Category Archives: For the New Investor

Information for someone who is just getting started in investing.

Avoiding Bad Investing Advice

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I am a big fan of the financial independence, personal finance movement and all of the great people trying to help others not be “normal,” as Dave Ramsey would say.  It is great to hear about others’ experiences, both to learn new ways to do things and also see that others aren’t perfect either.   People who reach financial independence don’t do everything perfectly.  They buy a latte once in a while.  They sometimes buy something on vacation they later regret buying.  They maybe miss making a budget some months (very guilty, but I’m hoping to do better in May).  It is good to see that you don’t need to be perfect to make your life better and more secure in ten years than it is today.

One area that concerns me, however, is when people start to get into investing advice.  I don’t mind when people say what they are doing with the caveat that they are learning.  Just as with personal finance, hearing stories of what people are doing to invest and their results is good for all.  In particular, if someone does a boneheaded move and tells people about it and the money they lost, that is helpful.  Maybe others won’t do the same. (Although I’ve found you need to lose money sometimes before you’ll accept a lesson.  I call this “paying tuition to the markets.”)

What I don’t like is for someone who has little or no investing experience trying to tell others how they should invest.  Investing is a craft which takes years of experience to really master.  You need to have gone through up markets and down, made and lost money, and read a lot before you can really know where the pitfalls are and learn what works and what doesn’t.  This isn’t to say that you shouldn’t start to invest until you have a huge amount of experience, because you can’t get experience without actually investing.  This is to say that you shouldn’t be recommending that people put all of their money into XYZ stock when you’ve just opened a brokerage account yourself and have been investing for a year or two.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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Note that just because a person is “in the industry” does not mean that they know how to invest either.  There are a lot of people in the financial planning business who maybe have some sort of certification, meaning that they’ve passed a test on things like tax planning and life insurance with perhaps a few questions about what a stock and a bond are thrown in, but without any real experience investing.  They’ve never felt what it was like when your portfolio has declined by 40% in a month and it seems like the whole world is crashing down.  They also are often on commission to sell the high-priced mutual funds that their firm pushes so they may not have your best interests at heart.

Someone with a finance degree, or a business degree, is also not necessarily the person you want to be taking advice from.  These degrees might give them some good insight into how the financial system runs or how to run the payroll at a business, but they do not make them good investors.  In fact, there really are no college degrees that make people good investors, just as there are none that make people good salesmen of woodworkers.  It all comes from experience.

The manual on how to make money by investing.  Read The SmallIvy Book of Investing.  

Having said that there is a lot of bad advice out there, obviously, there is a need for good advice.  If you want to reach financial independence within your working lifetime, investing is almost a must.  You should be investing a portion of your paycheck and building up a portfolio that will provide income to you.  This is the way that you become financially independent.

To fill that void, you’ll see a change in the articles and organization of The Small Investor going forward.  We want to become the go-to site for people who want to learn how to invest, both complete novices and those who have been investing for a while and want to do things better.  We’ll also keep a personal finance flair as well, since managing your income correctly is the way that you free up cash to invest.

It will take a little while to rejigger things, but you’ll soon see a shift in the way The Small Investor is laid out and the kinds of articles we publish.  Most articles will be placed within two focuses – investing and personal finances.  With investing in particular, we’ll have very basic articles designed for those who know nothing about investing organized in such a way that you can go from square 1 to being knowledgeable in what you’re doing if you keep reading.  We’ll also seek out good articles from others and link to those so that readers can gain from some of the great stuff that is out there.  Finally, we’ll have a reading list that you should take advantage of if you want to really get good at investing.

So, please check back often, or better yet, subscribe so that you’ll get notified as content is added.  Also, please let me know your questions about investing and comment on what is helpful and what is not.  Let’s build a generation of investors.  Society will be better when more people are standing on firm financial footing.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

How A Target-Date Fund Works

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A target-date fund is a great choice for those who want to invest for retirement but don’t want to spend time learning to invest.  In fact, it is better for you to use a target date fund if you don’t know what you’re doing than it is to not know and not try to learn, yet try to manage your retirement plan anyway.  Unfortunately, many people try to do so and end up jumping from fund to fund (trying to chase returns), staying all in cash (because of fear of loss), or staying all in stocks too long (trying to maximize account balances before retirement).  Each of these mistakes could leave you far short of your monetary needs in retirement.

If you are putting at least 10% of your gross pay into a 401k or similar retirement investment plan, before any employer match, you should be set for retirement.  The main reason you would not be is because you make one of the mistakes mentioned above.  Chasing returns normally means that you are buying stocks high and selling them low, resulting in returns way below those that you would have gotten if you had just stayed in the markets and rode out the ups and downs.  Staying all in cash may seem safe, but it actually guarantees that you will end up with a negative return if you include the effects of inflation and denies you all of the benefits of investing.  Being invested entirely in stocks too long, hoping to make a big score before you retire, can lead to a huge loss right before you need the money.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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So why is a  retirement date fund a good way to avoid these issues?

Think of a target date fund (TDF) like an automatic transmission in a car.  While someone who is skillful with a manual transmission can get better gas mileage or get from 0 to 60 faster than someone using an automatic transmission, someone who doesn’t know what they are doing can easily break something or get worse performance.  Someone who is skillful at investing can do better choosing funds than someone who uses a TDF, but someone choosing funds who is not willing to do the (small amount) of extra work involved or who just guesses blindly can end up breaking their retirement fund.  A decent TDF will get you 90% of the way to your retirement goals.  Choosing funds can get you that extra 10%, which could be millions of dollars, but might just mean that you retire with $4 M instead of $2 M.  Someone managing their account badly could retire with $0.4M instead, which could be a very meager lifestyle.

A TDF does several things automatically for you.  Specifically it:

  1.  Diversifies your investments among different asset classes.  In simple terms, it spreads your money around so that you’ll always have some of your money in whatever is doing well and not have all of your money in whatever is doing badly at any given time.
  2. Adjusts your investment as you get closer to retirement.  As you get closer to the time when you’ll need the money, it shifts from growth investments, which have a great long-term return but have very unpredictable returns over periods of a few years, to fixed-income assets, which return less but are more predictable.
  3. Rebalances your portfolio, selling what has done well (selling high) and buying what has not done as well (buying low).

The manual on how to make money by investing.  Read The SmallIvy Book of Investing.  

 

How to Use a TDF

Inside your retirement plan (or on the website for a mutual fund company if you’re using a private IRA to save for retirement) you’ll probably fund several TDFs with names like “Retirement 2060”, “Retirement 2070”, and so on.  The number refers to the retirement year for which it is designed.  For example, a 2060 fund would be designed for people who are planning to retire around the year 2060.

To use a TDF, just:

  1.  Figure out your retirement age (pick when you’ll be about 65 or 70 – more on that in a minute).  For example, if you’re 25 today, you’d be retiring around the year 2058, so you would select the 2060 fund.
  2. Once you find your fund, direct all of your investments there.
  3. Don’t touch anything – you’re done.

Let’s go through the reasons for each of the steps above.

Why pick 65 or 70?  What if you’re planning to retire at age 50?

Even if you’re planning to retire 15 or 20 years early, you won’t want to invest like you’re 15 or 20 years older than you are.  TDFs invest more aggressively while you are far away from retirement, then get more conservative as you start to get near your retirement date.  If you invest in a fund designed for 40-year olds when you were twenty, you would not be taking on enough risk to get the returns you need to grow your retirement savings early.

Instead, choose the fund appropriate for your normal retirement age.  If you save like crazy and do really well in the TDF in the first couple of decades, such that you think you’ll be able to retire within five years or less, shift to a TDF designed for someone five years from retirement at that point.  If the markets do not do well or you aren’t able to save like you think and you end up not having enough to retire at age 45 like you planned, you might just need to work another five or ten years.  Eventually, there will be a good streak in the stock market that will raise your returns.  If you invest too conservatively early, you’ll virtually guarantee that you will have sub-par returns and need to work that much harder to meet your goals.

Why not supplement your TDF investments with other funds?

You might be tempted to add a bond fund, small-cap fund, or specialty fund to your TDF to up your returns.  But remember what you’re doing – you’re using the TDF to automatically get you to your goals.  Adding other funds to your TDF would be like adding a clutch and gearshift option to your automatical transmission.  You might shift up into 4th gear when your automatic transmission was trying to shift down into 2nd.  A TDF fund is designed to work alone, so adding other funds makes things not work as designed.

Why not touch anything?

Let’s say that your coworkers or CNBC commentators start talking about how overpriced the markets are and how stocks are ready for a fall.  You might be tempted to sell your TDF and go to cash for a while.  The truth is that your coworkers and CNBC don’t know anything more about where the markets will go next year than anyone else.  Just because stocks are pricey doesn’t mean that they won’t go up more.  Just because stocks are cheap doesn’t mean that they won’t go lower.  If you sell out because you’re worried, you might miss a big rally that adds another couple of million dollars to your retirement account over time.  If you shift to all stocks because you think that the markets are ready to rally, you might go all-in right before a 40% bear-market decline.  It is better to leave things alone and let your TDF do its job.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

If You Think Investing is Gambling, You’re Doing it Wrong

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I often hear people talk about how stock investing is gambling.  “It’s no different than Vegas when you put your money in the market,” they’ll say.  When I hear this sentiment, I know that the people I’m talking to have no idea how to invest.  They either don’t invest or use the markets as a casino, betting on red and black.  People who know how to invest understand risk and reward and use this knowledge to put the odds totally in their favor.  They know they will make money and can estimate about what return they’ll get, the only uncertainty is their rate-of-return during any given short time period.

It is true that if I were to put $1000 into XYZ stock and plan to sell within a year, I would be gambling.  I’ve spent over 30 years in the markets and I have no earthly idea what any individual stock will do during the next year.  I don’t even know what the markets in general will do, which is easier to predict because the action of no one person will move a whole market, but a single company can be moved by the actions of their CEO or even a single line employee.  But I can pick out a set of ten stocks and be fairly certain that I’ll make somewhere in the range of 10-15% annualized if I hold them for 10-20 years, only selling if something about the company drastically changes or a single position gets too big.  If you’d like to find out more details on how this is done and why it works, check out my book, The SmallIvy Book of Investing.  

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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It would also be gambling to buy a mutual fund or even a set of mutual funds using money that you need at the end of the year.  For example, if you were planning to retire next year and decided to put your life savings into the Investment Company of America Class A fund with hopes of doubling it so that you could go live on the beach, you would be gambling.  You would just as likely be down 30% as be up 30% next year.  Most likely you would have between 90% and 110% of the amount you invested when the year ends.  No one can predict where the markets will go over a short period of time.  To take a position thinking that you can is gambling.

You see, as long as everyone is trading with the same information, which is largely the case since financial news gets distributed so quickly and insider trading is illegal (but still does happen, and is legal for members of Congress – go figure), everything known is already priced into the price of stocks in the markets.  If it is expected to be a cold winter, the shares of companies that sell coats and heating oil have already risen.  If a tsunami were to wash over Florida and wipe out Disney World, the shares of Disney would have already fallen by the time you heard the news.  If you think that stocks are overpriced, so do a lot of other people and they have already adjusted the prices accordingly.  

 

The manual on how to make money by investing.  Read The SmallIvy Book of Investing.  

Because stocks are already priced to include everything already out there already, where they go next over the next week or the next year is all a matter of chance.  Maybe someone in one of the company labs will find a cure for cancer and the shares will shoot up 1000%.  Maybe the CEO will get indicted and the shares will fall 50%.  Maybe someone who owns 30% of the company will decide to throw a big party for his daughter’s wedding and sell half of his stake, causing the price to dip.  Maybe some people will just see that the price of the stock has gone up and buy more, figuring that the price will go up further.  With all of these individuals making independent decisions in the marketplace, what the stock price will do next is anybody’s guess.

So if it is all random, how can you put the odds in your favor?  You do so by looking at the past and finding the things that were true then and will likely be true in the future.  While I cannot predict whether the market will be higher this year or lower, I do know that the market is up about three years for every one that it is down.  This means that if I hold stocks for 20 years, I will probably have somewhere around 15 up years and four down.  I can also see that the returns for long periods of time (20 years or more) average around 10% before inflation.  I, therefore, know that if I hold stocks for long periods of time, while I don’t know what will happen and when it will happen, I can be fairly certain that I’ll make about 10% annualized per year before inflation.

So, if I buy a mutual fund and hold it for a year, then shift to another one or pull money out of the market, I’ll be gambling and the odds will be about 50-50 that I will make money in any given year.  This means that I’ll probably break even over long periods of time.  If I include trading fees, taxes, and the fees that the fund charges, I’ll be slowly losing money over time.  This would be like playing baccarat in a casino.  If I hold for a long period of time and don’t mess with things, the odds are very strongly in my favor (like 99 out of 100 or more) that I’ll make money, and I’ll probably make around 10% annualized.  This means that my money will double, on average, about every seven years.  It’s not like putting money into a bank CD, but it sure isn’t gambling.

So, are you investing, or are you gambling?

 

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

The Basics of Investing: What is a Stock?

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Before we get into mutual funds and other topics, let’s start with the very basics and talk about what a stock is and why you should be interested in buying shares of stock.  Shares of stocks are just what the name implies – they are a portion of ownership in a company.  If you own 1 share of GE, you are a partial owner of GE, meaning that you get a share of the profits they make, you get a partial say in how the company is run and what they do, and if they are ever bought by another company, you would get a share of the money when GE was sold.

The term, “shares of stock,” is used to indicate the amount of ownership, where the term, “stock,” is often used by itself when referring to the shares of stock for a particular company.  For example, you might talk about the “stock” of Apple going up in price, meaning the shares of stock for the whole company are selling for more money.  You might also talk about your “stocks,” referring to the shares of the different companies in which you have ownership.  You would say that you have “100 shares of Apple” if someone asked you about your ownership in Apple.  You would say that Apple was one of the “stocks” that you owned.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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Why would you want to own shares of stock?  Well, one of the easiest ways to become wealthy is to run a business.  This is because, when you own a business, your potential income is not limited by the salary that someone else is willing to pay you.  If you add customers, add locations, and add employees, you can increase the amount the business makes.  If the business makes more money, you as the owner, make more money.  You can either take a larger amount of the income that the business is making home with you or you can sell part or all of the business to someone else for more money since the business is making a larger profit.

For example, if a pizza restaurant you own is making a profit of $100,000 per year, you could take up to $100,000 home with you, investing the amount you don’t want to take home back into the business.  If you double sales and now make a profit of $200,000 per year, you could take up to $200,000 home.  If someone wanted to buy the business after you had increased the sales, they would also be willing to pay you more than they would have before the increase since they could make $200,000 per year instead of only $100,000 if they owned the business.

Many people don’t want to go through the hassle of owning a business.  It means you need to deal with suppliers, find customers, deal with employees, worry about you building and equipment, and worry about all of the business and tax paperwork.  Perhaps you want to work at a bank or in a middle-management job at a company where someone else worries about all of these things and you just get a paycheck.  Yet you still want to be able to increase your income.  Eventually, you want to get to the point where you don’t need to work anymore, instead just having money come to you like it would if you owned a business and had other people running it so that you could lie on the beach and collect the profits.

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Owning shares of stock allows you to do this.  You buy a partial interest in the company by purchasing shares of stocks.  You can thereby be a partial owner, getting a share of the profits, but not need to run the company.  Instead, the corporation hires managers who take care of the day-to-day details of running the company for you.  All you need to do is find companies that have good teams of managers and invest your money there.  (Theoretically you could also buy a company with bad managers and vote out those bad managers, but that is almost impossible with the way things are set up.  It is better to just sell your shares and go somewhere else where they managers are good if you don’t like the management team.)

You can buy a very small percentage of the company by only purchasing a few of the shares that have been issued, or you can buy a big portion of the company by buying lots of shares.  The number of shares you own divided by the total number of shares out there shows what percentage of the company you own.  Most of the time you’ll only own a very small portion of a company, but you’ll still be able to receive a return from the business, assuming it is profitable and able to grow, eventually sending you a portion of the profits the company makes a few times per year in a payment called a dividend.

So there you have it:  What a stock is and why you want to become a stock investor.  It gives you the ability to generate income like a business owner does without actually needing to open and run a business.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

How to Tell if Your 401k Plan Really Stinks

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There is nothing wrong with the 401k, but there are a lot of really bad 401k plans out there.  If you’ve never invested, you may not be able to tell the difference.  But it is worth learning how to spot a bad 401k plan because it might be something to consider when looking at a prospective job.  You can also change your behavior if you have a bad plan to improve your investing options.  We’ll talk about this at the end of this article.  But first, here are some things to look for in your 401k.

1.  A lack of index funds.

In the world of investing, there are managed funds and index funds.  Managed funds have a whole team of managers who go out and find “investment opportunities” and “seek to manage risk while providing a reasonable return.”  The trouble is, the vast majority of mutual fund managers don’t do as well as the markets, and all of that research and pontificating comes with a hefty price tag.

An index fund doesn’t try to beat the markets.  It just buys stocks as dictated by some index, which is a hypothetical portfolio of stocks designed to track the behavior of some part of the market.  For example, in the early 20th century, Charles Dow wanted to have a way to see how the large industrial companies in the US were doing.  He chose a group of large industrial companies that covered the different industrial business areas at the time and pretended that he invested an equal amount in each company.  He then began to track what the value of that portfolio was compared to its value when it was formed and the Dow Jones Industrial Average was born.  About 90 years later, a company started an index fund that simply bought the stocks in the Dow Jones Industrial Average, and thus the “DIAmonds” index fund was born.  Unlike a managed fund, the index fund just buys what’s in the index and doesn’t need to pay a team of analysts and managers, thus the costs are a lot lower.

An index fund will typically have fees of 0.25% of assets or less.  This means it will cost you $25 per year if you have $10,000 invested.  A managed fund can have fees of 1% or more, meaning you’ll be paying $100 per year for each $10,000 invested.  While this difference may not seem like much, it means you’ll be making about 0.75% more each year in the index fund, which will add up to hundreds of thousands of dollars over your working lifetime.  A plan that lacks index funds stinks.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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2.  A lack of diversity of funds.

As a minimum, a good plan should have:

  1.  A total stock market index fund
  2. A total bond market index fund.

A better plan would also have:

3.  An international stock index fund.

4.  An REIT fund.  (An REIT is a mutual fund of investment real-estate properties, such as apartment buildings or malls, even cell towers and storage centers.)

The best plans would also have:

5.  Target-date retirement funds.

6.  Small and large-cap funds.  (Capitalization, or “Cap,” refers to the size of a company.  Small-caps are small companies, large-caps are large companies.  Mid-caps are – you guessed it – medium companies.)

7.   Growth and value funds.  (Growth funds invest in companies that are growing, while value funds invest in companies that are undervalued.   This is either buying what is doing well or buying what is considered cheap.  Both strategies work with one outperforming the other at different times.  Most index funds give you both, but some specialize in one or the other.)

Having choices allows you to tune your retirement investing.  The target-date retirement funds also allow you to put your retirement investing on autopilot if you wish.  If your 401k choices only include high-cost funds that don’t really tell you in what sector of the market they invest, your plan stinks.

Want all the details on using Investing to grow financially Independent?  Try The SmallIvy Book of Investing.  

3.  Your plan switches in and out of funds.

This really isn’t so much the plan itself, but the people setting up the plan.  Sometimes the board who creates and manages the plan will change the funds available because some funds have not done well.  Assuming the funds don’t have high fees or something, the reason they may not have done well is that the sector of the markets in which they invest may not have done well.  For example, maybe you have a value index fund during a time when growth stocks are doing well, so the value fund returns 3% while the growth funds return 20%.  The board may see this and get rid of the value fund, substituting another growth fund in its place.

This is exactly the wrong thing to do.  Because growth stocks have done well, it means that they may have already gone up in price to the point that they are expensive.  Conversely, value stocks may now be especially cheap.  Think of going to the store and finding that strawberries have doubled in price, while grapes are selling for 80% of what they normally sell for.  While you don’t know what strawberries and grapes are going to sell for next week, you can bet that over time strawberries will not go up in price as much as grapes will.  The same is true for stocks.  While the timing is difficult, you will not do as well buying stocks when they are expensive after a big run-up as you will if you buy them after a drop when they are cheap.  If you find that your funds get dropped when they don’t do as well as other funds, other than due to the fact that the fees are high, your 401k plan may stink.

What to do if you have a stinky plan.

There is not that much you can do if you have a bad plan, but there are a few things.  These are:

  1.  Invest outside of your plan in an IRA.

You can open up an Individual Retirement Account (IRA) with any mutual fund company or brokerage firm.  This will allow you to get the same tax-deferral that you get with a 401k plan.  Inside an IRA, you can invest in almost anything.  If you open an IRA with a mutual fund company, you will often be able to invest in their mutual funds without paying a fee when you buy or sell the funds.  Tax laws may limit the amount you can put into an IRA if you have a retirement plan at work, but you may be able to put some into an IRA.  You will also probably be able to put the full amount (currently $5500 per year) in an IRA for a non-working spouse even if you have a 401k plan at work.

2.  Invest in a taxable account.

While not as good as an IRA, there is nothing from stopping you from investing for retirement in a taxable brokerage or mutual fund account.  If you invest in index funds and hold them for long periods of time, you’ll still pay very little in taxes each year.  While you may pay some taxes on capital gain distributions from the fund, as well as on dividend and interest payments, most of the time you’ll only see a big tax bill if you sell funds at a big profit. If you buy and hold, most of your money will be left to compound just like it would in an IRA or 401k.  In fact, your tax bills at the end may be lower than you’ll see with a 401k since capital gains rates, which you’ll pay on profits from a taxable account, are usually substantially lower than standard income tax rates in the top brackets, which is what you’ll pay for large 401k distributions.  You won’t see a tax break when you put the money into a taxable account, however, like you will when you put the money into an IRA or 401k.

You can also buy some individual stocks in a taxable account and not see a big tax bill (until you sell).  You just need to hold them for long periods of time, like ten to twenty years, rather than buying and selling stocks for a quick profit.  The good news is, you’ll do far better buying stocks for long periods than you’ll do trading.  This is like a win-win.  You can also reduce your taxes when you do sell by selling losing positions to offset gains in winning positions

3.  Be sure you still get the company match.

If you do decide to us an IRA or invest in a taxable account, you’ll still want to put enough money into the 401k plan to get whatever matching funds the company provides.  This is like getting a 100% or 50% return on your money right from the start.  If you do this, but your 401k plan stinks, you can always roll whatever is in your 401k plan to an IRA when you leave the company.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Why the Debt-Free Dave Ramsey Snowball Works

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I wrote a contributor post for Camp FIRE Finance this week.  I hope that you will take a look at the post and also the other great articles on that site.  This is a website with articles for people who are attempting to become Financially Independent and Retire Early.  Some individuals who achieve FIRE have large incomes and just live a modest life.  Others have normal incomes but then decide to live very frugally so that they can put money away to retire early.  This second group would be the tiny house types, cutting things down to the bare necessities so that their cost of living was very low.

My post was on cash flow.  Specifically how the way to gain financial independence is to create a large free cash flow, defined as the money that you have left over after paying for everything and putting money away for things like retirement and healthcare.  In both of the cases described above, the high-earning couple who live modestly and then put a lot of money away and the couple who cut their expenses to the bone so that they can save up, really what these individuals are doing is creating free cash flow.  If the high-earning couple makes $500,000 per year but lives on $400,000, it is no different than the couple earning $120,000 per year who lives on $20,000.  Both have a free cash flow of $100,000 per year.  This means that they will both be in the same condition financially in ten years.  They will both have $1 M, assuming they both put their money in their mattresses rather than investing.

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A comment on my post really made me think.  He said that what I was describing was what Dave Ramsey calls the “Debt Snowball,” but done in reverse.  That is almost correct.  What I am really doing is telling you what to do after you’ve paid off your debt and done the debt-free scream on the show.

The Dave Ramsey show tells people how to pay off their debts using his “baby steps.” He advises people to first 1) build up a baby emergency fund, then 2) get current on all of your bills, then build up a full emergency fund (3 to 6 month’s worth of expenses) 3) start attacking the smallest debt while paying the minimums on the other debts, 4) once the first debt is paid off, use the money you’re saving on payments plus the money you were using to pay the smallest debt to attack the next highest debt, 5) continue to pay off debts, adding the money you’re saving to your payments each time, 6) pay off your largest debt, becoming debt-free, then call up the show and scream about it.

The trouble is that he then kind of leaves you hanging.  He will talk a little about putting money away into mutual funds, particularly for retirement.  He will also tell you to continue to budget to avoid going into debt in the future.   But he really doesn’t keep you focused,  continuing to use your snowball of free cash to build wealth now that you have gotten this far.

Want all the details on using Investing to grow financially Independent?  Try The SmallIvy Book of Investing.  

And that is really what the debt snowball is – building up a snowball of free cash.  At the start, because you have so many obligated expenses each month – things that you are forced to pay like the mortgage, car payments, student loan payments, and credit card payments – you have very little free cash flow. Pretty much every dollar that you have is already spoken for before the month even begins.  But you gather up the little bit that you have, forming a little bit of free cash like the kind of snowball you can hold in your hands and use it to attack the first debt.

When you kill off the first debt, you now have a little more free cash flow.  The money that was going towards payments on your smallest obligated expense is now free since that obligation is gone.  Maybe it was $50 you were sending in each month to pay on a credit card for a department store.  You add this to the $300 per month you had in free cash, and now you have $350 in free cash each month.  The snowball gets a little bit bigger.

Maybe you now attack a $3000 debt you have on another credit card that you were paying $75 per month on.  You attack this debt with your $350 per month in free cash flow and pay it off in 10 months.  Now you have $425 in free cash flow to attack the next debt.  You continue on this path, increasing your free cash flow each time that you pay off a debt.

Once you have paid off your last debt, you now have a huge free cash flow snowball.  Maybe you have $2500 per month that you were spending on student loans, car payments, and credit cards.  Maybe you even pay off your mortgage and now have $4000 in free cash flow each month.  You can use this free cash flow to start building up assets, which now pay you interest each month instead of charging you interest.  (We’ll talk about how you do this in the next post.)  That is how you go from being debt free to financially independent.  If you can do this while you’re still young, perhaps you’ll reach FIRE as well.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

The Three Investments Every New Investor Should Have

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There are a lot of investment choices.  There are stocks, bonds, REITs, Options, Warrants, and convertibles.  Then there are funds that buy and sell these different investments for you, which would make things simpler, except that there are many different funds out there.  In fact, there are actually more mutual funds buying and selling individual stocks than there are individual stocks.  So, how do you choose?

The good news is, there are really only a few things that you should invest your money in.  Once you know these few investments, you can cut through all of the noise and make a wise choice of where to place your money.  I would say that there are three investments you really should make before you get near retirement.  Ignore the rest.  Here are the three:

1.  Total Stock Market Index Mutual Fund

This investment does what it says – it buys stocks in the total US stock market.  Buying just this one mutual fund will mean that you are diversified over the whole stock market.  You’ll want this because it eliminates the risk of picking a bad stock or a bad sector.  It is possible that one company could go out-of-business and you’d lose your whole investment if you try to pick a stock.  But what are the chances that every company in the US stock market will be wiped out?  If that happened, you wouldn’t be too worried about your portfolio.  You would be worried about finding enough ammo to keep the wandering bands of marauders at bay.

You need to have stocks when you are investing for a long time since they are the only investment that will grow over time.  This means that you will make real money, even when inflation is taken into account.  Put your money in the bank for 30 years and you’ll find that you’ll be able to buy maybe 75% of the stuff you could have bought with the money when you put it in.  Put your money in the stock market for the same period of time, and you’ll be able to buy about eight times as much stuff.

You buy an index fund because they are cheap.  The fees are really low, often below 0.25% of the amount of money in your account each year.  If you go out and buy a managed mutual fund where someone, or a team of someones, buys and sells stocks for you, you’ll pay 1% or more per year.  Given that most managers match the indexes at best over long periods of time, you’ll probably make a lower return in a managed fund than an index fund.  So, go for the index.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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2.  A Corporate Bond Index Fund

A bond is a loan to a company.  In exchange for the loan, they pay you interest payments twice a year for a period of time.  At the end of the period, they pay you your money back.  Bonds are good because they give you steady income that quiets down the gyrations caused by a stocks.  If you have an all-stock portfolio, you might be up 30% one year, but then down 30% the next.  Over time you’ll make about 7% after inflation, but it is a wild ride in the mean time.  Add 20-30% bonds, and you’ll see lower swings since the bonds will always be there, paying out interest, which helps offset the swings in stock prices.

You don’t want to have all bonds.  That is even more risky than having a mix of bonds and stocks.  You also don’t want to hold a lot of bonds for thirty years or longer since the returns you’ll get will be lower than they will be from stocks.  Over shorter periods of time, however, bonds will sometimes outperform stocks, particularly if there is a big downswing like we saw in 2008 and early 2009.  In that period, while stocks lost 40%, bonds actually went up a few percent.  They did a lot worse than stocks in late 2009 and 2010 as the markets recovered, but people who were holding bonds during 2008 and 2009 felt a lot better than those holding stocks.  Again, buy an index fund that holds a lot of different types of bonds for low cost and diversification.

Want all the details on using Investing to grow financially Independent?  Try The SmallIvy Book of Investing.  

3.  An International Stock Fund

US stocks are often the place to be since the economy is stable and often growing, but it is not always the best place.  You’ll always want to have some of your money in whatever segment of the market is doing the best at any given time.  You should therefore put some of your money, maybe 20-25%, into an international stock fund.  Here you want to look for inexpensive index funds that invest all over the world, rather than picking a niche fund that invests only in Asia, for example.

So there you have it.  A total stock market fund, a bond fund, and an international fund.  Find cheap index funds, send in a check, and never look back.  Happy investing!

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Eight Simple Steps to Start Investing

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Don’t forget about the first Small Investor Investing Twitter Show tonight from

8-9 PM Eastern Standard Time. 

I’ll be answering your questions live via Twitter.  Just follow me @Smallivy_SI .  You can also submit questions through comments to this post.

Maybe you’ve been working on your personal finances for a while.  You’ve got a budget. You’ve paid off all of your debt (or never had any in the first place).  You’ve gotten your emergency fund together and have about $10,000 in cash sitting there.  At this point you’ve got a line in your budget called “Investing” and you’re starting to siphon money out of your income to a bank account that you’ve created to store up your investing funds until you have enough to get into the markets. But now you’re worried about what you should do, where you should invest, and even how you go through the actions needed to buy stocks and bonds.

Luckily, investing is a lot easier today than it was before about the year 2005.  Where in the past you would need to have a fairly large amount of money before brokers would even work with you, the mutual fund industry has answered the need for the common man (and woman) to invest and discovered that there are a lot of people out there needing such services.  At places like Vanguard you can set up an account and start investing with as little as $3,000 ($1,000 if you’re starting a retirement account like a traditional or Roth IRA).  You might be able to invest with even less at places like Charles Schwab and/or if you set up autodraft from your checking account.  With these accounts, you have access to a wide array of mutual funds, and even individual stocks and ETFs, all with a few clicks of a mouse.

Still, there are a lot of options and it is probably fairly intimidating for the new investor.  That is why I’m providing the Simple Steps needed to get started in investing.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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Step 1:  Pay off all credit cards.

Before you even think about investing, get rid of your credit card debt.  During a really good period in the stock market, you’ll get a return of 15% per year.  Long-term returns average around 10% (which is 7% after inflation).  You just can’t compete with a 19 or 25% interest rate on a credit card balance.  Just think of yourself getting a 25% return on the money you use to pay off credit cards.  Then, cut up your cards and get debit cards instead so that you won’t go into credit card debt again.

Step 2:  Start with a retirement account.

Someday you will want to retire, which means that you need to have retirement savings to last you for about thirty years, plus something like $500,000 to $750,000 to pay for healthcare expenses beyond what Medicare covers.  If you have a 401k or 403b at work, start there, putting in at least as much as your company will match.  Putting in less means that you are leaving free money on-the-table.  If your company matches the first 5%, you can effectively increase your salary by 5% by just putting 5% of your pay into your 401k.  If you don’t have a 401k plan at work, sign up for the pension plan if one exists.  Regardless if there is a plan at work, go to Vanguard or Schwab and start a Roth IRA.

Fund your retirement plans with 15% of your salary.  Start by putting whatever the company matches into your work plan (or whatever is required by your pension plan), then fund your IRA up to the yearly maximum.  If there is anything left over, put it into your work retirement plan.  Still have money left over?  Start a standard, taxable account at Schwab or Vanguard and fund that account.

Step 3:  Determine your retirement fund asset allocations.

Assets are things like stocks and bonds.  They are things that pay you money, adding to your income.  Standard asset types for investing include stocks, bonds, and real estate.  To determine you asset allocation:

  1.  If you’re less than age 40, start with 100% stocks.
  2. If you’re over age 40, start with your age minus 20% in bonds, 110% minus your age in stocks, and 10% in real estate.   For example, if you’re 45, you would start with 25% bonds, 65% stocks, and 10% in real estate.
  3. If you’ve worried about losing money and are very nervous, increase your bond allocation by 10% and reduce your stock allocation by 10%.  This will smooth things out somewhat.  For example, someone who was 45 would increase their bond allocation to 35%, reduce their stock allocation to 55%, and still have 10% in real estate.  Someone who was 20 would reduce their stock allocation to 90% and add 10% bonds.

 

Want all the details on using Investing to grow financially Independent?  Try The SmallIvy Book of Investing.  

Step 4:  Select your retirement account stock funds.

Go through the funds you have available and try to find index funds.  If you can, select a total stock market index fund.  If that is not available, try to find a large-cap (like an S&P500 fund) and a small-cap (like a Russell 2000 fund) fund.  If index funds are not available (for example, in a 401k plan without the best choices), find the lowest cost stock funds available (try to find funds that charge less than 1% of assets invested) and select one that invests in all sectors of the market or one that invests in growth and one that invests in value.  Also find a fund that invests in international stocks, hopefully something like a total international stock fund.  Read the fund descriptions to find what the fund invests in and manager’s style, as well as total fees.  

Step 5:  Find your retirement account Bond and Real Estate Funds

Go through the same process in selecting your bond and real estate funds.  Try to find a total bond index fund and an REIT index fund.  If you don’t have an REIT fund available, just add 10% to your bond allocation.

Step 6: Buy your retirement account funds.

You should be able to buy your funds using the website for your 401k or IRA.  Many sites will allow you to specify specific percentages of the account to put into each fund.  If that is the case, go ahead and set those percentages based upon the asset allocations you determined in Step 3.  If not, you’ll need to pull out a calculator or spreadsheet, do the math, then enter the dollar amounts.  Note that you will want to set your investment percentages in two different places, one for how to allocate the money you have in the account already, and the other for how to invest new funds.  Set both of these the same and matching the allocations you determined.

Divide the money within an asset category (stocks, bonds, real estate) equally to each of the funds in that category.  The exception is international stocks, which should be 20% of your stock allocation (so if you are investing 80% stocks, you would put 16 % of your account (80% x 20% = 16%) into international stocks and then 64% into US stocks and 10% into bonds and 10% into real estate.

Step 7:  Setup taxable brokerage accounts with Vanguard or Schwab if you have more money to invest.

Hopefully, after you are through putting money away for retirement, you’ll still have more money to invest.  Unlike your retirement funds, which you won’t be able to touch until retirement, money you invest in taxable accounts can generate additional income to enhance your life and hopefully make you financially independent before retirement.  Put 100% of your taxable investing accounts into stocks and only sell when you want to generate cash for something since you’ll be taxed each time that you do. As long as you don’t sell the shares, you won’t be taxed on the increases in value of your account due to increases in price of the funds in the account.  You will be taxed on the dividends and capital gains that the stocks in your funds are generating, but these should be small amounts if you buy index funds investing in the whole stock market.

If you want to, you can set these accounts up to spin off cash when the stocks in the funds pay dividends or there are capital gains.  You’ll then just magically see money appearing in your money market account with the fund company, with a larger amount n December (fund companies tend to move money around and realize capital gains at the end of the year.  This money will be taxable, but then can be used as you wish.  This is a great way to get extra cash without needing to sell shares.

Step 8: Wait until January 15th, then rebalance.

You should rebalance your accounts – set them back to your desired asset allocations – about once a year.  You should also adjust your allocations for changes in your age at this time (as you get older, you should be shifting more into bonds).  Luckily, most mutual fund companies also have tools to let you rebalance.  Just set the percentages you want into the tool and press the button.  Do this again every January 15th (or a date somewhere near then).

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

How to and Why You Should Invest in Stocks

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Certainly the first step to becoming financially fit is to start to budget.  Once you plan where your money goes each month, rather than just seeing how things turn out, you’ll find that you actually feel more wealthy because you’re using your money more efficiently.  Budgeting also helps to keep you out of debt since you need to balance your income and your spending.

Once you’ve gotten your spending under control, the next step in becoming financially secure is to grow your non-work income stream.  Having sources of income beyond your job helps shield you from the bad effects of layoffs, increases your income, allowing you to enhance your lifestyle, and provides freedom in your life because you will have money for necessities when looking for the next job or if you decide to change careers.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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Stock investing is one of the easiest and best ways to gain additional income.  With stock investing, you’re buying a stake in different companies.  You become a part owner, and with ownership, share in the profits of the company.  You make money either through dividends that the companies pay or by selling shares of the companies once they have grown and become more valuable.

Personally, I have been investing in common stocks since I was twelve, starting with a few shares in a local utility company.  When I went away to college, my parents transferred shares of stock to me (which also reduced the taxes due on the shares) rather than sending me money for tuition and rent.  I was actually able to make it all the way through undergraduate school without the portfolio value declining since I was able to make up any money I was spending with capital gains and dividends from the portfolio.  I did need to sell off a good portion of the portfolio when I went to grad school in California since things cost more, but I still had some money in the portfolio to help get me started once I graduated.

When I started investing, I invested mostly in individual stocks.  There were very few mutual funds around, and really no index funds.  Today investing is really easy since there are a wide variety of mutual funds, including low-cost index funds and Exchange Traded Funds (ETFs).  You really can’t go wrong if you regularly buy a set of broad-market index funds and hold onto them for long periods of time (like 10 years or more).

Want all the details on using Investing to grow financially Independent?  Try The SmallIvy Book of Investing.  

The simple act of investing was once more complicated.  You needed to find a broker, set up an account, and learn how to place an order.  You could pay someone to manage your money for you, but more often than not, they would end up selling you expensive products that benefited them more than you.

Today it is really simple.  You can just go to Vanguard or Schwab (or some other mutual fund companies, I’m sure), set up an account online in less than 30 minutes, and then choose from among their low-cost index funds.  To start, just buy some shares of a large-cap index fund such as an S&P 500 fund or one with “large cap index” in the name.  You’ll want to minimizes fees (less than 0.25% of funds invested).  Once you have a few thousand dollars in a large cap fund, add a small cap fund such as a Russell 2000 fund.  From there you cold add a bond fund, an international stock fund, and perhaps something like a REIT fund.

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You’ll want to invest regularly since that will both ensure you get a good price and allow you to build up wealth and income over time.  You can do this by either putting an investing line in you budget each month and sending in money, or by setting up automatic drafts from your checking account.  Many mutual fund companies offer perks like low initial investments or no fees if you use autodraft.

So, what is stopping you?  If you have $3,000 or more in cash available, you could be an investor in just a few days.  While I can’t say what you portfolio will be worth at the end of a year, I can almost guarantee you’ll make more than you could make in a bank account if you buy regularly for a period of ten years or more.  Give it a try – it really isn’t hard and really not that scary once you’ve gotten started.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Any Interest in a Class on Investing?

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With the release of the first book on finance and investing, SmallIvy Book of Investing: Book1: Investing to Grow Wealthy, and the upcoming new book, Cash Flow Your Way to Wealth, one thought I’ve had is to start teaching a weekend class/seminar on investing and money management.  While it is great to pick up a book and read about investing and finance, or to read a blog post a few times each week, there is just something about going to a seminar where you really sit down and focus on a topic that really gets you ramped up the learning curve fast.

I’ve also found that there are a lot of bad books on investing if you go to the local bookstore (if you can find one anymore) or go browse through the finance books at Amazon.  You’ll find one book that talks about buying mutual funds, another that talks about flipping real estate, and another that talks about day-trading your way to wealth and happiness in just four hours a day.  Someone could easily get confused with all of the different strategies offered, some that are valid and others that aren’t.

My question to my readers is, therefore, would you have interest in a seminar that teaches you how to invest or other personal finance/money management topics?  I’m thinking of a full-day seminar on a given investing/finance topic.  This would give time to really focus in on a given area, allow you to ask questions, and include a copy of at least one of my books and a set of notes/hand-outs to refresh your memory at home.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

Shop Appliances
Find a great new book
Shop DVDs
Buy your Pet Supplies
Tools and Hardware
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Patio Lawn and Garden Supplies
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Health and Personal Care

Classes could be on topics such as:

How to select mutual funds

Choosing funds and investing in your 401k

How to select individual stocks and manage a stock portfolio

How to manage a portfolio and generate investment income in retirement

How to manage your cash flow to build wealth (what to do after you’re out-of-debt)

Smart ways to manage your money (so that you can have your cake and eat it too)

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The other question is the best format for the class.  Given that I’m located in the South East United States, classes could be held in or near cities such as Atlanta, Huntsville, Nashville, Louisville or Ashville.  I could also offer an online class, maybe spread out over a few days/evenings, with lectures/discussions using Go To Meeting or some similar website.

So, here’s where I need your help.  Would you be interested in a class such as this?  If so, what would be the best format (in person or remote)?  If in person, would one of the places listed work for you?  Finally, what would you think would be a reasonable cost for an 8-hour seminar such as this, complete with notes and books (and maybe lunch)?

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.