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When People Invest?

Saving essentially means storing your money; investing means using your money to earn more money. You don’t have to be wealthy to invest. But you have to invest if you ever want to be wealthy, or even have enough money to live well and retire well.

As with saving, when you’re considering investing you first need to set your goals. You need to be clear about what you’re trying to achieve, and how long you’ve got. That will influence the investment decisions you make.

Risk and return

Every investment entails a degree of risk. The larger the potential return on any investment, generally the higher the risk it has. This means the greater the chance of large fluctuations in its value over time – from significant gains to possibly the of loss of some or all of your initial investment.

If your investment is classed as ‘low risk’ it means that its returns will be lower, but the risk is less. However, if the return of the investment is lower than the inflation rate, the buying power of your money will also decrease. So even ‘low risk’ investments carry a significant degree of risk.

Timing is also a risk when you have to sell an investment. The market could be in a downturn, so you won’t get the best price. Similarly, you may sell your investment too early because you have lost confidence in it and then if the market improves you could lose out. Everyone’s tolerance of risk is different, and it will vary depending on your stage in life, as well as your circumstances.


If all this information about risks leads you to the conclusion you don’t want to put all your money into the one investment but instead several, then you’ve started to think about diversification.

Diversification is when you divide your investments into different areas to reduce the overall level of risk. Like the truism: ‘Don’t put all your eggs in one basket’, diversification is a fundamental aspect of investing well.

For example, a balanced investment portfolio (a group of investments) can include a range of high risk, moderate risk and low risk investments such as property, shares, managed funds, and other investments.


Imagine that your goal is to travel the world. You want to leave in six months’ time and you haven’t saved nearly enough money yet, so you decide to invest to try and make up some of the difference.

You could punt on high return investments, but as they carry a higher risk, if they fell in value, there may not have enough time to make up the loss. So if you were prudent you would generally choose a lower risk investment with lower returns, or a mix of both high and lower risk investments (with more of the latter), to balance out the risk and returns.

If you planned to travel in three years’ time, you would have the luxury of being able to choose a greater proportion of higher risk investments with higher returns, because you would have more time to make up any temporary falls in their values.

This simple example shows how risk levels and timeframes (the amount of time you hold your investments) are interrelated, and you shouldn’t consider one without the other. Generally, the more investment time you have, the greater the investment risk you can afford to carry, and hence, the higher your returns over time.

Do your research

When you start to look for investments, there are three basic areas that you need to consider:

The amount of time that you have to let your money grow.
The level of risk that each individual investment carries.
How to combine the individual investments in a way that will reduce your risk, yet give the level of return you want. You shouldn’t consider any one investment in isolation, but rather, how each would work with the others in your investment portfolio.

Borrowing to invest

If you don’t have all the money you need for an investment, you may be able to take out a loan from a financial institution. Don’t forget to shop around for the best loan option for your needs, and make sure you’ll be able to manage the repayments. You should seek professional advice before borrowing, and try to have some money in reserve in case things go wrong. Because if your investment doesn’t go the way you planned, or you lose your job, you’ll still need to meet the loan repayments!

6 Important Tips for First-Time Startup Investors

An angel investor used to be defined as someone with a high net worth. They typically have more than $1 million and privately invest money in startup businesses that are seeking capital. The SEC restricts investing in private deals to mostly accredited investors. I say mostly because there are some opportunities for non-accredited investors to participate on a limited basis. The definition of an accredited investor in the U.S. is a person who either has a net worth (excluding a primary residence) of $1 million, an income of $200,000 per year for the last two years, or $300,000 in household income per year for the last two years.

Angel investing has gained a lot of popularity despite anxieties over the bubble bursting. You need to understand what you are getting into before making that first investment. The general rule is that you shouldn’t invest more than 10% of your net worth, since startups can be risky. Investments typically range from $25K to $250K, but with startups needing less capital to launch these days, the amounts are shrinking.

Aside from the accredited investor rule, you don’t need to have any additional qualifications to become an angel, but you do need to make sure you understand the following concepts.

1. Be Ready to Write the Check
Make sure you have access to your capital so that when you find a great startup you have the money readily accessible to invest. You don’t want to have to wait to liquidate a CD or a stock, or try to get money out of your IRA and watch a great opportunity pass you by. Also, you don’t want to waste the startup’s time if you can’t get access to your funds. You can develop a bad reputation if you start committing and backing out of deals at the last minute. The startup community is a huge network, and word travels fast if you are unpleasant to deal with.

2. Understand the Risk
The majority of startups fail. As long as you understand the investment may be risky and you might not get your investment back, then you are at least being realistic when thinking about investing. If you stress too much while writing the check, it means it may not be the right time for you.

3. Investing In Multiple Deals
Given the high rate at which startups fail, it’s wise to spread your risk by investing in more than one. The goal is for a few successful startups to more than pay for the ones that fail. Ron Conway has made this “Spray and Pray” strategy successful. The thought is that you invest in a lot of deals early on and then narrow your focus in on those that are more successful and require additional funding.

4. Investing Takes Patience
You need to realize that even if your startup is successful, it could take five or more years to get your investment back. The most common way to get your money out of a private company is a liquidity event, such as a public offering or an acquisition by another company. Those events take time, sometimes even up to 10 years. Be patient.

In the past few years there have been additional opportunities for investors to sell off shares. For example, Groupon raised almost $1 billion, some of which was to allow shareholder liquidity. Also, new platforms like SecondMarket and Sharespost help with liquidity by linking your company shares with an interested buyer.

5. Understand the Exit Strategy
Every startup should have a clear exit strategy that they can share with investors. They should have a list of competitors who might be interested in an acquisition or the plan could be to go public like LinkedIn or Facebook. If you’re not clear on how the startup is going to exit, or they can’t give you a list of potential competitors, you should think twice about investing.

6. Mentoring and Connections
While you’re assessing a startup for investment, the startup is probably looking at what you can bring to the table besides a check. A big part of angel investing is helping out the companies you invest in by either mentoring them or connecting them to additional people who can help them succeed. In the end, investing isn’t just about the money.

Helping an entrepreneur who is trying to build a great company can be extremely rewarding. You are also surrounded by smart, creative people who come up with really interesting ideas. The downside is that it never gets any easier saying no to someone who is passionate about a project.

by Bill Clark, the CEO of MicroAngel Capital Partners,, a venture firm that gives more investors access to alternative investments. He also gives investors the ability to invest in startups online through crowdfunding.

How do I get the money to invest?

There are two basic sources of money for investing–your own money and other people’s money (so-called OPM). Your own money can come from sources as diverse as cumulative life savings, your most recent paycheck, and dividends and profits from your own investing. Common examples of OPM, used for both investing and consuming, are credit card debt, car loans, real estate mortgages and loans or investment capital that can come from family, friends and others in partnerships.

Getting Started With Your Own Money

Often in life, what’s most important is getting started on the right foot. In the case of investing, this means putting some money aside, however small, and setting up a suitable investment program for yourself.

To extract “seed capital” for investing, the place to start is with your own personal income statement. You need to arrange your personal finances, so that your income from all sources exceeds your total expenditures. Practically speaking, this usually entails a combination of elements such as:

Income Side: Finding a job that pays better, asking your boss for a raise, saving the incremental pay you receive from your next raise, taking a side job to earn extra income, saving any money gifts and cash bonuses you receive, training (or retraining) yourself to work in an occupation that offers a higher salary, etc.;

Expense Side: Moving into a house or apartment that has lower rent, finding a roommate, renting out rooms in your own house, driving a reliable but affordable car, going out to eat less frequently, spending vacations closer to home, looking for sales when shopping, buying necessities and not luxury items, etc.
The point is that you’ve got to figure out a way to save some money that will serve as the “seed” to start investing. You might think that $100 or $1000 is “small money,” particularly if your financial dream is to become a millionaire, multi-millionaire or billionaire. However, for the sake of your own long-term financial health, you must, as early as possible, establish personal habits that are conducive to wealth-building. In my opinion, successful investing really begins with having the discipline to “live within your means,” spending less than you earn and thereby continually augmenting your investment capital. Once you are a prudent manager of your own personal money, you can begin to supplement your investment portfolio with other’s people’s money.

Using Other People’s Money

Having access to sources of money other than your own, which typically means borrowing or using OPM to leverage your own capital, can potentially produce higher investment returns. Some authors (like Kiyosaki, as you cite) make a distinction between: “good debt,” like a mortgage on rental property, which can be serviced using rent paid by tenants; and “bad debt,” like an auto loan, which you might take out on a new car and now have to service with your own money. Others distinguish between good debt on appreciating assets, like real estate and stocks, and bad debt on depreciating assets, like cars and elegant wardrobes. Still another useful point of view is that good debt produces cash flow, while bad debt does not.

To these dichotomies between good and bad, I would add a measure based on lowest cost of capital:

Good debt is necessary borrowing within reasonable risk limits at the lowest available cost of capital, regardless of source, so long as the expected return on your overall investment portfolio exceeds your cost of capital. Bad debt is borrowing that doesn’t meet the specified good debt requirements.

Here are some examples to help illustrate:

New Graduate in New Job: You’ve recently graduated from college and taken a career-oriented job. Your income from work is enough to cover your rent and living expenses, make payments on your student loan, and save a few hundred dollars each month. You are eager to start investing in stocks, have faith in Steve Jobs’ leadership, and want to buy Apple (Nasdaq: AAPL), thinking that the stock will continue to rise on the strength of the company’s newly released iPhone and upcoming lower-priced model. Your available sources of investment capital are: $2000 in a savings account, a cash advance on your credit card at 18% interest, or a private loan from a friend who says you can pay him back in a year with interest in arrears at 10%.

My suggestion: Continue to save what you can from your paychecks. In a year’s time, when you have a few thousand dollars more in savings, reconsider making the proposed investment if you still have the same outlook on Apple’s business prospects. Neither the 10% private-party loan nor the 18% credit card loan is attractive, since your investment return could easily fall shy of these levels if Apple’s sales or earnings falter or the stock market sags on unencouraging macroeconomic news. Also, you ought to maintain a few months’ living expenses in your savings account, as a buffer against unpredictable changes in your job situation. Be patient. During the upcoming year, you might find even better investment opportunities than what you are seeing today.

Homeowner Buying a Car: Suppose you are buying a factory-certified, pre-owned Toyota Prius, since your gas-guzzling minivan has blown an engine gasket and you are in dire need efficient wheels to get around. To pay for the car, you have three choices: sell $15,000 of stock or other investments, borrow on your home equity line at 8% APR, or take out an auto loan at 7% APR. Based on the bad-debt-on-depreciable-asset thinking, you would eliminiate the auto loan from consideration. The bad-debt-if-you-have-to-service-it-yourself thinking would knock out the home equity line choice as well, leaving only the investment liquidation alternative. But you don’t really want to sell stock that you currently own, since you feel confident that you can continue to achieve returns higher than 7% on your investments, since you’ve been averaging 10% over the past seven years, through both down (2000-2002) and up (2003-2006) markets.

My suggestion: Assuming you are comfortable with the additional portfolio leverage and have adequate cash flow to cover the debt service payments, take out the auto loan, since at 7% it is your lowest available cost of capital and is lower than the 10% return you expect on your investments. Think of the auto loan as not a wasteful loan on a depreciable asset but as your most efficient way to borrow funds within the context of your overall portfolio.

Investor Considering Second Mortgage on Investment Property: You have been out looking for investment property and have found a $500,000 apartment building that looks attractive and will, at 75% loan-to-value, provide positive cash flow with an expected 10% total return. Banks will lend only up to 65% loan-to-value ($325,000), and you can take out a second mortgage for the remaining 10% ($50,000). The interest rate on the second loan is 9%. You may alternatively tap your home equity line at 8% interest to come up with the remaining $50,000 needed to buy the apartments.

My suggestion: Even though the home equity line directly involves payments that you will have to make on your house instead of on the apartment investment, it is your lowest available cost of capital. Therefore, go ahead and tap the equity line on your house, and proceed to make a back-to-back loan into your investment property with terms matching your home equity loan. By effectively transferring the financial burden from your house to your investment property in this way, you achieve your lowest cost of capital and optimize your expected investment return on an overall portfolio basis.

Crossing the Finish Line

Investment capital, then, comes from a combination of your own money and other people’s money, with the mix depending on your situation. A few key tenets to keep in mind are:

Savings: Anyone who is seriously interested in starting to invest ought to be able to save some money. Even putting aside just $100 a month is enough to begin to accumulate significant capital for investing.
Patience: However eager you may be to begin buying stocks or real estate, realize that market opportunities will change but will not go away. Getting started a year from now with investment amounts and risk levels that suit your own financial situation is better than rushing to get started today with excessive leverage or using other people’s money on terms unfavorable to you as borrower.
Risk Management: So much of successful investing is risk control. Of course, we all seek higher returns, but knowing how much and on what terms to borrow is important. Do not borrow at rates that are higher than you can honestly achieve through your investments.

I think it is helpful to view investing as a life-long race in which you lead with your own money and add, as follow-on, other people’s money when you can do so prudently. Relying solely on your own money, you may end up growing your net worth more slowly but you’ll never go bankrupt and you will finish the race. At the other extreme, relying too much on OPM, you could grow rich quickly, but you also run the risk of losing it all and never crossing the finish line. Ultimately, the art of successful investing involves pursuing the optimal path at each stage, walking the fine line between too conservative and too aggressive.

posted by Lloyd Sakazaki

How to Invest Your Money

When you’re learning how to invest money, it’s wise to learn from the masters. These tips learned from professional money managers will help you get started on your way to investing for retirement and profit.

Things You’ll Need:

Pen, pencil, paper
Internet access

Step 1
Think of Boring Stocks. When you’re first thinking up companies to research for potential stock purchases, think dull. Think about what you use every day – tape, staples, computers, shoes, printer cartridges, paper, and dishes. What companies make these items? You can start your research there.

Step 2
Write Down Your Ideas: When you’re trying to think of companies to research, consider those not widely exposed to the population that have a product (shoes, tacos, computers) you think is excellent. You might find a good company with a lot of room for profitable growth.

Step 3
Research Your Choices: You can find numerous places on the internet to research a company’s debt, etc. Yahoo offers such services. Look at the links listed below to find good places to learn more and research.

Step 4
Check the Company’s Debt and Earnings. Make sure the company operates with low debt and that they have consistently increasing revenue from quarter to quarter. If they have high debt, trouble can happen when times get tough.

Step 5
Continue Learning. Learning how to invest your money is a process. Read books by Peter Lynch, Ric Edelman, and Warren Buffet. The books are better than magazines because, in books, you can learn a process from successful money managers.


Never invest in any idea you can’t illustrate with a crayon,” said Peter Lynch, who managed the Fidelity Magellan Fund for 13 successful years. In other words, you should easily be able to explain what the company does.

Don’t buy a stock because it’s cheap. Buy a stock you have researched and know a lot about.

Don’t let yourself follow “hot tips” blindly. Stick to completing your research.

By totville

Investment Risks

Picture this:

In search of investments for working capital, an oil company sends consumers surveys of property that suggest the land is oil-rich. The company’s sales force tells interested consumers that top oil experts project the fields will yield thousands of barrels of oil a day — and a tidy return to investors within a year.

A film production company tells potential investors it is raising capital to produce a high-quality, low-budget family film with actors who are willing to sacrifice their usual high salaries for the sake of art. Claiming that the independent film market, cable television and video stores have increased the demand for movies, investors are “guaranteed” to make their money back. According to the prospectus, investor money will be spent on production, distribution and the screenplay.

Brokers of gemstones, rare coins or precious metals tell investors that the market price of these hard assets is skyrocketing. According to the brokers, the assets will increase in value — not only because experts have graded them rare, but also because of the demand.

Brokers of an FCC-licensed partnership tell consumers they’re raising capital to acquire a communications business that can be enhanced with new technology and turned into a competitive high-tech enterprise to be sold or developed for huge profits.

Investment brokers are claiming to sell ownership interests in a company that will offer Internet access to the public. The brokers maintain that investors will realize substantial gains from the fees the company will charge its users.

What’s wrong with these pictures? In a word — plenty.
The oil surveys are fake. The land owned by the company has not been drilled for oil, and in a legitimate deal, much more capital is required to determine if oil could be produced from the land at all.

The principals of the film-flam scam are the “producers” and “screenwriters.” They take most of the money raised and then use a small amount to produce a low-quality film that is unlikely to turn a profit, let alone be released commercially.

Gemstone, rare coin or precious metal scam promoters often charge very high mark-ups and, as a result, consumers who try to resell their assets almost always lose most of their money.

The communication technology promised may be unavailable, unworkable or too costly. The partnership brokers take most of the money for themselves after they acquire low-tech businesses for consumers that would require millions of dollars more to have even a slim chance at turning a profit.

The fraudulent promoters generally structure the deals to siphon off at least 85 percent of investor money, never intending to turn over a functioning business with Internet expertise, equipment or staff. Investors are left with little capital, expertise or business with which to compete on the Internet.
It’s easy to make a new venture sound like a sure-fire money-maker, especially if the press is writing about successful legitimate companies in similar industries. Fraud promoters create the illusion of authenticity and success by incorporating, renting office space and issuing partnership units or stock certificates. But while they claim to offer investments in exciting sounding businesses or sell lucrative assets, they deliver cheap imitations of what they promise. As for consumers, they remain unaware that they’ve bought something of little or no value until their money is gone and profits have not materialized.

Pre-Investment Questions

Fraud is always a possibility, even with secured, regulated investments. Before investing, ask tough questions, both of yourself and those who are soliciting your investments. If the answer to any of these questions is “no” — or if the answers are vague or complicated — more than likely the investment being pitched is a fraud.

Is the company I’m investing in registered to sell securities?
Be cautious if the company selling you stock, assets, or partnership units has not registered its securities. Companies that register their securities file prospectuses and annual reports with securities regulators. If a promoter tells you that your investment is “structured” to exempt the securities of the company from registration, you may be dealing with an outfit that’s purposely avoiding contact with regulators.

Is it “too late” if I don’t invest my money now?
Using sales scripts, scam artists create the impression that only a few shares of stock or partnership units are left. They try to convince you that you’ll miss out on a big opportunity if you don’t send them thousands of dollars by overnight courier or wire transfer. Once you give your money to a scam artist, it may be too late to get it back.

Does the investment have a track record?
Claiming that their “opportunity” is similar to those of “hot” entrepreneurs, scam artists often use news stories about the success of legitimate companies as bait. Unfortunately, success stories of other companies in the field are irrelevant for your purposes. Get the track record of the company you’re considering investing in and the background of the people promoting it.

Where is my money going?
Legitimate companies account for investors’ money at all times. Ask for written proof of how much of your money is going to the actual purchase or development of the opportunity and how much is going to commissions, promoters’ profits and marketing costs. If most of your financial investment is slated to cover expenses and costs, much less will be available to earn a return. Telemarketing is particularly expensive; if you are investing in a telemarketed investment, how much are your brokers getting paid to talk to you?

Do I have an independent, knowledgeable, trustworthy person who can advise me?
Get an independent appraisal of the specific asset, business or venture you’re considering. An appraisal offered by the party selling the investment opportunity can be fake. Talk to the previous owners of an asset or a business you’re acquiring for its value history. Discuss all investment ideas or plans with an accountant or an advisor you know and trust.

Do I know who I’m dealing with?
Can you find published information about the company in which you’re investing, proof that the company has registered the securities it is selling with a government agency (if required), or someone you trust who has heard of the company? Have you checked with your state securities agency to see if the promoter or sales person is licensed to sell securities in your state, if required? If not, be cautious. You’re giving your money to strangers.

Checking law enforcement agencies and Better Business Bureaus in the community where promoters are located is prudent, but not fool-proof. It may be too soon for the company’s victims to realize they’ve been defrauded or to have lodged complaints with the authorities. In addition, fraudulent promoters can lie about their name or their business history, or even pay people to be “references.”

Can I tell a genuine company from a fictional one?
Don’t let appearances fool you. For a few dollars, anyone can incorporate an entity. Personal computers and desktop publishing software help scam artists produce slick promotional materials. Phone service providers can put toll-free telephone numbers in homes.

Did my sales representative tell me the risk of losing my money was high?
Sales representatives should tell you the risk of particular investments. Be particularly suspicious of sales pitches that play down risk or portray written risk disclosures as routine formalities required by the government. Believe the risk disclosures that say you could lose your whole investment. When your money is gone, fraudulent investment promoters often use “risk disclosures” against you.

Can I be certain a promoter is not lying to me?
Scam artists lie. Their success depends on having an airtight answer for everything. They inflate the costs and value of worthless investments. They promise you profits years down the road so you won’t find out that your investment is a scam until long after they’ve disappeared with your money.

Do I know when something is too good to be true?
Investing is risky business. Anyone who tells you an investment is likely to turn a profit quickly should have a basis for the claim. Demand written proof of profit projections from independent sources. Be especially wary when someone tells you profits will be big enough to offset the risk of investing. Every potentially high profit investment is high risk.


Investing – Assess A Company’s Valuation

It is advisable and an advantage for investors to have an understanding of financial statements. It enables investors to draw their own conclusions about the company and possibly survive in challenging markets. However, it is not a simple task. Thus, it is probably easier to assess a company by using basic yardsticks.

Analyzing the business of a company provides an understanding about how well positioned the company is in the industry and also the potential growth of the industry itself.

You should understand and identify what type of business and industry the company is in, what and where the risks could come from and what is the market segment of the business.

Good people will run a good company. In fact, most goodwill built over the years is largely due to good management. The honesty, integrity and commitment of the people are a crucial determinant of the success of a business. Dishonesty and mismanagement can easily bring about the downfall of even large multinational companies like Enron, WorldCom and the National Australia Bank.

To provide an estimation of how well the company is doing, investors should assess the nature, quality and predictability of future revenue streams, as well as earnings before interest, tax and depreciation.

The earnings of a good company if not growing, should be sustainable. The earnings of a company should justify the capital employed as in the long term; investors would withdraw their support if profits of the company do not justify their investment value.

Cash Flow
Most analysts will consider a company’s cash flow as the best way to determine the company’s health. Cash could come from three sources; operating activities, investing activities and financing activities.

The cash flow statement provides detail of all incoming and outgoing cash from each of the three sources. Revenue from the operating activities is consists of cash items only. Cash flow from investing activities includes the purchase and sale of property, plant and equipment. Cash flow from financing would show any monies raised or paid out to shareholders (including the dividends payment).

For a company that does have a dividend policy, it’s good to know whether it employs a constant dividend growth policy, residual method or none. For a profitable company with a lack of investment opportunities, it would be wise to return part of the profits as dividend to its shareholders. In most cases, profitable cash generating companies in mature or slow growth industries are the common dividend distributors. By knowing a company’s past dividend distribution and the management’s intentions, a good gauge of future distributions can be made. Popular models to value dividend paying companies are to discount the future dividends using either a constant or multiple period growth rates.

To determine the value of an investment requires ascertaining whether a current price reflects sufficient growth to allow an investor to generate a return that meets their cost of capital. Clearly, all the above have to be considered collectively for a fair assessment of a company’s valuation.

By learning to recognize the tell tale signs, you are better prepared to protect your interests. If you can interpret the information, you able to determine the magnitude of any underlying problems.

Michael Russell

7 Places to Keep and Grow Your Money

Many of my friends work (or blog) strive hard to make more money but do not have a plan for their money. They leave all their money in the bank savings account. It is not a good way to keep your money. Your money is losing its value due to the inflation. Here I share with you the places I keep my money (no, not under pillow).

Bank / Saving Account — The first place where my online revenue goes into. Saving account has very low interest rate but high flexibility (withdraw anytime). I have accounts in 3 main local banks, all with e-banking access. Saving account served as a “temporary storage” for my money before they go to other places.

Fixed Deposit — Low risk and higher interest rate than saving account. My fixed deposit (FD) served as my emergency funds. I have a 3-month FD (auto renewal) that enough for my 6 months living. I do not put a higher interest rate 12-month fixed deposit, because 3-month is more balance on flexibility and returns.

Mutual Funds / Unit Trusts — Higher risk and (generally) higher returns than Fixed Deposit. It is managed by professional fund manager and invest in stocks, bonds, money market, and/or other securities. Save time and lower the risk of doing investments by yourselves. I bought my 1st unit trust funds at the end of 2006. Now I have several unit trust funds with monthly re-investments. Most of my money goes there.

Gold — the yellow precious metal. Gold price is increasing steady in the past years. It is a long term investment. Last week, I opened a gold saving account to turn my money into gold. I plan to to buy gold at a monthly basis.

EPF — I am self-employed, can I have EPF or Employees Provident Fund? Yes, you can. My accountant tips me that I can do an EPF voluntary contribution. Not only that I can earn interest returns (5+% per annual) but also save on income tax (claim up to 6K).


Beside the above 5 places to keep and grow my money, I plan to put my money into the following 2 places:

Stocks — The fastest place to make/lose money. I plan to put some of my money into some blue chip stocks as long term investment. It is exciting to study the market.

House — Everyone needs a “shell”. I plan to buy a house (preferably landed property) as my long term investment. But, it is not easy to get an ideal house.


In the end, I do not have much cash in my bank saving accounts. My money are in different baskets, each with different risks &amp returns.

While you are working hard to make more money, don’t forget to plan for your money. Do some researches, ask your friends, or read a book.

Three Roads to Business Ownership

Congratulations! You decided to leave the corporate rat race to start your own business. After a careful analysis of your skills and know-how, you are convinced that you want to be your own boss and have what it takes to succeed.

But do you know where and what to start? The first thing to remember is that there is no surefire formula for starting a business. What works well for some may not be the best choice for you. In the same token, the enterprise that you can turn into a financial success may not augur well for others.

Your road to business ownership can lead to three directions. You can opt to develop your own concept and start a business from scratch. However, if you find this approach too difficult or tedious, you can either buy a franchise or purchase an existing business. Why reinvent the wheel when you can buy your dream business? The choice is yours.

Here are the pros and cons of each road to business ownership.

1. Starting Your Own Business.

Starting an independent business of your own offers several advantages. You are free from contractual obligations required from franchisees, and from any precedents established by the previous business owner. You are able to start on a fresh, clean slate with total control on how the business is shaped and managed. You are free to offer a pioneering and proprietary product that could help you dominate your market. You can start with a bang, or at a slower pace, depending on your resources and entrepreneurial goals. There is no required upfront investment that you must raise; except for the level that you think your business requires to be successfully launched. You can choose the location you want, determine the products and service that you market, and decide whether you need employees or not.

The downside of starting a business from scratch could also be numerous. A new business entails greater risk than buying an established business or franchise. You need to determine whether a need exists for your products or service; and if it does, work to create awareness and branding. The start-up process also necessitates you to do the groundwork process by yourself – from business licenses and permits, establishing relations with suppliers, and establishing a customer base to support operations. Many new start-up businesses, particularly home businesses, find it hard to secure financing given the lack of operating histories and inexperience of the people involved.

A new business will require a longer period of time to show profits, if at all. Entrepreneurs who decide on venturing on their own must be willing to dedicate considerable time and energy to establishing and nurturing the business.

2. Franchising.

Franchising incorporates the features of both a start-up and an existing operation. The franchise is the right to sell a product or service. When you purchase a franchise you are basically paying for the right to market an already established product or service owned by somebody else (the franchisor). Under your franchise agreement, you (the franchisee) are expected to market the product/service successfully.

This alternative route to business ownership has some distinct advantages. Risk is minimized, since a well-established franchise has a proven business method with established products or services. Franchises like McDonald’s already has well-known name that could easily bring customers to the business and provide a competitive advantage for the franchisee.

Many franchise organizations also provide extensive assistance in terms of marketing, advertising, even managerial support. Oftentimes, management training and follow-up assistance are provided. In many instances, In addition, you can realize cost savings on inventory items, supplies and equipment due to bulk purchase orders made by the franchisor, which in turn is passed on to franchisees. Some franchisors also assist the franchisee in securing financing, while some provide the funding themselves. Franchisees find it easier to convince banks and other lenders to provide loans because franchises are less risky than start-up businesses. Support can also be given in finding the right location, while some provide the layout, display, facilities and business techniques that have already proven successful in previous operations.

Franchising could present problems to the business owner. At the onset, the high franchise fees required to be paid to the franchisor at the start of the franchise agreement may discourage any prospective business owners. Front fees can range from a few thousand dollars to hundreds of thousands of dollars, depending on the franchise. While some franchisors may require high initial fees, the trade-off may be poor support functions once the operations begin.

In addition to the upfront fees, royalty fees are also required on a monthly basis. The royalty fees are monthly payments based on a certain percentage of the franchisee’s income or sales, varying between 1 and 20 percent. Note that you still need to pay royalty fees even if the business is not profitable.

3. Buying An Existing Operation.

Buying an existing business offers several pluses worth noting. For one, it reduces the time and cost associated with establishing a new business. Someone else has gotten the company started, and much of the legwork associated with starting out is already completed. The customer base has already been established, and relationships with suppliers have been created. In some cases, you can even continue the status quo once you take over, particularly if the business is doing well. Some business buyers even employ the former owner either on a part-time or a full-time basis on a limited time to help ease the transition process. In addition to eliminating a competitor, the former business owner can even share with you tips and experiences he or she have had in running the business, thereby shortening your learning curve.

The biggest advantage to buying a firm is that the business already has a proven track record. As a result, you may have an easier time in securing financing. Plus, there is shorter waiting time for a business to become profitable because your existing inventory and receivables can already generate income for you from your first day. A business is also less likely to fail if it has been around for quite some time.

However, you should be aware of some of the common pitfalls in buying an existing operation. For one, the cost may be too high compared to starting a business from scratch as a result of inflated estimates of worth. The business may not be performing as well as expected and there may be inherent operational and logistical problems that may not be apparent until after the sale. Equipment and inventories may be obsolete. Receivables may be stale and uncollectable. Customer relations may not be all that well, and relationships with suppliers might be in bad shape. The distribution system may be falling apart and the physical location of the business may not be ideal. Also, be wary of potential personality conflicts with the employees and managers, who may or may not welcome you as the new owner.

Your road to business ownership can lead to three directions. You can opt to develop your own concept and start a business from scratch. However, if you find this approach too difficult or tedious, you can either buy a franchise or purchase an existing business.

by Steve Ma. Reyna

Assessing Your Risk Profile

We have received many emails from people who want to know how to go about starting to invest. These emails always ask what we recommend the new investor should invest in. Most times the email sender has not given us any information regarding their investment profile and risk tolerance. With this lack of information, we usually can only give the sender very general information on how to get started.

In this article, I am going to address one of the most important factors to consider when beginning to invest and that is “What is your risk tolerance?” Before anyone should start investing, an assessment of your risk profile is necessary.

Can you afford to take a complete loss on the money invested?
Are you investing for the long term or the short term?
Do you have plans for the money anytime soon?

Can you afford to take a complete loss on the money invested?

The first thing you must ask yourself is “Can I afford any loss or even a complete loss of the money I intend to invest?” There is always the risk that you will lose money on an investment. If you are in your later years, nearing retirement or even in retirement right now and if you can’t afford to lose money, you have a low risk profile. You need to structure your investments on the very conservative side. Some investments that might fit your risk profile are: US Treasury Notes, Certificates of Deposits from your savings institution, money markets and perhaps a mutual fund that invests in US government bonds. These types of investments are in the very low risk category. Generally, lower risk investments yield lower returns. Remember even the safest of investments can still yield a loss so be sure you do your research and understand the terms of the investment before you invest.

Are you investing for the long term or the short term?

There is a difference between investing for the long term and creating income for the short term. Today many investors are looking to grow their investment accounts for the short term to create income to increase their lifestyle or for an upcoming purchase they might consider if the money is available. Mutual funds, stocks and options all fit into your risk tolerance. That is if you can emotionally stomach any losses.

Short term investors are usually looking to maximize their investment gains over a short period of time; they also tend to be market timers – trying to reap the rewards out of the short term trend of the market movement. These short term investors have a very high risk tolerance and can afford to take losses and maybe complete losses of investments. The short term investor might consider individual stock issues and possibly trading options. While stocks and options can be moderate to very risky they tend to be very profitable when your investments perform for you.

If you are strictly long term, “thinking for retirement”, you probably have a “moderate” risk profile and you should consider highly rated growth and value mutual funds or consider the strong “Blue Chip” stocks. If you are young and your income will continue to increase and you have a regular stream of income you can continue to invest into the market, then your risk tolerance can be higher. Don’t forget that retirement portfolios can be divided up and structured to accommodate different levels of risk. Consider consulting with a financial advisor to determine what percentage of your portfolio might be allocated to low risk (i.e., bonds), moderate risk (i.e., mutual funds and blue chip stocks) or high risk investments (i.e., high growth stocks and options).

Do you have plans for the money anytime soon?

If you are planning to use your investment money anytime in the near future for a house, a car, funding a college education or something else, you probably can’t afford to lose any of the principal or very little of it. You would fall into the low risk category. Of course, if your time frame has some flexibility, you might be able to raise your risk profile a little to gain greater returns. Like the investor who can’t afford any losses, investments for your low risk profile are: US Treasury Notes, Certificates of Deposits from your savings institution, money markets and perhaps a mutual fund that invests in US government bonds. Don’t be fooled by the lure of the roaring market and invest your money in a “can’t lose” mutual fund or a “can’t lose” stock. All investments have a risk of loss and mutual fund and stocks can reverse trend on any day with bad news.

As you can see, assess one’s risk profile can be very complicated. Even though it can be a chore, it is a necessary step before beginning to invest. Don’t just jump into the market roller coaster without knowing if you can afford the ride.

The 3 Secrets to Franchise Success

Important steps to take before buying a franchise

As more and more people decide to seriously look into the idea of becoming franchisees, one of the key questions they ask is “What can I do to prepare myself, to get as ready as possible, to become a successful franchisee?” The good news is, there’s a lot you can do to make this a wonderful experience.

Here are the three secrets to franchise success:

1. Before you even look into a single franchise opportunity, you need to prepare. This process starts by knowing yourself and having a clear understanding of who you are and what you want to get out of a franchise. You should start with a thoughtful and thorough self-examination process that asks questions such as:

What do you like to do in a work environment, and what don’t you like? What aspects of business have given you the most success and enjoyment in the past? How do you feel about managing employees? What hours do you like to work? What are the general characteristics of the perfect working role for you?

How do you feel about risk? How much capital are you willing to invest in a franchise? How much debt are you willing to incur above your initial cash investment? How long can you operate without an income from your franchise and still sleep well at night?

What are your goals for owning a franchise? What do you hope to accomplish in your life through this venture? How will your life be different in a few years if you have a successful franchise business?

Once you have completed this self-examination, you should have a clear idea of not only the general parameters you want in a franchisee role, but even more important, you’ll know what you want to accomplish long term. This knowledge is vital to picking the right franchise rather than getting sold on something that doesn’t really match up with your goals.

2. Narrow down opportunities. Start looking at opportunities through the lens of the work you have already done. In the most objective manner possible, compare what you learn about the franchise opportunities you’re investigating with your answers to the questions above, and ask yourself, “Does this opportunity look like what I decided I wanted for myself—not just partially, but completely?”

If the answer is no, have the discipline to move on to some other opportunity. There are plenty to choose from, so don’t compromise on what’s important to you. Sooner or later, you’ll find one that matches your talents and goals, so keep looking. If the answer to this question is yes, then you’re ready to move on to the next step.

3. Trust but verify. You’ve taken the time to know what you want and to determine that a specific opportunity can provide you with what you’re looking for. Now it’s time for you to go into overdrive in verifying that your conclusion is, in fact, correct.

There are a number of key steps you should take in this verification process, including:

Calling Existing Franchisees. You may have already talked to a few franchisees to get a general feeling for the business. Now’s the time to get very specific. Pick a few who seem cooperative and lay out your specific plans and expectations. Say something like, “Here’s what I’m good at, here’s what I want to do, here’s what I want to accomplish—is this franchise going to be able to deliver these exact things to me?” Ask them what significant challenges they foresee for you. Keep making these calls until you are sure you’ve got what you’re looking for.

Shadowing a Franchisee. Ask one or more existing franchisees if you can shadow them in their daily routine. You don’t have to do this for months or years, but a few days spent in this kind of activity can give you a whole new perspective on the franchise. On a variation of this theme, you can also ask to work in an existing unit as an employee for a few days to get a feel of the operations of the business.

Getting Real with the Franchisor. Discuss your specific plans with the franchisor, especially operational support employees and executives of the company. They will appreciate the forethought you’ve given to what you want to accomplish and will usually be frank with you in return. Even though you might have a wonderful relationship with the salesperson you’re dealing with, keep in mind that that’s not the person we’re looking for input from at this verification point in the process.

At this point, you’ve completed all three of the secrets to preparing yourself for success as a franchisee. You’re ready to make a great decision. It’s time to move forward with the assurance that you’ve done all you can to prepare yourself for a wonderful experience.

By Jeff Elgin

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