Chris's blog

The Future Belongs to those who are Patient

 "The stock market is a device for transferring money from the impatient to the patient.” —Warren Buffet

 

As a child, we may have heard a story where ¨patience was a virtue”. ¨The Little Engine Who Could” and “The Tortoise and the Hare” are a couple of instances where consistency, perseverance, and patience paid off for the protagonists, and when it comes to investing, patience can pay off for us too. However, we will need one more thing.

Warren Buffet, a long-term investing expert, has said that ¨the stock market is a device for transferring money from the impatient to the patient, ¨ and where we can see this come into play in the stock market is within our decisions to sell, buy, or hold investments.

Sell too early, and the emotional thought of missing out on potential profits can impact decisions; wait too long, and the idea of shifting markets may preempt logical choices. So, how does patience pay off? Over the long-term, instead of constantly buying and selling, hold value-based investments, which despite short-term market volatility, can add value may do well over time.

In value-based investing we forgo the option to sell or buy in the short-term and have patience and hold our investments for the longer term. In short, holding a quality company in the long-term (with patience) can sometimes prove to be more valuable than continuous trading. Again, assuming we are not trying to make quick money from potential spikes in the market. There are times when our investing and strategy plans requires us to reallocate our investments. When we invest for long-term value, the key is patience (and time). However, changes in fundamentals of the assets in our portfolio or market conditions may require more frequent changes.

We also need a strategy and persistence. As mentioned before, it is important to plan our investment strategy: how much money is investable, how much money needs to be kept on hand, how much money needs to be held in savings, our personal allocation ratios as well as our goals and objectives.. Once we know all of the details about our portfolio, patience then becomes a valuable asset. It is not patience alone that will pay-off, but instead, strategic investment-moves paired with patience that will dictate our financial future.

What Makes the Market Rise and Fall?

The forces that move the stock market are complex, intertwined, and often daunting. To a casual investor, it can be difficult to make sense of what makes the market move. In fact, it is downright unsettling the first time you see an investment lose value.
 
Stock prices naturally rise and fall. Some industries are more volatile than others. Company news and corporate management can play a role in stock prices. Quarterly financial reports are also a contributing factor, whether they soared past expectations or fell short of production. But at the end of the day, the value of a company’s stock is based on supply and demand.

Supply and Demand

Every factor that influences a company’s stock value does so because it changes the number of investors who want to purchase the stock. When a company has a good quarter and exceeds expectations more investors may want to purchase their stock. At the same time, the people who currently hold the asset may be less likely to want to sell. The combination of people wanting to buy and not many people wanting to may sell can potentially drive the price higher if the fundamentals are strong.
 
The opposite may be true as well. When an event occurs that causes the stock to look less attractive, there maybe less people willing to buy. At the same time, investors might be ready to sell their shares. If a large number people are willing to sell their stock and there is a lack of buyers, the price may go down. 

Betting on Return

Taken as a whole, the stock market tends to have a better annual return than most savings account products. For example, the S&P 500 has a ten-year average return of slightly over 8%. (Past performance is not a guarantee of future performance.) If a savings account offered even 1% interest, it might be considered a high-yield savings account today. Many banks currently offer a fraction of a percentage point for interest on savings accounts. It is fair to say that an investor can potentially earn more money in the stock market than they can by putting their money into a low yield savings account over a long period of time. However the risk of investing in the stock market is higher than having the money in a bank savings account. 
 
The average return takes into account the performance of all the individual company stocks listed on the exchange. (Past performance is no guarantee of future performance.)  A individual company or combination of companies are not likely to have the same average return.  Investors build diversified portfolios to spread thier inestos out in order to shield themselves against potential losses. If a portfolio has many different stock holdings, then the performance of an individual holding may not have much effect on the portfolio as a whole.

Double Check Your Asset Allocation to maintain a Balanced Portfolio

If you take good care of your health, you understand the importance of scheduling an annual checkup for preventative health. The same concept holds true with investments: if you take good care of your portfolio, you understand the importance of checking to make sure your portfolio is balanced annually.

Buying and holding investments is the key to seeing a consistent return on investment. But even this strategy requires you to occasionally check in with your portfolio.

Investments that fit in the past may no longer suite your needs. Your goals, objectives and financial situation may have changed. You may want to make adjustments to your investment strategy as you move through your life. If you make regular contributions to your portfolio, as you should, your asset allocation might change due to the performance of different asset classes.   An annual checkup can help keep you on track.

If a financial advisor manages your portfolio, they should be monitoring your portfolio. However, ultimately it is your responsibility to monitor your investments. You should check in with your advisor on a regular basis. After all it is your money. If you manage your own portfolio, it is important to be aware of what classes of assets you own and how they may add value to your holdings and how both your objectives and markets conditions may change over time.

Balanced and Diversified

Every portfolio should contain holdings in different asset classes, such as stocks, bonds, real estate, mutual funds, etc. Your asset allocation, or the way that money is distributed over different types of investments, is a reflection of your investment strategy and depends on your specific goals and objectives.

For example, if you are young and setting aside long-term investments, you might consider putting more money into higher risk assets that may have a higher potential return. If you want to reduce the possibility of your investments losing value, you may want to invest your money in more conservative investments.

You need to check for balance within asset classes as well. You may want to consider purchasing assets in both domestic and international markets. You can diversify by purchasing stocks from different sectors or investing your assets into Mutual Funds or Exchange Traded Funds.

Over time, you will need to adjust your investment strategy and reconsider your portfolio holdings. Although it sounds like a daunting task, it comes down to three main steps:

Review Your Target Asset Allocation

What is your investment strategy? One investor may take an aggressive position and invest heavily in startup companies, while another might invest their money in more conservative investments. The first step to rebalancing your portfolio is redefining what your investment goals are and the best way to achieve them.

While there are many “quick” methods of calculating what your ideal mix of stocks, bonds, mutual funds, and other kinds of investments should be, the heart of your investment strategy lies in your relationship with risk. If you are not comfortable with the thought of losing money, you may want to keep a higher percentage of your money in more conservative investments. If you would rather take the chance of losing money for a higher return, you may want more money in stocks.

Your age may have an effect on how much risk you are will to take on. A young investor may be more attracted to the idea of risk because if they experience a loss, they have a longer time frame to recoup potential losses. As people get closer to retirement, they may want to avoid losing any money because they will need to begin drawing on it soon. Although not everyone feels the same in general the older you are, the less comfortable you may be with the idea of risk.

Look at Your Current Allocation

How are your assets currently allocated in your portfolio? If you keep all of your assets in one place, such as in your company-sponsored 401(k), it may be pretty easy to figure out your current asset allocation. In fact, that information can often be found on the dashboard of your portfolio account. But if your investments are spread out over different accounts, determining asset allocation is a little more difficult.

There are different tools online to help you with this task, but a simple spreadsheet can give you an overview of where your money is located.

Buy and Sell as Needed to Rebalance Portfolio

Once all of your investments are laid out, you can compare your current asset allocation to your ideal asset allocation. This often means you may have to buy and sell assets in order to rebalance your portfolio.

For example, a young investor is interested in taking on greater risk with the chance of higher returns, so he/she decides to allocate 80% of their money to stocks and 20% to bonds. His or her current portfolio has an asset allocation of 60% stocks and 40% bonds. In order to rebalance their portfolio along the guidelines of their new goals, they will need to sell 20% of their bond holdings and use that money to purchase stocks.

At the end of the day, it is a simple three-step process to bring balance to your portfolio. However, the number of moving parts in any given portfolio makes it easy to get confused and overlook things. An experienced financial advisor can help you decide which asset allocation works for you, determine your current allocation, and make recommendations for how to structure your portfolio.

The 5 C's of Credit

Lenders need to make smart choices when it comes to who to lend their money to. In fact, having a system for lenders to measure a borrower’s credit may make it less expensive to take out loans. Banks can offer lower interest rates to responsible borrowers in hopes of attracting more of them and charge higher rates for borrowers who are less likely to pay. 

Thy system used by financial institutions to determine your creditworthiness is called the 5 C’s of Credit, and they include character (or credit history), capacity, capital, collateral, and conditions. Together, they paint a picture of the borrower’s financial situation, whether or not they can afford to pay back a loan, and how likely the institution is to get their loan back if the borrower defaults. 

Character (Credit History)

Paying your bills on time every month and not letting any accounts go to collections is the first step to showing lenders you are creditworthy. The lender can see the details of your credit history on your credit report, although with any debt you have in collections or negative legal actions against you. A FICO score is a bird’s eye view of the information collected by each of the three major credit bureaus, and banks will start with your FICO score before moving through the details of your credit history. 

Capacity

Capacity refers to the actual ability to pay the monthly loan payment. To calculate a borrower’s capacity, the financial institution will look at all the debt the borrower currently has, their income, the stability of that income, and their debt-to-income ratio. A borrower is destined for failure if they get into a situation where they have to pay more on their debts each month than they have coming in as income. 

Capital

A financial institution wants to know that borrowers are serious about the loans they are being given. Capital refers to the borrower’s ability to contribute money toward the purchase price of the item requiring a loan. Placing a down payment towards a home is a common example. A larger down payment shows the financial institution that you are willing to do your part to finance the purchase. The more money you can pay up front, the more you stand to lose if you default on the mortgage and go into foreclosure. 

Collateral

A borrower is more likely to get a loan if they have some collateral to secure it. That means if the borrower is unable to pay back the loan, there is some item of value that the financial institution can claim in exchange. Collateral is fairly straight-forward when it comes to loans in exchange for purchases, such as cars or property. The loans are secured by the item. 

If you need to borrow money for something other than purchasing an item that can be used for collateral, it can be more difficult. Borrowers are sometimes able to take a second mortgage or refinance loans on the collateral they’ve built in their property. That is, borrowers can take loans on the difference between the value of their property and the amount they still owe on it. 

Conditions

Finally, the specific conditions of the loan play a role in whether or not it is a good fit for a particular borrower. This can refer to the terms of the loan, such as the length of time the borrower will pay back the loan and how much interest they will pay. But it can also refer to slightly more arbitrary conditions of the loan. For example, what will the borrower spend the money on? A mortgage for an individual’s primary residence will likely be more attractive than a signature loan with no specifications to how the money should be spent.

How to Protect Yourself Against Identity Theft

A data breach at a major company can put millions of people in danger of identity theft. Unfortunately, this seems to happen nearly every other day, with new company names splashed across the headlines each week. As security technology gets stronger, hackers and malicious actors meet the challenge of finding new ways to break it. It is important to understand what kinds of activities put your information in danger and what you can do to protect yourself from identity theft.

Secure Your Personal Information

It is possible to leave your personal information lying around, both in the physical world or online. Leaving a public computer without logging out and clearing passwords can be as damaging as losing a credit card on the bus. If you must use a public or shared computer, clear passwords. No matter what, it is a good idea to change passwords often and to avoid ones that are simple or easy-to-guess.

Shred Sensitive Papers

Bank statements, credit card offers, even utility bills can be used by thieves as part of the process of identity theft. Keeping your personal information secure means destroying papers with personal information instead of disposing of it while it can still be read. A shredder makes it easy to accomplish this task.

Phishing

Phishing is a common scam you need to be aware of it you want to protect yourself against identity theft. That is where a scam website tries to imitate a real website and convince you to enter your login credentials. For example, a scam might try to steal traffic away from Bank of America’s website with a dummy site that looks similar. If a person attempted to log into their Bank of America account, they would provide the scammers with their login credentials. Watch out for websites that do not look normal or seem off in some way.

Anti-Virus Software

There are many ways for thieves to try to access your personal information and steal your identity. One simple way to block their path is to keep your antivirus software up to date on every device you use to connect to the internet. Protection against viruses and security threats will watch for threats that you would not normally be aware of otherwise.

Knowledge + Vigilance

The only way to act against identity theft is to first know that someone has committed the crime against you. We live in a world today where there is simply no other option: individuals need to keep an eye on their accounts and credit report on a regular basis.

Everyone is entitled to a free copy of their credit report every year through each of the three major credit bureaus. Credit report monitoring is also included with an increasing number of financial products, such as credit card accounts. 

Credit Card Protections

It is more common to see credit card companies offering enhanced security features and measures designed to protect against identity theft. These features are less common on debit cards and you should be careful using them for online purchases.  When you make a purchase online, use the safest payment method available to you. You should know what protection is included on the card before using it.

Outside Investment Protection

As security breaches and identity theft becomes more common, there are an increasing number of services on the market today to help you guard your credit and identity. For example, an identity guard service might monitor your credit report for new accounts and notify you when something new is opened. If you did not authorize the account, you would be empowered to immediately act. 

Identity theft is alarming, but online shopping and banking are here to stay. We must adapt, and that means taking vigilant steps to monitor your financial identity and protect sensitive information.

Shred Sensitive Papers
Bank statements, credit card offers, even utility bills can be used by thieves as part of the process of identity theft. Keeping your personal information secure means destroying papers with personal information instead of disposing of it while it can still be read. A shredder makes it easy to accomplish this task.
Phishing
Phishing is a common scam you need to be aware of it you want to protect yourself against identity theft. That is where a scam website tries to imitate a real website and convince you to enter your login credentials. For example, a scam might try to steal traffic away from Bank of America’s website with a dummy site that looks similar. If a person attempted to log into their Bank of America account, they would provide the scammers with their login credentials. Watch out for websites that do not look normal or seem off in some way.
Anti-Virus Software
There are many ways for thieves to try to access your personal information and steal your identity. One simple way to block their path is to keep your antivirus software up to date on every device you use to connect to the internet. Protection against viruses and security threats will watch for threats that you would not normally be aware of otherwise.
 Knowledge + Vigilance
The only way to act against identity theft is to first know that someone has committed the crime against you. We live in a world today where there is simply no other option: individuals need to keep an eye on their accounts and credit report on a regular basis.
 
Everyone is entitled to a free copy of their credit report every year through each of the three major credit bureaus. Credit report monitoring is also included with an increasing number of financial products, such as credit card accounts.
 
Credit Card Protections
It is more common to see credit card companies offering enhanced security features and measures designed to protect against identity theft. These features are less common on debit cards and you should be careful using them for online purchases.  When you make a purchase online, use the safest payment method available to you. You should know what protection is included on the card before using it.
 Outside Investment Protection
As security breaches and identity theft becomes more common, there are an increasing number of services on the market today to help you guard your credit and identity. For example, an identity guard service might monitor your credit report for new accounts and notify you when something new is opened. If you did not authorize the account, you would be empowered to immediately act.
 
Identity theft is alarming, but online shopping and banking are here to stay. We must adapt, and that means taking vigilant steps to monitor your financial identity and protect sensitive informat