Why Invest In Stocks?

by: Hari Wibowo

Have you ever wondered why investors behave the way they do? For example, why do people invest in bonds or stocks or not at all? Since I am an advocate of stock investing, let me make the case for stock investing.

So, why invest in stocks? No, I won’t just invest in any kind of stocks. There are goals associated with investing in stocks. For starter, stock investors would want to be compensated more than if they put their money in the bank. Anything else? Yes. Stock investors would want to be compensated more than the risk free interest rate which currently yield around 4.7%. For your information, risk free interest rate here is the 10 year Treasury bond which is backed by the United States Government. These bonds are deemed to be free from the risk of default.

Therefore, when we invest in stocks, we would want a return in excess of 4.7%. How much more? That varies within individuals. Some wants a 5% return. Others are satisfied with 6% return. Personally, I would want at least 7% return for my stock investment. There are reasons for this. Stock investing is relatively volatile and full of uncertainty. Interest rate goes up and down which will hamper our return as stock investors. For example if interest rate rises to 8%, would aiming a 7% return for your stock investment worth the risk? Probably not. In this case, most people prefer to put their money in the bank and enjoy the higher return.

Having said that, we need to know how much stocks have given investors historically. For the US stock market, the return for the last century has been in the neighborhood of 10%. That, my friend, is the sole reason to invest in stocks. Not because you want to own a piece of corporate America. You invest in stocks because historically it gives you a better return that other investing alternatives. No other investments boast that high of a return over the last century, not even real estate.

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Clarity of Thought… A Worthy Goal

How to get clarity in thoughts

Have you ever worried about things so much that thinking through them becomes tough? Have so many options that you keep going in circles? In times of most need, thinking stops being clear. Here’s the way to get clarity in thoughts:

1. Write in points. No stories, just points.

Writing in points forces the mind to break things down into smaller logical units. Dealing with smaller logical units make things simple to understand. Points avoid going in circles, it avoids repetitions. Moreover, sometimes in extreme emotional state we tend to magnify things; be it positively or negatively. Writing points down helps to put them in the right perspective.

2. Create a table to compare details of all options.

Whenever you have to choose between varied alternatives and are having difficulty, try this. Having all the pros and cons of the options on one page definately helps the mind to process faster. Moreover, it ensures that you are not leaving any detail out. You can then simply start the process of eliminating weakest obvious option and be sure about your decision since the reasons are available on the page itself.

3. Draw a diagram to chart out your flows.

Ever had so many scenarios to think of that you lose track of them and get confused? Chart out all your if-else logic on a piece of paper / writing board. Having all your flows available at a glance helps in increasing focus and being able to simultaeneously work on all of them. Visuals also make it easy to explain the thought process to someone else.

4. Focus on one thing at a time.

Agreed it’s easy to multitask. But slow down. Do one thing at a time. Take one idea at a time. Put all your focus and energy on it. And then when you are sure you are done, move to the next. Sometimes, it’s really as simple as that.

5. Bounce your ideas / thoughts at someone.

Having someone to talk to and dumping all thoughts on is great. It clears your mind. In order to explain a complex thought to someone, you have to simplify things for them. This itself, creates clarity for you. As an added bonus, if the person is good, you might also get valuable inputs.

6. Are you really confused?

Sometimes, it’s you who’s confusing yourself to avoid making decisions. Reasons could vary – you don’t want to take responsibility, you don’t believe you can make the right decision etc. Stop doing so.

This article featured in following carnivals:

Personal Hack

Carnival of Self Mastery

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ETFs Should Be In Your Portfolio

Investment Advice: Exchange Traded Funds As Part Of Your Investment Portfolio

by: Kathryn Dawson

‘What should I invest in?’ This is the most pertinent question for most individuals striving to formulate a financial plan. Zillions of books and millions of web pages are not sufficient to answer this question. This is because investment advice is not universal and one size does not fit all. It changes as per the unique situation and specific requirements of every individual. Thus, it is essential to consult an investment expert personally to devise a customised financial plan.

For their investment and retirement plans, many people do not want an actively managed portfolio but would rather invest in the lower cost option of passive funds, which will just track the selected market index. There are currently two main options available for passive investment: tracker funds or ETFs.

Investment Advice: Understanding ETFs

Seek investment advice on ETFs to understand how they could form an important role in your portfolio. According toCNN financial experts, ETFs are “invented to combine the simplicity and low costs of index mutual funds with the flexibility of individual stocks”.

The main advantages of investing in ETFs are:

• Ability to track a wide range of market indexes, like the FTSE, S&P 500 etc.

• Diversified, global portfolio can be constructed relatively simply

• Costs can be low, but smaller investors should keep an eye on total costs of investment

• ETFs can be traded like shares

Why Investment Advice is Essential for Trading ETFs?

Investment advice from your financial advisor will help you build a well diversified portfolio that achieves your long term objectives. ETFs could form an important part of this portfolio as by buying a limited number of ETFs you could have a global, well diversified range of investments that track key market indices.

Investment Advice on Buying an ETF

Do consult with your financial advisor, as they will be able to recommend an approach that fits in with your retirement and investment goals. They will consider which range of ETFs will fit in with your overall portfolio of investments, so that it is well diversified, suitable for the level of risk you find acceptable. Your advisor will also consider the total cost of investment and the tax implications of your investments.

Here are some tips for choosing an ETF:

• There are a large number of ETFs, across a broad range of markets available. Be clear about your objectives and do your research

• Choose ETFs with proven performance records or those listed on broad market indexes.

• Try to diversify your portfolio by investing in four or five ETFs. Diversification is a smart investment option, as it diffuses the amount of risk associated with a particular product.

Keeping it simple is the best strategy for smart ETF investments. Although ETFs are not very complicated products, it is prudent to consult with a financial advisor London. They help to blend ETFs with other investment products to create a comprehensive portfolio. You can also seek other financial services, such as inheritance tax advice, SIPP investment and retirement planning, from an expert financial advisor.

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