Friday, May 16, 2014

Financial Jargon

Most professions have their own terminology or lingo. Unfamiliar financial terms can be very intimidating or confusing. Here are a few translations you may find useful:

Equities - stocks.

Fixed Income - bonds, CD's.

Volatility - the inevitable, daily ups and downs of the markets. (not good or bad)

Standard deviation - risk. It graphically maps historical returns.

ROI - return on investment - how much your money has grown.

Mutual funds and Exchange traded funds (ETF) - pools of stocks or pools of bonds. Vehicles which give access to multiple stocks (or bonds) at one time

Correlation - Choosing investments that do well at different times by determining the relationship of one investment to another. A way to avoid putting all your eggs in one basket.

(as in capitalization) - size.
Mid-cap or large-cap stock are terms that classify the size of a company.
A way to measure the size of a company by multiplying the number of outstanding shares by its share price.

Alternative investments - other than stocks, bonds or cash. May include precious metals, art, real estate, commodities (e.g. coffee, corn, soy beans, pork bellies).

Alphabet Soup:
ETF - exchange traded fund (grouping of stock or bonds)
IRA - individual retirement account (tax-deferred savings for retirement)
SEP - simplified employee plan (retirement plan for small business)
REIT - real estate investment trust (groupings of different types of real estate- e.g. shopping malls, office buildings, senior housing).
CD - certificate of deposit (issued by banks for a set time, a set interest rate and a set amount of money).
EFT- electronic funds transfer - a means of transferring money from one account to another.

Be proactive. Learn the language or ask for a translation. Be $ smart.

Monday, May 12, 2014

Building Wealth One Level at a Time...

Every building project begins with a plan and a foundation. Building wealth is no exception. The base of your investment portfolio will be the broadest component providing safety and stability. As you build your portfolio, the higher up, the greater the risk - and potential reward.

Let's take a quick look at what is commonly called "the investment pyramid":

Futures, options, commodities

Real estate

Small-cap stocks, junk bonds

Mid-cap stocks, lesser rated bonds

Blue chip, dividend paying stocks, municipal and AAA corporate bonds.

The broad base holds safe money - cash, savings accounts, CD's, U.S. Treasury bills, notes and bonds.

It would not be wise to jump into a "hot stock" in the small-cap area if you had not built the foundation layers of your investment pyramid. You might be taking on more risk than you can handle.

Real estate is high on the risk ladder because it is illiquid (you never can tell how long it might take to sell and realize cash in your hand).

Junk bonds are usually backed by "a promise" to pay back the money - not by colateral.

Start at the bottom. Build steadily. Be $ smart!

Monday, May 5, 2014

Protecting Your Wealth

As you build your wealth it is critical you take measures to protect your wealth.
The proper insurances - life, health, auto, home, liability - all are forms of protection against risk. Homeowner or renter's insurance provides protection in the event of fire or theft.

Life insurance is certainly essential if you have a young family or own a large home which requires two salaries to maintain it. Losing your spouse or partner can be a horrible experience but to lose your home at the same time can be catastrophic.

If you recently got married or had a child please assess your needs now, meet with an agent and put the necessary insurance in place ASAP. You are not invincible!

Older folks may not need life insurance. If children are grown and educated, if the mortgage is paid down, or if there is no one dependent upon you, then stop paying those life insurance premiums. The premiums only increase as you get older. But, if the life insurance policy is one way of assuring you have some money to leave to heirs, then that is a good reason to continue paying life insurance premiums.

Another protection is to verify your beneficiaries are correct and current. If you've recently married or divorced, or have had children please contact your bank, brokerage and HR department for Beneficiary Designation forms to make changes.

Also, is your will up to date? A will determines how your wealth is distributed. Again, major life changes (marriage, births, divorce) require adjustments to your will.
Do not try to change your will yourself. In some states, writing on a will may void it. Contact your attorney. A codicle - an amendment to a will - is appropriate for small changes. Drafting a new will may be necessary for more extensive changes.

You've worked hard to build your wealth, take the steps to protect it.
Be $ smart!