Browsing Category: "finance"
Was Einstein really so clever…
One of the most heavily quoted people when it comes to investing money is Albert Einstein who said that the miracle of compounding is the eighth wonder of the world.
Seems a very sensible and level headed way to look at things. But is it valid in all situations?
For many online investors I’d suggest the answer would be ‘it depends’. For those of us who have been swimming in the shark infested waters of online investing for any length of time it soon becomes clear that the allure of compounding at every opportunity can be fraught with danger and losses.
The temptation to rapidly grow what starts out as possibly a fairly small sum of money can be overwhelming and push good sense to one side. So, what should we do?
Is it always necessary to retrieve your initial investment as quickly as possible and then only have future earnings at risk?
To me the answer is not always the same. Whenever I invest I do so on the basis that the money I’m putting in is expendable and doesn’t stop me living my life or place me in any financial danger. So for me you’d think that I’d always compound earnings and only withdraw when I had a reasonable amount available to me.
Easy to say I know but in reality even I have a tolerance threshold where common sense tells me that I should recover the seed money first.
Now the question becomes what is that level of tolerance? I’m sure you all have different figures in mind as you read this post. Some people may say no sum is acceptable whilst others may be happy to invest many thousands. Of course it all comes down to personal preferences and circumstances.
As I write this post my first thought is 1,000 whatevers. And yet while I think about this a little I realise that I’m sometimes a little too carefree when joining a program so perhaps a more conservative figure would be better. Then again a 1,000 whatevers is a nice round number isn’t it? Any thoughts?
Social lending…the caring side of money making?
With the recent interest rate rise in the UK it’s probably an opportune moment to re-visit Zopa, a social lending site that aims to help bring together personal lenders and borrowers by bypassing traditional lending bodies such as banks. The idea is that by creating a ‘market’ where people who can afford to lend money to people who want to borrow it that it creates one of those elusive ‘win-win’ situations.
Very quickly after the rise in interest rates was announced Zopa sent out an email to all it’s clients informing them that they would now be able to earn a rate of 5% on any money in their lending accounts that wasn’t currently being used. This rapid response to the announcement demonstrates that Zopa are very sensitive to the financial markets and where they feel they can generate greater customer loyalty.
So, how does social lending work with Zopa. Well as with most good ideas it is pretty simple. When you apply to join you will need to complete some personal and financial details. If you wish to borrow money there will also be some credit checks done. As with most financial companies the amount you can borrow and at what interest rate will be determined by your credit rating. There is quite a wide range of credit bands available so those with a less than perfect credit history shouldn’t be put off applying.
For lenders there is good scope to determine the level of personal risk you take as you can decide the amount to lend at any particular interest rate. To reduce the chance of loss (although bad debt figures are reportedly less than the average) a lender would never be expected to lend the full amount of a loan to one person. So, for example, if someone applied to borrow £500 this would be provided by a number of lenders with perhaps some contributing £50 and others £20 or £10. This way you know that the likelihood of losing all of your money is reduced.
In the US social lending is available through Prosper, and it seems to run on a slightly different model. Borrowers put forward their reasons for requesting the money and lenders can then decide to contribute. There is much more visibility of the borrower at Prosper as they have to provide the reason they want the money and give some history of how good they are at keeping control of their finances. Interest rates charged seem to be much higher than with Zopa although this may reflect the normal rates that banks charge in the USA. Once again each borrower is given a credit rating so the interest charged for any particular loan depends on the perceived level of risk involved. The repayment period at Prosper is fixed at 3 years.
Whilst talking about borrowing and lending money a previous post talked about Kiva where you are encouraged to lend small sums of money to people in underdeveloped economies to help them grow their business. There are no interest payments made on your loan but the organisation strives to ensure that the loan amounts are repaid within 12 to 18 months.
Learn how ETF’s can protect your wealth…
One area of online investing that I haven’t dabbled with greatly is stocks and shares. Nowadays it is very easy and relatively cheap to transact online. If you have the right trading strategy then there is no reason why you shouldn’t be able to make a healthy profit even if the market is declining rather than rising.
The problem of course is finding the individual shares that will buck the trend and offer growth irrespective of what the market as a whole is doing.
Previously I’ve mentioned Investors Daily Edge as a good source of information on many aspects of market trading. One type of investment that is regularly mentioned is Exchange Traded Funds (ETF’s) and it is clear that this seen to be a very profitable place to invest if you trade wisely. Their attraction lies in the lower cost of ownership and their diversification of risk.
When I was talking to a friend about this he suggested I take a look at the website ETF Guide as he said it gives a really in-depth analysis of the whole ETF market place.
I took his advice and was especially impressed with the ETF Directory as it gives some useful links to other advisory services and also the News and Commentary page which provides all the latest information in the world of ETF’s.
The ETF market place is expanding very quickly and any resource that brings together all of the information is worth following. The site issues a free newsletter and you can sign-up for a 30 day trial of their service for free.
If you want to profit from the markets but don’t want to spend hours researching specific company stocks then ETF’s may well be a good way to go.
Help Down Under…
Wherever you are in the world one of the best ways to begin investing is to buy property. You’ll notice in previous posts that I’m actively looking to progress with this type of investment in the coming months. Time and again it has proved to be a solid investment as property price increases generally stay well ahead of inflation. Of course it’s important to ensure that you find a good deal on a mortgage and this is where lots of us need help.
Talking to a blogger in Australia he mentioned Start Finance who operate all over the country. With access to a wide range of lenders they were in a superb position to seek out a suitable mortgage on his behalf. One thing he was sold on was that they provide information on many of the issues you will face as a home buyer, as a first time buyer he was very grateful for this.
He said that the company can provide loans up to 105% of the property value.
The lenders that work with Start Finance include HSBC, Commonwealth Bank, ANZ, Suncorp and many other highly respected financial institutions. Buying a home can be stressful and anything that can be done to reduce or eliminate that stress should be grabbed with both hands.
If you live in Australia (or are planning to) and thinking of buying some property then make a note that Start Finance could be just the company to help.
