Archive for February, 2010
How Much Should The Rate Of Return Of Investments Be?
Posted by: | CommentsTo a majority of investors looking at an investment, the rate of return is an important consideration. When presented with an investment opportunity, the first question they ask is the rate of return. The rate of return of investment is often examined with reference to a certain period of time.
All investors are confronted with the big question of how much the rate of return should be. What is the appropriate or ideal rate of return against which all investments can be measured? For example, your bank suggests you put your money into a time deposit account which pays 5% rate of return compounded annually, how can you tell if it is good investment with a good rate of return?
We need to take into account three important factors to answer that question properly: inflation, taxation and the highest rate of return for what is considered as the \”safest investment\”.
To start with, what is inflation? Wikipedia calls it \”a rise in the general level of prices of goods and services in an economy over a period of time\”. Inflation erodes the value of money. Your P1,000 now may not be worth much 20 years from now because of the constantly rising prices of good and services. Three years from now and you probably may not be able to buy what you can buy with your P1,000 today.
Next, what is taxation? We all understand what it is. Taxation is what keeps the government ticking. How much tax we pay varies, depending on whoever is in power.
The third factor is the highest rate of return possible for what is considered as the safest investment – government bonds. Fully backed by the government, they should be very safe. Except when the country is in a political mess, it is unlikely for a government to go bankrupt and therefore, it is also unlikely that the government will turn its back on its obligation.
These three items will provide us with adequate information for the formulation of the ideal rate of return.
In the book \”Buffetology\”, Mary Buffett and David Clark elaborate on the interplay between these three factors. The author reports that Warren Buffett, one of the world\’s richest persons and greatest stock market investor, declares that the minimum rate of return of investment should not fall below 15%. In Chapter 25 of the book, the author wrote that just to absorb inflation and taxation, you need a 7.2% return on investment. Therefore, \”to have a real increase in your wealth, it is necessary that the return on your wealth be at least equal to the effects of taxation and inflation\”.
Discussing further the effect of inflation and taxation on the rate of return, the author wrote that investing in bonds with an annual compounding rate of return of 8% would probably net a rate of return of only 0.5% (8% less 31% income tax, less 5% inflation). Or zero rate of return even, should the inflation rate rise to 9%. For this reason, if the annual rate of return offered falls below 8%, it does not make sense to invest, government bonds or not.
Warren Buffet knows the importance of having a \”wide margin of safety\”. In keeping with which, he insists on 15% rate of return. Minus inflation and taxes, he is assured with a growth of about 8% rate of return compounded annually.
What is special about government bonds that we are seriously considering it? Not only are they known to be the safest investment but it can also give the highest possible rate of return. Thus it is the standard by which all other investments can be measured. So if in your evaluation, an investment can only give an 8% rate of return for your investment, you would be a lot better off investing in a government bond that guarantees 8% return on investment, rather than risking it in other investments. But if a certain investment has a rate of return of over and above 15%, then put your money in that investment rather than in government bonds.
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Make Sure There are No Problems at Your Closing.
Posted by: | CommentsEverywhere you look, you will be bombarded with ads advertising that this particular mortgage broker has the best rates and terms for you. Frankly, many of these ads are just to draw you in and then you learn the terms are not what they advertised.
If you want to avoid being taken in by such come ons, be sure you know the lender well. If you don\’t know the lender that offers the best rate, you can find out about it. You should do this by talking the Better Business Bureau, or the government banking commission.
Another thing you need to do for a problem free closing is to pick a lender that specializes in your type of loan. Discover how long they have been in business and how long the broker you will be working with has been with the company. Working with a reputable, experienced broker is the single most important way to steer clear of headaches at closing.
Do a lot of research. Yes, it is hard to separate the wheat from the chaff, particularly on the internet. Read about the different types of mortgages available and what the payment terms are. The best thing is to make a complete list for comparison purposes.
Another thing to consider is who the rates you are quoted apply to. Often the brokers will advertise great rates, but it turns out they only apply to top rated borrowers, and other borrowers pay more. If your credit score is not the highest, you may pay a premium above the advertised rate.
After you have a compilation of rates, you can make your comparisons. Don\’t forget the old saw that if it seems too good to be true, it most likely is. You are sure to find some differences in rates, but if one lender is much lower than the others, this should be a red flag for you.
Don\’t be forced. If a broker does not take his time to explain, and give you time to think about it, cross him off your list. One sure path to headaches is to not understand the loan proposal in the first place. Do not deal with any broker who is not able to answer any and all questions.
After you have all the terms agreed upon, get a written confirmation. Check that all terms are in the written agreement, not only your rate and points. Confirm that the index on an adjustable rate mortgage is in the agreement. Check to confirm that the terms of any lock in period are in the agreement. Make sure this document is on the firm\’s letterhead and is signed by a representative of the organization. Most headaches in home loan closings are the result of issues that are not confirmed in writing ahead of time.
When you receive the written agreement, read it and understand it. Don\’t let the lender to put in legal language that you do not understand. If it does not seem to agree, have the wording changed so you protect your interests. If the broker cannot or will not do that, go back to your list and find a different lender.
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Trading Negative Vega Option Strategies
Posted by: | CommentsWhen the volatility is going down and the stock markets are moving in an upward trend, you could say that this is the right time to use the condor strategy. The Condor is a negative Vega option spread, meaning that you can make more money by using the Condor when the volatility is moving downward.
With little effort and/or changes at all, most of us Condor traders have been making money over the last few months. With this kind of income spread, at times, it can really be great! There are those times that we have very few adjustments to make. If the underlying simply trends and stays within a tight price range, then the Condor works well and you can make money in this market almost each day.
I would like to relax, enjoy your life, and make money nearly each and every day, wouldn\’t you? With the Condor it can be done! It\’s really is a beautiful way to live when the market gives you this kind of opportunity.
Now, I studied with San Jose Options, and leaned a far better, more conservative way to trade the Iron Condor option spread. It is a lower risk, safer way to trade the Iron Condor. What I learned before from other courses, and what they had me doing was very high risk. Now I can trade the Iron Condor with much more confidence knowing that my portfolio is safer than it has ever been before.
I have been making an easy 10% on this new way of conservative trading for the last few months, and believe me; I haven\’t had to make many changes at all. I can put the trade on and let the trade and my money work for me. The way I was trading this option strategy before, I was making several adjustments, but with this new trading technique, the market never hits my adjustment points, not one single time. Let me tell you, I am really enjoying trading with the stock market now.
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What You Should Know About Property With The Best Views To The Ocean
Posted by: | CommentsBuy property with the best views to the Ocean is often among the most expensive property of all. It is also one of the best investment items available. This type property often retains value even times of economic depression or recession.
When the real estate bubble recently broke, the prices of ocean view properties did not fall like many other properties. Since this property remains in high demand buyers will pay premium prices to have this property as their own. The better the view the more likely that the property will retain its value through the years.
Along any coast there is only so much property available that offers ocean views. This property has often already all been developed. Buy property with the best view is often developed first. While rural properties may be converted to residential properties, it is unlikely that they will offer the best of ocean views, thus your property will retain and increase in value each year.
Man has considered ocean view property as premium since ancient times. The ocean offers calming views with the sound and sights of the waves. The water tends to moderate temperatures so that they are better than those inland on either the coldest or the warmest of days. Property owners are afforded opportunities for more outdoor time than inland property owners. The closer to the water the more likely temperatures will be great sometime during the day.
Consider investing in a vacation home with a great ocean view. You can also use the property as a vacation rental. The better the view, the higher rate you will be able to rent your home. In many cases, rental for one week will pay the entire home payment for the property.
Persons planning for vacation rentals will want to choose properties that offer space to store personal property that is not intended for use by those renting the home but which needs to be in the home for your own use. The area may be a closet or storage area in the garage that can be used for such storage. Additionally, you may want to choose items intended for guest use with care.
There are vacation rental agencies in many ocean communities that can manage your vacation rental so you do not have to be there before and after each guest. These agencies can advertise, collect rent and provide cleaning services for your vacation rental.
You need to be aware that property near the coast will require more maintenance than those further inland. Salt air and moisture may cause the buildings to need painting more often than properties further inland. In addition, it may cause problems with metal appliances and rust. These potential problems are not significant enough that they will stop most investors from purchasing these premium properties. The return from your investment should significantly cover any additional expenses such as these.
As with all investments, there is never a guarantee of return for your dollars. Purchasers should use due diligence to investigate Property with the best views to the Ocean before making a purchase.
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