Make Millions From Thousands

By Selena Maranjian 
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I could write this article the usual way -- by showing you how to turn your thousands into millions through investments in solid, growing, well-known companies. Union Pacific (NYSE: UNP), for example, has grown by a compound average of more than 12% annually over the past 10 years, whileApple (Nasdaq: AAPL) has averaged 27% over that same period! Not too shabby.

But can such returns turn your thousands into millions? Yes, eventually. An investment of merely $10,000 would turn into $1 million in 30 years, if it grew at an annual average of 17%. But that's a fairly steep rate to count on for your stock investments -- a number to which only a select few master investors can aspire. It's safer to have more conservative expectations -- perhaps closer to 10%, the stock market's historical average annual return over most of the past century.

A fine balance 
So what should you do if you don't want to wait 50 or more years to make millions? Here's one option: Take a few chances.

With most of your money, you shouldn't take crazy risks. You might want to sock much of it away in a broad-market index fund, such as the Vanguard 500 Index (VFINX). That low-cost fund should earn you close to the market's historical return over long periods of time. You might also try S&P 500 Depositary Receipts, an exchange-traded fund also known as SPDRs. Either of these options will instantly invest your money in 500 major American companies, such as Disney (NYSE: DIS) and Motorola (NYSE: MOT).

But once you've done that, take a few chances and supplement your index with growth-stock picks. That's what I'm doing in my own investment account. I don't want all of my money in an index fund, because I'd like my portfolio to grow faster than average, so a chunk of my nest egg sits in a variety of individual stocks.

This strategy should help moderate volatility, and it can also allow you to do well with some carefully chosen stocks -- as it did for me, when I turned $3,000 into $210,000. (It also helped me triple my money in a year.) If you don't believe me, read Paul Elliott on how one stock can change everything. He describes how $1,800, the cost of a fancy TV, can turn into $190,000, the value of an entire home, when you break rules.

Aiming for the stars 
Such returns, which come from classic Rule Breaking companies, are too tempting for me to ignore. That's why I'm still on the lookout for young, dynamic companies that are breaking the rules as they grow and prosper.

The kinds of companies I'm talking about are tomorrow's Google (Nasdaq: GOOG),Amazon.com, and Wal-Mart (NYSE: WMT). Think about how different the world was before them. We would have laughed at the thought of being able to look up almost anything online. We couldn't imagine buying books (and cookware and lawnmowers) on our computers. We wouldn't have been able to find low-cost discount stores in small towns across America. These companies all broke their industries' molds and introduced newer, better systems.

Even Ford was a Rule Breaking company once, too, daring to make a luxury item available to the masses at an affordable price. Just try to imagine a world without cars.

Find a few rockets 
Seeking out and investing in Rule Breakers requires patience and entails risk. However, just one growth rocket has the potential to supercharge an otherwise stodgy index strategy.

This article was originally published on July 7, 2006. It has been updated.

Picking a good investment property

Picking a good investment property
June 22, 2010

Property investing has become a popular Australian pastime with one in ten taxpayers owning a negatively geared property. But just what makes a good bricks-and-mortar investment? It's not about buying any old house or unit, that's for sure, and it's most certainly not about buying something you'd want to live in or even in an area that you necessarily find desirable. Over the next few weeks I will investigate what factors to consider in an investment purchase.

The first biggie is what is better – good price growth, or a high rental return?

There's two ways to measure your return on investment. Capital growth – the change in price over time – and rental yield – how much rent you're getting as a proportion of what you paid for the place. Gross rental yield is your annual rent divided by the purchase price, or value, of the property.

Here's an example: If you bought a flat for $400,000 and you rent it out for $400 a week, you would calculate ($400 x 52) / $400,000. You then multiply that by 100 to get a percentage figure. In this case that gives you a gross rental yield of 5.2 per cent.

People often talk about buying a property with high rental returns. However, most of the professionals who buy property on behalf of investors would advise going for capital growth primarily, and then aiming for a decent yield. Their argument is that just like interest payments left untouched in a bank account, house price rises have a compounding effect when the market is going up. Rent payments on the other hand are generally used to service the costs of owning a property – that is they help to pay interest payments, rates and so forth, and they don't compound. A bit like if you had a bank account and kept withdrawing the interest payments, it might provide an income stream but you wouldn't get the benefits of growth on growth.

Generally people who favour high rental yields will be those investors who have less disposable income that they can use to pay the property's associated bills. They have to have a higher rent-earning property because that's how they can afford to own it in the first place. People who have more spare cash are more likely to be able to go for a property that has higher price-growth prospects but might attract lower rent.

As a rule of thumb, houses tend to grow in price faster than units. However, units tend to attract higher rent. So units can be cheaper to buy and hold, but may not earn you as much growth in the long run.

Likewise, country properties tend to have higher rental yields and lower capital growth than their city counterparts over time. So country properties can be less expensive to buy and hold, but may not earn you as much growth in the long run.

If you're in the market for an investment property, deciding what capital growth rate and what rental yield you will target will depend on your own financial situation.

Buyers agent Stuart Jones of Rose & Jones says when buying city investment apartments he targets 5 per cent gross yield and between 4 and 8 per cent capital growth, combining to give total target returns of between 9 and 13 per cent.

For city houses, Jones seeks gross yields of between 3.5 and 4 per cent.

Jones says it's important to target realistic returns. "People read stories about somebody who bought a property for $100,000 and then in two-and-a-half years' time it was worth $350,000," he says. "People chase that but what they don't realise is it comes off a low base ... there might have been something environmental that went on at the time, like a mine opened up around the corner and all of a sudden you know your place is worth more than you would realistically get in a normal market.

"It's not about finding bargains, it's about getting a good combination of yield and growth and allowing property to do what it does through the passage of ownership, and that is grow."

On a note sure to please tenants, Jones says smart investors need to look after their properties and keep them fresh. "If you take from property and don't give to it, like a relationship, it'll stop giving to you," he says.

Are you an investor? How did you pick where to buy? Do you prefer to invest in houses or units?

Why NHS spending cannot be cut

By Jeremy Warner Economics Last updated: June 25th, 2010

Much comment since the Budget on how David Cameron and his Chancellor, George Osborne, have missed a trick in ring fencing spending on the National Health Service from the coming cuts. If they had spread the planned departmental cuts across all departments, including health, they could have limited the real terms squeeze over the next five years to an average 14 per cent. By protecting health, the biggest spender, they increase the pain to 25 per cent for other departments. Education and defence are also to escape the worst of the squeeze, so on some estimates other departments will get clobbered by more than 30 per cent. Why not spread it around a bit, many have argued. It is not as if health spending couldn’t benefit from reform.

But it is not just the politics of the situation that demands health spending is protected; there is actually a very good practical reason for it too, which is that try as some post war governments have to shave money off the health budget, no-one has ever succeeded in doing it. Mrs Thatcher tried, and so did the spending squeeze of the Lamont/Clarke years. None of them were successful. Health spending continued to grow in real terms right through these periods of fiscal retrenchment. Even if the Government thought it desirable, it would in practice be virtually impossible.

Why is this? Lack of will or determination has little to do with it. Rather, it is because public expectations of health care rises at a far faster rate than other public services, including education. For every treatment which gets more cost effective over time, there are loads of new life enhancing and extending ones coming up in the wings. Patients reasonably demand the latest and the best.

Apologies for the almost illegible reproduction, but as you might be able to see from the chart above, UK expenditure on health, including private, trails other advanced European economies as a percentage of GDP by a considerable margin, and that’s even after taking account of much of the big increase in health spending that took place under the last Labour Government. British spending is infact below the OECD average and as little as half what is spent in the US.

Even accepting that much of this shortfall is caused by British reluctance to finance health spending privately, it is still a quite shameful gap. It’s a problem, but UK citizens expect their healthcare to be state funded. These attitudes plainly need to change. The Government could help matters enormously by establishing some form of state sponsored private health insurance scheme, such as exists in France. Most private health insurance in Britain is a waste of money, with the costs of treatment scandalously recouped through higher premiums in subsequent years.

Failure, or reluctance, to find privately funded solutions makes it virtually impossible to cap ever growing state healthcare spending. The demographics of an ageing population make the pressures even worse. Health spending tends to be back end loaded, with the vast bulk of it falling in the final years of life. As more people survive into old age, the overall costs of the NHS will continue to rise steeply.

Many years ago, I attended a lunch with Professor Richard Doll, the physiologist credited with establishing the link between smoking and lung cancer. Also at the lunch was a then prominent member of the anti-smoking lobby, who complained bitterly about the health costs to the nation of this life threatening habit. To the contrary, replied Professor Doll. Smokers tend to die young before they become a burden on the taxpayer, and net net therefore cost rather less in healthcare than someone who lives to a ripe old age. The same argument might be made about obesity, which costs the nation heavily while the sufferer is still alive but saves mightily in later years because of premature death.

But enough of this macabre analysis. The bottom line is that health spending cannot be cut even if the new Government wanted to. The political challenge rather is that of introducing fair methods of part payment, for though David Cameron may succeed in sustaining public spending on healthcare, he’s never through tax funded means alone going to keep pace with exponentially rising expectations.

http://blogs.telegraph.co.uk/finance/jeremywarner/100006687/why-nhs-spending-cannot-be-cut/

G20 nations see different paths for securing recovery

REUTERS, Jun 25, 2010, 08.47am IST

TORONTO/WASHINGTON: World leaders aimed for a common target on Thursday of securing the economic recovery, but disagreed over how best to reach it.

With two days to go before the Group of 20 summit convenes in Toronto, officials tried to downplay differences between the United States and Europe over how quickly to shift from crisis-fighting mode to budgetary belt-tightening.

"That's the delicate balance that we need to try to strike this weekend," Canadian finance minister Jim Flaherty said.

His US counterpart, Timothy Geithner, said each country needed to decide what policy mix made sense to ensure both growth and fiscal responsibility.

"Our job is to make sure we're all sitting there together, focused on this challenge of growth and confidence because growth and confidence are paramount," he said in an interview with BBC World News America.

The G20 club of rich and emerging economies joined forces at the height of the global financial panic and poured an estimated $5 trillion into stimulus spending, emergency loans and bank guarantees, helping to ward off a global depression. 

The group still has a long and difficult to-do list, including forging consensus on new rules about how much capital that banks must hold, and making sure national financial regulatory reforms do not clash on a global scale.

The cost of fighting the financial crisis and recession left gaping holes in government finances, and Greece's debt troubles have focused Europe's attention on the need to shrink budget deficits before investors lose patience. 

European Commission president Jose Manuel Barroso said Europe could no longer afford to borrow and spend, and must repair budgets in order to rebuild confidence for growth. 

"It will not be a change overnight but there is no more room for deficit spending," Barroso told a news conference in Toronto.

The United States wants to make sure European countries - Germany, in particular - do not remove government supports too quickly because that could derail the recovery.

US stocks fell on Thursday on concerns over the durability of the economic rebound.

President Barack Obama, pushing Washington's pro-growth, line, said "surplus countries" - often code for Germany and China - must find ways to stimulate growth. But he also acknowledged that countries including the United States with medium- and long-term deficit problems would have to address them.

"Not every country is going to respond exactly the same way, but all of us are going to have responsibilities to rebalance in ways that allow for long-term, sustained economic growth," Obama said in Washington during an appearance with Russian President Dmitry Medvedev.

White House economic adviser Lawrence Summers, in an interview with Reuters, also stressed that growth would be key, but said it was not simply a matter of choosing between austerity and expansion.

"There obviously is an importance in having a growth strategy, but I think it's too simple to think of growth strategies only as running budget deficits or printing money," he said. 

In Europe, senior officials were in no mood to back down on their plans to cut spending.

Saying she expected "controversial discussions" in Toronto over Europe's budget priorities, German Chancellor Angela Merkel insisted Berlin would forge ahead with its biggest program of fiscal cutbacks since World War II.

European Central Bank president Jean-Claude Trichet dismissed the idea budget cuts could torpedo the fragile economic recovery that is taking hold.

"The idea that austerity measures could trigger stagnation is incorrect," Trichet told Italian newspaper La Repubblica, describing the German budget plans as "good" and repeating calls for more fiscal discipline in the 16-nation euro zone. 

Merkel, who aims to save 80 billion euros in the next four years, told ARD television that sustained growth could only be guaranteed through getting a grip on deficits and debt. 

"I and the EU will argue this position. There are others who are not yet so convinced of this exit strategy," she said.

The G20, which includes the world's biggest economies and two-thirds of its population, holds its summit in Toronto on Saturday and Sunday. It will be preceded by a meeting on Friday and Saturday of the G8, composed of Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.

Downtown Toronto's downtown banking district has seen business drop off as heavy security is mounted. Canadian police said on Thursday they had arrested the driver of a car near the meeting site who was carrying a chainsaw, crossbow and fuel containers.

BANKING REFORM

Economic policy has not been the only issue dividing the G20, which has also seen its unity tested by reforms to the banking sector.

European proposals for global taxes on banks and financial transactions have run into opposition from countries like Canada that say their banks are in good health. 

European countries are concerned that planned new rules requiring banks to set aside more capital may crimp lending.

Obama, meanwhile, hopes to sign off on rules to regulate finance within weeks as lawmakers raced to meet a Thursday deadline they had set themselves to agree on their own financial overhaul package.

Obama signalled on Thursday that China's move this week to relax the peg of its currency, the yuan, to the dollar may not be enough to shield Beijing from accusations that it is using the currency to gain an unfair trade advantage. 

"The initial signs were positive. But it is too early to tell whether the appreciation, that will track the market, is sufficient to allow for the rebalancing that we think is appropriate," Obama said.

The yuan has risen by about 0.4 percent against the dollar since Beijing's policy change - a significant step relative to its earlier freeze, but far less than the 25 to 40 per cent increase that some analysts say it needs to make to achieve fair value.

http://timesofindia.indiatimes.com/biz/international-business/G20-nations-see-different-paths-for-securing-recovery/articleshow/6088971.cms

Warren Buffett raises Tesco stake in sign of support for new chief

Warren Buffett, the 'Sage of Omaha', has upped his stake in Tesco, in a tacit sign that he supports the supermarket retailer's succession plans.

By James Quinn, US Business Editor
Published: 6:45AM BST 25 Jun 2010

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Tesco

Mr Buffett's Berkshire Hathaway investment conglomerate raised its stake in Tesco to 3.02pc, following a recent share purchase.

A disclosure to the London Stock Exchange by Berkshire disclosed that it recently bought 1.85m shares, taking its total holding to 242m shares.

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Tesco shares rose 3½ to 400.8p on the news that the world's third richest man – Forbes estimates Mr Buffett's fortune to be $47bn – has faith in the company's strategy.

The increase comes just two weeks after Sir Terry Leahy announced plans to step down in March next year, to be replaced by Phil Clarke, the retailer's international chief, in one of smoothest succession plans seen at a FTSE100 company in some time.

Although the regulatory statement did not contain any comment by Berkshire or Mr Buffett, it is thought that he must approve of the supermarket group's strategy and must also feel that Tesco's shares are undervalued in order to top up his holding.

Berkshire first appeared on Tesco's share register in May 2006, when it took a 1pc stake, and has been increasing it gradually since then.

Although perhaps better known for his investment in the insurance and financial services sector – not least the canny bets he made on Goldman and General Electric during the financial crisis – Mr Buffett has a quite the passion for retailers and consumer-focussed companies.

One of the companies he holds dearest to his heart is Coca-Cola - maker of his beloved Cherry Coke – which is Berkshire's single largest investment.

Berkshire also controls Dairy Queen, the iconic American ice cream chain of whose low-cost desserts Mr Buffett is a regular indulgee.

Other consumer investments include Kraft, the chief executive of which Mr Buffett lambasted at Berkshire's annual meeting in May for pulling off a "dumb deal" in buying Cadbury, the British confectioner.


http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/7852559/Warren-Buffett-raises-Tesco-stake-in-sign-of-support-for-new-chief.html

Warren Buffett raises Tesco stake in sign of support for new chief

Warren Buffett, the 'Sage of Omaha', has upped his stake in Tesco, in a tacit sign that he supports the supermarket retailer's succession plans.

 

By James Quinn, US Business Editor
Published: 6:45AM BST 25 Jun 2010

Comment on this

Tesco

Mr Buffett's Berkshire Hathaway investment conglomerate raised its stake in Tesco to 3.02pc, following a recent share purchase.

A disclosure to the London Stock Exchange by Berkshire disclosed that it recently bought 1.85m shares, taking its total holding to 242m shares.

 

Related Articles

• Budget 2010: VAT rise to hit spending, says Tesco chief Terry Leahy

• Tesco: VAT rise now will hurt 'fragile' UK economy

• Tesco UK sales slow as petrol costs hit shoppers

• Surprise as Sir Terry Leahy resigns from Tesco

• Philip Clarke: Tesco's new man at the top

• Every Little Helps as Tesco's Sir Terry nets £5.2m

Tesco shares rose 3½ to 400.8p on the news that the world's third richest man – Forbes estimates Mr Buffett's fortune to be $47bn – has faith in the company's strategy.

The increase comes just two weeks after Sir Terry Leahy announced plans to step down in March next year, to be replaced by Phil Clarke, the retailer's international chief, in one of smoothest succession plans seen at a FTSE100 company in some time.

Although the regulatory statement did not contain any comment by Berkshire or Mr Buffett, it is thought that he must approve of the supermarket group's strategy and must also feel that Tesco's shares are undervalued in order to top up his holding.

Berkshire first appeared on Tesco's share register in May 2006, when it took a 1pc stake, and has been increasing it gradually since then.

Although perhaps better known for his investment in the insurance and financial services sector – not least the canny bets he made on Goldman and General Electric during the financial crisis – Mr Buffett has a quite the passion for retailers and consumer-focussed companies.

One of the companies he holds dearest to his heart is Coca-Cola - maker of his beloved Cherry Coke – which is Berkshire's single largest investment.

Berkshire also controls Dairy Queen, the iconic American ice cream chain of whose low-cost desserts Mr Buffett is a regular indulgee.

Other consumer investments include Kraft, the chief executive of which Mr Buffett lambasted at Berkshire's annual meeting in May for pulling off a "dumb deal" in buying Cadbury, the British confectioner.

"Cut versus growth" debate: Barack Obama is refusing to listen to reason on economic policy

Barack Obama is refusing to listen to reason on economic policy

President Barack Obama could learn from the old-fashioned German habit of saving money before spending it, argues Jeremy Warner.

 

By Jeremy Warner
Published: 8:17PM BST 24 Jun 2010

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Barack Obama will meet other world leaders at the G20 summit Photo: AFP

Rarely has the dismal science of economics inflamed such passions. While the "cuts versus growth" debate has been building steadily for more than a year on both sides of the Atlantic, over the past week it has exploded into open international hostilities.

A compromised form of words will already have been agreed for the communiqué to follow this weekend's meeting of G8 and G20 leaders; the sherpas who do the preparatory donkey work for these stage-managed events will have ensured it.

 

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But behind the anodyne platitudes of any statement, the tensions have reached fever pitch. Gone is the co-operative consensus that, in adversity 18 months ago, brought G20 nations together to fight the downturn.

In its place lies a clear line of demarcation that almost exactly mirrors our own political debate in Britain over the economic consequences of George Osborne's Emergency Budget cuts. Yet though this debate masquerades as high intellect, it has about as much to do with economics as the outcome of the World Cup.

President Barack Obama, backed to some extent by Nicolas Sarkozy of France, wants economic stimulus to continue until the global recovery is unambiguously secure. In the opposite corner is Germany's Angela Merkel, now oddly aligned with Britain's new political leadership in thinking the time is right for fiscal austerity.

Like much of what Mr Obama says and does these days, the US position is cynically political. With mid-term elections looming and the Democrats down in the polls, the administration hasn't yet even begun to think about deficit reduction. Obama is much more worried by the possibility of a double-dip recession and the damage this would do to his chances of a second term, than the state of the public finances.

As it happens, the public debt trajectory is rather worse in the US than it is in Europe, yet Obama has adopted an overtly "spend until we are broke" approach in a calculated bid for growth and votes.

Part of the reason he can afford to do this is that the dollar remains the world's reserve currency of choice. For some reason, international investors still want to hold dollar assets, which for the time being gives the US government an almost limitless capacity to borrow. As we know, not everyone enjoys this luxury.

Mr Obama's cheerleader-in-chief in arguing the case for continued international deficit spending is the American economist Paul Krugman. This hyperactive Nobel prize winner has achieved almost celebrity status for his extreme neo-Keynesian views. Unfortunately, his frequent polemics on the supposed merits of letting rip public spending long since ceased to be based on objective analysis, and are instead argued as a matter of almost ideological conviction. He's as much a fundamentalist as the "deficit hawks" he mocks.

As it happens, nobody is asking America to axe and burn with immediate effect, though you might not think this to read Professor Krugman's ever more hysterical commentaries on the fiscal austerity sweeping Europe. But some sort of a plan for long-term debt reduction, other than blind reliance on growth, might be helpful.

Chancellor Merkel's approach looks equally political. With her own position under some threat, she has taken, with growing conviction, to preaching the teutonic virtues of fiscal discipline and long-term economic planning. Self-flagellation is judged to play as well with German voters as profligacy does with Americans.

These culturally very different approaches to politics and economics were brilliantly described by the German finance minister, Wolfgang Schauble, in a recent newspaper article. "While US policymakers like to focus on short-term corrective measures," he wrote, "we take the longer view and are therefore more preoccupied with the implications of excessive deficits and the dangers of high inflation… This aversion, which has its roots in German history, may appear peculiar to our American friends, whose economic culture is in part shaped by deflationary episodes. Yet these fears are among the most potent factors of consumption and savings rates in our country."

Just as America takes its popular understanding of economic catastrophe from the Great Depression of the 1930s, for Germans it is the great inflations of the inter- and post-war years, the first of which destroyed middle-class savings and contributed to the rise of political extremism.

There are no rights and wrongs in this debate, but by implicitly criticising Germany for not doing enough to stimulate domestic demand, Mr Obama displays his usual lack of understanding of foreign affairs – or rather, perhaps deliberately chooses to dismiss perfectly legitimate alternative approaches to the same problem.

Few countries did as much as Germany to sustain economic activity in the downturn. What's more, despite the rhetoric of deficit reduction, its fiscal stance remains expansionary throughout the remainder of this year and is only mildly negative next year. The goal of returning to balanced budgets by 2015/16 is entirely reasonable given the demands and constraints of an ageing population, is in line with the same ambition set by George Osborne this week, and can in any case be suspended if the economy begins to shrink again.

As Mr Schauble has repeatedly pointed out, seeking to engineer greater domestic demand by taking on more government borrowing is, for Germany at least, counter-productive, for Germans do not feel confident in their spending unless cushioned by adequate savings. Some might think these the sort of old-fashioned virtues that need to be relearnt in more profligate advanced economies, such as America and Britain.

I don't want to push the argument too far, for there is no doubt that by exporting debt to its neighbours, Germany played a central role in the fiscal crisis that has engulfed the fringe nations of the eurozone. There is no obvious answer to these inherent fault lines within the European monetary union, other perhaps than a return to sovereign currencies.

But to expect Germany to become less competitive so that the Greeks and Spaniards can be more so is absurd. It's a bit like arguing that elite marathon runners should slow down to allow others to catch up.

In berating others to carry on spending, Mr Obama is being neither politically wise nor economically sound. He should instead be attending to his own back yard by mapping out some sort of credible, long-term plan for returning the US to balanced budgets.

David Cameron is going to find himself ahead of the curve among the G8 this weekend, for his own plans for fiscal retrenchment are, if anything, rather more advanced and detailed than even those of Germany. In Britain, only the Labour Opposition and its supporters still think this the wrong approach – but given they were the ones that got us into this fiscal mess in the first place, they would do, wouldn't they?

http://www.telegraph.co.uk/finance/economics/7852801/Barack-Obama-is-refusing-to-listen-to-reason-on-economic-policy.html