrams/how-to-write-an-action-plan/
  4. https://www.indeed.com/career-advice/career-development/how-to-write-an-action-plan

Budget: 50/30/20 Rule

Posted on by

What is the 50/30/20 rule

The 50/30/20 rule is a popular budgeting method that splits your monthly income between three main categories. Here’s how it breaks down:

Monthly after-tax income. This figure is your income after taxes have been deducted and the cost of payroll deductions for health insurance, 401(k) contributions or other automatic savings have been added back in.

50% of your income: needs. Necessities are the expenses you can’t avoid. This portion of your budget should cover costs such as:

  • Housing.
  • Food.
  • Transportation.
  • Basic utilities.
  • Insurance.
  • Minimum loan payments. Anything beyond the minimum goes into the savings and debt repayment bucket.
  • Child care or other expenses that need to be covered so you can work.

30% of your income: wants Distinguishing between needs and wants isn’t always easy and can vary from one budget to another. Generally, though, wants are the extras that aren’t essential to living and working. They’re often for fun and may include:

  • Monthly subscriptions.
  • Travel.
  • Entertainment.
  • Meals out.

20% of your income: savings and debt. Savings is the amount you sock away to prepare for the future. Devote this chunk of your income to paying down existing debt and creating a comfortable financial cushion to avoid taking on future debt.

How, exactly, to use this part of your budget depends on your situation, but it will likely include:

  • Starting and growing an emergency fund.
  • Saving for retirement through a 401(k) and perhaps an individual retirement account.
  • Paying off debt, beginning with the toxic, high-interest type.

The 50/30/20 budget rule divides take-home income like so: 50% for necessities, 30% for wants and 20% for savings and debt repayment.

Your Health is an Investment

Posted on by

Your health is an investment, not an expense.

The health of Americans is on a bad trajectory, it is declining. Things such as: obesity, diabetes, heart disease, and like health epidemics are growing at a feverish pace.

Healthcare — both preventive and reactive — is becoming harder to obtain. And, unfortunately, the industry focuses more on reactive approaches to disease and pushing pharmaceuticals than preventative approaches to treating diseases.

It’s important to know think proactively about all of the things you spend money on. Some things are critical to living such as food, a roof over your head, and clothes to wear.

However, as a whole, many people tend to spend money on some things that are unnecessary like a new luxury vehicle or a glamorous vacation, and then think that they don’t have enough money to invest in our health.

The biggest and most obvious reason that you should invest in your health is that you only get one body, mind and life! If you fail to take care of your body and mind, sooner or later you will suffer the consequences and they will fail you at a great cost at a later date and time. Thus, you must regularly invest in your health. The several types of investments to make regularly are:

  • Sleep – 7-8 hrs/night
  • Food – 50-70% good fats, 20-30% healthy proteins and less than 20% carbohydrates from organic, non-gmo, non-processed and non-added sugar sources
  • Hydration – Half your body weight in ounces per day, no more than 3 quarts
  • Exercise – 30 minutes per day of some type of exercise/movement
  • Stress – Daily stress-reducing and relaxation techniques
  • Gratitude– Being grateful for your daily blessings and the joy in your life
  • Spiritual/Mindfulness – Spending time nurturing your faith daily

If you’re not, then you’re spending time regularly neglecting your health.

  • You’re either getting quality sleep or you’re not.
  • You’re either eating foods that will nourish and fuel your body or you’re not.
  • You’re either properly hydrating on a regular basis, or not.
  • You’re either exercising in some way daily, or you’re not.
  • You’re either working to reduce stress on a daily basis or you’re not.
  • You’re either focusing on all of the good in your life and working towards your goals, or not.

You should do something daily to invest back in your health. If not, some day you’re going to wish you had made different choices along the way.

Optimal health is not something you can buy; however, it might just be the most valuable investment you can ever make.

Today be thankful and think of how rich you really are. Your family and friends are priceless, your time is gold, and your health is wealth.

References:

  1. https://kellyshockley.com/your-health-is-an-investment-not-an-expense/
  2. https://thetakeawaybypokk.wordpress.com/2017/12/18/your-health-is-an-investment-not-and-expense/

Long Term Investing is about Future Cash Flow

Posted on by

Ultimately, in long term investing, fundamentals and cash flow are paramount for an investor (an investor is a business owner).

Years ago, a hockey game between the Boston Bruins and Edmonton Oilers had been paused for some technical issues with the stadium lights. To kill some time, the announcers started interviewing people including the Edmonton Oilers, Wayne Gretzky, undoubtedly the world’s greatest hockey player at the time. The announcer stated that Gretzky wasn’t the biggest guy in the league, or the strongest, or the fastest or the toughest, yet he was regarded as the greatest hockey player in the world.  So, how then did Gretzky explain his own genius?  Gretzky simply replied:

“I don’t go where the puck is; I go where the puck is going to be!”

In a simple one liner, Gretzky confirmed that his success did not come from chasing the puck. Instead it came from staying one step ahead and by anticipating  where the puck would  likely go next.

Thus, it is important to look at the future potential of a stock or investment instead of focusing solely on past performance. Long term investing is about looking from the perspective of a business owner at a company’s fundamentals and cash flow.

Cash Flow

In finance, cash flow (CF) is the term used to describe the amount of cash (currency) that is generated or consumed in a given time period by a business. It has many uses in both operating a business and in performing financial analysis. In fact, it’s one of the most important metrics in all of finance and accounting.

Every investment is the present value of all future cash flow.

Many investors are lured by short term performance.  They are interested in finding the latest, hottest, top performing stocks and investments driven by the financial entertainment media.  However, investors who buy those top performing investments today may not necessarily enjoy the same returns in the future. In investing, it’s essential you approach buying stocks like a business owner.

Cash flow is not the same as net income (or profit).

While cash flow describes the movement of money into and out of your business, profit is the surplus of money your business has after you’ve subtracted the revenue from your expenses.

The inflow and outflow of cash into and out of a company reflects the health of that company’s operations. That’s why it’s important as an investor (business owner) to be able to understand a company’s fundamentals and cash flow.

Cash flow is more dynamic in concept then profit – as it measures the movement of money – then profit, which simply demonstrates how much money you have left over after your expenses have been deducted. Even a profitable business can fail if a business doesn’t have a healthy cash flow.

Without a healthy cash flow, profit is meaningless.

Many successful companies (like Amazon, Twitter, Uber and Yelp) actually existed a long time without profits, but no company can survive without a healthy cash flow. For small to mid-cap companies, profit is still important, but cash flow is vital.

If you don’t have cash on hand, you can’t pay for your company’s basic needs like rent, employee salaries, electricity or equipment. If you don’t have enough cash on hand to replenish inventory or pay operating expenses, you will become unable to generate new sales. If you can’t afford operating expenses, your company will eventually fail. That’s why cash flow is such an accurate predictor of an investment or company’s success.

Cash Flow From Operating Activities

The operating activities reflects how much cash is generated from a company’s products or services. Positive (and increasing) cash flow from operating activities indicates that the core business activities of the company are thriving.

Cash Flow From Investing Activities

Investing activities include any purchase or sale of an asset, loans made to vendors or received from customers or any payments related to a merger or acquisition is included in this category. In short, changes in equipment, assets, or investments relate to cash from investing.

Cash Flow From Financing Activities

Cash flow from financing activities shows the net flows of cash that are used to fund the company. Financing activities include transactions involving debt, equity, and dividends. Some examples are: issuance of equity (shares), payment of dividends, issuance of debt (e.g. bonds) and repayment of debt.

Free Cash Flow

One of the most important financial number is free cash flow (FCF). It is the cash flow available to all the creditors and investors in a company, including common stockholders, preferred shareholders, and lenders.

You can calculate FCF, if not provided, quickly. FCF = Operating cash flow – capital expenditures (aka. CAPEX). Simply, capital expenditures on the CFS is the line item “Purchase of Property, Plant and Equipment” (PPE). the PPE expenditure is the “maintenance amount” of running a business. Though it says “purchase”, this includes repairing, renewal and/or maintenance of the companies assets.

No company can survive without a healthy cash flow.

Generally, you want to see a steady increase in cash flow from operations. If this number is growing (while debt being in control) at a rate of 10% or more annually.

However, past performance cannot guarantee future results. In other words: don’t assume that an investment is going to continue to perform well in the future simply because it’s done well during a specific time period in the past. 

Two of the key ingredients for success in investing is understanding that cash flow is king and your a business owner when you purchase a company’s stock.

References:

  1. https://ignorethestreet.com/cash-flow-statement-fundamentals/
  2. http://www.momentumcapitalfunding.com/cash-flow-fundamentals-business-owners/
  3. https://corporatefinanceinstitute.com/resources/knowledge/finance/cash-flow/
  4. https://www.powerofpositivity.com/make-you-rich-quotes/

February is American Heart Month

Posted on by

February is American Heart Month, an opportunity to raise awareness to the fact that heart disease is the leading cause of death for men and women in the U.S.

American Heart Month is observed to raise awareness on the importance of a healthy heart and to encourage healthy habits that help reduce the risk of heart disease. It is an ideal time to remind Americans to focus on their heart health and encourage them to get their families, friends and communities involved.

Heart disease affects all ages, genders, and ethnicities.

Despite the significant progress researchers have made in understanding of heart disease risk factors. (such as high blood pressure, bad cholesterol, smoking, being overweight or obese, and type 2 diabetes), heart disease affects all ages, genders, and ethnicities. Moreover, heart disease continues to exact a heartbreaking toll — a burden disproportionately carried by Black and Brown Americans, American Indians and Alaska Natives, and people who live in rural communities.  

Every year, 1 in 4 deaths in the U.S. is attributable to heart disease, and the vast majority of those deaths can be prevented. By taking preventive measures, you can lower your risk of developing heart disease and also improve your overall health and well-being. 

Heart Disease, Stroke and other Cardiovascular Diseases

The human heart is responsible for pumping blood throughout our body, supplying oxygen and nutrients and removing toxins and waste. Weighing between 8 and 12 ounces, the heart is a mighty organ divided into four chambers that work together to pump blood in and out. The heart gets oxygenated blood from the lungs and pumps it throughout the rest of the body.

Heart disease occurs when the arteries leading to the heart become clogged. Although heart disease has been around for thousands of years, health experts do know that many aspects of modern life exacerbate risk factors and make people more prone to heart disease and heart failure. Heart disease can affect everyone, but taking stock of your prior health risks, activities and diet can help you reduce your risk.

Even in a pandemic, Cardiovascular Disease (CVD) continues to be the leading cause of death in the United States, and mortality rates are on the rise among younger demographic within the population. For example:

  • Cardiovascular disease (CVD), listed as the underlying cause of death, accounted for 874,613 deaths in the United States in calendar year 2019.
  • CVD claim more lives each year in the United States than all forms of cancer and Chronic Lower Respiratory Disease (CLRD) combined.
  • In 2015 to 2018 in the United States, 58.8% of non-Hispanic (NH) Black females and 60.1% of NH Black males had some form of CVD. This race category had the highest prevalence of CVD.
  • CVD accounted for approximately 19.05 million global deaths in 2020

Heart disease can often be prevented when you make healthy choices and manage your health conditions. The warning signs for heart disease have been known to appear when people are as young as 18. Red flags such as high blood pressure should be taken seriously and healthy habits should be adopted.

You can take steps to protect your heart. Additionally, you can work with your doctor to make a plan and your doctor can help by:

  • Checking your blood pressure and cholesterol numbers — and teaching you how to check your numbers at home
  • Sharing advice for healthy eating and physical activity
  • Supporting you in other heart-healthy changes, like quitting smoking
  • Connecting you with specialists to treat heart problems and other conditions
  • Prescribing medicines if you need them

If you haven’t been keeping up with regular doctor visits, you’re not alone. Many people have postponed doctor visits during the COVID-19 pandemic. But now’s the time to get back on track! Don’t wait — schedule an appointment today.

Heart Healthy Steps

Engaging in regular physical activity, maintaining a healthy diet and weight, managing stress, avoiding smoking and vaping, and getting quality sleep each night can all reduce the risk of heart disease and help people live longer, healthier lives.  

While it is essential to see a health care professional if you have symptoms or risk factors related to heart disease, research shows that taking a little time each day to promote a healthy lifestyle can help improve your long-term heart health.

Subsequently, you can prevent heart disease and stroke by taking small, healthy steps like moving your body and eating healthy.

  • Simple Ways to Get Active – Physical activity is key to a healthy heart. And when you’re active, it’s easier to keep doing all the things you love — like traveling, seeing friends, and walking around the neighborhood.
  • Tips for Healthy Eating – Small changes in your eating habits make a big difference in your heart health — and there’s no one right way to eat healthy! You can find healthy eating habits that work for you.
  • Heart-Health Role Model – Kids love to imitate their parents — so show your family how you’re taking steps to protect your heart.

Continuing the fight against cardiovascular disease is crucial to improving the Americans health.  During American Heart Month, we must recommit ourselves to ensuring a healthier future for all Americans.

How to observe American Heart Month:

  1. Take up a heart-healthy habit — Staying active, eating healthy, and watching our weight are all important parts of maintaining a healthy cardiovascular system. Pick a new heart-healthy habit like jogging or substituting sodas with water and try to stick to it for a whole month.
  2. Educate yourself — Learn about the risk factors for heart disease, the ways you can prevent them, and the lifestyle choices that can help you stay healthy.
  3. Get your cholesterol tested — If you’re worried you might be at risk for heart disease, ask your doctor to perform a simple cholesterol test to let you know if you’re at risk and should make adjustments to your diet.

References:

  1. https://nationaltoday.com/american-heart-month/
  2. https://www.nationalforum.org/heart-month-2022/
  3. https://www.cdc.gov/dhdsp/index.htm
  4. https://www.whitehouse.gov/briefing-room/presidential-actions/2022/01/31/a-proclamation-on-american-heart-month-2022/

Financial Planning Basics

Posted on by

Investment and financial planning can help you maintain a modest retirement — even amid COVID-19.

The latest Wells Fargo Retirement Study, underscores investment and financial planning’s role in how investors feel about their overall financial health. According to the study, those with specific financial plans indicated they save more for retirement, tap emergency sources less, and feel more in control of their finances and less stressed than those without the “planning mindset.”

“It is amazing the difference it [financial planning] can make when a client sees what the reality is and has a plan to help guide them,” Wells Fargo Financial Advisor Jenny Radke said.

“The earlier you can start planning financially and envisioning the future, the better,”

Yet, people tend to fall into two camps, according to Charles Schwab: non-planners and planners.

  • Non-planners typically save when they can, perhaps putting a small amount into a workplace retirement plan, hoping that everything will work out in the long run.
  • Planners generally know what they’re saving for, how much they need to put away, and how long it will take them to reach their goals.

Only 33% of Americans have a written financial plan, according to Schwab’s 2021 Modern Wealth Survey. Of the rest, almost half said they didn’t have enough money to make a plan worthwhile. Others said it was too complicated, or they didn’t have time to develop a plan.

Planning for anything can seem like a big headache and a lot of effort. It’s natural to wonder: Does financial planning really help?

Research show that it does. Here are five reasons why:

1. A written financial plan increases confidence

Our survey found that 65% of people with a written financial plan say they feel financially stable, while only 40% of those without a plan feel the same level of comfort. Fifty-four percent of planners felt “very confident” they would reach their financial goals, compared with only 18% of non-planners.

Having a written financial plan gives you a measurable goal to work toward. Because you can track your progress, you can reduce doubt or uncertainty about your decisions and make adjustments to help overcome obstacles that could derail you.

2. A financial plan can help jumpstart your savings, even with a small amount of money

The most common reason cited for not having a plan is “I don’t have enough money.” This is a misconception. Planning, even in small steps, doesn’t take large sums of money to start.

In fact, financial planning can have a profound impact on lower-income households by helping people improve their saving and budgeting habits. A written plan helps savers prioritize their goals and, as mentioned earlier, provides a way to gauge success.

3. A financial plan can help you create an investment portfolio

Your financial plan can give you the full lay of the land: You’ll know what your goals are, how much time you have to reach them, and how comfortable you are with risk. Once you have a comprehensive view, you can figure out how to reach each individual goal.

That will involve both saving—setting aside money you’ll need in the short term or for emergencies—as well as investing, which is setting aside money you’ll need in the long term and that, ideally, can grow. And with your financial plan as a roadmap, you’ll be better able to make thoughtful investing decisions—instead of heading out without a sense of direction and just hoping for the best.

4. A financial plan can lead to better habits

Financial planning isn’t just about investing; it’s about what money can do for your confidence, security, and quality of life—such as the protection that life insurance offers or the peace of mind that an emergency fund can provide. Research also shows that planning supports sound money habits as well.

Americans who have a financial plan also have healthy money habits

Source: 2021 Schwab Modern Wealth Survey

There are good investing habits, and there are healthy money habits. A written financial plan can lead to both.

5. Planning can be tailored to every personality type and investment style

Your approach to life can influence every decision you make, including those that involve your finances. By understanding the type of person you are with regard to planning, you can take proper steps toward reaching your financial goals. 

A financial plan is the foundation on which to build, understand and achieve your wealth goals and achieve financial freedom. Having a written plan can increase confidence and result in more constructive financial and investing behavior.

References:

  1. https://stories.wf.com/envisioning-retirement-through-investment-planning
  2. https://www.schwab.com/resource-center/insights/content/does-financial-planning-help

Focus on Growth (at a reasonable price) Stocks

Posted on by

“You should be looking for the next great growth stock.” Olivier Garret, founding Partner and CEO of RiskHedge

Cheap” Stocks Are Often The Worst Stocks You Can Own

By “cheap,” we mean stocks that have a low stock price in relation to their sales or earnings. If a stock trades for $20/share and earns $4/share, it’s cheap. If it trades for $200/share and earns $4/share, it’s not cheap.

People are drawn to “cheap” stocks for the same reason they flock to the Macy’s Department store clearance rack. It feels good to get a deal. Americans love nothing more than getting lots of “bang for their buck.”

But in investing, this can be a dangerous mistake. These stocks are cheap for a reason! They’re usually in dying industries or are a declining business. So they’re either barely growing, or shrinking.

“Cheap” does NOT equal “safe” in the stock market. Focusing on “cheap” stocks is not a wise investment strategy. Instead, you should be looking for the next great growth stock at a reasonable price.

Growth Stocks

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Warren Buffett

Growth stocks are companies that increase their revenue and earnings at a faster rate than the average business in their industry or the market as a whole. Growth stocks are great buys, especially if you can identify those with fair valuations, excellent fundamentals and capitalize on their momentum. Focus on one of the fastest-growing companies on the planet.

In the current environment where each of these stock picks offers a good balance of growth and value, it’s a great play to diversify your portfolio.

Unlike the cheap stocks some growth stocks are growing like crazy.

High-growth stocks tend to be more expensive than the average stock in terms of valuation metrics like price-to-earnings, price-to-sales, and price-to-free-cash-flow ratios. Yet, despite their premium price tags, the best growth stocks can still deliver fortune-creating returns to investors as they fulfill their awesome growth potential, according to Motley Fool.

Earnings Growth

Earnings and cash flow growth are arguably the two most important factor, as stocks exhibiting exceptionally surging profit levels and cash flow tend to attract the attention of most investors. And for growth investors, double-digit earnings and cash flow growth is definitely preferable, and often an indication of strong prospects (and stock price gains) for the company under consideration.

Impressive Asset Utilization Ratio

Asset utilization ratio — also known as sales-to-total-assets (S/TA) ratio — is often overlooked by investors, but it is an important indicator in growth investing. This metric shows how efficiently a firm is utilizing its assets to generate sales.

Investing in growth stocks can be a great way to realize life-changing wealth in the stock market. The key, of course, is to know which growth stocks to buy — and when, and to be patient.

Even renown value investor, Warren Buffett, uses an approach that swings towards growth. This quote from Buffett is a classic articulation of the strategy: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” In other words, price is an important part of any investment, but the strength of the business arguably matters just as much, if not more.

References:

  1. https://www.forbes.com/sites/oliviergarret/2020/10/08/why-you-should-focus-on-growth-stocks-today/#72d1ee102b81
  2. https://www.fool.com/investing/stock-market/types-of-stocks/growth-stocks/
  3. https://www.fool.com/investing/stock-market/types-of-stocks/growth-stocks/how-to-invest/

Goal Setting and Accomplishment

Posted on by

“Since “someday” never appears on the calendar, our good intentions don’t turn into action until we create deadlines.” Amy Morin

A staggering 92 percent of Americans that set New Year’s resolution goals never actually accomplish them, according to research by the University of Scranton.

But, when people followed two simple concepts — setting specific and challenging goals — it led to higher accomplishment of goals 90 percent of the time, according to research by Dr Edwin Locke and Dr Gary Latham. Basically, the more specific and challenging the goals you set, the higher your motivation toward hitting them while your easy or vague goals rarely get met.

Here’s an example: If your goal between now and the end of the year is to, say, lose 20 pounds, that  may be challenging, but it’s not specific enough.

It’s essential to eliminate vagueness and make it more achievable by stating it in a more detailed manner: During the month of August, I will lose five pounds by cutting off refined sugar, breads, and all fast food. I will also walk briskly for twenty minutes every day.

On the flip side, goals that are too difficult to accomplish don’t get met either. While it’s important to challenge yourself, nobody completes a goal when he/she is overwhelmed by the magnitude and difficulty in accomplishing the goal.

If you find yourself with such a scenario, break down your BHAG (Big Hairy Audacious Goal) into smaller bites you can actually chew. Use the same process of defining specific and challenging marks to hit when mapping out the smaller goals that will lead you to your final destination.

Additionally, those who succeed at accomplishing their BHAG, they tend to want it badly. So, it’s essential to determine what is your level of commitment? Are you totally committed to reaching your goal even when obstacles occur along the way? Are you committed to “do whatever it takes” to reach your destination. And, do you have the desire or passion to pursue the goal to reach it.

According to Locke and Latham’s research, there are five goal setting principles that can improve dramatically your chances of accomplishing your goals:

  1. Setting Clear Goals. Write your goal down and be as detailed as possible. Use SMART, and consider putting your goal into the form of a personal mission statement  for added clarity. Think about how you’ll measure your success toward this goal.
  2. Setting Challenging Goals. Look at your goal. Is it challenging enough to spark your interest Also, identify ways that you can reward yourself when you make progress. Incremental rewards for reaching specific milestones will motivate you to work through challenging tasks.
  3. Staying Committed. Stay committed by using visualization techniques to imagine how your life will look once you’ve achieved your goal.
  4. Gaining Feedback. Schedule time once a week to analyze your progress and accomplishments. Look at what has and hasn’t worked, and make adjustments along the way.
  5. Considering Complexity. Break large, complex goals down into smaller sub-goals. This will stop you feeling overwhelmed, and it will make it easier to stay motivated.

“Even if your goal is something that will take a long time to reach — like saving enough money for retirement — you’re more likely to take action if you have time limits in the present. Create target dates to reach your objectives. Find something you can do this week to begin taking some type of action now.” Amy Morin, Psychotherapist and author of ’13 Things Mentally Strong People Don’t Do’

Additionally, the following strategies can increase your likelihood of accomplishing your goals:

  1. Break goals into manageable chunks. If you only focus on the big picture, it’s easy to put things off until later. But, if you break those goals down into smaller, more manageable objectives such as, you can start tackling and accomplishing the manageable chunks today.
  2. Establish “now” deadlines. Even if your goal is something that will take a long time to reach – like saving enough money for retirement – you’re more likely to take action if you have time limits in the present. Create target dates to reach your objectives. Find something you can do this week to begin taking some type of action now. For example, decide “I will create a budget by Thursday,” or “I will lose two pounds in seven days.”
  3. Turn abstract ideas into concrete action steps. Abstract ideas encourage inactivity. Saying, “I’d like to be healthier,” won’t help you reach those goals. Establish concrete action steps that you can start doing today. For example, decide that you’re going to take a class, read a book, or conduct 30 minutes of research each day. Identify behavioral changes that you can begin working on immediately and you’ll be more likely to turn your abstract ideas into reality.

Identify some of those goals and dreams that you’ve always wanted to work on but just never had the motivation to start. Look for strategies that will help you view those goals in terms of the present and you’ll increase the likelihood that you’ll start taking steps to turn those dreams into a reality, explains Amy Morin

Goal setting is something that many of us recognize as a vital part of achieving success in the areas of health, wealth and emotional well-being. Understandably, goal-setting research confirms the usefulness of SMART goal setting.

To use the results of the research, you must set clear, challenging goals and commit yourself to achieving them. Be sure to get regular feedback on your progress towards achieving your goals. Also, consider the complexity, and break your goals down into smaller chunks, where appropriate.

If you follow these simple rules, your goal setting will be much more successful, and your overall performance and accomplishment rate will improve.

The path to building wealth and financial freedom is paved with goals!!!

References:

  1. https://www.inc.com/marcel-schwantes/science-says-92-percent-of-people-dont-achieve-goals-heres-how-the-other-8-perce.html
  2. https://www.mindtools.com/pages/article/newHTE_87.htm
  3. https://www.forbes.com/sites/amymorin/2014/09/04/study-the-secret-to-ending-procrastination-is-changing-the-way-you-think-about-deadlines/

Inflation…a “Hidden Tax”

Posted on by

Inflation means there is more money out there chasing the same number of goods and services. 

Inflation is an economic situation in which the general price level in the economy increases over a period of time, increasing the market value of all goods and services in monetary terms. As the general price level rises, the quantity of goods and services each unit of currency can buy decreases, indicating a decline in the purchasing power of the currency.

A little bit of inflation is considered by economists to be good for the economy. Technically speaking, inflation gets the economic ball rolling, greases the wheels of commerce, and stimulates the economy. The Federal Reserve has set as a goal 2% inflation.

Most people and politicians believe that inflation is just rising prices. That is not quite true. Inflation means there is more money out there chasing the same number of goods and services. As a result, the value of the money is diluted. One result is higher prices. Thus, there are two different types of “inflation”.

  • The first kind of inflation is “monetary inflation” i.e. an increase in the overall money supply. This is accomplished by a complex process between the government, the central bank, the open market, and the member banks.
  • The second form of inflation is an increase in the price that consumers pay, which is the result of an increase in the money supply and it is more accurately called “price inflation”. Price inflation reduces our purchasing power (as prices rise each dollar in your bank account buys less) and thus makes us poorer.

Because things are getting more expensive and savings are becoming less valuable, inflation discourages saving and encourages spending. This is how it “stimulates the economy” but it also encourages misallocation of capital. Because people are motivated to spend now, they end up chasing short-term goals rather than long-term goals which might actually have been more beneficial and in their best wealth building interest; but they no longer appear so because of the distortions caused by inflation.

Inflation is a long used, secret method of taxing people without their knowledge, a “hidden tax”, because the recipients of inflated money are unaware that it is really worth less than they thought it was; it is certainly “hidden”. And because the primary beneficiary is the government you can rightly say that inflation is a “hidden tax”. Every time someone has to pay an increased price for what they want they are paying this hidden inflation tax.

Inflation is like if a person were to slowly add a little water to the milk that is sold in the store. For a while, no one might notice at all. However, the milk is less nutritious, and won’t taste quite right. Eventually, the people wake up and realize the milk is not nearly as good, although it might still look okay. That is the impact of inflation

When extra money is printed up and put into circulation, it costs the government very little. It seems like governments can create value out of nothing. It is wonderful for the government, which is why most governments do it all the time. The government can spend the money on all their pet projects without worrying about their constituents complaining, because the money seems to be “free”.

However, it is not free and there are consequences to unconstrained printing money. What printing money does is to slowly dilute the money that is in existence already, like diluting the milk in the analogy above. So all the money the people already have, including all their savings, salaries and all the rest, slowly start to be worth less. In this sense, inflation is a very hidden tax, or way the government confiscates the people’s real wealth.

References:

  1. https://inflationdata.com/articles/2020/03/06/inflation-the-hidden-tax/
  2. https://drlwilson.com/Articles/INFLATON.htm