Category: Traders’ Secrets

Traders’ Secrets is something that everyone would like to know, right?
How is it possible that some traders are successful all the time while others fail to make a profit all the time?
That is exactly what Traders’ Secrets will show you.
Traders-Paradise’s team reveal all trading and investing secrets to you, our visitors.

What will you find here?

How to find, buy, trade stocks, currencies, cryptos. You’ll find here what are the best strategies you can use, all with full explanation and examples.
Traders-Paradise gives you, our readers, this unique chance to uncover and fully understand everything and anything about trading and investing. The material presented here is originated from the experience of many executed trades, many mistakes made by traders and investors but written on the way that teaches you how to avoid these mistakes.

Moreover, here you’ll find some rare techniques and strategies that are successful forever, for any market condition. Also, how to trade with a little money and gain consistent returns. By following these posts you’ll e able to trade with greater success. You’ll increase your profits and your wealth, of course.

The main secret of Traders’ Secrets is that there shouldn’t be any secret for traders and investors. Rise up your trade by reading these posts, articles, and analyses!

You’ll enjoy every word written here. Moreover, after all, your trading and investing knowledge will be more extensive and effective.

Traders’ Secrets will arm you with those skills, so you’ll never have a losing trade again.

Twitter CEO Jack Dorsey thinks Bitcoin will be the Currency of the Internet

Twitter’s Jack Dorsey believes that BTC will be the common currency of the Interner

By Gorica Gligorijevic

Twitter CEO, also CEO of Square says there will be a native currency for the internet. Jack Dorsey, CEO of Twitter and the mastermind behind the popular money transfer application “Cash App,” shared his confidence about Bitcoin.

Appearing on the Joe Rogan Experience podcast, he stated that the Internet will eventually have a currency, which he thinks will likely be Bitcoin.

Jack Dorsey explained that he still feels that BTC meets all the conditions to become the common currency of the internet in the future.

For Twitter and Square chief, Bitcoin, the top-ranked cryptocurrency seems best-suited to that role.

No plans, just personal view

Jack Dorsey said that he has no plans for that at the moment, however, he expressed his personal view towards cryptocurrency and the internet.

“I believe the Internet will have a native currency and I don’t know if it’s Bitcoin. I think it will be given all the tests it has been through and the principles behind it, how it was created. It was something that was born on the Internet, was developed on the Internet, was tested on the Internet, it is on the Internet.”

Jack Dorsey believes that the internet will have its native currency one day, although he doesn’t know what that would be.

Bitcoin could be the currency of the internet

But when he elaborates his opinion further, he says that it could be Bitcoin. His opinion is based on the tests Bitcoin has been through all this time, the principle behind its creation. And all of that happened on the internet.

Twitter CEO has no plans to create his own currency, but he wants to participate in the growing technology, which he said to have done through the CashApp project.

YOU WOULD LIKE TO READ Forget Everything You Knew About The Money! The New Era Has Started!

Twitter CEO claimed that his company is the first publicly-traded company that offers crypto (Bitcoin) purchasing as a service.
Dorsey has made similar observations, commenting in May 2018 that Bitcoin should be the native currency of the Internet.

Thus, Dorsey says Square’s focus is solely on BTC with no present plans to offer support for other cryptocurrencies on the Square Cash App.

Speaking about Square’s decision to offer support for the largest cryptocurrency, Dorsey said it gave the company the ability to serve more people across the world far better than was possible using mainstream channels.

“We’d love to see something become the global currency. It enables more access, it allows us to serve more people and allows us to move faster around the world.”

Twitter CEO: The Internet is like one nation

Dorsey compared the Internet to a single nation that exists digitally. Hence, it only makes sense that it would have its own universally accepted currency.

Present-day fiat money is usually subject to nationalistic policies that might not appeal to different places across the globe. Bitcoin, however, is based purely on mathematical algorithms providing a certain sense of neutrality and universality devoid of any geographical or political bias.

Jack Dorsey thinks the internet will eventually have its own currency and BTC is out in front in the race to be the chosen crypto. Twitter CEO doesn’t necessarily think mass adoption is near, but that worldwide cryptocurrency use will take hold soon.

Banks don’t like Bitcoin’s disruption

As the first and still biggest cryptocurrency, it’s not a bad bet. Bitcoin processed an incredible $9 billion in the past 24 hours, dwarfing any other blockchain by miles.

Bitcoin, moreover, is the most integrated crypto. It remains still the only one to have regulated futures, its logo stands for the blockchain and it has a brand.

Dorsey also mentioned the attitude of banks towards Bitcoin. Unsurprisingly, banks and many other financial institutions aren’t fans of Bitcoin’s disruptive tendencies, the Twitter CEO said.

YOU WOULD LIKE TO READ: Two of the richest men in the world call Bitcoin “rat poison”

JPMorgan analysts released, in January, a report claiming that BTC’s value could only exist in a dystopian economy. In 2018, Warren Buffet called Bitcoin “rat poison squared.”

“People treating BTC like virtual gold,” said Twitter CEO

“We notice that people are treating it (Bitcoin) as an asset, like virtual gold. We want to make it easy, just the simplest way to buy and sell Bitcoin. But we also knew that it had to come with a lot of educations, a lot of constraints,” said Dorsey.

Reminding what happened 3 years ago, when people had the “unhealthy way” of purchasing Bitcoin by using their life savings, Dorsey decided to put a very “simple” restriction and constraint on his app.

“You can’t buy Bitcoin on CashApp with a credit card. It has to be the money you actually have in it. We look for day trading which we discouraged and shut down, that’s not what we’re trying to build, that’s not what we’re trying to optimize.”

When the master of industry like Jack Dorsey speaks about the efficiency of cryptocurrency tends to lead to ecstatic investors. However, Dorsey has warned against wild speculation and hopes to push the public towards using digital currency rather than the narrow mentality of “hodl” and wait for riches.

3rd February 2019
Personal finance – How to Manage?
Traders Paradise will walk you through some suggestions on how to manage money in your 20s

By Guy Avtalyon

Update on Feb 12, 2019

We received an email from our visitor Christopher Trum, Content Manager LendingTree Brands, that asked us:
”I was reading a recent article on Traders Paradise (traders-paradise.com/magazine/2019/01/personal-finance) and wanted to thank you for including data from our research study!”
With his permission, here is the link with full access to the original source
https://www.lendingtree.com/finance/places-millennials-carry-the-most-debt/

Personal finance is something that has to be well managed no matter how old is someone.

Who is going to take care of your own personal finance so early, for example in the 20s?
You may not think of your 20s as the time to buckle down financially. Between beginner salaries and student loans, many young people at their 20s bearly sustain to live from paycheck to paycheck. I know that. But what I also know is that your 20s are the best time to set the base for your financially secure existence. Yes, it is the right time to take care of your personal finance. Both, now and in the future.

Current status and future

You’ve probably graduated from college, started your first job, and are starting to make decisions on your own. Your adult life has just begun and retirement seems years away. But this is the right time to discuss your personal finance choices, how to manage your money responsibly, and to plan your financial future.

Personal finance exactly that: how you manage your money, your income, expenses, and savings, all of them. The truth is that you have to put an effort into managing your personal finances. In that way, you’ll better understand where your money is going. Also, you’ll better recognize if you have to make changes to meet your future financial goals.
Managing your personal finance better is something that can literally pay off. It can help you stay on top of your bills and save thousands of dollars each year. With that extra savings, you can pay off any debts you might have. Or maybe you would like to put that money towards your pension or spend them on your holiday or new car.

Create a budget to protect your personal finance

I know, for many of you creating a budget is critical. But without a budget, you’ll have difficulties to track your finances. Moreover, how will you identify key savings opportunities? So, if you don’t have one yet, take a time to map out your living costs.
Budgeting is the process of tracking your income, bills, and expenses in order to assess how much you can spend and what you can afford each month. Creating a budget and sticking to it is the foundation for personal financial success as it helps you to live within your means and avoid debt.

You don’t need any advanced tools to create a budget. All you need is to open up a spreadsheet on your laptops or phones and add your all expenses. It’s okay to add the random ones that pop up once a year. Then compare what you’re spending on what you’re earning. If the numbers don’t align, then you’ll need to work on making some changes to ensure that you leave yourself enough space for savings.

When creating a budget, you have to write down:
- Your income: How much are you making per pay period?
- Your expenses and payments: How much you spend on rent/mortgage, utilities, groceries, etc each month?
- Debts owed: How much do you owe for student loans, credit card debt, and similar?
Pay yourself first – Start your emergency savings

The recommendation is to pay yourself first. That means the first bill paid each month should be some paybacks if you have any. The second is to pay for utilities, put aside money for living buyings. And everything left over at the end of the month is your extra money. Open a savings account and put it there. The biggest mistake is the young people make is not saving early enough. They tend to put off savings until their 30s. That is wrong.

Just because you’re on the younger side doesn’t mean you’re immune to financial emergencies. Quite the contrary. Without emergency savings, you may have no choice but to get out costly loans. A better choice is to have an emergency fund. It has to be at least the amount you need for three months’ living expenses. Ideally, more like six months’ worth.

Having emergency savings is very important. In fact, it should trump any other financial aim you may have.
Let’s look at an example: Assuming you want to have $1 million in savings by the time you retire at age 65. This is how much you’ll need to invest each month:

Time is on your side when you’re young. You should save about 20% of your earnings. That should help you maintain your current lifestyle in retirement. If you want to travel more and more entertainment when retire, you should save about 30% of your earnings. That will help you have a lifestyle better than what you currently have.

A little bit of money saved now is going to make a big difference later in your personal finance.

Pay off present debt to secure personal finance

According to a recent study by LendingTree, the average millennial has an average of $24,000 in debt. This can paralyze your financial, and even your physical and mental health.

AVAILABLE FOR US residents ONLY

Large amounts of debt can seem daunting to pay off. Hence, it’s important to make a plan. You have to start paying it off quickly. Just include it in your budget as a monthly payment. But if you have more than one debt, which to pay off first?
You have to consolidate debt to one payment with a lower interest rate when possible.

But you may be more driven to try the debt avalanche or debt snowball methods of repayment.
Never focus on just one expense at a time.

If you owe money to a friend or family member and paying that debt off is a mental relief, pay that as first and then move on to other debts.

It’s important to make a plan to pay off and manage your debt to avoid heavy interest fees.

Get out of credit card debt

Credit cards are the worst enemy in anyone’s personal finance. Anyone who runs out of cash simply turns to credit cards. But can you afford to pay the balance? Combat the urge to use your credit cards for the shopping things you can’t afford.

The U.S. credit card debt increases every year. For example, the average household debt is nearly $16,000. So much!

The essential part of your good account balance is to eliminate the debt from the credit card as soon as possible. Actually, you’re wasting your hard-earned money on interest costs. By doing so you’ll have a double benefit: you’ll get out of debt and you’ll improve your credit score. And that is crucial if you plan to buy a home or lease a car in the near future.

Build credit

Never live above your resources and use credit for money that you don’t have. Never buy things on credit if you don’t have the resources to pay it off in full at the end of the month.

A credit report is a report that shows your credit history and is used to determine your creditworthiness. Building a strong credit history and maintaining a high credit score is essential for your financial health. In your early 20s, it’s important to build your credit by paying your credit cards and utilities on time but avoiding debt in the process. Instead, use a credit card to build credit. That could be a smart use example. Of course, if you can’t afford to pay it off by the end of the billing statement, you apparently can’t afford it.

It is important to make sure you don’t break the terms of your agreements. So even if you want to pay down added debt, you have to pay at least the minimum on your credit cards.

Investing your savings if you want to take care of your personal finance

When your savings start to grow, you can add more money to your pension. It’s a great way to make sure you’ll be able to live more comfortably later in life. Or you can make an investment plan based on your goals and timeframes.

If your savings goal is more than five years away, putting some of your cash into investments would allow you to earn more from your money and keep up with rising prices. Investments are something where you put your money to get a profit. You can choose from four main types of investment:

Shares – you buy a stake in a company
Cash – the savings you put in a bank or building society account
Property – you invest in a physical building, whether commercial or residential
Fixed interest securities bonds) – you loan your money to a company or government

There are other types of investments available too, including:

Collectibles, such as art and antiques
Commodities like oil, coffee, corn, rubber or gold
Contracts for difference, where you bet on shares gaining or losing value

The different assets owned by an investor are called a portfolio.

As a general rule, spreading money among the different asset classes will lower the risk of your overall portfolio. More on this you can find HERE.

For emergency savings, the best place for your cash is the bank. For long-term savings, investing in stocks is efficient for growing wealth. And you don’t need to take an extreme amount of risk. Sure, the stock market can be volatile, and it’s had its share of ups and downs through the years. But it’s also historically delivered a roughly 9% average annual return, which is about nine times more than what you’ll get from a savings account today.

The good news is, you don’t need to be an expert to enter the stock market. If you’re not comfy investing in a particular company, just put your money into exchange-traded funds or ETFs. These low-cost funds simply seek to track existing indexes, like the S&P 500, and because they offer instant diversification, they’re a less risky prospect than buying up individual companies’ stock.

Protect yourself financially

As you enter maturity, you’ll want to make sure that you are protecting yourself and your finances with adequate insurance. Take advantage of the benefits offered at work: health insurance, life insurance, short and long-term disability insurance. You may consider some benefit packages outside of your current work offers.

Fight for a higher salary if you want to take care of your personal finance.

Your 20s are a time to pay your dues but that doesn’t mean you shouldn’t fight for more money along the way. In fact, the more money you receive at your current job, the more you’ll probably get at your new job. So, boosting your salary won’t just put more money in your wallet now, but also throughout your working years.

Knowing how to manage your money and where start with financial planning can be terrifying and difficult. Especially when you’re in your 20s. Finances can be complicated, but it’s crucial to find out what is available to you. So, it’smart to start working on financial matters earlier rather than later in life.
31st January 2019
Leverage Trading Stocks – The More Leveraged the Better

3 min read

Leverage trading stocks is a concept that can enable you to multiply your exposure to a financial market without committing extra investment capital.

However, you need to understand leverage trading to help fully immerse yourself in the stock market.
The idea behind leverage trading stocks is to increase your potential payout on a play. However, it doesn’t always work out the way you want, and it can prove dangerous for your portfolio and trading account, especially when you’re new to the stock market.

Leverage is the ability to trade a large position with only a small amount of trading capital. We are sure you already find the articles that suggest that trading using leverage is risky. Also, you can find that new trader should only trade cash-based markets, like individual stock markets, and avoid trading highly leveraged markets.
Well, we disagree with this in full. Trading using leverage is no riskier than non-leveraged trading. Also, for certain types of trading, the more leverage that is used, there is the lower the risk.

What Is Leverage Trading Stocks?

In the stock market, leverage trading stocks are using borrowed shares from your broker to increase your position size in a play. So you can potentially make more money on the other side. Options trading, futures contracts, and buying on margin are all examples of leverage trading. But buying on margin is maybe the riskiest.

When you buy on margin, you’re essentially financing your position in the stock.

Actually, it’s just like buying new furniture. For example: Say you want a new kitchen and you talk the salesperson down to $25,000. You don’t have $25K in cash, so you put $2,000 down and finance $23,000 over five years. Every month, you pay the lender your furniture note. That includes the principal, which is the amount financed, and the interest, which is money paid to the lender in exchange for financing you.

People do this every day with i.g. cars and other physical kinds of stuff.

Well, it doesn’t sound so dangerous.

But even a furniture purchase can leave you in financial trouble.

Let’s say you put $2,000 down on your new kitchen and drive it off the lot. A few days later, you lost it in a fire accident. The insurance company pays the kitchen’s market value, which has already depreciated below what you paid for it. In other words, you have to keep paying off your kitchen note even though you don’t have a kitchen.
That’s what usually goes wrong with leverage trading.

How Does Leverage Trading Stocks Work?

Leverage trading stocks work by allowing you to borrow shares in stock from your broker.

For one example:

Let’s say you have $2,000 to invest. This amount could be invested in 20 shares of Microsoft stock. But in order to increase leverage, you could invest the $2,000 in five options contracts. You would have 1000 shares instead of just 20.

Instead of investing in options contracts, you can buy a certain number of shares. Leverage is always expressed as a ratio, such as 2:1. In that case, you could double your position size by borrowing twice what you actually buy.

When you exit your position, you’re responsible for paying back the broker for the shares you borrowed. Whatever you have left is your profit, minus your own initial investment in the shares.

2:1 leverage example

2:1 leverage means you can borrow twice the amount of your investment from your broker.

For example, you want to invest $50,000 in stock, but you only have $25,000 in your trading account. Using leverage, you could buy on margin at 2:1, giving you $50,000 to invest.

It doesn’t come free, of course. You have to make an initial deposit or down payment to your broker for the privilege of buying on margin.

But what happens to your investment?

Let’s say you bought $50,000 worth of stock at $50 per share. The stock climbs to $55, and you sell.

At that point, you have to return the borrowed shares or money to your broker. The brokerage firm extended $25,000, so you owe that back, plus any interest required. The rest you keep as profit.

If the stock price drops, though, you’ll still have to pay back your broker. Plus, you’ll have to cover any losses your broker incurred during the trade. And your own, too.

The Leverage is Incorrectly Considered Risky

Leverage can be highly risky because it can boost the potential profit. But also the loss that trade can make. For example, you make a trade with $1,000 of trading capital but has the potential to lose $10,000 of trading capital.

This is based on the theory that if a trader has $1,000 of trading capital, they should not be able to lose more than $1,000. Therefore should only be able to trade $1,000. Leverage allows the same $1,000 of trading capital to trade perhaps $5,000 worth of stock, which would all be at risk.

Well, this is theoretically correct. But it is the way that an inexperienced trader looks at leverage, and it is, therefore, the wrong way.

Leverage Is a High-Risk Strategy

There are no secrets, investing risk increases with reward. The higher the potential payout, the higher your risk for great losses. This is especially true when you’re trading with leverage because you’re playing with the house’s money.

Brokerage firms require margin account holders to maintain a certain minimum balance. Your cash and owned securities serve as collateral for whatever you’ve borrowed. It reduces the risk for the broker. Though, it increases your risk, because if you borrow too much on a losing position, your account can get wiped out instantly.

The Real Truth About Leverage Trading Stocks

Leverage is actually a very efficient use of trading capital. The professional traders value it because it allows them to trade large positions. Such as more contracts, or shares, etc. And with less trading capital. Leverage does not modify the potential profit or loss that trade can make. Contrary, it reduces the amount of trading capital that must be used, thereby releasing trading capital for other trades.

For example, you want to buy 1000 shares of stock at $20 per share. That would require maybe $5,000 of trading capital. So, the rest of your initial leaving the remaining $15,000 available for other trades.

This is the way that a professional trader looks at leverage. Therefore, this is the correct way.

The bottom line

Leverage trading can be a slippery slope.

On the other hand, the more leverage the better. Professional traders will choose highly leveraged markets over non-leveraged markets every time. Telling new traders to avoid trading using leverage is essentially telling them to trade like an amateur instead of a professional. Every time that pros trade a stock, they always use the highest leverage they can. They would never trade a stock without using leverage.

The next time that you are making a stock trade, consider using a leveraged market instead.

risk disclosure

29th January 2019
PENNY STOCKS – How much does it cost to invest in

3 min read

Penny stocks sound cheap, don’t you think?

Yes, because they are. They are also called micro-cap stocks

Penny stocks describe shares of a company that trades for low amounts. It is usually between $0.01 to $2.00. But some institutions count a penny stock is anything that trades for less than $5.00 per share.

They’re not expensive, so what’s the catch?

So why trade penny stocks?

Everyone who entered the stock market knows that penny stocks equal a bigger risk than regular stocks.

The reason for inflated risk is simple. The companies that hold penny stock typically have no profits and minimal operations.

Many of these companies are speculative because they are thinly traded, usually over the counter instead of on major exchanges like the New York Stock Exchange.

They usually trade on the pink sheets or on FINRA’s over-the-counter bulletin board (OTCBB) and are not required to file with the Securities and Exchange Commission (SEC).

These stocks have low liquidity due to a lack of buyers and sellers. Hence, orders may not be filled right away or even at all. Moreover, volatility tends to be high among OTC (Over-the-counter) stocks, and bid-ask spreads are frequently large.

Investors in penny stocks should be prepared for the possibility that they may lose their whole investment.

Plus, penny stocks are notorious for being part of so-called pump-and-dump schemes. The scammers buy up shares and then promote it as the next hot stock on blogs, message boards, and e-mails. Once the stock price is unnaturally pumped up by all the gossips, the scammers sell their stake. The investors stay with big losses.

But…

Where penny stocks have the advantage is the low cost.

Also because of the simple math of penny stocks. If you buy shares for $0.40, and if the stock goes up by $0.20, then your profit is at 50 percent. That’s the pie-in-the-sky scenario.

However, it’s just as easy for your $0.40 share to go down by $0.20 and lose 50%, instead.

So, a $1,000 investment could lose value pretty quickly.

Of course, not everything is so dark.

Several years ago, CNN published a story about a young man who made his first million dollars from trading penny stocks.

He decided to begin with his life savings of $1,500. And 3 years later his portfolio was worth more than $1 million.
See how worth it was.

So, how to trade penny stocks?

We warned you but, yet you still want to trade penny stocks.

It is possible to trade penny stocks successfully.

If you trade penny stocks successfully, they really can offer the greatest risk-reward ratio of any investment type. But take care, the odds are not in your favor if you don’t understand what you’re doing. The must is, you have to learn. You must have the knowledge, education, in order to understand the market to successfully trade penny stocks.

And you must stay far away from scammers. Read the fine print on any email or ad you see on social media and in emails. If you find a disclaimer at the bottom of a social media post or an email, be cautious.

That means that someone’s getting paid to post an ad.

YOU WOULD LIKE TO READ The awesome thing is that you can invest in stocks online for free. See HOW!

It’s possible to profit when you understand the game, but the odds are against you when you don’t. And worse: manipulators and scammers often run the penny stock game.

For investors who can’t afford shares of Apple, for example, the potential gains from trades like this are too good to pass up.

So penny stock trading prospers. With a relatively small investment, you can make a nice return if the trade works out.

So, if you spot an advertisement that promises dollars from your pennies just remember these several rules:

Never trust the sweet stories

You must not believe the penny stock stories that are touted in emails and on social media websites.

And you have to say no. Let’s say, you can’t invest in penny stocks as if they were lotto tickets.

Unfortunately, that’s what most people do, and they lose over and over. Think of penny stocks as people that you can’t trust.

Instead, focus on the profitable penny stocks with solid earnings growth and which are making 52-week highs.

Read the disclaimers

Penny stocks are sold more than bought. They come as tips in emails and newsletters.

Remember, the free penny stock newsletters are not giving you tips out of the goodness of their heart. Read the disclaimers at the bottom of the newsletters. And you will see. They are getting paid to pitch a stock because their investors want a presentation for the company. There is nothing wrong with that, but almost all penny newsletters make false promises.

YOU WOULD LIKE TO READ Online stock brokers make investing easier than ever

You have to know something. There is a difference between stocks making a 52-week high based on an earnings breakout and stocks making a 52-week high because three newsletters picked it. The disclaimers at the bottom of the email or newsletter, which the SEC requires, reveals very often a conflict of interest.
They are being paid to pump up the stock, but they rarely tell you when to sell. Usually, it’s far too late.

Sell your penny stock quickly

The charm of penny stocks is you can make 20% or 30% in a few days. If you make that kind of return, sell quickly.
Never get greedy, aiming for a 1,000% return. The penny stock is getting pumped up, take any profits. And move further.

Never trust company management

Don’t believe what you hear from companies in this penny stock’s world.

The companies are trying to get their stock up so they can raise money and stay in business. That’s okay, but there is no reliable business model or accurate data. So, most penny stocks are scams that are created to enrich insiders.

There are large circles of the same people run promotions using different press releases and companies.

Never sell short

Don’t do it.

Penny stocks are too volatile. If you’re on the wrong side of the trade, you could lose 50% or more on a short squeeze. Another problem is that it’s difficult to find shares of the penny stock to short. Leave shorting penny stocks to the pros.

Focus on penny stocks with high volume

Stay with stocks that trade at least 100,000 shares a day. It could be difficult to get out of your position if you trade stocks with low volume.

Traders Paradise suggests that you trade penny stocks that are priced at more than 50 cents a share. Penny stocks that are trading less than 100,000 shares a day and are under 50 cents a share are not liquid enough to be in play.

Don’t trade large positions

You really need to be careful with position sizing. Never learn the hard way not to trade big. Famous traders rule is not to trade more than 10% of the stock’s daily volume.

The limitation of position size will provide you to get out of the stock faster.

The bottom line

If you want to invest in penny stocks you have to learn.

By the way, learn from Timothy Sykes, who is famous for turning his Bar Mitzvah gift money of about $12,000 into millions by day-trading penny stocks while in college. For the past years, Sykes has been teaching his strategies through the sale of instructional newsletters and video lessons. You can find his lessons very easy.

28th January 2019
Online stock brokers for beginners

2 min read

It is easier than ever to find good online stock brokers. The benefits are numerous. You can learn and invest in the comfort of your own home. The research team at Traders Paradise made some research. We tried to find the options on the market that are good for you. So, we wanted to find the best online stock brokers for beginners and super investors alike. We had to deep into the financial world with stock experts.

And we hope that this research will help anyone get started.

The popularity of index fund investing and robo-advisors is rising. It may seem the trading of individual stocks is lost. But, it isn’t the truth.

Millions of investors continue to trade individual stocks and other securities. Because online stock trading sites make investing easier it’s important to do so using the best online stock trading sites.

Investors should know the best online stock brokers to trade with. They have the right to know. Some online stock brokers are known for their award-winning customer service. But the others are known for low-priced stock trades or powerful trading tools. Traders Paradise-Finance wants to highlight some of the best brokers available today. Actually, we want to give you some tips for choosing a broker.

Criteria for the best online stock brokers

The best online stock brokers offer low fees, great customer service, and smart research tools.

Discount brokers charge as little as $4.95 for online trades. Compare that to the $100+ that many full-service brokers charge. It seems like a no-brainer choice to choose the discount broker. But, you must know how to pick the right one.

Trading online is a self-directed practice, and you need the right broker backing you up.

But it is a stormy time for online stock brokers.

Between significant cuts in commissions and a few major acquisitions, the competition is fierce.

YOU SHOULD READ Stocks Online for Free – How to Invest

So, let’s like this, there is no one best online stock broker. But each one has different strengths and weaknesses. Our aim is to spotlight them and help you find the best one for your investing style.

Every trader should care about cost. A few of the fees we analyzed include:

Cost per transaction:

Commissions are typically an investor’s biggest cost base. For example, in 2016, a usually unassisted transaction fee averaged about $8. But early 2017 brokers decrease their commission. Fidelity, E*Trade, and TD Ameritrade, also did that. Now, you can trade for as low as $4.95. No matter what the price, though, for us, transparency is key. We wanted to see affordable pricing structures.

Account minimums:

Seeing your wealth shrink due to a tough market or bad strategy isn’t fun. It’s worse if you’re also getting dinged by your broker’s minimum account balance requirement.

Charges for data and tools:

The best online stock trading sites have quality market data like real-time quotes, educational resources, and stock-screening tools built right into their platforms. But some, we have to say, like Fidelity and TD Ameritrade, stand out for also providing top-shelf resources. And it is totally free of charge.

Extra costs:

Executing a trade over the phone, for example, can increase an $8 commission fee to $25 or more. Some platforms offer free education on sophisticated strategies but require an upgraded platform with an annual fee. Besides cost, we valued educational material, reports and tools, and the usability of the platform itself.

After Traders Paradise conducted this research, the following to be our top picks:

The best for cheap trading is Ally Invest. But beginners would like E*Trade. Speaking about the platform the best has TD Ameritrade. Best research and tools have Fidelity.

Why use a discount broker

A discount broker costs you much less money per trade. You won’t have the steep commissions that full-service brokers charge. What this means is more cash in your pocket and the opportunity to make more trades.

The main reason is cost.
But here we will break down who would do better with a full-service broker and who could get by with a discount broker.
Because cheaper isn’t always better.

Let’s see in this way.

Do you have a large number of large investments?
Or you not have the desire nor the know-how to handle your portfolio?
Can you afford high commission fees?
Maybe you not have time to manage your portfolio effectively?

If your answers are “yes” to each of these questions, a full-service broker might be the best option for you.
But, if you want to save money on each trade made or like to be in control of your investments, the discount broker will suites you better.

Because you don’t want to be pressured to take other investments and you want to make frequent trades.
The other things to consider when you have to choose your online stock brokers are:

Minimum deposit/balance:

Some brokers require a minimum deposit to open the account. Others don’t have a minimum. Yet others require a minimum average balance over the life of the account. Determine what you can afford to keep in the account if choosing accounts with a minimum requirement higher than $0.

Customer service:

Take a trial run on any broker’s website that you are considering. Check out the support they have readily available on their website. But you should also email and call them with questions. See how long it takes to get an answer.
A discount stock broker can save you a lot of money and save your portfolio. But they aren’t for everyone. Here are a couple of other choices you may want to consider:

Robo-Advisors: If you are familiar with a completely “hands-off” approach, robo-advisors can save you even more money. The automated system uses an algorithm to invest your money for you. After you input your risk thresholds and investment goals, the computer does the rest.

YOU SHOULD READ Automatic Trading – What Is It

Peer Lending: This is those who want to stay away from stocks and bonds for now. If you are one of them, consider peer-to-peer lending. You decide how much money you want to invest and what type of risk you want to take. The minimum investment is often about $25. You can break your investment up into as many loans as you want. This helps diversify your portfolio.

Full-Service stockbroker: If you have a lot of money to invest or need that in-person advice, a full-service stockbroker is for you. You’ll find them at your larger brokerage houses, but keep in mind that their commissions are higher than discount brokers. In the most common situations, you will have to pay $100 – $200 per trade versus $4 – $7 per trade.

The bottom line

Using a discount broker is a great way to trade and keep your profits. Choose your broker wisely by paying attention to hidden fees and understanding account minimums. A discount broker is a great way for beginning and experienced investors alike to invest in their future.

To find which online brokers suits you the best, you should read Traders Paradise’s WALL OF FAME.

Risk Disclosure (read carefully!)

25th January 2019
Stocks Online for Free – How to Invest
Why invest in stocks online for free, where to find broker, is it really free? Read this post to the end.

By Guy Avtalyon

Technology is making it easier than ever to invest in stocks online for free. However, some places still are charging outrageous fees and commissions to buy stocks and ETFs online when it’s possible to invest in stocks online for free.

Some of the firms that advertise “get started with just $5” can charge you huge fees as a percentage of what you invest. Truth is, we saw some really dishonest financial advisors charging thousands!

We can offer this: everything held equal, the less you pay in fees, the better your returns.

Where to find stocks online for free

Gratefully, we live in the 21st century, and there’s never been a better time to be a small investor.

For 95% of people, that’s fine. For those who want to buy individual stocks, there are still places that allow you to buy stocks online for free.

You have only a few ways to buy stocks online for free.
Thanks to developing technology investing is cheaper. More and more companies are lowering their fees and commissions.
It is possible that they will continue with costs reducing in the coming years due to competition. So, it’s reasonable to expect the cost will drop more.

Fees don’t have to stop you from making wise and lucrative investments.

And now, in today’s mobile world, investing is becoming easier and cheaper than ever. Buying and selling stock investments is not as easy as watching TV series but don’t worry it is not rocket science either.

Today you can enter your stock trades from stockbrokers websites for stock trading apps. It’s very convenient. Just read reviews of the best trading apps and you can find the best selection for you.

Some of them you can find on Traders Paradise’s Wall of fame, like E-trade, TD Ameritrade or Fidelity.

We can suggest you these 3 the best stock trading apps for beginners.
- TD Ameritrade
It is the best for ETF trades. You’ve probably discovered Exchange Traded Funds (ETFs) and you want to cut fees, but you want to maintain a well-diversified portfolio.

ETFs maintain a tax-advantaged structure. They usually offer lower fees than comparable mutual funds. But, most brokerages charge you to buy and sell ETFs. Well, this broker, TD Ameritrade, don’t do so.

TD Ameritrade offers over 100 commission-free ETFs from industry giants iShares, Vanguard, and even more. Because of the diversity of no-load ETF funds, TD Ameritrade is, in Traders Paradise’s opinion, top broker for the people who want to consider tax-loss harvesting on their own.

Moreover, TD Ameritrade also has no minimum and no maintenance fee IRAs.

TD Ameritrade’s mobile app also offers research, information, and portfolio analysis that makes free investing that easier. But we have to say, TD Ameritrade charges for some ETFs, mutual funds, and equity trades. Our suggestion is, filter for no-load ETFs before you buy.

TD Ameritrade has about 4,120 no-fee funds.
- E-trade
This broker offers thousands of mutual funds with no transaction costs.

Mutual funds are the old-school ETF similar principle from the diversification angle. Like ETFs, they hold many individual investments. Hence, investors get some level of diversification in a single fund.

Unlike ETFs, they are priced, they aren’t traded with a commission but with a transaction fee charged by the broker. That’s because they are bought and sold at the end of each trading day.

That fee can be pretty big, sometimes almost $50. But many brokers have a list of no-transaction-fee funds.

Of those that do, E-Trade put up the best showing, with about 4,440 and 4,350, respectively. This is why this broker tops our list of best mutual fund providers. That means you can buy funds on those lists with no charge. Though as with ETFs, investors in these funds will pay expense ratios.
- Fidelity
It is the best for Free ETF Trades & No Minimum IRA. Fidelity allows you to invest for free. This is surprising for most people because most people don’t connect Fidelity with “free”. But, Fidelity offers a range of commission-free ETFs. That allows the majority of investors to build a balanced portfolio.

Fidelity IRAs have no minimum to open, and no account maintenance fees. Let’s say, you could deposit just $5, and invest it for free. That makes this a much better deal compared to some other companies. Furthermore, Fidelity just announced that it now has two 0.00% expense ratio funds. And yes, they are free.

So, you can not only invest commission-free, but these funds don’t charge any management fees. This is truly free investing. But to make it a prime app, it has to have a great app, and Fidelity has it. Fidelity has a great app, so that makes them the top broker.

Fidelity’s app is the easiest to use out of all of the investing apps we’ve tested. All their features work brilliantly together, and they have tones of them. Plus, they are the all-in-one option. With them, you have a full service investing broker. And that is more than just free.

Why invest in stocks online for free

Investing in stocks is supposed to be about building wealth. Well, paying trading commissions can slow your progress..Small fees on stock trades might not seem like a big deal. Most online brokers charge $10 or less for each transaction. But keep in mind that’s per transaction. If you are just starting out as an investor, or if you have only small amounts to invest, even a small fee can take a big bite out of your profits.

But now, you know how you can invest in stocks online for free.
24th January 2019
Blue-Chip Stocks – Investing in them can be a profitable decision

Blue-chip stocks are popular because they can provide a safer position during economic downturns.

By Guy Avtalyon

Investing in blue-chip stocks may have a reputation for being boring and even a bit outdated. But think again, is it an accident that they are preferred by wealthy investors and rock-solid financial institutions?

Anyone would like a part in businesses they understand and that have a demonstrated record of extreme profitability. The blue chips certainly go along with this description. According to generations of investors, blue-chip stocks have brought money for owners. For the one wise enough to hang on them through good times and bad times, inflation and deflation.

And it is well known. The blue chips stocks are always there. They represent companies that are the core of the global business. The firms with the past, with history. Their products and services are present in nearly every part of our lives.

So, why they are almost entirely ignored by smaller, poorer investors? But, at the same time, the blue-chip stocks have been supreme in the investment portfolios of retirees, non-profit foundations. Also in the portfolios of the top 1 percent of the capitalist class.

This puzzle gives the greatest example, a spectacular glance into the problem of investment management.
Even more, it requires some discussion of behavioral economics.

Blue-chip stocks don’t belong exclusively to the world of retirees and insurance companies. Here’s why.

What are blue-chip stocks?

First of all, the blue-chip stock is a nickname. It describes the common stock of a company that has several quantitative and qualitative characteristics. The term “blue-chip stock” originates from the card game, poker. You know that the highest and most valuable playing chip color in poker is blue.

But there is no general agreement on what, precisely, makes up a blue-chip stock. Hence, there are always individual exceptions to one or more rules. Anyway, blue-chip stocks have several common characteristics.

They are not new, they have history and profitability. They have official data of stable earning power over several decades.
Also, they have long data of continuous dividend payments to stockholders.

They reward shareholders by growing the dividend at a rate equal to or substantially more than the rate of inflation. So, the owner’s income is increasing at least every twelve months even if the shareholder never buys another share.

Blue-chip companies

They have high returns on capital. Also, a solid balance sheet and income statement. Especially when measured by the interest coverage ratio and the geographic and product line diversity of the cash flows.That kind of company repurchases stock when the share price is attractive relative to owner earnings.

They are larger than the classic corporation. Measured by both stock market capitalization and enterprise value, they are among the largest concerns in the world.

It is difficult to unseat market share from them. Sometimes, it comes in the form of a cost advantage achieved through economies of scale, or a franchise value in the mind of the consumer, or ownership of strategically important assets such as choice oil fields. That giant companies issue bonds that are considered investment grade with the best of the best being Triple-A rated.

They are included in the component list of the S&P 500 index, speaking about the USA companies. Many of the blue chips are included in the more selective Dow Jones Industrial Average.

Why wealthy investors prefer blue-chip stocks

Well, one of the reasons wealthy investors prefer blue-chip stocks is because they tend to compound at acceptable rates of return. It is typically between 8% and 12% with dividends reinvested. To say that, holding blue-chip stocks isn’t smooth by any means. They may drop by 50% or more during the period of several years. But over time, the profits perform their extraordinary power.

Presuming that the shareholder paid a reasonable price, it shows up in the total return of the shareholder.
Even when they paid high prices for the ”Nifty Fifty”, 30 years later, investors beat the stock market indices despite several of the firms on the list going bankrupt.

By holding the stock directly, the wealthy can pass them to their children using something known as the stepped-up basis loophole. One of the most incredible, traditional benefits available to reward investors is that all of the deferred capital gains taxes that would have been owed are forgiven.

For example, if the investor, your mother or father at the same time, vested $500,000 worth of blue-chip stocks and held on to them.

Can the blue-chip stocks offer a safer position during economic disasters?

It isn’t a pleasant moment, but, just, for example, they died after they had grown in value to $5,000,000. The successor could arrange that estate in a way that the capital gains that would have been owed on the $4,500,000 unrealized gains ($5,000,000 current value – $500,000 purchase price) are forgiven. The successor would have never paid them. Their children will never have to pay them.

Don’t you think it’s better compounding at a lower rate with a holding you can maintain for the decades? Better than trying to flit in and out from position to position, always chasing after a few extra percentage points? Yes, it is.

Another reason blue-chip stocks are popular is that they offer a safer position during economic disasters. The less experienced and poorer investors don’t think about this too much because they’re almost always trying to get rich too quickly.

They are looking for that one thing that will instantly make them rich. It never ends well. Markets can collapse. You will see your holdings drop by substantial amounts no matter what you own.

Are Blue-chips safe investments?

Don’t let the other people deceive you. One of the reasons blue chips are relatively safe is that dividend-paying stocks tend to fall less in bear markets due to yield support.

Moreover, profitable blue chips sometimes benefit over the long-run from economic disasters. They can buy, or drive out, weakened or bankrupt competitors at attractive prices. The blue-chip stock sets the stage for much better results decades down the line whenever there is a market collapse.

As a conclusion, wealthy and successful investors tend to love blue-chip stocks because the stability means that the passive income is hardly ever in danger. Especially if there is broad diversification in the portfolio. If we ever get to the point that premier blue-chips are cutting dividends en masse across the board, then we will have much bigger things to worry about than the stock market. We’re most likely looking at a civilization disaster.

And if it comes, who will care!

21st January 2019
A Diversified Stock Portfolio – How to create?

Building a diversified stock portfolio is just the beginning but an important part of investing. Here is how to do that.

By Guy Avtalyon

We already mentioned a diversified stock portfolio.

‘Don’t put all your eggs in the same basket’ is probably the most popular saying telling investors about the importance of portfolio diversification. Otherwise, how to spread and reduce risk?

The major advantage of the diversified stock portfolio is its ability to protect your entire portfolio from the volatility associated with different asset classes.

In this article, we look at ways to protect your portfolio by spreading your risk across several different asset classes. Also, some of the many different assets in which you can invest, each with different risk characteristics.

Where is the advantage of the diversified stock portfolio?

The risks attributable to assets cannot be avoided. But when they are managed as part of a diversified portfolio, they can be reduced. Individual assets have a bearing on the overall level of risk you are exposed to.

And the association between the assets has even greater importance. This article considers how a well-constructed investment portfolio should be diversified in a variety of ways. Including overall investment style, a number of individual asset classes, the spread of geographical allocation, and the approach of the fund manager.
The key is to build a diversified stock portfolio with a mix of different investments that make sense for your attitude to risk.

A balanced investment portfolio should hold a mix of equities: stocks, bonds, property, and cash.

Yes, we know. For some of you, the world of investing is complicated. There are mutual funds, exchange-traded funds, target-date funds, a variety of bonds and fixed-income products and then, of course, individual stocks.

These days more and more investors are turning to low-cost ETFs. And necessary, there is the question: is it worth taking the time to build an individual stock portfolio? Yes, it is.

But you have to put in some time and research.

There are various advantages to individual stock ownership.

We believe an individual investor has an advantage over professional investors. But only if you are willing to do the homework necessary to understand the company, management, and the industry underlying each individual stock.

How can you start picking the companies that go into their stock portfolio? Building a solid stock portfolio requires some time, research, and homework.

What is a well-diversified stock portfolio

The diversified stock portfolio should have 10 to 30 individual stocks.

There are 10 stock sectors classified by S&P Dow Jones Indices. These include energy, materials, industrials, consumer discretionary, consumer staples. Also, health care, financials, information technology, telecommunication services, and utilities.

A general rule is to own two to three of the top companies in each main sector.

Stock rankings, screeners, and lists can help individual investors in their quest to find the best stocks for their needs. The rankings can slice and dice stock market members up by returns, market capitalization, dividend yield, price-to-earnings ratio, and other criteria.

Investing in research doesn’t have to be for professional portfolio managers. It is for individual investors too.

How to diversify a portfolio between growth and value stocks?

Or between dividend stocks and those focused on plowing their profits back into their operations.

Diversification is a beautiful thing because it can lower risk without lowering the expected return of a portfolio. This is more or less related to magic by Wall Street standards. Use your research and logic to weed out the stocks that you do not like. Or the companies that have historically lost money due to the competitive pressures.

It will be good for you to understand the behavioral psychology and economics at play behind the companies you hold in your portfolio.

For example, knowing the demand elasticity, or how much a change in price will impact the quantity demanded, can be useful in understanding a company or industry’s prospects.

If the price of gas went up 15% tomorrow, it’s very unlikely there would be a corresponding drop in demand. People need to drive, of course.

How to establish an investment time frame in your diversified stock portfolio?

Since you are going to own individual stocks you need at least three to five years. The longer the better. In order to reduce certain volatility.

Hence, to be successful in individual stock investing, you must do your homework. But more importantly, you need to have a steady temperament and be confident in your own convictions and analyses.

Building your diversified stock portfolio may be just the beginning. But, for the interested and dedicated investor, the payoffs could be well worth the work.

Picking good stocks requires research, time, and the ability to evaluate many parameters for the stock, industry, and overall economy.

And while buying a few dividend stocks should earn you some healthy interest income. Your real dividends will be the long-term gains you rack up as you watch your picks grow.

20th January 2019
How to structure your stock portfolio?

The structure of the investment portfolio depends on many factors but risk appetite is maybe the most influential one.

By Guy Avtalyon

How to structure your stock portfolio? The answer to that question depends on your attitude to risk. Here are three sample portfolios.

What is the best structure of a portfolio?

Laith Khalaf, a senior analyst at UK wealth adviser Hargreaves Lansdown suggests this model of your stock portfolio structure:

Adventurous investor
20%: JPM Emerging Markets
20%: Legal & General International Index
20%: Man GLG Japan CoreAlpha
20%: Threadneedle European Select
20%: Standard Life Global Smaller Companies

Balanced investor:
20%: Invesco Perpetual Tactical Bond
25%: Newton Global Income
10%: Stewart Investors Asia Pacific Leaders
25%: Legal & General UK Index
20%: Baillie Gifford Managed

Conservative investor:
25%: Newton Real Return
20%: Investor Perpetual Tactical Bond
10%: Legal & General Global Inflation-Linked Bond
20%: Threadneedle Equity Income
25%: Troy Trojan

How you will structure your portfolio depends on are you a defensive, middle-of-the-road, or aggressive investor. This will partly determine where you invest.

What is a portfolio structure?

The portfolio construction is the process of organizing your investments as a whole, rather than piecemeal.

How can you have the best chance of constructing a portfolio that meets your investment goals?

At a broader level, portfolio construction should be about structuring your portfolio in a way that stands the best chance of meeting you have stated investment aims within your acceptable level of risk.

But be careful, well thought out structuring of your assets will have an enormous impact on your long-term wealth creation. Conversely, the wrong structure could cost you in both ongoing charges or unexpected tax liability.

What factors do you have to consider in deciding on the combination of stocks, bonds, and perhaps commodities to use in building up your retirement portfolio?

Let’s say that the further one is from retirement, the more risk one can take. Thus at 30, you might have a portfolio of 70% stocks, and 30% bonds. At 50, the ratio might be half stocks and half bonds and at 70, 70% bonds and 30% stocks.

This model of stock portfolio structure allows for a more predictable and more stable income from bonds. But it does not take into account the characteristics of the individual or the nature of the stocks and bonds. Moreover, not all stocks are equal.

Structure of the stock portfolio based on risk tolerance

Find how the structure of the stock portfolio matches your risk tolerance.

If your stock portfolio at 30 or 50 is loaded with, for example, half small caps with no dividends, mining stocks with low dividends then the need for bonds is higher. Or if the bond portion of a portfolio is loaded with high-yield bonds subordinated debt, the fixed-income portfolio needs to be rebuilt for security.

As we move from working years during which it is possible to raise savings and make up for investment losses into retirement, the need to cut volatility grows. A mixture of short and long government bonds and corporate bonds can’t compete with the potential of small companies’ stocks to rise. But it does have fundamental security.

But you can implement some other model of structuring your portfolio. For example, you can buy stocks from developed and emerging markets around the world. And you can own real estate through a low-fee fund as a part of your portfolio.

If you live in the USA, Treasury inflation-protected securities, or TIPS are a very good choice. Some of these parts will possibly increase and drop and increase again. It will happen at different times and at different rates. So you can rebalance at least once a year to maintain your target allocation in your portfolio.

David Swensen, chief investment officer, Yale University suggests this, take a look at the image below.

How do the fees influence the structure of the stock portfolio

Fees can make terrible damage to your investment returns.

Even if you hold the higher-risk, but also, higher-return asset classes. In case of, for example, stocks, you can expect high but one-digit or low double-digit returns over a long time. In fact, Swensen said you can end up losing more than half of your returns. The math is simple, you’ll have to pay 1% for your financial advisor, the additional costs are mutual funds fees which are approximately 1-2%. Finally, you’ll have to adjust your returns for the percentage of inflation.

The odds, he said, are in favor of index funds. In his opinion, very-low-fee index funds make the most sense for individual investors.

When it comes to investing there is no such thing as one size fits all.

Speaking about how to structure your stock portfolio, your portfolio has to be well-diversified, equity-oriented for long-term investors, and efficient in the sense that it is as good or better than other alternatives.

Portfolio structure depends on how long you want to stay invested

When you’re investing for the long run, for example, 20 or 30 years, you are expected to make more money holding a fairly large part of your portfolio in stocks or some other assets that have a high rate of return. That’s because historically, stocks offer greater returns than safer alternatives over the long term.

But in the short term, stocks tend to be much more volatile. So as you approach retirement age, investment advisers suggest moving more assets to the “safer than stocks” class.

Let’s say the stock market crashes and you need to spend money out of your portfolio as income in retirement. So, you don’t want to lose 20 – 30% of your savings and to sell your stocks at a lower price. If you’re younger and market crash, you can just stay invested and wait for the market to recover.

But it isn’t all about age

How to structure your stock portfolio is also about the appetite for risk. Risk tolerance is different for each investor. Risk-averse investors will prefer to hold a mixture of the stock portfolio and cash. Cash could reduce overall risk. When wealth increases, it could happen a tolerance for risk to increase also. But when you grow older, tolerance for risk could decrease. Each investor needs to find his/her own stock portfolio structure that suits their risk tolerance. That’s the main point.

18th January 2019
The best stocks to invest during the inflation

Investing in stocks can be the best move during inflation. What are the best stocks for such an environment?

By Guy Avtalyon

So, stock markets aren’t going away anytime soon. But let see how stocks act in the period of inflation. They remain a driving economic force in every country in the world. Analysts aren’t quite sure what the future holds for the stock market.

We will likely see stock markets continue to merge over the coming years. Some have even thought that we’ll see a single global stock market. This appears to be unlikely. Frankly, stocks are not good short-term protection against rapidly increasing inflation, but bonds are worse. But for long-term investors, stocks can be an excellent hedge against rising prices.

Inflation has been creeping up on the world economy. It isn’t the first time. During the history, we had so many inflations.

Inflation tracks the rise in the price of goods and services, which in turn shrinks the money’s purchasing power. When inflation rises, people can buy fewer goods, input prices go up, and revenues and profits go down. The result is, the economy slows down.

But the good news is that you can make money on the market by investing in stocks. Earnings come even in times of inflation.

How?

Well, the truth is that too much money chasing too few goods is one classic definition of inflation. Many studies have looked at the impact of inflation on stock returns. Most studies conclude that inflation can positively or negatively impact stocks. That depends on the investor’s ability to hedge. Also, it depends on the government’s monetary policy.

The most important is knowing how to invest in that environment.

Should you be concerned about inflation and your investments? If you have a substantial portion of your portfolio in fixed income securities, the answer is a definite yes.

Inflation erodes your purchasing power, and retirees on fixed incomes suffer when they can buy less each passing year. This is why financial advisers caution even retirees to keep some percentage of their assets in the stock market as a hedge against inflation.

The consumers will not hold cash because their value over time decreases with inflation. For investors, this can cause confusion.

High inflation can be good, as it can stimulate some job growth.

What can you do in periods of inflation? You can stay invested and not pay attention to the short-term fluctuations. Sometimes this can be hard.

One common misconception about a buy-and-hold strategy is that holding a stock for 20 years is what will make you money. Long-term investing still requires homework because markets are driven by corporate fundamentals. If you find a company with a strong balance sheet and consistent earnings, the short-term fluctuations won’t affect the long-term value of the company.

In fact, periods of volatility could be a great time to buy if you believe a company is good for the long-term.

Companies that raise their prices in line with inflation tend to fare better than others when the cost of living is increasing.

Energy companies, for example, may perform well in an inflationary environment as they can raise their prices in line with inflation. Infrastructure companies such as those responsible for toll roads, or hospitals, may also do well. They often have long-term government contracts in place with payments linked to inflation, which encourages private-sector investment.

Generally speaking, cash would be the worst asset class to hold in a high inflationary environment. However, stocks would be a better choice. This is because a company’s revenue and earnings should grow at the same time as inflation. Companies usually pass rising costs to the consumer to maintain their profit margin.

The concern of rising inflation has recently surfaced as strong employment numbers have caused fears of wage growth. In January, the average hourly pay, for example, in the US jumped 2.9 percent in a year. This is the largest jump in 8 years.

Companies may increase the prices for goods and services in order to pay for these increased salaries. This element is causing concern for investors. Higher salaries for some can bring a higher cost of living.

So, what can you do, where to invest, which stock to buy in the period of inflations?

Oil Stocks

There is a positive connection between the price of oil and inflation. The consumer price index helps measure inflation in the economy by tracking a basket of goods and services by households. Energy costs in households are part of the consumer price index. When the oil prices increase, it directly affects the energy costs spent by consumers. This leads to an increase in the CPI index and then inflation. Oil stocks always do well in high inflation environments.

Utilities

Utilities are defensive stocks. People will need utilities even in a high inflation environment. When operating costs rise for energy companies, in the final instance the consumers will pay them.

So, the companies will maintain their profit margin. Consumers will have no choice. They have to pay for the newly inflated cost if they want to receive electricity, for example. Demand in utility companies will still be strong even in high inflation periods.

Healthcare as best stocks

Healthcare is also a defensive stock. They are considered safer investments as people will always need healthcare. Even when consumer budgets are poor. During the inflationary period, investors will sell out high-risk stocks. They will prefer to buy into low-risk stocks because these are considered safer. People will always need medicine and medical treatment. They will give priority in spending on healthcare as opposed to less crucial goods and services.

Gold Stocks

When investors notice high inflation in the economy they want to turn to safe-haven investments such as gold stocks.

Gold traditionally is an investment held during the economic instability. High inflation causes investors to want to safeguard their investments by buying gold stocks.

Of course, holding cash in bank accounts is a bad idea in a high inflation environment. Because the purchasing power of cash is eroded by inflation.

Basic goods/consumer staples

For instance, companies with higher energy costs from increased transportation costs or higher operating costs will pass these costs to the consumer. Good and services will become more expensive. Consumers will become more selectable when purchasing goods and services because they have less buying power. But, basic goods or consumer staples will still be in demand in a high inflation environment. Even if the costs increase, people will still buy bread and milk. Even if such companies increase the price of their goods, consumers will need to buy it. Consumers will not buy non-essential goods and services such as a new car or furniture. They will only spend what is necessary. That kind of company is a good opportunity.

During the period of inflation never invest in discretionary stocks.

Material Stocks

Basic materials companies are involved in the exploration, development, and processing of raw materials. Hence, many times target specific resources, such as gold, silver, and crude oil. This sector also includes companies that run refineries and plants to develop refined materials. The dividend yields within this sector are above average in comparison to the wider market.

If you’re looking to invest in dividend-paying basic materials stocks, you may also be interested in dividend-paying basic materials exchange-traded funds (ETFs). These funds offer a diversified dividend payment based on a basket of basic materials stock holdings.

What we want to show is that there is no solution to inflation, but there’s the reason for hope. And for profits and returns of course.

You might find these interesting too:

>>> Cryptocurrencies a Powerful Tool Against Hyperinflation?

>>> Are we in an overpriced market?

>>> How to improve risk management in trading?

>>> How to trade stocks during recession

>>> How to Find a Stock Worth Trading?

14th January 2019