Recently, I spoke about leveraging strategies and their basics. Even if there are huge advantages of using leveraging strategies to create wealth, there are also important risks to take in consideration. However, these risks can be controlled.
The timing risk is crucial when you are planning to withdraw your investment. As you have a debt related to your assets, you must remain conservative in your investments before you cash in your investment. Imagine people that had all their assets in the techno funds and planned to retired in 2002. They must be still working right now! If you use an investment loan, a line of credit or the Smith Manoeuvre, you must determine your investment horizon. When you approach from the date of withdrawal, you can move your portfolio to fixed income products or high dividend companies stock. Therefore, you will be assured to retire in time.
In the case of most leveraging strategies, the interest rate charged on the loan will be variable. This is your way to get closer to prime rate and then reduce your interest cost. However, no economists will guarantee that prime rate wonâ€™t go back to 10% in five years from now. If itâ€™s ever the case, your investment would have to give more than 10% in order for you to make money. Aiming 10% yield means volatility and therefore big fluctuation. I donâ€™t know about you, but I wouldnâ€™t feel comfortable to loose 15% of my portfolio in a span of one month. This could be the case if you want big returns. In addition to that, you would still owe money to the bankâ€¦
The market risk is inherent for any investments. Nobody can predict how the market will go in the future. Except Warren Buffet! Even then, he wonâ€™t let you know;-) As you are playing with othersâ€™ people money, I suggest you have a well diversified portfolio. Concentrating all you assets in one industry or a small group of companies could be very profitable. Yet it could also lead to catastrophe. Aim 6 to 8% and pay 4 to 6% of interest. You will make money on the long run.
Another risk related to leveraging strategies is the liquidity risk. Depending on your type of investments, you might not be able to cash in your funds at anytime. Some mutual funds will have close end fees if their not hold for a certain period of time. Therefore, you must be careful in your investment product selection and build your portfolio according you your investment horizon.
Most of these risks can be controlled or reduced by the help of a financial consultant, banker or financial planner. Once again, I suggest to meet with more than one and to choose one that is familiar with the leveraging concept. With a good plan, youâ€™ll end up with more money in your pockets!Comment: 1 Read More
Making money without having money. Is it possible? Yes. Is it risky? It depends. According to some financial professionals, leveraging strategies are the best way to loose money. According to others, they are the best invention since the stock market. Who’s right? It depends ;-).
The problem with many people is that they think about their potential gain and the fact that they are “playing” with others people money. In fact, many of them don’t realize the risk involved in such financial planning. I’ll talk about which kind of risk is related to the leveraging strategies later on. For now, let’s concentrate on the technique itself.
Leveraging consist in borrowing others people money on invest in a project. Let’s pretend you have $50,000 to invest in a start-up. You know you can do little with that amount even though it is sufficient to start the company. Imagine now what you can do if you have $500,000 instead. The potential of the company is much bigger with such start-up funds.
Leveraging is thinking big. You can’t afford it? Borrow money from someone else! Leveraging strategies are based on the fact that you can borrow money at a lower cost than your potential return. In other words, it’s like borrowing $200,000, paying back $10,000 in interest charges while you are making $50,000 out of your investment. Therefore, you cash in a net profit of $40,000. All of this without having to spend a penny as the cash down was borrowed and the interest paid among the profit. This is why we are talking about “playing” with others people money.
Over the years, financial institutions made custom leveraging products. They are now financing the purchase of assets that they can take as collateral. These securities can be mutual funds, stocks, properties and other investment products. Banks will then provide enough funds to buy the assets and register a lien on it. Therefore, you can’t dispose of this asset without reimbursing the loan. On the other hand, you will benefit for the full usage of the assets and receive any generated income.
As long as you mare making more money than the cost of borrowing, leveraging strategies are seen as a powerful financial planning tool. However, several risks are linked to these investment methods. I’ll review them in the next post.Comments: 0 Read More
After Ebay and Googleâ€™s (GOOG) astronomical profit last week, we might think about buying some .com stocks. In fact, Google announced a 69% profit jump for his last semester. Once again the big monster beat up the analystsâ€™ prediction and get a 1,0G$ profit. In Ebayâ€™s case, the company jumped by 51%. This is enough to make you think about a new internet startup.
Google recently bought Double Click and keep on growing after the transaction implicating You Tube last year. These acquisitions are scaring their opponents such as Yahoo! whoâ€™s doing great but not that great. Google and Ebay are not the only one. Many other companies are showing some interesting profit.
This is why we may think that 7 years after the Techno Crash, some companies still exist and are about to bloom. This time, things are different. Things are real. People are not buying stocks based only on potential; they want real moneyâ€¦ also called PROFIT.
As everybody is ignoring them, we can find some deal in .com companies. Most of them are underestimated as they are showing profitable financial plans but are not in the â€œhotâ€ industry for now.
Get started. Go on your favourite stock market site and start searching for good deals. Look for companies showing profit and growing business income. You can use filter and search engine.
The techno industry is like any other, you may find good or really poor stocks. But remember, you always better buying when nobodyâ€™s buying. This is where you buy low and sell high!Comments: 0 Read More
Some of us know the furniture store in Canada named THE BRICK. However, have you ever hear of the BRIC? This may be one of the best investment opportunities you find these days. The BRIC is an acronym for Brazil, Russia, India, China. All these countries are living an economic surge at the moment and you can be part of it.
You probably don’t know much about countries included in the BRIC. Nothing however that could help buying stocks overseas. Don’t be sad, financial institutions though of you. They always do when there is money in the pot!
Recently, several funds where created to include the best performing stocks in the BRIC. Hence, you will benefit from professional portfolio management for a small price. In fact, management fees related to these mutual funds are not necessarily higher than others.
By buying BRIC oriented mutual funds, you will avoid to research the globe for the best companies. You will also be able to participate in some of the fastest economic growth on earth.
Is it risk free? Nope! Like any other type of investment, several factors remain uncontrollable. The BRIC’s economy runs like a train and seems to not slow down for the moment. However, there is a lot of speculation on the market and it can crash at anytime. We just had a good example when the Shanghai Stock Market lost almost 9% in one day.
The BRIC mutual funds are for advised investors who understand the risk of emerging economies and are comfortable with their volatility. As everybody else, they are also able to appreciate high return when things go as planned!Comments: 5 Read More
Every body’s after you; your bank, your ex-bank and the credit union that just opened three blocks away. Everywhere you go, you’ll see credit cards offers. Low transfer rate, no applications declined, competitive cash back and rewards system. They will even give you freebies such as T-shirts, caps, pens. Anything to make you sign this credit cards application. Why should you do it? Believe it or not, there are some reasons why you should want a credit card.
The first one is to establish your credit history. There is nothing like credit cards to bring your beacon score to a higher level. The financial institutions are reporting credit cards to the credit agencies on a monthly basis. Therefore, credit cards are a live example of your credit behaviour. Are you paying on time? Are you maxing out your cards? Are you applying for ten of them at the same time? All these questions can be answer with a simple look at your credit report. Use your credit cards on a regular basis without getting close to their limit. In the best case scenario, pay them off at the end of the month (you won’t have to pay interest then). If you are a student and have no credit history, student credit cards are almost your only way to build a strong credit history.
Cash back, air mileage and rewards. These are the magic words. By paying your regular expenses with your credit cards, you’re getting something in return. If you follow your budget, you won’t spend more than you should. However, you will earn many points and be able to treat yourself. Cash back will automatically put more money in your pockets while air mileage will transport you and your family to Disney World. In other words, you will keep you living the way you do, but you will earn a little extra at the end. After I paid for my wedding with my credit cards, I had enough point to go south with my wife and it cost me nothing! When I came back, I’ll the gifts I received from my family paid for my credit card bills. Life isn’t just beautiful?
Save fees and track your expenses. It became quite easy to use your card everywhere. Companies now accept credit card online for most purchases. While paying cash forces you to keep a considerable amount of money in your wallet at anytime, paying with your debit card will incur transaction fee in your bank account. Credit cards companies are not charging you for using their cards. As they want you to use your card, there are no transaction fees. How do they make money if you pay your credit card bill at the end of the month? Simple. They charge the store where you shop at. Stores are charged a small percentage of your purchase on every credit card transaction. In addition to not pay fees, you will be able to track your expenses. Your monthly report should help you out pinpointing your must expenses categories and come up with a budget to bring them down.
When they are well managed, credit cards can help you out building a strong credit history, benefit from rewards and save transaction fees. Credit cards are definitely a good personal finance tool when used the right way.Comments: 0 Read More
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