Women: Do Not Invest Until You Read This
- Calculate Your True Net Worth: Before we talk about Investing, first, every woman should calculate precisely how much free cash flow (net worth) she has in her bank account after deducting all expenses and liabilities. Make a list of everything you own, and subtract everything you owe. This is where you are right now. In investing lingo, it’s your net worth.
- Risk Tolerance Level: Once she has arrived at a particular amount, say $1 million US Dollars as a base figure (for the purpose of this article), a woman should then decide how much paper loss she can afford (more or less than 10 percent would be a good indication) and that this amount will not keep her awake and worried at night. For the purpose of this article, we shall take the risk tolerance (paper loss) at 10 percent, meaning, at any given time, she can afford a paper loss of 100,000 US Dollar (notice we said paper loss, not realized loss)
- What Kind Of Annual Returns: Now that she has decided on her risk tolerance level, a woman should then decide what kind of returns she is expecting per annum from her investment. We would suggest 15 to 20 percent per annum
- The Power Of Wealth Compounding: Depending on the level of your financial commitments, we would also suggest using the power of wealth compounding. Meaning, reinvest the 15 to 20 percent per year that you make instead of spending it and at the end of five years you can be able to yield 75 to 100 percent. When the earnings from your investments are put right back into that same investment repeatedly over the years, and that investment has positive long-term performance, that money compounds. Compounding is an ideal way to accumulate wealth, which requires no work beyond monitoring your money
- Passive Or Active Investment? The new megatrend that is currently in action in the global financial markets is passive Investment through the use of Exchange Traded Funds (ETFs). We explain that in a minute. In comparison, active Investment is where you yourself or together with your money manager make active decisions to buy specific financial instruments. Today ETFs have made passive investment possible and much more economical and with lesser risk by investing in ETFs that specialize in the equities of specific countries, in specific sectors as well as ETFs that specialize in specific assets such as bonds, equities and indexes
- What Is An Exchange Traded Fund? Exchange Traded Funds (ETFs): What is This $3 Trillion Market About? bit.ly/ETFsWhatAreThey
- Why Are We Proposing ETFs Instead Of Active Investment?
- Passive Investing is taking the global financial markets by storm and ETFs with their low fees and myriad strategies have made this possible. The world’s biggest money manager Blackrock is moving towards quantitative investment strategies from active stock picking while Warren Buffett has become a champion of passive investing stating that more than $100 billion have been drained into bad investment advice in the past 10 years
- Just how popular are exchange-traded funds? According to data compiled by Credit Suisse, only one of the 15 most heavily-traded securities on the stock market in 2016 was actually a stock. All the rest were ETFs
- Total ETF volume in 2016 rose 17% over 2015 and gained 50% over 2014. That compared to a 7% rise in trading volumes between 2014 and 2016, according to Credit Suisse. There are nearly 2,000 ETF listings, an all-time high, Credit Suisse data show
- Passive investment products like exchange-traded funds have hoovered up assets at a fast clip in recent years. US-listed ETFs saw $283 billion in net inflows during 2016, taking aggregate assets under management to $2.5 trillion, according to Citigroup. Exchange-traded funds could gain a further $2 trillion to $3 trillion in assets in the next three to five years, according to a big report on the future of the finance industry from Morgan Stanley and Oliver Wyman
- With ETFs set to see their share in the US market increase from 15% to 40-60% over the next ten years, according to Credit Suisse, fee compression in the mutual fund industry will likely continue. Morgan Stanley estimates that fees charged by active managers could shrink by more than a third in 2017
- According to Morgan Stanley and Oliver Wyman, mutual funds are now using ETFs, the very funds that have contributed to price compression, to cut their own costs. By investing in ETFs, mutual funds are able to free up time to focus on “more complex alternative investments,” the report said
- Here’s Morgan Stanley and Oliver Wyman’s explanation: “Asset allocators such as Outsourced Chief Investment Officers (OCIO) and Wealth Managers will account for a large proportion of this incremental demand as they increasingly use ETFs at near zero cost to source beta exposure, allowing them to focus their resources on high conviction managers or more complex alternative investments. However, looking beyond 2019, the emerging use of passive vehicles as an integral part of an active fund management strategy will be arguably the more significant dynamic. Currently, Mutual Funds have ~$0.5TN invested in ETFs, much of which is used for liquidity management. We estimate using ETFs rather than the traditional approach of holding individual stocks offers a cost advantage of 5-8 bps in large and mid-cap equities. As Asset Managers search for ways to deliver performance at lower costs, this may mean that mutual funds find themselves among the largest investors in ETFs.”
- How Can We Profit From This New MegaTrend?
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- Active Investing: If you have decided to go into Active Investing together with some or no passive investing, then you should find a money manager that can work with you to attain the desired results based on your risk tolerance level
- What to Look For In A Money Manager?
- Track Record: This is the most important factor in investing even though the track record is based on past trades. The frequency of your money manager’s trades and the profit/loss record will clearly show the level and proficiency of his trading experience
- Market Research/Big Data Mining: It is very important to read and understand market research and data that is published by your money manager and his firm. It will clearly show his understanding of the global market, his viewpoints as well as the accuracy of his strategies and market calls
- Listening, Understanding And Protecting Your Interests: Your Money Manager has to AT ALL TIMES clearly understand your goals, risk tolerance level as well protect your interests. NO EXCUSES AND ROOM FOR ERRORS. And this includes taking a loss and being disciplined when things do not go your way
- Leverage: You will have to decide, based on your net investable capital of $1 million US Dollars if you would like to take some leverage and use that capital to trade. IF you use leverage, then your Money Manager has to be extremely skillfull to make money from that borrowed money (most banks give 80% leverage) and not to lose it
- Do Not Follow The Get Rich Quick Syndrome: Always test income ideas with as little money as possible and then slowly increase the exposure on a trading position as you increase your profits. Unless you can really afford it, try not to add to a losing position. The greatest investors think outside of the box, not with the herd. Don’t limit your thinking to investing only in stocks and bonds. Consider small business income, real estate, and even your own home ownership in your wealth accumulation strategy
- Investing Is About Wealth Management. Let Your Mind Be Open: Investing is way bigger than choosing a few stocks or mutual funds. It’s about wealth creation and accumulation with all of the assets you have, including your skills. Investing is about wealth management. Get comfortable with all of these terms in relation to your money. Lead your wealth
- Be Clear With Your Reason To Invest: There are two main reasons you invest, and then the third reason has to do with combining the first two reasons. The very first reason that you would invest is because you want your money to grow over time. That’s also called capital appreciation in investing lingo. And it kind of makes sense; your capital is your money, and it grows, or appreciates, over time. This reason is also called growth, which makes sense.
- Time Is The Most Valuable Commodity Not Money: TIME is the most valuable commodity in Investing and NOT Money. IF you can afford the luxury of time and wait for two years or more for your investment to make returns of more than 20 percent per annum, you will be able to achieve your goal. On the other hand, it would be risky and extremely difficult if you want to, say, make 20 percent returns in a time period of less than a year
- Investing For Income: Income investing is something that people typically do when they’ve retired but it can also be something that people do if they’re in job transition, and for a little while, they need to take advantage of income generated from their investments, or maybe even use that money, or the income from their investments to live until they get another job. Perhaps an investor is launching a business as a more permanent income source, and she is temporarily living off of her investments, but typically income investing is associated with retirement
- TIME and RISK: The two most crucial elements in investing is TIME and RISK. How much Time you can afford and how much risk you can tolerate will determine the success/failure of any investment strategy. Example: Apple shares have climbed 150 percent over the last 4 years (2013 April to 2017 April). Investors who bought Apple in 2013 and could afford to wait will yield handsome returns now
- Growth Versus Income Investing: With growth as a reason, your money is going to increase in value. With income as a reason, your money is going to pay you, and you’re going to actually collect that money, either in your bank or your investment account. It’s income, and it’s going right into your banking account, or wherever it is that you choose to put that money. Income Investors who are conservative may want to invest in bonds while Growth Investors may want to invest in individual stocks, ETFs, Options, FX etc depending on your risk tolerance level
- What Are The Asset Classes To Invest In (High and Low Risk): Equities, Bonds, Options, Futures, Foreign Exchange, Exchange Traded Funds
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