Just a tip - if you currently rent and are looking to buy, make sure you're paying your rent with a check. A lot of the banks are asking for 12 months cancelled checks to prove on-time rental payments.
Recent Updates RSS
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Tip for the first-time homebuyer who is currently renting
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Apple's Mac Pricing Strategies In A Downturn - Joe Wilcox:
Apple must be doing something right to go from, in the US retail premium PC market, 66 percent revenue share in first quarter 2008 to 91 percent at the end of second quarter 2009.
The company has masterfully navigated the stormy economic waters that battered so many other companies.
While competitors slashed prices to protect market share and to pull sales, Apple sought to preserve the perceived value of the Mac brand.
Rather than lower entry-level pricing and move big time into the sub-$1,000 PC market, as some analysts recommended, Apple chose to do something else, in early June:
- Lower 15-inch and 17-inch MacBook Pros by $300
- Replace 13-inch MacBooks with Pro models for $100 less
- Effectively lower the Pro entry price to $1,199 from $1,999 -
How to successfully flip properties in a downturn? - Mark Y.:
I'm in the market some say is the worst in the nation, Michigan. So far I'm on track to well surpass any other years in income from real estate investing. This is mainly coming from flipping.
The margins are tighter, no doubt about it. However, the same basic principals apply: buy low, invest wisely in improvements, and sell for market price. That can be done in any market. But it takes a keen sense of market knowledge and having the right contractors on your team to make it work in a market such as this.
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Success Factors For Investing In Property - Paul B.:
Some factors are out of your control, such as
-interest rates
-changes in laws (e.g. Tax law of 1986)
-acts of GodOther factors that can influence your success can be learned, like
-how to do comps
-know how and what improvements to make
-how to find bargains
-property management skills
-what strategy you use in your areaSo whether or not it is a good time to sell will depend some on luck, but a lot on skills you can develop.
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Houses vs Commercial Properties for Rental Income vs Capital Gains? - Trace Trajano:
Don't buy houses and keep them. You've heard me right. Houses are not the way to go as far as generating cashflow, or cash that comes month in and month out whether or not you do some work for that month. Houses are good to sell - houses are capital gains play not cashflow plays. That is I've made money when I buy a house at a low price and then I sell it at a higher price.
I've bought houses but the cashflow isn't there. I've found that the real passive income comes from commercial properties - apartment buildings, retail mall, office buildings, mobile home parks, assisted living facility, etc.
However, nationwidepi says in a subsequent post:
While I agree that commercial is where the big fish swim and eat, and the profits have several more zeros behind them, this sounds more like a plug than anything.
Beginning investors don't usually jump in to large commercial deals and have success at them. This terrain is also where fish get fried! -
There is no such thing as a bad or good time to flip or sell properties - J S.:
For those people who think now is a bad time to be flipping and/or selling, you shouldn't be speaking so broadly ... it may be true in your market, but it's not true in every market. In fact, it's probably not true in your market either, if you know what you're doing.
I'm having no trouble flipping houses in this market. I'm averaging 1-2 per month, my typical DOM is under 30 days, my average profit is about $27K, and there is no shortage of buyers for my properties.
The key is doing your research. In my area, houses that meet very specific criteria (and also meet the criteria of the available buyers) sell very quickly. If you're buying based on that criteria, you should have no problem selling.
Just because everyone is saying that now is a horrible time to be flipping, don't assume it's true.
Note: DOM means Days on Market.
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Making Mistakes When Investing In Property - Travis S.:
It's better to make mistakes than to do nothing. Ready....... Fire....... Aim. Mistakes are our greatest teacher. You are doing the right thing by asking questions. Take actions and make adjustments. You can't really fail as long as you learn and apply knowledge.
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BiggerPockets Success Story: Two Real Estate Short Sale Flip Deals, Three Months, $50k in profits - Great interview with two successful real estate investing forum members:
Nick: Since joining BiggerPockets.com only a few months ago I’ve been able to network with some of the greatest minds that are currently investing in Real Estate. I can say that my business has actually made $25,000 dollars so far, since I’ve joined BiggerPockets, thanks to the networking opportunities that are available here.
Justin: Before joining BP I struggled for months to complete my first real estate (deals). I thought I did not have what it takes to be successful in this business. By joining BP I found a true real estate mentor who helped me close two deals in 3 months and profit $25,000. I am your proven success story that this site can jump start your real estate career.
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The Good and Bad of Debt Consolidation
What is a Debt Consolidation Loan?
A debt consolidation loan is basically a loan that lets you cover your various debts (credit cards, medical bills, and others).
Folks normally apply for such a loan for the following reasons:
- Avoid the hassle of having to pay many lenders
- Save time by not having to track and manage several different interest rates
But the biggest reason of all is that many expect to be able to pay lower interest rates than the effective combined rate that is currently being paid on all outstanding loans.
It is reasonable to expect that in the current economic climate where high interest rates are prevalent, doing a little bit of work researching ways in which we can reduce our loan obligations is the right thing to do.
Advantages of taking out a debt consolidation loan
Let's briefly examine the pros and benefits:
- potential to save on monthly interest payments
- enjoy savings measuring in the hundreds of dollars every month
- streamlines the payment process - one cheque made out monthly, rather than several
Cons / Dangers / Disadvantages:
Will you get a lower rate?
- depends on your credit score, FICO being one of the most widely used among lenders
- 14% to 15% if you have great credit, or if secured against collateral like your house
- 18% to 21% if your credit is bad, since you are perceived as a risky lenderSecured Debt Consolidation Loans
- Banks want to know which of your assets can be used as collateral
- Almost always, your home
- Your home will come under the banks ownership, and possibly be sold off or liquidated if you end up being unabale to pay the loanUnsecured Debt Consolidation Loans
- The exact opposite of the secured loan
- You don't have to put up your home or other assets as collateral
- Expect to pay a much more every month since these loans come with higher interest rateWhat to look out for when comparing debt consolidation loans?
- length or tenure of the loan
- what fees are levied
- any hidden charges eg penalty on early settlement
- monthly payments amount
- cost of add-ons or enhancement options
- impact on your credit score - ensure that taking on the loan doesn't further damage your credit score
- fixed or floating interest rateThe online way for comparing lenders
- Getting free online debt consolidation quotes
- There are several sites that offer quote comparison services, many of them are free
- Should be the first step in your search
- Convenient
- Remember that the one offering the lowest rates isn't necessarily the best
- Don't be shy to set up as many appointments as you can handle, then srutinize their T&Cs
- Get solid advice from forumsWhere to obtain debt consolidation loans?
- Credit Unions tend to be more lenient than banksSummary:
Debt consolidation loans, if managed wisely, is yet another useful tool to manage your finances. Interest rates on such loans are often lower than what is charged for credit cards, so you effectively get to pay off the loan much sooner, and at a lower monthly cost.
Like any other financial management tool or method, you have to be highly disciplined in its use, otherwise you might sink further into debt.
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How not to respond to lower consumer buying power
Thom Hogan on what a company should, or should not do, when consumer buying power is reducing in general, using Nikon as an example:
Nikon has already felt the closing of wallets. It's called "fewer unit sales." You can respond to that in a number of ways. You can lower prices, taking less profit on each item, and Nikon has done that for some of their highest volume products (mostly Coolpix). You can lower production, and Nikon has done that for most of their highest priced products. You can increase efficiencies (both in producing and selling your product), and Nikon seems to be trying to do that, too.
But you're missing one of my points: you want to RESIST lowering prices for as long as you can, otherwise you won't be able to regain that price when the economy recovers. The American car companies found this out the hard way: incentives became a way of life and permanently reduced the price of their product. On top of that, they didn't manage to have corresponding efficiencies in production that offset the loss of profit margin, so "poof", out went the dollars.
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Companies that do well in the current recession: Is Apple the only one?
Thom Hogan on the hows and whys of companies which are doing fine in the current recession, and to a suggestion that "Apple is pretty much the only company that continues to do well":
No, they're not. There are plenty of companies that continue to do well. From Walmart to Verizon. Even though Microsoft posted lower revenues, they're still enormously profitable and have no debt. And that's part of the thing people don't get when they read the headlines of company failures: many of the problems have to do with over leveraging the company. Even the NYT got caught in this one. If you're dependent upon debt to finance your company's current situation, the econalypse just bit your butt big time. You've got no way to refinance that debt, you have no way to boost sales to get more cash, you can't issue new bonds or stock, the list goes on. The whole crisis is about over leveraging, from subprime mortgages to buying CDS as insurance to leveraged buyouts turned sour (e.g. Chrysler). It's all overextension. Over extend and you're in trouble. Be in control and yes your sales may be down, but you'll survive. If the econalypse had hit five to ten years ago, Nikon would have been in trouble, as their debt load was much higher then and probably would have been unmanageable in a severe recession. Today, they're in much better shape, probably good enough to survive an extended downturn.
References:
- Apple
- Walmart
- Verizon
- Microsoft
- The New York Times Company
- Chrysler LLC
- Nikon
- Subprime mortgages - the crisis, what is it?
- CD (Certificate of Deposit)
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LiteForex Reviews and Resources
This post is a compilation of annotated links to LiteForex reviews, discussions and other resources.
Forum Discussions
ladyFx asks about liteForex the company. The user opinions and testimonials about Lite Forex seem to be positive.
Resources
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Continue running your business after filing for bankruptcy?
The decision on whether to continue with the business after a bankruptcy event is completely up to you.
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Why Home Ownership Should Be A Core Part Of Financial Planning
Scott Burn's article, "In the game of long-term investing, the house wins", makes for a compelling read.
Essentially, once your home is owned free and clear, it's difficult to match the return you get from that home with other sources of investment revenue.
The amount of "imputed income" your home gives you is tax-free, continually inflation-adjusted and is as important as Social Security retirement benefits for many retirees.
As Mr Burns says:
The more we own free and clear, the better off we are because free and clear ownership delivers valuable services without the burden of income taxes.
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Credit Cards If You Have No Credit Card History?
Most established banks, finance companies and other major card issuers will refuse to open an account for you and issue you a credit card until or unless you provide them with evidence that you will reliably make timely payments on your credit cards.
Your immediate objective should be to begin establishing a positive credit history.
The overall strategy towards achieving this objective is to first apply for credit cards that require no credit history for successful application and issuance.
You will then build up your credit history with these cards, making sure you pay on time, and in full, always.
Suggested Credit Cards
"Student" Cards
These are normally issued to those with little or no credit history.Secured Cards
A good issuer of these type of cards is Bank of America. You will be able to get a credit card for as little $300. The credit limit on that card is then set to the amount of the deposit. The other advantages of the Bank of America card are:- Low annual fee ($29).
- Bank of America has a history of converting deserving secured card accounts to unsecured, often in as little as 6 months. They are also quite willing to steadily increase credit limits thereafter.
Be an Authorized User (AU)
This strategy calls for having someone to designate you as an authorized user on their credit card. This shows trust on their part that you have integrity and are capable and willing to maintain payments. It's best to have a friend or relative grant you this favor, and the longer their account has been active (and in good standing), the better the potential score the issuers may assign in evaluating your credit qualifications.Cards from Gas Stations and Department Stores
These are usually easier to obtain as their use is extremely limited, and thus can be issued to those with minimal credit history. For instance, many people have reported high success rates with Target.The Hooters restaurant chain also sponsors a credit card, and have been known to be quite open to applicants with poor history. It's possible that they are open to those with no history at all. Here's a reassuring-looking graphic I captured from their site:
The Hooters card also features a full points rewards program and a year's subscription to their magazine.
Macy's
Pros:- They are very good at increasing your credit limit later on.
- If you're approved for Macy's, there is a high chance that you will get approved for Bloomingdale's as well.
The one disadvantage is that you might only get a $100 limit to start off with, but that shouldn't matter as you're only looking to begin building a positive credit history now.
Join a Credit Union
Ask around for the kinds of credit unions out there. You might be eligible to join one that is associated with your alma mater, community group or other affiliations.
They are initially strict about giving credit (due to the fact that credit unions are owned and controlled by their members, thus the members are bearing the financial risk), but they tend to be one of the more reliable sources of credit to established members.
At the very minimum, be sure to apply for a checking account upon joining.
Establishing a good relationship with a credit union is definitely a smart financial move.
Conclusion
If you're starting to build credit, keep any credit line for which you've applied and are approved, as long as there is no card fee. Every line that you establish and hold on to will go towards building your overall credit history, and this is invaluable when you have virtually none to begin with.
If you get a line of credit from established institutions such as Citi or Bank of America, it would be worth to keep maintaining those lines as an investment as they're known to reliably increase credit limits.
Only apply for credit lines which will truly benefit you, and for which there is a realistic prospect of being approved.
Once your credit history starts improving, you'll want to be selective about future applications. It means that you might have to wait to apply for cards which have a reputation for requiring strong credit scores until you're reasonably confident that your scores match their criteria for approval. Two cards which are known for having strict criteria are Discover (700+ FICO) and Sears (above 680).
You might like to start with Bank of America and Chase, two institutions which have been willing to extend credit to individuals attempting to rebuild their credit after a period of delinquencies.
Good luck!
[via cardratings.com]
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Credit Card Consolidation For the College Student
College students often find themselves paying only the monthly minimum payment on each of their credit cards due to limited funds. It is not uncommon however, paying only the minimum payment can lead to outrageous interest accumulation which can cause you to owe much more than you originally charged. Of course, this is what many credit card companies want. It is how they make their billions. Since you are a college student and you are about to enter the real world, you can be smart right now and think about using credit card consolidation to pay down those large balances.
How Does Credit Card Consolidation Benefit You?
The main benefit to credit card consolidation is lowering your monthly payment. All of your credit card debt is rolled up into one payment, which is most often lower than what you had been responsible for paying before with all of your payments combined. Credit card consolidation helps you to lower your amount of debt faster and can also save you money over time. And with your monthly payment lowered, you have more spending money throughout the month to use towards other college related expenses such as rent, books, or even a new computer to use for school assignments. Credit card consolidation is a wise choice for college students who want to enter the real world debt free.
How to Choose A Credit Card Consolidation Lender
There are several choices in lenders when it comes to credit card consolidation. A quick online search reveals about 814,000 results when you search for 'credit card consolidation lenders'. Your first choice should be to speak to your personal bank. If you have good credit and a bank account, you might be able to obtain a personal loan to use to consolidate your credit cards. This option allows you to keep your credit accounts open, which is the best choice. Closing your credit card accounts does not look good on your credit report. The longer you have kept a credit card account open and in good standing, the better your overall credit score will be. If you choose to use a personal loan to pay off your credit cards, be sure to watch out for high interest rates on the loan which could defeat the purpose of credit card consolidation. You can choose to use a debt consolidation company to help you with your credit card consolidation, but you will likely be asked to close your credit accounts. If you have a tremendous amount of credit card debt that you can't possibly pay off without help however, a debt consolidation company may be the best choice for you.
Be Smart About Consolidating Your Credit
If you are going to take the initiative to consolidate your credit cards, be sure to stick to your plan. That means you cannot rack up your credit card bills again just because you have zero balances. Additionally, you must be sure to make your monthly payments on time to keep your credit in good standing. As a college student, credit card consolidation can be a wise choice if you do it the right way and for the right reasons.
Learn how to take control of your personal finances by utilizing credit card consolidation debt management services. Read articles found at the personal finance budgeting portal http://www.moneyspud.com
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Quick Cash - How to Generate Short-Term Income
(An article by Michelle Siebert)
You may be having a financial crisis or maybe you would just like a little extra money to help with expenses, whatever the reason there are ways to generate some quick cash.
The first method is to sell one or more assets. Almost everyone has something that they could do without and that could easily be sold. You may have one of more large items such as: a boat, jet ski, stereo, extra vehicle, coin collection, jewelry, billiard table, gun, or furniture. Even if you don't have any large items to sell, you can still make some money selling your smaller items such as: decorations, clothing, movies, and toys.
There are several ways to sell or advertise your stuff. You could put an ad in your local paper or advertise on line. You could have a garage sale or set up a table at a flea marker. Some radio stations have weekly programs where you can call in and list your item.
A great place to advertise is Craig's List - http://www.craigslist.org Craig's list is simple and free to individuals. (They only charge to advertise job openings and rental property in some cities.) You can log on, click on Help Pages, and easily set-up an account and list your items. You can't get much easier and did I mention it is FREE. You will get more responses if you attach a picture to your ad. If you don't know how to do this, ask a teenager. They will know. Craig's list allows you to list one item every 48 hours.
Another great choice is re-sale shops. They are a good alternative when you do not have enough items to have a garage sale. A word of warning - do not spend everything you earn before you even leave the store - unless it is for something you really need or you defeated the purpose. Most re-sale shops charge about 50% of the selling price, so you should try to sell the more expensive items yourself and use the re-sale shop for the smaller priced items.
The second way to make some quick cash is to get a side job. Maybe the job is as simple as cutting the neighbor's grass for $30 a week to make some gas money. Think of how you could use your skills to provide a service for friends, neighbors, or others in your community. Some ideas would be - babysitting, house cleaning, auto detailing, auto repair, sewing, helping an elderly person with day to day activities, typing resumes, book-keeping, etc. One big caution - Do not go out and spend money getting ready to provide one of these services. This is meant to be a very low-cost project. If you decide you are going to offer Saturday night day care services and you go out and make business cards, buy sleeping bags, and stock up on toys you could very well spend more then you earn. (Maybe print a few flyers or business cards yourself or put a classified ad in the newspaper or on-line. You have a $10 limit. That's it.) Also, think long and hard before "investing" in any job, for example: a $100 sample kit so you can sell candles at home parties. There will be a future article posted on this site about starting your own business. Unfortunately, it does not work out for the majority of people.
If you don't think providing a service is right for you, getting a real part-time job may be a better fit. If you are currently working 40 hours a week, you could work another 10-20 hours a week at a second job. Just don't let it interfere with your primary job and don't talk about your second job while at your first job. If you talk about it your boss will be watching you expecting it to interfere. If your full-time boss finds out and asks you about it, assure him that it will not interfere and that your full-time job is your priority.
All of these suggestions take time and effort. It's not easy, but it is not extraordinarily difficult either. Think of it this way, any cash you generate is money that can be used to pay your expenses instead of going into debt further. You will be getting yourself out of a hole instead of digging a deeper one.
By Michelle Siebert
Ms. Siebert has over twenty years of financial management experience. Her website End of Your Money.com was created to provide families with information that will help them become financially strong and confident about their future. It contains information on how to budget, reduce expenses, and increase income.
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How to Escape the Stress of Mortgage Arrears
If you have missed any payments on your loans you need to check if they are secured or unsecured on your home. If they are secured then they need to be dealt with urgently as the lender has the power to take possession of your property if they are not paid. We are going to discuss secured loans and what to do if you miss these payments.
Contact your lender
The first thing you do is you need to contact your lender to confirm the amount you owe and the steps you intend to take to pay them back. Many lenders would rather put in place a payment plan than repossess properties but there needs to be dialogue between the lender and the mortgage holder. It is very tempting (and common) for people in arrears to bury their heads in the sand rather than face up to the situation but the earlier steps are taken the better it will be.Most UK lenders are regulated by the Financial Services Authority (FSA) who have rules saying lenders must deal fairly with any customer who is in arrears. In practical terms each lender must:
* have a written policy on how to deal with customers in arrears;
* allow customers to set up a payment plans which is realistic
* send out regular information about the arrears;
* Not put pressure on customers through too many calls or letters.If you took out a mortgage before 31st October 2004 and you think you are being treated unfairly by a lender, you can complain to The Financial Ombudsman Service (0845 080 1800). If you took out a mortgage after this date, then FSA rules apply and it is best to contact them directly (0845 606 1234).
Help towards paying your mortgage
If you need help towards paying your mortgage then there are a number of options you can consider.* Check that you are not entitled to income support, child benefit, pension credit, jobseekers allowance, working tax credit or child tax credit. Contact your local Department for Work and Pensions office or local advice centre for more information.
* Check to see if your mortgage has payment protection insurance. If it has but you are still refused this contact the national debt helpline.
* Check to see if your lender will buy your home and rent it back to you (these are pretty rare and known as mortgage rescue schemes).
* Check rent back schemes by private companies as they can buy your home and rent it back to you (similar to the mortgage rescue schemes). They can often offer you the option to buy back your home at a later date when you have overcome any debt problems. Please check below for links to one such specialist company.Arranging to pay off the arrears.
Do not arrange to borrow more money to pay off your existing debts as this will make matters worse in the long term. Switching all loans to a cheaper interest rate may be a sensible solution but increasing your debts is not.
In order to pay off arrears on secured loans you will usually have to pay extra monthly amounts to your lender. Lenders will sometimes ask for the arrears to be cleared over 12 to 24 months. Ask for a longer time to pay the arrears if you cannot afford to do this. If you cannot manage to clear the arrears as quickly as your lender wants, start paying the amount you have offered anyway and explain why you can only afford this, particularly if there are special circumstances (i.e. long-term illness, birth of a child, relationship breakdown or unemployment).
Other options to consider
* Change from an endowment mortgage to repayment/interest only mortgage
* Change from repayment mortgage to interest only to reduce monthly payments.
* Try and move onto a cheaper rate with your existing lender or move to a different lender.What if I still can not afford my mortgage or arrears payments?
* Look for ways to increase your income (i.e. by renting out a room in the property) or reduce your other outgoings.
* Sell and rent back your home from a specialist rent back firm. Often the rent charged is less than previous mortgage payments.
* Sell your home and move to a cheaper home that you can afford.What if they threaten to evict me?
If you have been given a court order (via the post) you will normally have 28 days notice of the hearing date. This court order does not mean you will be evicted on the date of the court hearing. This is just so the court can hear the case for and against your eviction. In order to understand the court hearing and preparation required we suggest you contact your local citizens advice bureau or national debt helpline.
Being in mortgage arrears is an incredibly difficult time for those experiencing them but it is very important to take action at the first instance of arrears. Unfortunately, many people get evicted unnecessarily by ignoring their lenders threats due to the stress of facing up to the situation.
Carl Robinson is an experienced property consultant and investor. If f you are in mortgage arrears and want to achieve a quick home sale or selling and renting back check out http://www.quick-homebuyers.co.uk
This site can also provide you with a Free comprehensive report on how to avoid repossession.
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Buying a Foreclosure on a Bank Property
An article by Shawn B
The ways of picking up a foreclosure on a bank property varies depending on where you live. In some states and provinces, it is possible to go to an auction to buy a house that's been foreclosed. In other areas, the bank may want the property to go into the MLS and be sold like any other house. But there are other ways.
There are rewards waiting for people that decide to do a little more leg-work. Some banks will allow you to get onto a short-list for their foreclosures, and you can then submit a bid in writing. That is one step closer, but not quite the most sure-fire way of finding a foreclosed house at a discount.
A lesser practiced technique is for you to go around to all the banks in your area and ask to speak to the manager in charge of "non-performing assets" or foreclosures. Sit down with them and let them know who your are and what your plan is. Using this technique, it won't take too long before you shoot yourself up the list of interested buyers. That manager will remember you because now you're not just a name on a paper. They now have a face to the name and they will have an easier time identifying with you. This is also called "top of the mind awareness".
By simply staying in touch with bank managers, you will be part of a group of investors that get to hear about foreclosures before many others. Not all banks do this and it isn't done in all states or provinces, but sometimes you get lucky. Though, more often than not, you may still have to submit a bid, but that's still 90% closer than what the rest of the world is willing to do.
It's important to note that you should already have your financing in order and ready to make a purchase before you start shopping for a foreclosure. Banks do not want to wait for someone to go get qualified. Remember that money likes speed.
Sign up for weekly real estate foreclosure ideas at cosmeticallydistressed.com
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Simulated Credit Scores with Ten Questions
Bankrate.com has a credit score calculator (dubbed the FICO Score Estimator) that uses a set of 10 questions.
Answer these questions and you'll get an estimate of your score.
Get started on the simulator right here.
[via]
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Put-Call Equivalency Table
The following stock options / shares positions are identical in theory and are useful for evaluating if the same objective can be obtained in a better way.
But identical prices are not necessarily guaranteed because what is essentially ignored are interest costs on money spent to buy stocks and complying with margin requirements for short options and dividends received on stock ownership or dividends paid on short stocks.
- Long 1 call = Long 1 put and long 100 shares of stock
- Long 1 put = Long 1 call and short 100 shares
- Long 100 shares and short 1 call (covered writing position) = Short 1 put
- Short 100 shares and short 1 put = Short 1 call
- Long 1 put and long 1 call (long a straddle) = Short 100 shares and long 2 calls, or Long 100 shares and long 2 puts
- Short 1 call and short 1 put (short a straddle) = Long 100 shares and short 2 calls, or Short 100 shares and short 2 puts
- Long 1 straddle and short 100 shares = Short 200 shares and long 2 calls, or Long 2 puts
- Long 1 straddle and long 100 shares = Long 2 calls, or Long 200 shares and long 2 puts
- Short 1 straddle and short 100 shares = Short 2 calls, or Short 200 shares and short 2 puts
- Short 1 straddle and long 100 shares = Long 200 shares and short 2 calls, or Short 2 puts
Data extracted from The New Options Market by Max Ansbacher
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Dealing with options trading frustrations
It's often said that the two greatest secrets to success in options trading is:
- Patience
- Money Management
I can't stress this enough: Master the principles of patience and money management, or the options market will master you!
The only thing that separates the winners or losers in this game is how well you hold your head together, and think clearly when the market or trade isn't going your way.
If you don't know how to deal with frustration when trading options, you'll lose your capital faster than you can say "Where's my money at?"
I know, I've been there. Losing $8000 dollars in a month doesn't do wonders for the ego. Worse, if you learn nothing from your losses, your string of setbacks in future option trades is almost guaranteed.
How many times have you had the feeling that the options market knows exactly when you've entered, and what positions you've taken, and then it goes against you? Superstitions aside, it's understandable that we feel this way, especially after a string of losses (they add pretty quickly, don't they?) but since you're on your way to mastery of the options game, you can't allow these thoughts to defeat you.
The first thing you need to do when the odds are stacked up against you is to remember this rule: Do not ever give any position you have any love. If it didn't work, and all signs are saying that you shouldn't go in on this stock again, then don't. Do not get hung up on a name. Move on. There are many more profitable stocks and trades that are waiting for you out there.
Always follow your trading plan. What - are you telling me you don't have one? Remember my story about losing $8000 in a month? Well, I didn't have a trading plan. Wait, I did - my plan was to make money and become rich fast. Doesn't sound much like a plan, does it?
Moving on to you, start constructing a trading plan pronto if you want to ensure your survival in options trading. Contrary to what most people think, a trading plan isn't one that's going to make you rich yesterday. No. no and no. A trading plan helps keep your financial boat afloat.
If you can preserve your capital for at least a year, executing on disciplined and well-researched trades will ensure that your instincts are sharpened, and the wealth of trading experience is what will put you on the road to eventual wealth. Without the trading plan though, you're not going to survive long enough to amass that wealth of trading experience and instincts.
One practical tidbit that seems to be ignored by most traders who don't do well is this: None of your trading positions should make up more than 2% of your trading capital. I don't know why almost nobody takes this advice to heed. Perhaps it's because all of us are too caught up in the idea of The One Big Thing.
Wake up, it doesn't exist. The trading plan and risk management is what will keep you in the game long enough to one day make the amount of money you wanted to make. Which do you think is the way forward - staking 80% of your capital on one trade (yeah, that one big thing), or having 50 well-researched trades, each taking up only 2% of your capital? I don't need to give you the answer to this question do I?
With 50, well-researched option positions, and remembering to cut your losses according to your trading plan, you start to focus on your trading system as a whole, rather than being banged up (and frustrated) on your losers. So what if you have 30 losers? You caught your losses on them, didn't you? And you're left with 20 winners - cool beans!
You want your gains to outnumber your losses, and once your account is starting to grow at a healthy rate, your losses become unimportant. Crucially, you start to think like a true business person, always seeking out new investment opportunities. Investments which turns sour are simply done away with, while the good ones are nurtured. You can't get to this level without risk diversification, and that, my friend, is the secret behind those who win, and those who're still wondering what hit them.
Take trading holidays when the need arises. Regular employees have annual holidays, why not you and your trades? A good reason to have a trading holiday where you stop all trading activity is if your entire account dropped a certain percentage. Stop trading immediately, don't get emotional. Examine why your account dropped. Re-analyze your trading system and your assumptions.
Another reason to take a trading holiday is when the market simply isn't cooperating. Yes it happens. When it's choppy and there's no clear direction, why trade? Because you think someone else is making money and you should get your cut too? Nonsense - yeah, at any given moment, somebody is making money, but let me tell you that nobody is consistently making any significant amounts of money during these periods.
So, stop your trading, relax, learn up more trading stuff and sharpen your skills. When the market is ready, those who are prepared (financially, emotionally and intellectually) can then come in and share in the trading spoils.
Conclusion
In options trading, those who get frustrated easily are sure to lose in the end. Their thoughts are riddled with regrets "If only I had ...", "But I was sure that this position should ..." and so on and so forth.
Realize, quickly, that the market doesn't know who you are or care for your thoughts. There will always be more losers than winners, and if you want to come out winning, make sure you master your emotions, have a trading plan and put a money and risk management policy in place. Simply put, you will come out a winner because the masses refuse to put into practice these basic elements.
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Investing in Water - The New Oil?
Note: This is the third article written by my friend who goes by the pen name of "Sake_demon" and is an expert on stock market investments. You'll learn a lot from it - enjoy!The Thesis
I note with interest all the news that is generated by the EPA and environmental NGOs about the scarcity of fresh water. There’s no doubt that fresh water is one of the few precious resources on the face of the planet, it is also a known fact that water resources all over the world is under threat; ironically, the main factor that threatens this precious resource is the world’s very own population growth.
According to Water Partners International (www.water.org) :
- 1.1 billion people lack access to an improved water supply - approximately one in six people on earth.
- 2.6 billion people in the world lack access to improved sanitation.
- Less than 1% of the world's fresh water (or about 0.007% of all water on earth) is readily accessible for direct human use.
- A person can live weeks without food, but only days without water.
- A person needs 4 to 5 gallons of water per day to survive.
- The average American individual uses 100 to 176 gallons of water at home each day. (6, 7)The average African family uses about 5 gallons of water each day.
- Millions of women and children spend several hours a day collecting water from distant, often polluted sources.
- Water systems fail at a rate of 50% or higher.
- Every $1 spent on water and sanitation creates on average another $8 in costs averted and productivity gained.
And one more thing,… the global water infrastructure is in real (desperate) need of repair and upgrade.
In Oct 18, 2007, the Water Infrastructure Network estimated the 20-year need for clean water infrastructure at approximately $300b-$500b over the next 20 years. This claim is also supported by the EPA and Congressional Budget Office (http://www.win-water.org/news/101807article.shtml).
Mind you, the $300 - $500 billion estimate is very likely going to be a much bigger number as nobody can truly predict cost effectively over a 20-year time frame, IMHO.
Do take note that we should be grateful that the water industry is regulated and this means we do not have to pay exorbitant price for a liter of water. Imagine having to shell out $1,000 per month for drinking water.
The main downside of a regulated market is, of course, the companies dealing with water utilities are not raking in the dough. Having said that, I believe this is where good governance comes into the picture and plays the part it supposed to – ensuring the population gets access to clean water without being subjected to corporate greed; and I am all for that.
Having said my piece without veering too much into being political, let's find out how we can participate in the potential boom in this industry.
Investing in Water Resources
Those of you who are reasonably seasoned in the stock industry would know that you can invest directly in water utilities. However, you will also be aware that the utilities industry needs to be regulated and is a very difficult industry. Most of the time, an investor wouldn’t particularly classify the water utilities as a "growth" sector; and that's a good thing, mind you.
However, as mentioned above, the infrastructure involved in obtaining, treating and delivering safe, clean water to the population is in dire need of various stages of upgrade and repair. This means that the engineering firms servicing this segment will be seeing an increase in demand for their products and services.
My first and very possibly the most cost effective way to invest in this industry would be to invest in the PowerShares Water Resources ETF (AMEX ticker: PHO).
This ETF ("Exchange Traded Fund") offers investment opportunities that tracks the Palisades Water Index. Based on the information from it’s website as of Nov 30, 2007, the ETF invests in 35 companies that relates to the water consumption in one way or another. With an annualized expense ratio of 0.66%, this ETF has a year-to-date return of 16.36% so far.
For a more global reach, PowerShares launched the PowerShares Global Water ETF (AMEX ticker: PIO) on June 13, 2007. As of Nov 30, 2007, the ETF has 40 positions in various companies around the world. It’s expense ratio of 0.75% p.a. is pretty reasonable for a global fund.
For those of you who are more inclined to take risk, you might want to take a closer look at the positions held within the ETFs as disclosed by the funds.
Of the holdings that are disclosed, Veolia Environment (Depositary Receipts listed on the NYSE under ticker VE) offers a great opportunity given the fact that it has been in the business since 1853 and currently is one of the well-established (pure play) operators in the industry. However, with its current price at $92.80 per share, the stock is trading at a trailing price multiple of 29x which may seems fairly valued.
Besides Veolia, I am also impressed with the performance of ITT Corporation recently.
Having won the contract to implement the upgrade of selected US civil air traffic control systems for the US’ FAA (Federal Aviation Administration), ITT Corporation expects their defense electronics and water units (both segments totaling approximately 85% of revenue) to be the key growth driver in 2008.
Besides, ITT Corporation’s Fluid Technology segment derives 46% of the division’s revenue from non-US markets (33% Europe + 13% rest of world). With the global demand to develop and upgrade its water infrastructure, it is very likely that the non-US segment of Fluid Technology is poised for further growth.
Moreover, ITT Corporation in fact has been consistently able to beat or meet Wall Street expectations over the past quarters and this consistency is rarely seen in the industry.
The company has also given a very favorable 2008 guidance and based on the recent price action below $65 per share, I believe this stock is worth researching further into for addition into your portfolio.
Disclosure: I hold stocks of Veolia Environment and ITT Corporation personally
Links to Useful Resources:
Water Resources:
http://water.usgs.gov/
http://www.win-water.org/reports/winow.pdf
http://water.org/waterpartners.aspx?pgID=916
http://www.lib.umich.edu/govdocs/stenv.html
http://waterindustry.org/Water-Facts/world-water-6.htmInvestments Resources:
http://www.powershares.com/products/overview.aspx?ticker=pho
http://www.powershares.com/products/overview.aspx?ticker=PIO
http://soundmoneytips.com/article/31264-investing-in-water-the-world-s-most-precious-resource -
Exchange Traded Funds - A Cost Efficient Path to a Global Portfolio
Note: This is the second article written by my friend who goes by the pen name of "Sake_demon" and is an expert on stock market investments. You'll learn a lot from it - enjoy!Having read through the book, "A Random Walk Down Wall Street", by Burton Malkiel, I am convinced that one of the best ways to achieve a long-term diversified portfolio would be to invest via index-tracking funds.
That said, I have to say that if you are willing to put some time to do some research and homework on the stock market, you will be able to find the diamond in the rough. However, the chance of Joe Regular is being able to get strike gold and find tomorrow's Apple Inc. or Amazon.com Inc. can be relatively low.
Besides, for an investor to beat the benchmark index, be it the KLCI, S&P 500, the Dow Jones Industrial, the Hang Seng Index, etc., Mr. Investor will probably need to devote at least 36-48 hours per week to research.
Even with the work done, there is still the likelihood that the portfolio may not beat the market ALL the time. That fact alone convinces me that the best course of action for MOST investors will be to have their CORE asset base invested in index-tracking funds.
Over the long-run, even seasoned professionals such as Benjamin Graham, Peter Lynch and Warren Buffett agree that index-tracking fund is the best investment option for the man on the street.
For more insight into this interesting subject, I would definitely recommend you the book I mentioned, "The Time-Tested Strategy for Successful Investing: A Random Walk Down Wall Street".
Now, let's get started with the basics for constructing a cost effective global investment portfolio.
Global Portfolio - The Main Purpose
As we all know, a global portfolio is probably the best way for us to diversify our investment because it gives the investment a better opportunity and potential to grow by tapping in to the economic growth beyond our shores.
The main reason for this thought is the fact that economies around the world, although co-related, have different cycles of growth. By diversifying globally, you will also give yourself the opportunity to increase your investment's return without and not risk depending solely on one country's economy stability.
To illustrate, imagine if ALL your investments are focused in the SE Asia market in early 1996. Regardless of the quality of the domestic company you invested in, your investment is 100% exposed to the risk and economic uncertainties of one region while the rest of the world such as Europe and US recovered and chugged along to further growth.
Investing globally also gives you the opportunity to tap into the high growth emerging market economies such as Brazil, Russia, India and China (also known as BRIC).
Of course, there is the remote probability of a global meltdown; if that happens, the flight to quality / safety will normally means capital flight to developed market's capital such as treasury bills and bonds offered by Western European countries and USA.
With a globally diversified portfolio, a portion your investments will be sheltered (or may even buck the downtrend) from a total portfolio meltdown, as opposed to a 100% disintegration if you had invested 100% domestically.
Global Portfolio Construction - the Primer Components
To construct a portfolio of stocks that covers the world over based on a typical man's payroll is virtually impossible. After all, how can you invest in the economy of every single country in the world? Even Mr. B Gates will very likely have some trouble doing it.
So, how can D Joe Regularis achieve his objective of "GLOBAL DOMINATION" !!! ... err (must have got a bit too excited there),... I meant, global diversification without having to become as rich as Mr. Gates? The answer - Exchange Traded Funds (ETFs) and/or Mutual Funds.
Mutual Funds
A Mutual Fund is an investment vehicle comprising of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market securities and similar assets.
One of the main advantages of a mutual fund is that it gives small investors access to a well-diversified portfolio of equities, bonds and other securities, which would be quite difficult to create with a small amount of capital. Each shareholder participates proportionally in the gain or loss of the fund.
Mutual fund units or shares, are issued and can typically be purchased or redeemed at the fund's latest net asset value per share, which is calculated at the end of regular business day.
The mutual and/or unit trust funds issued by the domestic financial institutions include PB Mutual's PB Funds, Affin Funds, CIMB, etc.
Exchange Traded Fund (ETF)
A typical ETF is definted as a security that tracks an index, a commodity or a basket of assets like a mutual fund, but trades like a stock on a listed exchange.
Unlike a Mutual fund, however, an ETF does not have its net asset value (NAV) calculated every day. As it is traded on a listed exchange, you don't have to wait until the end of the day for a NAV get that sale order you processed.
By owning an ETF, you get the diversification of an index or mutual fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund.
The only downside, you will need to pay a broker commission on any ETFs you trade on, just like trading on a common stock.
Given the choice of using either a Mutual Fund or ETF to construct my portfolio, I would normally have a preference to ETF as my choice first.Expense Ratio - Why It Matters?
The expense ratio is the measure of what it costs an investment vehicle to operate. It is determined through an annualized calculation, with the fund's operating expenses divided by the average dollar value of its assets.
A fund's operating expense typically include recordkeeping, custodial services, taxes, legal expenses, and accounting and auditing fees, with the largest component relating to investment management fee. Some funds will have a marketing cost, also known as 12b-1 fee, which is included as operating expenses.All in, operating expense is a charge to the investment fund's asset base and over time, it lowers the investor's return; the higher the expense ratio, the more of a drag it will be on the investor's return on capital over time. So, what is a typical operating expense ratio of an investment fund?
Operating Expense - the Domestic Take
Here's some food for thought - the operating expenditure for the Malaysia EPF is 2.37% (source: 2006 annual report). How do I get the number? Group-level Operating Expenditure on pg 165 of RM$688,586 divide by (Group-level) Member's Fund on pg 164 of RM$289,452,716. If you use the EPF-level, you will very likely get an operating expense ratio of 1.60%.
If you are curious how much the EPF is making for its members, here's the weblink to the website, which is pretty well-constructed: http://www.kwsp.gov.my/
For financial information, please navigate into the Financial Statements section within the "About EPF" domain. Being curious, I also took a quick look at the expense ratio of the Public Mutual fund group (link: http://www.publicmutual.com.my/).
Looking at the numbers, I guess it's typical for the domestic fund managers to fetch a nice 1.60% p.a. on the average asset under management.
So, the question at hand - how much you are willing to pay for the professional portfolio manager's investment management expertise? In a nutshell, I believe the domestic investor is willing to incur no more than 1.60% p.a. on his/her capital to generate a suitable premium return over the regular (risk-free) fixed deposit return at the local bank.
Global Portfolio Construction - Assembling the Components
Without further ado, let's see what a typical investment portfolio that spreads and diversify your investment risk and yet, gives you the opportunity to partake in the bountiful economic growth all over the world.
I have constructed a fairly aggressive global-oriented portfolio consisting of 7 (ViPER) ETFs from the Vanguard Investment Group; it comprises:
VEU - Vanguard FTSE All-World ex-US ETF (15%)
VGK - Vanguard European ETF (10%)
VWO - Vanguard Emerging Markets Stock ETF (15%)
VV - Vanguard (US) Large Cap ETF (20%)
VO - Vanguard (US) Mid Cap ETF (15%)
VB - Vanguard (US) Small Cap ETF (10%)
VXF - Vanguard (US) Extended Market Index ETF (15%)The above portfolio will provide the investor with a 60% / 40% US / Rest of World exposure. Depending on the risk-appetite of the individual investor, the % in Emerging Market or Rest of World ex-US can be increased at the expense of the US market exposure.
And by back-testing the portfolio all the way back to Jan 2 this year, the portfolio mix seems to have provide Joe Regular a YTD (year-to-date) return of approx. 14.5% thus far (Oct, 25, 2007), outperforming the Dow Jones Industrial and S&P 500 by at least 2% points so far.
The only index that could have beaten it thus far is the US Nasdaq 100 which has been on fire lately. Alternatively, if you are more into US-based Growth-oriented, you can opt for the Growth variety of the Mid-Cap and Small-Cap ETFs, which are represented by the ticker symbols VOT (Vanguard Mid-Cap Growth) and VBK (Vanguard Small-Cap Growth).
If you would prefer a more conservative approach, the Value-play ETFs include the VOE (Vanguard Mid-Cap Value) and VBR (Vanguard Small-Cap Value).
I chose the Vanguard ETFs only as an example. If you do some research, you will see more ETF providers ETF which caters to various investment profiles. Even with only 7 (equity-focused) ETFs to work with, you can see as illustrated how versatile the world of ETF can be for an investor to work with.
The main reason I opt for the ViPERs in this example is their expense ratio, which is very low - less than 0.5% p.a.!
The US Small, Mid and Large cap ETFs have expense ratios of 0.1% to 0.13% p.a. whereas the emerging markets and international funds charges on average of 0.2% to 0.5%! And as you can see, there are many combinations for an investor to tailor his/her portfolio in relations to his/her appetite for risk.
Compare that to the expense ratio of 1.6% p.a. charged by most domestic mutual / unit trust funds - you should at least give try and take the opportunity to let part of your investment portfolio participate in the global growth.
And by the way, there are even ETFs out there that track security types (bonds or bank debts, anyone?), commodity markets, and even lets you short the major stock index such as DJ S&P 500 (?!), and much, much more!
The possibilities to use ETFs as a tool to improve your investment return are endless and can be used in many ways to broaden your investment reach.
Parting Words
Hopefully, the introduction to the versatility and opportunities of ETF as an investment diversification tool will spur you to look at the various ETF resource centre on the finance website within Yahoo! Finance or MSN Finance that you can use to find out more about this useful investment tool.
So, go out there and explore the variety of investment options available to you with this investment instruments alone.
Until the next time, invest well and enjoy.
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Portfolio Diversification
Note: Here's an excellent article by my friend who goes by the pen name of "Sake_demon" and is an expert on stock market investments. You'll learn a lot from it - enjoy!At this moment, I am trying to write this short article to support the case for geographic portfolio diversification. How it all came to this? Well, I wonder about it sometimes, too. It wasn't so long ago that I was this naïve kid fresh out of college with no care in the world. Ten years or so since that event, I was sitting in a café with one of my friends from my college days chatting about the state of investments in our country.
We talked about a lot of things, but the focus of this topic finally settled to the types of products, or rather, the lack of it in the domestic market. Without much ado, let's get to the point of our discussion, shall we?
Let's start with our investment portfolio - what is in it? If memory serves me right, most of us would have a% in fixed deposits, b% in mutual funds, c% with EPF (let's hope our nice employer did contribute their proper portion, too), d% in stocks, and e% in cash, and if we are so lucky to have put ourselves in debt or mortgage, a nice little apartment with a nice address tacked to it.
So, what is this investment portfolio for, anyway? The much needed retirement fund? Or a college fund for our kids? What about that fund for the much-longed-for Porsche 911?
And if I am not mistaken, most of us should be at this very point of our lives by the time we are 30 years old, give or take 2-3 years (let's keep those born with a silver-spoon in their mouth out of the equation, shall we?).
Now, if you can plot a chart of your total investment portfolio value, for the past 3-5 years, it should fall within the average range of 10%-12% per year. If this is not the case, you might want to consider giving your portfolio manager the "finger."
So, why 10%-12%, you might ask. Well, for starters, the benchmark for the stock market in a developed world, i.e. US, UK and most of Western Europe, have on an empirical basis been within the said range since their inception. Obviously, there are ups and downs over the years for these benchmarks, be it the FTSE 100, S&P 500 or DJIA, but their performance on average will fetch an average investor 10%-12% per annum. Guess why our esteemed professors always seem to stick with the prescribed 10%-12% rate of return in our Net Present Value of Cash Flow in the classroom.
It's definitely not just because the number 10% is a nice, round, (and fat) number; it's also quite interesting how this number seems to be a rather frequent occurrence throughout history. Anyway, that's another story to be discussed in a different post.
Investment Portfolio's Risk-Return - Basics for the Laymen
Alright, back to economics 201 - dealing with the risk-return subject. If we pay attention during our Financial Management / Corporate Finance classes in college, the RISK associated with investment portfolio A of a said component of investment products that fetches x% per annum return over time MAY NOT be the same as the risk of investment portfolio B, even thought investment portfolio B is fetching the same x% per annum.
"Why do I make such an illogical statement?" you ask. Well, is it?
What if investment portfolio A limits its investment exposure to stable countries like US, UK Western Europe and Australia, and generating a 12% per annum rate of return? Compare that to investment portfolio B that returns the same rate of return, and yet invests in riskier emerging market economies.
Wouldn't you say that the risk associated with the rate of return for 12% per annum is higher for B compare to A?
Many measures of risk-return have been devised by various statisticians and baffled many a students in the subject matter. Moreover, the subject is still open, and will possibly continue to be open to debate in the near future.
However, in the practical world, the industry has comfortably been using the Sharpe ratio and Traynor ratio for this sole purpose.
Well, enough of the educational part of this article. For those who are interested in this subject, I would recommend you check out you local Borders book store for a copy of The Handbook of Corporate Finance: A Business Companion to Financial Markets, Decisions and Techniques (FT-Prentice Hall) by Glen Arnold
and / or "Investment Planning for Financial Professionals" (McGraw Hill) by Geoffrey A Hirt, Stanley B Block and Somnath Basu.
To The Domestic Investor - Are You Diversified?
So, back to our main point of this article that focuses on 3 main questions - is the risk of our (domestic) investment portfolio too high? Can we improve our investment portfolio's risk-return profile? And how do we do it?
Consider the stocks in the stock exchange available to the regular domestic investors - Petronas, Sime Darby, Maybank, TNB, Genting, YTL or Maxis. All are very well-run, profitable companies and it is very possible that most of them have international exposure, i.e. exporter of goods and services. However, consider the risk exposure here.
Some of you might say the KLSE's indices have been outperforming the US, UK and other well established markets. So, why all these fuss is all about?
To that, I would just like to point out the good old days right before the 1997 crisis.
I am not sure if anyone else can recall the 1997 Asia-related economy crisis in detail, but I know if you held stocks in the companies listed in the KLSE (Main & 2nd Board), you will most likely wished you had held on to your cash in the bank; remember how long it too the KLCI to get back to it's pre-1997 level? If I am not mistaken, it took more than 5 years (editor, please correct me if I am wrong).
That means the regular domestic investors have to survive on sardines and crackers for the length of 5 years before we got back to the boom-days!
The point here being - you must never put all your eggs in one basket. The fact that your investments are all domestic-based proofs the point, despite the high-grade/quality of your investments.
So, what does all this have to do with your investments today? Guess what will happen if another Asian economic crisis occurs and all your investments are Asian companies?
Diversification is the key here. Besides, nobody can tell, the future, not even the great Sage of Omaha (although some who will disagree).
In a nutshell, the regular, law-abiding and ever vigilant, tax-paying citizen of Malaysia will probably be "investing" in - fixed deposits, mutual funds, selected stocks of the "best" domestic companies and maybe, manage to get indebted for one or two real estate properties; despite all their best efforts, they will not be truly diversified.
Now, if you are convinced that your investment portfolio can be further diversified, please read on. If not, please feel free to stop here since I do not wish to take too much of your time in reading any further.
Diversification - the "How"
Congratulations and thank you. You have finally realized the limitations of investments within the domestic market and taking the first step to diversifying your portfolio's geographic risk exposure.
It's like taking the little red pill in the scene from "the Matrix," doesn't it?
Anyway, please note that this is not a marketing scheme or propaganda to destabilize the domestic financial market (the status quo is doing a great job as it is).
What I would like to tell you now is no secret and it provides you with the possibility of re-aligning your investment portfolio from 100% exposure in the domestic market to maybe, say 15%-20% of your portfolio target.
There are various ways a non-US person (this means Malaysians, too) can invest in the US stock exchange market, principally, the NY Stock Exchange (NYSE) and NASDAQ.
The US Stock Market & Investment Products
Why the US Stock market? Well, I guess you can try the UK's FTSE (which is a very fine exchange), too. But the main reason I like the US stock market is the fact that the market is as well established and as well run, if not better, than the FTSE.
A bit of pro-US sentiments, you may add. But seriously, if you don't mind paying the brokerage fee in Great Britain Pound Sterling, be my guest.
Now, back to business, shall we…
The US Stock Exchanges - principally the NYSE, NASDAQ and to some extent, the American Stock Exchange (AMEX) offers a variety of product for the regular retail investor to diversify their portfolio, and at a reasonable cost., I might add
After all, international companies of unparallel quality like Procter & Gamble, Citigroup, Dupont, Johnson & Johnson, 3M, Cisco, Exxon-Mobil, Colgate, Clorox, Boeing, Monsanto, Google, Lockheed Martin, Pepsi, Coca-Cola, Hewlett-Packard, Apple, Intel, to name a few, are listed either on the NYSE or NASDAQ. Even well known non-US companies the likes of Cadbury-Sweeps, Danone, Toyota Motors, Sony, China Mobile, Novartis, GlaxoSmithKline, Nokia, BHP-Billiton, either as ADRs, or GDRs.
For the investors with a more conservative risk appetite, there are mutual funds and exchange traded funds (ETFs) that offer exposure to certain sectors - agriculture, energy, metal & mining, consumer staple, consumer discretionary, financials, etc. Or certain geographic regions - Euro-Pac, Latin America, China, Eastern Europe, all the way to country specific-linked ETFs.
The two notable ETF groups are SPDRs (managed by SSgA) and VIPERs (managed by the Vanguard Group); both the SSgA and Vanguard are very well established investment managers. Have anyone heard of John Bogle (retired) of the Vanguard group?
Oh! And don't forget options, too. Yes! The Joe Regular can options, too!
So, do take a moment and tell me if you want to restrict your investment portfolio to just Malaysian stocks?
Online Brokerage - Pro's & Con's
With the advent of online brokerage, it is now possible for the regular man on the street to "day-trade" and this has been the phenomenon that had spurred the growth of several discount brokerage companies such as TD Ameritrade, ShareBuilder, E-Trade and Scottrade, to name just four of many such entities in the US.
Secondly, the cost advantage - with the advent of internet revolution, cost associated with stock trading has been made more affordable. At an average of US$10 per trade (some goes as low as US$5 per trade), the reduction cost of stock trading has definitely spurred the growth of stock trading in the US.
The downside, of course, is the research. Unlike the full service brokerage, the discount brokers don't provide comprehensive research materials, e.g. analyst reports and updates.
That said, the internet evolution has erased or at least, bridged the gap here and anyone who has access to the internet and a computer can do their own research.
To Ali, Ah Kow and Rajagopal
Now, before you run out and print the application forms to open an online brokerage account, please make sure you do some research with regards the taxation implications of your actions. So, if you intend to start to go about some elaborate venture, you will very likely need to consult with a tax agent to ensure you are properly setup for such a venture.
Remember, the subject matter here never has anything to do with Tax Avoidance (perfectly legal) and shouldn't ever be associated with any dodgy Tax Evasion (totally illegal) activities.
Since our purpose is purely economic, I can safely say any Malaysian intending to diversify their investment portfolio can do so without much hindrance.
After all, the sole objective of this article is to inform and present the option to the readers that portfolio diversification beyond the local shores as a possibility for the investors to reduce their geographic risk of their investments portfolio, which at the moment (I am sure), is pretty much 100% exposed to the local environment.
Which is what I would like to introduce to you in a follow-up article by next month; I hope to get the article to you by the end of October 2007.
With that, I bid you adieu and happy researching until the next time.
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Welcome Finance (UK) Reviews
Here are some links I've compiled on user feedback on Welcome Finance (UK):
- craig1968 is extremely unhappy about the charges Welcome Finance are charging him (dated 26-Jun-2007)
- Welcome Finance's unprofessional handling of personal data related to a secured loan (dated 12-Jun-2007)
- itrends wants to cut short the WF car loan - why? (dated 5-Jun-2007)
- kennywelsh1969's phone conversation with Welcome Finance (dated 29-November-2006)
- Individuals share horror stories about the high interest rates and pushy salespeople at Welcome Finance. Others made a recommendation for Foundations and Northern Rock. (dated 14-October-2006)
- Here's a list of phone numbers and addresses if you ever need to get in touch with agencies and organizations that can assist you in the event of disputes with Welcome Finance.
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Cheap Holiday Travel Insurance - A Few Things to Consider
To the question in your mind as to whether it's advisable to get any form of holiday insurance in the first place, my answer to you is an unequivocal YES.
The additional cost of a travel insurance goes a long way towards giving you peace of mind in the event any emergencies occur.
It's so crucial to have some form of insurance cover that even a low cost insurance is better than nothing at all.
There are may types of clauses, terms and conditions when it comes to such insurance, but generally they have a list of standard and optional features, and cover the following.
Types of cover
Typically, you can choose from among three options, economy, standard or premier (premium) levels. Decide in advance the level and probability of losses, injuries and emergency situations you might encounter, the financial impact from them, and the percentage of loss that you want the policy to offer protection on.
Period of Cover
For the frequent traveler, many insurance companies an annual cover that works out to be cheaper than if you bought a travel insurance for each and every trip. Look into your likely schedule for the year and inform the travel consultant of the dates of travel and destinations. The consultant would then be able to advise you on the relative pros and cons of getting an annual cover vs per trip insurance.
Number of Individuals
Examine the nature of the people your travel group comprises. How are they related? This information is needed to decide if you will purchase a policy to cover the individual, couple or family. There are single parent family options available too. Work out the costs, benefits and features of each type of application.
Features
Ascertain if the policy provides protection for:
- Medical expenses - this protects you from exorbitant charges if you encounter medical emergencies abroad
- Cancellation and delays- flights and travel arrangements sometimes go awry, and you'd want to get your money back as soon as possible
- Baggage delays and loss - a minimum insurance cover ensures you have spare cash to purchase travel essentials
- Personal money, expenses and excess - this protection offers cash if needed in any type of emergency
You'll also need to inquire if the company is flexible enough to allow for reduced payments if you opt not to sign up for some of the features.
Conclusion
Many are tempted to put every last cent towards actual holidaying activities. This is one of the biggest mistakes one can make as all it takes to completely ruin the entire holiday is the occurrence of one unforeseen incident.
A couple of extra hundred dollars that goes into purchasing a decent holiday insurance, no matter how cheap, could mean the difference between financially surviving a holiday mishap and short-term bankruptcy.
So, whether you're a backpacker who just wants to ensure that you're covered for medical expenses, or a seasoned business traveler who's looking for financial peace of mind, do look around and perform the necessary research and comparisons for the best deals.
Forums are a good place to ask questions and read through the experiences others before you have gone through. I've provided some links in the menu to online communities focused on discussing insurance topics.
Good luck!
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Debit vs Credit Cards
I'd personally recommend a credit card over a debit card for those in good financial standing, and here are four reasons why.
Credit Card Pros
Reason 1: Enjoy rewards
With every dollar spent, you earn what is known as reward points. This is a perk given to you by the bank of financial institution that issues the card.
Earned reward points can be redeemed for gifts, vouchers or further discounts on goods and services.
For the prudent spender, this is a great way to stretch your dollar further.
Reason 2: Peace of mind with buyer and fraud protection
Here's another credit card benefit that's frequently overlooked.
When you use your credit card to pay for goods and services, the money isn't deducted immediately from your bank account. In fact, the credit card company has no direct access to your accounts.
You get to immediately enjoy the goods or services that you've procured, but what's more important is that if the merchant doesn't keep their end of the bargain (say they gave you defective goods or they overcharge you), you can instruct the credit card company to charge back the expense item to the merchant.
In other words, you don't have to pay for goods and services which you did not receive.
Reason 3: Get insured
Issuers such as American Express even offer insurance cover that rides on your credit or charge card. You get travel insurance that covers events such as lost baggage or disaster situations, and even insurance that covers stolen or broken goods.
Debit cards don't offer any form of insurance. If you're a frequent traveler or flyer, take a serious look into what credit and charge cards offer.
Reason 4: A convenient financial management tool
Many have associated credit cards with individuals who lack financial management knowledge.
For the careful spender, however, credit cards bring two strong advantages:
- The monthly statements show, in one place, all the purchases you've made. Many issuers now allow you to download an electronic file containing the statement transactions which can then be integrated with your financial management tool such as Quicken or Microsoft Money.
- You just need to issue one payment check or funds transfer to settle the expenses, and this can be done at the due date of the next billing cycle. You could, for instance, schedule payment of an expensive item at the beginning of the month, and pay only at the end of the next month. Compared to another shopper who paid for the same item with cash or a debit or ATM card, you earn interest on the funds in your savings account (that would otherwise have been used to finance the purchase now).
Talking a bit more on the benefit of being able to delay your credit card payment, here's what I usually do with my credit cards (I have both Visa and MasterCard) issued by Citibank.
The billing cycle (or statement date) of my cards occur around the middle of the month, say on the 15th. So I try to schedule large purchases to occur immediately after the 15th. I see this purchase on the 15th of the next month, and Citibank allows 15 days before the payment is due. This means that I have approximately 1.5 months from the time I make the purchase until I need to pay for it.
The case for getting a debit card
Credit card applicants are sometimes turned down by the issuer. I've experienced this myself. Reasons given could range from the applicant having a bad credit history, or not being able to show a credible source of income. In my case, it was because I didn't have a fixed job at the time.
If you can't get approval for a credit card, the next best thing is a debit card. Cards in general offer a world of convenience, and you needn't carry a lot of cash with you all the time.
You might also want to consider applying for a debit card if you know that you have a tendency to overspend. Debit cards help you to enfore financial discipline.
Generally though, I'd advise against getting a debit card. Read two Pirg.org articles which explain why how you expose yourself to possibly high libilities when you use signature-based debit cards as opposed to credit cards or old-fashioned PIN-based ATM cards.
Conclusion
I strongly recommend getting a credit card if you're able to. I personally use credit cards for more than 99% of transactions - I even use it to pay for purchases over the internet, and I log in to my issuer's service to pay my utility, membership and assessment fees online.
I always strive to PIF (pay in full) the outstanding amount in order not incur finance and interest charges. I get to enjoy payment convenience and the gifts I'm able to redeem with my reward points.
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What is the best company to obtain FICO scores from?
There is general consensus among various user feedback and reviews that the most reliable and trusted source for FICO scores is myFICO.com.
But you'll need to consider several factors before handing over $49.95 (correct as of July 2007) to the company for the information.Visit Wikipedia for the complete definition of, and history behind FICO.
myFICO.com has FICO scores from all the three credit reporting agencies, namely Equifax, Experian, and TransUnion.
Are you planning to get a mortgage?
$50 is a lot of money to waste if you're not intending to get a mortgage in the next 6 to 12 months.Why is this so?
FICO scores are primarily intended to be used by mortgage lenders to assess your creditworthiness before issuing you the loan, so, if you're not about to apply for the loan, there's not a justifiable need to get this information.
However, if you're the type who likes to keep your financial matters in order, there's no harm in buying the report. At least you know where your score stands, and will be fully prepared in the event you find yourself suddenly needing to get a mortgage or housing loan.Other considerations
The main reason for purchasing your FICO scores is to know what your current credit situation is.The higher your FICO, the lower your loan repayments will be, and the easier and faster it is to get your loan approved.
myFICO.com has a chart on their homepage showing you how much lower the APR (annual percentage rate) and monthly payments would be the higher your FICO scores are.
That chart allows you to compute the APR and monthly repayments for each US state or just the National Average.
Loan types shown are a 30-year fixed mortgage, a 15-yr home equity loan, and a 36-month auto loan.
You're allowed to input the loan amount, and the data is then re-calculated accordingly.
Just one example from the chart shows that a person applying for a $300,000 fixed mortgage for 30 years has to pay $2,600 per month at an APR of approximately 9.853%, vs another individual with FICO scores ranging between 760 to 850 - that person only incurs a $1,874 monthly repayment and enjoys a lower APR of 6.387%.
That's a huge motivation for increasing your FICO score.
Alternative sources of credit scores
If you're not preparing yourself to get a mortgage loan, working with the credit reports and regular scores from Equifax, Experian, and TransUnion is a perfectly viable and cheaper means of improving or maintaining your credit.Yet another alternative is to try out a free FICO score estimator that's offered by Bankrate. Lifehacker.com has a post about the estimator, and the reader comments make for some interesting reading too.
FICO Score Groupings
You can determine whether your FICO score is "good" or "bad" and your corresponding credit standing depending on the which group your credit score falls under:- 700 to 850 » Excellent, or very good credit
- 680 to 699 » Good credit
- 620 to 679 » Just acceptable, or average credit
- 580 to 619 » Low credit
- 500 to 580 » Poor credit
- 300 to 499 » Bad credit
You can estimate what your credit score is with a FICO calculator.
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Credit Cards To Avoid
There is no single credit card that will appeal to all people, but here are some cards that various user reviews have warned about. Think hard before applying for these.
Cards with stringent terms
With cards like the Capital One MasterCard, you'd probably have to live with very low credit limits, high annual fees (approximately $60) and high interest rates (24% per annum). Many do still apply for these cards though, especially those with credit scores below 500, as approval is quite certain, and is an extremely useful financial tool to re-build and re-establish one's credit.
Many have reported that Chase One's sub prime cards are not worth getting, because even if you make your payments on time, Chase does not have a policy of recognizing your "good payment behavior" and promote you to their prime cards. They're also notorious for charging high annual fees and APRs (annual percentage rate) with these cards, and the customer service representatives are extremely reluctant to act on credit limit increase requests.Catalog credit cards
These cards are typically sought after by those who have adverse, bad or damaged credit history. The limitation imposed is that you can only use the card to make purchases of merchandise from a certain store. However, you're almost guaranteed to get your application approved.Credit card horror stories
Well, it doesn't have to be one. Click here to read how Medion managed to get BBB (Better Business Bureau) to take on his case with unauthorized charges appearing in his credit card (which he ultimately canceled).Stacy Johnson's advise for applicants with bad credit
In this video, Stacy Johnson reveals the exorbitant charges imposed by First Bank of Delaware on holders of the Contentinal Finance MasterCard. This card would seem to be a likely choice for those with less than ideal credit scores, but the total fees one owes the bank before the card even arrives in the mail comes up to a ridiculous $247, which is just $53 shy of going over the meager $300 credit limit.To add to the insult, if you're good with your monthly payments, they increase your credit limit a measly $100 at a time, and charge you $25 each time they do it!
Definitely, follow Stacy's advice to stay away from this card (and other cards like it), shop around and don't forget to read the fine print - ALWAYS.My favorite card?
OK, you didn't ask, but my personal favorite is the Blue Sky from American Express, and these are some of the highlight benefits offered:- No annual fee
- Frequent flyer miles can be applied to other travel related expenses, and not just for air tickets. This is convenient as I travel a lot, and sometimes have to hop on multiple modes of transport, so the Blue Sky card allows me to enjoy reduced rates on cruise line tickets, hotels worldwide and car rentals.
- A multitude of insurance cover and buyer protection is offered. American Express is pretty comprehensive, and you get cover for lost luggage and travel accidents
- No restrictions on choice of airline, seats and other travel arrangements. This is the biggest plus point with the AMEX Blue Sky - almost every other credit cards impose severe restrictions on travel-related redemptions and thus virtually negates the travel benefits that you got the card for in the first place.
Conclusion
We all have our blacklist of credit card issuers, but each of them does have their own benefits that are in line with our needs and requirements, as long as we make sure the disadvantages are not deal breakers.
