Tag Archives: investing

Some Disadvantages of Index Fund Investing

Index funds are created to mirror the investment results of a specific market index. It can consist of either stocks or bonds in its portfolio, and these mutual funds differ in the strategies that they use to achieve returns parallel to their chosen index. Index funds oppose with non-index funds, which seek to improve on market returns instead of aligning with them.

There are advantages and disadvantages of using stock indexes and the index funds that trace them. An index fund is an imagined portfolio of securities signifying a specific portion of the wider market. It is typically made using the shares of leading companies in the economy or in a particular area of the economy. Today, this article will be tackling some of the disadvantages of index fund investing to help you widen your knowledge about this type of investing.

  1. Absence of Drawback Protection

The stock market has ascertained to be a great investment in the long run, but over the years, it has had its fair share of ups and downs. Investing in an index fund, such as one that traces the S&P 500, will give you the advantage when the market is performing well, but also makes you totally exposed to the drawbacks. You can decide to limit your exposure to the index through shorting the index, or buying a put, an option contract providing right to the owner to sell a specified amount of an underlying asset at a set price within a specified time, against the index.

  1. No Huge Gains

An index fund doesn’t have the ability to outdo the market the way managed funds do. This means that if you invest in an index fund you are disregarding the possibility of a huge gain. The top-performing non-index funds in a given year work better than an index fund in a year. However, the top-performing non-index funds may differ from year to year, so that under-performing years can stop the over-performing ones, while index fund’s performance remains more stable.

  1. No Control Over Holdings

Indexes are set portfolios. If an investor purchase an index fund, he or she has no control over every holding in the portfolio. You may have certain companies that you want to own, such as a favorite bank or food company that you have found on the net and want to purchase. Likewise, in daily life, you may have events in your life that lead you to believe that one company is notably better than the other, maybe it has the best brands, management or customer service. As a result, you may want to invest particularly in that company and not in its rivals.

  1. Reduced Personal Satisfaction

Investing can be distressing and nerve-wracking, especially during times of disorder. Choosing a certain stock may leave you constantly looking after quoted price, and can keep you awake at night, but these situations will not be prevented by investing in an index. You can still find yourself constantly checking on how the market is performing and being worried sick about the economic landscape. Above all these, you will lose the satisfaction and excitement of creating good investments and being profitable with your journey.

Few Categories of Funds You Need to Know

Funds are broken down into different categories. Fund category is a way of differentiating mutual funds in accordance to investment goals and main investment characteristics. This categorization permits investors to expand their money around in a mix of funds with different risk and return features. With stock funds, the basic categories are defined by the size of the companies in which the fund invests, large-cap, mid-cap and small-cap, and investment style, value, growth and blend of value and growth. In addition, specialty stock funds and international funds provide additional opportunities.

In this article, you will learn a few of the fund categories to help you further widen your knowledge about stock funds.

  1. Stock fund is categorized by size

You might want to buy stock funds that invest in companies of different sizes, such as small-cap, mid-cap and large-cap companies, for the best diversification process. You can actually do this by selecting three different funds that invest in each sized company, or you can pick one wide fund that invests in all of them at once, maybe through a stock index fund.

  1. Stock fund is categorized by type

You could invest in a fund that chooses only growth stocks, if you think that small growth stocks will outperform the market. On one hand, you could choose a fund that invests in value stocks, if you truly feel and think that they are the way to go.

  1. Stock fund is categorized by region

You might also want to buy stock funds that invest in companies, not just in your country, but internationally as well. You can actually do this by adding an international fund to your mix. Just always make sure that you are completely aware what you are buying. An international fund might invest in stable regions like Europe, or it might invest in riskier developing market regions, such as Latin America, Eastern Europe and mainland Asia, or it could be all of the mentioned regions.

  1. Stock fund is categorized by sector

You could also try to invest in a sector or a specialty fund that holds stocks in just one industry, such as energy, technology or financial. There is nothing wrong with placing a percentage of your total stock holdings to such funds, as long as you remember that a hot sector one year could actually crash the succeeding year. If you do choose to purchase such funds, make sure the rest of your stock fund holdings are well diversified. That will restrict your overall risk.

How to Make Money the Fast and Sure Way?

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Whether you are a student or a working individual, there will always be times that you will be needing money unexpectedly. This article will focus on means where you can make quick money the moment you need it.
Read on to find out some guaranteed ways on how to get the extra money you need.

1. You can opt to work for extra hours.

If you have your full-time job but you still find it inadequate for your needs and getting a raise is unlikely for the time being, then one way is to ask permission from your manager or supervisor if you can work overtime. Adding extra hours to your normal working schedule can guarantee you additional income every pay day.

2. You can try babysitting jobs.

If you got nothing to do during weekends and you love dealing with kids, you can offer taking care of them when their parents are not around or are too busy to look after their young ones.

You already enjoyed playing with kids plus you have that extra money you need in your pocket.

3. You can try referral programs.

If you think you have a wide social network, you can use that to your advantage. There are actually professionals (i.e. real estate agents, car dealers, insurance agents) who will be happy if you become a referral source for them in exchange of compensation.

Now, go over your list of friends and see if you have enough convincing power to persuade them try your offers.

4. You can sell your photos online.

If you have exceptional and creative photography skills you might want to sell your photos online for a fee. There are several online photographs providers that you may contact and check if they want to buy your photos for their own use.

5. You can consider tutoring jobs.

If teaching is one of the things you are passionate about, you can always consider doing it as a way to earn extra money. It has always been expressed that when you love what you are doing, you would not actually feel burdened doing it. Hence, you get paid for doing something dear to your heart.

There are a wide range of school subjects that you can choose from such as English, Mathematics, or it can also be offering to help other people’s kids with their school projects and assignments.

Conclusion
Your ultimate goal in life must not revolve around making quick cash whenever you need it. If you think that your financial situation is in a bad shape it is advisable to look into the financial aspect of your life and start making a change. Moreover, aside from making little amount of extra cash when you need it, you can always dream of making money for the rest of your life. That is why investing your money is one great way of growing it and ensuring that you will have enough funds until retirement age.

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The Contrast Between Being Rich and Free

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Almost everyone is dying to have a job the moment they finish their studies. Traditional work hours range usually from eight to nine hours. The reason people work aside from being able to supply their personal needs and their family’s is to be able to save up for the future. However, when you ask people about the concept of being rich, a large number may associate the quality of being rich to being free. These are two different concepts and in this article you are going to see the difference of being rich from being free.

Road to Financial Freedom is Different

It is important to know that it does not necessarily mean that you have to be rich for you to become free. If you set your eyes on being rich, it does not automatically follow that you will become financially free.

People are inclined to believing that they need to work hard and do everything in order for them to become rich and be free.

You have to grasp the fact that these two are two different things and cannot be equal to each other. There are rich people but they are not considered as free. Yes, they do have wealth – but that wealth is something that can be exhausted easily once they stop working. The underlying reason for such situation is that they were not able to set it up properly.

Hence, the road to financial freedom differs from the road to riches. Each requires a whole different approach to be attained.

Active versus Passive Income

First, you have to know the meaning of these two terms. Active income refers to the income that a person receives after performing a particular task or giving a certain service. Common sources of active income are salaries, bonuses, and even the income of your business. On the other hand, passive income represents the earnings an individual gets from an enterprise, a property or a partnership where the person does not actively engage or is not actively participating in order to obtain profits.

For this reason, your sources of income must be proportionate to your goals. In order to accomplish your goals, you have to understand clearly your earning methods.

Financial Freedom is a Vehicle to Break Lose from Full-Time Working

Rich people have the money because they work. Once they stop working, they might find their funds insufficient to maintain their lifestyle for too long. The concept of financial freedom revolves around the thinking that you do not have to work any longer for you to receive income. Therefore, you need not to worry about money any longer.

Financial freedom is then regarded to be a lifestyle design. You have to design your life the way you desire to live it.

Conclusion

All individuals must aim to be free instead of becoming rich. The primary goal is to get more money coming in and that can happen by letting your assets work for you instead of working for money all throughout your life. By investing your money, your goal of becoming financially free can be a dream coming true.

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Here are the Things that the Market Does Not Care About

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Periods of either bull or bear market can happen on any occasion. But did you know that the market does not really care about labels or the things that might transpire in any given moment? In this article, you will be presented with a list of what does not the market care about.

  1. The cost basis you made about a certain investment

In reality, the market does not care about how much you have paid for a certain stock. You can pay a stock for a particular price and the market would not even care about it. What matters is that you know how to manage your stock and recover from any losses, especially if you have paid for a stock the wrong price compared to its potential and performance.

  1. The moment you begin investing or your retirement timetable

Unfortunate as it may seem, but the market is not bothered about your investing life cycle. Hence, the period you started to invest your funds in the market as well as your target retirement, or the time you need to withdraw your money. Such timetable solely depends on you and not on the market.

  1. The target amount of returns you are eyeing for

The market does not care about your target returns. If you are looking forward to hitting your financial goals, it will all rely on your investing skills and not on the market itself.

  1. The feelings you feel at the moment

This might be somewhat harsh but the market does not really care about your emotions. It has no sympathy about your feelings – whether you feel scared, nervous, excited or greedy.

What you need to consider in the market is that you do not have to take everything too personal as it can hinder you in making good decisions for your positions. Remember that money is at stake every time you make your move in the market.

  1. The strategy you employ

It does not mean that you have a more complex strategy than the others it makes you better than the others. Strategy is important but what matters the most is that the strategy you have is applicable to the market. The market does not give any sort of bonus award or points for the level of difficulty or sophistication of the strategy you are using.

  1. The quotes you believe and apply in your life

There are a number of great investors out there who can both inspire and motivate you as you are into the field of investing. But you have to remember that these quotes do not matter in the market.

Yes, it might be a good thing that you know such stuff; but the market is reliant on an investor’s performance and not with the number of quotations he or she believes in.

  1. The amount of experience you have in the market

Whether you are a newbie or an experienced investor, the market does not really care about it. Experience may help you with your decisions, but it does not guarantee 100% success rate. It also does not mean that you are a newbie, that you would be a failure in the field of investing.

Conclusion

The above-mentioned items are the things that the market does not really care about. What matters is that you continue to increase your learning about the market and apply it to your trading activity.

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What Must a Pre-Retirement Financial Checklist Contain?

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Do you only have a few years left before retirement? Are you dreading about retirement even at an early age? Can you say that you will be able to live through retirement by just relying on your present source of income?

This post contains a detailed checklist that you may consider as you near retirement, for you to confidently say that you are ready to leave the labor force. Work your way around this checklist and have an abundant and prosperous retirement.

  • Emergency Fund Savings Account

This fund will serve as a buffer account should your pensions or Social Security gets delayed. It is important to have a savings fund that you can depend on should something unexpected happens during the course of your retirement.

  • Retirement Budget

This is a major consideration for retirement. You have to know and analyze what type of expenses you are going to make after retirement. An accurate estimate is needed so you can budget your money accordingly.

If you were not able to make a proper estimate of your expenses, you might experience adverse problems in the future. 

  • Health Insurance Options

 Medical and health fees are one of the biggest considerations during retirement. Health insurance coverage is an expensive one that is why a number of people are neglecting their health because of the costs involved.

You have to know the best way that can help you cover your medical expenses and health insurance, since moving towards your golden years really entails checking on your health all the time.

  • Retirement Income Outline

 The advantage of making a retirement income outline is you can know the exact periods where your sources of income will commence. This can help you manage your cash allocation and flow appropriately. It is also a way to both discipline and control yourself in making unnecessary expenses that could ruin your retirement budget.

  • Investment Plans

Planning for the right kind of investments can mean growing your money and letting it do the work for you. You have to know the detailed pros and cons of each investment vehicle that you want to pursue.

Remember that you need to expand the value of your money so you can use it for a long time. You can opt to read books about finances or talk to a financial advisor so you can be sure that you are doing the right thing to your money.

Conclusion

Planning is a must when talking about your retirement. You should be able to identify sources of finances for you to have the best retirement and a great life after working hard throughout life. Financial success would only be justified once you were able to traverse retirement contentedly and comfortably.

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Find out What Stage of Wealth Are You

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In assessing others’ level of wealth, as well as your own level, it is important to have a sound measurement on your financial situation. Merely assessing someone by just their lifestyle and the kind of car they drive are just one of the many myths people believe to be true in order to say that someone is doing well in life. Certainly, there must be a sensible way in determining the financial position of a person.

Find out in this post the definite stage of wealth you are into at the moment. There will be different stages that will be discussed, and here they are:

STAGE 1 – FINANCIAL SOLVENCY

 

You are in wealth stage 1 if you can pay your bills on time and be able to save even a small chunk from your income. Generally, the standard when it comes to saving is a minimum of 10%. Yes, saving can help you be financially independent; however, you will need three decades at a minimum for you to be able to enjoy your money.

STAGE 2 – FINANCIAL STABILITY

Stage 2 requires you to have an emergency fund that you can use anytime an unwanted financial situation happens, i.e. hospitalization. If the emergency fund is lacking, there is a higher chance that you will be inclined to spending a portion or even the whole of your savings.

You cannot say that you are in the financial stability stage if you have not surpassed the solvency stage. You must be financially solvent first before becoming financially stable.

STAGE 3 – DEBT FREEDOM

As the name says it, a person is considered to be on this stage if he or she had finished paying all of his or her debts. A lot of people usually reach this stage a few years before retirement, between 40-60 years old. This stage is hard to achieve, as there are mortgage and vehicle offers wherein the pay period range from 25 years and above.

A person is said to achieve this stage if the first two stages have been attained.

STAGE 4 – FINANCIAL SECURITY

You are said to reach this stage when you already have a positive cash flow which you can use to build wealth further. The person, then, is able to make his or her money work for him or her, allowing you to have a bigger amount of money than your annual gross.

When a person is at this stage, he or she can take deal with more risks (such as getting into the investing field and diversifying his or her portfolio) without worrying about the consequences in order to grow more his or her wealth.

STAGE 5 – FINANCIAL FREEDOM

Financial freedom entails that as you let your money work for you, you are not only getting more financial sources aside from your gross income, but you are also given the opportunity to spend on extravagant things that you were not able to give yourself or your loved ones.

There are people that may think they are already in this stage since they can afford the extravagant things in life, but remember you must have confidently and truly surpassed the first four stages before considering yourself belonging in this stage. The word “afford” then might not really apply to you – you might just be spending on extravagant things without really becoming financially able to buy them.

Conclusion

The measurement of wealth mentioned in this post can be considered to be the concrete gauge for assessing in what particular stage of wealth you are into. Remember that, wealth cannot just be inferred from the accumulation of material goods.

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