Investing 101

Investing 101 - Index

Investing 101 contains a variety of articles on investing, finance and money management. Articles will continue to be added as they become available. If you would like to see a particular topic covered in Investing 101, or have an article you would like to contribute, feel free to contact the Bull using the ‘Email BMB’ link found in the left panel of this page.

Investing Primer - BMB Do’s and Don’ts

Investing Primer — BMB Do’s and Don’ts

So you want to be an investor, or maybe you already are. Maybe you own a few stocks, and you’ve got some money in a few mutual funds in your 401k plan. Are you making money? How are your stocks doing today? How has the market been performing lately? Which sectors are the strongest right now? When will you sell your stocks if they go up? Better yet, what will you do with them if they go down? These are questions that, as an investor, you should continually be asking yourself. It’s fairly easy to buy stocks - but it’s not nearly as simple to know what you should do with them once you own them! The smart investor has a plan — a method for choosing the right stocks, for deciding when to buy them, and just as important, for deciding when to sell them. Here some ideas for you to consider:

 

DO: Educate Yourself — and educate yourself some more. An educated investor is a better investor. Take the time to learn as much as you can about the markets. Understand the difference between stocks and bonds, ETFs and mutual funds, growth vs. value stocks, market orders, limit orders and stop orders. If you’re investing in mutual funds (like those in your 401k plan), research the funds and know what stocks and/or bonds those funds are investing in. You might find that some of the funds own a lot of the same stocks - so you may not be diversifying as much as you think. Read as much about the markets as you possibly can, and learn how to read stock charts and what they can tell you (you can find some of BMB’s reading recommendations here). Learn how to identify market trends. Then continue to pay attention to the markets and how (and why!) they’re moving.

 

DON’T: Chase hot tips, hot stocks — Don’t buy stocks based on tips from your buddies or your in-laws: take their tips under advisement, then do your own homework. Don’t base your investment decisions on what you hear television “analysts” say, or what you see on the magazine covers. In general, by the time a stock becomes the one everyone is talking about, it’s way too late, and it’s more likely to move down than up. When rebalancing your 401k, be wary of the funds that have run up a lot in the past year or two - you might actually be better off looking at the other funds. You should base your decisions on where the market will be going, not where it’s been. Also, pay attention to the entire market. After all, not all sectors of the market are profitable at the same time. Don’t get stuck in a rut by trading only in your “comfort zone” - just because you’re most familiar with technology stocks, that doesn’t mean that those are the stocks you should be buying.

 

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Intermarket Relationships

A summary of the relationships between the four major financial markets — currencies, commodities, bonds and stocks. From John Murphy’s Intermarket Analysis — Profiting from Global Market Relationships:

  • The U.S. dollar trends in the opposite direction of commodities.
  • A falling dollar is bullish for commodities; a rising dollar is bearish.
  • Commodities trend in the opposite direction of bond prices.
  • Therefore, commodities trend in the same direction as interest rates.
  • Rising commodities coincide with rising interest rates and falling bond prices.
  • Falling commodities coincide with falling interest rates and rising bond prices.
  • Bond prices normally trend in the same direction as stock prices.
  • Rising bond prices are normally good for stocks; falling bond prices are bad.
  • Therefore, falling interest rates are normally good for stocks; rising rates are bad.
  • The bond market, however, normally changes direction ahead of stocks.
  • A rising dollar is good for U.S. stocks and bonds; a falling dollar can be bad.
  • A falling dollar is bad for bonds and stocks when commodities are rising.
  • During a deflation (which is relatively rare), bond prices rise while stocks fall.

Joe and Jane Investor

Joe and Jane Investor

A lot of people assume incorrectly that investing is all about having money and buying a few stocks. It’s not quite that simple - it takes a lot of time and effort to do the research required to make good investments. But it’s even more than that. The process of investing, and building wealth, is more than just a hobby. It’s really a way of life, one that begins with financial discipline: managing all of your money wisely, whether or not it’s invested in the stock market. You can’t begin to buy stocks if you don’t have money to invest, and you won’t have money to invest if you spend every dollar you bring home.

Here are a few thoughts on managing your household finances: steps you can take to help you move toward building a solid financial foundation:

  1. Live below your means. It almost doesn’t matter how much you make, you’ll feel like it isn’t enough. So start the saving habit early—ignore the urge to upgrade at every opportunity whether that means a new car, a bigger house, a better gadget, etc. If you want to have money to make money, you can’t spend all of it. Cutting costs by changing habits creates a lifetime of savings. Some of these saving ideas may actually improve your quality of life! Two of my favorite money saving tips:
    • Limit dining out—make cooking a hobby, learn to prepare good meals, and make enough to freeze meals into your own “tv dinners.” Only certain meals freeze well, but stews, casseroles, and lasagna are nice to have available when you are too tired to cook. Cooking can be fun, it’s healthier than eating out and it’s a lot cheaper! Here’s a variety of good, simple recipes to get you started.
    • Instead of renting or buying movies, check them out from the library. These days, libraries have good collections of DVDs, VHS, and music CDs. The topics range from popular movies to PBS specials. So long as you return the material on time, you can check these items out for free (your taxes have already paid for the library services!). Many libraries also have free internet access.

     

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Day of Bliss—Lifetime of Bills???

Day of Bliss—Lifetime of Bills???

 

Debunking wedding myths

Your wedding day is not - I repeat, not - “The one day where money is no object.” In one day, you can blow a lifetime of savings—or savings you don’t even have yet. All this in an effort to be a princess for a day, to pamper yourself as though a queen. It’s not worth it. Here’s a simple example: If you have, say, 5000 dollars to spend on your wedding (the amount isn’t really important, it’s the idea), would you rather have one day where you are the shining object of perfection, or say, two glorious weeks in Hawaii? No, you can’t have both. Or maybe you can before you start the wedding plans—but if you spend too much on the wedding, you could easily be downsizing or postponing your honeymoon, your first house or a new car. Worse, if you don’t have the money, you might borrow it to spend on your wedding and honeymoon and be paying off the debt for years. I guarantee you that what might be a “must have” before that one day will not feel like that two years later. Two years after the wedding, as you put yet another credit card payment in the mail, you’ll be wishing you hadn’t spent so much.

 

Weddings, just like anything else, have a price tag. When looking at the price tag, it should be compared, not just to a type of wedding, but to what else could I buy with this amount of money? I’m not suggesting that you forgo a wedding entirely, but think about how quickly one day evaporates. Your wedding day is going to be no different. In fact, it may go by in such a quick blur, you’ll have very little memory of it—with the exception of videos that are too sappy to actually sit and watch or pictures that make you cringe because the entire package cost more than a high-end camera.

 

There are so many choices for weddings today, so set some priorities and pick one or two things that are very important to you. Maybe the engagement ring is a big deal. If your spousal unit spent a small fortune on that, give up the tuxedos and patent leather shoes that will make him cranky. If a gorgeous, expensive cake is an absolute must, maybe you can do without the flower petals on all the tables.

 

Here are a few ideas that won’t steal from the day and won’t steal from your pocketbook either:

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“My Husband Takes Care of That”

“My Husband Takes Care of That”

Most women are insulted by, or at least leery of, the idea of handing over too much freedom to their husbands. But when it comes to their 401k and finances, I hear, “my husband takes care of that,” far too often. I hear it from women that work and I hear it from stay-at-home moms. All of these women are quite capable and many of them have graduated college. There is no reason for any of them to rely only on their husband’s decision-making when it comes to their finances. But…a lot of women hand it over anyway.

 

I’m not going to warn about “What if your husband died?” or “What if you get a divorce?” There are enough other reasons for women to stay involved in household and 401k investments. Even if a woman has never worked and doesn’t have a 401k of her own, she needs to know where the money is invested. She needs to understand the basic differences between bond funds, stock funds, CDs, money markets, and the amount of life insurance held. If for no other reason than to set an example for their daughters, mothers should be involved.

 

Women get married later in life these days and it can’t hurt to consider knowledge of investments in the same way you think of keeping up with a checkbook—it should be a basic requirement, not an afterthought.

 

Here are a few simple suggestions for women:

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Deadbeat Money Drain

Deadbeat Money Drain

You know you’re dating a deadbeat if… you go out to eat, and when the bill arrives, his excuses progress through:

  1. He forgot his wallet.
  2. He has his wallet, but he has no cash or credit cards.
  3. Finally, he has his wallet and two withered dollars that don’t even cover the tip, but still doesn’t have any credit cards or an ATM card.

He’s an exceptional deadbeat if: he is the one that suggests going out to eat because “we have no life,” but then doesn’t pay.

 

You know you’re dating a deadbeat if… you are able to talk about how sweet and attentive he is because he hardly ever goes out with the guys. When he does, he often invites you along. On the times you actually go, somehow you end up paying for his beer. He’s an exceptional deadbeat if: you find that when you’ve been invited, he’s buying because it’s his turn, but he’s a little short on cash and hoping that as the cherished girlfriend, you’ll pitch in. Ladies, watch here for when he starts bragging about what a great job you have.

 

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Invest In Your Health

Investing for Retirement - In Your Health

Everyone knows you need to set aside money for retirement, but here’s another investment for retirement that needs attention: Your health. And just like your money investments, the earlier you start the better. You can’t wait until you have high blood pressure, a heart attack, diabetes and then start investing in “pills” to control it. A much better plan is to mimic setting aside money every paycheck. Set aside time to–yes, folks, exercise! Just like any other investment, it needs to be a way of life, a steady progression of making sure that you maintain your muscles, your weight and thus your retirement health.

This doesn’t mean that you need to enter the Ironman. We can’t all be billionaires and we won’t all win marathons. But you can invest in a stay-fit program. Any program is better than none. Find something you like—or can at least stand. That may mean swimming three times a week, running, basketball, or biking. For me, I walk every day, about a mile and a half. I may miss ten days out of the year when I don’t walk. It’s my commitment to my health so that I’ll still be walking when I’m eighty. Even that small investment wasn’t enough; in the last couple of years I’ve had to add dreaded weight lifting. It would seem that pounding the pavement wasn’t doing anything to help those flabby sails forming in my arms. Mind you, I don’t lift weights for instant gratification or huge muscles (and anyone that could see my puny muscles could attest to that!) I do it so that I can carry the groceries in from the car when I’m sixty.

Exercise and eating right can also save money. If you’re fit, you’re less likely to fall, you’re less likely to have a heart attack, diabetes, high blood pressure—exercise even helps your mental state. Yeah, sounds great. But no, it isn’t easy either. It involves sacrifice. It can involve spending money, but it doesn’t have to. Walking is free. After an initial investment, weight lifting doesn’t have to cost anything either. Same with biking, hiking, throwing a ball around, etc.

Just like you want your kids to know about money investing, you need to make sure they know about health investing. You teach them to brush their teeth everyday—how about exercising every day, which is probably just as important to long-term health? Get outside with them—throw the football, the baseball, help them practice. Don’t think you don’t have time—you have the rest of your life to exercise, but your life is only going to be as long as you are healthy.

Motivators:

  1. Stand in front of the mirror. Turn sideways. No, don’t suck in your gut. Just stand there and note the sheer roundness.
  2. Women: Put on a bathing suit. ‘nuf said.
  3. Men: Yes, you still fit in the same size pants as college, but in college you didn’t wear them under your stomach.
  4. Try taking one flight of stairs. If you have to stop and rest before going another flight (either up or down), maybe you should consider exercising for your health — and the lives of the people around you trying to get out during a fire.
  5. Women: Stand in front of the mirror in a sleeveless top. Hold arm out. Measure the wind sail flailing beneath your arm. Two choices: lift weights or never wear sleeveless again.
  6. Touch your toes. Okay, just look for them. How far do you have to lean over to see them? Now try it without the swim fins on and tell the truth…
  7. And perhaps the number one hint that you need to get in shape: You’re on an airplane and the flight attendant asks you: “Would you like a seatbelt extender?”

Retirement requires money, but it also requires being there and being healthy to enjoy it. Just like with your money, you’re better off investing sooner rather than later. Find a program—any program and commit to it. Realize that exercise and eating decently is a privilege as well as a responsibility. But just like investing, the sacrifices you make now, add up–it’s worth it in the long run.

 

Article contributed by MES