Showing posts with label diversification. Show all posts
Showing posts with label diversification. Show all posts
Wednesday, April 16, 2014
Conversations with Chuck: Charles Schwab on Volatility
Check out this video interview with Charles Schwab on market
volatility and portfolio diversification.
Thursday, January 23, 2014
HOW TO: Save Money and Pay Off Debt
By Olivia Sandham
Although
the two don’t seem to logically go hand-in-hand, saving money while also paying
off debts is certainly possible. With a few simple adjustments to your
lifestyle and budget, you can create a comfortable and debt-free future.
The
first step to saving while paying off debt could be to create a household
budget that trims unnecessary expenses. This budget will only be feasible
if it allows for some discretionary spending to avoid feeling trapped or
“broke”. Examples of areas that could easily be trimmed without too much
lifestyle shock include eating out one less night a week, consuming one or two
less high-priced beverages (such as cutting back on a latte or cocktail), and
switching groceries to generic brands. Think about how much you could
save each week by making these changes, then multiply that by 4-5 times per
month! These small changes can certainly impact the amount of additional
money you will have to put toward paying off debts and increasing your savings.
The
second step to saving while paying off debt is to consider designing a debt
payoff strategy that best suits your needs. Paying off debts utilizing the
“snowball” effect is a popular method of paying your debts in a specific
order. You could choose to either 1) Pay off the smallest balance first,
which can be motivating in a short period of time because you see the number of
debts you owe drop, or 2) Pay off the highest interest rate first, which makes
the most sense from a pure financial approach, since you will keep more of your
money in the long-term. Choosing the best debt payoff strategy will be a
personal choice so that you find a strategy that you will want to maintain over
the long-run.
The last step to saving while paying off debts
is to build your emergency fund and future investments. Once you have
designed a trimmed budget and chosen your debt strategy, you can plan to have
additional money placed into an easy-to-access emergency savings account.
Although this account will not produce much (if any) interest, there will be no
penalty for taking the money out should you absolutely need it. However,
once you are able to build your savings to a sufficient amount (three to six months of expenses is typically recommended), you can then start to invest part of your
monthly additional money into accounts that will produce higher return rates, such as an investment account or an IRA holding diversified mutual funds.
Wednesday, October 9, 2013
Diversification: The Benefits of Holding a Wide Range of Investments
Last
month, T. Rowe Price Investor featured an interesting article providing advice about investing in a broad range of sectors, capitalizations,
and geographic regions. The article also
explains how this diverse asset allocation minimizes your exposure to risk in
any one area, expands your ability to benefit from opportunities in the global
economy, and reduces volatility in your portfolio. Establishing an
appropriate mix of stocks, bonds, and short-term holdings is just the
beginning. Click here to read the article and
comment below to let us know how a diversified portfolio has benefitted you
through recent market changes.
Thursday, April 25, 2013
Wealth-building for Gen Y-ers
Money Magazine's 101 Ways to Build Wealth offers valuable financial tips for each stage of your life. Listed below are their bits of advice for 25- to 34-year-olds. To read the full article for more details, click here.
1) Start saving for retirement now.
Tuesday, June 7, 2011
Lessons from the wealthy
By Dan Danford, Founder and CEO of Family Investment Center
We often hear that “the rich keep getting richer,” and that’s a common refrain in America. I usually enter this fray by noting that the “educated” keep getting richer; and that the best economic solution seems to be further education.
This is particularly true of financial education. I’ve been managing money since 1984, and I’ve noticed some important gaps in the typical family’s financial knowledge. Simply, wealthy people behave differently, and we can learn some important lessons from them:
The stock market isn’t a casino. Many middle-class people think it is. It’s true, buying a stock is risky. Buying many stocks, though, is prudent. Millionaires own stocks, but they aren’t frequent traders. When Drs. Tom Stanley and Phil Danko wrote The Millionaire Next Door (Longstreet Press, 1996), they discovered that fewer than one percent of interviewed millionaires traded stocks on a daily basis. Another one percent traded on a weekly basis. In fact, over forty percent hadn’t traded a single stock in the year prior to interview! Clearly, millionaires were investors, not gamblers.
The heart of wealth management is the idea of thoughtful diversification. This scientific basis for portfolio theory won a 1990 Nobel Prize in Economics (several, actually). In essence, risk is reduced and performance enhanced by owning a wide variety of investments. There’s a lot more to it, but that’s the basic concept.
Many so-called “safe” options collapse to genuine evaluation. Low interest rates, inflation, and taxes eat much of the gain from bank deposits or government bonds. Comfort comes at a very high price, and a bit of education about stocks and diversification can put your mind at ease.
Not all debt is bad. “Neither a borrower or lender be,” Shakespeare advised. And it’s become a sort of holy middle-class mantra. Despite that timeless advice, there are different kinds of debt, and not all debt is bad. Borrowing for consumer goods is almost always bad. Borrowing to buy a nice house in a nice neighborhood is almost always good.
Many quality advisors recommend against paying off a mortgage early, and there is solid evidence supporting this approach. Nevertheless, many middle class folks want to “pay off the house” as quickly as possible.
They think they’re doing the right thing, but money for paying down a mortgage comes from somewhere, and it’s no longer available to invest. That can be counterproductive. Our wealthy friends understand the difference between good and bad debt and they aren’t in a big hurry to pay off the mortgage.
There’s a distinction between price and value. In The Millionaire Mind (2000, Andrews-McNeel Publishing, his follow-up to The Millionaire Next Door), Dr. Tom Stanley discovered that millionaires tend to look at products on a long-term basis. They bought shoes or furniture based on the lifetime costs of ownership. Quality shoes or furniture cost more, but last much longer. Briefly, millionaires tend to focus on value instead of price.
I once worked with a fellow who proved this folly every three years. We were on the same purchase cycle with new automobiles. I’d carefully research various options, then choose my car with an eye towards resale value. He ignored this methodical approach, looking instead for the “cheapest” deal. We’d spend similar amounts when we finally reached a decision.
Three years later, I always got more money for my used car. And he never understood why. Instead, he’d launch right back into the very same pathetic cycle. Destructive buying habits are everywhere. In creating wealth, price is important, but value is more important.
Time is money. I used to be Moderator of our local church. Meetings just drove me crazy. I’d create agendas, monitor the time, and cancel unnecessary meetings. For me, a meeting is an avenue towards reaching some goal. Get together, have discussion, accomplish some objective, adjourn.
Well. It turns out that other people see church meetings in a different light. They’re social gatherings. The point of the meeting is – well, to meet. They get satisfaction from the activity, not necessarily the accomplishments.
Many people get similar satisfaction from investment chores. They drive to or telephone various banks about new rates on CDs. They study stocks, bonds, and mutual funds. They spend hours assembling, then computing annual tax information. A lot of very satisfying activity.
But, not necessarily productive activity. Who says that hours of amateur study generate better investment returns? Can a computer really replace a qualified and knowledgeable accountant? Will an extra quarter percent at the bank justify a tankful of gas or hour of time?
Do-it-yourself isn’t the best choice. “No one cares about my money as much as I do.” How many times have you heard that? It’s true, no one does care as much about your money.
But caring about your money isn’t always good enough. With rare exceptions, a good advisor knows more about your money than you do. I’ve spent a career studying financial issues and helping people manage investments. I’ve passed licensing exams and met professional credentialing standards. I have a graduate degree in business and I’ve started two successful investment companies. Modestly, I have insights and understandings my clients can’t have.
Further, caring about something isn’t always the best way to face decisions. It can be very hard to press a loved one to do a necessary, but painful, thing. We know how difficult it can be to use self-discipline – even when our own health is involved. The fact is, caring too much can be every bit as bad as caring too little.
Wealthy people hire advisors because it’s good business. It helps to have a knowledgeable, objective professional by your side. The cost is far less than the value. By definition, that’s a wise family choice. Plain and simple.
We often hear that “the rich keep getting richer,” and that’s a common refrain in America. I usually enter this fray by noting that the “educated” keep getting richer; and that the best economic solution seems to be further education.
This is particularly true of financial education. I’ve been managing money since 1984, and I’ve noticed some important gaps in the typical family’s financial knowledge. Simply, wealthy people behave differently, and we can learn some important lessons from them:
The stock market isn’t a casino. Many middle-class people think it is. It’s true, buying a stock is risky. Buying many stocks, though, is prudent. Millionaires own stocks, but they aren’t frequent traders. When Drs. Tom Stanley and Phil Danko wrote The Millionaire Next Door (Longstreet Press, 1996), they discovered that fewer than one percent of interviewed millionaires traded stocks on a daily basis. Another one percent traded on a weekly basis. In fact, over forty percent hadn’t traded a single stock in the year prior to interview! Clearly, millionaires were investors, not gamblers.
The heart of wealth management is the idea of thoughtful diversification. This scientific basis for portfolio theory won a 1990 Nobel Prize in Economics (several, actually). In essence, risk is reduced and performance enhanced by owning a wide variety of investments. There’s a lot more to it, but that’s the basic concept.
Many so-called “safe” options collapse to genuine evaluation. Low interest rates, inflation, and taxes eat much of the gain from bank deposits or government bonds. Comfort comes at a very high price, and a bit of education about stocks and diversification can put your mind at ease.
Not all debt is bad. “Neither a borrower or lender be,” Shakespeare advised. And it’s become a sort of holy middle-class mantra. Despite that timeless advice, there are different kinds of debt, and not all debt is bad. Borrowing for consumer goods is almost always bad. Borrowing to buy a nice house in a nice neighborhood is almost always good.
Many quality advisors recommend against paying off a mortgage early, and there is solid evidence supporting this approach. Nevertheless, many middle class folks want to “pay off the house” as quickly as possible.
They think they’re doing the right thing, but money for paying down a mortgage comes from somewhere, and it’s no longer available to invest. That can be counterproductive. Our wealthy friends understand the difference between good and bad debt and they aren’t in a big hurry to pay off the mortgage.
There’s a distinction between price and value. In The Millionaire Mind (2000, Andrews-McNeel Publishing, his follow-up to The Millionaire Next Door), Dr. Tom Stanley discovered that millionaires tend to look at products on a long-term basis. They bought shoes or furniture based on the lifetime costs of ownership. Quality shoes or furniture cost more, but last much longer. Briefly, millionaires tend to focus on value instead of price.
I once worked with a fellow who proved this folly every three years. We were on the same purchase cycle with new automobiles. I’d carefully research various options, then choose my car with an eye towards resale value. He ignored this methodical approach, looking instead for the “cheapest” deal. We’d spend similar amounts when we finally reached a decision.
Three years later, I always got more money for my used car. And he never understood why. Instead, he’d launch right back into the very same pathetic cycle. Destructive buying habits are everywhere. In creating wealth, price is important, but value is more important.
Time is money. I used to be Moderator of our local church. Meetings just drove me crazy. I’d create agendas, monitor the time, and cancel unnecessary meetings. For me, a meeting is an avenue towards reaching some goal. Get together, have discussion, accomplish some objective, adjourn.
Well. It turns out that other people see church meetings in a different light. They’re social gatherings. The point of the meeting is – well, to meet. They get satisfaction from the activity, not necessarily the accomplishments.
Many people get similar satisfaction from investment chores. They drive to or telephone various banks about new rates on CDs. They study stocks, bonds, and mutual funds. They spend hours assembling, then computing annual tax information. A lot of very satisfying activity.
But, not necessarily productive activity. Who says that hours of amateur study generate better investment returns? Can a computer really replace a qualified and knowledgeable accountant? Will an extra quarter percent at the bank justify a tankful of gas or hour of time?
Do-it-yourself isn’t the best choice. “No one cares about my money as much as I do.” How many times have you heard that? It’s true, no one does care as much about your money.
But caring about your money isn’t always good enough. With rare exceptions, a good advisor knows more about your money than you do. I’ve spent a career studying financial issues and helping people manage investments. I’ve passed licensing exams and met professional credentialing standards. I have a graduate degree in business and I’ve started two successful investment companies. Modestly, I have insights and understandings my clients can’t have.
Further, caring about something isn’t always the best way to face decisions. It can be very hard to press a loved one to do a necessary, but painful, thing. We know how difficult it can be to use self-discipline – even when our own health is involved. The fact is, caring too much can be every bit as bad as caring too little.
Wealthy people hire advisors because it’s good business. It helps to have a knowledgeable, objective professional by your side. The cost is far less than the value. By definition, that’s a wise family choice. Plain and simple.
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