How to make your child a millionaire

Set up a pension at birth and take advantage of tremendous tax breaks.

 

By Kara Gammell
Published: 10:40PM BST 26 Jul 2010

Make your child a millionaire Photo: GETTY

Parents could make their baby an adult millionaire by starting a pension pot when they are born. While it may be hard to imagine your children reaching retirement, by contributing just £88 per month to a child self invested pension plan (SIPP) until the age of 18, the fund should easily top £1 million by the time they reach 65.

For most parents, saving regularly is an integral part of securing their child's financial future and with the abolition of Child Trust Funds, parents could consider pensions as an alternative way to provide financial stability.

 

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Making regular contributions to a child's pension may not seem like the obvious choice. However, given the flexible nature of SIPPs and the tax relief offered by the Government, they can provide a very simple way of securing children's financial future in retirement.

While they won't have the money until they are 55 at the earliest, knowing that there are pension plans in place will give them greater choice over what they spend their money on when they are younger.

Steve Latto, head of pensions at Alliance Trust Savings, said: "Financial planning for children is always a high priority for parents who wish to safeguard their children's financial future. We have a significant number of parents already using an Alliance Trust Savings SIPP for their children in order to take advantage of the tax relief and flexibility that SIPPs offer."

HOW DOES IT WORK?

You can put a maximum of £2,880 into a personal pension for a child each year. The Government will add £720 in tax relief, boosting the value to £3,600. Put another way, this equates to 25 per cent growth on your money on day one. The investments then grow free from income and capital gains tax.

Better still, the £2,880 yearly contribution falls below the £3,000 annual gift limit for inheritance tax (IHT). This removes the money from your estate for tax purposes even if you die before the normal seven-year threshold, potentially saving your heirs 40 per cent in tax.

This would take the effective cost of the £3,600 pension investment down to £1,728 a year, or a total of £31,104 over 18 years. This tax-efficient way to give money to your relatives while you are still alive is sometimes known as "giving with warm hands".

Tom McPhail, pensions expert at Hargreaves Lansdown, said: "Setting up a pension for a child is one of the most efficient financial gifts you can make. You get tax relief on the contribution and the child benefits from tax-free growth. Because the money is invested over such a long term – up to 55 years or more, you have the luxury of taking a unique long view on the investment strategy which presents the opportunity to really go for maximum returns."

BUT WHY IS IT SO IMPORTANT TO START AT AS SOON AS THE CHILD IS BORN?

This is largely thanks to the miracle of compound interest. If, instead of starting the pension at birth, your child starts contributing once he or she starts work and saves the same £3,600 every year from the ages of 25 to 65, they will end up with a pension pot worth only £590,600 before taking inflation into account, rather than £1.8 million. This is despite them saving for 40 years instead of 18.

Ian Naismith, head of pensions at Scottish Widows, said: "Setting up a pension plan for a child gives them a head-start in saving for retirement and allows plenty of time for their pension funds to grow.

"Money in a pension is also guaranteed to be available for retirement, with no temptation to fritter it away." Remember parents and grandparents can still pay into existing Child Trust Funds, but Mr Naismith says, contribution limits are lower (£1,200 a year compared with £3,600 into a pension, including tax relief) and CTF money is likely to be spent in early adulthood.

While anyone can pay into a pension for a child, the plan has to be arranged by their parent or legal guardian, who will be responsible for it until they reach 18. There is a special declaration to complete, but the application is straightforward and can be done through a financial adviser or direct with an insurance company.

Enlist the help of grandparents and other relatives to put as much as possible into the pension fund as well as in their CTF. You may have to coordinate the payments, but with a maximum CTF contribution of £1,200 a year and a maximum pension contribution of £2,880 a year there's plenty of scope for several people to make gifts that the child will be really grateful for in the future.

SO, DOES THIS MEAN THAT THE CHILD WOULD NOT NEED TO MAKE THEIR OWN PENSION CONTRIBUTIONS AS AN ADULT?

Unfortunately not, said Mr Naismith. "It's unlikely that contributions made for children will be enough for them to retire on, given that the maximum is currently £3,600 a year including tax relief," he said.

"It should be thought of more as a foundation for retirement planning, and one the child will hopefully build on when they start earning."

Mr McPhail said that the beauty of starting a pension for your children means that they will have more financial freedom when they reach adulthood, allowing them to concentrate on housing and education costs.

"At a time when we are all looking at having to work longer, starting a pension early for your children removes a financial burden, which will leave them free to concentrate on more immediate needs without having to work until they are 70 as a consequence."

http://www.telegraph.co.uk/finance/personalfinance/pensions/7911550/How-to-make-your-child-a-millionaire.html

My 1st Million At 33 – yes, you can do it too

Asset Allocation Pyramid


Time frames and reliance on TA
In the pyramid diagram I labeled the progression in the reliance on technical analysis as the time frame (intended holding period) shortens. My short term trading is momentum based and generally has holding periods of days. On the other hand, the passive accounts are for buy-and-hold with annual rebalancing. The trench in the middle lies in between the extremes. The “income on steroids” group, PM and resource stocks I’m quite happy about holding long term (i.e. years), while others I may look at weekly charts for good entry and exit points so that the holding period may be months. Naturally, as reliance on TA wanes, reliance on fundamental and big-picture analysis waxes.




http://www.1stmillionat33.com/2007/06/new-portfolio-composition/

A Visual Guide to the Financial Crisis

Share Price: The Key Factors

http://zetafund.com/page2.htm

Cramer's Star Outshines His Stock Picks

MONDAY, FEBRUARY 9, 2009

And why not? An earthquake has hit Wall Street, and the 53-year old broadcaster has spent more time there than most any TV journalist. The guy is a hardworking genius with a word of advice for everyone...many words of advice, actually. He dispenses thousands of Buy/Sell recommendations a year and has declared that those stock picks will help you get rich.

The only regrettable thing about any of this is that CNBC and Cramer won't meaningfully discuss how his advice pans out.

Cramer's recommendations underperform the market by most measures. From May to December of last year, for example, the market lost about 30%. Heeding Cramer's Buys and Sells would have added another five percentage points to that loss, according to our latest tally.

These facts don't mean that viewers should avoid his informative and entertaining show -- they should just be wary of his stock picks.


Our research reveals that the stocks Cramer picks as Buys have been rising versus the market for several days in advance of his show, while his Sells have been falling. This doesn't prove there is a leak in the tight security surrounding CNBC's show. It could merely mean that Cramer and his staff are heavy-footed in their research. Or it could mean that his stocks are primarily momentum plays. That is the network's explanation. "Jim likes to recommend 'what is working'," said CNBC communications vice president Brian Steel in a written response Friday. "So it is no surprise there would be movement in these stocks prior to Jim mentioning them."

In any event, these pre-show moves are the probable cause of Cramer's underperformance. As the stocks revert to the market's trend in the weeks after the show, Cramer's followers get hurt [See chart below]. Like any active-investing strategy, Cramer's advice must always be measured against the market return that his viewers could get in an index fund.












http://online.barrons.com/article/SB123397107399659271.html#articleTabs_panel_article%3D1

Stock Picking Strategies of various Gurus

Stock Picking for Noobs

June 11, 2007 20076 12:06 pm | In Finanducation | Comments Off

Who best to learn but from the gurus themselves? Here's a brief list of gurus and their strategies:

1. Benjamin Graham – Value Investing Guru

Strategy: Buy shares at price well below company's intrinsic value!

Indicators:

• P/E < 15 for average earnings over last 3 fiscal years (or current P/E whichever is higher)
• No financial/technology stocks
• Annual Revenue > $340 million
• Liquidity: Current Assets/Current Liabilites > 2
• Industrial companies: Long-term debt < Net current assets
• EPS increases > 30% over 10-year period, must not be negative within last 5 years.
• (Price-to-book ratio)*(P/E) < 22

Source: NASDAQ, Kiplinger, Forbes

2. Peter Lynch – P/E Growth Guru

Strategy: Divide attractive stocks into different categories.

Indicators:

a. Fast Growers:

• Little debt, Debt to Equity Ratio < =1
• Annual EPS Growth Rate = 20 to 30
• Current P/E < = 1.75*Annual EPS Growth

b. Slow Growers:

• High dividend payouts
• Sales > $1 billion
• Low yield-adjusted PEG ratio
• Reasonable debt-to-equity ratio

c. Stalwarts:

• Moderate earnings growth
• Potential for 30-50% stock price gains over 2 year period if bought at attractive prices
• Positive earnings
• Debt-to-Equity ratio < 0.33
• Sales rates increasing inline with, or ahead of inventories
• Low yield-adjusted PEG ratio

Source: NASDAQ, MSN Money, AAII Journal

3. Martin Zweig – Conservative Growth Investor

Strategy: To be fully invested in the market when the indications are positive and to sell stocks when indications become negative.

Indicators:

• Quarterly earnings positive and growing faster than:

• –1 year ago
• –last 3 quarters
• –last 3 years

• Sales growing as fast or faster than earnings
• P/E > 5; BUT P/E < 3*Market P/E or 43, whichever is lower
• No high level of debt, below-average for industry

Source: NASDAQ,MartinZweig.org

4. Brothers David and Tom Gardner of Motley Fool – Small-Cap Growth Investor

Strategy: Search for stocks of small, fast-growing companies with solid fundamentals.

Indicators:

• Health profit margins
• Little debt
• Ample cash flow
• Respectable R&D budgets
• Tight inventory congtrols

Source: NASDAQ

5. Kenneth Fisher – Price-to-Sales Investor

Strategy: The lower a company's stock price is relative to its sales, the more attractive its stock is.

Indicators:

• Strong balance sheet with little debt
• Low Price-to-sales ratios

Source: NASDAQ

6. David Dreman – Contrarian

Strategy: Search for deep-discount value stocks.

Indicators:

• Good earnings growth
• Low P/E
• Low P/B Ratio
• Low Price-to-Cashflow Ratio

Source: NASDAQ, Investopedia

7. James P. O'Shaughnessy – Growth/Value Investor

Strategy: 2 investment strategies: "Cornerstone Growth" and "Cornerstone Value"

Indicators:

a. Cornerstone Growth

• Market value > $150 million
• Price-to-sales ratio < 1.5
• Persistent earnings growth, among market's best performers over prior 12 months

b. Cornerstone Value

• Market cap > $1 billion
• Revenue > 50% greater than mean of market's 12 month sales
• Cashflow per share > average publicly-traded company
• Yield Factor: Company which has highest dividend yield from 50 shortlisted using above criteria.

Source: NASDAQ, Forbes

http://boringest.blogasian.com/category/finanducation/

Analyzing Insurance Stocks: The Income Statement

http://streetcapitalist.com/2010/03/31/analyzing-insurance-stocks-the-income-statement/

Cash Flow Statement Classifications

http://pointsandfigures.com/2010/04/26/more-on-the-dodd-bill-courtesy-of-the-oracle-of-omaha/

AIG truly was too big to fail.

U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up


SEPTEMBER 16, 2008




The U.S. government seized control of American International Group Inc. -- one of the world's biggest insurers -- in an $85 billion deal that signaled the intensity of its concerns about the danger a collapse could pose to the financial system.

The step marks a dramatic turnabout for the federal government, which had been strongly resisting overtures from AIG for an emergency loan or some intervention that would prevent the insurer from falling into bankruptcy. Just last weekend, the government essentially pulled the plug on Lehman Brothers Holdings Inc., allowing the big investment bank to go under instead of giving it financial support. This time, the government decided AIG truly was too big to fail.



AIG's cash squeeze is driven in large part by losses in a unit separate from its traditional insurance businesses. That financial-products unit, which has been a part of AIG for years, sold the credit-default swap contracts designed to protect investors against default in an array of assets, including subprime mortgages.

But as the housing market has crumbled, the value of those contracts has dropped sharply, driving $18 billion in losses over the past three quarters and forcing AIG to put up billions of dollars in collateral. AIG raised $20 billion earlier this year. But the ongoing demands are straining the holding company's resources.

That strain contributed to the ratings downgrades on Monday. Those downgrades, in turn, ratcheted up the pressure on the company to come up with more cash, quickly.

Most insurance companies don't have financial-products units like these. But over nearly four decades, former CEO, Maurice R. "Hank" Greenberg built AIG into a firm that resembled no other. He transformed its insurance business, both by expanding abroad -- notably in China, where AIG has its roots -- and by buying up other firms.

http://online.wsj.com/article/NA_WSJ_PUB:SB122156561931242905.html

Types of Insurance Products Purchased by the Public

Managing the various structural units of a Company

Zech Management GmbH is the main service company in the Zech Group. The team of around 90 employees provides a variety of services on behalf of the parent company, Zech Group GmbH, as well as for the operating companies.

Zech Management discharges the controlling and steering functions. It supervises, for example, the strategy and the agreed-upon targets. Zech Management coordinates activities in the various fields of business and of the operating units. The following areas or sections are integrated in Zech Management:

Controlling
Accountancy, Financial Statements and Taxation
Financing and Cash Management
Group Financial Statements and Company Planning
Mergers & Acquisitions
Personnel
Insurance
IT (Information Technology) and Organization
Corporate Communications and Public Relations
Internal Audits (in preparation)
Central Services
Corporate Governance, Corporate Compliance and Code of Conduct
The company is headquartered in Bremen. Zech Management GmbH reports to Zech Group GmbH.

Real Estate Financial Statement

Financial Protection – One Hell of a Service

Insurance services provide a wide range of financial protection that help people arrange finances for any eventuality. Therefore, it is needless to state that they are lapped up by people who also term this service as income protection.


http://www.findinsurancebroker.info/uk-broker-insurance-network

High Healthcare Insurance Rates

MAY 29, 2007

New Study released: "No Basis for High Insurance Rates"

The American Association of Justice recently published a report entitled, “No Basis for High Insurance Rates”. The report illustrates the ways insurers are gouging doctors, padding their pockets with excessive premiums, and driving up the cost of health care. The alarmingly high medical malpractice insurance rates are the results of insurance companies' policies. Insurance reform is what is needed to ameliorate rates and lower the cost of health care without infringing on victim's rights.

The study cites the 2006 financial statements recently filed by medical malpractice insurers. The statements reveal that while the amount they paid out in claims has declined, their surplus is at an all time high. One example of an inconsistency in the claims of insurance companies is paid losses vs. written premiums. The net paid claims and losses have decreased substantially in the last few years even though these carriers have raised their rates considerably. This is only one example of the discrepancies in the reasoning of insurance companies regarding rising rates.

This is a further illustration of the ways insurance companies cause harm to doctors and victims, and blame medical malpractice lawsuits in order to cash in.

To view the full study, click here

http://medicalmalpractice.levinperconti.com/2007/05/new_study_released_no_basis_fo.html

7 Reasons Not to Buy Berkshire Hathaway

I am a big fan of Warren Buffett. However, I believe it is more advantageous to follow Buffett’s stock picks than own Berkshire Hathaway (BRK.A) for the following reasons:

1. Portfolio Concentrated in US Dollars

Berkshire has a portfolio of 41 stocks. The total portfolio value is $48,025,404,085 as of May 15, 2009, according to CNBC. The top 6 holdings: The Coca-Cola Company (KO), Wells Fargo & Company (WFC), Burlington Northern Santa Fe Corp. (BNI), Procter & Gamble Co. (PG), American Express Company (AXP) and Kraft Foods Inc. (KFT) account for almost 70% of it.

Paul Krugman, the recipient of the 2008 Nobel Price in Economics, in his new, greatly updated edition of The Return of Depression Economics,defines that failures on the demand side of the economy – insufficient private spending to make use of the available productive capacity – have become the clear and present limitation on prosperity for a large part of the world. The quintessential economic sentence is supported to be “There is no free lunch”; it says that there are limited resources, that to have more of one thing you must accept less of another, that there is no gain without pain.

With US government’s huge stimulate package, the deflated US dollar is unavoidable. With few exceptions, such as POSCO, Sanofi-Aventis (SNY), Swiss Re and Tesco plc, majority of Berkshire’s portfolio and operations are based in US and tired to US Dollar. That’s why I rather own iShares MSCI Emerging Markets Index (EEM) or Vanguard Emerging Markets Stock ETF (VWO).

2. Troubled Derivative Bets

Berkshire is big into the derivatives market, which made more complexity to the already black-box-like conglomerate’s balance sheet. The company as of March 31 had $13.85 billion of paper losses on derivatives, according to Reuters. Contracts tied to junk bond defaults mature between 2009 and 2013, and Buffett admitted they may lose money. S&P said the U.S. junk bond default rate rose to 5.42 percent from 3.96 percent at year-end.

1^st quarter 2009 operating earnings, which exclude investment and derivatives gains and losses, came in at $1.705 billion. In other words, Berkshire’s paper loss in derivatives would wipe out 2 years operating earnings.

3. Buy What You Know

Berkshire is an insurance-focused conglomerate and owns more than 60 subsidiaries including insurance, clothing, furniture, candy, restaurants, natural gas and corporate jet firms. As you can see from the chart I compiled, from its 1^st quarter 2009 report, 34% of revenue was from insurance.

I never understand insurance companies’ financial statements. The only thing I know about insurance is about projections, assumptions, probabilities and promises for future delivery, typically at a far-off date. Most of the products are highly intangible. Every year when I read Warren Buffett's annual letters, I always skipped the insurance portion, otherwise I would have had to reach for some aspirin.

4. Low Margins

Buffett said many of Berkshire's nearly 80 businesses were hurt by the recession and lower consumer spending, including housing-related units that make bricks, insulation and paint. Even if the rescue of the financial system starts to bring credit markets back to life, we might still face a global slump that’s gathering momentum. The only bright spots coming in are its utilities and insurance companies, which include Geico and General Reinsurance.

The 2^nd biggest operation, McLane, is marked by high sales volume and very low profit margins and has been subject to increased price competition in recent years. The gross margin rate was 6.95% in 2009. Approximately one-third of McLane’s annual revenues are from Wal-Mart. A curtailment of purchasing by Wal-Mart (WMT) could have a material adverse impact on the earnings of McLane.

Out of Berkshire's total $260 billion assets, only $48 billion is in equity. In other words, majority continue earnings are still need to come from operational business.

5. Downgrade By Moody's

Two credit rating agencies took away Berkshire's "triple-A" ratings in 2009, including Moody's Investors Service. The global credit crisis might be temporary, but the company could face significant pressure if it persists.

According to CFA ( source: cfapubs.org), between 1980 and 2000, banking sector accounted for 4% of the Japan Nikkei in 1980, peaked at 22%, and then came back to about 4% again. If the same happens to US, then we could still have a long way to go.

6. No Dividend

Berkshire didn’t pay any dividend.

7. “Warren Buffett Premium”

The average Price/Book for Property & Casualty Insurance company is 1.05, while Berkshire’s is 1.35. If anything happens Buffett, the stock might drop 30% instantly. Even something happens to Charlie Munger…

On Jan 2, 2008, Berkshire (BRK.A)’s price was 139,300. By the year-end on Dec 31, 2008, it was 96,600: it dropped over 30%. Though it still performed better than S&P, it was certainly not the loss of 9.6% reported by the Main Street media, which looked at book value only. We need to compare apples to apples.

Last Friday, May 15, 2009, the Wall Street Journal reported that the Treasury department will make $22 billion federal bailout funds available to a number of life insurers. This will certainly help insurance industry as a whole. In addition, as Donald Guloien, new President and Chief Executive Officer of Manulife Financial Corporation (MFC) stated in his memo to Manulife employees on May 4, 2009, “We would expect that global financial regulators may require higher levels of capital, and this will favor the stronger and more conservative companies.” People are looking for reliable, strong and trustworthy companies, and there will be a “flight to quality” that will favor Berkshire as well. However, you can always buy ETFs such as Financial Select Sector SPDR (XLF), if you like the financial sector.

By not owning Berkshire, you are not benefiting from deals and terms that are only available to it, such as Harley Davidson's (HOG) 15% and Tiffany's (TIF) 10% debt offerings, GE and Goldman Sachs Group Inc.'s 10% preferred stock, etc. To make that up, you might check into iShares S&P U.S. Preferred Stock Index (PFF) that might give you something in comfort.

http://seekingalpha.com/article/137996-7-reasons-not-to-buy-berkshire-hathaway

US Bail-Out Plan

UK Bail-Out Plan

When P/E fluctuates...is it Price or Earnings?

By Saj Karsan, Wednesday, June 25, 2008

We saw here that although the P/E average for the S&P 500 over the last 100+ years is around 15, the P/E actually fluctuates quite a bit, ranging from 5 all the way to 35. But what's actually happening? Is investor sentiment so fickle that it creates buying opportunities for those who wait for the market to drop? Or do earnings fluctuate based on economic conditions, with prices staying rather stable?

Here's the P/E of the S&P 500 since 1990 split into its two components:

We see that both price and earnings fluctuate, providing for the volatile P/E chart we saw here. Obviously, timing the market is not as simple as buying when P/E's are low, since for all one knows, earnings could drop and actually make P/E's high, leaving the investor holding the bag.

Therefore, other models have been developed that try to determine whether the market is over/undervalued. The Fed model, described here, uses interest rates along with earnings to determine what the market value of the S&P 500 should be. A model developped by Steve Foerster tries to determine when the business cycle hits its peaks and troughs, so that investors can determine when they should buy and when they should sell.


Rather than trying to time the market, value investors try to value individual companies within the stock market, to determine if they sell at discounts to their intrinsic values.

http://en.wikipedia.org/wiki/Fed_model
Fed Model

http://www.corporateinformation.com/Company-Advanced-Search.aspx?CountryCode=458
The P/E of the stocks are split into its two components of Price and Earnings in this site, as illustrated by the chart below.

Ireland - Economic Growth

Financial Ratios and Their Uses

KEY TAKEAWAYS

Earnings per share (EPS) and dividends per share (DPS) indicate stock returns on investment.

Dividend yield measures a shareholder’s cash return relative to investment.

Growth ratios such as the internal and sustainable growth rates indicate the company’s ability to grow given earnings and dividend expectations.

Market value ratios, most commonly price to earnings and price to book, indicate a stock’s market popularity and its effects on its price.


http://www.web-books.com/eLibrary/NC/B0/B65/73MB65.html