Mr Buffett

Buffetology

Now let us switch the gears and talk about the master investor, Warren Buffet.  A man of simple tastes, Buffet relies very heavily on fundamental analysis.  I cannot recall who told me this about Buffet, either a friend or a relative, that Buffet is confident about all the companies in his portfolio, so much so to the extent that he would not flinch if a stock lost 1/3 of its value overnight because its financials and fundamentals dictate it to be in fact a solid company.  I cannot say that the following information is absolutely verified by Buffet as I have not had a sit-down with him yet, but after reading a biography of his, I do believe it captures his investing philosophy.

warren-buffett

Buffet believes that when investing in a company, the ultimate goal of that investment is to completely own that company.  So under ideal conditions, you would have enough money to own 100% of that company and your money would be safe in this.

Following are some general guidelines and prudent factors to keep in mind, which Buffet follows with his investments:

1.) The company in mind must be able to reasonably predict its earnings

2.) A company with predictable earnings has good economics, which leads to lots of free cash flow, which can be used to by businesses or buying back shares.

3.) These good economics are shown by a combination of the following:

– Consistent improvements on the company

– High returns on shareholders’ equity

– Strong earnings

– A consumer monopoly (which will be discussed later in detail)

– Good management

4.) Always invest while the price is low in order to increase return

5.) First choose which company to invest in, and then let the price and the required rate of return determine when or if to buy.

6.) Investing at the right price in a good business should produce a minimum rate of return of 15%.

Along with these rules are some more specific codes Buffet follows:

Investing should always be approached with a business mentality – i.e. All emotion should be purged from investing.

Always attempt to learn and master one industry, and then do not stray from this industry.

Stocks do not represent so much a market price, as much as a distinct company with certain operational standards behind it.

Dividends are best utilized when reinvested into the company.  This is due to tax avoidance on these payouts.  Also, corporations can often reinvest this money at a higher rate than can an individual, although they must be reinvested prudently.

Holding a stock is better than withdrawing from it, for tax-avoidance reasons.

One topic Buffet especially cares about is the capability of a company to reasonably predict its earnings.  Encompassed in this area is the company’s EPS (earnings per share) and the EPS annual growth rate.

EPS

Buffet is a large advocate of deciding on what company to buy before it hits a favorably low price, that is, “don’t aisle shop!” This idea of knowing the company you will be investing supports the idea that one should be knowledgeable of the industry in which it operates.

According to Buffet, there are two types of businesses: commodity type businesses and consumer monopoly types.

In commodity type businesses, the price of the product is the single most important factor and as a result, significant cash is spent on manufacturing improvements.

Commodity type businesses are often recognized by:

– Low profit margins

– Low return on equity, often less than 15%

– Difficulty with sustaining name brand loyalty

– Many competitors in the industry

– Excess supply

– Erratic profits

Consumer monopoly type businesses on the other hand are stable with predictable earnings.  One key indicator of a consumer monopoly business is to ask whether another fictional company, with a huge amount of cash could compete with it.

These companies often have a high wealth in intangible assets, not in PPE (property, plant, and equipment) and   other fixed long-term assets.

These companies are also nearly debt-free most of the time.  This idea of NOT being leveraged is why Buffet is a large opponent of derivatives and why Buffet steered clear of the CDO and subprime market during the mortgage crisis.

Aside from many other guidelines and rules Buffet adheres when investing, there are 9 specific questions Buffet asks when investigating companies:

1.)    Does it have a strong consumer monopoly?

–       Does it have strong recognizable products?  Does it have to be carried by the distributor, lest he lose money in opportunity costs?

–       If involved in an acquisition, is the acquired company also a consumer monopoly?

2.)    Are the earnings strong and rising?

3.)    Is the company conservatively financed?

4.)    Does it have a high return on equity?

–       ROE should consistently be at least 15%

–       A healthy ROE indicates good management

5.)    Does the company reinvest its earnings?

6.)    How much money is spent maintaining current operations?

–       If a company must use its money to constantly update operations, this is a sign bad sign as that money could be going towards share buybacks or acquisitions

7.)    Does it reinvest money in new opportunities?

–       Good management will often use excess capital to buy back shares

–       One of the most important aspects of management is how profitably it employs its retained earnings

–       Warren prefers minor expenses into research and development

8.)    Can the company adjust prices for inflation?

9.)    Will the value added by retained earnings increase the market value of the firm?

–       Personally, this is the most important question for me.  I am interested in the relationship between the inherent value of a company and its effect on the stock price.

Buffet believes that one sometimes discovers these companies as “conceptual toll bridges.”

1.)    Businesses with products that are used up quickly and with brand-name appeal.  These are sorts of products that effectively lose money for the merchant because they are always bought.  Trademarks and copyrights have immense carrying power.  Some examples of companies that carry these sorts of products are:

Coca cola, Hershey’s, Wrigley’s gum, Advil, Gillette, Hanes, etc.
Pharmaceutical companies often have these characteristics
A good way to identify these products is to walk through a supermarket and identify popular products.

2.)    Communication businesses

Advertising has created conceptual toll bridges in today’s environment
Newspapers work similarly

3.)    Typically these conceptual toll bridges apply more to services than products

As I mentioned in my last post, I would like to thank ALL of you who have been reading and commenting on this blog.  Initially, I did not know where I would go this or who it would cater to but with your support and ideas, I know that we can cultivate a great atmosphere where we can exchange ideas and whatnot.  Keep posting your comments and let us stir our minds towards greatness!!

Gold_Bar

Different Ways Of Investing In Gold Safely

For years, investors have known gold to possess intrinsic value and safe investing features. Since properties, currency and shares are prone to inflation as well as their prices may go up and down with the market, it is far better to invest in gold and silver like gold since the prices will always be expected to increase. Gold, as a commodity, not only has long-term store of value but also provides a hedge against inflation. In last one 10 years, the price of 1ounce gold has shown a dramatic increase from $300 to $1,500 and is likely to raise much more. This makes gold investments very profitable.

Are you interested in making safe investments in gold in gold but don’t know the tips for doing so? Simply check out the tips mentioned here.

Strategies for Investing In Gold Safely:

1) If you’re keen on possessions then you can certainly purchase physical gold in the form of bars, coins and bullion. Gold bullions are made from 100 percent pure gold and they are sold in increments of just one oz. hence they are popular type of investments with regards to purchasing physical gold. Various nations sell bullion coins that are denominated in local currencies. American Golden Eagle is the local bullion currency in the usa which is easily available at local outlets as well as on online websites.

gold-is-money

2) Women especially prefer to purchase gold jewelry. This is due to the fact most jewellery pieces are marked and priced based on the weight and quality (pureness) of metal used in it too as the cost of labor included in making it. You will get the rarest ornament pieces from jewelry auctions and online websites (they offer discounts top). However, purchasing ornaments online will need focus on your part because you will have to determine the purity and price of those items, think about the interest in brand and find out the shipping cost of gold. If you buy excellent quality jewelries, you can make profits by reselling it.

3) Exchange Traded Funds (ETFs) are second most popular types of investments after physical gold. In the event you can’t figure out what to know about gold investing, you are able to seek advice from an ETF expert and invest your hard earned money in it. Look for an online brokerage firm and open up an account there. Evaluate the current market prices of gold ETFs by making use of symbols like SGOL and FLD. They possess ETFs prices at 1/10th the price of an ounce of gold whereas PHYS and IAU have their ETFs costing 1/100th of the cost of an oz of gold.

Firstly, determine the amount of ETF shares you want to purchase and appropriately, divide neglect the amounts. You may make use of the online screen of your brokerage account to purchase ETF shares. The process of buying ETFs is just like purchasing stocks or shares. The broker may offer discounts of $5 to $10 on share trades. Here you must remember that gold ETFs don’t supply you interest amounts or dividends because the profits or losses incurred by investors depends upon the fluctuating selling price of 1 ounce of gold. Thus, you should use ETFs for either short term trading of gold belongings or for making long term savings.

4) If your luck is at peak, you can consider investing in stock exchange and mining companies. You can invest in shares of Barrick Gold (ABX) the largest gold mining company. One benefit of purchasing stocks is you can easily sell or buy them with little fuss.

5) Lastly, there are gold mutual funds which are ideal for group of businessmen. Mutual funds directly track the cost of gold and cost of shares of gold mining agencies and are collectively owned by some people. Look for company that offers lower investments and lets you invest in an automated monthly schedule. Put smaller amounts in gold investments for a long period of time to be able to gain maximum profits. If you are a first time investor, you should collaborate along with other experienced traders of the market to stop losses.

6) You can also buy possessions on monthly installments. You can set up an automatic investment scheme that deduces money from your banking account and directly transfers the profits incurred by you there. This will prevent you from going out of budget.

If you would like more information regarding shipping cost of gold, please check at well-known dealers or visit trusted websites to find opinion from the specialists.

If you want extra information on topic “payday loans“, then you are welcome to check out the author’s website Febs2010– in which you’ll find all types of specific information on the said topic.

Warren Buffett

10 Books On Investing That Billionaire Warren Buffett Recommends

Imitating successful people has its limits. As one brilliant writer on Business Insider once said “The idea that if you can find out how successful people live and then copy it, you’ll be able to emulate it.  Like it was Jack Dorsey’s early morning routine that made Twitter successful. This idea is just not true”. However there are certain instances where imitating successful people can be beneficial. That’s when you study what they know, not just what they do. And what better way to get into what they know than following which books they read right?

Best investing books

One popular avid reader is billionaire investor Warren Buffet. He was once recorded saying in an interview that he reads books to collate more and more and more facts and information, and occasionally seeing whether that leads to some action. He doesn’t read other people’s opinions, he wants to get the facts and information, and then think.  According to Business Insider these are 10 books  that he recommends every aspiring billionaire, like us, should read:

Number 10: ‘The Most Important Thing Illuminated’ by Howard Marks

In this book, Mark aims to help investors achieve success by putting more thought into their decisions, drawing heavily on his own mistakes and what he learned from them. The book lends insight into concepts as “second-level thinking,” the price/value relationship, patient opportunism, and defensive investing. And how did uncle Buffett describe the book? As a rarity!

Number 9: ‘Jack: Straight from the Gut’ by Jack Welch

The descriptions of Jack Welch have ranged from being the world’s (*cough* cough* America’s) toughest boss to the manager of the century. This is because of how he defied conventional wisdom during his twenty-year career at the helm of General Electric, turning an aging behemoth of a corporation into a lean, mean engine of growth and corporate innovation. Buffett’s advice regarding this book is “Get  copy!”

Number 8: ‘The Clash of the Cultures’ by John Bogle

This was one of the  books  recommended by Warren in his 2012 shareholder letter. Written by the founder of the Vanguard Group which now manages upward of $3 trillion in assets, the book argues that long-term investing has been crowded out by short-term speculation. Finishing tips in the book include insights like: what’s hot today isn’t likely to be hot tomorrow: the stock market reverts to fundamental returns over the long run; don’t follow the herd; time is your friend, impulse is your enemy and take advantage of compound interest and don’t be captivated by the siren song of the market.

Number 7: ‘Dream Big’ by Cristiane Correa 

The book is an autobiography telling the story of the three Brazilians who founded 3G Capital, an investment firm that joined Buffett in purchasing HJ Heinz in 2013. In the book Correa highlights the main principles of 3G’s management style which paved the way for their current success meritocracy, cost-cutting and trusting in people and allowing their teams work. Buffett liked the book so much that he recommended it at the 2014 Berkshire Hathaway shareholder meeting.

Number 6: ‘The Little Book of Common Sense Investing’ by Jack Bogle

This book is another hit by the founder of the Vanguard Group. This book highlights how investing is all about common sense and owning a diversified portfolio of stocks and holding it for the long. Based on his own experience working with Vanguard clients, Bogle attempts to help readers use index investing to build wealth. This book was another recommendation in Buffett’s 2014 shareholder letter. He further recommended that shareholders read this book over listening to the advice of most financial advisers.

Number 5: ‘Where Are the Customers’ Yachts?’ by Fred Schwed

Buffet described this book as “The funniest book ever written about investing,” since “it lightly delivers many truly important messages on the subject.” The book was first published in 1940, and takes its title from a story about a visitor to New York who saw the bankers’ and brokers’ yachts and asked where the customers’ were. Obviously, they couldn’t afford them — the people providing the financial advice were in a better position to splurge than the people who followed the advice. The book is said to be filled with scornful wisdom and colorful anecdotes about Wall Street, and remains compelling even today.

Number 4: ‘First a Dream’ by Jim Clayton and Bill Retherford

This is one of those books with a captivating “rags to riches” story. Within it, a young boy discovers during the Depression that hard work and sheer perseverance are the keys to living his dreams. It is filled with practical, easy-to-understand, no-nonsense business lessons that the entrepreneur can apply to his or her own life — describing the qualities an effective leader must possess, the key methods to inspiring team members, and the development of culture and values that are critical to the success of a small business as well as a multibillion dollar conglomerate. Buffet liked this autobiography of Clayton so much that he decided to invest in Clayton Homes in 2003.

Number 3: ‘The Essays of Warren Buffett’ by Warren Buffett

What better way is there to learn about how Buffett thinks than to go to the source himself? In this collection, he is said to keep it real — in his signature folksy-intellectual fashion. “What could be more advantageous in an intellectual contest — whether it be chess, bridge, or stock selection — than to have opponents who have been taught that thinking is a waste of energy?” he asks.

Number 2: ‘Security Analysis’ by Benjamin Graham and David L. Dodd

Buffett describes this book as a groundbreaking work of Graham’s that had given him “a road map for investing that I have now been following for 57 years.” The book’s core insight: If your analysis is thorough enough, you can figure out the value of a company — and if the market knows the same. Buffett has said that Graham was the second most influential figure in his life, after only his father. “Ben was this incredible teacher; I mean he was a natural,” he said.

The Intelligent Investor

Number 1: ‘The Intelligent Investor’ by Benjamin Graham

This is not only my favorite book by Graham, but the best book on investing that I’ve ever read. Apparently Buffett agrees since when was 19, he picked up a copy of this book and notes this as one of the luckiest moments of his life because it gave him the intellectual framework for investing. “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information,” Buffett said. “What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must provide the emotional discipline.” Buffett liked Graham so much that he named his son after him.

monthly-budget

10 reasons you should use a personal budget

Personal budget is the most important instrument when it comes to our financial life.

It is the instrument that helps us control our financial life when it comes to our income and expenses.

Living without a personal budget is like going through a very big city such as Bucharest without being from Bucharest and wanting to go to various places without map or GPS.

The personal use budget is made of a projected budget where you have to anticipate each expense and each income you make in a determined period of time and of an achieved budget, where you have to write all expenses and income you made.

The budget is useful both for persons in a difficult financial situation and who want to go over this period, as well as for people who want to plan their way to get rich.

monthly budget

Using this financial instrument can give you lots of benefits regarding your financial health, because the budget:

 10 reasons you should use a personal budget

1. Helps you be aware of where you are spending your money!

It is the place where you plan and write all your expenses. It helps you see what are your money spent on and where you can make adjustment.

It is one of the most important options of the budget, because next is the financial planning.

2. Helps you know what are your income sources and how can you increase them!

It helps you plan your income. Most of the times, income is constant and you can hardly adjust it.

Most of the times, the budget helps you analyze your financial status and see if your income is enough for your expenses and for the financial objectives you set for yourself.

3. Helps you plan the expenses!

How many times have you realized that you are going shopping with the idea of buying something and coming back home with much more than you would have wanted.

The budget has its role of necessity. All things you should buy are written here, not the things you would like to buy.

It helps you make a difference between WHAT IS NECESSARY and WHAT YOU WOULD LIKE to buy.

Always choose WHAT IS NECESSARY to buy.

4. It helps you get rid of debts!

Yes, it helps you get rid of debts. Once you know what the income is and on what you spend the most, it helps you narrow the expenses and, with the money you save, pay your debts in a short amount of time.

5. Helps you avoid debts and spend as much as you produce!

Once the budget is planned, it guarantees that you will spend only what you produce. Your entire income should be larger than the expenses.

The difference between income and expenses represents the profit. With the profit you can pay your debts, start arrangements to buy a house, a car or to plan a vacation.

6. Helps you plan the purchase of a house!

The personal budget is your financial mirror. It shows you how much you earn and how much you spend.

It shows you how much profit you have in a month. This profit can be invested in a house.

For a new couple, that wants to buy a house, it is very important to use an internal use budget.

The house you can afford is the house that does not cost more than 2.5 times your total income per year.

The house you can afford = 2.5 * your annual income

It the result is higher than that, problems will occur regarding payment.

You can start with a smaller house and go to a bigger one after a while. Go to a bigger house only after you become the owner of the first house.

The budget helps you keep under control your expenses, house instalments and income without having financial problems.

7. Helps you be more structured and more realistic!

The budget helps you be more structured. It is designed as structured and as detailed as possible, to help you anticipate each expense by various expense categories.

Once the monthly budget is made, at first you will have many frustration reasons. In the first three months, you will not be able to plan your budget due to the fact that you are not being realistic.

You are subjective when it comes to the financial planning and you still think you will spend less and earn more.

Not true! You will spend and you will earn as much. The budget will show you this and will help you be more realistic with your budget each month.

You will end up being more realistic and more structured, not only with your money, but also in your daily activity.

8. Helps you save more!

Yes, it is the instrument which helps you save money from various places, in order to buy a product or to go in a vacation.

The budget gives you a faithful and real image of your financial status, where you can draw some conclusions regarding the places you can cut some costs.

With the money you cut, you can plan various expenses or you can reduce your debts.

bookkeeping

9. Helps you have multiple income sources!

The budget is also an instrument for rich people, not only for those that have financial difficulties.

With the help of a budget, you can also plan some businesses you might want to make, invest in various mutual funds or in the stock exchange.

In order to get here, you must get rid of all other habits of yours that make you spend more than you produce.

10 .Helps you be more motivated.

The budget helps you be more motivated. It gives you the motivation to want more from your financial life.

It helps you get rid of debts, have our own house, go in certain vacations and buy different things you want.

It is the most important instrument for your financial life and gives you the financial motivation to want more from yourself.

While planning a personal budget can take few hours each month, the fact that you learn to use a personal budget can bring you back money you may have never imagined.

We are spending money on things we do not need and we are running into debts for things we do not need. Why are we doing this?

Because we do not know what happens with our personal money!

Planning a budget each month and strictly complying with it, you can reach peace and quiet in your financial life.

If I have convinced you that a personal budget is useful, you can start from now planning your income and expenses with the help of a personal budget model you can download for free HERE.

It is a model I have created and which I recommend to all readers of this blog.

If you still have doubts about its use, you can ask me anything related to the personal budget in a comment below.

I will answer to any of your questions.

Business Credit

9 Steps to Establishing and Building Business Credit Unfolded

As a small business owner, either existing or new, you may have been denied getting business financing. Frankly, you may find the process daunting if you don’t know what it entails. Though I am not trying to make you fuss yet I must be honest to tell you that more than 50% of the owners of small businesses do not normally get approval when they apply for loans. Nevertheless, if you know how to get your way around it, you will surely get access to financing at ease. Therefore, you need to learn the secret of establishing and building a strong business credit in order to access business financing and credit with ease and move up your business. Here, we have covered the ground for you by providing you with all you need to learn and the steps you need to take in order to establish and build strong business credit to get off the hook of poor financing and take your business to the top.

Learning How to Establish and Build Business Credit – Why?

Establishing business credit in order to access business financing and taking the time to learn how to build it might be unnecessary while you have your personal credit to get you through. To be candid with you, separating your personal credit from your business has many benefits. One of the benefits is that it will help you go a long way in getting rid of the adverse effects one can have on the other. For instance, if due to some missteps, you know that your personal credit score is low and you will surely be denied of financing, you will rely on your business credit as the way forward. In order words, the bad score of your personal credit will not affect your business credit, and vice versa.

Build Business Credit

Once you are not running your business as a sole proprietorship or as a general partnership, you have to separate your business from the owner in order to protect your personal assets. This is one of the key benefits that limited liability companies and corporations offer business owners. Therefore, you need to establish business credit in order to keep this protection consistently in place.

Establishing and Building Strong Business Credit – The Untold Benefits

Apart from the fact that business credit will help you separate your business from your personal credit and secure the future of your business, there are many other benefits of business credit, which include:

1. Money-Saving

As a business owner, there are many channels that business credit can help you save your wallet. One of the ways is that it will help you secure favorable interest rates on loans. Secondly, it will help you minimize the situations when you need to repay for specific products or services.

2. Access to Funds and Assets

Unless you build a solid business credit profile, you will not have the guarantee to be approved for business loans from lenders, If you establish and build a good business credit profile, it will help you build confidence in business transactions. Thus, you will be able to have unlimited access to funds and assets from lenders, and ultimately, you will be able to make your business grow.

3. Establishing Better Trade Terms

Good business credit will make your suppliers have confidence in you; and hence, it will help you secure better trade terms with your important suppliers. So you will have unlimited access to obtaining supplies.

4. Increased Sales

As mentioned earlier, confidence is important in securing favorable business transactions. Customers will want to know whether you will be able to meet up and deliver their orders before they can seal a deal with you. Your business credit score is one of the ways customers can evaluate you. Unlike your personal credit, your business credit score is not so confidential, anybody can access it. Therefore, if you don’t have a good business credit score, customers are less likely to place orders, let alone placing big orders.

5, Protecting Your Personal Assets

When you need to apply for a loan with your personal credit, you will need to use your Social Security Number and lenders will have to access your personal credit reports in order to determine your creditworthiness. Apart from the fact that any ensuing problems will underscore your personal credit reports, you have exposed your personal financial situation to the public. Therefore, this will make it more difficult to get a loan for your business, even if you later want to use business credit, because your lenders might have been aware of your poor personal financial situations.

6. Securing Your Family

If all goes well, you may be able to secure loans for your business using your personal credit, but it may deny you the ability to borrow as an individual for your personal upkeep when the score becomes poor. Therefore, you and your family will be adversely affected and you know, you may, as a result, lose your family.

7. Minimizing the Need for Using Personal Guaranty

Dealing with personal guarantees is one of the big issues in dealing with getting loans for a business. A personal guarantee is an assurance that you will be able to pay off your business debts, in case your business is unable to pay the debt. If you establish business credit, it will help you draw a clear and vital line between your business and personal finances. Thus, you will be able to mitigate the need to sign a personal guarantee for your business funds.

Building A Good Business Credit Score – Food for thought

At this juncture, perhaps you don’t know, I need to tell you that one of the major reasons why business owners like you are usually denied access to funding is the failure to understand their credit situation and build it.

Business Launcher

Though in this article, you will understand how to monitor and build your business score, yet we will be flattering you to tell you that you have known all because Rome was not built in a day. This is why you need experts to control your business credit health and quickly get funding with ease and keep your business moving, According to Nav’s 2015 report, American Dream Gap Report, one in four of businesses fails to know why their financing applications are denied. Furthermore, according to the report, the businesses that understood their individual business credit score were less than 50% (41%, to be specific) more likely to get approval for small business loans. However, this is nothing to fuss about, you can be seamlessly getting fundings for your business once you sign up for a credible Business Launcher tool like that of Nav. Nav offers their customers free account to use their formidable Business Launcher tool to start building their business credit profile in no time. Although it is imperative that you know how to establish and build your business credit, and this is the next thing we want to teach you.

ETFs

How to Invest in ETFs

As you start earning, it is good practice to invest the money. Investments provide good financial security for the future. However, when there are so many different types of investments, it may be confusing. Today, let us learn about ETF, which is a simple means of investing to obtain good retains.

What is an ETF?

ETF stands for Exchange Traded Fund. Here, you can buy several bonds/stocks at the same time. An investor can buy shares of ETFs. The ETF share prices can fluctuate throughout the day. They are listed and traded on an exchange. ETFs hold multiple underlying assets.

ETFs offer good alternatives to individual stock picks. While services like Motley Fool make it easier for investors to choose stocks (read the full review here), many investors prefer the simplicity of ETF investing.

ETF Investing

ETF Jargon

There are certain concepts to understand before you can invest in ETFs.

  • Expense ratio – The fee that ETFs charge is called the expense ratio. For beginners, it is recommended to go with smaller expense ratios.
  • Types of ETFs – There are two types of ETFs – passive ETFs and active ETFs. Passive ETFs (also called index funds) track an index and update the portfolio from time to time. If you are new to this, start with passive ETFs. In an active ETF, an investment manager manages the portfolio of securities.

Investing in ETFs

There are 2 ways to buy/sell an ETF. Three points to note before investing in an ETF –

  • Ensure that you have a Demat account. It is needed to hold the ETF units.
  • Open a broker account with a broker/sub-broker.
  • Complete your KYC. You will need documents for proof of identity, proof of address and your bank account details.

You can now use the registered bank account for your ETF investments. You will need the current price of a single share to start investing. Check whether your broker is registered with the stock exchange. Now, there are two ways to buy and sell ETF shares.

  • The first way is to call your broker. You can tell the broker about your trade specifications and buy/sell ETF units through the broker.
  • The second way is to use an online trading terminal. You can place your order on the terminal.

Why should one invest in ETFs?

ETFs are considered as the ideal investment for youngsters. This is because they provide a host of benefits. Some of the benefits are discussed below.

  • Reasonable transaction charges – Compared to other index-tracking products, you incur lesser transaction charges on ETFs
  • Diversification – Diversification is a mantra that the majority of investors swear by. With ETFs, you can spread the risk over several securities. Stock-specific risk is minimum in this case. In a single transaction, you are exposed to a variety of stocks, sectors and commodities
  • Liquidity – ETFs provide ample liquidity. They can be traded throughout the day. If you have limited capital, you can immediately exit a losing investment.
  • Tax-benefits – If you are an ETF investor, the dividends you gain are tax exempt. To sell an ETF unit within 12 months, a short term capital gain tax is levied.

ETFs have the potential to produce great investment growth over a long period.

Real-Estate_resized

Financing Real Estate Investments Using Leverage

How to obtain investment property financing is one of the first things you must figure out as a new
multifamily

investor. Assuming you’re not yet equipped to pay cash, your total acquisition costs boil down to 3 primary components:

The mortgage or loan (traditional bank, mortgage broker, private lender, etc.)
Your down payment (can be out-of-pocket or financed)
Your closing costs (can be out-of-pocket or financed)

THE MORTGAGE
Of course, this is the largest of your investment property financing components, and the specific type of mortgage you get may depend on the nature of the property you are
buying.

For a functional, fully occupied multifamily structure, a standard
property mortgage

will fit the bill.

A
fixer upper,

on the other hand, may require a different funding source, because banks do not like the added risk associated with a rehab job. Additionally, the “non-functional” nature of this type of property makes it difficult to get an accurate
real estate appraisal.

Real-Estate_coin

In fact, most times these appraisals are undervalued, which could result in a bank-mandated reduction of the loan amount, or even a voiding of the deal by the lending bank.

Although I am partial to fixer-upper projects, I did not start out this way. My first few acquisitions were of the more traditional, already-functional type, using regular bank mortgages. And unless you have access to a boatload of cash or to a private lender, you will probably have to start out the same way I did – purchasing currently occupied rental properties.

Although you’ll miss out on the “fixer-upper discount,” an initial focus on fully occupied properties will allow you to learn the ropes before “graduating” to the more advanced fixer-upper stuff. This will also give you time to find a private lender you can trust, which will enable you to execute the rehab strategy.

YOUR DOWN PAYMENT

The largest out of pocket expense associated with investment property financing is usually the down payment. Down payment requirements are more stringent with a traditional bank compared to a private, non-bank lender. For example, many private lenders will finance 100% of the purchase price (not to mention closing & rehab costs), especially if the term of the loan is short (like 6- or 12-months).

But if you need to go with a traditional bank mortgage, a down payment of some sort will almost always be required. The bank’s down payment requirement is defined by the “loan-to-value” ratio (LTV). For example, an 80% LTV loan requires a 20% down payment.

Luckily, the days where lenders required a 20% down payment are long gone. As long as you have good credit, most mortgage brokers can hook you up with a 90% or even 95% LTV mortgage (i.e., you put down 10% or 5%, respectively).

Of course the upside compared to traditional 80% LTV loans is that you put less money down out of your own pocket, which also drives up your cash-on-cash ROI when you sell. However, high LTV mortgages do have downsides:

Interest rates tend to be higher
You may have to pay for points at closing (calculated as 1% of the mortgage amount)
The appraised value must be higher because there is less of an equity cushion
Any down payment that is less than 20% of the purchase price triggers
private mortgage insurance (PMI).

Because of these issues, I would avoid straight-up high-LTV bank mortgages if at all possible. A much better investment property financing alternative is to get an 80% LTV loan, and use a secondary financing source for the 20% down payment. And luckily, you do have a few
zero down options

for the down payment.

Obviously if you cannot find a secondary funding source for the down payment, then you will indeed have to pursue a high LTV loan even though this is not ideal. That said, this can be viable as long as your projected
rental property income

is enough to cover the higher payments. Then, in a few years, you should have enough built-up equity to
refinance investment property

into a standard 80% LTV, 30-year fixed-rate mortgage.

CLOSING COSTS
Unfortunately, closing costs are a necessary evil in terms of investment property financing, even when using a private lender (although bank fees will usually be higher). Click for more info on
closing costs.

FINAL THOUGHTS
The bottom line is that – in most cases – you’ll want to get an 80% LTV fixed-rate loan using a secondary financing source to fund the 20% down payment.

This gives you the best of all worlds…you minimize your out-of-pocket expense while at the same time minimizing your largest go-forward expense item as well as your risk. This maximizes the odds that you will optimize your profit when you
sell

years down the road.

So, investment property financing is not overly difficult, but it does take some time to figure it all out and find the best deal. Just follow the advice on this site and do not waver. Keep moving forward. Yes, you CAN do this!

Return from Investment Property Financing to Homepage

SBA Loans

How To Convince an SBA Loan Provider To Finance Your Business

The number of small businesses is the exact opposite of its size, which comprise the majority of businesses in the USA. According to the US Small Business Administration, small businesses account for 99.7% of all businesses in the USA, or a total of 28.8 million. These small businesses currently have 56.8 million employees and covers 48% of the total for USA.

The numbers speak the same with small business funding. Many financial institutions are taking advantage of the large market resulting in more small business funding solutions available. The same Small Business Administration (SBA) report said that there are about 5.2 million small business loans (valued at $ 73.6 billion) released by US lending firms in 2014.

SBA Loans

The market for small business lending is robust, and one can always find a solution that can fit any need and preference. A business will always have the answer on why get a small business loan. Here are some of the available small business lending solutions, and what you need to know about them:

Conventional Bank Loans

This is usually the first option when it comes to any kind of financing, whether for personal or business purposes. Small businesses, however, find its loan eligibility hard to achieve, and its requirements difficult to secure. They also deploy stringent terms and compliance measures.

The reason why most businesses flock around banks is because the bank’s loans carry smaller interest rates and they can also be generous with the amount as long as the eligibility criteria have been met. The disadvantage would have to be its strict requirements and the need for a collateral.

Alternative Lending Firms

They appeal most small businesses because of lenient terms and flexible repayment options. It is also more convenient to secure alternative funding because most providers can process your application online. This is most especially valuable for emergency cash needs.

Another advantage in dealing with alternative lending firms is their lenient terms and eligibility criteria, a lower requirement for credit score, and its faster processing and approval. The downside, however, is the excessively high interest rates and other additional upfront fees.

SBA Loans

A U.S. Small Business Administration (SBA) loan system is a funding solution backed up by the US government, which aims to support its citizens with the means to build and expand their own businesses. The SBA doesn’t provide the loan itself but serves as a guarantor to the loan coming from both private and public financial institutions that include banks and alternative lenders.

Small Business Administration partners with these financial institutions to offer a wide range of loan types that can suit the different funding needs of small businesses. It has a regulated set of guidelines, which all partners follow, in order to protect the interest of both the borrower and the lender. SBA guarantees for a percentage of the amount of every loan approved, which is about 70–90%. This minimizes the risk for the lender. On the other hand, the fact that a government small business loan is enough to know that the borrower is protected under its own laws and regulations. SBA loans offer lower interest rates than other alternative lending institutions.

The downside of an SBA loan is its long process, and it requires more paperwork. There are also top up fees to be paid when you avail.

Questions To Answer Before Getting an SBA Loan

Before approaching an SBA loan provider, make sure that you have the answer to the following questions:

  1. What is your borrowing intent?
  2. How urgent is your need?
  3. What are your business’ risks?
  4. In what stage of development is your business?
  5. How much do you need?
  6. How long can you pay the loan back?
  7. What is your business plan?
  8. How long have you been operating your business?
  9. What is the cycle of your business? Is it seasonal or consistently producing revenue?

By answering the above questions, you can help the SBA loan provider to assess your capacity and risk tolerance. It can also determine if you are eligible or not.

Reasons Why You May Be Denied From an SBA Loan

Small Business Administration loans are attractive to small businesses because of its advantages like low interest rates, flexible repayment terms, varied loan types, and primarily because it is government backed-up. Most alternative fundings compensate the higher risk involved with their grants by imposing higher interest rates, which can go as high as 80% APR.

Unfortunately, not everybody that applies for it are automatically approved. Many businesses have varied problems with small business loans that can hinder their growth, and here are the most probable reasons why you may not be granted with an SBA Loan.

Yours Is a Startup Company

An SBA loan requires for a business to be operating for at least 2 years.

You may opt for other funding options like angel investing or to a venture capitalist. There is also an online community-based funding solution like crowdfunding, which can cater to start up entrepreneurs. Cash flow based funding like merchant cash advances is also viable. There are also alternative lending companies that specialize in giving capital for startups, but the grant is not that big.

Yours and Your Business’ Credit Score Is Low

Like with conventional bank loans, SBA loans require a strong credit score, which is the most prevalent reason why most borrowers get denied.

A credit score, which most people might probably doesn’t know, is the numerical equivalent of your commitment to paying off your debts. It is computed based on your debt and credit histories with banks and other financial institutions. For example, you own a credit card. When you use your card, you will be billed on a designated cut off. If you diligently pay on time and in full amount and you are consistent with this for a long period of time, then, generally, your credit score will be high. When you do the other way around, say you don’t pay the full amount or you pay late, of course, your score will be low. But having no credit history can equally hurt your credit score because basically, there will be no means for a lender to assess your willingness and responsibility to pay.

There may be a lot of reasons why a business, or you, have a low credit score, and other alternative lending agencies are not too particular with these. Find one that can grant a loan for someone like you, which is also an opportunity to build your credit score again.

You Do Not Have Enough Collateral

Small Business Administration loans like bank loans do require a collateral. This collateral is being shared with the lender and the SBA because they share a part of the guarantee with the loan. Because of this, it may also require you a personal collateral too. This is also the reason why SBA loans cannot cater to startups because most of them doesn’t have more assets that can serve as a collateral.

Your Company’s Industry Is Part of the Grant’s Exclusions

Aside from startups, SBA loans won’t approve the loan applications of businesses in these industries:

  1. Businesses that are engaged in lending
  2. Life insurance companies
  3. Businesses outside the USA
  4. Businesses engaged in networking or any incentive-based model and pyramiding
  5. Businesses that get a third of its gross revenues from legal gambling
  6. Religion-based businesses
  7. Lobbying or political organizations
  8. Speculative businesses like oil explorations

You Don’t Want the Risk for a Personal Guarantee

Small Business Administration loans will need your personal guarantee, which meant your car, your home, and other personal assets. When you give this to the bank as a collateral, you give it the power to sell those when you cannot pay back your loan anymore.

There are other small business loan with no personal guarantee to ask from you, which may be viable if you are intolerant with this kind of risk.

So how to convince the best SBA loan providers to grant you that loan? You’ve got to be positive when it comes to these 5 C’s:

  1. Character – this implies your managerial skills or the strength of your management team. Your team should exemplify a strong sense of responsibility when it comes to their roles in your business.
  2. Credit Score – this is one important factor that SBA loan providers do look for, and it is also one of the hardest to repair. Even though you may be denied with an SBA loan, there is a lot of room in getting another small business loan provider that will fit your eligibility and needs.
  3. Capacity – a strong business plan and a steady cash flow are strong indications of your capacity to sustain in paying your liabilities.
  4. Capital – before getting an SBA loan, you should know how much additional capital you really need to finance your venture. This also includes information about the nature of your intent and the specific reason/plan for the grant.
  5. Collateral – there are different assets that can serve as collaterals other than real estate like personal assets (house, car), accounts receivables, and credit cards. When the cash flow and profits are good, it is best to slowly build up your assets, which can also help you for your unexpected future additional funding needs.
Venture Capital

Dividends and Preferences: Should You Take Corporate Venture Capital?

Corporate Venture Capital is seemingly everywhere — from Intel’s venture capital arm ranking as the #1 venture capital firm for funded deals over the last decade, to the massive hoopla surrounding Google forming a 100mm venture capital fund last May to invest in virtually any sector they see fit. In the current economic environment where 1) VC money is tight and 2) the IPO market (although marginally improved) is still quite bad, startups are increasingly taking a serious look at corporate venture capital as a fund raising solution, especially if it is the only money available to them. Anecdotally, over the last six months a large percentage of my VC-style deals have been driven by corporate or strategic VC.

Venture

For example, I helped one large “consumer goods” business seed four different high technology start-ups last quarter and also helped a different corporate VC untangle a purchase option its baby company was no longer happy with. Right now, I am working on raising a new $100mm VC fund that is targeting LPs among large companies in a particular sector and that is designed to give these large company strategic LPs a first look at its portfolio companies and their technologies. Below I give more details on the pros and cons of taking corporate venture capital. Large companies are intrigued by the siren call of venture investments. It allows them to “outsource” their R&D efforts without having to get in bed with the innovators they are seeding. They look at the relationship more as a strategic partnership then a financial play. You could say that the focus is on “partnering” rather than “venturing.” The big companies are focused on finding synergies – how can the baby company with the promising technology fill some gap in our product portfolio, or accelerate our time to market? The value to the big company is not calculated purely in terms of hard cash – rather it is also calculated in terms of the overall business proposition. The big company investor will often expect an option on the company it invests in or on the technology the target is developing. However, they typically do not want “control” of the baby companies at the outset. They prefer to make minority investments – and often will couple these with a license right or purchase option. By making a minority investment and not actually acquiring the baby company, the big company may be able to avoid or delay having to consolidate the baby company’s financials with its own – depending on its analysis of FIN 46.That the big company does not want to acquire the baby company outright can be a good thing for the owner’s of the baby company. For one thing, they may get to defer the sale of their company until a later date when, presumably, they will have hit their milestones and will have a much higher valuation. Also, it allows the baby company to have a champion – hopefully, in an industry or sector that the baby company can really use a champion.

Corporate Venture Capital

I have seen this work very successfully in the biotech space and also in certain hardware sectors – knowing that you have someone at big pharma already interested in your company can give you some peace of mind and allow you to focus on your clinical trials. The flip side of this is that you may end up discouraging any other potential partners from coming forward – which will not only seriously chill any auction process for the sale of your company or technology, but might also be an impediment to basic business success. Close ties with one big client can hurt a baby company if the partnership with big company A will prevent you from doing business with their competitor, big company B. Another thing to keep in mind is that the terms of your technology license or purchase option with the big company will typically be locked in at the very beginning. The terms of this arrangement may seem great when all you have is an idea; however, once you have traction and have hit several milestones, you may not like the pre-established price or the terms of the license. Maybe you could do better in the open market? Maybe you don’t want to sell at all anymore and the big company is exercising its purchase option? These are certainly perils. A baby company has few legal options at this point and may end up with the Hobson’s choice of taking the deal that is available or taking none at all – and potentially killing the company. A final thing to consider is that big companies are typically slower than independent VCs in cementing their deals. In a sector where speed to market is very important – such as consumer e-commerce or social media – this is a serious disadvantage. Corporate venture capital is not without its risks, but for the right baby company, can be the right choice.

Retirement Number

Retirement Number Information

A lot of people wonder how old they will need to be to retire successfully. Well, there is no “one size fits all” solution when it comes to how much you should have saved going in to retirement. It really depends; Lifestyle, income and life expectancy are but a few of the determining factors.

There are some ways to determine your progress toward a successful retirement, ways to determine your ‘Retirement Number’ – the age at which you might leave the workforce. It may be the case that your current financial trajectory is not on track with your retirement expectations and goals. Here are a few guidelines for tracking your progress toward saving for retirement:

Retirement plan

When do you want to retire?

We are living longer lives, indeed. This changes the landscape of retirement, employment and our society at large. I overheard my mother, at 61, say “I don’t know when I’ll be able to retire.” It seems to be a voice of the majority. We all chase that number – the age when we can sit back and rest on our life’s work, but that number changes. Things happen. Expenses arise. With some foresight, you can adjust your lifestyle to better proportion your income to savings to meet your retirement date expectations. It is also important to consider whether you are willing to continue working part-time for a period before stepping out of the sphere of employment altogether. Building a nest egg to support yourself entirely for 25 years is much different than a nest egg that aims to supplement part-time income for 10 years and fully support you for an additional 15.

What sort lifestyle do you expect in retirement?

Most of us begin considering retirement as soon as we enter the workforce. “That’ll be the day,” we imagine. Normally there’s a slightly wrinkled version of our current selves on some beachfront property wearing a silly hat and drinking a cocktail as part of that dream. Those visions, whatever they may be, set the stage for the kind of expenses we can expect in retirement. By crunching the numbers that take in to account your goals, be they hobbies, travel or other goals, you will be better suited to determine the amount of income you will need to suit that lifestyle.

What income streams can you rely on?

What types of income can you expect upon retirement? The most fortunate among us can expect a pension. Most of us can expect some social security payments. You may own a rental property or other assets that will generate income. Every retiree will need to develop a plan to support their lifestyle by pulling money from their investment portfolio. If your savings and investments aren’t adding up, you might consider working part time for a period to supplement before going in to full on retirement mode.

Will you have debt?

Debts have a huge effect once you switch from a state of generating new income to relying on existing investments. Heading in to retirement with a debt load will certainly impact your cash flow, and how much you can use for day-to-day, month-to-month needs. In the ideal scenario, retirees succeed at paying off significant debts like mortgages before they transition to retirement. Otherwise, you will have to factor in those debts when determining how much income you need for retirement.

Retirement

The 4% Rule

The general rule of thumb from financial advisors is that retirees should withdraw no more than 4% from your retirement portfolio each year. So, a $1million portfolio would offer an annual income of $40k. The important factor here is knowing how far that $40k will get you during a year of retirement. This is a function of lifestyle. What is your cost of living? Will you have mortgage / car payments to worry about, still? Compare your debts to reliable income streams. From there, you can gain a better understanding of what you need to have invested in order to make your annual expenses make ends meet with the 4% rule.

Prioritizing retirement lifestyle over current desires is what it often takes to segue in to a successful retirement plan. Your retirement goals determine your need for savings. The earlier you start to prioritize, plan and pursue a savings plan that encompasses the retirement lifestyle you imagine, the better off you’ll be and the sooner you will be able to determine your retirement number. A nest egg that starts early and is able to accumulate decades of interest often means additional retirement income, years off your retirement number and weight off your shoulders at a time when you will need it most.

Page 1 of 4

Powered by WordPress & Theme by Anders Norén