Financial freedom eludes so many people these days who by all logical conclusions and observations should have obtained it. It's commonly cited as one of the most important and sought after goals in life and yet is rarely attained. This article does not attempt to give you a magic formula for success but I do share with you the choices that made a difference to me and can, if you choose put you well on the path to freedom.
Consumption
You can choose to spend some or all of your money on "consumption" items. These include food, entertainment, holidays, housing, motor cars, hobbies, and so on. These are things we need to live on a day-to-day basis. They also consist of items that service the things we want and so improve lifestyle.
Investment
You can choose to spend some or all of your money on investment items such as revenue producing real estate, shares, interest bearing deposits, businesses that produce revenue, etc.
Consumption or investment
Two important factors need to be understood about the simple concepts of consumption and investment.
The first factor is that spending on "consumption" items results in reducing the total value of your assets (net worth). Spending on investment items aims to increase your net worth. The second factor is that you have choice. You can choose between spending on consumption or investment items.
Of course, the best spending patterns are those that aim to attain a balance between spending on consumption and investment items.
Choosing consumption or investment
You now know the difference between consumption and investment spending and that you can choose between the two.
All you need to do is to think before you spend. Consumption spending can contribute to your lifestyle (driving a new car is fun, even if it was bought on credit and has created a liability of three to five years of payments). Investment spending provides income and wealth.
Shades of Grey
There is, of course, some spending that is not clearly defined as consumption or investment. Buying your own home is considered by many to be an investment. It isn't! The purchase usually is financed and the repayments are a liability. The upkeep of a house costs money. There are rates and taxes payable on it. You do not get any revenue from it. If you plan to sell it in a few years to make a profit on its increased value, then it may be an investment. However if you have to buy another house to live in are you really any better off
Investment spending is necessary for building wealth
In order to build wealth, some investment spending is necessary. The more that goes into investment spending, the bigger and quicker your wealth will grow. However, if too much goes into investment spending, and not enough into consumption, then lifestyle can become meagre. But you can choose.
Accumulation over time
Most people are not born rich. Certainly, some inherit wealth, but consequently may not appreciate it. A few win wealth in lotteries, but ironically, perhaps because they have not worked for it, or are not used to it, could end up squandering the temporary riches.
Everyone, however, has one thing in common. The same amount of time goes past for each of us, and at the same rate. How you employ that time is significant.
Imagine that at the age of 21, you invested $1,000 at an average annual rate of return of 10%, and then by the time you reach 65, you would have accumulated over $70,000 without doing anything else.
If at the age of 21, you invested $1,000 at an average annual rate of return of 10%, and each month invested an additional $100, then by the time you reach 65, you would be a millionaire, without doing anything else.
If you did neither of these things, then the same time would pass, and you would not have accumulated any wealth.
These examples of investment, quite deliberately, use amounts of money that are affordable by most, and if spent on investment, rather than consumption, would probably not be missed.
In terms of investing, time is on your side.
Of course, you may not be 21 any more and you may wish to accumulate wealth at a faster rate. This is possible by increasing the amount invested, and the annual rate of return. It is not possible to systematically accumulate significant wealth (millions) without looking at a timeframe of several years (say 5 to 10). If you are trying to make more money in less time, then your objectives may not be realistic. Perhaps a lottery ticket, crossed fingers and large amount of luck could produce your desired result, but don't hold your breath waiting.
The power of compounding
In the above examples there is an additional factor at work. The entire return was reinvested and participated in earning the same rate of return as the original investment. None of the investment return was withdrawn and spent on consumption items.
Showing posts with label Investing. Show all posts
Showing posts with label Investing. Show all posts
Labels:
Investing
Start Investing Early in Your Career
You're young, you just landed a new job and you're going to be getting a decent paycheck. You also have bills to pay and there are also a few items that you've always wanted so now you can finally afford them.
Investing for your retirement may be the last thing on your mind at the start of a new career. Take some advice from those with a little more experience: Start investing early in your career. Start from day one and you will never miss that money you're setting aside. If your company has available a 401-K or a TSP program, jump on the band wagon immediately. If you don't have these programs at your disposal, you can still start an IRA and the concepts stated here are applicable as well.
It really does it make a difference when you start contributing. It is important to invest in your retirement account early in your career for two reasons. First, if you're fortunate to receive matching contributions, you don't want to miss out on those added contributions that are a significant part of your retirement benefit. Second, the longer contributions stay in your account, the more you stand to gain. Your money makes money in the form of earnings, and those earnings in turn make money, and so on. This is what is known as the "miracle of compounding." As money grows in your account over time, the proportion resulting from earnings will become larger compared to the proportion resulting from contributions.
The size of your account balance is going to depend on how much you (and your company if they match funds up to a certain percentage) contribute to your account and how your account grows as a result of earnings on your investments. To get an idea of what your retirement account could be in the future, look at the following projections.
Assume that you are an employee eligible for organizational contributions, that you are earning $28,000 each year, and that you receive no future salary increases. You choose to save 5 percent of basic pay each pay period; therefore you receive total organizational contributions of 5 percent. The growth projections below are for an assumed annual rate of return of 7 percent on your investments.
After five years your account balance would be almost $17,000; after ten years your balance would increase to $40,000; and after contributing for twenty years, your account would have a balance of $122,000. Clearly your balance would continue to increase each year. If you contributed for forty years, which is fathomable if you start a job at 23 and want to retire at age 63, your account balance would be $615,000. That's over half a million dollars folks! Just from contributing 5% of your income from the day you start work!
Looking at the numbers, it's hard to imagine why someone wouldn't start investing immediately!
Investing for your retirement may be the last thing on your mind at the start of a new career. Take some advice from those with a little more experience: Start investing early in your career. Start from day one and you will never miss that money you're setting aside. If your company has available a 401-K or a TSP program, jump on the band wagon immediately. If you don't have these programs at your disposal, you can still start an IRA and the concepts stated here are applicable as well.
It really does it make a difference when you start contributing. It is important to invest in your retirement account early in your career for two reasons. First, if you're fortunate to receive matching contributions, you don't want to miss out on those added contributions that are a significant part of your retirement benefit. Second, the longer contributions stay in your account, the more you stand to gain. Your money makes money in the form of earnings, and those earnings in turn make money, and so on. This is what is known as the "miracle of compounding." As money grows in your account over time, the proportion resulting from earnings will become larger compared to the proportion resulting from contributions.
The size of your account balance is going to depend on how much you (and your company if they match funds up to a certain percentage) contribute to your account and how your account grows as a result of earnings on your investments. To get an idea of what your retirement account could be in the future, look at the following projections.
Assume that you are an employee eligible for organizational contributions, that you are earning $28,000 each year, and that you receive no future salary increases. You choose to save 5 percent of basic pay each pay period; therefore you receive total organizational contributions of 5 percent. The growth projections below are for an assumed annual rate of return of 7 percent on your investments.
After five years your account balance would be almost $17,000; after ten years your balance would increase to $40,000; and after contributing for twenty years, your account would have a balance of $122,000. Clearly your balance would continue to increase each year. If you contributed for forty years, which is fathomable if you start a job at 23 and want to retire at age 63, your account balance would be $615,000. That's over half a million dollars folks! Just from contributing 5% of your income from the day you start work!
Looking at the numbers, it's hard to imagine why someone wouldn't start investing immediately!
Labels:
Investing
Should Gold Mining Investors Consider Kilgore Minerals?
We wrote about Kilgore Minerals this past winter, because it holds prospective U.S. uranium properties. While studying the company, it became evident the company's uranium would take a backseat to the company's gold property in southern Idaho. We reviewed Robert Bishop's commentary in his self-published Gold Mining Stock Report. Mr. Bishop is highly regarded as an astute junior gold stock picker, and his analysis is quite thorough. There is little doubt Bishop holds high esteem for Kilgore Minerals' Chief Executive Norman Burmeister.
More importantly, the very successful Pinetree Capital (Toronto: PNP) has made a significant investment in Kilgore. Respectively, the Chief Executive and CFO, Sheldon Inwentash and Larry Goldberg, of both Pinetree Capital and heavily touted Mega Uranium (TSX: MGA), have personally invested in Kilgore Minerals. A recent Forbes magazine article took a swipe at both Mega Uranium and Pinetree Capital. Actually, it was more of a head butt. Pinetree Capital is back to trading above C$17/share, up from a year ago when it traded for less than $3/share. So the Forbes article was a non-event for Pinetree Capital. And their holdings in Kilgore Minerals, which reportedly are estimated at between 10 and 20 percent of the company, were passed by without notice.
Property History
Kilgore's Idaho gold property has been explored since the 1930's, when a gold discovery was made by the Blue Ledge Co. Nearly 50 claims were staked in 1982 and leased to a Kennecott subsidiary in the mid 1980s. Seven holes were drilled. By 1990, Placer Dome acquired the property and drilled 39 holes, more than 21,000 feet of drilling. A Pegasus joint venture drilled another 23 holes, nearly 10,000 feet of drilling, by 1994. Echo Bay earned majority interest in the property, by 1996, after having spent $3.5 million drilling 122 holes for more than 82,000 feet. In 1997, with the falling price of gold and troubles in the mining sector brought on by the Indonesia stock fraud, Bre-X Minerals, Echo Bay dropped its exploration ambitions on Kilgore – and shelved all of its exploration projects. In 1998, Latitude Minerals continued a modest exploration of a little more than 4,000 feet.
Near the bottom of the gold bear market, Kilgore Gold (a wholly owned subsidiary of Kilgore Minerals) acquired 100 percent ownership of the property. A new round of preliminary exploration identified new gold targets. By 2004, Kilgore Gold expanded the company's property holdings to 3,000 acres. Has this property been drilled like Swiss cheese or does Norman Burmeister know what he is doing? It's had nearly 200 diamond and reverse circulation drill holes, totaling more than 126,000 feet of drilling.
In an earlier interview with Burmeister, he told us, "I'm very excited about this project. It was a property that was very high on Echo Bay's list." Major companies have expended more than $8 million to define a modest, and possibly economic, resource. At least three different entities have established resource estimates on the Kilgore gold property. In 1996, Placer Dome reported 14.1 million tons, grading 0.04 ounces/ton and with a cut-off grade of 0.015, for a deposit of 561,000 ounces of gold. A year later, Echo Bay released a sectional estimate report showing 18.7 million tons, grading 0.029, for a total of 534,959 ounces of gold.
However, the only resource estimate approved by Canadian regulators (Kilgore trades on the Toronto Venture Exchange) is the Van Brunt/Rayner Technical Report, filed in October 2002, and which is compliant with National Instrument 43-101 (NI 43-101). This report showed about 7 million tons trading 0.031, with a 0.01 cut-off grade, for an indicated resource of 218,000 ounces of gold. The report showed an inferred resource, adding another 269,000 ounces of gold. This is close enough to the Placer Dome and Echo Bay estimates, but it is unlikely to be mineable unless Kilgore finds more gold.
During the 2004 drilling program, Norm Burmeister got the sniff of what might make this an attractive acquisition by a major gold company. "We are looking for a high grade feeder system," Burmeister told us. In the previous drilling program, Burmeister got and encouraging intercept of 0.465 ounce per ton gold over 10 feet within a broader 170-foot zone of low-grade mineralization at 0.04 ounces per ton. On Tuesday, Kilgore Gold made its announcement it would commence its chase to find out if, indeed, there is an elephant discovery of gold on its property.
In an email to us, Norm Burmeister wrote, "The high-grade zone, called the "Elsa Zone", was intersected at a core depth of 410 feet. It is important to note that this hole was drilled in an area that had never been drilled some 4650 feet from the resource area." The Elsa Zone is located within the Dog Bone Ridge target area. Burmeister also pointed out, "There are no known workings in the area, and there is no known gold mineralization at the surface, thus making the Elsa Zone a true 'blind discovery.' Kilgore's blind discovery in the Elsa Zone proves there may be some prospects in the very large Dog Bone Ridge target area.
Rationale
The purpose of the 2006 drilling program, Burmeister told us, is to determine "the true potential of the Dog Bone Ridge area target." Niel Prenn, a professional engineer with Mine Development Associates of Reno, Nevada, completed a scoping level update of Echo Bay's 1996 assessment of the project. He wrote, "The project appears to have reasonably attractive economics if the 'potentially mineable material' can be doubled at $375/ounce gold price." Prenn saw the Kilgore project as one with a "large epithermal gold deposit." This confirmed an earlier geological report by Stanton W. Caddey, who wrote in an October 2003 report, "Exploration potential at the Kilgore property for more than doubling the present gold resource with further exploration drilling is regarded as excellent."
The encouraging drill hole in 2004 helped move this project to the current drilling program. "We believe the Dog Bone Ridge target area represents the core of the hydrothermal system that has generated the known low grade resource at Kilgore," Burmeister speculated. That's why he is drilling the Dog Bone Ridge target area. The first holes will be offsets to the promising 2004 discovery hole. "We don't know the direction or dipping," said Burmeister, asking "Which way does it go?" The first hole will help Burmeister orient the direction on the north side of the target. Burmeister told us, "The knowledge we hope to gain from the Elsa Zone offsets will be important in efficiently testing other Elsa 'look-a-like' definitive targets within the Dog Bone Ridge target area."
Expectations
A drill campaign tends to intensify expectations. Share prices tend to rally higher, depending upon market conditions, during a drill campaign. The company hopes to drill about twelve holes, down between 500 and 800 feet, in the target area. The first hole may be encouraging, but the results from that hole function as an identifier for where to place the next drill hole. "The best target has never been touched," said Burmeister, referring to the north side of the Dog Bone Ridge. As with many promising properties, they don't always offer the easiest access. In this case, Burmeister's expectant target on the north side of Dog Bone Ridge might only be accessed by helicopter, if that's where he has to drill.
What happens if Burmeister is accurate in his assessment? If his favored Dog Bone Ridge target does represent the core of the hydrothermal system, then what will he have found? "As such, it represents an attractive high grade epithermal vein-type gold target," Burmeister responded. "The successful interception of high grade gold during the 2004 program confirmed this interpretation."
In 1980, Burmeister founded Bull Run Gold Mines, serving as Chief Executive and developing a successful Nevada gold mine. He arranged the IPO, which led to a NASDAQ National Market listing, and ran the company for eight years.
For thirteen years before that, he was the chief geologist for Silver Standard Resources. Burmeister discovered the Mill Creek orebody in Elko (Nevada), which moved that company forward. The property was subsequently sold to Freeport-McMoran. Burmeister also conceived for Silver Standard of a novel regional exploration program, covering 10,000 square miles in the Yukon over nearly unexplored territory. In a joint-venture with ASARCO, he helped discovery the Minto orebody in the Yukon. The copper-gold deposit is now going into production through Sherwood Copper.
After forty years in the mining industry, he hopes Dog Bone Ridge will add to his string of gold discoveries and corporate success stories.
More importantly, the very successful Pinetree Capital (Toronto: PNP) has made a significant investment in Kilgore. Respectively, the Chief Executive and CFO, Sheldon Inwentash and Larry Goldberg, of both Pinetree Capital and heavily touted Mega Uranium (TSX: MGA), have personally invested in Kilgore Minerals. A recent Forbes magazine article took a swipe at both Mega Uranium and Pinetree Capital. Actually, it was more of a head butt. Pinetree Capital is back to trading above C$17/share, up from a year ago when it traded for less than $3/share. So the Forbes article was a non-event for Pinetree Capital. And their holdings in Kilgore Minerals, which reportedly are estimated at between 10 and 20 percent of the company, were passed by without notice.
Property History
Kilgore's Idaho gold property has been explored since the 1930's, when a gold discovery was made by the Blue Ledge Co. Nearly 50 claims were staked in 1982 and leased to a Kennecott subsidiary in the mid 1980s. Seven holes were drilled. By 1990, Placer Dome acquired the property and drilled 39 holes, more than 21,000 feet of drilling. A Pegasus joint venture drilled another 23 holes, nearly 10,000 feet of drilling, by 1994. Echo Bay earned majority interest in the property, by 1996, after having spent $3.5 million drilling 122 holes for more than 82,000 feet. In 1997, with the falling price of gold and troubles in the mining sector brought on by the Indonesia stock fraud, Bre-X Minerals, Echo Bay dropped its exploration ambitions on Kilgore – and shelved all of its exploration projects. In 1998, Latitude Minerals continued a modest exploration of a little more than 4,000 feet.
Near the bottom of the gold bear market, Kilgore Gold (a wholly owned subsidiary of Kilgore Minerals) acquired 100 percent ownership of the property. A new round of preliminary exploration identified new gold targets. By 2004, Kilgore Gold expanded the company's property holdings to 3,000 acres. Has this property been drilled like Swiss cheese or does Norman Burmeister know what he is doing? It's had nearly 200 diamond and reverse circulation drill holes, totaling more than 126,000 feet of drilling.
In an earlier interview with Burmeister, he told us, "I'm very excited about this project. It was a property that was very high on Echo Bay's list." Major companies have expended more than $8 million to define a modest, and possibly economic, resource. At least three different entities have established resource estimates on the Kilgore gold property. In 1996, Placer Dome reported 14.1 million tons, grading 0.04 ounces/ton and with a cut-off grade of 0.015, for a deposit of 561,000 ounces of gold. A year later, Echo Bay released a sectional estimate report showing 18.7 million tons, grading 0.029, for a total of 534,959 ounces of gold.
However, the only resource estimate approved by Canadian regulators (Kilgore trades on the Toronto Venture Exchange) is the Van Brunt/Rayner Technical Report, filed in October 2002, and which is compliant with National Instrument 43-101 (NI 43-101). This report showed about 7 million tons trading 0.031, with a 0.01 cut-off grade, for an indicated resource of 218,000 ounces of gold. The report showed an inferred resource, adding another 269,000 ounces of gold. This is close enough to the Placer Dome and Echo Bay estimates, but it is unlikely to be mineable unless Kilgore finds more gold.
During the 2004 drilling program, Norm Burmeister got the sniff of what might make this an attractive acquisition by a major gold company. "We are looking for a high grade feeder system," Burmeister told us. In the previous drilling program, Burmeister got and encouraging intercept of 0.465 ounce per ton gold over 10 feet within a broader 170-foot zone of low-grade mineralization at 0.04 ounces per ton. On Tuesday, Kilgore Gold made its announcement it would commence its chase to find out if, indeed, there is an elephant discovery of gold on its property.
In an email to us, Norm Burmeister wrote, "The high-grade zone, called the "Elsa Zone", was intersected at a core depth of 410 feet. It is important to note that this hole was drilled in an area that had never been drilled some 4650 feet from the resource area." The Elsa Zone is located within the Dog Bone Ridge target area. Burmeister also pointed out, "There are no known workings in the area, and there is no known gold mineralization at the surface, thus making the Elsa Zone a true 'blind discovery.' Kilgore's blind discovery in the Elsa Zone proves there may be some prospects in the very large Dog Bone Ridge target area.
Rationale
The purpose of the 2006 drilling program, Burmeister told us, is to determine "the true potential of the Dog Bone Ridge area target." Niel Prenn, a professional engineer with Mine Development Associates of Reno, Nevada, completed a scoping level update of Echo Bay's 1996 assessment of the project. He wrote, "The project appears to have reasonably attractive economics if the 'potentially mineable material' can be doubled at $375/ounce gold price." Prenn saw the Kilgore project as one with a "large epithermal gold deposit." This confirmed an earlier geological report by Stanton W. Caddey, who wrote in an October 2003 report, "Exploration potential at the Kilgore property for more than doubling the present gold resource with further exploration drilling is regarded as excellent."
The encouraging drill hole in 2004 helped move this project to the current drilling program. "We believe the Dog Bone Ridge target area represents the core of the hydrothermal system that has generated the known low grade resource at Kilgore," Burmeister speculated. That's why he is drilling the Dog Bone Ridge target area. The first holes will be offsets to the promising 2004 discovery hole. "We don't know the direction or dipping," said Burmeister, asking "Which way does it go?" The first hole will help Burmeister orient the direction on the north side of the target. Burmeister told us, "The knowledge we hope to gain from the Elsa Zone offsets will be important in efficiently testing other Elsa 'look-a-like' definitive targets within the Dog Bone Ridge target area."
Expectations
A drill campaign tends to intensify expectations. Share prices tend to rally higher, depending upon market conditions, during a drill campaign. The company hopes to drill about twelve holes, down between 500 and 800 feet, in the target area. The first hole may be encouraging, but the results from that hole function as an identifier for where to place the next drill hole. "The best target has never been touched," said Burmeister, referring to the north side of the Dog Bone Ridge. As with many promising properties, they don't always offer the easiest access. In this case, Burmeister's expectant target on the north side of Dog Bone Ridge might only be accessed by helicopter, if that's where he has to drill.
What happens if Burmeister is accurate in his assessment? If his favored Dog Bone Ridge target does represent the core of the hydrothermal system, then what will he have found? "As such, it represents an attractive high grade epithermal vein-type gold target," Burmeister responded. "The successful interception of high grade gold during the 2004 program confirmed this interpretation."
In 1980, Burmeister founded Bull Run Gold Mines, serving as Chief Executive and developing a successful Nevada gold mine. He arranged the IPO, which led to a NASDAQ National Market listing, and ran the company for eight years.
For thirteen years before that, he was the chief geologist for Silver Standard Resources. Burmeister discovered the Mill Creek orebody in Elko (Nevada), which moved that company forward. The property was subsequently sold to Freeport-McMoran. Burmeister also conceived for Silver Standard of a novel regional exploration program, covering 10,000 square miles in the Yukon over nearly unexplored territory. In a joint-venture with ASARCO, he helped discovery the Minto orebody in the Yukon. The copper-gold deposit is now going into production through Sherwood Copper.
After forty years in the mining industry, he hopes Dog Bone Ridge will add to his string of gold discoveries and corporate success stories.
Labels:
Investing
Financial Freedom
Financial freedom eludes so many people these days who by all logical conclusions and observations should have obtained it. It's commonly cited as one of the most important and sought after goals in life and yet is rarely attained. This article does not attempt to give you a magic formula for success but I do share with you the choices that made a difference to me and can, if you choose put you well on the path to freedom.
Consumption
You can choose to spend some or all of your money on "consumption" items. These include food, entertainment, holidays, housing, motor cars, hobbies, and so on. These are things we need to live on a day-to-day basis. They also consist of items that service the things we want and so improve lifestyle.
Investment
You can choose to spend some or all of your money on investment items such as revenue producing real estate, shares, interest bearing deposits, businesses that produce revenue, etc.
Consumption or investment
Two important factors need to be understood about the simple concepts of consumption and investment.
The first factor is that spending on "consumption" items results in reducing the total value of your assets (net worth). Spending on investment items aims to increase your net worth. The second factor is that you have choice. You can choose between spending on consumption or investment items.
Of course, the best spending patterns are those that aim to attain a balance between spending on consumption and investment items.
Choosing consumption or investment
You now know the difference between consumption and investment spending and that you can choose between the two.
All you need to do is to think before you spend. Consumption spending can contribute to your lifestyle (driving a new car is fun, even if it was bought on credit and has created a liability of three to five years of payments). Investment spending provides income and wealth.
Shades of Grey
There is, of course, some spending that is not clearly defined as consumption or investment. Buying your own home is considered by many to be an investment. It isn't! The purchase usually is financed and the repayments are a liability. The upkeep of a house costs money. There are rates and taxes payable on it. You do not get any revenue from it. If you plan to sell it in a few years to make a profit on its increased value, then it may be an investment. However if you have to buy another house to live in are you really any better off
Investment spending is necessary for building wealth
In order to build wealth, some investment spending is necessary. The more that goes into investment spending, the bigger and quicker your wealth will grow. However, if too much goes into investment spending, and not enough into consumption, then lifestyle can become meagre. But you can choose.
Accumulation over time
Most people are not born rich. Certainly, some inherit wealth, but consequently may not appreciate it. A few win wealth in lotteries, but ironically, perhaps because they have not worked for it, or are not used to it, could end up squandering the temporary riches.
Everyone, however, has one thing in common. The same amount of time goes past for each of us, and at the same rate. How you employ that time is significant.
Imagine that at the age of 21, you invested $1,000 at an average annual rate of return of 10%, and then by the time you reach 65, you would have accumulated over $70,000 without doing anything else.
If at the age of 21, you invested $1,000 at an average annual rate of return of 10%, and each month invested an additional $100, then by the time you reach 65, you would be a millionaire, without doing anything else.
If you did neither of these things, then the same time would pass, and you would not have accumulated any wealth.
These examples of investment, quite deliberately, use amounts of money that are affordable by most, and if spent on investment, rather than consumption, would probably not be missed.
In terms of investing, time is on your side.
Of course, you may not be 21 any more and you may wish to accumulate wealth at a faster rate. This is possible by increasing the amount invested, and the annual rate of return. It is not possible to systematically accumulate significant wealth (millions) without looking at a timeframe of several years (say 5 to 10). If you are trying to make more money in less time, then your objectives may not be realistic. Perhaps a lottery ticket, crossed fingers and large amount of luck could produce your desired result, but don't hold your breath waiting.
The power of compounding
In the above examples there is an additional factor at work. The entire return was reinvested and participated in earning the same rate of return as the original investment. None of the investment return was withdrawn and spent on consumption items.
Consumption
You can choose to spend some or all of your money on "consumption" items. These include food, entertainment, holidays, housing, motor cars, hobbies, and so on. These are things we need to live on a day-to-day basis. They also consist of items that service the things we want and so improve lifestyle.
Investment
You can choose to spend some or all of your money on investment items such as revenue producing real estate, shares, interest bearing deposits, businesses that produce revenue, etc.
Consumption or investment
Two important factors need to be understood about the simple concepts of consumption and investment.
The first factor is that spending on "consumption" items results in reducing the total value of your assets (net worth). Spending on investment items aims to increase your net worth. The second factor is that you have choice. You can choose between spending on consumption or investment items.
Of course, the best spending patterns are those that aim to attain a balance between spending on consumption and investment items.
Choosing consumption or investment
You now know the difference between consumption and investment spending and that you can choose between the two.
All you need to do is to think before you spend. Consumption spending can contribute to your lifestyle (driving a new car is fun, even if it was bought on credit and has created a liability of three to five years of payments). Investment spending provides income and wealth.
Shades of Grey
There is, of course, some spending that is not clearly defined as consumption or investment. Buying your own home is considered by many to be an investment. It isn't! The purchase usually is financed and the repayments are a liability. The upkeep of a house costs money. There are rates and taxes payable on it. You do not get any revenue from it. If you plan to sell it in a few years to make a profit on its increased value, then it may be an investment. However if you have to buy another house to live in are you really any better off
Investment spending is necessary for building wealth
In order to build wealth, some investment spending is necessary. The more that goes into investment spending, the bigger and quicker your wealth will grow. However, if too much goes into investment spending, and not enough into consumption, then lifestyle can become meagre. But you can choose.
Accumulation over time
Most people are not born rich. Certainly, some inherit wealth, but consequently may not appreciate it. A few win wealth in lotteries, but ironically, perhaps because they have not worked for it, or are not used to it, could end up squandering the temporary riches.
Everyone, however, has one thing in common. The same amount of time goes past for each of us, and at the same rate. How you employ that time is significant.
Imagine that at the age of 21, you invested $1,000 at an average annual rate of return of 10%, and then by the time you reach 65, you would have accumulated over $70,000 without doing anything else.
If at the age of 21, you invested $1,000 at an average annual rate of return of 10%, and each month invested an additional $100, then by the time you reach 65, you would be a millionaire, without doing anything else.
If you did neither of these things, then the same time would pass, and you would not have accumulated any wealth.
These examples of investment, quite deliberately, use amounts of money that are affordable by most, and if spent on investment, rather than consumption, would probably not be missed.
In terms of investing, time is on your side.
Of course, you may not be 21 any more and you may wish to accumulate wealth at a faster rate. This is possible by increasing the amount invested, and the annual rate of return. It is not possible to systematically accumulate significant wealth (millions) without looking at a timeframe of several years (say 5 to 10). If you are trying to make more money in less time, then your objectives may not be realistic. Perhaps a lottery ticket, crossed fingers and large amount of luck could produce your desired result, but don't hold your breath waiting.
The power of compounding
In the above examples there is an additional factor at work. The entire return was reinvested and participated in earning the same rate of return as the original investment. None of the investment return was withdrawn and spent on consumption items.
Labels:
Investing
The seeming lockstep price of Crude Oil and the Morgan Stanley Capital International EAFE based TSP 401k retirement I Fu
A friend of mine at work got into the I fund (based on the Morgan Stanley Capital International EAFE) at the right time and rode it to some great profits. He said that as oil prices rose so did the I fund. Being a curious fellow I decided to take a look and an interesting pattern appeared.
I graphed the five funds available in the Thrift Savings Plan, 401k retirement plan.
The funds are:
The C Fund is based on the S&P 500
The F Fund is designed to match the bonds in the Lehman Brothers U.S. Aggregate (LBA) index.
The G Fund invests in short-term U.S. treasuries
The S Fund follows the Wilshire 4500 index
The I Fund follows the EAFE index
I chose the start date of this graph as 5/1/2005. I chose this date for a reason. This was the start of the great price increase in oil last year. During this period, the C fund (based on the S&P 500) had a slow and steady rise. The S fund (based on the Wilshire 4500 index) had a greater rise but it was the I fund which almost seems to be in lock step with oil prices. When the price of NYMEX Light Sweet Crude rose, the I fund rose. When the price of NYMEX Light Sweet Crude fell, the I fund fell. There was not an exact percentage by percentage match but the pattern was unmistakable.
We know that the I fund, which is based on the Morgan Stanley Capital International EAFE does hold a portion of its assets in foreign oil companies including BP and Royal Dutch Petroleum. Could this explain the seeming link? Not in it's entirely as there is too much not in oil to explain. Could it be that rising oil prices are seen as bad for the US and investments are following suit outside of the US? Perhaps but even so, the C and S fund did rise as well, though there is certainly oil money in there as well.
I am prone to lay low on stocks during the summer through Mid October but an active hurricane season threatening our domestic oil fields and refineries in the Gulf of Mexico combined with the ever present risk of unpleasantness in the Middle East, might just have me ready to hit the button on an allocation back into the I fund at a moments notice.
I graphed the five funds available in the Thrift Savings Plan, 401k retirement plan.
The funds are:
The C Fund is based on the S&P 500
The F Fund is designed to match the bonds in the Lehman Brothers U.S. Aggregate (LBA) index.
The G Fund invests in short-term U.S. treasuries
The S Fund follows the Wilshire 4500 index
The I Fund follows the EAFE index
I chose the start date of this graph as 5/1/2005. I chose this date for a reason. This was the start of the great price increase in oil last year. During this period, the C fund (based on the S&P 500) had a slow and steady rise. The S fund (based on the Wilshire 4500 index) had a greater rise but it was the I fund which almost seems to be in lock step with oil prices. When the price of NYMEX Light Sweet Crude rose, the I fund rose. When the price of NYMEX Light Sweet Crude fell, the I fund fell. There was not an exact percentage by percentage match but the pattern was unmistakable.
We know that the I fund, which is based on the Morgan Stanley Capital International EAFE does hold a portion of its assets in foreign oil companies including BP and Royal Dutch Petroleum. Could this explain the seeming link? Not in it's entirely as there is too much not in oil to explain. Could it be that rising oil prices are seen as bad for the US and investments are following suit outside of the US? Perhaps but even so, the C and S fund did rise as well, though there is certainly oil money in there as well.
I am prone to lay low on stocks during the summer through Mid October but an active hurricane season threatening our domestic oil fields and refineries in the Gulf of Mexico combined with the ever present risk of unpleasantness in the Middle East, might just have me ready to hit the button on an allocation back into the I fund at a moments notice.
Labels:
Investing
Do You Want To Know Dissimilarity Between a HYIP and a Ponzi?
$8289.68 is a reality in month without work. I made it in this month without HUGE efforts. In this article I will tell you difference between a ponzi and a HYIP.
All you know that you can made money from investing into HYIP. Online HYIPs rarely provide information to their investors of what is done with their money. This makes it easy for fraudulent programs to succeed. Dishonest organizers can set up a website to look like the other HYIPs available on the net, wait for investors to place their money in their hand and then stop the activity and walk away with the cash.
What exactly is a ponzi scheme
Ponzi schemes or pyramid schemes has nothing to do with investments, business or sales. Simply because they do not trade your money or they do not sell you anything. The fact is that a ponzi scheme uses the money of new investors to pay out old investors. Some ponzi schemes are surviving a few weeks and some of them even a few months. But this is for sure they all go die after some time. Why? Because mathematically it is impossible to find new investors. Or sometimes the legal authorities find out the ponzi scheme and close it.
A true Ponzi scheme usually promotes what appears to be a real investment opportunity which investors may contribute to without actually being an affiliate, distributor etc. A pyramid scheme, on the other hand, usually requires that participants make a payment for the right to recruit other people into the scheme, at which point they will receive money.
There are a number of ways to spot a Ponzi scheme from a genuine HYIP opportunity. You can find many hyips on theHYIPs.net Firstly, be wary of schemes that offer a high daily percentage return. If a site offers you 40% a day on your investment, you should question where the funds will come from to make that level of payment. Secondly, although HYIPs often pay you for referring others to their schemes, these payments are often low. If you are offered 10% per referral it is worth considering if that may be because referrals are the only way for the system to keep going. Lastly, look closely at the site and its design and functionality. If you spot a lot of content that looks as though it has been simply copied from another website, or if the design and layout is particularly amateurish, it could well be that the organizers know that it will not be needed for long as the system is only a short term thing to make them money.
Be wary of anything that sounds too good to be true. It probably is if it sounds like it might be. Anyone that promises a guaranteed return in any amount of time is probably not legitimate. There is no such thing as a guaranteed return when it comes to investing money. And on any return there is no guaranteed amount that can be returned. So either promise is someone out to scam you. Common sense goes a long way when it comes to investing money anywhere.
All you know that you can made money from investing into HYIP. Online HYIPs rarely provide information to their investors of what is done with their money. This makes it easy for fraudulent programs to succeed. Dishonest organizers can set up a website to look like the other HYIPs available on the net, wait for investors to place their money in their hand and then stop the activity and walk away with the cash.
What exactly is a ponzi scheme
Ponzi schemes or pyramid schemes has nothing to do with investments, business or sales. Simply because they do not trade your money or they do not sell you anything. The fact is that a ponzi scheme uses the money of new investors to pay out old investors. Some ponzi schemes are surviving a few weeks and some of them even a few months. But this is for sure they all go die after some time. Why? Because mathematically it is impossible to find new investors. Or sometimes the legal authorities find out the ponzi scheme and close it.
A true Ponzi scheme usually promotes what appears to be a real investment opportunity which investors may contribute to without actually being an affiliate, distributor etc. A pyramid scheme, on the other hand, usually requires that participants make a payment for the right to recruit other people into the scheme, at which point they will receive money.
There are a number of ways to spot a Ponzi scheme from a genuine HYIP opportunity. You can find many hyips on theHYIPs.net Firstly, be wary of schemes that offer a high daily percentage return. If a site offers you 40% a day on your investment, you should question where the funds will come from to make that level of payment. Secondly, although HYIPs often pay you for referring others to their schemes, these payments are often low. If you are offered 10% per referral it is worth considering if that may be because referrals are the only way for the system to keep going. Lastly, look closely at the site and its design and functionality. If you spot a lot of content that looks as though it has been simply copied from another website, or if the design and layout is particularly amateurish, it could well be that the organizers know that it will not be needed for long as the system is only a short term thing to make them money.
Be wary of anything that sounds too good to be true. It probably is if it sounds like it might be. Anyone that promises a guaranteed return in any amount of time is probably not legitimate. There is no such thing as a guaranteed return when it comes to investing money. And on any return there is no guaranteed amount that can be returned. So either promise is someone out to scam you. Common sense goes a long way when it comes to investing money anywhere.
Labels:
Investing
International Investing: Why it Makes Sense
Of the world's 40,000 publicly traded companies, 77 percent are located abroad, a pretty good sign that there are compelling investment opportunities outside the United States. Viewed another way, 51 percent of the world's $38 trillion total market capitalization belongs to the international arena. U.S. mutual funds hold $491 billion in overseas investments.
With so many potential investments outside the United States, investing internationally becomes a great way to diversify an equity portfolio. Some people contend that there is an increasing correlation in performance between the United States and international markets. But while world markets often tend to react similarly to news or developments occurring around the globe, over time, international and domestic markets tend to behave differently, helping to smooth out the ride in a diversified portfolio.
Consider the performance of the Morgan Stanley Capital International Europe, Australia and Far East Index, which charts the progress of stocks in developed markets located in Europe, Australia and the Far East, versus the S&P 500, considered representative of the broader U.S. stock market. When one is going strong, the other tends to lag behind, and that has been the case going back as far as 1970. In addition, when the MSCI EAFE outperforms the S&P 500, it has done so by a greater margin than when performances are reversed.
In fact, during the past 10 years, the U.S. stock market has never been the leader in the global investment arena. Top performance has been the exclusive domain of international indices during that time, and the returns of the S&P 500 sometimes have lagged those of overseas peers by wide margins.
Global funds invest about half in the United States and half in the rest of the world, making them a smart way for someone with little or no experience in international investing to test the waters. A good example is American Century Global Growth, whose managers scour the globe for the best growth investment opportunities for the fund's shareholders.
You should consider the fund's investment objectives, risks, and charges and expenses carefully before you invest. The fund's prospectus, which can be obtained by calling or visiting American Century's Web site, contains this and other information about the fund and should be read carefully before investing.
With so many potential investments outside the United States, investing internationally becomes a great way to diversify an equity portfolio. Some people contend that there is an increasing correlation in performance between the United States and international markets. But while world markets often tend to react similarly to news or developments occurring around the globe, over time, international and domestic markets tend to behave differently, helping to smooth out the ride in a diversified portfolio.
Consider the performance of the Morgan Stanley Capital International Europe, Australia and Far East Index, which charts the progress of stocks in developed markets located in Europe, Australia and the Far East, versus the S&P 500, considered representative of the broader U.S. stock market. When one is going strong, the other tends to lag behind, and that has been the case going back as far as 1970. In addition, when the MSCI EAFE outperforms the S&P 500, it has done so by a greater margin than when performances are reversed.
In fact, during the past 10 years, the U.S. stock market has never been the leader in the global investment arena. Top performance has been the exclusive domain of international indices during that time, and the returns of the S&P 500 sometimes have lagged those of overseas peers by wide margins.
Global funds invest about half in the United States and half in the rest of the world, making them a smart way for someone with little or no experience in international investing to test the waters. A good example is American Century Global Growth, whose managers scour the globe for the best growth investment opportunities for the fund's shareholders.
You should consider the fund's investment objectives, risks, and charges and expenses carefully before you invest. The fund's prospectus, which can be obtained by calling or visiting American Century's Web site, contains this and other information about the fund and should be read carefully before investing.
Subscribe to:
Posts (Atom)
