Tag Archives: #FinancialLiteracy

10 Rules for Financial Success – Barron’s

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“Wealth isn’t about how much money you make – wealth is about how much money you save and invest.”

The true measure of financial success isn’t how much money you make—it’s how much you keep. That’s a function of how well you’re able to save money, protect it, and invest it over the long term.

Sadly, most Americans are lousy at this.

Even after a decade of steady economic expansion and record-breaking stock markets, almost two-thirds of earners would be hard-pressed to cover an unexpected $1,000 expense—a medical bill, car repair, or busted furnace—and more than 75% don’t save enough or invest skillfully enough to meet modest long-term retirement goals, according to Bankrate.com.

Even wealthy families aren’t getting it right: 70% lose wealth by their second generation, and 90% by their third. “Shirtsleeves to shirtsleeves in three generations,” as a saying often attributed to Andrew Carnegie goes.

What’s at the root of these bleak data? Stagnant salaries amid rising costs of health care, education, housing, and other big-ticket necessities have put a major strain on folks of all ages. But advisors point to a deeper issue: an almost universal lack of financial literacy.

“This is a much bigger problem than most people are aware of,” says Spuds Powell, managing director at Kayne Anderson Rudnick Wealth Management in Los Angeles. “I’m constantly amazed at how common it is for clients, even sophisticated ones, to be lacking in financial literacy.”

The ten rules for financial success are:

  1. Set goals
  2. Know what you’ve got and know what you need
  3. Save systematically
  4. Invest in your retirement plan
  5. Invest for growth
  6. Avoid bad debt
  7. Don’t overpay for anything
  8. Protect yourself
  9. Keep it simple
  10. Seek unbiased advice

— Read on www.barrons.com/articles/10-rules-for-financial-success-51558742435

Personal Finance: 4 Ways to Save Money and Improve Your Money Management Skills | Brian Tracy

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“Believe you’re the person you must become…”

Virtually every single person in America who is financially independent started off with nothing. But they acquired good personal finance habits, learned how to save money, and improve their money management skills, eventually becoming some of the most successful people in their communities. And anything that anyone else has done, you can probably do as well.

Save Money By Using A Long Time Perspective

To save money and become financially independent you must begin living on less than you earn even if you are deeply in debt. One of the most important guarantors of your personal finance success is called “Long time perspective.”

Take the long view.

Develop a long term attitude toward yourself and your financial future and begin thinking in terms of where you want to be in five and ten years. This long-time perspective will have an inordinate impact on your personal finance habits and money management skills in the present, and will help you save money over the years.

The starting point of financial independence is described in George Klasson’s book, The Richest Man in Babylon, as “Pay yourself first.” He says that, “A part of all you earn is yours to keep.” If you just save 10% of your gross earnings every single paycheck over the course of your working lifetime, you will become financially independent and gain personal finance success. In fact, if you saved $100 per month from the time you started work at age 20 until the time you retired at age 65, and this $100 per month earned 10% per annum return, compounded, you would be worth more than $1,100,000 when you retired, in addition to social security pensions and everything else. Major take-away from The Richest Man in Babylon are – pay yourself first, live within your means, invest your money wisely, and prepare for the future.

— Read on www.briantracy.com/blog/financial-success/personal-finance-money-management-tips-save-money/

9 Nuggets Of Rock-Solid Advice For Retirement-Age Clients | Seeking Alpha

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Summary

Investing in retirement is not a static activity.

It requires keeping up with and adapting to changes as we help our clients navigate the shifting investing landscape in the years ahead.

There will surely be plenty of surprises. Why not help our clients proactively prepare for them?

“If we collect a rock a year, by the time I’m ready to retire, we’ll have a lot of rocks.” – Michael Maslin, The New Yorker

Collecting rocks is not a great retirement strategy. But planning years ahead of time is. We are fortunate to work with clients who have had the foresight and discipline to save early and accumulate sufficiently large nest eggs for retirement.

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5 Retirement Rules to Live By

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Many people look forward to retirement because it represents freedom. You don’t have to get up and go to work every day or do what a boss tells you.

But just because your time is your own after you leave work doesn’t mean you have no rules to live by in your later years. In fact, it may be even more important to adhere to some guidelines to make sure you don’t run out of money when you’re living on a fixed income as a retiree. 

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Don’t Just Save…Value Invest

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Make the most of your money and that means investing.

For many Americans, investing can appear to be a frightening gamble. Memories of the 2008 financial crisis devastated investment accounts with paper losses more than ten years ago create the reluctance among many to invest.

However, in order to beat inflation and ensure that your savings will work for you long term, it’s crucial to invest in growth-oriented investments such as the stock market. Whether through an employer-sponsored 401(k) plan, a traditional or Roth IRA, an individual brokerage account or somewhere else, to build wealth and financial security, individuals must invest in the equity stock market. And, it is important to start investing as early as you can to give your money as much time as possible to grow.

Valuation matters, and it matters a lot.

Value investing rarely performs well in the short run. This is especially true during strong bull markets. Popular non-GARP (growth at a reasonable price) stocks are likely to be overvalued whereas unpopular value stocks will be where the best bargains can be found.

Consequently, being a value investor means being a patient investor and implies that an investor have a long-term mindset. Value investing rarely produces short-term results, because value investing usually also implies investing in out of favor stocks. This unpopularity is often why they have become bargains.

Moreover, value stocks are typically inexpensive for good reasons. Therefore, we need to ascertain whether the discounted stock price is justified or perhaps an overreaction by investors. These judgments can help us determine the level of risk we are facing and if we are being adequately compensated for taking it by the low valuations or not.

Additionally, in the long run value stocks often dramatically outperform and very often do so by taking on significantly less risk than other strategies such as momentum, or in many cases even growth. This is attributed to the fact that the risk is being mitigated by low valuation (price) and margin of safety.

As a result, the key benefit of value investing is the valuation risk mitigation element. Research demonstrates that stocks that are properly valued, or undervalued, are more defensive in a volatile or bear market.

Margin of Safety

Margin of safety is the difference between the intrinsic value of a stock against its prevailing market price. Intrinsic value is the actual worth of a company’s asset, or the present value of an asset when adding up the total discounted future income generated:

  • Deep value investing – buying stocks in seriously undervalued businesses. The main goal is to search for significant mismatches between current stock prices and the intrinsic value of these stocks. This kind of investing requires a large amount of margin to invest with and takes lots of guts, as it is risky.
  • Growth at reasonable price investing – choosing companies that have positive growth trading rates which are somehow below the intrinsic value.

Margin of safety serves as a cushion against errors in calculation. Since fair value is difficult to accurately predict, safety margins protect investors from poor decisions and downturns in the market.

Source: https://www.cnbc.com/2020/01/07/how-much-money-youd-have-if-you-invested-500-dollars-a-month-since-2009.html

Goals are Key

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“When you define your goals, you give your brain something new to look for and focus on. It’s as if you’re giving your mind a new set of eyes from which to see all the people, circumstances, conversations, resources, ideas, and creativity surrounding you.” Darren Hardy, author of Compound Effect

With goals, investors can create a realistic plan for achieving their investing objectives within a certain time frame. Since one of the biggest mistakes investors make is confusing investing with stock picking or trading. Ask many people how their money is invested and they might quickly jump to tell you the latest hot stock they’ve purchased and the investment thesis that explains why they think it’s going to take off.

Without an investment plan, what is the goal? Probably just to make some quick, easy money, which neuroscience has shown makes us feel good. Unfortunately, behavioral economics tells us that acting on such impulses tends not to end well. To be true to the term, investing must start with a specific goal corresponding to a set time horizon. The goal itself could be anything: buying a new car in two years; purchasing your first home in five years; or retiring in 40 years. What’s most important is to have the goal be the focus of your approach.

Once you’ve identified a goal, an investment plan can take shape. How much savings can you devote to it? How much time do you have? How realistic is the goal given the first two questions and the amount of risk you feel comfortable taking? If you choose to work with a Financial Advisor, he or she can help you find answers to these questions, and take you a long way to devising a strategy to help achieve that goal. 

Know your time horizon

How long do you plan to hold a stock and what purpose will it serve in your portfolio? Your trade time frame depends on your trading strategy. Generally speaking, traders fit into one of three categories:

  • Single-session traders are very active and are looking to gain from small price variations over very short periods of time.
  • Swing traders target trades that can be completed in a few days to a few weeks.
  • Position traders seek larger gains and recognize that it often takes longer than a few weeks to achieve them
  • Determine your entry strategy  Look for entry signals—for instance, divergences from trend lines and support levels—to help you place your trades. The signals you employ and the orders you use to make good on them hinge on your trading style and preferences.

Plan your exit

When it comes to an exit strategy, plan for two types of trades: those that go in your favor and those that don’t. You might be tempted to let favorable trades run, but don’t ignore opportunities to take some profits.

For example, when a trade is going your way, you could consider selling part of your position at your initial target price to make gains, while letting a portion run.

To prepare for when a trade moves against you, you can set sell stop orders underneath a stock’s support area, and if it breaks below that range, you can choose to sell.

Determine your position size

Trading is risky. A good trade plan will establish ground rules for how much you are willing to risk on any single trade. Say, for example, you don’t want to risk losing more than 2–3% of your account on a single trade, you could consider exercising portion control, or sizing positions to fit your budget.

Review your trade performance

Are you making or losing money with your trades? And importantly, do you understand why?

First, examine your trading history by calculating your theoretical “trade expectancy”—your average gain (or loss) per trade. To do this, figure out the percentage of your trades that have been profitable vs. unprofitable. This is known as your win/loss ratio. Next, compute your average gain for profitable trades and average loss for unprofitable trades. Then, subtract you average loss from your average gain to get your trade expectancy.

Profitable trades

A positive trade expectancy indicates that, overall, your trading was profitable. If your trade expectancy is negative, it’s probably time to review your exit criteria for trades.

The final step is to look at your individual trades and try to identify trends. Technical traders can review moving averages, for example, and see whether some were more profitable than others when used for setting stop orders (e.g., 20-day vs. 50-day).

Sticking to it

Even with a solid trade plan, emotions can knock you off course. This is particularly true when a trade has gone your way. Being on the winning side of a single trade is easy; it’s cultivating a continuum of winning trades that matters. Creating a trade plan is the first step in helping you think about the next trade.

Source:

  1. Lee Bohl, 5 Steps for a Smart Trade Plan, Fidelity Insights, November 21, 2019
    https://www.schwab.com/resource-center/insights/content/5-steps-smart-trade-plan?cmp=em-QYD
  2. www.morganstanley.com/articles/having-goal-key-to-investing

Know Your Net Worth | Financial Literacy

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“What gets measured gets managed.” Peter Drucker

This principle of ‘what gets measured gets managed’ means that examining or quantifying an activity, such as personal finance and net worth, will change the activity and its result by forcing you to pay attention to it.

This principle said another way…’you manage what you measure‘ is pertinent to personal finance. The principle can be applied to help us manage our personal finances and to permit us to get our hands around our personal net worth. Creating a net worth statement, and updating it each year, will help you monitor your financial progress and meet financial goals.

As you prepare to invest, you’ll need to know your net worth. And, it’s simple to calculate. You simply add up what assets you own and subtract what liabilities you owe.

Creating a net worth statement, and updating it each year, will help you monitor your financial progress and meet financial goals. It will also enable you to calculate how much you have (or don’t have) to invest.

www.finra.org/investors/personal-finance/know-your-net-worth

Many Americans are feeling these 3 big financial stresses – MarketWatch

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If you look only at the nation’s low, 3.7% unemployment rate, it would be easy to assume that the economy’s humming and that Americans are feeling great about their finances. But after reviewing five recent notable surveys, I believe many people are actually feeling three big financial pain points now.

Overall, according to the Bank of America Workplace Benefits Report of 996 retirement-plan participants, just 55% of employees rate their financial wellness as good or excellent, down from 61% a year ago. “That’s something to keep a close eye on,” says Lisa Margeson, head of Retirement Client Experience and Communications at Bank of America.

— Read on www.marketwatch.com/story/many-americans-are-feeling-these-3-big-financial-stresses-2019-10-02

The 5 Step Guide to Avoid Making Investment Mistakes

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“The only man who never makes a mistake is the man who never does anything.”

If you apply this famous quote by Theodore Roosevelt to investing, the easiest way to avoid mistakes while investing is by not investing at all. But, that is the biggest investment mistake one can make.

Investing is important to build wealth in the long term. However, just investing is not enough as investing right is equally important.
— Read on www.entrepreneur.com/article/343454

Why many Americans don’t have brokerage accounts | Yahoo Finance

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A new survey from JPMorgan Chase revealed that 21% of Americans don’t have brokerage accounts, or have any other way to invest other than their company 401K or pension plan.

Even a few hundred dollars a month put in a brokerage account, invested in the stock market and allowed to grow over multiple decades can make a difference in the long term.

Please go to: finance.yahoo.com/video/why-many-americans-don-t-142910567.html