Tag Archives: Investing

Saving vs Investing

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“…(wealthly) people see every dollar as a ‘seed’ that can be planted to earn a hundred more dollars … then replanted to earn a thousand more dollars.”

T. Harv Eker, Secrets of the Millionaire Mind

Only about 55 percent of Americans invest in the stock market, according to a 2015 Gallup poll. For Americans to create and grow wealth, they must save and take steps to learn about and start investing.

Saving and investing often are used interchangeably, but there is a significant difference.

  • Saving is setting aside money you don’t spend now for emergencies or for a future purchase. It’s money you want to be able to access quickly, with little or no risk, and with the least amount of taxes.
  • Investing is buying assets such as stocks, bonds, mutual funds or real estate with the expectation that your investment will make money for you. Investments usually are selected to achieve long-term goals with increased risk and volatility. Generally speaking, investments can be categorized as income investments or growth investments through capital appreciation. 

Start Investing Early

One of the best ways to build wealth is by saving and investing over a long period of time. The earlier you start, the easier it is for your money to grow. If you have a workplace retirement plan, consider enrolling and maximizing your contribution—there are tax advantages and you may even be eligible for a match from your employer. Set up regular, automatic contributions. Investing early is especially important for retirement.

Make savings a priority

Keep your focus on your dreams and goals. Do the best you can to save and invest at least 15%-20%. It may not be always possible to hit that target every year due more pressing financial demands, but try. Your future depends on your efforts—make your retirement a priority.

Consider this …

If you deposited $2,000 in a savings account at 3 percent annual interest, it would grow to $3,612 in 20 years (before taxes). The same $2,000 invested in a stock mutual fund earning an average 10 percent a year would grow to $13,455 in 20 years (before taxes).

Reference:

  1. http://www.gallup.com/poll/182816/little-change-percentage-americans-invested-market.aspx

Corporations: Value Based and Purpose Driven

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“Doing good is good for business”

According to one corporate Chief Marketing Officer who spoke at CES 2020, sixty-three percent (63%) of global consumers purchase items from companies with purpose. Said another way, a majority of global consumers, either consciously or unconsciously, purchased goods and services from companies whose overriding purpose and values were to make the world better. Purpose must be more altruistic than just increasing shareholders returns through capital gains and growing revenue, cash flow, earnings and dividends.

Salesforce.com

Marc Benioff, founder and Co-CEO of Salesforce.com, strongly advocated that corporations, especially big technology companies, must be a force for good and that brands can play a major role in doing good. He conveyed the message during a C-Suite session this month at CES 2020 that businesses can be mutually financially successful, sustainable and philanthropic business. He stated the point that a business can and should successfully serve the interests of all stakeholders, which includes the planet. In his opinion, every corporate CEO should adopt a public school, public hospital or combat homelessness in the community they operate. In short, all stakeholders have to matter; and, the planet and local community are key stakeholders.

“Don’t read people’s lips; Watch their feet.”

Marc’s company, Salesforce.com, from its beginning is 1999, has made trust its major value and serving all stakeholders’ interests which include giving back to its community a core purpose. Putting action to their words, the company has directed one percent (1%) of corporate resources which is over $300 million (profits, equity, and time) into giving back to the community. He went as far as proposing a corporate tax to battle homelessness. As a result, Salesforce.com has been regularly ranked as one of the best places to work in America and has had a 4,000 percent return on investment (ROI) for their shareholders.

“Businesses are the greatest platform for change.”

In his opinion and how he designed Salesforce.com, businesses are the greatest platform for change and people are basically good; his intent when he left Oracle to start Salesforce.com was to create a company culture based on trust and optimized to enable employees to do good. He felt that “…purpose is defined by the company; it cannot be enforced”.

Stakeholder Capitalism

Stakeholder capitalism, Marc Benioff opined, is a more fair, a more just and a more equitable form of capitalism than its predecessor. It means paying men and women the same. It’s means embracing values of trust, truth and doing the right thing over time. He often asks technology companies’ CEO’s and boards what are their priorities, what are their highest values, and what is truly important to them. Since in his view, making money is easy; doing the right thing takes effort and dedication.

But, leadership is about who you are and what you do. CEO’s of major technology companies must look at their values and purpose. They must assess whether they’re using these influential platforms to make the world better or just to make money. Despite the recent negative news surrounding big technology companies like Facebook on issues of privacy and impacting the U.S. Presidential elections, Marc stated that they can do both…make the world better for all stakeholders and make money for shareholders.

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

The No. 1 secret to long-term investment success – MarketWatch

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The key to long-term success is to pick a good strategy and then establish a lifetime commitment to maintain that strategy regardless of what’s going on at the moment.

In the short term and the medium term, the market is unpredictable and seemingly random. But over the long term (I’m talking decades), it’s easier to figure out and predict.

If there’s a “secret” to long-term success, it’s managing your expectations.

— Read on www.marketwatch.com/story/the-no-1-secret-to-long-term-investment-success-2020-01-21

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

Stocks Have Outperform Other Asset Classes

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For the next decade, which asset class among stocks, bonds, real estate, cash, gold/metals, or bitcoin/cryptocurrency, would be the best vehicle to invest money for the highest long-term total returns?

Since 1890, the S&P 500 (or its predecessor indexes) has outpaced inflation at a 6.3% annualized rate (when including dividends). Long-term U.S. Treasury Bonds have produced an annualized inflation-adjusted total return of 2.7%. Finally, U.S. real estate has produced an annualized return above inflation of just 0.4%, as judged by the Case-Shiller U.S. National Home Price Index and the consumer-price index.

Yet, the U.S. stock and bond markets are currently overvalued, and it is plausible that real estate will do better than either stocks and bonds over the next decade.

According to almost all standard valuation metrics, U.S. equity stocks currently are somewhere between overvalued overvalued. Furthermore, you can only partially explain away this overvaluation because of low interest rates.

Given stocks’ overvaluation, it’s entirely possible that stocks will over the next decade have the potential to fall short of their historical averages.

To the contrary, real estate has been relatively undervalued and historically less volatile than the stock market—a lot less as measured by the standard deviation of annual returns.

As a result, real estate has proven to be less riskier than equities. Yet, the misperception that real estate is riskier has been derived from the leverage typically used when purchasing real estate adds inherent risk to investing in real estate. Essentially, the risk for real estate comes from the leverage, not real estate inherently.

If there is a major stock bear market in the next decade, real estate might be the better investment just because of it’s lower risk and relatively undervalued.

Sources:

  1. https://www.marketwatch.com/story/the-single-best-investment-for-the-next-decade-2019-08-08
  2. https://www.marketwatch.com/story/stock-bulls-are-telling-themselves-a-lot-of-lies-about-this-market-2019-06-04

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

Paying Yourself First

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“Why would you wake up in the morning, leave your family, not do what you want with your day, go to work all day long for 8, 9, 10 hours a day, commute back home, get up and do it all over again? Why would you do this 5 days a week, 4 weeks out of the month, 12 months out of the year? Why would you do all that to earn money and not pay yourself first? Most people pay everyone else before themselves: the government, their creditors, and their bill collectors. Everybody else gets paid first and then if anything’s left over, then they pay themselves. That system stinks and is designed for you to fail financially. If that’s the system you’re using right now, and you don’t have money, that’s why. The odds are set up against you. It’s too tough for you to get rich if you’re paying everybody else first. You need to change this. You need to completely redirect your income so the first person who gets paid is you.” David Bach, The Automatic Millionaire

Paying yourself first is often referred to as “the golden rule of personal finance.” Paying yourself first means saving before you do anything else with your paycheck, like paying bills, buying groceries, or shopping. You allocate a percentage of your pay or income to a savings or investment account. Paying yourself first prioritizes savings and investing, but not at the expense of necessary expenses like housing, utilities and insurance.

Prioritize savings

If you deposit money directly into savings or brokerage account every time you get paid, you may be less likely to spend it on your everyday expenses. Following this system can help you foster a habit of saving that will add up over time and help you be prepared for retirement or unexpected expenses.

A good target is to save 10 – 15% of your take-home pay and put it toward your savings and investment goals. Saving even $125 or $150 a month is one small step you can take to help you get into the habit.

The first bill you pay each month should be to yourself.

By paying yourself first, you make saving a top priority. You make it a priority to pay your savings and investment accounts first, before making the first monthly payment or paying the first bill.

Most people say they don’t save enough money for retirement, or invest enough, or save a big enough emergency fund, because they don’t have the money to save more. That’s why personal finance advice says that you should pay into those savings and brokerage accounts first. Treat it like a bill. Approach it the same way that you treat your phone bill or your electric bill.

Most people wait and only save what’s left over after paying bills or spending on other discretionary items—that’s paying yourself last. Conversely, before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save. Put the money into your 401(k), your Roth IRA, or your savings account.

Automate Your Savings

A quick way to begin paying yourself first is by setting up an automatic transfer to a savings or retirement account every time you receive a direct deposit, like a paycheck.

Most people wait and only save what’s left over after paying bills or spending on other discretionary items—that’s paying yourself last. Conversely, before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save. Put the money into your 401(k), your Roth IRA, or your savings account.
Paying yourself first makes saving money and investing in assets a priority without sacrificing other financial needs and obligations. No matter what your level of earning or responsibilities are, you can afford to pay yourself first with a few small changes.

Most people wait and only save what’s left over after paying bills or spending on other discretionary items—that’s paying yourself last. Conversely, before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save. Put the money into your 401(k), your Roth IRA, or your savings account.
Most people wait and only save what’s left over after paying bills or spending on other discretionary items—that’s paying yourself last. Conversely, before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save. Put the money into your 401(k), your Roth IRA, or your savings account.

Most people wait and only save what’s left over after paying bills or spending on other discretionary items—that’s paying yourself last. Conversely, before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save. Put the money into your 401(k), your Roth IRA, or your savings account.

Most people wait and only save what’s left over after paying bills or spending on other discretionary items—that’s paying yourself last. Conversely, before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save. Put the money into your 401(k), your Roth IRA, or your savings account.

Paying yourself first should really be called investing in yourself first.

7 reasons to consider this little-known retirement saving strategy – MarketWatch

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Despite enjoying the longest-running bull market in history, most preretirees have a substantial retirement savings shortfall.

The average 65-year-old in the U.S. will outlive their savings by almost a decade, according to a new report by the World Economic Forum. And the typical household nearing retirement has only saved enough in their combined 401(k)s and IRAs to provide them at most $600 a month, according to the most recent Federal Reserve Survey of Consumer Finances.
— Read on www.marketwatch.com/story/7-reasons-to-consider-this-little-known-retirement-saving-strategy-2020-01-09

How much money you’d have if you invested $500 a month since 2009

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CNBC calculated how much you’d have now if your investments had grown at a 4%, 6%, or 8% rate of return over the past decade.

In order to beat inflation and ensure that your savings will work for you long term, it’s crucial to invest in the stock market, whether through an employer-sponsored 401(k) plan, a traditional or Roth IRA, an individual brokerage account or somewhere else.
— Read on www.cnbc.com/2020/01/07/how-much-money-youd-have-if-you-invested-500-dollars-a-month-since-2009.html