Financial Idea: Should I Be Buying Gold Or Looking At Emerging Market Stocks?

Yes, if you don’t think what you’re doing currently is risky enough.

Both types of investments are what are known as “niche investments”, along with other examples such as high-yield or “junk” bonds, and they can seriously mess up your portfolio by introducing wide price swings that make it very unpleasant to stay invested for the long term.

Warren Buffett has said, among multitudes of things, that you should invest in something with the idea that you can’t trade back out of it tomorrow or anytime in the next three years.  In other words, that you should have the confidence in what you’re getting into that you can, while not ignoring it, be comfortable with holding it for the long term.

Taking that approach is going to keep your investment costs down for one thing, even when you’re paying a commission to trade.  It’s also likely to help you keep your stress levels down.  If you’re the sort of person who has to read the financial pages or watch the financial TV shows every day, you’ve gotten too close to the picture.  Imagine being in an art gallery and standing with your nose two inches away from a painting and pretending to able to objectively evaluate it.  That’s roughly the same thing.

Now, if you really like gold and/or emerging market stocks Read More …

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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

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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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Why Did The Stock Market Drop After Last Week’s Unemployment Report?

The stock market dropped after last week’s unemployment report for one reason, and one reason only.  That reason is short-term investors.

We’re not talking about the proverbial day traders here, but ordinary people with ordinary fears and concerns who are not able to distance themselves emotionally far enough from their money to do serious investing.  We’re talking about most people.

We’re not just talking about unemployment reports.  We’re talking about any economic “news”, such as housing starts, manufacturing orders, foreclosures, mortgage rates, trade deficits, and a few dozen other factors which can be interpreted to mean different things by different people.  Primarily though, we’re comparing what actually happens with what “experts” forecast.  Even though we’ve seen a marked decrease in the number of new jobless claims, the unemployment numbers last week were a tiny bit higher than what was forecast.

This is not unlike the famous, or infamous, “guidance” which many companies offer as to how much money they will earn per share of their stock.  For example, 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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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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Warren Buffett Gives Financial Advice to Girl Scouts at Dairy Queen

Youngsters wanting to make blizzards of money got valuable advice from financier Warren Buffett who was visiting his local Dairy Queen for the launch of the new Girl Scouts Thin Mint Blizzard.

Surrounded by a group of Girl Scouts in his hometown of Omaha, Buffett offered this tip for college students: “The biggest suggestion I have is to avoid credit cards. Interest rates are very high on credit cards. Sometimes they are 18 percent. Sometimes they are 20 percent. If I borrowed money at 18 or 20 percent, I’d be broke. . . . So if I had one piece of advice for young people generally it would be to just avoid credit cards,” he said.

And what advice does Buffett have for a new investor? “I would do a lot of reading before I invested,” he replied. “In other words I would prepare for it. I wouldn’t jump in the water until I know how to swim. . . .I read every book the Omaha Public Library had about investing by the time I was 11.”

On qualities Buffett looks for in employees? “The biggest thing I look for is if they have a passion for whatever they are going to do,” he said.

http://www.whattoinvestinnow.com/

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10 Investing Books Recommended By Warren Buffett

Over the years, Warren Buffett has recommended many books in a variety of venues about a variety of subjects. Continuing our ongoing series of books recommended by Buffett here we highlight ten books that Buffett has recommended on investing.

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Take on the Street: What Wall Street and Corporate America Don’t Want You to Know. What you can do to fight back

by Arthur Levitt

The Securities and Exchange Commission’s longest-serving chairman, supervised stock markets during the late 1990s dot-com boom. As working Americans poured billions into stocks and mutual funds, corporate America devised increasingly opaque strategies for hoarding most of the proceeds. Levitt reveals their tactics in plain language, then spells out how to intelligently invest in mutual funds and the stock market. His advice is aimed squarely at small, individual investors, as he explains how to look for clues of malfeasance in annual reports, understand press releases and draw more from reliable sources.

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns

by John C. Bogle

Read More …

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