Start Them While They’re Young

If your youngster shows an interest in investing, it has never been easier to get him or her started regardless of age.  Once an individual reaches the age of majority (eighteen years in most states), he or she may have an investment account registered solely in his or her name.  Youngsters under the age of eighteen are not permitted to have their own brokerage accounts.  However, several ways exist for parents to introduce interested youngsters to investing. 
Dividend reinvestment plans (DRIPs) may provide an interesting investment vehicle for kids.  Many child-familiar companies offer DRIPs-Walt Disney, Mattel, just to to name examples.  Since many DRIPs permit very small investments, the programs are a good way for youngsters with limited funds to start investing in the stock market.  Through Sharebuilder, youngsters can have an account setup for them to buy stocks in specific dollar amounts automatically.  Don’t have $300 to afford a share of Apple stock?  No problem, Sharebuilder offers fractional share purchases.
If you decide to establish an investment account for a minor, consider carefully how you want the account registered. If you choose to have the account in your own name, you will be responsible for taxes on the account.  The good thing is you will also retain complete control over the account for as long as you want. 
An alternative is to set up the account as a Uniform Gift to Minors Account (UGMA) through reputable brokers like Rydex, Fidelity and Cam Trading. Funds in the account are in the minor’s name and Social Security number and are considered to be owned by the minor.  Dividends paid on the account are taxable, most likely at a preferred tax rate.  The adult custodian is responsible for the account until the minor reaches the age of majority.  Parental control is lost at the age of majority, which can be seen as a downside to UGMAs. 
Lastly, certificates of deposit and savings bonds are okay investments, kids should own stocks or stock mutual funds.  Risk is the last thing your child needs to worry about in an investing program.  He or she needs to capitalize fully on the power of time in their investment program as they have the advantage of time working for them. 

Invest Every Month, No Matter How Small the Investment

Being a successful investor is all about keeping your money in play, especially during various cycles in the economy.  When you’re starting out, it’s reasonable to believe that you must deploy your large pile of savings to buying stocks and be done with the process in a matter of minutes.  Success in investing is hardly a one and done activity.  What builds true wealth is investing on a regular basis (at least once a month).

Investing means you’re not spending.

When you don’t invest regularly, you’re not keeping your money in play.  Money that’s not in the market doesn’t reap the benefits of time and compounding.  Of course, many will argue that it would be safer to stay on the sidelines for now, because of current economic conditions.  But the fact is, money that’s not invested in some way is eventually money that’s spent on worthless stuff.  And money that’s spent creates a negative return.

I’m guilty of it too and I still spend on worthless stuff, but the spending on me has been replaced with spending on ‘them’ (i.e., kids).  The stuff you buy usually costs more than the initial price tag.  Homes require insurance, maintenance, utilities, and furniture.  Autos require gasoline, insurance, and maintenance.  Clothing requires cleaning and mending, not to mention new clothes to go with the clothes you just bought.  Computers require Internet connections, printers, toner cartridges, software, and paper.  And so on.  It’s rare to find something that costs no more than the initial price you paid.

If you spend instead of invest, you’re not just losing returns on the money you spend.  The money you spend generates negative return because you spend more money to support the stuff you buy.  That’s why spending is so dangerous (and I won’t even go into the dangers of spending on credit)!  It has a negative multiplier effect and it’s the opposite of compounding rate of returns. 

If you invest every month, even if it is only a few bucks, you rid yourself of money that, if spent, will cost you even more money in the long run.  That’s why it pays to invest even a little amount each month, $15, $100, whatever you can afford.  Don’t wait until you save a larger amount to invest.  The problem with waiting until you accumulate funds is that the money is readily available and tempts you to spend on some foolish toy.  Get the money into your investment account as soon as possible, automate it whenever necessary so it becomes part of your daily life.  You’ll be much better off in the long run.

Five Things to Ignore on the Way to Becoming a Successful Investor

1. Hot Tips.  I’ve found (and Twitter is littered with them) that most hot tips are designed to enrich the person touting them and are rarely researched or present good long-term investments. 
2. Selling when a company is doing well.  Your goal as an investor is to reinvest and compound your profits, not enrich a broker.  If you’ve done your homework, keep on investing. The stock will split and you can buy more shares.  Of course, if your plan is to sell at a certain price point, then follow your plan to the letter!
3. Taking risks.  We all take risks crossing the street, driving to work, getting in and out of the bathtub, eating greasy foods.  The stock market is the least-risky investment vehicle long term.  I’m emphasizing “long term” here because right now, the world has a short-sighted field of view. 
4. Professional advice.  While a heart surgeon can reasonably predict how a bypass operation will go and a lawyer can reasonably predict how an estate plan will avoid taxes, no “professional” is good at predicting or timing the stock market.  Even the best ones fumble from time to time.  If you learn about the various investment vehicles out there, and do what you feel works for you, you will be guided by facts, not promises.
5. You don’t know anything about, so you won’t learn.  I’m always amazed at people’s capacity for convincing themselves they can’t learn.  But many of us have been brainwashed to believe this horrible lie.  We can learn at any age at any time at very little cost.  The information is free and the knowledge is priceless.

10 Things to Avoid in a Company Plan

Before this gets too winded, I’ll get right to the point.  There’s a lot to cover in this rainy day in Maryland.

1.  Don’t put all of your clothes in one suitcase!  You’ve heard of the same analogy with eggs being in one basket, but honestly, no one harvests eggs anymore and if they do, they usually don’t put it in a basket.  When you travel, you wouldn’t bring ALL of your clothes, some women may not agree but, that just doesn’t make sense. The same principle applies here.  Never invest all of your money in one stock (especially company stock), mutual fund, bond, or guaranteed investment account (avoid at all costs – this is where scammers thrive).

2.  Diversify simply.  All you really need is a growth stock fund, an international fund, and an aggressive fund (sector funds like technology, healthcare).  Keep it simple, but remember nothing is safe in a downturn (except cash or money market funds – although, inflation is its greatest enemy).

3.  Forget about bonds.  In most cases, bonds make sense.  They do not in a tax deferred plan.  You want to grow your principal, not your income.  And putting money in bonds isn’t the safer alternative, either.  Let the free company matching go toward the purchase of other funds that benefit from dollar-cost-averaging. 

4.  Stay put.  Most plan managers allow you the ability to switch from fund to fund through phone or their website.  Take a close look at your allocations once a year in January and plan to re-allocate (usually at no cost).

5.  Look at fees.  All similar index funds have one important difference: their fees or expense ratios.  The lower the expense ratio, the higher the return in index funds.  It’s pretty basic, but they’re all the same.  If they’re not – there’s a mathematical computation error going on within the fund management, and you should avoid those funds, too. 

6.  Forget historical returns.  The funds within your plan are chosen by your HR department and they’re typically clueless about fund performance and how it all works.  So, they end up finding the high-flyers of recent past and they expect these funds to perform just the same.  However, mutual funds depend on the market’s growth to continue producing positive returns and plan participants see the previous growth and they get in at the peak. 

7.  Do the paperwork yourself.  In my previous job, we had a dedicated team of HR people who filled out the forms for the employees, so that all they have to do is sign on the dotted line (though it’s a solid line nowadays).  If you do it yourself, you’ll have a much better understanding of the restrictions and anything else on the fine print.  If you run into trouble, pick up the phone and call the account provider.  They’d love to hear from you, after all it’s your money they’re after!

8.  Open as many accounts as you can.  If you fund a Roth in addition to your company plan (and your gross adjusted income is less than $167,000 for joint filers), go for it.  In fact, I know a wonderful company that can help do this for you.  It’s all compounding tax-deferred and that’s what you want.  The more the merrier is all I’m saying!

9.  Keep and review all statements.  Keep statements in a folder.  See how they’re doing once a year, although you’ll get one per account every quarter.  Also keep in mind that you can deduct the custodial fees if you itemize on your taxes. 

10.  Keep contributing until you die!  Okay, maybe not to that extreme, but as long as you’ve got your company matching, you’ve got free money rolling in.  It’s so easy to forget about that Roth or conventional IRA once you set it up.  If the $5,000 (or $6,000 if you’re over 50 years old) is too much at one time, break it up into smaller portions; that’s $416.66 a month.

It’s Your Money, You Are The Boss!

Are you the kind of person who would, if bumped in a theater lobby by someone rude, say, “Excuse me” or “I’m sorry,” when it’s not your fault?

I believe that you should be a squeaky brake disc, that you should be a strong advocate with your doctors, lawyers, and especially with your money managers.  I have spoken to people (some friends, some just strangers met on LinkedIn) who also have money with a hedge fund manager.  They cannot read their statements, which seem to be purposefully incoherent.  They seem to be ‘okay’ with this notion that they don’t need to understand everything and that it adds to the mystique of it all.  They’re reluctant to ask for explanations, not wanting to seem unsophisticated.  I say that if someone who wants to manage your money cannot explain his or her philosophy in a simple paragraph, then you shouldn’t let him or her manage that money.  And if those who do manage your money cannot simply explain their own statements to you, then you are probably headed for a sad experience.

It’s your money; always remember that.  Money managers tend to think that, once the funds are deposited, it’s their money and the clients are nothing more than an annoyance.  Cure them of this notion.  Call them once a month or at least visit the brokerage site to see how your funds are doing. 

As a growing company, we believe that the best ideas come from clients, from their interaction with the world and that we want them to check in if they have any bright ideas that could help produce superior returns. 

Investing for Your Children’s Future

There are a million ways to the truth in money management, and no such things as the “Holy Grail.”  And if you’re raising children and facing serious tuition prospects in the near future, here are a few guidelines to follow.

Of course, college education today can cost as much as $40,000 annually.  And that’s before you buy books, much less the computer-related fees that are standard in higher learning today.  If you take the route into private education earlier, at the high school level, the costs are still mind-boggling.  Boarding schools can charge more than $24,000 a year.  And because many parents are in a dual income (professional) household, preschool and private grammar schools can set you back $15,000 a year or more. 

I believe in a three-part practical approach to investing for a child’s education.  Start with U.S. Treasury zero coupon bonds.  These bonds pay no interest in cash.  You can buy them at a discount, say, 30 cents on the dollar.  They mature at face value in a specified time frame.  This way you can target maturities to match your requirements like, maturities to coincide with freshman year in college, and so on. 

Currently, money doubles in these instruments in 11 years so that $5,000 automatically becomes $10,000 in October, 2020.  This works out to be about 5.9% annually.  Not so hot, you say?  Perhaps, but it makes sure that part of the tuition is taken care of automatically, and you don’t have to suffer through the sometimes (if not more often) negative bias of the stock market. 

The second part of investing for children’s education involves periodic purchases of a good growth mutual fund.  Such can be found through Rydex and CAM Trading.  And money should probably be systematically added to the fund so that you can take advantage of dollar cost averaging (putting similar amounts in monthly or annually, often when prices are lower and more shares can be bought).  Any financial website can provide you with historical returns of all the mutual funds they carry.  The earlier in a child’s life you start this program, the better it will work. 

The last part is the most aggressive part, and like the growth-oriented mutual fund, it requires patience and discipline.  It involves hiring a professional investment management firm where your money can take advantage of both the ups and downs of a cyclical market. 

Put your plan into action.  The earlier, the better.  Invest at the same time each year, like a child’s birthday, or during the holidays.  It makes it simpler to remember and becomes automatic.  It also helps you stay discipline and patient. 

Fostering Personal Relationships Online To Improve Business Success

In business (as in life, too) when you make a personal contact with people, it makes it much more difficult for them to ignore you, or more importantly, treat you badly. Wherever possible in life, personalize your relationships.  Many (if not all) of my real life friends are on Facebook.  And why not?  It’s convenient, centralized and most of all, easy!  They have yet to do any empirical research on the long-term effects of Facebook, but my feeling is, it does not facilitate honest, personal relationships with all of those people on your list of friends.  I’ve read somewhere and don’t quote me on this, but the human mind can only handle up to 50 or so friends, the rest are just strangers.   While you may have shared a response to someone’s Status Update, or pressed the “Like” button on a discussion among your social network, the vast majority of the interactions on Facebook is analogous to making eye contact with strangers on an elevator!

Now, I know that’s harsh, especially if you’re the one with over 1000 “friends” on Facebook!  I’m simply stating a point, and that is, any relationship you can make more personal improves your chances of success.   Whether that’s on Facebook, LinkedIn, or, dare I say it, Myspace, the connections you make have intrinsic and market value.  You may not do business with the vast majority of your connections due to a variety of reasons, but the real value is in grassroots marketing.  Your direct connection may not have a need your products or services right now, but they may know someone who does. 

I can only speak for myself and the Financial Services industry when doing business with someone online.  If you do a Google search, you’ll find that this industry is saturated with potential Financial Professionals in your area and deciding which one to go hire can be a daunting task.   So, try to do business with someone who has a classic type A, obsessive-compulsive personality.  These people need to be adored (or at least needed).  Because of this, they tend to kill you with personal service and attention.  They really want your portfolio to work-because of their ego, not yours. 

And since what you really want is not some hobo who makes a killing from selling you commission-based mutual funds but a strategy to set you free financially, here are some questions to ask anyone who presumes to handle your money. 

• Do you know anything about history, art, or literature?  It is my personal prejudice that anyone who watches my money should know a lot about the past, about human nature.  Good money management is more about understanding emotion that it is about quantitative analysis.  Your money manager should be working with both sides of his or her brain.
• What is your philosophy of investing?  Make sure that whoever is going to watch your nest egg can articulate what he or she believes in-in simple, easy language.  If you cannot explain what your broker or investment advisor believes in, you shouldn’t be investing with that person.  Also, personal money managers should have their investing philosophy in plain sight (business cards, front page of their website, etc…).
• Do you own stock yourself?  (You’d be amazed how many financial consultants own no securities themselves).  Ask what the broker or investment advisor currently owns and what he or she has learned from the successes and failures.  If they haven’t failed, they haven’t tried, so steer clear from them.

Fundamental Analysis and Corporate Earnings

When we invest in a company, we invest in its potential to make more products, more profits, to continue to grow, and add value to the price of each individual share. 

A share of stock represents one unit of ownership in that company.  All shares of that stock in circulation, multiplied by its value per share (share price) make up the market’s estimate of the value of that company – that is, the market capitalization. 

The more profits a company makes and the faster those profits are growing and are projected to grow, the higher the company’s value in the longer term at least.  History tells us that consistent growth in sales and earnings lead to a higher stock price in the longer term…and vice versa. 

So, if you choose to be primarily a fundamental investor you would look to corporate profits to determine your entry and exit points.

Client Services and Financial Advisor Teams

Advisors who work in a team generally do better than those who work on their own.  Many financial services firms have over 50 percent of of their advisors in teams.  At CAM Trading, we too, work in a team environment as we feel that the only way to succeed for our clients is to work together at it.  The team structure works well in large part because of the productivity and client-service improvements they afford.

Advantages of Teams

Teams often specialize so that each team member can be an expert in something without needing to be an expert in everything.  This specialization can be in a particular practice area (trading, portfolio management, communications or some other element).

Clients can appreciate their advisor being part of a team because they feel that with a team, there is always someone there to take care of them who is familiar with their situation.  This gives clients a sense of community should something happen to their advisor.

Financial services can be a competitive business, and advisors can be very protective of their best practices and reluctant to share them with potential competitors, even within the same firm.  Sharing ideas among and getting input from all members of the team is invaluable.  As such CAM Trading and its team members are very careful with its proprietary trading models.