What’s A Dumb Financial Question?

Oh good, an easy question! ?

There isn’t one.
Say you came into my office and asked me a question, I explained the answer, and you nodded and went about your business, understanding a little bit of the answer but not really why or well enough even to remember a week later. Would I have done my job? Not really, or at least not yet.

That’s how a lot of information gets “shared” these days though. “Answers” are disseminated across the TV and the Web by people who know what they’re talking about and by people who don’t. Some of them are in official positions and so “should know” and others are not so official, like many bloggers, but could and do really know.

The opposite is also true,but what’s really important to you is, do YOU know? After all, it’s YOUR money.

Here’s my approach: Read More …

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How did dotcom companies become so overvalued in the late 1990s?

A great example of a dotcom company that suffered the classic fate of many in the 1990s was VA Linux.VA Linux specialized in hardware, computers and servers that used the Linux operating system as opposed to the Windows version. The founders, Larry Augustin and James Vera, had discovered a niche in the hardware business. In the throes of the internet boom, when a “back of the napkin” business model was considered too formal for the new paradigm, a profit-making tech company that was not traded publicly was unthinkable. Thus, VA Linux was cajoled into an IPO.

The VA Linux IPO was an extremely hot issue. In retrospect, it has become a good example of just how out of control the dotcom bubble became in 1999. On December 9, 1999, VA Linux shares went on sale at an offering price of $35. By the end of the trading day, they were selling at over $235. Later that week, they broke $300. Normally, a steep rise in share price is to be expected as unseasoned securities are snapped up and traded by speculators. A rise of almost 700%, however, would seem to suggest gross negligence on the part of the investment bank underwriting the issue. Not that the founders of VA Linux were complaining; in a single day, they had gone from owning a company of modest profits to paper millionaires - siliconaires, to use the lingo of the times.

Unfortunately, the VA Linux IPO came just before the dotcom bubble popped. Over the following year, Augustin and Vera watched their company shed value at an alarming rate. By April, their stock was down below $50. By December, it was trading for less than $10. In 2001, VA Linux flirted with becoming a penny stock. In 2002, the stock spent most of the year trading for less than a dollar. From 2001 onwards, VA Linux, renamed SourceForge Inc., reworked its business into a software development firm – a move that helped the company rebuild. In 2006, SourceForge recorded its first profit since its IPO. In 2008, the company has traded around the $1-3 range – a far cry from the $300 it once commanded.

This question was answered by Andrew Beattie.

Resource: http://investopedia.com

Technorati Tags: Financial Ideas, Investing strategy, Retirement

Is Tech Stock Hot? Technology Financial Ideas

My goodness… I guess it’s time for that one again.

So, why do I say that?  I mean, lots of gurus on the net are saying that.  It’s simple, lots of gurus are indeed saying that, and lots of other gurus are saying that this sector is hot or that sector is hot, and you’d be foolish to ignore them (so they say).  Other gurus are saying this sector is cold or that sector is cold, and you shouldn’t touch them with a ten-foot pole.

Keep in mind that the reason they’re saying what they’re saying is because they often are trying to sell you their newsletter with even more detail about whatever it is they’re touting, probably with recommendations you’ve never heard of.  That can only mean it must be a great secret that hopefully you still have time to cash in on……right?  They do this because it’s far easier to conduct their business at arm’s length with no regard for you or your unique purposes.

Read More …

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Some Financial Advisors Are Doing Well In Today’s Economy

Why is this? It’s because they have the presence of mind to step back and look at the big picture. Remember the chart in the last article (below) about saving money in an IRA for 50 years?

Look at the early years in that graph.

That was a test.

What are the early years? The first one, two, three? There’s hardly any difference between that and the start. “You mean I’ve been investing for three years with you now and I’ve hardly made anything? I’ll never get anywhere!”

Read More …

Technorati Tags: Compound interest calculator, how to invest, Invest young, Rule of 72, the rule of 72, young investors

Don’t Be Apprehensive About The Market!

“Oh, my gosh! Did you see what happened in the stock market today? It was down almost 120 points!”

Ever heard that before? If you haven’t, you will. The question is: should you listen? The answer is: only if you like being really depressed one day and really excited the next day, because that’s typically what happens? Sometimes we get really good days back-to-back and sometimes really bad days a few times in a row, but that’s still not stepping back far enough.

Let’s say you’re 40 years old, and you started putting money into the stock market 20 years ago. The S&P 500 was trading at approximately 340 points, compared to nearly 10,000 today. Or maybe you’re 50 and your start was 30 years ago. The S&P 500 then was trading for about 100 points. So between 1979 and 1989, the market tripled. Between 1989 and 2009, the market grew by 33 times!

Isn’t that a better concept to stick in your mind than what most of the media is alarming you with lately? Like a market down about 33% in the past two years?

The only reason – at all – to be concerned about the short term in the market is if you plan to retire in the next few years. If you’re younger than that or if you like your job, you should be taking advantage of the magic of compounding returns to get you in a position where you have choices! Having the choice to work or not work is a whole lot better than needing to work to make ends meet. That’s when you might have no choice but to be really aggressive, which can hurt a lot if things don’t go the way you hoped.

And don’t listen to people who say you can’t be too conservative, because you can be! Remember my article (below) about the Rule of 72. If you put all your money into CDs right now, your money will grow at a rate lower than inflation. I don’t know about you, but I’d like my money to double sooner than three to four (or more) decades!

Still confused about the right thing to do? Let’s talk, and create a plan that’s right for you and your family.

Email: John@financialideasblog.com

1.888.379.4352  Extension 1000

Technorati Tags: Financial Ideas, how to invest in stock, How to Invest Stock, Interest Only, play the stock market, recovering economy, Stock investing, Stock Market advice, stock trading, US finance, What to Invest In, what to invest in now, young investors

What’s The Difference Between A Stock And A Bond?

This poses an interesting question because it highlights how many people really have no idea about the different type of investment “vehicles”, as they are often called.

*You know what “equity” is, right?

Especially if you own a home, it’s the difference between what you owe and what you own.  If you have a $300,000 house and you owe $200,000, then you have $100,000 in equity, or ownership.

Stocks are much the same thing, except that what you own is (typically) a VERY small piece of a major company.  In most cases, you’ve already paid for it in full, and therefore you own it outright with no debt.  (It is possible to borrow ownership, but that’s a level 200 course).

This is why stocks are often called equities, and vice versa.  Think of yourself as a part owner, you can attend the annual meetings and vote on issues as requested by the board of directors – using what are known as “proxy statements”.

You will probably have a very limited impact on the direction of the company unless you own 5% or more of the outstanding stock, what most people buy stocks for is to Read More …

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I’m Not Convinced, ­ “I Just Don’t Want To Play The Stock Market”

Of course you don’t, I understand that completely.  I don’t “play” the market either.  I don’t even know where the phrase “playing the stock market” even comes from.  Although I have to acknowledge that it is very common terminology, I think it is not only misleading, but a widespread cause of misunderstanding about what an investor is actually doing.

A true investor is actually taking a very calculated, well-researched and probably even mostly safe although not guaranteed position that owning a piece of a company, or piece of a group of companies, or maybe even a piece of the debt that a company or a government owes, will pay that investor enough of a return to warrant the associated risk that comes with making that move.

On the other hand, “Playing The Market” is the same thing as gambling, whether it be on high-risk stocks that could go through the roof, or on horses or at the casino or the lottery, where in order, your chances of profiting go downhill and fast.  (I once had a professor in college tell my class that we each individually had a better chance of being randomly chosen to be a U.S. Senator than we had of winning the Super Lotto Jackpot!).

Read More …

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How Can I Educate Myself About The Stock Market?

Before we go there, I think the first question here really is: “Why should I even invest at all?” The underlying answer that most of us have to that question, even if we don’t say it, is: “That’s too risky. I know people who have lost everything doing that.  I’m not that dumb, I’ll just save in a savings account.”

Learning the Rule of 72

So the first answer to educating yourself is to ask yourself: “Do I know what the Rule Of 72 is?” and “How does it affect me, anyway?”

What Is The Rule Of 72?

The Rule Of 72 goes back at least many hundreds of years.  Luca Pacioli, an Italian mathematician, referenced it sometime during the 15th century as a convenient way to determine how long it takes your money to double, assuming you know the interest rate it earns. Luca didn’t explain the rule much, meaning it probably goes back even further than that, but the principle still holds true today.

Here’s an example:  start with any amount of money; let’s say $100.00 to be simple.  Read More …

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Invest For The Long-Term? What’s That? I’m Young!

Okay, one of most common pieces of “conventional wisdom” out there regarding investing goes like this: Young people can be really aggressive, and they should!  They might hit it really big, and if not, well, who cares?  They’re young and have plenty of time to start over and do it right the next time.
Technically, that’s correct, and yes, it’s true that hindsight is golden!  In this case, here’s why: it’s almost impossible to adopt that mindset and simultaneously hold the thought in your mind that you’re going to get older and someday not have plenty of time to start over. Instead, what we humans do is talk ourselves into believing that we’ll do it right the next time.  But wait a minute – why not just take the pressure off for your whole life and do it right the FIRST time?  If you’re past that, okay, take some of the pressure off the rest of your life and get started doing it right!

What’s doing it right? Oh, that’s easy, we find the next Microsoft, like those lucky people did back in 1985 or so.  The key word there is “lucky”. Read More …

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Fed’s Say U.S. Recovery Is Underway

By Mark Felsenthal and Alister Bull

WASHINGTON (Reuters) – The Federal Reserve on Wednesday upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession, while reiterating its promise to hold interest rates very low for a long time.

The Fed also said it would slow its purchases of mortgage debt to extend that program’s life until the end of March, in a move toward withdrawing the central bank’s extraordinary support for the economy and markets during the contraction.

The U.S. central bank, as widely expected, held its benchmark overnight lending rates at close to zero percent.

“Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn,” the Fed said in a statement after its two-day policy meeting.

“Conditions in financial markets have improved further and activity in the housing sector has increased,” it said.

U.S. government bond yields ended lower on the news that the central bank had reiterated a pledge to keep rates ultra-low for an extended period.

“I think it confirms that the economy still needs a little bit of help and that rates aren’t going to go up anytime soon,” said Alan Lancz at Alan B. Lancz & Associates in Toledo, Ohio.

But a stock market rally fizzled on concerns Read More …

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