Category Archives: Investing

Valuing a Company | Motley Fool

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The most common way to value a stock is to compute the company’s price-to-earnings (P/E) ratio. The P/E ratio equals the company’s stock price divided by its most recently reported earnings per share (EPS).

You can calculate it two different ways, by:

  • Taking the company’s market cap and dividing it by net income – or,
  • Dividing a company’s current stock price by earnings per share

You’ll wind up with the same number either way because in the share price approach, both numbers have already been divided by the total number of shares the company has outstanding. So it’s two different ways to the same place.

A low P/E ratio implies that an investor buying the stock is receiving an attractive amount of value.

You’ll usually see the P/E ratio quoted two different ways:

  • Trailing twelve month (TTM) – which looks at the company’s actual income over the past twelve months.
  • Forward – This approach takes analyst estimates of earnings expectations for the upcoming year and using that as the earnings figure.

If a company is growing, its forward P/E ratio will always be smaller than its trailing twelve month P/E ratio, because more income is expected and the denominator will be larger. If you see a P/E ratio out in the wild and it isn’t specified which kind it is, you can probably assume it’s based on the company’s trailing twelve month earnings.

The P/E ratio only works if there’s an E – or earnings. So it’s a helpful tool for companies that have income, but it’s totally useless if a company isn’t currently profitable. That’s why investors also use another tool for unprofitable companies, the P/E ratio would return a negative number, which really wouldn’t be very helpful, so instead investors use the price to sales ratio.

Price-to-sales is a company’s market cap divided by its total sales over the past twelve months. Because the P/S ratio is based on revenue instead of earnings, this metric is widely used to evaluate public companies that do not have earnings because they are not yet profitable.

High growth software companies can have price-to-sales ratios of over 10, while more established businesses are usually in the mid to low single digits. The P/E and P/S ratios are great because they allow you to normalize companies of different sizes and immediately get a sense of what investors are willing to pay for a piece of that company’s earnings or revenue.

You can use these ratios to compare how a company stacks up to the overall stock market, peers in their industry, or itself relative to the past. Generally, businesses that are posting high growth rates are going to have higher price-to-earnings and price-to-sales ratios. That’s because investors expect that company to be considerably bigger in the future, and they have bid up shares to reflect that. That doesn’t mean that they’re bad stocks to own, it just means that people are expecting big growth to continue and if it doesn’t, shares could fall dramatically.

Conversely, stodgy old businesses in crawling industries tend to have lower p/e ratios because they aren’t growing very quickly – for them this year’s earnings will probably look a lot like last year’s earnings. The market isn’t expecting much from stocks with low valuations, so if the outlook gets worse, they’re less likely to take a huge hit, but they’re also less likely to give investors huge returns.

All you’re trying to do with valuation is to get a sense of how much you have to pay for a dollar of earnings or revenue from a company, and what the market expects of that company.

You can look at to see how a company’s valuation compares to the growth the company is posting. The PEG ratio accounts for the rate at which a company’s earnings are growing. It is calculated by dividing the company’s P/E ratio by its expected rate of earnings growth.

Most investors use a company’s projected rate of growth over the upcoming five years, you can use a projected growth rate for any duration of time. Using growth rate projections for shorter periods of time increases the reliability of the resulting PEG ratio.

The generally accepted rule is that a PEG ratio of 1 represents a “fair value” while anything under 1 is cheap and anything over 1 is expensive compared to the growth the company is posted.

For all these ratios there aren’t absolutes, just guidelines.

As investors we’re looking for quality companies with good business models and exciting growth prospects — it’s worth paying a premium for companies like that, these metrics help us understand what the premium looks like and how it fits into the company’s growth story.

References:

  1. https://www.fool.com/investing/how-to-invest/stocks/how-to-value-stock/

Long Term Investing

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“No matter what the market is doing, no matter how it’s performed, there is always a smart-sounding excuse to sell that is very often regrettable in hindsight.” Motley Fool

Over the past century, research continues to demonstrate that staying invested in stocks over the long term has consistently outperformed every other investing strategy. Since, you can’t predict (or time the market) with certainty and you can’t meet long-term goals with short-term investment strategies.

Stocks have outperformed most assets such as bonds, real estate and cash, over the long run. Ideally, anyone with more than 10 years to invest would buy stocks at good prices and exercise patience. Stocks return 7% to 9% a year over the long run — better than any other asset class. But that can be misinterpreted to imply that stocks return 7% to 9% every year. While the long-term average annual return works out to 7% to 9% a year, what happens in between is wild and chaotic.

Investing is just a fancy word for making your money work for you!

Taking an appropriate amount of market risk is necessary because it’s difficult to meet long- term goals with only short-term investments.

It is widely accepted that there are risks of losing your hard earn money money when you invest in stocks, bonds and mutual funds. However, what is less well known and not widely discussed are the greater risks in not investing in assets. Over time, cash loses purchasing power and value.

Yet, in December 2020, households were holding about $16 trillion in cash, according to Motley Fool. Having this much cash on the sidelines is risky. By not investing your money and keeping it in cash will certainly result in your money losing purchasing power due to inflation and may result in you not achieving your long-term financial goals by having money sit on the sidelines.

Ultimately, it’s important to remember your long term financial goals, why you’re investing and to understand the risks of not investing.

According to investing guru Jeff Gundlach, the single biggest reason why most retail investors fail is simple: Their money flows in and out of assets at exactly the wrong time — in just when things are expensive, and out just as they’re cheap. “Volatility scares enough people out of the market to generate superior returns for those who stay in,” Wharton professor Jeremy Siegel explains.

There’s simply too much uncertainty, and no one can accurately predict or time the market. To successfully time the market, it requires a level of precision that nobody’s been able to achieve. Always remember, only a small number of days provide a huge proportion of total growth. Missing them can completely derail your long-term performance.

Bottomline, you should be invested should be in the stock market right now. And, the best way to build wealth is to be invested in stocks, stay invested, and not get scared out because of temporary fears and market volatility.

“The single biggest reason why most investors fail is simple and widespread: Money flows in and out of assets at exactly the wrong time — in just when things are expensive, and out just as they’re cheap.” Morgan Housel

References:

  1. https://www.fool.com/investing/2021/10/03/should-you-really-be-investing-in-the-stock-market/
  2. https://www.fool.com/investing/general/2012/04/27/why-you-should-stay-invested-.aspx

2021 Women and Investing Study | Fidelity Investments

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More women than ever are taking a seat at the investing table, according to Fidelity Investments.

Fidelity Investments’ 2021 Women and Investing Study was conducted “to gather insights into women’s attitudes and behaviors when it comes to managing their finances” and investing for the long term. The study findings show:

  • 67% of women are now investing outside of retirement
  • 50% of women say they are more interested in investing since the start of the pandemic
  • 42% say they now have more to invest since the start of the pandemic

When women do decide to invest, they are realizing positive results and returns. Analysis of more than 5 million Fidelity customers over the last ten years finds that, on average, women tend to outperform their male counterparts by 40 basis points or 0.4%.

While these investing trends by women are encouraging, still only 1/3 of women see themselves as investors, and additionally:

    Only 42% feel confident in their ability to save for the long term, including retirement
    Only 33% feel confident in their ability make investment decisions
    Only 35% feel confident their non-retirement savings are invested appropriately
    Only 14% of women say they know a lot about saving and investing

Overall, women feel less confident when it comes to long-term financial planning and investing to grow their money and build wealth, according to Fidelity Investments.

Women who set financial goals, create a financial plan and take the following additional actions feel more confident in their ability to save for the future and make investment decisions to help their savings grow:

  • Determine current financial status (net worth and cash flow)
  • Pay themselves first, automate their savings and invest consistently a portion of every paycheck
  • Select diversified investments like stocks, bonds, mutual funds or ETFs
  • Take a long-term approach to investing
  • Starting early and track progress regularly
  • Making time to educate themselves about personal finance topics

Bottomline, 64% of women surveyed by Fidelity said that they would like to be more active in their finances, including investment decisions. Not surprisingly, the factors that holds them back include:

  • 70% of women say to invest they would need to know more about picking individual stocks.
  • 65% of women say they’d be more likely to invest, or invest more, if they had clear plan or steps to do so.

It’s never too late for you to get started setting financial goals, creating a financial plan and investing for the long term.

References:

  1. https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/about-fidelity/FidelityInvestmentsWomen&InvestingStudy2021.pdf

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Beat Inflation with Dividend Stocks | Fidelity Viewpoints

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“Stocks that can boost dividends during periods of high inflation may outperform.” Fidelity Viewpoints

Key takeaways according to Fidelity Viewpoints

  • Dividends aren’t just nice to have, they’re essential to the stock market’s return—accounting for approximately 40% of overall stock market returns since 1930.
  • During periods of high inflation, stocks that increased their dividends the most considerably outperformed the broad market, on average, according to Fidelity’s sector strategist, Denise Chisholm.
  • Dividend-paying stocks’ regular, scheduled payments also may help to reduce the volatility of a stock’s total return.

The economy is gradually recovering from its pandemic-related slowdown and shutdowns, and inflation has hit its highest rate in 39 years. People are emerging from the pandemic and are spending money they saved or money they’re getting from the government. Thus, a combination of soaring pent-up consumer demand and persistent supply chain disruptions has tarnished an otherwise robust economic recovery.

The Bureau of Labor Statistics said the Consumer Price Index of food, energy, goods and services rose by 0.8 percent in November, pushing annual inflation above 6.8 percent. The level is the highest since 1982 and it also marked the sixth consecutive month in which annual inflation rates have exceeded 5 percent.

Currently, approximately 70 percent of Americans rate the economy negatively, with nearly half of Americans blaming Biden for inflation, according to a recent Washington Post-ABC poll.

This combination of economic challenges and consumer worries may make this an especially good time to consider investing in stocks that pay consistent dividends.

A few important things for investors to know about dividend stocks:

  • Dividend payouts typically happen quarterly, although there are a few companies that payout monthly.
  • Many high-quality companies routinely raise their dividend payouts, helping hedge against inflation.
  • A stock’s dividend yield moves in the opposite direction of its stock price, all else being equal, so a high yielding stock may be reason for caution.

Fidelity research finds that dividend payments have accounted for approximately 40% of the overall stock market’s return since 1930. What’s more, dividends have propped up returns when stock prices struggle.

Dividends account for about 40% of total stock market return over time

US stock returns by decade (1930–2020). Over various decades, dividends have remained a fairly steady component of stocks’ total returns amid more highly volatile stock prices. Past performance is no guarantee of future results. Source: Fidelity Investments and Morningstar, as of 12/31/2020.

To invest successfully in dividend stocks, one of the keys is finding companies with strong balance sheets and with secure payouts that can grow consistently over the long haul. Moreover, it’s important to understand the concept of dividend yield, which investors use to gauge how much dividend income their investment will produce.

Investing in dividend stocks

When selecting dividend stocks, it’s important to keep dividend quality in mind. A quality dividend payout can grow over time and potentially be sustained during economic downturns. It’s the primary reason investors must not focus solely on yield.

Steve Goddard, founder and chief investment officer of Barclay, prefers companies with high returns on capital and strong balance sheets. “High return-on-capital companies usually by definition will generate a lot more free cash flow than the average company would,” he says. And cash flow is what pays the dividend.

Although overall dividend health has improved markedly since 2020 and looks good heading into 2022, it’s equally important to check a company’s dividend policy statement so you know how much to expect in payment and when to expect it. Dividend yield is a stock’s annual dividend expressed as a percentage of its price.

It’s crucial to recognize that a stock’s price and its dividend yield move in opposite directions, as long as the dollar amount of the dividend doesn’t change. Investing in the highest-yielding shares can lead to trouble, notably dividend cuts or suspensions and big capital losses

This means a high dividend yield may be a red flag of a problem with the underlying company. For example, a stock’s yield may be high because business problems are weighing down the company’s share price. In that case, the company’s challenges may even cause it to stop or reduce its dividend payments. And before that happens, investors are likely to sell off the stock.

Fidelity Investments’ research has found that stocks that reduce or eliminate their dividends historically have underperformed the market by 20% to 25% during the year leading up to the cut.

Also consider the company’s payout ratio—the percent of its net income or free cash flow it pays in dividends. Low is usually good: A low ratio suggests the company may be able to sustain and possibly boost its payments in the future.

“As a rule of thumb, no matter what the payout ratio is, it is always important to stress test a company’s payout ratio at all points in the business cycle in order to carefully judge whether it will be able to maintain or increase its dividend,” says Adam Kramer, portfolio manager for the Fidelity Multi-Asset Income Fund.

“It all depends on the stability of the cash flows of a company, so it’s more about that than the level of payout. You want to test the company’s ability to pay and increase the dividend under different scenarios. In general, when the payout ratio is more than 50%, it’s a good reminder to always stress test that ratio,” Kramer explains.

Be sure to diversify as you build a portfolio of dividend-paying stocks. To help manage risk, invest across sectors rather than concentrating on those with relatively high dividends, such as consumer staples and energy.

References:

  1. https://www.fidelity.com/learning-center/trading-investing/inflation-and-dividend-stocks
  2. https://www.barrons.com/articles/quality-dividend-stocks-51639134001
  3. https://news.yahoo.com/inflation-pinch-challenges-biden-agenda-200620196.html

Past performance and dividend rates are historical and do not guarantee future results. Diversification and asset allocation do not ensure a profit or guarantee against loss. Investing in stock involves risks, including the loss of principal.

Investors Need to be Patient and Rational

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“It’s a textbook example of why panic is not a[n investment] strategy, unless you’re deliberately trying to lose money.” Jim Cramer, CNBC Mad Money Host

CNBC Mad Money Host Jim Cramer made his comments after the stock market indexes moved higher after a previous major market downturn due to COVID-19 Omicron variant concerns and fear. Wall Street experienced a strong melt-up session led by the technology heavy Nasdaq Index’s 3% jump.

Markets had sold off sharply on November 26, with the Dow, S&P 500 and Nasdaq all losing more than 2% in market cap value as investors knee-jerked reacted to the discovery of the Omicron variant.

“I want you to use it as a reminder that, most of the time, it pays to wait for cooler heads to prevail rather than freaking out in a situation where everyone else is freaking out and lost their heads without complete information,” Cramer said.

“Look, it would’ve been great if you bought stocks something near the lows—that’s what I urged you to do, actually, even if you had to hold your nose because we were simply too oversold. I was relying on technicals,” Cramer said. “But the cardinal sin here was selling stocks out of fear, rather than sitting tight out of rationality.”

The obvious takeaway for investors is that fear and panic are not sound investment strategies, “…unless you’re deliberately trying to lose money.” Never make permanent investment decisions based on temporary market circumstances.

References:

  1. https://www.cnbc.com/2021/12/07/cramer-stocks-recent-rally-shows-need-for-investor-patience-not-fear-.html

Retail Investor Inflation Strategy

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Inflation refers to an aggregate increase in prices, commonly measured by the Consumer Price Index (CPI).

The federal government has pumped trillions of dollars into the economy through deficit spending and stimulus measures since the COVID-19 pandemic began. Meanwhile, the central bank of the United States, the Federal Reserve, has dropped interest rates to near zero and has committed to keeping them there through 2023.

The Federal Reserve’s mandates are to manage the money supply and set the federal funds interest rate in an attempt to keep inflation within a reasonable limit. This reasonable level of inflation is maintained because it encourages people to spend now, thereby promoting economic growth, rather than saving, as a dollar today is worth more than the same dollar tomorrow on average.

A constant level of inflation helps maintain price stability and is thought to maximize employment and economic well-being. Investors expect returns greater than this “reasonable,” average level of inflation, and workers expect wage increases to keep pace with the increasing cost of living.

The Consumer Price Index tracks prices for a broad range of products such as gasoline, healthcare, and groceries. The CPI rose 6.2% in October from the same month in 2020, the biggest spike since December 1990, according to the Labor Department.

High and variable inflation is considered bad for both investors and the wider U.S. economy because it can eat away at the value of financial assets denominated in the inflated currency, such as cash and bonds, particularly longer term bonds with more interest rate risk.

The prospect of variable or high inflation introduces uncertainty to both the economy and the stock market, which doesn’t really benefit anyone. This uncertainty or variable inflation distorts asset pricing and wages at different times. Prices also tend to rise faster and earlier than wages, potentially contributing to economic contraction and possible recession.

“Cash is not a safe investment, is not a safe place because it will be taxed by inflation.” Ray Dalio, Bridgewater Associates

In an inflationary environment, “cash is trash” since inflation operates like a tax which causes saved dollars lose value over time. High inflation rates decrease the purchasing power of money and it discourages people from holding cash assets and saving. “Cash is not a safe investment, is not a safe place because it will be taxed by inflation,” Bridgewater Associates’ Ray Dalio, the founder of the world’s biggest hedge fund said on CNBC Squawk Box.

Here are several suggestions for investors to consider to counter the risk and derisive impact of inflation on assets and the economy.

  • Consider buying equity stocks like bank stocks or consumer goods companies that will benefit from higher inflation or higher interest rates. Banking, consumer staples, energy, utility, and healthcare equities are likely to perform well. Banks would come out ahead if the Federal Reserve eventually raises interest rates to combat inflation, and banks’ spreads between loans and deposits widen. Also, look for companies that benefit from rising labor costs and be very attentive to how much you pay for (e.g., the intrinsic value) of risk assets.
  • Consider buying TIPS, or Treasury inflation-protected securities, which are a useful way to protect your investment in government bonds. These U.S. government bonds are indexed to inflation, so if inflation moves up, the effective interest rate paid on TIPS will too. TIPS bonds pay interest every six months, and they’re issued in maturities of 5, 10 and 30 years. Because they’re backed by the U.S. federal government, they’re considered among the safest investments in the world.
  • Avoid fixed income assets such as corporate and government non-TIP bonds. If rates rise sharply, their principal value will take a major hit. If rates climb, then certificates of deposit, fixed annuities, bonds, and bond funds purchased today will look less attractive in the future. Similarly, buying a lifetime income annuity is less enticing in an inflationary environment. The monthly check you get for the rest of your life will lose value more quickly with high inflation.
  • Keep the right sort of debt. Don’t pay off that home mortgage or real estate investment mortgages early, you’re better off paying it off over time with watered-down dollars. Homeowners carrying fixed mortgages with low interest rates are in a great position. It’s highly recommended to refinance your mortgage to lock in low rates. If inflation takes off, homes prices are likely to climb and your fixed monthly payment may appear like a real bargain in a few years.
  • Consider commodities or gold. Investing in oil, natural gas, wheat and corn can be good hedges against inflation. Gold has traditionally been a safe-haven asset for investors when inflation revs up or interest rates are very low. Gold tends to fare well when real interest rates – that is, the reported rate of interest minus the inflation rate – go into negative territory. Investors often view gold as a store of value during tough economic times.
  • Make essential purchases and charitable giving. If consumers expect to spend money on home goods, renovations, car repairs, or other products and services, they might be better off doing so now, before prices climb even higher.
  • Expect rising health costs. Health costs have risen faster than inflation for years. The pandemic, which is driving some health professionals out of the field, could accelerate that trend.

Keep in mind that inflation is always happening within the economy, but hopefully at a relatively low and steady rate, and kept under control by the Federal Reserve. Investors with a long time horizon, a high tolerance for risk, and a high allocation to stocks shouldn’t be worried about short-term inflation fears.

However, it’s perfectly suitable and even desirable for retirees, risk-averse investors, and those with a short time horizon to have some allocation to inflation-protected assets like TIPS, REITs and bank stocks.

Rising inflation is a big concern for investors, but it remains to be seen whether current high levels of inflation will persist or end up being due to “transitory” factors. Investors will likely come out ahead using assets like equity stocks, REITs, short-term nominal bonds, and TIPS to hedge against inflation.

References:

  1. https://www.barrons.com/articles/protect-finances-from-inflation-51637782342
  2. https://www.optimizedportfolio.com/inflation/
  3. https://www.bankrate.com/investing/inflation-hedges-to-protect-against-rising-prices/

Difficult Financial Conversations

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The financial realities of being a woman — 4 out of 10 people—men and women alike—do not realize that women need to save more for retirement. Life expectancy, the pay gap, health care costs, and career interruptions due to caregiving are all contributing factors, according to Fidelity Investments Women Talk Money.

Video: 5 Investing Conversations to Have Now with guest: Anna Sale, host of the podcast “Death, Sex and Money” and author of “How to Talk About Hard Things”
Hosted by Lorna Kapusta, Head of Women Investors at Fidelity Investments

“Money is like oxygen. It’s all around us. We can pretend it’s not but we need it to breathe. When you don’t have enough you really feel it.” Anna Sale, host of the podcast “Death, Sex and Money” and author of the book “How to Talk About Hard Things”

“Money is at once a tool which is the choices we make around money, what we spend it on, how we save it”‘ says Anna Sale. “And money is also a symbol which brings up all these questions about am I enough, am I worthy enough, am I living up to all these expectations for myself. When we talk about money as a tool, sometimes the symbolic ways that money kind of makes us feel lots of big feelings can distort those conversations about money being a tool.”

References:

  1. https://www.fidelity.com/learning-center/personal-finance/women-talk-money/investing

Things to Consider When Saving, Investing and Building Wealth

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Saving for the future, investing to grow your money and building wealth has little to do with the economic cycle, the stock market valuation or even how much money you earn.

It’s your mindset that can hinder your financial outcome and keep you trapped at an unsatisfying level of financial success. And, unless you can embrace a positive financial mindset, your ability to save, invest and build wealth will be hindered for the rest of your financial life.

The process of investing and wealth-building can be improved by a adhering to the following tips to set yourself up for potential financial success and freedom:

1. Start Early

It’s important to invest a percentage of your salary each month. And, starting early could be a way to dramatically increase your savings over time. The good thing about starting early is you can get the benefits of compound interest!

2. Set Investment Goals

Are you saving up to buy a house? Or putting money away for retirement? Investing with a purpose will help you determine the right strategy and keep you on track to pursue your financial goals. Determine your financial freedom number.

3. Know Your Time Horizon

If you think you’ll need the money within the next five years, you might consider less volatile investments, like fixed income securities. Investing for the long-term (think: 15 or more years)?  You might think about adopting a less conservative strategy.

4. Assess Your Risk Level

Knowing how much risk you’re willing to take on will help you narrow down your investment choices and keep you from letting your emotions guide your investing during periods of high market volatility.

5. Analyze Your Budget

Take your monthly income and take a list of your monthly expenses and create a budget (for instance, the popular 50/30/20 budget). By looking at your spending, you may discover extra money to invest each month.

6. Know Your Investment Choices

Familiarize yourself with different investment types to see what makes sense for you. Are you interested in international stocks and ETFs (exchange-traded funds)? Maybe bonds and mutual funds?

7. Go It Alone or Use an Advisor

If you’re the independent type, you may be drawn to Self-Directed Trading. Or if you prefer an advisor or to automate your investments with a Robo Portfolio.

8. Consider Avoiding Individual Stocks and Bonds; Invest in Market Index Funds

If you’re still learning the ropes, you might be more comfortable sticking to broader based investments like index funds and ETFs. These types of investments require less of your time and are less risky since they invest in numerous companies. As an alternative, an market index fund is an investment that tracks a market index, typically made up of stocks, like the S&P 500, or bonds. Index funds typically invest in all the components that are included in the index they track,

9. Diversify Your Portfolio

If all your investments are your company’s stock, and they go out of business, you’ll wish you had a diversified portfolio. You may reduce your risk by holding a variety of securities that react differently to market changes.

10. Think Long-term

History shows whenever the market takes a dip due to volatility, it eventually bounces back. Be patient and disciplined: Give your money time, make consistent contributions and wait out inevitable market downturns.

11. Don’t Forget High Interest Debt

School loans or credit card debt can make allocating money to investments a tough choice. It’s possible to reduce your debt and invest, and we can help you accomplish both.

12. Get Your Match

Many employers offer a 401(k) match, which can be a great incentive to invest for retirement, helping you to potentially build tax deferred savings.

13. Save and Invest for Retirement

When you’re young, retirement seems like eons away — but for many, regardless of age, now is the best time to start saving for your golden years. You may consider looking into Traditional and Roth IRAs to get started. The typical retirement strategy is built on the pillars of your pension, 401(k) plan, your Traditional IRA, and taxable savings.

14. Automate Your Contributions and Pay Yourself First

Pay yourself first instead of saving what remains after monthly expenses. Set up recurring investments to take advantage of dollar cost averaging. With this strategy, instead of trying to time the market, you invest the same amount each month — sometimes you might buy high, but other times, you’ll purchase low.

15. Beware of Fads

Just because everyone is jumping on the latest meme stock or investing app doesn’t mean you should. Fad stocks are often unpredictable, so if this doesn’t align with your investment strategy, feel confident to sit them out.

16. Be Informed

A prospectus sheet details the performance of a company to help you understand its stock performance. And digital tools can help you track your investments, too. If you cannot dedicate time to read and research, invest in a market index fund which is one of the easiest and most effective ways for investors to build wealth.

17. Don’t Neglect Your Emergency (or Peace of Mind) Fund

Investing grows your money and helps build long-term financial freedom, but you need to be prepared for short-term unexpected expenses. So when setting out on your own, don’t forget to start setting aside funds in an emergency (or peace of mind) fund. This money should be liquid (not invested in securities), so you can access it for unexpected expenses.

18. Watch Out for Fees

Some brokers will charge a commission fee whenever you buy or sell stocks, which add up and make a dent in your overall returns. Trade U.S. stocks and ETFs commission-free with our Self-Directed Trading.

19. Ask for Help

Investing can get complicated. Don’t be afraid to reach out to a financial advisor for advice and support.

20. Adjust as You Go

As life circumstances change, it might make sense to move your money into different types of investment accounts or change up how much you contribute. Any time your financial circumstances change, remember to reassess your financial goals, plan and investments.

21. Create and Follow a Financial Plan

Every living adult needs to financially plan. A financial plan is a comprehensive overview of your financial goals, net worth, cash flow, debt, taxes, risk tolerance, time horizon and it provides the steps you need to take to achieve and manage them.

22. Investing has risks.

No one knows exactly what will happen in the future and investments could lose money, so be aware of how much you are able to invest and be comfortable leaving it there for a period of time since it may have ups and downs.

23. A Wealthy (or Positive Financial) Mindset

It’s imperative that you refocus your mindset and change how you think about yourself, your finances, and the world around you. If you keep thinking about things the same way, you’re going to get the same results. Change in the world around you doesn’t happen until you change yourself. Embrace and grow your positive financial mindset about money, wealth and financial freedom.

Getting Started

Getting started is often the hardest step for most new investor to take, but starting to invest today is advice worth implementing! “The best time to plant a tree is twenty years ago; the second best time is today.” And, what’s true for a tree is also true for growing your money.

References:

  1. https://www.ally.com/do-it-right/investing/things-to-know-when-investing-in-your-20s/
  2. https://www.harveker.com/blog/11-principles-infographic-financial-freedom/

Own Your Net Worth and Cash Flow

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8 out of 10 women will be solely responsible for their financial well-being. Some women will be ready. Many won’t. UBS Wealth Management Report

As women’s life expectancies increase and the rate of divorce for individuals over age 50 continues to climb, more women will find themselves solely responsible for their own current and long term financial well-being.

UBS Wealth Management embarked on research–Own Your Worth–to explore women’s thoughts and feelings, the challenges they faced, lessons they learned and advice they would impart to other women.

With the wisdom of hindsight, nearly 60% of widows and divorcees regrettably wish they had been more involved in long-term financial decisions while they were married, according to UBS’ findings. A full 98% of them urge other women to become more involved early on.

Unfortunately, too many women ignore the advice of widows and divorcees. In direct contrast to the advice, many married women are taking a lesser role in managing the household finances. In a counterintuitive twist, Millennials are the most willing to leave investing and financial planning decisions to their husbands.

Fifty-six percent of married women still leave investment decisions to their husbands, according to UBS. Surprisingly, 61% of Millennial women do so, more than any other generation. What’s more, most women are quite content with their backseat role when it comes to investing and financial planning.

UBS’ research reveals many reasons for women’s abdication, from historical and social precedents to family, gender roles and confidence levels.

So. why do women minimize their role in major financial decisions? According to USB’ research, the reasons vary:

  • Gender roles run deep – Gender roles are ingrained from early in life and often prove hard to shake. In many cases, married couples are simply imitating the gender roles they witnessed growing up.
  • Men are still the breadwinners – Within families, 70% of men are the main breadwinners, in part because of the gender pay gap and the career breaks women take to raise children.
  • Time constraints are challenging – Whether married or not, women have many demands on their time. They take on the majority of household duties, including childcare and chores, as well as paying bills and tracking spending.
  • Competence vs. confidence – Together, history and society have conspired to affect women’s financial confidence. Both women and men think men know more about investing, and women are less confident than men in making major financial decisions. Women consistently underestimate their own abilities while overestimating what is required to be financially involved.

Yet, most study respondents participated in some financial decisions while married, from handling cash flow and bills to saving and investing. Regardless of their level of engagement, however, most agree it wasn’t enough. The research shows:

  • 59% of widows and divorcees wish they had been more involved in long-term financial decisions
  • 74% don’t consider themselves very knowledgeable about investing
  • 64% of widows blame themselves for not being more financially involved (53% of divorcees)
  • 56% of widows and divorcees discover financial surprises
  • 53% would have done fewer household chores to find more time for finances
  • 79% of women who remarry take a more active role

USB recommends three actions to take today

The advice from women who have been there is clear: The time to become involved in your family’s present and future financial well-being is today, not when some unforeseen events happen in the future.

Women are encouraged to get involved in their financial well-being as a form of self care, much in the same way you would take care of your health by:

  1. Owning your worth – Know where you stand and what you want for the future. Take the time to add up your assets and liabilities, like loans, credit and other debts, and ask for full transparency from your partner.
  2. Finding your voice – Start the conversation with your partner. Talking about money is considered taboo to some couples, particularly before they are married. But if you found yourself alone tomorrow, do you know what you’d do to make sure you’re financially secure? There is a tremendous benefit to having open communication about money with a trusted confidante.
  3. Setting an example – Model financial partnership for your family and loved ones. According to our survey, women are repeating the gender roles they saw growing up. As you begin taking a more active role in your finances, you can set an example of financial partnership for the younger generation.

Though women are aware of their increasing longevity and the financial needs associated with it, most tend to focus their efforts on short-term financial responsibilities such as managing the household’s day-to-day expenses and paying the bills.

In contrast, taking charge of long-term financial decisions, such as investing, financial planning and insurance, can have far more impact on their future than balancing a checkbook.

By sharing decisions jointly, both women and men can face the future with optimism—and set an example of financial partnership for generations to come.

Almost 60% of women do not engage in the most important aspects of their financial well-being: investing, insurance, retirement and other long-term planning. USB Wealth Management Report

References:

  1. https://www.ubs.com/content/dam/WealthManagementAmericas/documents/2018-37666-UBS-Own-Your-Worth-report-R32.pdf
  2. https://www.ubs.com/us/en/investor-watch/own-your-worth/_jcr_content/mainpar/toplevelgrid_1797264592/col2/teaser/linklist/link_2127544961.2019551086.file/PS9jb250ZW50L2RhbS9XZWFsdGhNYW5hZ2VtZW50QW1lcmljYXMvZG9jdW1lbnRzL293bi15b3VyLXdvcnRoLXJlcG9ydC5wZGY=/own-your-worth-report.pdf

Growing Your Money

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When investing your money in the stock market, doing your research and investing in what you know are crucial elements of successful investing. You don’t have to be a financial expert to start buying stocks, but the more you know going in, the more likely your investing journey will be successful.

It’s critical to understand that stocks represent legal ownership in a company; you become a part-owner of the company when you purchase shares.

People ultimately invest in stocks with one end-goal in mind: to grow their money and build wealth.

But it’s important to note that growing your money and building wealth are not guaranteed. Investing in individual stocks carries much more risk than buying bonds or putting your money in index funds.

As you begin to research stocks, first know how much risk you can take, or your risk tolerance, and your time horizon.

Financial experts typically recommend that you only invest money that you can afford to lose and, since investment returns are typically maximized over the long term, only invest money that you won’t need in the short term (less than three to five years).

Stock’s Value vs. Price

Buying stocks equates to owning companies which lets you be a part of something that’s normally very exclusive. It allows you to invest in pieces of well-known companies, such as Amazon, Google or Apple.

A company’s stock price has nothing to do with its value, because the share price means nothing on its own.

The price of a stock will go down when there are more sellers than buyers. The price will go up when there are more buyers than sellers.

A company’s performance doesn’t directly influence its stock price. Investors’ reactions to the performance decide how a stock price fluctuates.

The relationship of price-to-earnings and return on equity is what determines if a stock is overvalued or undervalued. Essentially, You should make no assumptions based on price alone.

Knowing when to sell is just as important as buying stocks. Most retail investors buy when the stock market is rising and sell when it’s falling, but smart investors follow a strategy based on their financial plan and requirements.

Benjamin Graham is known as the father of value investing, and he’s preached that the real money in investing will have to be made not by buying and selling, but from owning and holding securities, receiving interest and dividends, and benefiting from the stock’s long-term increase in intrinsic value through compounding.

Learning how to invest in stocks might take time, but you’ll be on your way to growing your money and building your wealth when you do so. But, keep your risk tolerance, time horizon and financial goals in mind,

References:

  1. https://www.thebalance.com/the-complete-beginner-s-guide-to-investing-in-stock-358114