Category Archives: Inspire

MANAGING MONEY

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crop man getting dollars from wallet
Photo by Karolina Grabowska on Pexels.com

Do you manage your money or does your money manage you? Some of you will joke and say, “But I have no money so there’s nothing to manage.” Oh, how wrong you are. And that is the thinking that keeps most people in debt and keeps them from creating an investment program. A couple of things just seeped out of my memory: I can distinctly remember a phrase that my mother used to say constantly, “Money is the root of all evil.” And I remember a time when my father was reading the local newspaper and discovered that the head of the local school board received a raise to $10,000.00 a year. His comment was, “Nobody is worth a salary of $10,000.00.” If that kind of thing doesn’t taint your subconscious understanding of money, I don’t know what does. However, I spent many years working in the investment industry and now help people with income tax issues, funny, eh? But I digress.

For loyal followers of this corner of the digital universe, you may remember that a couple of weeks ago I promised to offer you something to help you save some money so you could create or add to your investment program. I am happy to say that it is now live and helping people to do just that. I have created a new website called Coupon Corral and as the name implies; it is chock full of coupons that you can use to reduce the price of things you buy online. Let me be absolutely clear about something, I one hundred percent support buying locally. We do that but long before the pandemic struck; the world had made a move to buying online. My new website has hundreds of online discount coupons available for everything from snow blowers to scarfs, makeup, health products, clothing and lots more. I am adding more companies every day and the companies are updating their discounts constantly. I have already started promoting it through some Facebook/Instagram advertising and the results are very encouraging.

To get the most benefit out of the Coupon Corral, I encourage you to sign up for the automatic updates from the site and check for discounts when you buy online. Second, take the money, whether pennies or dollars, that you save and put it into a separate savings account intending to invest it as soon as possible. You were willing to spend the full price originally. It is time to manage your money rather than letting it manage you!

Beeple NFT image sold for $69,000,000.00
NFT image sold March 2021 for $69,000,000.00

Something else caught my eye this week, and probably yours too. There was a news item that told us how someone had sold a piece of digital art for $69,000,000.00!!! They referred to an NFT and that is somehow related to digital currency. Once again, as followers of this blog know, I am currently researching digital or cryptocurrency in order to add a section that will explain it in simple terms. I couldn’t help myself, I had to know what an NFT is and how it connects to digital currency and better yet, how could I perhaps sell some sort of doodle for $69,000,000.00? I bumped into some information from a man named James Renouf who has a very comfortable and understandable way of explaining NFT’s and how they work. In addition, he explains how we might use these in the course of our own life. If it has aroused your curiosity as mine was, go look at his information and stay up to date on how our world continues to change and amaze. Who knows, maybe you can grab one of your kid’s drawings off the front of the fridge and sell it for big bucks – investment program solved!

STOCK MARKET BASICS FOR NEWBIES – 8

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EXCHANGE TRADED FUNDS

What is an ETF? ETF stands for Exchange Traded Fund, and what are they and how do they work? Are they something a newbie should look at as a legitimate possibility to invest their money? As we mentioned in the previous section, there are some similarities between mutual funds and ETF’s. One of the important similarities is that they both represent a basket of similar securities that could be equities (stocks) or bonds or both. When we mention similar securities, we are referring to sectors of the economy. So, most ETF’s will reflect a particular business area like the mining, energy, financial or technology sections. These are only examples, as we divide the economy into dozens of different areas.

One of the bigger differences between mutual funds and ETF’s is that mutual funds are actively managed by professional money market people and ETF’s are not. What does this mean? As we learned previously, the active management of mutual funds adds to the cost of owning mutual funds and we, as investors, pay for that in yearly fees charged to the funds we own. What that means in dollars and cents is that if we purchase $10,000.00 worth of mutual funds, then every year they will charge the value of our investment approximately 3% or $300.00 for the management services, administration and marketing. We have to rely on the professional managers to earn over that amount in order to increase the value of our investment.

ETF’s mimic existing investment groups such as the Standard and Poors 500, the various sub-indices of the stock market like the mining, technology and other categories that make up the overall market. Let’s try to put this in plain language. If you are reading this information, then you are probably also more aware of some business news that is provided by the various news outlets. You may be familiar with the terms Dow Jones Index and Toronto Stock Exchange Index. The newscaster will solemnly inform us that the “Index” has gone up or down by a certain number of points today. This is just a snapshot of what the investing world did in a general sense during the day. If the index reading is down, that only represents the specific stocks that are part of the index, it does not mean that every company trading on the exchange was down.

We have various stock market indices, which are then broken down into many sub-indices that are composed of specific companies in that sector. Specifically, if we were looking at the mining sector sub index, then it comprises the major mining companies in the country. The stock market would track the price of those major companies, and the index would reflect the combined prices and report them daily. Not every mining company is included in this index, and the stock exchange changes them from time to time. They are only the senior well-known companies. The company that creates an ETF would buy shares in each of those companies represented in the same ratio that the stock exchange used to create their index. If the stock exchange removes or adds another company, the ETF does the same. They require no management or research to do this. It is simply adjusting to reflect the stock market index itself. The upside of this for the investor in ETF’s is that the management fees are significantly lower than for mutual funds. They are often below 1% as compared to the 3% range for mutual funds.

There are hundreds of choices in ETF’s that reflect many investment niches. You can buy an ETF that follows commodity prices like gold or foreign stock markets, niches like bonds, utility stocks, energy stocks and so many more. The downside for the investor, and the opportunity to keep more of their money by lower fees, is that the investor has to take some responsibility for finding appropriate ETF’s. Through their own reading and thinking, they will want to determine what parts of the economy they feel comfortable investing in. We should emphasize that an ETF is a basket of companies, so it mollifies the risk. If one company goes down substantially, its effect on the overall value of the ETF is not as significant. Conversely, if a company goes up significantly, it also does not affect the overall value substantially either. In this case, there is safety in numbers for the investor while they enjoy the benefits of participating in a market segment that they have some knowledge of because of their own investigation.

In summary, mutual funds and Exchange Traded Funds are excellent investment opportunities for the new investor who wants to take part but also wants to keep their risks low. We should mention that not only “new” investors use these investment vehicles, but many very large funds like pension plans use them as well. Sometimes the number of choices can overwhelm, but if you consider your personal investment goals and knowledge and use these as a starting point, you will do well. A quick point about investment goals: consider these four points, safety, income, growth and risk. As you think about these four principles of investing, assign a percentage to each area that you are comfortable with. Naturally, the four percentages should add up to 100. We will talk more about this later on, but you could use this personal information as a guideline to your comfort in buying stocks or any kind of investment.

ETF’s and mutual funds are an excellent method for people to gradually increase their savings over time as they periodically invest money every month or so.

We will take a very shallow dive into the cryptocurrency market next to give you an idea about what they are and how they work.

STOCK MARKET BASICS FOR NEWBIES – 7

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What are mutual funds and how do they work? A mutual fund is an investment vehicle created from a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are managed by professionals who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. A mutual fund’s portfolio is built and maintained to match the investment objectives stated in its prospectus. A prospectus is a document that is used to define the objectives and parameters of any investment vehicle.

Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities. Each shareholder or unit holder, therefore, takes part proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is measured by the change in the total value of the fund.

There are thousands of different mutual funds available from many companies. They each have their own individual characteristics and objectives. A mutual fund will often mimic parts of the larger stock market like energy, mining, technology or financial sectors. Some will concentrate their assets on creating growth, while others will attempt to maximize the income/yield for its holders. Some will attempt to do both.

It is important to understand that a mutual fund holds stock or bonds in dozens or possibly hundreds of different companies, so the holder of its shares or units has a very diversified portfolio, thus reducing the risk factors of having one company’s value drop. If this happens, the overall effect on the mutual fund is minimal. Most investors could not duplicate the holdings of a mutual fund because of the sheer amount of money required to do so. A mutual fund will have invested the combined holdings of its unit holders that total millions upon millions of dollars, allowing for diversification that the individual investor may not attain.

A mutual fund will appeal to investors who are reluctant to research and decide about investing themselves and prefer to trust the professional managers to make those decisions. This comes at a cost for the investor. Someone has to pay for the professional managers, sales commissions and administration costs and that someone is the investor. Before it splits any income among the unitholders, the company managing the fund assesses a fee that they charge against the overall value of the fund. The fees vary and are decided by the management company, but run in the 3 to 3.5% range. What this means is that the value of the mutual fund is reduced by 3% each year and any growth or income beyond that belongs to the unit holders. Hopefully, the money managers can create enough added value to the mutual fund to cover their fees and provide added value to the holders. It will depend on how the stocks or bonds held in the fund do on the market. In reality, the value follows the ups and downs of the stock or bond market itself.

Most investment advisors or mutual fund salespeople will assist their clients to create additional diversity by recommending a variety of funds. They will seek to build a portfolio that matches the investor’s goals for a combination of growth and income. Many large investment pools like pension funds hold large quantities of mutual funds to protect and grow their client’s capital. Mutual fund organizations will help their clients set up a regular investment program, which also helps the investor to increase their portion of savings.

This is a very general and brief rundown of mutual funds. If you are interested in more information, you can find it at Investopedia and also from your mutual fund company representative. Be sure to ask lots of questions about management fees and the purpose and goals of the funds you are interested in. They will show you historical changes in value and have an opinion about its future prospects. Keep in mind that the ultimate decision about how to manage your own money should reside with you.

In the next section, we will look at another investment vehicle that pools large amounts of money from its many holders and seeks to duplicate the movements in the overall market. They call these Exchange Traded Funds or ETF’s and there are many similarities with mutual funds but also some very interesting differences.

Just a heads up – I am working on something that will be available to my subscribers that will add value to this website by helping you save some money to invest in the market or just create more spending money. I should offer it in the next week or two, so stay tuned and add your name to the subscription list in the top right-hand corner if you haven’t done so.