Personal Finance & Personal Investing Tips

Once you have your personal finance house in order another area of finance, personal investing, looms as a challenge. How do you finance major goals like retirement? Personal investing is the answer, so here are some investing tips to help you avoid disaster.

Get your personal finance foundation on firm ground before rushing into personal investing in a big way. Poor credit and money management can force you into bankruptcy even if you have considerable assets. Scenario: You pay $1,000,000 for a house putting next to nothing down in 2006. The only real money you’ve saved has been in your 401k at work, which is 100% invested in stock funds and company stock. A few years later you lose your job as your employer falls upon bad times, the stock market falls like a rock, and your house is worth $700,000 if you’re lucky. Sound familiar?

If you can’t pay your bills you are technically insolvent. In the above case you go broke and end up with a lousy credit rating at the same time. The truth is that millions of Americans have invested in real estate they couldn’t afford and stocks investments they didn’t understand; and many paid dearly for their financial mistakes. Concentrate on personal finance first: your insurance needs, credit management, and a cash reserve to cover financial emergencies should be your first concern. The truth is that as long as you can stay current on your bills and you have an excellent credit rating, you’re still alive financially. Any weakness in the above personal finance areas makes you vulnerable to financial disaster.

Personal investing is the area of finance that puzzles many people, even some who are well off financially. After all, most folks work for a living and have no financial education, especially in the investment and investing arena. Stocks and bonds are not that difficult to understand, but without any financial education or background, they may as well be a foreign language. The best investment tip I can give an inexperienced or new investor is to start investing with mutual funds. These funds were designed for the investing public. They offer diversification and professional management at a reasonable cost. You can invest large or smaller amounts and have access to your money on any business day.

Now for some mutual fund investing tips. Different funds have different financial objectives, risks, and cost structures. Get your feet wet with the safest funds, money market funds. They pay interest in the form of dividends, their share price does not fluctuate, and the cost of investing is usually low. If you need some or all of your money back there is little chance of taking a loss. Once you have some money accumulated there start small in stock funds if you are younger, and bond funds if you are closer to or in retirement. Bond funds pay higher income in the form of dividends with moderate investment risk, while stock funds feature higher profit potential along with higher risk.

Mutual funds do the investment management for you. Your job is to pick the fund(s) that have the same financial objective(s) you do. The best funds in terms of the cost of investing are called no-load funds. They have no sales charges or commissions, and your total cost to invest can be less than 1% a year. If you’re ready to get into personal investing, look no further than mutual funds… the new investor’s best friend in my opinion.

09 Jun 2016

High Risk, Moderate Risk and Low Risk Investments

For those looking to invest, you should know that many investments can be categorized as being high risk, moderate risk and low risk. Investing is not difficult, but you should always put lots of thought and planning into it. It is also extremely important to educate yourself about the many different investments available to you so you can find those that fit best with your specific situation and lifestyle. Here are some tips regarding the three categories of investing.

Low Risk Investments

While low risk investments are usually very low key and rarely are extremely glitzy or publicized, they do offer conservative investors a way to save money for the short or long term without the risk involved that you find in other forms of investing. Low risk investments usually pay the lowest yields, but are far less volatile than many other types of investments. Low risk investments include money market funds, certificate of deposits and some types of bonds. Low risk investments are perfect for those that want to make sure there money remains safe and secure. While low risk investments don’t offer high returns, they do offer stability and security for those that can’t afford to lose money or would just like to avoid as much risk as possible. Expect low risk investments to pay out yields of 1% to 5% annually.

Moderate Risk Investments

Moderate risk investments are perfect for those that are interested in investing for the long term and would like to earn moderate yields. Moderate risk investments are usually certain kinds of stocks, bonds and mutual funds that pay handsomely over the long term. While generally riskier than saving money in a bank, for those that are looking to invest for the long term, historically speaking you will grow your money quite nicely. Moderate risk investments usually use the power of compound interest and time to create a nest egg from 10 to 40 years with regular savings. For instance, saving 1K per year at an interest rate of 10% for 30 years can return close to 200K. Moderate risk investments usually return yields of 5% to 12%.

High Risk Investments

High risk investments are those investments that if you are lucky can return huge yields, however the downturn is that they can be extremely volatile and in many cases instead of getting rich off your investment, you find yourself losing some or all of it. High risk investments include penny stocks, international stocks, some types of Forex trades, etc. The sky is the limit for returns, but many high risk investments- if considered a winner should return yields that range from 10% to 30%++.

09 Jun 2016

Tips for Purchasing an Investment Property From Seasoned Realtors

When investing in property, it is always best to work with realtors to ensure a wise purchase is made. The following are some steps to consider when making an investment property purchase:

Research the Area

If the potential property is not located in an area you’re familiar with, it is crucial to seek out information about local building codes and real estate regulations. You want to be sure that you’re also choosing a property in a desirable neighborhood. Look into the local school zones and other development plans for the area before making a purchase.

Find Out Rent Rates in the Area

In order to maximize your investment, it is important to know what the current market rates are before making a purchase. Realtors can assist with this, as they are familiar with the town and can advise on the proper rent amount based on the home.

Check Out Many Properties

One major mistake investors make is not thoroughly reviewing their options. While one house can seem like the perfect rental home, there is always the potential of something better that can yield a higher return. Have your realtor show you a variety of options before making a final decision.

Get a Total Cost Breakdown

While tax expenses are to be expected, it is important to find out any additional expenses that may come along with a particular purchase. Realtors can assist with obtaining estimates for insurance and utility costs. While this process is often fairly simple for a commercial property, it can be more difficult for a residential property. It may be necessary to obtain an estimate of costs from the seller.

Know How the Property is Zoned

For an investor, it is crucial to understand how the area is zoned in order to fully maximize the potential. For instance, can it be expanded or resized? Can it be converted to a different use altogether? To fully develop the investment, these questions must be answered. It is also necessary to know the town’s classification of the property and any limitations in place.

Purchasing an investment property can be exciting, but it can also be a difficult process. With the help of realtors, the process can be much less stressful for the buyer. He or she is also familiar with the territory and can provide a wealth of knowledge, especially for those who know little about the area. The assistance of a real estate attorney may also be helpful, especially if zoning is a concern.

09 Jun 2016

Types of Investment Decisions

One of the classifications is as follows,

• Expansion of existing business

• Expansion of new business

• Replacement and moderation

Expansion and Diversification

A company may add capacity to its existing product lines to expand existing operation. For example, the Company Y may increase its plant capacity to manufacture more “X”. It is an example of related diversification. A firm may expand its activities in a new business. Expansion of a new business requires investment in new products and a new kind of production activity within the firm. If a packing manufacturing company invest in a new plant and machinery to produce ball bearings, which the firm has not manufacture before, this represents expansion of new business or unrelated diversification. Sometimes a company acquires existing firms to expand its business. In either case, the firm makes investment in the expectation of additional revenue. Investment in existing or new products may also be called as revenue expansion investment.

Replacement and Modernization

The main objective of modernization and replacement is to improve operating efficiency and reduce costs. Cost savings will reflect in the increased profits, but the firms revenue may remain unchanged. Assets become outdated and obsolete with technological changes. The firm must decide to replace those assets with new assets that operate more economically. If a Garment company changes from semi automatic washing equipment to fully automatic washing equipment, it is an example of modernization and replacement. Replacement decisions help to introduce more efficient and economical assets and therefore, are also called cost reduction investments. However, replacement decisions that involve substantial modernization and technological improvements expand revenues as well as reduce costs.

Another useful way of classify investments is as follows

• Mutually exclusive investment

• Independent investment

• Contingent investment

Mutually exclusive investment

Mutually exclusive investments serve the same purpose and compete with each other. If one investment is undertaken, others will have to be excluded. A company may, for example, either use a more labor intensive, semi automatic machine, or employ a more capital intensive, highly automatic machine for production. Choosing the semi-automatic machine precludes the acceptance of the highly automatic machine.

Independent investment

Independent investments serve different purposes and do not compete with each other. For example, a heavy engineering company may be considering expansion of its plant capacity to manufacture additional excavators and addition of new production facilities to manufacture a new product light commercial vehicles. Depending on their profitability and availability of funds, the company can undertake both investments.

Contingent investment

Contingent investments are dependent projects; the choice of one investment necessitates undertaking one or more other investment. For example, if a company decides to build a factory in a remote, backward area, it may have to invest in houses, roads, hospitals, and many more. For employees to attract the work force thus, building of factory also requires investment in facilities for employees. The total expenditure will be treated as one single investment.

09 Jun 2016

Investment Tips – For the First Time Investor

The basic rules of any first time investment are normally:

1. What is your preferred period of time for this investment?

Have a plan for the length of time to want to invest for, normally for reasonable growth a minimum period is 5 years but the longer the term the better your chances of making profit over inflation.

2. Know your risk profile (ATR) and what you are comfortable investing in

There are many tools to help assess your Attitude to Risk profile and you can find numerous online questionaires on this subject, indeed one of the first things a financial adviser will establish is the client’s ATR.

3. How much of your investment can you afford to lose in the short term?

Always have a clear idea on how much of your investment you can afford to lose in the short or medium term, this way you can spread your money according to the level of risk you are prepared to take.

4. What is your overall objective, is it growth or income?

During the early years many younger clients may want to achieve high growth or growth in excess of inflation I order to build up their wealth.

While other older clients approaching or in retirement, may want income options with additional tax saving benefits.

5. Have a good clear idea about your current tax status

With so many different investment products in the market its important to know your current level of taxable income and which products may offer more longer term benefits.

6. Always split your investment as a total percentage (%) between low, medium and adventurous funds

Its quite common for many clients to spread their investment portfolios over various types of assets from low risk securities such as deposits and fixed interests with medium risk products such as distribution, gilts and bonds right up to higher (adventurous) risk which can include various stock markets and private stocks and shares.

7. Have you learnt from anything from previous investments

Its always handy to be able to review previous investments: what went well and maybe what did’nt do well, was the timing right, the spread, etc.

8. Have a plan B if markets fall or rise sharply

Deciding on your reaction should your investment move up or down sharply in the early years is clearly an advantage, knowing how you will react gives a good indication of how to build your portfolio over the short, medium and longer term.

9. Keeping regularly reviewing how your portfolio is going

Always spend a some time maybe just a few minutes every week seeing how everything is moving, what’s doing well and why, Whats not doing well and why, whether you need to re-balance your portfolio over time to suit any change in your risk profile.

10. Remember always try to diversify

Don’t have all your eggs in just 1 basket have 40 or more baskets, if you can Try and have a good spread of investment fund managers in various market sectors not just Insurance, Banks or Mutual products.

11. Take advantage of any tax incentives for investing (ISA etc)

With the taxman giving away less and less in the way of tax incentives, it always makes real sense to use whatever tax perks that are available, such as: tax relief, allowances, thresholds, deferrals, tax free status etc.

12. Be clever, always speak to an experienced independent financial adviser

It might be good to try a few things out yourself but importantly when dealing with your most important assets such as your life savings or your pension etc then save yourself a lot of time and trouble by discussing your needs and objectives with a financial adviser, use his knowledge and experience to save you problems in the future.

09 Jun 2016

Control the Investment Market

The act of investment is at its cornerstone, gambling. I might add so is life! We make choices, whether to smoke or not, engage in dangerous sports, gamble on marriage, even choosing friends. Investing for gain, is a parallel. A best guess of the future. What criterion should we use to tip the scales in our favor?

The people are important! The issuers or advisors of the offering, as well as the management personnel of the business we are investing in. Usually, we are advised by a person we went to school with, maybe a trusted family friend or contact we have known who is reliable. In this “new investment” market we are somewhat vulnerable. With internet and high-speed communication opportunities are here now, but gone tomorrow, the pace is frightening. The new investment market is world-wide, making investment friends needs be almost a “warlike” exercise. We have to make fast friends to survive, and prosper. When everybody says “do it now”, instead slow down! Make your first determination based on the people involved. No right-minded advisor should assume you are going to invest immediately. I would like you to have conversations, see some correspondence, understand the mindset and goals, before investing.

Understand the investment. Do not take assurances from those who proposed to be competent. Make sure you understand. Ask questions specifically and repeatedly. Will all questions be answered affirmatively? Probably not. There are certain generic risks, both in time frame and yield spread, everyone in an investment should be conscience of. Inability to satisfy questions will not necessarily dis-qualify the investment opportunity. Personal determination, sometimes a forgotten item these days, will benefit you.

Controlling your investments means knowing your investment pace. How long is your investment time frame? Are we seeking the long-term accrual retirement income or short-term monthly income stream? Anything over 10 years is long-term investment. We should be conscience of interest rate variables, time vs. money decay should be adjusted and thought out. As we sort out our personal investment agenda, we turn our thought to the prospects which we can invest in. Not all good or great investments are suitable to each investor. If you have college tuition to be prepared for in two years, a five-year investment overlapping this event will not be advantageous. I would not assume I could borrow or sell this investment on suitable terms to accomplish this. With work, wide variety of investments can mitigate these issues. This can be long-term growth stocks, bonds, short-term equities, or C.D.’s, or whatever tickles your fancy. Unfortunately, investing in the right securities is just like work, It might be tedious. Your money will go out and reproduce itself, but it will need guidance from you!

09 Jun 2016

The Basics of Initiating an Online Business With Zero Investment

People who know how to start an online business have been changing their destiny by making a huge amount of money. Online businesses are in huge demand these days. Many big and small companies prefer outsourcing their work by hiring virtual assistants and online marketers rather than employing a full-time worker. Moreover online presence has become an essential part of any business with the ever-increasing number of online shoppers across the world. Like any other business, you need to put in your efforts to become a successful online entrepreneur; however, starting an online business is not a Herculean task if you know the basics. In this article we will put emphasis on top online business opportunities that will help you to start an online business with ease.

1. Make a Strategy to Set Up Your Business: Online entrepreneurs can explore multiple options to earn money through an online business. Nevertheless, it is advisable to opt for the easiest options to start with. Once you make up your mind to sell any product or service, the next step is to follow a business plan to adhere to. Strategic planning keeps you organized and make your online business thrive. Your key objective should be to make your product or service as outstanding as possible to achieve a competitive advantage in your niche.

2. Set up a Neat Website: Launch a website for the product or service you want to sell. Along with the design and layout, make sure you use flawless content on your website. Content acts as the soul of any website and speaks of your professionalism in volumes. So make sure that you add fresh, relevant and informative content on your website to enhance online traffic. At the same time, if blogging is your passion, try integrating your blog with your website to keep your target audiences engaged. This is a great way to connect with your target audiences.

3. Start offering virtual Assistance Service: Virtual assistants are quite in demand for the valuable services they provide to different organizations from any corner of the world. You too can become a home-based virtual assistant by offering technical, creative or secretarial assistance to your clients from your home office. However, you should be proficient enough in your business niche to provide immaculate service to your clients, and to strengthen your customer base.

4. Become a Software Developer: This is yet another lucrative option for prospective online entrepreneurs. However, starting a software development business is not a cakewalk for beginners. It is very difficult to win projects with zero reputation since you are starting from scratch. In order to start a software development business online, the first step is to set up a convincing online portfolio to attract clients. Thus, many software developers utilize the initial period in building reputation by offering free services to start-ups or any organization looking for software development services. Consequently, the testimonials received by beginner online entrepreneurs play a key role in enhancing reputation besides drawing new customers.

5. Try Affiliate Marketing: You can become an online entrepreneur by trying your hand at affiliate marketing which has emerged as a colossal online industry over the years. Affiliate marketers redirect online traffic to different e-commerce sites through their website or via online advertisements. Affiliate marketers earn money by getting a commission on every sale generated as a result of driving traffic to specific e-commerce sites. As a beginner, you should ideally do affiliate marketing for sites you are familiar with. Affiliate marketing is one of the top online business opportunities that produce sure shot results.

09 Jun 2016

Things You Should Know Before You Invest in a Mutual Fund

We all want to invest in the best possible ventures, but most of the time, we are not sure about the place we need to invest in. It does become a tricky venture and you must always know the benefits and the reasons of putting your money into the investment. When compared to stocks and debt issues, there may be a difference in terms of returns, but a mutual fund is a much stronger proposition.

Yes, there are lot of benefits when you invest, but are you sure you know all the intrinsic details about the investment? Here is a simple guide towards making your investment the smart way –

1. Figure out your goal well in advance: Many of us do not understand the mechanism of investing and how we should plan it ahead. With every mutual fund, you have to consider the performance of the fund and think about the factors which would cause a fluctuation. At the start of the investment, you need to figure out the growth points and how well it would appreciate over a period of time. How do you figure it out? Monitor the close and far notion points that may cause the performance and then predict what you can expect over the long-term.

2. What is the risk reward present?: Before you place your money into an investment, you need to figure out the risk ratio that is present. Would it be a conservative or aggressive mutual fund? Is it the risk you are willing to take? It would help you know the potential that you can expect.

3. Tax benefits are the icing on the cake: Similar to what you have with stocks and bonds, you can have tax benefits from investing in mutual funds. This should be considered when you are calculating the absolute returns or gains from the mutual funds investment. Consider the dividends and payouts that would be due your way too. Each addition or return on your investment would be significant about the growth of the fund.

4. The fund manager’s capabilities: It is quite important to know who is managing your money at all times, the fund manager should be credible and hold the right expertise. The performance of the fund scheme definitely is based on the quality of the management running it and before you invest; research about their past work and funds. Speak to people to know how well they have done; get to know their abilities from friends too. The market can be a very challenging place and you want to have the best people taking care of your money.

5. Is the long-term plan of the mutual fund investment strong? The best way to choose a fund is by planning it out for the long run. It has to bring returns to the investors and also mark the positives in the market – so choose the right portfolio parameters so that you do not go wrong.

With the right investment goals, you can get the best returns. You have to understand the reasons why the mutual fund would do well and the different support factors that will grow your investment. Your fund managers should be the strongest reason behind you deciding where to invest – it is their guidance and their understanding of the market conditions that will bring out the best for you. If you have been thinking about making money from your savings, there isn’t a better way than mutual funds.

09 Jun 2016

Why Invest in Real Estate?

Though, real estate has taken a thump in the recent years, but still it is one of the healthiest ways of investment in the long run. Moreover, investing in any property during a slump is a wise idea as it brings lucrative returns. Here’s why making an investment in this sector can prove to be beneficial.

Easy to give it a start

There’s no requirement of having any specific or professional knowledge to start dealing in real estate. Many property investors did not start with an idea of making money from it. Instead, they just paid money for a property to live in. Observing the increasing rates of their property with time gave them an idea to invest in and make profits from. Hence, it proves that investing in real estate hardly asks for specific skills.

Affordable for every budget

The best part that it offers is a chance for everyone to invest in. Whatever your budget may be, you can buy a property according to your choice if you make the purchase smartly. Moreover, the bank facility allows you have an easy approach to financing a property. If you are proficient in making deals you can easily pocket the benefits from your property.

Safe investment

An investment in the stock market or any other business may include a lot of risks, but investing in real estate is undoubtedly safe. The property value keeps on multiplying without any serious volatility. Though there is a downfall in the property rates today, but it is for a small time period. It is merely to bring down the excessive hikes that took place in the last few years. Once, the things will be settled the market value will again increase, which will be a benefit for the investors. It is guaranteed that the property will pay back, even if you have invested without any intention of making money from it.

Long term investment

Who does not want to make an investment and benefit from it throughout one’s life? Everybody does. For that real estate proves to be the best option. It’s a lifetime investment. You can simply buy a property, can put it on rent or can earn the double of invested amount by selling it after a particular time period.

In simple words, you can use your investment to run a business once you are retired or to operate a regular income by leasing it. This way every investment is a profit for future.

09 Jun 2016

Halal Investment Options for Muslims in Canada

I’ve always been a huge advocate of avoiding Riba (Interest), either earning or paying. There are definite financial, social and religious reasons for this and we, as Muslims, are aware of them.

There has always been a concern among the Muslim community in Canada of where they should put their extra money in terms of Savings or Investments, earn money from that or at least hedge against the Inflation and other factors. Based on my knowledge and experience (Allah knows best), I was able to dart down the following investment opportunities available in the Canadian market.

Investing in Commodities e.g. Gold and Silver

Gold and Silver have historically been the best source of securing your wealth over a long period of time. From my research of historical Gold prices, they have tripled in last 20 years. Silver is not far behind. Rather, silver has outperformed gold if we take different time ranges. So let’s say you are not someone who has huge sums of money and can make big investments, investing in gold or silver is definitely an option for you. This is purely a halal investment and if you are looking to invest for a longer period of time, let’s say saving money for your child’s education, investing a couple of hundred dollars a month should not be difficult. This way you are preserving your wealth and, in the meantime, saving money for your child’s education. You can buy gold from banks or can even purchase from an accredited gold dealer in Canada.

There are other commodities you can invest in but for a domestic investor it would be hard to store those commodities over a long period of time.

Investing in company Stocks i.e. shares

Basic reasoning as to why stocks are halal investments is as investors you will be rewarded with profits of the company and will also to have bear losses, if any. There are different types of stocks you can invest in based on your investment horizon i.e. time period you want to invest for and the amount of risk you can handle. Moreover, it also matters what kind of income stream you have in mind i.e. do you want regular dividend payments or you are more interested in Capital Gains (IPO’s i.e. companies that are recently launching their stocks into the stock market, are best for Capital Gains).

Examples of stocks you can invest in as Muslims are:
1. Retail companies
2. Oil and Gas companies
3. Trading companies etc.

There is a list of type of companies we, as Muslims, should not invest in i.e. these won’t be considered as Halal investments. Companies that primarily deal in:
1. Financial institutions i.e. banks, loaning companies
2. Alcohol
3. Pork and pork related products
4. Tobacco
5. Weapons and ammunition
6. Entertainment

The list provided above is just an example and is not extensive.

As a normal person who does not have much knowledge about how to invest in stocks in Canadian Stock markets, best thing is to reach out to someone who knows. They may be your relationship managers at the bank, a muslim scholar who has finance knowledge as well and knows financial markets or contact brokerage companies.You will need to make sure you have explained to them in detail the criteria for your investments i.e. type of companies you are looking into.

Some banks such as RBC Royal Bank give you an online account that you can use trade stocks online. For this you need to have reasonable knowledge of how stocks work and how to analyse an investment opportunity.

Land and property

If you have enough spare cash that you have saved over a period of time and looking to invest in halal options, property and land present another option for you. People do engage into buying houses through mortgage and increase their asset base, but that is definitely not a halal option. So, if you are someone who likes to avoid interest, you should not go into buying houses through mortgage.

Now there are 2 scenarios:
1. You have enough money to buy a house. In this case you should be on the look for best investment opportunities in terms of property and land. I’ve seen people usually invest more into buying houses than buying land in Canada. This is not a bad option and is more secure. But investing in Land around the areas that have potential in terms of future growth and have developmental projects in the pipeline is something that can generate higher returns for you.

2. You don’t have enough money to buy a house in Canada. In this scenario, since almost all of us are immigrants here, there is always an opportunity available in your country of origin. You can invest in smaller properties there and once you have collected enough money, you can bring it back here (if your goals is to own property in Canada).
Investing in new companies

A large number of Muslim business men/women want to start their new projects, they have good ideas but do not have the money to invest. You can find these people in your community or social networks and discuss about their ideas. If you have the financial knowledge, try and analyse their ideas, both in terms of practicality and future revenues. If you don’t have the knowledge, have them create a business plan and then present that business plan to an investment advisor.

You can also create a pool of money with your friends, acquaintances and start a business that you normally can’t afford. Investing in new projects i.e. businesses, is riskier than investing into an already running business but if weighed and measured properly and work hard on, can generate much better returns.

In the end, my knowledge is limited and above mentioned options are just suggestions, but I am hopeful they can give you an idea about investing halal and saving yourself from the curse of Riba (Interest). I’d be more than pleased to help with any of the above.

Muhammad Khurram Shahzad is an ERP consultant in an MNC in Canada and an experienced investment advisor. He has been involved in many start up ventures and has created business plans for the start up companies. He writes on different investment and finance related topics in blogs, articles and other forums.

09 Jun 2016