Tag Archives: investing

Create a Money Machine: The Effect of Compounding

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Billy Kaderli, RetireEarlyLifestyle.com

By Billy Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Our adventures around the world allow us to interact with many younger travelers in cafes and restaurants. Travelers are a great source of information about where they have been, places to stay and where to avoid. Things to do and the best way to get to a destination are often the topics of conversation.

Many times we are asked about how we can afford to travel for so long and then there’s the predictable wistful response: “I wish I could do what you’re doing.”

That’s when I tell them they can.

I explain in simple terms about investing and how they can create their own pension or annuity or as I like to call it a “personal money machine.” It is right about now when their eyes glaze over like they are speaking with their crazy uncle at a Thanksgiving Dinner.

I bring their attention back by saying they have something that I do not have; time. Usually I get a nod and a blank stare. I go on and ask if they know what “compounding” is. More often than not, they do not have a clue. These are college grads or they are taking a break from school to pursue their traveling bug. But to my surprise they do not understand the concept of compounding, which, in my opinion, is the easiest way to build wealth.

According to Investopedia, the definition of compounding is “the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.”

Bingo!

Sweet simplicity.

The earlier you invest, the sooner Findependence

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Investor Toolkit: When useful investment terms lead to costly mistakes

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Patrick McKeough, TSINetwork.ca

By Patrick McKeough, TSInetwork.ca

Special to the Financial Independence Hub

 

Today’s tip: “Investor shorthand can provide a useful guide to investment information, but it can also oversimplify analysis and events and steer investors into bad decisions.”

Investor shorthand can help you think about and talk about large blocks of investment information. But it may also lead you to make associations and come to conclusions that can cost you money.

For example, think about the common investor shorthand term, low-p/e stocks. It encompasses four statistics: price per share; per-share earnings; the p/e (the ratio of a stock’s price to its per-share earnings); and low p/e (which suggests a normal range exists for p/e’s generally, or for p/e’s of stocks of a particular type or description, and that these stocks are near the lower half of the range).

Some investors, beginners especially, see special appeal in stocks with low p/e’s. They jump to the conclusion that the p/e is low because the “p” or stock is low, and that this is a sure sign of a bargain. When you use that term to generalize, however, you can lose sight of the fact that p/e’s can be (or can seem) low for all sorts of reasons.

For example, maybe the “e” or earnings is temporarily high, due to unusual factors that will soon revert to normal or worse. Or, the stock price may be low, and headed lower, due to negative conditions or trends in the company or its industry.

Of course, many experienced investors understand how the use of shorthand investment terms can warp investor perceptions, and lead them to take on unwanted risk. But they fail to see the upside-down version of that risk in newer, poorly-defined terms. One good example is “bubble”.

The long bubble of the automobile industry

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Three key investment strategies hidden in plain sight; #2 — Manage Market Risks

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Paul Philip CLU, CFP

By Paul Philip CLU, CFP, Financial Wealth Builders Securities.

Special to the Financial Independence Hub

In our last piece, we described why most investors should ignore the never-ending onslaught of unpredictable financial news and tend to three strategies that can be much more readily managed – at least once you know they are there. Hidden in plain sight, these potent strategies include:

  1. Being there
  2. Managing for market risks
  3. Controlling costs

Plain-Sight Strategy #2: Managing for Market Risks

Don’t take on more risk than you must.

Chalkboard drawing - Measure of Risk and Reward

There’s no getting around the fact the market does not deliver rewarding returns without periodically punishing us with realized risks. That’s why it’s so challenging for most investors to “be there,” consistently capturing available returns by remaining invested over time. It’s also why it’s vital to avoid taking on more risk than you must in pursuit of your personal goals. For this, we have two powerful tools at our disposal, best used in tandem: Continue Reading…

Three key investment strategies hidden in plain sight; #1 — Being There

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Paul Philip CLI, CFP

By Paul Philip, CLU, CFP Financial Wealth Builders Securities

Special to the Financial Independence Hub

If you’ve ever dabbled in graphic design, you’re familiar with the concept of white space. When viewing an illustration, we typically pay the most attention to the visible ink on the page, such as a paragraph of text, a bar chart or an entertaining illustration. White space is the essential empty areas in between that are hidden in plain sight. We barely notice them … until they’re not there:

Pretty cheerful girl pointing white space over hands
Where’s the white space? (Deposit Photos)

When making investment decisions, most people likewise assume that the most eye-catching ink matters the most: an alarming economic forecast, an exciting Initial Public Offering, hot trading tips. But there’s a catch. This evident assumption does not hold up under evidence-based scrutiny. In reality, you have little or no control over how the most obvious news impacts your investments. The most exciting action has already been priced into any trade you might make well before you decide to make it.

Stop fixating on headlines

Instead of fixating on the headline news, consider that liberating financial white space. There, hidden in plain sight, you’ll find a number of powerful investment strategies that are freely available and far more within our control. In this series, we’ll introduce three of our favorite “plain sight” investment strategies:

  1. Being there
  2. Managing for market risks
  3. Controlling costs

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How pairing fee-only planners and robo-advisers can save you money

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Woman meeting financial adviser in officeCute Robot

By Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

The financial services industry would have you believe that individual investors don’t want to pay upfront for investment advice – in fact, the industry claims that investors prefer to pay for financial advice through fees that are part of their mutual funds.

But we all know mutual funds in Canada cost too much and the relationship between investors and financial advisors is mostly transactional in nature. Embedded commissions and trailer fees might make sense for investors who are just starting out, but over the long term this conflict of interest will be expensive and lead to poorer outcomes for investors.

An unconventional pairing

With the relatively new arrival of fee-only financial planners – advisors who don’t sell products but offer unbiased and objective financial advice for a set fee – and the emergence of robo-advisors – online investment management services – there is an opportunity for Canadians to access a better form of financial advice that costs less than the traditional bank advisor-mutual fund model.

That’s right, pairing a fee-only financial advisor with a robo-advisor (or DIY, if that’s your thing) can actually save you money and lead to better investor outcomes.

Here’s an example Continue Reading…