Financial Independence Compilation

Welcome to the September 19, 2010 edition of financial independence.

Bruce presents Government Mortgage Assistance with Payments | Government Mortgage Help posted at Government Mortgage Help, saying, "Mortgage Help from the Government to assist you in keeping your home from mortgage foreclosure during this recession"

No Trust Fund presents How Much House Can You Afford? Part 1: Can of Worms posted at Where's My Trust Fund?.

Wenchypoo presents Cheapest Groceries This Side of a Dumpster posted at Wisdom From Wenchypoo's Mental Wastebasket, saying, "More frugal living tips."

Silicon Valley Blogger presents Transferring Your Brokerage Account? Switch Brokers With Ease posted at The Digerati Life, saying, "Thanks!"

BackTaxesHelp.com presents Basic Guide For Taxes on Vacation Homes posted at Back Taxes Help.

money and finance

Hussein Sumar presents How to Better Understand Roth IRA Conversions posted at Roth IRA, saying, "Roth IRAs and their sister retirement plans Roth 403b and Roth 401k offer oustanding retirement investing choices for American workers & savers. While most people have heard of these plans, they do not exactly know how to take advantage of them, or yet better understand them. This becomes even more difficult when an employee transitions from one job to another company while leaving behind his retirement plan with the old company, not knowing of the choices available."

Sun presents Credit Card Rewards: Gainers and Losers posted at The Sun’s Financial Diary.

Moneyedup presents How To Protect Your Savings From The Nursing Home posted at MoneyedUP, saying, "Nursing home costs are on the rise. Learn how to protect your savings in retirement."

Alexander presents How to Enroll in a DRIP Program posted at Dividend Stocks, saying, "DRIP programs reinvest your dividend back into the stock. Learn how to enroll."

Tim Chen presents Rewards Showdown - Chase Sapphire vs Capital One Venture posted at NerdWallet Blog - Credit Card Watch, saying, "The Chase Sapphire and the Capital One Venture Rewards cards are both high-profile travel rewards cards for people with excellent credit. At first glance they seem pretty similar, and even their signup bonuses and rewards programs overlap. But when you really look at the numbers, some glaring differences appear."

Charles Chua C K presents 10 Ways to Reduce Your Expenses and still Maintain Your Standard of Living posted at All About Living with Life.

FIRE Getters presents 12 Tips To Lower Your Heating Bill posted at FIRE Finance, saying, "The cost of energy is rising everyday. Whether it be electricity, gas, water or sewage, our utility bills are becoming higher with each passing month. Consequently most of us are looking for ways to trim our energy expenses and boost our savings. As winter sets in, the cost of heating our houses will be a major concern ..."

David de Souza presents UK Income Tax Blunder – How It Happened posted at UK Tax Blog, saying, "Over 2 million people are affected by a tax blunder in the UK. We look at how it happened"

Matt T. Henterly presents How to Live Without Credit Cards posted at The SimpleChecking Blog, saying, "How to live without those cursed plastic anchors - from one who's done without them for over seven years."

share presents Why use options? posted at Options Education for Beginners, saying, "A recently started blog with daily new posts about basic options trading education"

nissim ziv presents Best Careers for Women per Skill Sets & Advantages posted at Job Interview Guide, saying, "List of best careers for women where they can better utilize their skills and advantages - women have advantages over men on particular areas and thereby some careers fit them better"

Neal Frankle presents IRA FAQ ? All the Answers You Need In Plain English posted at Wealth Pilgrim: Money Management Advice, Financial Stess Management, Addiction Recovery Plan & Resources, saying, "You need to know IRA FAQ PDQ (Pretty Darn Quick). I say this because we have to take responsibility for our own financial future. Nobody else is going to do it for us."

Mike Piper presents The Best Places to Retire posted at The Oblivious Investor, saying, "For those considering retiring abroad, what countries should be at the top of the list for consideration?"

Brian Cull presents How-to graphical budgeting posted at Living at the Top of the Bell-Shaped Curve, saying, "Simple, easy-to-use way to control your finances by graphing your budget"

Arjun Rudra presents Be Mindful Of The Risk Of Inflation Says Norman Raschkowan, North American Strategist For Mackenzie Investments posted at Investing Thesis, saying, "This past summer has taken investors on a roller coaster of a ride with capital markets rising and falling so much, it’s no wonder investors are feeling queasy. Mixed economic data may be stoking fears of a “double dip” recession, but one North American strategist, says that while there will be an extended period of moderate economic growth, the chances are slim we’ll see another actual recession hit."

Mike Ross presents 5 Life Insurance Myths That Can Cost You a Pretty Penny posted at The Budget Life Blog, saying, "There are a number of myths circulating about life insurance, and you don’t want to fall victim of a myth that could cost you – and your family – down the road. Here are 5 life insurance myths you shouldn’t believe."

BWL presents Should You Buy Disability Insurance? posted at Christian Personal Finance, saying, "This article looks at some of the reasons one might want to consider buying disability insurance."

Ryan @ MFN presents Roth IRA Rules posted at The Military Wallet, saying, "Rules for Roth IRAs, including who can contribute, contribution limits, withdrawal rules, and more."

MoneyNing presents Five Reasons You Should Give Your Kids a Monthly Allowance posted at Money Ning, saying, "Giving your kids an allowance will teach them to be more responsible."

Praveen presents Bought General Dynamics (GD) Today posted at My Simple Trading System.

Roshawn Watson presents Is Extreme Frugality For You? posted at Watson Inc, saying, "So many of us do a job we hate to pay for a consumption-focused lifestyle that we can barely afford. However, is cutting down to beans and rice really for you?"

Madeleine Begun Kane presents Tax Cut Tomfoolery posted at Mad Kane's Political Madness.

Wenchypoo presents The 50% Solution posted at Wisdom From Wenchypoo's Mental Wastebasket, saying, "How to hang onto your money--while you make it, or afterwards."

Dan presents The 7 Deadly Sins of ETF Investing – Are You Guilty? posted at ETF Base, saying, "ETFs are better than mutual funds and stocks in many aspects, but there are several risks and downsides many investors are unaware of ranging from futures roll to how leveraged ETFs work. Learn about the 7 Deadly Sins of ETFs."

One Family presents A Peek Into Our Roadmap to Financial Independence posted at One Family's Blog.

PT presents Mystery Shopper Jobs: Deciphering the Mystery posted at Prime Time Money, saying, "The truth about mystery shopper jobs, a potential way to bring in extra income."

Wenchypoo presents What's It Like Living on Food Stamps? Take the SNAP Hunger Challenge and Live on $4.50/Day For the Next Week posted at Wisdom From Wenchypoo's Mental Wastebasket, saying, "If you can meet this challenge, then make it a part of your everyday life, then you will free up tons of money for investing, emergency funds, etc. that will lead to financial independence. Later on, you will wonder the same thing I do now: if current food stamp recipients have to meet this challenge every day, why aren't THEY financially independent yet?"

That concludes this edition. Submit your blog article to the next edition of financial independence using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Share |

The risks and benefits of investing in shares

The Risks of shares

Investors should be aware of risks with any type of investments. In order to receive a return for investing your money you need to accept a level of risk. Generally, the greater the risk the higher the return.

The following list is a summary of a few risks of investing in shares: 

• Risk of capital loss - Investors are able to redeem the value of their share investment by trading them on the share market. When a company is not doing well, it may be difficult to find a buyer to purchase the shares at the price you are asking. As a result, the sale price may be lower than the original purchase price. You incur a capital loss when the value of you share has gone down when comparing to the value of the same shares at the time of purchase.

•  Volatility risk - Share prices can rise and fall rapidly and investors must accept the fact that the value of their shares may fluctuate by as much as 50 per cent or more in a year. General market risk can relate to a particular sector, e.g. mining shares are usually more volatile than industrial shares such as bank shares. Specific risk can relate to the performance of an individual share.

• Timing risk - Because of market cycles, some shares have a higher degree of risk when the overall share market has risen sharply and is set for a reaction. The opposite may apply when the market has gone into a strong decline and then starts to recover after showing some signs of stabilising. Not all sectors of the market follow the same price cycles. Understanding business cycles and how different companies perform during the different phases of the business cycle can help to manage the effects of timing risk.

• The risk of poor quality advice - Are the investment recommendations made to you supported by a thoroughly argued case, or are they merely hearsay? The more reliable information you have, the better your decisions will be. Adopting a disciplined decision-making process will help you to minimise losses while you patiently build a portfolio.

The benefits of shares

• Shares for capital growth - Capital growth occurs when the value of your investment increases. Many people invest for capital growth to build their wealth and protect themselves against inflation.
  
  People invest in shares because they offer the possibility that their price will rise. Owning shares in a company with a rising share price is one way to achieve capital growth.
  
  Capital growth is essential to investors as long as there is inflation. Inflation is a measure of the rise in the price of goods. The Reserve Bank of Australia (RBA) aims to keep inflation within a range of 2-3%. With no capital growth, your money will buy less in the future than it does now.

• Shares for dividend income - A dividend is the distribution of a company's net profit to shareholders. Dividend yields vary greatly from company to company. It is not compulsory for a company to pay a dividend.
  
  For Australian investors, dividends are often worth more than the cash payment they receive. This is because a company can also distribute franking credits for any company tax it has paid.
  
  Franked dividends carry imputation credits, which entitle shareholders to a tax offset or a reduction in the amount of tax to be paid. If your marginal rate of tax is lower than the company tax rate, the excess franking rebate can be used to reduce the tax payable on other sources of income.
  
  In addition to rising share prices, dividend re-investment plans (DRP) can multiply the capital growth effect of a share investment. DRP is an alternative to cash dividends, allowing shareholders to purchase new shares instead of receiving a cash dividend. These shares are often issued at a discount to the current market price and no brokerage is paid.

• Capital gains tax (CGT) - Shares enjoy good taxation benefits in comparison to most other investments. You realise a capital gain whenever you sell shares and the consideration received (sale price less related costs such as brokerage) is more than the cost base (purchase price plus related costs).
  
  If the shares were acquired on or after 20 September 1985, the capital gain must be included as assessable income in your tax return and is subject to CGT. CGT is payable at your marginal tax rate in the year in which you sell the shares.
  
  For shares acquired on or after 21 September 1999 and sold 12 months or more after the date of acquisition, capital gains may be discounted by 50%; meaning only half of the capital gains must be included in your assessable income.

• Financial control - Shares' flexibility and liquidity are key advantages. In particular, the ease and low cost involved in buying and selling relatively small amounts and the control that gives you; whether to free up some cash, re balance your portfolio or simply realise a profit.
  
  Many people appreciate how easy it is to invest in shares. There is no conveyancing cost, stamp duty or ongoing expenses. You can do everything over the internet if you wish, and brokerage fees are much lower than typical real estate agent fees. So you can start small, buying companies you know, and take the time to learn as you go.

 

Please note that this is an Australian website. Laws and regulations will differ in different countries. It is of vital importance that you check your tax laws before investing in shares.

This article is based on the ASX share course, version 3 2008, course 3. (http://www.asx.com.au).

Why invest your money

Investing and finances independence means something different to everybody: being able to retire at 50, setting up your own business, paying the mortgage, writing a novel or traveling the world. To achieve your goals consider how much you will need, and then think about how you can invest your money to help you achieve these goals.


There are a few different strategies to invest your money, this article will look at 2, investing for capital growth or investing for an income.

Investing for capital growth

Capital growth occurs when the value of your investment increases. Most people invest for capital growth to build their wealth over time and protect themselves against inflation.

Investing for income

People can seek an income stream from their investments in order to supplement their primary source of income. Many retired people live off the income from their investments (e.g. dividends from shares and rent from property). Fixed interest products such as bonds and hybrids offer a potentially regular income stream.

There are some investment strategies that will give you capital growth and regular income. An example is properties. In the long term property values generally go up in value. If you are investing in properties and you have tenants you will also have rental income. Properties therefore have the potential to give you income and capital growth.

Before investing, think about your short and long term objectives and devise a strategy to support you in achieving your objectives.