Archive for the ‘mapleridge’ Category

John Kay On The Market

Prof. Kay doesn’t pull any punches when discussing the worst flaws of the market, the financial sector or the euro zone.

On the often-expressed industry view that people just need to better understand how the financial sector works:

“I do not know what is under the bonnet of my car and I do not want to know. … Nor do I want to read large volumes of disclosures about what’s under the bonnet of my car every time I sit behind the wheel. What I want is the confidence … that the combination of a modest amount of regulation together with a manufacturer’s concern for his reputation means that … I can expect that most of the time it will do more or less what I want it to do. That’s very far from being the kind of comfort which people can today bring to their purchase of financial services.”

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Dollar cost averaging

Dollar cost averaging is a technique designed to reduce market risk through the systematic purchase of securities at predetermined intervals and set amounts. Many successful investors already practice without realizing it. If you participate in a regular savings plan, you are already using this tool. Many others could save themselves alot of time, effort and money by beginning such a plan.

 Dollar cost averaging can lower an investor’s cost of investment and reduce his risk of investing at the top of a market cycle.

The beauty of dollar cost averaging is that you buy more shares when prices are low and fewer shares when prices are higher. The result is an average cost that is better than trying to time the market with your investments.

What is Dollar Cost Averaging

Instead of investing all his money at one go, the investor gradually builds up a position by purchasing smaller amounts over a period of time. This spreads the average cost over the period, therefore providing a buffer against market volatility.

In order to begin a dollar cost averaging plan, you must do three things:

  1. Decide exactly how much money you can invest each month. To be effective, you should have sufficient funds to continue investing through the market cycle.
  2. Select an investment (index funds are particularly appropriate) that you want to hold for the long term, preferably five to ten years or longer.
  3. At regular intervals, weekly, monthly or quarterly, invest that money into the security chosen.

An example of a Dollar Cost Averaging Plan

Here’s how it works. The principle is simple: Invest a fixed amount of money in the market at regular intervals, such as every month, regardless of whether the market is up or down.

Let’s assume you have $12,000 and you want to invest in a stock. You have two options: you can invest the money as a lump sum now, walk away and forget about it, or you can set up a dollar cost averaging plan and ease your way into the stock.

You opt for the latter and decide to invest $1,000 each month for one year. Assume further that the stock started at $10 per unit and reaches $16 per unit a year later.

Had you invested your $12,000 at the beginning, you would have purchased 1,200 shares at $10 each. When the stock closed for the year in December at $16, your holdings would only be worth $19,200!

Had you dollar cost averaged into the stock over the year, however, you would own 1,643 shares as shown in Table 1; at the closing price, this gives your holdings a market value of $26,228.

 

Why Dollar Cost Averaging Works

The system works because it takes the emotion and temptation to time the market out of the process. You establish an amount that is comfortable for you to invest and let the market work for you. The system takes the decision-making elements of how much to invest and when to invest out of your hands. Dollar cost averaging solves this problem by eliminating the need to predict an entry point.

Chart 1 shows what happens when you invest $1,000 per month for twelve months in an investment that fluctuates in price. The average market price per unit is $8.08. Look at Table 1, your average cost per unit = $12,000/1,643 which is approximately $7.30. Thus, the example shows that you don’t have to guess when to purchase shares to get a better price.

Will dollar cost averaging guarantee you a profit? No system can do that. However, if you buy quality investments and continue dollar cost averaging over a long period, you will have a much better chance of success than trying to get in and out of the market at the right times.

Buy Low, Sell High

For long-term investors, dollar cost averaging is a powerful tool that takes much of the emotion out of investing and lets the market work for you. One of the major problems facing individual and professional investors alike is determining when to buy a particular stock or, in other words, how to find the bottom of a price swing. The problem is that no one is consistently correct in calling this point on individual stocks and certainly not on the whole market. If you miss this point and the stock begins to move up, you have lost some of the potential gain by not buying at the right point. Very few people buy at the bottom. Those who do, typically happen to have been averaging all the way down.

Market timing is a dangerous game, especially when practiced by beginners, who typically tend to over expose themselves to the market. Market timing is an attempt to predict future price movements through use of various fundamental and technical analysis tools. The real benefit of knowing what is going to happen is that your return from buying a stock before it takes off is better than if you had bought the stock on its way up.

Market timers are the ultimate “buy low and sell high” traders. Day traders, who move in and out of positions in minutes or hours, are the extreme market timers. They look for small profits by the dozens each day by capitalizing on swings in a stock’s price.Most market timers operate on a longer time-line, but may move in and out of a stock quickly if they perceive an opportunity.

There is some controversy about market timing. Many investors believe that over time you cannot successfully predict market movements. Market timing becomes more of a gamble in their opinion than a legitimate investing strategy.
Market Timers and the Next Big Thing

Some investors argue that it is possible to spot situations where the market has over or under valued a stock. They use a variety of tools to help them predict when a stock is ready to break out of a trading range. Usually, the market proves them wrong. Stock prices do not always move for the most logical or easily predictable of reasons.

An unexpected event can send a stock’s price up or down and you cannot predict those movements with charts. The Internet stock bull market of the late 1990s was a good example of what happens when investors in the excitement of the moment, consciously or not, overpay for their investments. Those who bought then are not likely to have made much money.

Everyone has a hot tip about the next “big thing” and investors are always jumping on stocks as they shoot up. Unfortunately, most of these collapse just as quickly as many investors typically hold on way too long. The disastrous result is usually the exact opposite of what they were hoping for. In the end, it is usually a case of “buying high and selling low”. For most investors, the safer path is sticking to investing in solid, well-researched companies that fit their requirements for growth, earnings, income, and so on.

In conclusion, dollar cost averaging takes the emotion out of decision-making and is a useful tool for the individual investor who wants to buy and hold a stock for the long term. Over time, it will usually result in a better entry price than timing when to buy.

If you look for undervalued stocks, you may find one that is poised for moving up sharply given the right circumstances. This is as close to market timing as most investors should get.

Buy a Car Based on the Monthly Payment Cost

Owak / Kulla / Corbis

“It’s dangerous to think about a big purchase, like a house or a car, in monthly terms,” says Jim Wang, a blogger at Bargaineering.com. “It doesn’t illustrate how much of your total wealth has to be surrendered in order to own that house or car.”

“It’s also easier to swallow $200 a month instead of a five-figure number, so salespeople are trained to go after the monthly number,” he says. Whenever a salesperson is giving you financial advice, he says, step back and evaluate whose best interest they have at heart, yours or theirs. Always do the math on what the purchase will cost you in the long run.

“I’d say focusing on the monthly price of anything, and ignoring all else, is terrible advice,” Wang says. “While it’s important to look at that number for the purposes of budgeting, you always want to know how much you’d be paying in total.”

MORE: Drivers Upgrading to New Cars at Slowest Pace in Years

Read more: http://moneyland.time.com/2012/08/23/terrible-financial-advice-top-10-tips-you-shouldnt-follow/#ixzz27bESknpt

via U.S. best tax haven of all, author tells Canadians | MoneySense.

Forget the turquoise waters and white-sand beaches of offshore tax havens. Take your hard-earned Canadian pension and head stateside. That’s the advice Robert F. Keats has for snowbirds in his latest book, “A Canadian’s Best Tax Haven: The U.S –Take Your Money and Drive!”Thumbnail Image

Roughly 1,000 baby boomers retire each day in Canada and too many of them don’t know how to protect their money, according to Keats, a dual citizen and president of cross-border wealth management firm KeatsConnelly.

“Snowbirds are getting the wrong advice with respect to taxes, medical coverage and immigration,” he recently told MoneySense.

While it’s true that anyone with a sizeable RRSP or corporate pension could see upwards of 40% of their nest egg gobbled up by federal and provincial taxes once they begin withdrawals, relocating to the Caymen Islands or the Bahamas isn’t the answer.

Traditional tax haven islands aren’t havens at all for high-net worth Canadians, Keats said. The idea that you’ll keep more of your money on a tropical island is a “myth.”

Read the rest…. U.S. best tax haven of all, author tells Canadians | MoneySense.

Buyer Beware: The Dangers of Greed and Fear:

When the economy (and financial markets) are at its extremes, either doing extremely well or extremely poorly, dangerous financial products and ideas become more prevalent.

Portus, Eron Mortgage Corp, Shire International Real Estate Investments, and Arbour Energy and just a few Canadian examples. The one common denominator they share, is they all are categorized as Exempt Market Securities.

What are Exempt Market Securities?

…when companies (issuers) sell securities such as stocks, options, or bonds, they are
generally required to file a prospectus. This document contains material facts about both the issuer and the security. However, in certain cases securities can be sold without a prospectus and these investments are called exempt securities; the sale is called an exempt distribution or a private placement.

What should I know about Exempt Market Securities?

These investments are not for everyone. A prospectus is meant to ensure an investor has key facts to be able to make an informed decision. Without it, you may be taking a greater risk with your money. Be aware that:

  • If you buy an exempt security, you may not have the same legal rights as you do under a prospectus.
  • Most exempt securities are subject to resale restrictions. This means you may not be able to sell them for a certain period of time.
  • Even if no resale restrictions apply, there might not be a market for the securities you purchased, either because you would not be able to find any purchasers or they may not qualify to purchase the securities.
  • Some exempt securities are not liquid. Liquidity means that you can sell an investment in a short period of time and turn it into cash. Some exempt securities, such as hedge funds, may require longer periods to redeem.
  • Because these investments are bought without a prospectus, there may be very limited information available on which to base your investment decision.
  • When an issuer sells its exempt securities, it may not use a registered dealer as an agent. This means, when you buy from an issuer, you may not get the same protection you would get when you buy from a registered dealer.

–from a release by the Nova Scotia Securities Commission and circulated by the other regulators

A disclosure document put out by the BCSC includes this simple explanation:

They are called exempt market securities because two parts of securities law do not apply to them. If an issuer wants to sell exempt market securities to you:

  • The issuer does not have to give you a prospectus (a document that describes the investment in detail and gives you some legal protections), and
  • The securities do not have to be sold by an investment dealer registered with a securities regulatory authority.

There are restrictions on your ability to resell exempt market securities.Exempt market securities are more risky than other securities.

Disclosure documents (be it a Prospectus, when regulated by the Securities Act, or a Policy Contract/Information Folder, when regulated by the Insurance Act), exist for a reason, To protect the investing public. There is no evidence proving the absence of disclosure documents increases potential return, but it is well known to increase risk.

Policy Contracts and Prospectuses are the financial world’s equivalent to seat belts. Hopefully you won’t have to depend on them in a life or death situation. The best option for most regular folks is to just avoid these dangerous investments. Just like it is always advisable to wear your seat belt.