REPOST: How to invest without losing money

Is it really possible to invest in something and not face the risk of losing money? This article on USA Today tries to explain how this may be attainable:

When it comes to returns, time is your friend.

When it comes to investing, realize that risk and reward tend to move in opposite directions. If you take more risks, you run a larger chance of losing your money, but you often have a higher upside.

It’s possible to invest without losing money. In the current market, where interest rates are very low, any investment guaranteed to not lose money will have a very small return.

For most people thinking about investing, the goal is to minimize the potential for losses while maximizing how much you might make. Exactly how you do that — and where you put your money — depends a lot on what type of investor you are, and what your goals are.

There is no one answer

A 67-year-old looking to live off his or her investments has different needs from a 22-year-old planning to work about 45 or so years. In addition, someone with a lot of excess income has different needs from someone struggling to make ends meet.

Whether you’re starting small, even with a few dollars each week, you’ll want to have a diverse portfolio. That means owning not only stocks, but also bonds, cash, and even alternatives such as shares in a real estate investment trust (REIT).

Even within your stock portfolio, you’ll want to diversify. That means owning shares of companies in multiple industries, as well as shares in operations of multiple sizes. By not having all your eggs in one basket, you give yourself protection against outside forces. For example, an event that hurts oil stocks — perhaps a breakthrough in electric-car technology — may benefit shares in parts of the technology sector.

How to be safe

The safest way to invest without losing money is buying cash equivalents. Money markets, Treasuries, certificates of deposit (CDs), and corporate bonds offer generally stable returns with very limited risk, and in some cases no risk at all. The problem is that safety comes with a price.

CDs, to examine one cash equivalent, constitute an agreement in which you give your money to a financial institution for a period of time in exchange for a set interest rate. Perhaps you will receive 2% for a 12-month CD and slightly more for longer periods. These are safe investments, but they also have no upside beyond whatever interest rate you’re being paid.

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REPOST: How do I know what to invest in?

As a newbie investor, you may be easily overwhelmed (and confused) by the great diversity of investment options presented to you. In fact, getting insights from experts (or seeking help from professionals) may be necessary to avoid making big mistakes. But to get started, here is a simple guide from CNN Money to help you streamline the process and make things a bit less complicated:

You’re not the only one feeling overwhelmed by the tens of thousands of stocks, bonds, mutual funds and exchange-traded funds out there.

A lot of young people who are new to the investing game feel so intimidated by all the choices, that they shy away from investing altogether. But avoiding your 401(k), or keeping all your money in a savings account can cost you in the long run.

Just by following a few simple steps, you’ll be earning returns like the pros (or better).

Step 1. Start with retirement accounts

Your company 401(k) plan is a good entry point. Financial planners advise you stash away at least 10% of every paycheck for retirement.

It may not sound like a lot, but the magic of compounding will surprise you.

“If a young professional, say she is 25, earns $50,000 per year, saves $5,000 each year, and places this money into her company’s 401(k) balanced mutual fund or even an ETF, which earns 8% annually on average; she could end up with $1.3 million in retirement assets,” said John Barnes, a certified financial planner with Barnes Financial.

That number assumes no company matches, additional contributions or salary increases.

But in reality, you’ll probably earn more money over the course of your life.

A better strategy is to slowly increase your contributions over time as you get raises, until you reach the legal maximum — currently $18,000 a year.

After that, you can invest any additional money in an IRA or a taxable mutual fund account.

 

Step 2. Figure out how comfortable you are with risk

Generally speaking, the younger you are, the more risk you can afford to take on.

The stock market can be volatile, but young people have a unique opportunity to take on risk because they have plenty of time to recover from market setbacks before retirement. So it’s pretty common for people under age 30 to have 90% or even 100% of their savings in the stock market, said Pearce Landry-Wegener, a wealth management advisor at the Summit Place Financial Advisors.

But asset allocation — or how you divide up your money between stocks, bonds, cash or other investments — is a completely personal choice.

If you’re not all that comfortable with risk or need money in the next few years, invest a larger chunk of your money in safer assets like bonds.

 

Step 3. Diversify, but keep it simple

So you know you want, say, 90% stocks and 10% bonds. Now what?

You can offset some of the stock market’s risk by spreading your money around in a variety of different investments.

For newbies with a limited amount of money, investing in mutual funds or exchange-traded funds (ETFs) is the way to go. ETFs and mutual funds are securities that track a basket of stocks, bonds, commodities and indexes — like the S&P 500 index, for instance. With just one fund, you’re investing in a variety of different underlying investments.

And you don’t need many funds to be diversified.

Mychal Eagleson, president of An Exceptional Life Financial, recommends a portfolio with just three funds: a total U.S. stock fund, and total international stock fund, and a total bond market fund.

In some cases, just one fund is enough.

For instance, some retirement accounts offer target-date mutual funds. Rather than selecting different funds to create the right mix of stocks and bonds yourself, a target-date fund will do it for you.

Pick one target-date fund around the time you plan to retire. The investment mix will change over time, transitioning into more conservative assets as you get closer to retirement.

“Set it and forget it! And don’t try to get sexy with your money,” said Randy Bruns, a certified financial planner with HighPoint Planning Partners. “Time in the market, not timing the market, is how you’ll become a multi-millionaire.”

 

Step 4. Keep fees as low as possible

When choosing what to invest in, don’t forget to look at the fees each fund charges.

It’s important to select funds with low fees to get the biggest bang for your buck, because the charges can eat away at your returns over the years.

Look for funds that are cheaper than average. The average ETF expense ratio (aka fee) is 0.24%, and the average for target-date funds is 0.71%, according to Morningstar.

“You can’t control what the market as a whole does,” Landry-Wedener said. “What you can control is how much of your return is taken away in fees.”

REPOST: What is your excuse for not saving and investing?

Most people say that saving and investing are essential components of financial planning, yet many of them are still reluctant to open an account or not place them among their top priorities. The article below from LiveMint lists some common justifications people use to explain the delay:

The biggest hurdle to financial security is your reluctance to start saving and investing. Here are some common justifications people use to explain the delay. Identify your excuses and see how you can work around them so that you don’t put your goals and needs at risk.

It is complicated

Investing may seem to be a complicated process, with many formalities for each type of investment or service. But when you break it down, broadly the same set of formalities have to be followed: you need to establish your identity and provide proof of address, provide your bank account details to route payments and receive investment proceeds and fill up the application form related to the investment or financial service. The central Know Your Customer (KYC) process to establish the identity and address of investors makes complying with the KYC norms a one-time exercise across the financial sector. Application forms typically require standard information to be provided and include details such as name, address and contact details, age, status, bank information and such. Compile this information as a one-time exercise and you are all set to make investments.

I don’t have the skills

The need to identify, evaluate and select investments and financial service providers may be a barrier to people with limited skills and information in this area. But it is possible to keep it simple so that this does not become an obstacle to investing. Use the goal horizon to decide how your investments should be distributed between equity, debt, real estate, gold and other assets for growth, income and liquidity. Once you determine the asset allocation, select simple vanilla products where the evaluation needs are minimal in each category. Go with bank deposits and savings schemes of the government, and bonds with superior credit rating for debt products. For equity investments, stay with lower-cost index products where you earn returns in line with the market without the risk of selection and expectations.

Sovereign Gold Bonds issued by the Government of India are a convenient way to invest in gold without the storage risks associated with holding physical gold. The bonds have a fixed tenure (the 2017-18 Series I had a tenure of 8 years) and are denominated in multiples of grams of gold with a basic unit of 1 gram. The price at which gold bonds are issued and redeemed reflect the prevalent market price and the bonds also carry a nominal coupon paid twice a year. Limit real estate to residential needs and postpone investment in it till the finances are more secure. Make changes to the asset allocation to reflect changes in the needs and goal horizons, and don’t let recent return numbers or market movements influence you. Stay with the basic products till you become better acquainted with the risks and returns in investments. After that, move to managed investments such as mutual funds for better returns.

One way to make better investments, without the long process described above, is to use the services of a financial adviser: to make your financial and investment plans.

My savings are insignificant

If your goals are important to you then you need better control over your expenses and income. Start with a budget and assign at least 10% of your take home income to savings before you meet expenses.

Stay with the budget. Even if you fail initially, build the discipline to live within your means. No savings is too small to invest. Most investments—including deposits with banks and the post office, small savings schemes, mutual fund investments and stock market investments—can be made with amounts as low as Rs1,000.

Apart from reducing expenses, also explore options to increase your income. Use the skills and talent you may have to generate additional income in your spare time. Start small and set targets to increase savings at steady intervals.

I have outstanding debt

Debt and investments both have claims on your income. You need to deal with the debt because it can corrode your financial situation. But ignoring investments will leave you unprepared to meet the future. Balance and prioritize between the two.

First, contribute to mandatory savings such as the provident fund and retirement account to the maximum extent possible. Next, deal with high-cost debts such as credit card debt and personal loans on an emergency basis. For other debts, especially lower-cost loans with tax benefits, such as home loans and educational loans, focus on meeting repayment obligations rather than on closing them early to have money for investments. Along with meeting debt obligation, assign savings and lump sum funds such as bonus to build an emergency fund. Stay up-to-date on servicing your debt and don’t add to it. As your income expands, increase the allocation to investments to catch up on the time lost when you had to focus on debt.

Investments can wait

This excuse can cost you a lot. Even when some goals are way into the future, postponing savings and investments may mean that your contribution to the goal from savings will have to be much larger than what it would be if you had started early. For example, if you delayed saving for retirement by 10 years, then your monthly contribution to reach the same goal value will be three times higher because, over time, compounding accounts for a significant portion of the corpus. And there is no way to recover lost time. You may have to settle for less if you are not able to make higher contribution to your goals and needs. To give your investments the benefit of time and compounding, start saving early. Maximize your contributions to mandatory savings schemes, which remain invested for the long term. Don’t let funds remain idle in low-earning accounts such as savings accounts. Set up systems to regularly invest surpluses, such as by signing up for systematic investment plans and other facilities offered by banks to move the surplus over a set limit to higher-earning products. Build an emergency fund so that you do not have to break into your long-term investments to meet urgent needs.

Recognise what is holding you back from your investment goals. Once you identify the problem, take simple doable steps to correct it and make it a habit. Over time, you will develop the financial discipline that prevents poor habits and beliefs from affecting your financial security.

REPOST: Euro zone growth revised up to highest rate in a year in first quarter

The Eurozone economic growth in the first quarter of 2017 reached its highest rate in more than a year, according to a revised reading by the EU statistics agency, Eurostat. Reuters has the full story:

Workers are seen in silhouette as they construct scaffolding in the port of Cannes, France, April 4, 2016. REUTERS/Eric Gaillard

 

The euro zone economy grew by more than previously estimated in the first quarter and at its fastest rate in a year, EU statistics agency Eurostat said on Thursday, ahead of a European Central Bank meeting likely to keep policy unchanged.

Eurostat said the 19-country euro zone expanded by 0.6 percent quarter-on-quarter and by 1.9 percent year-on-year. That compared with earlier estimates of 0.5 and 1.7 percent respectively.

On an annualized basis, the euro zone economy was expanding at a rate of 2.3 percent in the Jan-March period, far outstripping the 1.2 percent rate of the United States.

Solid economy growth but subdued inflation has left the ECB in a quandary. ECB President Mario Draghi is yet to be convinced that a recent rebound of inflation is durable because wage growth remains sluggish.

The ECB is widely expected to keep policy unchanged on Thursday, including its 2.3 trillion euro ($2.6 trillion) bond-buying program and sub-zero interest rates, despite resistance from cash-rich Germany.

However, the robust growth could lead the ECB to remove a reference to “downside risks” in its statement.

Eurostat said household consumption contributed 0.2 percentage points and gross fixed capital formation 0.3 points and government consumption 0.1 points to the first-quarter growth figure. The contributions of external trade and inventories was neutral.

REPOST: Warren Buffett’s winning investing strategy can be applied to any purchase you make

Warren Buffett’s core principle in investing can be applied to almost every purchase we make: Invest for the long-term. Read more on this CNBC article:

Daniel Acker/Bloomberg | Getty Images

 

Warren Buffett knows a thing or two about choosing worthwhile investments.

When deciding whether or not to invest in a company, he and his partners follow a few simple guidelines. One of those is trying to determine the company’s longevity.

“We sort of know it when we see it,” Buffett said during the the Berkshire Hathaway 2017 Annual Shareholders Meeting. “It would tend to be a business that for one reason or another we can look out five or 10 or 20 years, and decide that the competitive advantage that it had at the present would last over that period.”

Simply put, Buffett decides a business is worth investing in because it will last. He purchased See’s Candies with longtime business partner Charlie Munger in 1972 and spent more than $1 billion on Coca-Cola stock in 1988 — both of which turned out to be good bets and both of which he still owns today.

 

Contributor | Bloomberg | Getty Images
Warren Buffett drinks several cans of Coke a day.

 

“His approach is to be really sure of something before he buys it, and one of the ways he exercises that discipline is to sort of almost never sell. Not never sell, because he does sell stocks, but he sort of says to himself, ‘I know I’m almost never going to sell it, I’ve really got to like it before I get into it,” Buffett’s biographer Roger Lowenstein, author of “Buffett: The Making of an American Capitalist,” explained to Yahoo’s Alexis Christoforous.

“It’s not the not selling that makes these so good, it’s that discipline to buy things only when he really, really likes them,” Lowenstein says.

While not everyone will garner the same results as Buffett on the stock market, his core principle can be applied to almost every purchase we make: Invest for the long-term.

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