Investing Type 1: Mutual Funds

Introduction

Hi! So we are looking at how you can invest whether you have a pot of gold at home or if you have not too much money to invest like everyone else. The idea of mutual funds have made investing a lot easier for everyone's piece of mind. With mutual funds you can open an account with little or no money at all, but the most important thing is that you don't leave your money sitting in the bank account accruing no interest or making you no money at all. If you are in the ages of 18-35, all your money that you have saved should not be in the savings account because with rising prices and increased level of living increasing, you will see that money deplete itself in no time. Also, you have to look at the fact that sooner or later you will not be working so it is important that you substitute that money from working in the future. That is what they mean by letting your money "grow" while you are young. 

How To Open An Account

Back to investing in mutual funds, so the bare minimum that you would have to take out of your paycheck monthly is $50.00. That is the bare minimum or you could add more depending on your economic situation. When you open the account, you will be asked to put down all your information, address, SSN, and the standard stuff, but you will also have to put in a checking account that the mutual fund company will be withdrawling from.


After successfully opening the account you would have to provide the $50 every month and make sure that you are accountable for it. Not it's very easy to just save $50, save on not going to starbucks for coffee, don't eat out as much; reduce a couple of outings with the buddies, don't drink so much alcohol, there are many other ways, but important thing is to let your money grow.

What Companies Are Out There

There are so many companie out there that you can invest in. The biggest names in the mutual funds are TRowe Price, Vanguard, and Fidelity. They are not limited to just those big names, but most people go with these big names and the most advertised of all the mutual fund companies out there. warning that some of the companies out there do ask for an initial deposit of some amount, but that can be waived if you sign up for the montly withdrawls. 

Go out there and start Investing, thats the best advice that any young person should start doing!

Ratios? What are these ratios?

Every time that you plan on investing on a stock, you have to look at ratios because they are an indicator of the performance of your stock. I will be simplifying a couple of the ratios that you should be looking for when you are planning to invest in a stock:

1) Price/Earnings Ratio:
This is one of the ratios that you should be using often because it tells you in which direction the stock would be moving at. For example, the equation: High P/E and high growth means that the company is going to be innovative or explosive most of the time. Small companies or companies that are growing normally have these type of high p/e ratios. A company that has a high reputation like Coca Cola would have a low p/e, but at that same time don't expect the stock to be huge and get you rich. Look on Yahoo and you can see the P/E ratio.

2) Earnings Per Share:
Earnings per share shows how much profit the company going to have for that time period. So if the Earnings per share increases that means that the company will be increasing profits. Here is the equation:

3) Return on Investment:
This single handedly ratio can tell you how much return to expect from this stock. For example, if a company has an ROI of 15%, that means that if you left your money with the company your return would be 15%. Lets say for example, the CD at the local bank is 1-2% than the ROI would be about that ratio, so imagine if you investing in Coca Cola, your return is 24% not bad right?

4) Dividend Yield:
When you are holding shares of stock for a company, some companies actually compensate and return the money to you. This is in the form of dividends, dividends are delivered to you in check or in your brokerage account depending on which choice you pick. Companies that tend to have high yields don't grow as much as companies that do because companies that don't pay dividend reinvest everything in the profit while companies that do repay the investors. For example, you look at ATT stock the yield is 6%, but if you look at Apple, it has no dividend at all. Make sure that if you don't need the money from the dividends then you can reinvest the dividends. This meaning of reinvesting dividends means that you are using that check that company is giving you and you are buying more of that stock with that money. This does increase your return on investment.


So here are some of the ratios that you could be looking at when you are investing in a company. These are not the only ones investors should not be looking at, but these are some that should be taken into consideration.


References: Investopedia.com


Twitter: Leshrocko


Have a good day!

A brief Investing Idea: Coca Cola

By Royce Leon

Alright so many people decide that they are going to start investing, but have no idea where to park there money and what is considered a reasonably safe stock. A stock that might be a risk, but it has been a farely safe stock where you will not sleep well or you wont have any money the next time you check your account. The stock idea that I will be talking about it Coca Cola. Everybody has heard of Coca Cola, its colors of red and white are all over the place. Ill be going over the overview of the company and the sector and you can determine if you like Coca Cola as an investment.

Recent History

Coca Cola has been in existance since 1886, that is considered a long time since the United States has gone through so many wars and changes leading up to 2011. Ever since 1886, Coca Cola has been in the industry of satisfying customers with their product. In 1923 Coca Cola went public in the New York Stock exchange and has been a stable performer since then. 

Competitors

Coca Cola only has 2 other competitors for the soft drink market. The other 2 competitors include Dr. Pepper/Snapple and Pepsi. Compared to the other companies, Coke is the largest company valued at 143 billion dollars with Pepsi at 100 billion and Dr.Pepper/Snapple at 8 billion dollars. Domestically, Coca Cola has approximatey 40% of the domestic market share while Pepsi has 29% of the market share, and the other 30% is compromised of the other smaller companies along with Dr.Pepper/Snapple. Investing in Coca Cola means that you are investing best of breed which means that it is the "top dog" of this business. 

Products

Coca Cola is not just made of just Coke, but other products as well. Coca Cola offers carbonated drinks such as Coca Cola, Diet Cola, Coke Zero, Cherry Coke, Coke Vanilla, Fanta, Sprite, Fresca and Barq's Root Beer, but there are other carbonated drinks, but these are the most common sodas that we normally see in the market. Not only do they offer carbonated drinks, but they also offer non carbonated drinks. Examples of them include: Dasani Bottled Water, Powerade, Vitamin Water, Minute Maid, Nestea, and Odwalla Natural Juice. Although I have specified the recent products, Coca Cola has over 3500 products that they are selling worldwide, so there are too many to write them all down.

Performance

The graph That I included is of the performance that Coca Cola is moving. As you can see overall that Coca Cola is performing well above what the market is performing. The blue line is Coca Cola while the red line represents the S&P 500 which is a common indicator of the U.S. market. It has slumped a little towards the end, but overall it shows that its a steady performer.

As you can see from this graph, Coca Cola has been on a recent rampage compared to Pepsi. This was a 2 year graph that was generated, and as you can see last year Coca Cola dominated Pepsi. Coca Cola still continues at an upward trend while Pepsi has stayed flat for a while. 

Conclusion

As you can see Coca Cola is a consideration to invest your money in. Although I have only gone through the surface of the research you have to do to make sure that your investment is a good investment. This was only a brief introduction as why it could be a consideration, but should not be the sole reason why you should invest in the stock. Make sure you check debt ratios, dividend yield, P/E ratios, P/S ratios, and income statements, but I will further analyze this stock later on.

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There is always a bull market everywhere! -Jim Cramer

References

http://www.wikinvest.com/stock/Coca-Cola_Company_%28KO%29

Interesting Article about Banks

Fed Will Let Some Big Banks Restore Stock Dividends

Published: Friday, 18 Mar 2011 | 11:36 AM ET

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By: Reuters

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The Federal Reserve will allow some of the largest U.S. banks to boost or restart dividend payments this year but will restrict the payouts to 30 percent or less of the company's expected earnings, the central bank said on Friday.

The Federal Reserve headquarters in Washington, DC.

The Fed is notifying the 19 largest banks, including Citigroup [C  4.5198    0.0698  (+1.57%)   ], Bank of America [BAC  14.249    0.269  (+1.92%)   ] and Goldman Sachs [GS  159.20    3.45  (+2.22%)   ], whether they passed the second round of stress tests and whether they have won approval to pay out dividends.

Improvements in economic conditions and cash positions at the largest financial institutions have convinced the Fed that some of the largest banks can start to reduce massive capital cushions that were built up over the course of the financial crisis.

According to the Fed's data, common equity increased by more than $300 billion at the big banks from the end of 2008 through 2010.

"The return of capital to shareholders under appropriate conditions is a step in the process of improvement in the financial sector and will help to promote banks' long-term access to capital," the central bank said in a statement.

During this round of stress tests, the Fed relied on the banks to analyze whether they could withstand adverse economic conditions. In 2009, the Fed focused on generating its own estimates of banks' capital under difficult economic conditions. The Fed did not release results of the stress tests.

Homework: Doing Homework On Your Investments

By Royce Leon

Some people are ready to pick stocks and ready to step the gun, but forget the very fundamental tool in investing which is research. Research is one of the most important tools to making sure that your investment in the right track and that its not headed towards a collision course towards the bottom. When you research stocks, there are two ways to research stocks; in a fundamental analysis and in a technical perspective. A fundamental perspective.

A Fundamental Analysis means that you are looking at the stock in an overall perspective. That means you are looking at the earnings ratios, dividend, debt, cash flow, these are some of the many ratios that you should be looking at when you are researching the stock. Next, you want to be looking at the overall trend of the company, have they been growing as a business? Is the industry as a whole growing or has it stopped? Is the stock a cyclical type of stock or is it a non cyclical stock? Are they making orders or the demand for their product declining? If the fundamentals that you have researched indicate towards a growth trend, then you should continue staying with the company and leaving if the fundamentals don't look good. Now fundamentally the stock looks good, but the market moves it in a different way, don't look at it as a reason to sell, but rather an opportunity to add more positions into the stock.

The second type of analysis is the Technical analysis. The technical analysis would not look at the fundamentals of a stock, but rather through charts. There are many websites just as CNBC, Yahoo, Google Finance, and Think or Swim which give technicians charts to determine where the stock would go from there. They look for trend lines in the graphs to determine where the stock would go from there. They also would look at the graph to compare with the indexes like the S&P 500, Dow Jones Industrials or the Nasdaq. They see if the stock is undervalued compared to the indexes or if it is overvalued at the moment. They also look at trends in the information in the charts and ratios, they compare if it is getting better or the future holds uncertainty based on the information given.

Now depending on which style you prefer is depending on what kind of investor you want to be. The most important thing is to research before investing into a company and keep up the research so that you would not lose money in your investments when it is too late.

I Hate Losing Money! Where Do I Go?

After hearing so many people asking "If invest into the market no matter what I am bound to lose money." The truth is you are bound to lose money if you invest into the wrong stocks, its kind of the example if you buy an unsafe car; you are bound to crash because the brakes might fail on you. There are so many options of stocks, mutual funds, ETFS, but the main idea is to diversify your portfolio. What is diversification? Diversification is spreading your funds into many options instead of just putting all of your money in one stock. The market is always going on a up and down in all parts of the economy so if one sector goes up and there is a sector that always goes down. Here is a graph to illustrate how diversification leads to reduction of failure or losing your money.

The first part of the graph shows that if money is invested in the blue part of stocks 1-5, you are open to the most risk because your portfolio does not have enough diversification to reduce the risk. As you invest from stocks 6 and beyond, you will have lower and lower risk, also the chances of you losing all your money will decrease because you are diversified.

That is why you pay an annual fee when you invest in an exchange traded fund or a mutual fund because they automatically diversify for you. Most ETFS invest in about 30 stocks and mutual funds can invest from 50 to 100 stocks or even 500 different stocks. You wont have any significant positions, but you will be well diversified with your portfolio. This is the easiest way to invest and the least risky, but if you want to control your destiny then you can construct a portfolio of your own.

Good luck and leave comments! 

Why do I invest and How do I invest? Students crash course

By Royce Leon

After asking many people around if they have ever invested in their lifetime, many opinions have been that they are either scared of investing because they would lose their money or because they had no clue as to why they would ever invest. Here is a little food for thought, as of the current year, the savings rate for the nation is 1-3%.This means that only 1-3% of the nation has either saved enough money to retire or has a cushion to cover for their expenses. Each year that passes by, it has been harder and harder to get a job and to make money, but also to retire with social security because of both our government spending and because the amount of baby boomers that are beginning to retire. It is a well thought now that Social Security will be non-existent by the time that our generation is going to retire. That is why the time to invest is now, so that we can live comfortably in the future. Another reason to invest is that as you start to notice prices for food, gas and other items are increasing year by year, that is called inflation. Basically, if you had just put money in a savings account, underneath your bed, or a checking account, your money will buy a lot less and less with the years coming by.

How Much Should I Invest?
  There is no limit as to the amount of money that you invest because how comfortably you want to live in the future is how much you should try to invest. Basically, if you have time on your side, lets say 40 to 50 year time frame then the better chances are that the money that you invest in will cover your expenses at the time that you will retire and stop working. Now the longer you wait to invest, the more money you have to invest just to get to the same point to a person that started saving and investing at an earlier age. In magazines such as Kiplingers and other resources, a person at the age of 25 years old  with no savings or money invested, should start investing $200- $300 per month with the right investments should give them about 1 million dollars to retire with. If you are working, then you should be saving about 10% of your net salary, for example if you make $3000 per month, then you should be investing or saving about $3600 per year or $300 per month. Now I know that being in school, I notice that some people may either work part time jobs or don't work at all, but they do spend on Starbucks or going out with friends, can save as little at $50 per month and that would be better than nothing. It would be a scary thought if you worked all your life, but the day that you cannot work and you don't have that savings to cover medical bills or just living expenses in general.

I Have No Clue How To Invest? Where Do I Start From Here
Now there are so many ways for students and low income people to invest. Here are different ways to invest with little or no money to open an account:

1. You can open a DRIP (Direct Reinvestment Plan)
2. You can invest in a financial companies such as Vanguard, Fidelity, Charles Schwab with mutual funds
3. Open a brokerage and start buying individual stocks or Exchange Traded Funds (This option requires $500-$1000 to open an account) 
4. Your bank has options for you to invest in their mutual funds

                                                 Some Mutual Funds

The money required to open an account is the most money you would ever need to give out at one time. The money used to open the account will go towards the purchase of the stock. For example, if I open a DRIP account for $250, then that $250 will buy me shares of that stock and from there I can make however big or small investment at a time.

Mostly every company that is registered in the United States has DRIPS that you can invest in with little or no money at all, Google the company name with the word DRIP right after. Mutual Funds tend to ask for $500 to $1000 to open the account, but some don't ask for any  money up front, but you need to commit to investing $50 per month. The next option of brokerages often just ask for the $500 deposit and that money just sits in your brokerage account until you begin to buy stocks.

Mutual Funds or Stocks?

Not a lot of people are terrified to invest because they don't know what to invest in without getting hammered or basically losing all their money. That is why you invest in a mutual fund because you are pooling with millions of other people and because there is a fund manager that is managing your account. Of course you have to pay his salary, so there are annual fees that the companies withdraw annually from your account to pay him. When you have a mutual fund, you have no control as to what happens in the fund and its performance is based on the manager that is managing your money. 


Now if you actually want to take the risk and decide to go at it on your own by opening a brokerage account, then the only expense is to make the order to buy the stock. Before you buy the stock, you would have to do some homework for each stock that you want to invest because you don't want to be losing money because of bad investments. Homework meaning getting the fundamentals of the company and seeing if they are a profitable company (Look at the financial statements). Most of the time, don't listen to people and buy the stock because they said that stock would make you money. Now, you could take them into consideration and read up on it, but don't buy the stock because they told you of a hot stock that you should buy.

Remember that time is on our side when we are young, but as we get older, time is not on our side. Students and others just like me should invest at a younger age because as we get older, the more responsibilities we will have and the less money that we can use to invest and have a comfortable retirement.

Leave a comment or if you have any questions about investing.

References:
http://www.kiplinger.com/magazine/archives/2008/02/seven-figure-saving-strategy-for-your-twenties.html?si=1
http://money.cnn.com/2010/06/30/news/economy/personal_savings_decline.fortune/index.htm