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Double Your Money With Compound Returns
Tweet Share on Facebook April 29, 2011 Comment (4)The law of compound returns is a force of nature and understanding this concept is critical to your success as an investor. It is how the rich keep getting richer, but maybe not how you are led to believe.
Simply put, the law of compound returns says money left alone creates more money. Einstein said, "Compound interest is the eighth wonder of the world." Ben Franklin echoed that thought, saying, "Money can beget money, and its offspring can beget more." Warren Buffett's partner Charlie Munger expressed a similar sentiment about money: "Never interrupt it unnecessarily."
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In Today's Market, Stick to Your Plan
Tweet Share on Facebook April 28, 2011 CommentIn the game of craps, seven is the most likely number to be rolled. After that it's six and eight. The least likely numbers are two and 12. The farther away from the number seven you get, the less likely that number is to appear.
The thing that most people seem to forget is that each roll is independent of the previous, no matter what superstitions exist. If you roll a two, and roll again, the fact that you just rolled a two has nothing to do with the fact that your next roll could be a two again.
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Are Index Funds Less Risky Than Active Funds?
Tweet Share on Facebook April 27, 2011 Comment (1)There seems to be a common belief that using an index fund or a passively managed exchange-traded fund (ETF) reduces risk.
In terms of investment risk, that is a misconception. An index fund takes on the risk of the underlying index it tries to replicate. For instance, in 2008 the S&P 500 Index lost 37 percent. There are many funds and ETFs that track that index. They all lost around 37 percent plus the fund's expenses. For example, the Vanguard 500 Index Fund (symbol VFINX) posted a loss of 37 percent for the year.
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4 Things You Need to Know About Your 401(k)
Tweet Share on Facebook April 27, 2011 CommentYou've probably had a company retirement plan. You know, the one that had about 12 investment options that were all mediocre and never changed. The plan that no one really understood and no one really liked. The plan that you could not access for decades. It almost seemed like the worst place to invest. But you have also heard your friends and family all say that it is one of the best places to put your money.
There are some really great things you should know about your 401(k) and some really bad things to be aware of. You can and should take control and talk to your employer about making it the best plan it can be. It's not difficult to have the best plan, but someone needs to take the initiative and get it done. Here's how you can "take the bull by the horns:"
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Don't Fall for Exotic Investments
Tweet Share on Facebook April 26, 2011 CommentHave you heard about the hippest, trendiest new investment? In early March, Credit Suisse launched an exchange-traded note (ETN) called 2x Monthly Leveraged Credit Suisse Merger Arbitrage Liquid Index (symbol CSMB) with the celebratory ringing of the opening bell at the New York Stock Exchange. It's "the first product to provide 2x monthly leveraged exposure to the merger arbitrage strategy in an exchange-traded format," according to the press release.
When I saw this, alarm bells went off in my head. I wondered how many investors really need this product. How does it work? What the heck is it? The press release is filled with so much gobbledygook it's hard to tell.
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4 Money Tips for College Seniors
Tweet Share on Facebook April 22, 2011 Comment (1)My daughter is a senior in college and came home for spring break. Last night was family pizza night. She went out for the pick-up and came back with the two pizza boxes. When we opened the boxes we instantly realized one of the orders was wrong.
"Did you open the lid and peek when you picked up the order?" I asked.
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Are Commission-Free ETFs Worth It?
Tweet Share on Facebook April 21, 2011 Comment (1)Over the past year or so, the four leading trading houses have offered a suite of exchange-traded funds (ETFs) that trade for free. Schwab lead the charge by offering free trades on their ETFs. Vanguard, Fidelity, and TD Ameritrade followed suit with similar offerings.
And now just this week, FocusShares entered the game by launching 15 of the lowest cost ETFs ever offered in the public markets. (They also trade for free at Scottrade.) You can own the S&P 500 for 0.05 percent annually and no trading costs? What has Wall Street come to? Real value?
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Why You Should Have a Market Evacuation Strategy
Tweet Share on Facebook April 20, 2011 Comment (2)The title of this article might make you wonder if the market will tank and the answer is yes. The market is going to tank. The real question is, when?
First, let's clarify what we really mean when we say "tank."
[See 9 Strategies for This (Or Any) Market.]
Tanking is not a loss of 10 or 20 percent, although no one is happy when they lose that amount. True tanking is a 40 to 60 percent loss–the type of losses the market has, and will continue to have, every five to seven years.
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How to Spring Clean Your Portfolio
Tweet Share on Facebook April 20, 2011 CommentSpring is a time to clean and renew. Here in the Midwest we open windows, clean the house, and get the yard in shape. This is also a great time to clean and renew your finances. Here are some ways to spiff up your investment portfolio this spring:
Review your asset allocation plan. Do this before reviewing your individual investments so you aren't influenced by your current allocation. Your risk tolerance may have changed, so some changes to your allocation may be needed. Or you may realize you need to revise your asset allocation to reach your financial goals. This step should be done in conjunction with a review of your overall financial plan. The financial plan should drive your investing activities, your allocation, and your choice of investments.
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What You Need to Know About Socially Responsible Investing
Tweet Share on Facebook April 19, 2011 Comment (1)One interesting category created by the mutual fund industry that has grown over time is socially responsible investing (SRI). These funds won't invest in companies that pollute the environment, make addictive substances such as alcohol or tobacco, have bad corporate governance practices, or don't respect human rights. Essentially, they screen for profitable companies that make positive contributions to society. The number of SRI funds in the U.S. has grown to 250 with assets of $316.1 billion in 2010, up from 55 funds with $12 billion in assets in 1995, according to the Social Investment Forum.
Similarly, some funds are devoted to investing based on religious beliefs or other social causes. The Ave Maria funds follow the doctrines of the Catholic Church, while the Amana funds abide by Islamic principles. On the flip side, at least one fund—Vice Fund (symbol VICEX)—takes a different approach. It invests in companies that make things harmful for our health and society, such as casinos and makers of alcohol, cigarettes, and weapons.
