6 Ways to Invest Small Amounts of Money (for Big Gains)

Often, people think you need a lot of money bore you can start investing, hence the saying ‘money goes to money’. This does not have to be the case. It is possible to invest smaller amounts and to watch them grow until they become much more sizeable. However, before you start any investing you should clear yourself of debt. The interest rates you are charged on things like credit cards is far higher than you can expect an investment to make for you.

Start With A Savings Account

There are many investments that need $500 to get started. This might not sound a lot, but if you are living on a budget it might seem impossible. Open a savings account with your bank and start to save a small amount on a regular basis. It will soon start to build and although interest rates are currently low, the bank will pay you something.

Betterment

The Betterment investment site does not have any minimum deposit to get you started. You have to answer a few questions so that your risk tolerance can be assessed and then a portfolio is created for you that allocate your investment to different funds. You do not have to concern yourself with the investment allocations as this is done automatically for very low fees. All you need to do is add more dollars as you want to.

Motif

This is an investment with a difference that requires you to start with a minimum of $250. You either build or invest in existing mini-mutual funds all of which are based on certain criteria. Each one is known as a motif, which is where the sites name comes from.

You can learn about each one by studying a Motif Review, and if there are none you like you can start one of your own.

Forex Trading

forex charts

Image source

Forex trading is one of the investments that most people are familiar with but think it is out of their reach. There is a long list of Forex companies that will let you start investing with amounts starting as low as $100. The brokers generally then take care of your investment, although you can be involved in the choices if you want to be. You need to discuss the matter with which Forex Company you choose to use.

US Treasury Securities

This might not give you the best return on your investment, but they will pay you more than a bank and are probably the safest way of all to boost your finances. You can start will as little as $100 and buy them from the portal at Treasury Direct.  The terms run from 30 days to 30 years, and you need to be careful about the length you choose as you can lose out if you have to sell them early.

Invest in You

emergency fund

Instead of investing your money elsewhere, you need to ask yourself if it would be better to try and earn new qualifications or a totally new skill. The money spent on training could end up increasing your income dramatically, and that could be the best investment of all.

Renting Vs. Buying: Why Investing Makes Financial Sense

If there’s one dilemma that most young people have it is this: should you rent or buy a home? It’s not just a case of doing what you want though, or at least, for most people it is not, it’s about taking your financnes into account and being smart about the decision that you make. The question of whether renting vs. buying is best is a long-runing one and not something that everyone can agree on. However, many experts believe that investing in property rather than renting property does make better financial sense.

picture of a door

The question is, of course, why have experts agree that paying a mortgage is a smarter financial move to make than renting? Studies have shown that statistically, buying a home works out 37.7% cheaper than renting a home, which is what makes it a far smarter financial choice. Taking that into account, what’s it’s vital that you understand is that various factors will impact the cost of purchasing your own home.

Taking all of that into account, you may still be feeling a little confused about whether renting vs. buying is best and why investing actually makes the most financial sense. To help you to better understand why investing in property is a better choice to make than renting, below is a guide to everything that you need to know.

picture of houses

Picture link: Pixabay

Compare the costs of each option

The first step that you should take is to sit down and actually work out how much each option will cost you now and in the future. What you need to consider is that  bn[‘#owever, then you also need to look at the price in the long-term and what you are getting for it.

You need to look at how much you will be paying each month for your rent or mortgage. Traditionally, mortgage payments were far cheaper than monthly rental payments, however for people with low credit scores and high interest mortgages, that is not the case. So it’s important to take the time to look into this properly. Then there’s the concept of what you’re getting for what you’re paying to consider.

When you pay rent, you are essentially paying to borrow someone else’s property for a month. Each rental payment simply covers you living in the property, and that’s it. Whereas, when you buy a house and pay a mortgage each month, which doesn’t just cover you living in the property, but it also covers the cost of buying more of the property. With each month’s mortgage payment that you make, you are owning a little bit more of the property that you are living in.

Looking at it like this, it’s easy to see why so many people consider renting to be a waste of money. Each year you are paying thousands of simply borrow a property, whereas if you had a mortgage you could be spending that money buying more and more of the property that you live in – it’s easy to see that renting does not make as much financial sense as buying your property.

Understand how repayments will work

Despite the fact that it’s clear that investing in a property rather than renting one makes better financial sense, the cocept of actually taking out a mortgage and buying a house can be extremely stressful as there’s just so much to think about, such as whether purchasing a property is actually affordable at the current time. It’s one thing knowing that buying a property is the right choice for you, but it’s completely another being able to afford to purchase a house and cover all of the costs that come with doing so.

When it comes to better understanding how repayments for your mortgage will work, you may find that a usable housing loan calculator is an extremely useful tool as it can give you a better insight into how affordable taking out a mortgage could be for you. These kinds of tools take into account your deposit amount and use them to determine how much you will be expected to pay per month in mortgage payments and what your level of interest will be that’s added onto your payments per month.

It’s essential that when it comes to investing in a property, that you have a solid understanding of what is what when it comes to the costs associated with doing so. It’s important to remember, that in addition to the cost of the deposit for your property, there are also other costs to covers, such as the cost of hiring an attorney, the price of having a survey of the property done, then there’s also the fees that have to be paid to the agency that’s sold your home. It’s not just the deposit cost that you need to consider, but also the cost of everything else that comes with purchasing a home.

coints stacked on paper

Photo source

Determine the monthly cost

The next step that you need to take is to determine whether the monthly cost of owning your own home is an affordable one. The chances are that actually, the cost of your monthly mortgage repayments may well be lower than the cost of paying rent each month, depending on the rate of interest that you pay and how long your repayment period is set to. For instance, the longer your repayment period, the lower the cost of your monthly repayments, and the shorter it is, the higher these repayments will be.

For anyone who is trying to keep the cost of their mortgage as low as possible, a longer repayment period is often recomended. You can find companies that offer repayment periods of up to 40 years, however it’s important to bear in mind that often the interest that these companies offer is far higher than the interest offered for more common 25-year mortgages. What this means is that there are plenty of options for you to consider when it comes to making having a mortgage an affordable option.

What a lot of people find helpful is using a monthly budgeting app and putting in potential mortgage costs along with other expenses, such as bills and food costs, to determine if having a mortgage would be affordable to manage. It’s important that before you make a big financial decision like taking out a mortgage that you are sure that it is something that is affordable for you to manage.

Think about the future profits

Last but not least, it’s also important that you take the time to think about what investing in property would mean for your future. Unlike renting, choosing to purchase a house means having an investment for your future, because over time you are slowly buying more and more of your property from the bank or your mortgage provider, until you own the whole thing.

It’s important to consider what this means for your future finances, such as the fact that potentially you could make a profit from your home, if you improve it over time and its value increases and you then choose to sell. Having a home of your own could give you the financial support that you require in your future, such as being used to help pay for your children’s higher education or to support you as you get older. That’s what makes investing in property so amazing – the fact that it allows you to have a financial safety net as you get older. You can rely on that money and know that whatever happens you have an investment to fall back on.

 

When it comes to choosing between renting or buying, there’s a lot that you need to consider. The fact is that as many experts have said, buying makes better financial sense as you are owning more of your home each time you pay your mortgage, whereas with renting you are simply paying to borrow the property and are not getting any type of collatoral as a result. However, just because buying does make better financial sense then renting, that doesn’t neccessarily mean that it’s the best option for everyone.

Should you choose to purchase a property, you need to consider what associated costs come with doing so, such as the fees, for instance. Then there’s also the cost that you have to pay every month for your mortgage, although this is usually lower than paying rent, it’s important to spend some time working out whether this is an affordable cost that you are able to cover. You can’t choose to invest in property if you aren’t sure that doing so is affordable for you, which is why you need to be clear on the costs that are associated with purchasing property, so that you can make sure that they are affordable before you take a leap and make an investment.

The Best Way to Invest in Yourself

Deciding how to spend (or save) your money can take some careful thought. When you’re thinking about the best ways to invest your money for the future, you probably focus on growing your savings and having valuable assets. Spending money on yourself can seem unnecessary and might even feel guilty. But investing in yourself is one of the best ways to improve your future and your finances. If you spend your money wisely, you can make yourself a more valuable employee or get the skills you need to run a business. Take a look at the advice below to find out how to invest in yourself wisely.

#1 Build on Your Education and Grow Your Skills

books in a library

Investing in your education is one of the best ways that you can spend money on yourself and your future. It doesn’t have to mean spending thousands on college, although getting a degree or diploma can be a great way to boost your income potential. There are other ways to learn and grow your skills, even without spending any money. There are plenty of online courses to help you make sure you have the most in-demand skills. For example, the Udemy Python course is one of the most popular. Learning online helps you to keep your costs down and even access free courses.

#2 Invest in Your Hobbies

a man playing golf

What do you enjoy doing? You can feel guilty about spending money on the things that you like to do in your spare time. However, there are benefits to investing in your hobbies and building skills in these areas too. You never know where a hobby can take you and how it could change your thinking. It might teach you creative problem-solving skills that you can apply at work. You might turn your hobby into a business, or perhaps it could lead to you making some valuable connections that help you in your career.

#3 Spend Money on Traveling

travelling

Another great way to invest in yourself is to spend money on traveling. Seeing the world helps to expand your horizons, can help you to learn new things, and might mean you make some useful connections too. Some people end up thinking of business ideas when they’re on their travels, finding someone who wants to employ them, or even discovering a new career path that they want to take. You don’t have to spend a lot of money on traveling, but it can benefit you in many ways.

#4 Invest in Financial Education

Spending money on learning how to manage your money could benefit you for a lifetime. With the skills and knowledge you need to make smart decisions about spending, saving and investing, you can secure your financial future. There are lots of ways to learn more about how to handle your finances, from taking a course to hiring a financial advisor and learning from the advice that they give you.

NB! Spending money on yourself doesn’t have to make you feel guilty. In fact, it’s one of the best things that you can do with your money.

The 7 Best Investing and Business Books Out There

So you would like to make an investment into something, but don’t know where to start.  Or perhaps you already have made one or few, but need some help to better understand the world of investing to earn better returns for yourself?

Investing and business books are a great way to solve this problem. They can help you in the way you think about business, investing, and became more and more successful. How?

Knowledge is everything! By reading some of this books, you can learn so much and after that, you can act in a way that some of the authors have written about.

So here are some of the best-investing books that I am sure will help you by reading them and after that making money. Isn’t that great?

1. “Think and grow rich” – Napoleon Hill

book cover

This book has sold more than 20 million copies and is, in fact, a mix from some wonderful thoughts from very successful men in the late 1800s and early 1900s.

It teaches you how to think, how to perceive the business world and how to make abundant wealth.

It also contains many inspirational and educational thoughts and anecdotes from a man like Thomas Edison, Henry Ford and many more.

All I can say to you about this book is: you can become what you desire. You will need perseverance, hard work, and a proper mindset.
But, in the end, if you have all those things I bet you will succeed.

2. “The Millionaire next door” – Thomas J. Stanley, Ph.D. William D. Danko, Ph.D.

book cover

Interesting title, isn’t it? Here you can read about financial habits of some millionaires. Also, the fact that some people can look just like ordinary people, but are indeed millionaires or even billionaires.

In the past, the men of wealth were known, they had family background, wealth, power. The 21st century changed it all.

Everyone has the potential of becoming a successful and wealthy person.
This book is worth reading, because it inspires by presenting you the millionaires of today, which could very well be ordinary, not well dressed, don’t have the family backgrounds, don’t spend a lot of money on style and image etc.

Imagine that your neighbor has a millionaire living next to him and that is you. How amazing would that be?

3. “The 4-hour work week” – Timothy Ferris

ferriss book

You will enjoy reading this book – it’s funny, it’s talkative. The title tells a lot. It’s about a group of people who spent, believe it or not, only 4 a week hours to make money.

Imagine that you have so much free time to make things that you love, things that fulfill you and yet, making wealth more and more. This is the book that explains how to do it.

If you want to have so much free time, way less stress in your life and so on.
Give this wonderful book a shot, and I promise it will make it worth your time while making you laugh while reading.

4. “Rich dad, poor dad” – Robert Kiyosaki

rich dad poor dad

Are you maybe that one person that always works hard, but never earn enough? This is the right book for you. Also, if you are a young investor, I think this book is a must-read for you.

Rich dad, poor dad is a book that describes how to achieve financial independence. It counters the idea that if you go to school, get high grades and a good job you will have the good job that allows you your financial independence. This is very important because the system is set in such a way that by finishing your college you will be in so much financial depth, that it will take you a lot of time to come even close to zero.

It is a great inspirational book about the way you think for yourself as the best and how, in a different way you can have a look at both – money and business.

5. “The Intelligent Investor” – Benjamin Graham

graham's book

The best investing book ever, and I’m not the one who says it!
Written by Benjamin Graham, one of the best investors in the 20th century and mentor of Warren Buffet.

The book is driven by its 3 principles of investing:
1. Intelligent investing – where you will get the idea how to invest, where to invest, never to chase fast and crazy profits and always to pay more attention to the company history and long-term evolution.

2. Never trust Mr. Market – describes how you should focus on doing your own research on the market and not paying so much attention to the current stocks or ups and downs.

3. Always stick to a strict formula – set a fixed budget you’re going to invest every month, and then invest that into the stocks you’ve previously picked – no matter the price.

Read this book and it will lead you to your investing success.
And keep in mind Graham’s words “Those who don’t remember the past are condemned to repeat it”.

6. “The richest man in Babylon” – George S. Clason

good book

Always work hard! This book teaches you how to separate your needs from your desires, at least in the way of expenditure. And the main idea of the book: Always save at least 10% of your income.

You have few simple rules of making money, that in my opinion will help you a lot. Appreciate the value of the money, be curious and never doubt to ask a good, close friend about advice – you will be like one of the richest men in Babylon.

7. “Secrets of the Millionaire mind” – T. Harv Eker

cover of a book

In only 2 and a half years, Eker moved from nothing to a millionaire.
In this book, the author tells you how to identify and revise your money blueprint in order to increase your income greatly and accumulate wealth.

Everything you know about money, in general, has been thought to you since your existence. It has been programmed in your brain and psych and in this book you are thought the 3 key money blueprint programming sources as well as how to reprogram it in order for you to make a great financial success.

You should really read this book, it will turn your world around. It will change your mindset in a way that you wouldn’t imagine and will make you a lot of money.

In the end, I would like to wish you the very best in whatever you do. And never forget: knowledge + hard work + positive thoughts = success for sure.

Invest Yourself to $100,000 in 7 Steps

Who doesn’t want to reach a $100,000 in their investment portfolio.  Me and Alex managed to reach 100K within 2.5 years, although it is still quite far from our goal of retiring early, for which we need $800,000.

Despite that, 100K is still a very good milestone. If you can reach that, you’ll be sure to reach whatever you desire. The hardest part is the beginning. You can start small but remember every dollar and every cent counts towards that achievable first $100,000.

There has always been economic uncertainty which have put our financial security at risk but that should not stop you from getting closer to your financial goals.

You can move forward to your goal through careful planning and budgeting. Keeping your personal financial situation problem free also helps.

We can keep your personal finance in pace with your financial goals by predicting the unpredictable like unwanted price rises or unexpected bills and keeping them under strict control. So that getting towards that first $100,000 becomes easy and the next one easier and the next one easiest.

7 Steps Towards $100,000

1. Have the right attitude

a cup

Now that you have made up your mind set to save $100,000 every small step of financial sacrifice counts. You should achieve that by avoiding excess luxury and taking that hard way home like availing public transport rather than leasing out or out rightly buying that expensive car. You have made up your mind to achieve a long term financial goal, so you should put every effort big and small towards achieving it, for that keeping the right attitude always helps.

2. Stick to your financial goals

paperwork and pc

It is always hard to give up something presently for a distant future. The temptations to break your financial goals towards that first $100,000 will be great. So, you need to stay motivated for the long run. This means you should create small achievable financial goals like weekly savings target to achieve the monthly ones and the yearly ones. That steady savings will add up to quite a good amount. You can also invest in money market deposits or treasury bills for the short term to save up towards that goal of $100,000.

3.Reduce your taxable income

It is very likely that you are employed in some way or the other and in that case you should go for such a scheme that reduces your taxable income. You can sign up for a 401(K) savings plan. Since these are tax free, you reduce your taxable income. You can also sign up for an IRA or an Individual Retirement Account which also reduces your taxable income and saves money.

4.Clear all expensive debts

budgeting

Clearing or reducing your debts is an essential step towards achieving your dream because you are on a long term savings plan. In case of credit card debt, you should try to get rid of it as soon as possible or start reducing your interest rate burden. You should also need to avoid the additional temptations of buying unessential items like a second television or a double door refrigerator.

5.Maintain a budget

You should always maintain a budget, to see where your hard earned money is going. It is also important to do so because you need to create a plan on how much to save daily, weekly, monthly and yearly towards your $100,000 savings goal. You can achieve this by focusing on meeting the essential requirements of everyday life and cutting down on those costly habits like liquor or extra shopping. This does not mean that you cannot enjoy yourself now and then but those occasions should be countable and within your means and budgets. Whatever you do you cannot over spend and not maintain a budget if you like to see that $100,000 in your bank.

6.Increase your streams of income

money

Taking up a second or third job always helps if you are young, healthy and strong. Even if you are not so, you should always look towards finding new sources of generating income. For example if you are a professional accountant by day, you can start teaching accounting to students for a couple of hours during the evening. You can also learn a new skill that will increase your likelihood of a second job. The extra you make will help you get to that goal of saving $100,000 more quickly.

7.Cut down on your expenditures

a woman with shopping bags

You need to cut down your costs and it is achievable if you are motivated and willing to take that hard road. You can always buy your groceries at a cheaper price if you buy in bulk for the whole month. You can cut down on unnecessary costs like gym membership if you can walk or cycle to work back and forth every day. You can save on home expenditure by buying recycled products. You can choose to have home cooked meals rather than visiting expensive places to eat alone or without any occasion.

You should always remember that no matter what you do to cut down expenditure, there always will be some reason in your head or some temptations to miss that weekly savings goal. In that case you should remember that week’s add up to months and months to years. So your every little sacrifice counts towards that goal of saving $100,000.

If you think you will be living a frugal life because of that, you are certainly wrong. What will happen is you will live a more healthy and prosperous life because you will be cutting down on unhealthy habits to save and you will be happy in the long run as you feel better because of your successful decisions.

This does not mean you will not face setbacks like missing a savings deadline or incurring unexpected costs but if you can jump right back and make that extra effort to save more, you will be the winner at the end of the day.

To Summarize..

Saving money is always a good habit and the sooner one gets to it is the better in the long term, although you will face new challenges and uncertain economic conditions and personal financial drawbacks. But what is most important is not to lose that motivation towards achieving that goal of $100,000 in savings.

The Financial Behaviors That Keep Us Poor

Our paycheck defines whether we’re rich or poor, right? In reality, true wealth comes less from a pay check and more from your behaviors.

Each financial decision you make or habit you sustain has an impact on your finances, and you’ll be surprised to discover all the financial behaviors that are keeping you poor.

#1 Spending More Than You Earn

a woman with shopping bags

One in five Americans spend more money than they earn. Are you one of them? It’s easy to get overwhelmed by bills and rent, but the extra spending usually comes from spur of the moment purchases, like fast food, when you decide what you want now is more important than your future financial stability.

#2 Not Building a Savings Account

When you get your paycheck you more than likely start right away on the bills and expenses. However, by paying yourself each month, simply 10% of your income, you can build up a sizeable nest egg in no time that will give you peace of mind for a rainy day.

#3 Being Too Generous

We all want to treat our friends and family every once in a while to make us look good. However, if you’re constantly paying for dinner or buying the next round, that debt is going to catch up to you. If you’re really in a pinch, allow others to pitch in instead of spending money you don’t have.

#4 Using Credit Cards Like Cash

a woman with a credit card

Credit is not free money. The average American has over $15,000 in credit card debt, and that’s just the average. By changing your mindset about credit cards and thinking of them more as a debit card that needs to be repaid, you can avoid racking up a total.

#5 Overdrawing From Your Account

The easiest and fastest way to lose money is through unnecessary fees. Over drafting is an automatic $35 fee of hard earned money. Always be aware of your account balance and never try to take out more money than you have.

#6 Not Planning Ahead

Most of us are on top of our monthly expenses. That’s what our monthly paychecks are for. However, other expenses come quarterly or annually that we need to be prepared for. By putting a little money away each month you won’t be caught surprised and empty handed when the payments are due.

#7 Ignoring Debts

When you’re broke, sometimes it’s nice just to curl up under a blanket and hide from those big red numbers. Unfortunately, all debt accumulates interest, and all interest is simply money down the drain. Ignoring debts doesn’t make them go away, it allows a bad situation to get worse.

#8 You Have No Emergency Fund

emergency fund

Emergencies happen, and they always come at the most inopportune moments. Put a few dollars away each month until you have a solid $1,000 set aside specifically for emergencies or unexpected expenses.

#9 Spending Too Much on Housing

Maybe it’s time to consider moving to a smaller place. To be financially responsible, you shouldn’t be spending more than a third of your paycheck on housing. If you’re spending more than that, you’re only setting yourself up for failure

#10 Not Making Adjustments

Maybe you have a routine where you buy donuts every Saturday, or you make large car payments because you’ve always had a nice car. However, when things aren’t working out financially it will take adjustments, such as getting a smaller car, going without donuts, or buying cheaper brands at the grocery store.

#11 You Don’t Budget

If you don’t know exactly where your money is going then you’re losing it. By creating a budget you can track your expenses and move any excess money to the areas of your finances that need it most, like debt.

#12 You Believe Wants are Needs

clothes hanging in a shop

Wants are not needs. Needs are food, clothing, and shelter. Wants are fast
food, high-end brands, and a big house. You can want those cupcakes all you want, but you don’t need them. If you can’t differentiate between wants and needs, you’re losing more money than you know.

#13 Lack of Money Management Skills

If you don’t know how to manage your money, you’re destined to spend more than you should. Research classes, workshops, or websites that will teach you skills and knowledge to manage your money in ways you’ve never considered before.

#14 You Settled for a Job

a man working

How many times have you complained about your paycheck? Have you ever asked for a raise? Have you ever looked for a different job, or considered getting training or education in a different field of work? Don’t get stuck unable to make ends meet. Try to increase your income any way you can.

#15 You Want to Get Rich Quick

Not going to happen. People waste thousands of dollars on Get Rich Quick schemes and they never come out on top. The key to wealth is a wise use of time, so stop throwing your hard earned money at sketchy opportunities.

#16 You Want It All

picture of a big house

People want everything too soon. However, once you’ve left your parents and are out on your own, you can’t realistically afford a nice car, a house, or expensive holidays in Hawaii. By saving your paychecks for large purchases one at a time, you’ll be able to achieve your goals in a more practical and financially responsible way.

#17 Not Investing Properly

Buying a fancy house or boat is not investing. Properly investing means putting your money toward yourself in things like your career, education, or savings. All of these will benefit you in the future.

#18 You’re Unwilling to Sacrifice

If you can’t sacrifice, you’ll never get on top of your finances. Going without or “making do” are essential to getting yourself financial security and to a point where you can afford more luxury in life.

..To Summarize

Feeling a little guilty? It’s not too late to make some changes. They say the best time to start something was a year ago, and the next best time is now. By living more responsibly and following some of these steps, you can be sure to have a more secure financial future.

How to Start Investing for Early Retirement

How can I retire early? What must I do to save up enough for my retirement? What must I do to ensure that I live comfortably when I retire?

These questions have been pondering in the hearts of so many, and had left many of them with sleepless nights. To be honest with you, I’ve had my fair share in the past. To be happy in the future, you need to create a sustainable income that would take care of your needs when you’ve stopped working.

The absolute best way to achieve this is to save and invest for the future.

woman holding an ipad

If you want to learn how to start investing for early retirement, then this article is for you. You’ll gain a first hand knowledge on how to make money investing in stock market, which is a better alternative for early retirement plan.

If you’re a pro investor, I think you’ll be familiar with the context of this article, but you can still learn some strategies on how to improve on your wealth of experience. However, if you’re just hearing of “investing in stock market” for the first time, or you’re trying to get hold of some materials that would gear you towards the right direction, then this is a step towards the right direction.

People who don’t invest in the stock market have their reasons, and their opinions about the stock market are different. To some; it’s the fear of losing their money, and to others; mistrust, maybe they’re lucky or not, or just curious of the outcome, whether they can beat the market based on instinct.

Some newbies believes that trading or investing in stock market is a gamble (Although it is, if you invest blindly, or out of emotions and improper calculations), however, they are wrong about it. You’ll only say that investing in stock market is a gamble because you don’t know how to trade to win.

If you’re confident on how to successfully invest in stock market, then you’ve bought yourself a lifetime ticket of steady income for your retirement plan with no effort or work.

What you need to know about stocks.

stock market app

Buying a stock of a company means owning a percentage of that company. When you own a share of a company, you’ll become a shareholder, and have rights to participate in decision making, voting, and sharing of the company’s future earnings (which is known as dividend). Dividend are percentage of the company’s profits that are shared among shareholders, based on their amount of shares.

Some companies pay a fraction of their profits to their shareholders, while they grow gradually, while some invest 100% of their profits into the business for rapid growth.

How valuable is the company you want to invest in?

The value of your stock is calculated based on how much profit (dividend) it fetch you. The higher your shares in a company, the higher your percentage when it comes to profit sharing.

Several factors makes the price or value of a stock to increase or decrease. For instance; the stock of an oil company would definitely skyrocket if there’s an increase in the demand of oil commodities. On the contrary, if there’s a sudden change from the usage of fuel combustion vehicles, to electric vehicles, then value of the stock of the oil company would decrease because the demand for oil commodities would decrease.

Buying stocks for the first time

stock chart

If it’s your first time investing in stop, then the first step is buying them. It can be very exciting for beginners, most especially after seeing people raking 6-7 figures from stock. However, it can be very challenging. You need to learn how to be cautious and play safe. Therefore, I’ll advise to learn it properly before venturing into it.

Here’s a good article covering this topic: https://www.nasdaq.com/investing/start-investing-1000.stm

Long term vs Short term

Stock prices fluctuates always, due to the volatility of the market. Short term trading is more of a gamble, because you never can tell the seconds when the price would drastically rise or fall, and if you’re not careful, you might go bankrupt in a blink of an eye.

Long term investment is a better option. Sometimes even if your stock value falls, it would gradually rise again, and you’ll have the opportunity to make profit from it.

Which stocks to buy to make money?

The best way to invest in stock without much headache is to buy ’em all. Several smart researchers suggests that the best way to make money from stock market is to buy an “index fund”. This is a mutual fund that automatically buys an equal fraction of all the major shares in your country.

When you buy all of the major stocks, some would rise, and some would fall, but in overall, you’ll make above average. This is the best strategy for even that anyone can use to make money from the stock market.

If you choose to do some calculations, then invest your whole cash in a particular stock, and it fails you, then your retirement plan would fail. So it’s better to invest in index fund, and have peace of mind. It’s no doubt that you can only earn very large if you invest a huge sum in a particular stock that grew so rapidly, however, would you be able to survive it if it falls so drastically?

What type of index fund you should invest in?

pile of money and funds

Invest in The Vanguard Total Stock Market Index Fund, and you’ll thank yourself later for doing so. They track the entire of U.S, with the expense of just 0.17%. This is the cheapest you can get, however, if you’re looking of employer-sponsored plan, maybe you should try the S&P 500 Index fund.

There are the International trust funds as well. They are great buy, most especially when the U.S is hurting, it would give you a high ROI.

In conclusion

Whichever stock you’re investing into, the main goal is to retire early and have enough to take care of yourself. Just remember to never lay all your eggs in one basket. Learn how the stock market works, go about it slow and steady and I’ll bet your retirement would be a luxurious one.

Magic Formula Investing – What it is and How to do it?

If you are investor who wants to consider a money-making strategy that could help you in value investing, the Magic Formula Investing is a wicked strategy that can actually yield impressive results.

Joel Greenblatt, a Columbian professor and a fund manager, introduced the “magic formula” in his 2005 book, The Little Book That Beats the Market, and since has remained a common strategy in the stock investment market.

The formula relies on the quantitative screening of stocks and companies thereby highlighting the annual returns of a particular market.

What is in the Magic Formula?

a crazy scientist

The magic formula was designed to help all investors like you to “buy good companies on an averagely fair price.” With this non-emotional, straightforward approach, you will be able to screen companies that have high investment value and make the right investment decisions.

Instead of carrying out a comprehensive analysis of stocks and companies, you are able to use the formula to obtain top 30 ranked companies which you are able to invest.

The magic formula utilises the earnings yield of stocks and capital returns to make company rankings as these two factors can be used to efficiently measure how the companies generate their earnings based on asset values.

Since the magic formula is commonly incorporated among companies whose capitalisation value is worth $100 million and above, it would not be advisable to apply it if you intend to invest in small cap stocks.

With the strategy, you are able to sell your losing stocks to benefit from the income tax provision as well as sell your winning stocks to take advantage of the low income tax rates.

How do you use the Magic Formula to make investments?

The easy way:

Joel Greenblatt has actually put together a website where he does all the calculations for you for free. You can choose 30-50 stocks from the list. Buy them, wait for one year and then rebalance your portfolio. It’s as simple as that.

homepage of magic formula investing

The website is: https://www.magicformulainvesting.com/

The hard way:

Choosing a company or stock to invest in using the formula involves simple steps. First, you will have to master the rules of the formula application. The investment approach has nine specific rules that you must follow:

  1. Only consider stocks that have market capitalization value of $100 and above.
  2. Do not include utility or financial stocks
  3. Exclude any American Depositary Receipts (ADRs) or foreign companies
  4. Understand the earning yield of the company of interest; this is known as EBIT/EV
  5. Identify the return on capital of the company i.e. EBIT/(working capital + net fixed assets)
  6. Based on the above 5 steps rank your findings based on the capital returns and earnings yield. Rank your findings using percentages
  7. Over a period of 12 months, invest in top 20 to 30 ranked companies as you accumulate 3 positions every month
  8. Rebalance and compare their portfolios every year, selling your winners after a period of 53 weeks from the purchase date while selling your losers 51 weeks later. This step is important to allow you take advantage of the tax shifts.
  9. You are required to utilize this formula only for long term i.e. you should be willing to invest to up to a minimum of 5 years

After mastering the rules, the second step is to implement the formula by yourself. In order to pick the “magic” stock or company, you will need to screen the stocks with the least market capitalisation value. After this, you will need to exclude the financial and utility stocks due to the fact that they have different business models as well as the ways through which they make money.

The next step involves determining the earning yield (EBIT/Enterprise Value) of the company you have chosen keeping in mind that all non-USA companies are excluded.

You will then determine the Return on Capital of the companies then rank them based on the Return on Capital and Earnings Yield values. You can now invest in the top 20 or 30 companies by taking stocks after every 2 to 3 months over a period of one year; this is followed by a continuous re-balance of the portfolio annually.

Implementation and expectations

Individuals always observe variable returns amidst the fact that they are following the same steps. The two key determinants of your returns include the type of stock you buy and the time at which you buy the stock. Keep in mind that the screener might produce variable results in different days as stocks exchange in the top identified companies.

Thus, Greenblatt had recommended that investors implement the formula for at least a period of five years. A short period of one or two years may result in the underperformance of the indexes. It is only over a long period that you will be able to purchase good companies at a favorable price.

Understanding the two ratios in the formula

After going through the magic formula, you are able to see two financial ratios that Greenblatt had included:

EBIT/EV—this ratio represents the earnings before taxes or interests divided by the value of enterprise. Although earnings/price is a simpler version of the ratio, Greenblatt considered EBIT more preferable since it accurately measures companies with different rates of taxation. EV is more applicable in comparing share prices since it factors in the debts of a company.

EBIT/(working capital + net fixed assets)—this ratio focuses on the earnings in relation to tangible assets. Net fixed assets refer to the fixed assets (such as machinery) minus all liabilities and accumulated lifetime depreciation associated with that identified assets. Rather than considering fixed assets, net fixed assets provide an accurate real value of the assets that a company owns.

Do not underestimate the relevance of these two ratios. They are actually giving the computations of different data reflecting the inner functioning of the companies. They reflect: the actual earnings, tax rates, interests, debt, price of equity, asset depreciation rates, and current liabilities and assets.

Does the Magic Formula work?

Based on past studies and Greenblatt’s calculations, it is evident that the magic formula works. According to Greenblatt, the investing strategy is able to generate up to 30% of annual returns.

Similarly, one study tested the formula between 1999 and 2009, and found that there is an average return of 13.7% every year.

Another study conducted between 1993 and 2005 also found that the formula outperformed the market index of the United States by 3.6% while in the UK and Japan, the index rates were outperformed by 7.3% and 10.8% respectively.

Although the values differ, they all show a positive investment return of the magic formula.