| Why the Formula Matters | ||||||||||||||||||||||||||||||||||||
| Many hard working, middle class people find it very difficult to make ends meet, never mind make the appropriate contribution to their retirement savings. Even those that are making regular contributions to retirement savings find it unlikely their nest egg will grow large enough to let them live the dream retirement. There is a hope! Before we get to the impact of the magic formula, you need a specific goal. Find out how much you need to retire. Use one of the online calculators to find your number and write it down. Whatever number you came up with, chances are it shows that you should be saving more for retirement, correct? But what if you really have cut back as much as you can, and you still can't find that extra money to fund your retirement? Answer: If that extra income in not available in your budget, your retirement funds must earn more. Not paying attention to this fact is the single biggest risk you have to a happy, financially secure future. One of the great things about retirement accounts is that your earnings grow tax-deferred so you can realize the full power of compound interest. So what is the big deal anyway about a few percentage points over time? Does it really make a difference whether your retirement account earns 8%, 10%, or 15% a year? YES, YES, YES! It matters! In fact this is THE most important factor you need to consider. | ||||||||||||||||||||||||||||||||||||
| The Magic Formula for Building Investment Wealth: Compound Interest | ||||||||||||||||||||||||||||||||||||
COMPOUND INTEREST (FUTURE VALUE)You vaguely remember that Junior High School math lesson on simple and compound interest don't you? Suppose you open an account that pays a specific interest rate, compounded annually. If you make no further contributions and let compound interest work its magic the balance your account will grow to at some point in the future is known as the future value of your starting principal.
The above assumes we are compounding once per year. If you want to compound n times per year, you use: FV = P(1 + r/n)Yn
THE POWER OF A HIGH COMPOUNDED INTEREST RATEObviously you and everyone else in the world knows it is better to have a high rate of return, but have you ever paid attention to the enormous impact that compound interest has on your future financial security and happieness?Let's take a simple example: Suppose you are 40 years old and have $10,000 in a self-directed IRA account. For the purpose of this example, let's assume you will never add another dollar to that account out of your own pocket. How much will that $10,000 be worth at age 65? As you can guess the answer depends drastically on your rate of return. If you were getting a 6% annual return on your investment, then in 25 years that $10,000 would turn into $42,918. How would that same amount grow with a higher rate of return?
Think about that. Without adding a dime to that account you could turn that $10,000 into almost 1 million dollars. But who's going to give you 20% interest you say? You are. We'll let you in on a 3 little secrets,
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| Take Control of your Future | ||||||||||||||||||||||||||||||||||||
"Proverb: He who fears something gives it power over him"
So how do you consistently get that 15-20% return with almost no risk? You need to manage a portion of your future for yourself. It is not that difficult once you learn how, but most people won't get started because of fear. Fear that they will lose money. Fear that they will not be able to do as well as the market. The greater risk is *not* taking some responsibility for your own future. "But I can't beat the market", you say. As we'll explain that's the wrong yardstick to begin with. You don't want to beat the market, you want to earn a consistent level of return each year. If the market looses 8% one year, who wants to "beat the market" by losing only 5% that year? Not us. And hopefully not you. We want to earn at least 15% on our retirement investment. So why are we sharing this information? Let's put it this way. We're advocates for the little guy. There are a lot of people in the financial services industry that want to manage our money because that is how they make money. They don't necessarily want us to know what they know, because then we wouldn't need them. Luckily for them, there are many investing myths out there that keep us in check. We accept these myths as truths, and that keeps us from taking action. We're not suggesting that you try to manage your entire retirement nest egg yourself. At least not immediately. Rather think of it as a new definiton of diversification. To start, leave the majority of your funds with your current 401K or IRA, but move a small percentage, maybe 10-20% to a self-directed IRA account. Get started today!
"Never be afraid to try something new.
Remember, amateurs built the ark, professionals built the Titanic." |
Wednesday 19 September 2012
Helping the small investor: The Magic Formula
P.T. Unilever Indonesia
P.T. Unilever Indonesia Terbuka
Company Snapshot
Business Description:
P.T. Unilever Indonesia Terbuka operates in the Soap and other detergents sector.
Sales Analysis.
P.T. Unilever Indonesia Terbuka reported sales of 23.47 trillion Indonesian Rupiahs (US$2.46 billion) for the year ending December of 2011. This represents an increase of 19.2% versus 2010, when the company's sales were 19.69 trillion Indonesian Rupiahs. Sales at P.T. Unilever Indonesia Terbuka have increased during each of the previous five years (and since 2006, sales have increased a total of 107%). Sales of Foods and Beverages saw an increase of 25.7% in 2011, from 4.99 trillion Indonesian Rupiahs to 6.28 trillion Indonesian Rupiahs.
Stock Data
Current Price (9/14/2012): 27,800
(Figures in Indonesian Rupiahs)
Recent Stock Performance
http://www.4-traders.com/PT-UNILEVER-INDONESIA-TBK-6495225/financials/
Company Snapshot
Business Description:
P.T. Unilever Indonesia Terbuka operates in the Soap and other detergents sector.
Sales Analysis.
P.T. Unilever Indonesia Terbuka reported sales of 23.47 trillion Indonesian Rupiahs (US$2.46 billion) for the year ending December of 2011. This represents an increase of 19.2% versus 2010, when the company's sales were 19.69 trillion Indonesian Rupiahs. Sales at P.T. Unilever Indonesia Terbuka have increased during each of the previous five years (and since 2006, sales have increased a total of 107%). Sales of Foods and Beverages saw an increase of 25.7% in 2011, from 4.99 trillion Indonesian Rupiahs to 6.28 trillion Indonesian Rupiahs.
Stock Data
Current Price (9/14/2012): 27,800
(Figures in Indonesian Rupiahs)
Recent Stock Performance
| 1 Week | -0.7% | 13 Weeks | 8.8% | ||
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| 4 Weeks | 23.8% | 52 Weeks | 65.0% |
P.T. Unilever Indonesia Terbuka Key Data: | ||||||||||||||||||||||||||
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| 2011 Sales | 23,469,218,000,000 (Year Ending Jan 2012). | Employees: | 6,043 | |
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| Currency: | Indonesian Rupiahs | Market Cap: | 212,114,000,000,000 | |
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| Fiscal Yr Ends: | December | Shares Outstanding: | 7,630,000,000 | |
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| Share Type: | Ordinary | Closely Held Shares: | 6,484,877,500\ | |
PT Unilever Indonesia Tbk Key Developments
PT Unilever Indonesia Tbk Reports Earnings Results for the Six Months Ended June 2012
Jul 31 12
PT Unilever Indonesia Tbk reported earnings results for the six months ended June 2012. For the six months, the company reaped IDR 13.36 trillion in net sales, up 16% compared to IDR 11.46 trillion during the same period last year. The growth in revenue was the result of innovation of its products, both home and personal care as well as food and ice cream segments. The company booked IDR 2.33 trillion in net profit in the first half of 2012, up 12% from IDR 2.09 trillion year-on-year. Product innovation coupled by strong purchasing power helped the company to report strong business growth in the first semester of 2012.
Unilever Indonesia tbk PT Reports Earnings Results for the First Quarter Ended March 31, 2012
May 2 12
Unilever Indonesia tbk PT reported earnings results for the first quarter ended March 31, 2012. For the quarter, the company reported profit attributable to owners of the parent of IDR 1,162,598 million or IDR 152 per basic share on net sales of IDR 6,604,058 million compared to profit attributable to owners of the parent of IDR 985,590 million or IDR 129 per basic share on net sales of IDR 5,668,316 million a year ago. Profit before income tax was IDR 1,553,907 million compared to IDR 1,321,245 million a year ago. Capital expenditure was IDR 281,655 million compared to IDR 1,314,117 million a year ago. Net cash flows provided from operating activities was IDR 1,255,050 million compared to IDR 1,465,020 million a year ago. Acquisition of fixed assets was IDR 303,151 million compared to IDR 366,407 million a year ago. Acquisition of intangible assets was IDR 19,549 compared to IDR 35,132 million a year ago.
http://www.4-traders.com/PT-UNILEVER-INDONESIA-TBK-6495225/financials/
Study suggests that different warning signals can be identified, particularly for smaller firms and borrowers with small versus large loans.
Small firms 'more likely' to default on their loans
Wednesday September 19 2012
VERY small companies are far more likely to default on their loans, a Central Bank report released yesterday reveals.
The level of indebtedness on an SME only has a real effect on very small companies and not on SMEs with larger balance sheets, it found.
The report on loan defaults by Central Bank economists Fergal McCann and Tara McIndoe-Calder also shows there is a clear link between how long a manager has been with the particular company and the chances that company will default on its debts.
The research is based on the status of nearly 7,000 small to medium enterprise (SME) loans at the end of 2010. Details of the loans were made available by the banks to the Central Bank as a sample of their entire loan book last year.
Nearly one-fifth of loans in construction were in default by the end of 2010, while between 10pc and 15pc of lending involving the real estate, hospitality and manufacturing sectors had defaulted by that time.
Those rates are believed to have risen substantially since then, however.
The research paper demonstrates what it calls the "irrelevance" of financial ratios in trying to predict a default on small loans, but these ratios become much more useful when assessing larger loans.
"Among the largest firms, where the default rate is below 4pc, no borrower level information significantly predicts default.
"The majority of borrower-level determinants are found to have more predictive power among smaller firms and among larger loans, suggesting that particular attention must be paid to the financial health of small firms and borrowers with large exposures," the authors state.
Profitability
When dealing with smaller loans, the report finds that ratios, "such as the loan to total assets, leverage ratio, liquidity and profitability, are found to be significant predictors of default".
The experience of an SME's managers also plays a large role, with companies far more likely to default when management are less experienced.
"Further, the length of time the borrowing firm's owner or manager has been with the firm mitigates the likelihood of default.
"The study suggests that different warning signals can be identified, particularly for smaller firms and borrowers with small versus large loans."
This is the first Central Bank paper on SME lending since a paper by the same authors compared Irish lending rates to the rest of Europe.
That report caused a huge storm after it showed lending conditions in Ireland were among the toughest in Europe.
Small business groups have repeatedly claimed the banks aren't lending.
Both AIB and Bank of Ireland have maintained they are providing credit to sustainable businesses.
- Peter Flanagan
Irish Independent
Gloom beats boom as house prices fall faster here than anywhere else
Wednesday September 19 2012
IRISH house prices continue to fall faster than anywhere else in the world, the IMF says in a new report. The Greeks are next, while Germans and Brazilians are seeing steep price gains.
The three countries with the steepest declines in the 12 months to March, when adjusted for inflation, are the three bailout countries of Ireland, Greece and Portugal.
Spain, which has already received a banks bailout, and which is widely expected to seek a formal bailout sometime next month, had the fourth worst decline.
At the other end of the spectrum, house prices in booming Brazil are up more than 15pc while those in Germany have gained more than 10pc. Other countries which have also had increases include the Ukraine and the Philippines.
While plunging house prices have caused well-documented problems here, rising prices are also leading to widespread angst in Germany and Brazil, where many people have been priced out of the market and rents are soaring -- creating challenges for policy makers and worries about inequality.
The IMF working paper finds that Irish prices are no longer misaligned, but are still more expensive than countries such as Germany when wages and other factors are taken into account.
Australia, which is enjoying a commodity-inspired bubble, has the most "misaligned" prices in the world, according to the study of 54 countries.
While many believe that our house price collapse was the worst in the world, the IMF study suggests that Estonia holds that distinction.
House prices fell further in Estonia, the Ukraine and Lithuania.
However, declines here have continued for longer than most other countries, which means that we may yet chalk up the worst bust in history.
The report says that house prices in the US have started to pick up a little recently, but globally prices are still on a down trend. While overall the trend is mixed, there is no sign of an uptick in the global index of house prices.
The findings suggest that long-run price dynamics are mostly driven by local factors such as income and population growth. The effect of more globally connected factors such as interest rates appears to be less strong.
Credit market conditions can have an impact in the short run and, ultimately, when the correction starts, affect both financial stability and the overall economy.
House price growth can be explained by several short-run factors, such as growth in incomes, asset prices, and population, and long-run-factors, such as the ratio of house prices to incomes.
The difference between actual house prices and those predicted on the basis of these fundamental factors gives another indication of whether prices may have more room to fall.
- Thomas Molloy
Irish Independent
How to Find 10-Baggers
September 14, 2012
In 2006, I took a small amount of money from my bank account and bought some shares of Chipotle Mexican Grill (NYSE: CMG ) .
I wish I would have pawned all my worldly possessions along with those of my friends and family. The stock gained nearly 10 times its original value in just six years, climbing from about $45 to a peak of $440, before stumbling after its recent earnings report.
When I bought Chipotle, I didn't do any thorough financial analysis or even look at its P/E ratio, but I knew it was a great company, having visited their stores several times, and I knew it had just IPO'd so it seemed like a great time to buy. Going to college in Colorado, Chipotle's home state, gave me an advantage over other investors as I had early access and awareness of the company as well as the ability to see its popularity among my classmates, who raved about it. It seemed clear to me that this company was bound for success.
Recalling that experience, I decided to look back and see what lessons I could learn as I search for the next 10-bagger. The following are three key factors that I think investors should look for.
1. Mass appeal
Peter Lynch famously encouraged investors to "buy what you know" -- whether that knowledge is geographical, job-related, or something else -- as this is one of the best ways to find an advantage over the market. Simply paying attention to what products people are raving about and what companies are just better than the competition can be one of the first hints of a multibagger.
Peter Lynch famously encouraged investors to "buy what you know" -- whether that knowledge is geographical, job-related, or something else -- as this is one of the best ways to find an advantage over the market. Simply paying attention to what products people are raving about and what companies are just better than the competition can be one of the first hints of a multibagger.
For example, I don't see a lot of corporate logos on car bumpers, but I've noticed that Apple(Nasdaq: AAPL ) and lululemon athletica (Nasdaq: LULU ) have gained legions of devotees based on this unscientific survey. It's no surprise, then, that their shares have gone through the roof. Lululemon is up more than 30 times from its bottom after the financial crisis, and though Apple's been around since the '70s, shares of the company could still be had for $7 back in 2003, when the iPod was first gaining popularity. While it may be have impossible to extrapolate the iPhone and the iPad and the remarkable success that would come with them from just the iPod, it was clear that Apple had a hugely popular, revolutionary product on its hands. This was no longer the same old second-place computer maker from the 1990s. The iOS ecosystem is what's made Apple the most valuable company ever, and that began with the iPod and iTunes.
Other companies that have exemplified these characteristics include Under Armour, whose logo has become as ubiquitious as the Nike swoosh, and Green Mountain Coffee Roasters (Nasdaq: GMCR ) , whose Keurig coffeemaker had turned it into a juggernaut before the recent tumble on patent cliff concerns.
2. Growth potential
This part may seem obvious, as pretty much every publicly traded company is focused on growth, but some parts bear explaining.
This part may seem obvious, as pretty much every publicly traded company is focused on growth, but some parts bear explaining.
Stocks can appreciate in two ways: earnings growth or valuation. Of course, earnings growth is preferred, but an increasing P/E ratio is often a sign of a highly regarded brand such as the ones identified above and should not necessarily be a cause for concern.
Look for companies with a growth rate of 25% or more and with plenty of room to expand. In retail, using companies such as Chipotle or Lululemon as an example, this can be as simple as looking at store counts. Considering both companies have just a fraction of the locations of larger competitors McDonald's or Gap, it seems they should be able to grow revenue for years to come as long as their products remain popular.
Growth potential with consumer goods companies can be more difficult to gauge. Look for a low market share, new products in the pipeline, and opportunities abroad. Apple's iPhone, for instance, still has a relatively low market share despite trouncing the competition in profits.
Perhaps the best example of a company that keeps generating new growth opportunities is Amazon.com (Nasdaq: AMZN ) . Though its consistent top-line advances have not fed earnings, the company has repeatedly redefined industries and invented new opportunities for itself, whether they be in digital media, mobile hardware, or creative bundling services like Amazon Prime. It's those opportunities that make it the only company of its size that could justify a P/E of 300, and why its shares are worth than 100 times what they were when they came on the market.
3. Size
Finally, the third quality to look for in a potential 10-bagger is the right size. Companies like Apple and Amazon clearly have mass appeal and growth potential, but are too big already to grow 10 times in size. Even most of the other companies listed above are already worth around $10 billion in market value, and considering only a small list of companies have reached $100 billion, it seems like we should be looking at smaller targets.
Finally, the third quality to look for in a potential 10-bagger is the right size. Companies like Apple and Amazon clearly have mass appeal and growth potential, but are too big already to grow 10 times in size. Even most of the other companies listed above are already worth around $10 billion in market value, and considering only a small list of companies have reached $100 billion, it seems like we should be looking at smaller targets.
A market cap of around $1 billion seems like an ideal size for a potential 10-bagger. Companies this big are small enough to have room to grow, since $10 billion is a reasonable goal for most publicly traded businesses, but they're also big enough to have proven themselves, have a track record, and are generally profitable.
Chipotle, Lululemon, Green Mountain, and Netflix were all in this $1 billion range before their shares took off. For young growth companies, that cusp seems to be a good indicator of when to invest.
Now that we've examined the primary factors to use in identifying potential 10-baggers, I'll next take a look at a few stocks that fit these criteria. Click here for my next article, where I'll discuss stocks that I think could become 10-baggers.
Tuesday 18 September 2012
How To Build Wealth - The Four Pillars of Wealth
Achieve Your Financial Goals in the New Millennium Using Our Four Pillars of Wealth
Our philosophy of investing is this: You can’t go too far wrong if you get the big questions right.
The big questions are not “when will the economy recover?” or “where will the market go next?” True, these are the questions that most investors obsess over. But it’s a misallocation of your time.
The big question is how to build wealth with a game plan for the long haul and, more specifically, the following points that you can take action on:
- How can I secure the highest return with the least amount of risk?
- How can I protect both profits and principal?
- What can I do to build wealth and guarantee my investment portfolio will be worth more in the future?
Here’s how this philosophy can make this year – and your future ones – very prosperous.
How To Build Wealth Pillar 1: Stick to Our Asset Allocation Model
Successful investing begins by conceding that – to a degree – uncertainty will always be your companion.
You can guess what the market is going to do and be right or you can guess and be wrong. Or you can let some self-styled “expert” do the guessing for you. But no one guesses right consistently.
That’s why we follow a wealth-building investment formula that won Dr. Harold Markowitz the Nobel Prize in finance in 1990. His paper promising “portfolio optimization through means variance analysis” demonstrates how to maximize your profits and minimize your risk by properly asset allocating and rebalancing your portfolio.
Diversity Doesn’t Mean 3 Different Tech Stocks
Sometimes our readers tell us: “Oh, that means diversify. I already do that.” But that’s not what asset allocation is about. Right before the dot.com crash, you could have diversified into Microsoft, Intel, Yahoo and Amazon.com… and gone right off the cliff.
Asset allocation refers to spreading your investments among different asset classes, not just different securities or market sectors. Doing this has allowed us to survive, prosper and build our wealth, even during rough times.
High-grade bonds, real estate investment trusts (REITs), high-yield investments, inflation-adjusted treasuries, precious metals: It’s good to have at least a piece of each.
Because different asset classes are imperfectly correlated – some zig while others zag – our model allows you to boost returns while reducing your portfolio’s volatility.
In layman’s terms, proper asset allocation means you sleep better at night.
The Foundation of Our Philosophy
Asset allocation should be the foundation stone of your whole investment program. It’s critical to building your long-term financial health. To learn more about it, pick up a copy of William Bernstein’s excellent book, The Intelligent Asset Allocator.
How To Build Wealth Pillar 2: Adhere to the Oxford Safety Switch
Anyone can buy a stock or publicly traded fund. The real art of investing is knowing when to sell. Investment U does not rely on point-and-figure charts or tarot cards or Elliott Waves. Instead, we adhere to a time-tested trailing stop strategy. That means no member takes one of our stock recommendations without knowing in advance exactly where we’ll get out.
This takes the guesswork out of investing. And guarantees that both your profits and your principal are always protected. Here’s a quick review.
Let Your Winners Ride
We start all of our trading positions with a recommendation that you place a sell stop 25% below your execution price. As the stock rises, we raise the trailing stop. In other words, if you buy a stock at $20, your stop loss is at $15. When the stock hits $32, your stop loss (still trailing at 25%) will be at $24.
As long as the stock keeps trending up, we’re happy to hang on. If the stock pulls back 25% from it’s closing high, we sell. No questions asked.
And Cut Your Losses Early
You protect the profits you’ve earned on the way up and also protect your principal when things go awry. Everyone knows you should cut your losses early and let your profits run. But very few investors actually do it. The Oxford Safety Switch, championed by The Oxford Club, guarantees that you do.
During the bull market of the 1990s, many investors watched as their stock portfolios grew bigger and bigger. There was only one problem. They never took any profits. They had no sell discipline whatsoever. So when stocks started tanking, they watched many of those profits evaporate entirely. Some even turned into losses.
Other investors then bought stocks early in the ensuing bear market with high expectations. And they were crushed to see those shares drop to levels they never would have imagined.
In both cases, the fault was the same: They failed to have a sell discipline. Investors without one are flying by the seat of their pants. And that rarely ends in award-winning results. It’s simply not a practical means to build wealth.
Action to take: Use a trailing stop on all your individual stocks and have the gumption to stick with it.
How To Build Wealth Pillar 3: Size Does Matter Understand Position-Sizing
Often when the Oxford Club recommends a particular stock at a chapter meeting or seminar, someone in the audience will ask how much he or she should invest in it.
Of course, we know nothing about that individual’s net worth, investment experience, risk tolerance or time horizon. But we do have a position-sizing formula you can use to determine how much to invest in a particular stock: 3% of your equity portfolio. If you want to be conservative, invest less. If you want to be aggressive, invest more. But not too much more.
Don’t Fall in Love with an Investment
The saddest stories heard in the financial press are those of people who took a serious financial hit late in life because they were overconfident. In short, they liked an investment so much they plunked too much in it. Big mistake.
Yes, you could hit the jackpot that way and some people have. But that’s a roll of the dice and it’s not recommended.
Look at the thousands of people devastated during the recent bear market because their entire pension was tied up in their employer’s stock. More often than not, these folks had the option of putting the money into a diversified stock fund or safer alternatives.
Not spreading the risk might have felt like the right thing when the stock was rising, but it sure hurts on the way down.
You Can Afford the Hit
That’s why position sizing is important. It’s not just about the size of your initial position; it’s also about how much of your portfolio the position becomes. Many investors refuse to diversify even when a single stock becomes a substantial percentage of their entire portfolio. They always had the same excuse: “I just can’t afford the tax hit.”
But taxes should never be the first priority in running your investment portfolio. Former blue chips like WorldCom, Enron and United Airlines have taught us that – in hindsight – the federal tax bite can look like a kiss on the cheek.
How To Build Wealth Pillar 4: Cut Investment Expenses, and Leave the IRS in the Cold
Unless you run or sit on the board of the companies you invest in, there’s nothing you can do to affect your stocks’ performance once you own them. But there is a way to guarantee that your stock-portfolio value will be worth more five, 10 and 20 years from now.
Create wealth for the short- and long-term by cutting your expenses and stiff-arming the taxman.
Let’s start with expenses…
Just Say No To High Fees
Instead of buying the nation’s largest and best-performing bond fund, the Pimco Total Return Fund, we’re recommending the Manager’s Fremont Bond Fund (Nasdaq: MBDFX). You still get the nation’s top-performing bond fund manager, Bill Gross, but you forego the high fees and expenses associated with Pimco Total Return. Fremont is a no-load fund.
Likewise, we opted for the closed-end Templeton Emerging Markets Fund (NYSE: EMF) instead of the open-end Templeton Developing Markets Fund. Both funds invest exclusively in emerging markets. Both are run by Mark Mobius, the top manager in the sector.
But the Templeton Developing Markets Fund has a 5.75% front-end load. The Templeton Emerging Markets Fund – like all closed-end funds – has none. And it sells at an 11% discount to its net asset value (NAV). (You can never buy an open-end fund for less than NAV.)
In fact, there is nothing in our Oxford Portfolio that has a front-end load, back-end load, 12b-1 fees or surrender penalties. Furthermore, you can act on any of our recommendations through a no-load fund company or a deep discount broker that charges you no more than $8 a trade.
In short, a big part of our strategy in explaining how to build wealth is cutting portfolio expenses to the bone. Lower investment costs is the one, sure-fire way to increase your net returns.
5 Tax-Managing Tips (Reducing Expenses Helps To Build Wealth)
The second way is to tax-manage your investments. That means handling your portfolio in such a way that there is simply nothing there for the IRS to take.
Here’s how to do it:
- Stick to quality. Higher quality investments mean less turnover. And less turnover means less capital gains taxes. The less you trade your core portfolio, the less tax liabilities you incur. As Warren Buffett warns, “the capital gains tax is not a tax on capital gains; it’s a tax on transactions.”
- Try to hang on 12 months. Anything sold in less than 12 months is a short-term capital gain. And short-term gains are taxed at the same level as earned income, which can be as high as 38%. But long-term gains are taxed at a maximum rate of 20%. Even better, do your short-term trading in your IRA, where the gains are tax-exempt.
- When you stop out in less than 12 months, offset your capital gains with capital losses. The IRS allows you to offset all of your realized capital gains by selling any stocks that have joined the kennel club. You can even take up to $3,000 in losses against earned income. Not selling your occasional losers is not only poor money management; it’s poor tax management.
- Avoid actively-managed funds in your non-retirement accounts. Managed funds often have high turnover and Federal law requires them to distribute at least 98% of realized capital gains each year. You can get hit with a big capital gains distribution even in a year when the fund is down. In parts of Texas, this is known as “the double whammy.”
- Own high-yield investments in your IRA, pension, 401K or other tax-deferred account. There’s no provision in the tax code to offset your dividends and interest. So do the smart thing. How to do this? Own big income-payers like bonds, utilities and real estate investment trusts (REITs) in your IRA.
| Average Portfolio | Oxford Portfolio | |
| 5 years | $140,255 | $168,505 |
| 10 years | $196,715 | $283,942 |
| 15 years | $275,903 | $478,458 |
| 20 years | $386,000 | $806,231 |
Your remaining choices are simple ones like owning tax-free rather than taxable bonds if you’re “fortunate enough” to reside in the upper tax brackets.
If you reduce your annual investment expenses and tax-manage your portfolio, the effect will be dramatic. For example:
The Vanguard Group of mutual funds recently conducted a study that indicates that the average investor gives up 2.4% of his annual returns to taxes. If you trade frequently, it’s likely much higher. We can also estimate that most investors give up at least 1.9% a year in commissions, management fees, 12b-1 expenses and other costs.
How to retain an additional 4% of your portfolio’s return each year: Reduce your expenses to .3% annually and tax-manage your portfolio.
Here are some important facts on how to build wealth and improve your portfolio over time using our strategy. The differences are not subtle.
The U.S. market has returned roughly 11% a year over the past 200 years. The previous chart reflects how a $100,000 stock portfolio grows at this rate – with the drag of taxes and high expenses, and without.
In other words, after 20 years, our cost-efficient, tax-managed portfolio is worth $419,000 more. (A million dollar stock portfolio, of course, would be worth almost $4.2 million more.) This is without factoring in any superior investment performance whatsoever! It’s simply the difference achieved when watching investment costs and taxes.
Armed with our Four Pillars of Wealth, a little diligence, and the discipline to stick with the program, we can all look forward to substantially higher real-world returns in our wealth-building pursuits.
The Four Pillars of Wealth, by the way, are fundamental to the success of Investment U‘s sister business, The Oxford Club, where Investment U’s profit strategies are put into action.
http://www.investmentu.com/research/buildwealth.htmlBeaten-Down Stocks in Europe May Provide a Great Source of Income
by Jason Jenkins, Investment U Research
Friday, September 14, 2012
by Jason Jenkins, Investment U Research
Time to Look for Opportunities
You should always be looking for opportunities where others are avoiding. It should be the contrarian in you. Every security in Europe isn’t bad just because Europe’s political theater is dysfunctional. Just like many money managers out there, you want to try to maintain a diversified global portfolio. And that being the case, there are a lot of beaten-down European stocks out there.
But, as always, you have to be smart. Some stocks have been knocked around because they deserve to be. But you can get a little hedge against volatility through looking for shares of cheap European companies that are going to give you a regular dividend. They are out there.
First Focus on Dividend-Paying Multi-Nationals
Last week, MarketWatch quoted Weyman Gong, a principal at Signature, a wealth management firm in Norfolk, Virginia: “This dividend-paying stock segment is the most stable in the market.” Gong has stated that he’s staying put with what’s in his portfolio now.
These are companies in Europe with a broad international influence. Some of his portfolio members listed in the United States are:
- British American Tobacco PLC (NYSE: BTI)
- Philip Morris International Inc. (NYSE: PM)
- Nestle SA (OTC: NSRGY.PK)
- Unilever PLC (NYSE: UL)
But Also Consider the Risks…
Julian Pendock, Chief Investment Officer at London-based Senhouse Capital, states, “Dividends in Europe are more attractive than elsewhere, but should be given higher levels of risk and uncertainty going forward because markets are all driven by politicians and central bankers. There are some excellent higher-yield companies around, but one has to be discerning about risk.”
Will James, a European-stock fund manager at Standard Life Investment based in Edinburgh, believes that the doom and gloom predictions are a bit over the top. He went on to say that, “It’s not as bad as the headlines suggest. You have companies across Europe that have very strong balance sheets and don’t have to go to the debt markets.”
James noted that many companies have posted meaningful dividend hikes and plan to continue dividend growth payout. They include such companies as:
- Oesterreichische Post AG (OTC: OERCF.PK), which handles the mail in Austria. Currently, it’s yielding 7%. James expects the dividend to grow about 5% every year.
- Eni SpA (NYSE: E) is an Italian multinational oil and gas company that Matt Carr has written about for Investment U before. It has already made the announcement that it will increase its dividend to keep in line with inflation. The last boost was about a 3.5% increase and it’s currently sporting a 6% dividend.
James also stated that it isn’t so bad to go after companies with lower yields if you follow an investing strategy kind of like Warren Buffett’s “moat” strategy.
He believes it’s worth the trade-off if it’s a strong franchise, the industry is difficult to enter, and the company possesses a virtual monopoly or control of a limited market. All this gives the company a steady cash flow.
The example he provided was Novo Nordisk A/S (NYSE:NVO). It’s a Denmark-based health care company that produces diabetes care equipment and medications. It also focuses on other areas, such as hemostasis management, growth hormone therapy and hormone replacement therapy.
The company has increased its dividend 40% in a year. And Novo Nordisk AS has been consistent with its dividend increases. The dividend has been increased yearly since its IPO 11 years ago.
James concluded by saying, “If I can get a 4% dividend yield from that company and it will be here in four years’ time, I’m going to get a fairly attractive total return.”
If you do your due diligence, I think you can find income bargains almost anywhere throughout Europe. Stay tuned as our experts share their most profitable findings…
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