Tag: money management

  • Taking A Position While Investing

    Taking A Position While Investing

    3 min read

    Taking A Position While Investing
    What is the definition of taking a position? How to accurately control your portfolio positions?

    By Gorica Gligorijevic

    Taking a position in the stock market indicates that a trader is ready to make choices, to go long or short. These are two positions that an investor can take. Going long means to buy, short to sale.
    When you hold a long position that means you own the stock. Why is this important? I like to say investing is a marathon.
    Investing takes time to grow. It requires a relatively moderate risk and moderate returns in the short run. But investing may produce bigger returns by placing both, interests and dividends to hold for a longer period of time. So, we are taking a long position when investing.
    You would like to hold your stock for several years and have a decent return. In most circumstances, you should take the profit when a stock grows 20% to 25% of the buy price.
    A “short” position relates to the sale of a stock you really don’t own. You have to borrow shares from a stockbroker. You will have the open position of shares and that has to be closed after some time. Investors who sell short believe the price of the stock will go down. And they are selling, meaning they go short.  After you go short, the price of the same stock may go down more and you can buy it back and make a profit. Never wait to the price of that stock to increase and then buy, you will catch the loss.

    If the stock’s price fell to $0, you owe the stockbroker zero and your profit would 100%. What if the stock price grows doubles when you close the position? Calculate! You may gain loss to 200%, double more of your buying price.

    But keep one thing in your minds, short selling isn’t for beginners.

    Taking a position in the investment

    You are facing the horror: that stock you bought go lower, from hour to hour, day after day.

    If it fails 5%, you may say the market is changeable, so why to be worried. But the dropping is continuing. Your stock is 10% down, after a few days 25%. To defeat a 50% loss you will actually need a 100% gain.

    How do you feel now? What are you going to do? To wait until it drops 50%?

    So, what to do?

    When to get out in the investment?

    There are several possible scenarios on taking a position but at first, try not to get panicked.

    You should get out in your investment when your stock no longer meets your goal. Or you purchased it by mistake, it can happen.

    The other reason for selling a stock can be you need money, or you would like to get out your investment because of asset allocation or reallocation.

    The general rule of investing is never getting out of your investment just because the stock price is dropping. The rule “buy high and sell low” isn’t relevant while investing. Otherwise, you will never earn money in the stock market.

    A selling an investment too quickly can hurt your portfolio.

    Can you “ensure” some positions?

    All beginners, no matter how smart they are, have illusions, so they have losses. You have to keep your losses small, don’t let them scare you and survive.

    The rules for managing the risk that we’ll show you may feel disturbing for beginners because they have small accounts. Well, the proper risk control may limits trade size. I know that. But it is important for you to know that it is a protection in the first place.

    The crucial rule of risk control is the 2% rule: never risk more than 2% of your account investment on any opened trade.

    Start by writing down three numbers for every trade: your entry, target and stop. Without them, a trade may become a gamble.

    I want to share with you one of the best advice I got when I become an investor.

    If you see your stock rises by 40% you should sell 20% of your position. When the stock later increases 49% more, sell the other 20%. That will provide you to have 125% of your primary position.

    You have 100% of the initial position. And it grows 40%:

    100%*1.4=140%

    You sell 20% of it, which means that now in your hands you have 80% left:

    140%*0.8=112%

    Stocks rise for another 40% progressively:

    112%*1.4=156.8%

    Now you sell 20% of the stock you have in your hands:

    156.8%*0.8=125.44%

    You end up with a 125.44% value of the initial position.

    To make this simpler, when you buy some stock you have 100% in your hands. After some time they rise by 40%, so you have 140% of the value. And you sell 20% of that 140% and you have 80% of that 140% in your hands which is 112%.
    After some time that 112% rise for another 40% – that means you have 156,8% in your hands. And you make another selling of 20% from that 156,8% which means you will have, after second selling, 125,44% of your initial position.
    Also, you may apply a 20% stop loss on all positions. This serves to block whipsawed. If you are properly handling your portfolio positions you could reduce lower-performing positions before the 20% level is scored.
    Taking a position in trading and investing is always in the question, so you must know how to handle your portfolio. On some assets, you are taking a long position but on others, you are taking a short position. It is necessary because you would like to protect your investments as a whole.

  • Planning When You Are Insolvent

    Planning When You Are Insolvent

    2 min read

    How to reduce costs and improve credit score

    You don’t have enough cash, right? And you don’t know how to reduce costs.  Well, it’s more likely you don’t have a plan. First of all, try not to spend more than you earn. If you do, you would prevent the growing credit card debts and you would not have broken credit score. So, what to do when you have all of this? Honestly, you are not a lonely case. Don’t worry, you still have the chance to reach your financial intentions. 

    All you have to do is to take several steps. So, let’s start. We don’t need all this stress surrounding us.

    Neglect the 10% savings rule. This isn’t time for it. Forget it.

    Puting10% of your salary into your savings account is a tricky part if you’re surviving paycheck to paycheck. You cannot save a cent. So, wait with that. So, the first step is to balance your budget.

    Further, how to reduce costs…

    Ask for bill extensions. It is often allowed. Talk to your landlord if you are worried to save a roof over your head. But consider the other possibilities to decrease your bills. For example, maybe you don’t need all the services your mobile provider is giving, or you may spend less money on electricity bills, and so on.

    If your biggest worry is eviction from your apartment, talk to your landlord, but, also, see if you can get increases on any other expenses to free up money for keeping a roof over your head.

    Let’s see what else you can do.

    Analysis of your credit card payments. What? Do you want to tell you are using that for minimum payments? Well, you are on the right path to disaster. You will ruin your credit score! Don’t even try to avoid credit card payments. That will make your debts even worse.

    Rather make the highest payment you can support. 

    Decrease spending in other fields and stay focused on your debt. Yes, you may think are not saving money while you are increasing credit cards payments. But, honestly, you do. In this way, you will be able to save up to 30% per year in interest rate. For example, if you manage to pay $2,000 added this year, you will pay almost $600 ahead. It can be on-month-rate and you are on a good way to avoid eviction.

    Moreover, prioritize your bills. Check what you have to pay as first and make a plan based on your paydays. If you already have some late bills, talk to representatives from bill company. Be honest with them and say you are going on a more stringent budget. Just tell them how much you can pay per month and don’t promise you will pay more with the next paycheck. What if some other costs arise? What are you going to do? So, just be honest.

    Review your spending in the last month. Make a list of different categories or use online banking or some app for that. Call your credit card company or companies and try to reduce the interest rate. Negotiate!  

    How to reduce costs else?

    Try to reduce your expenses. Actually, you have to do so. Check your fridge! Is there rotten food? Of course, you have to shop for less fresh food. Make a menu for one week, for example, and stick with it. The big result will come with small steps. Cut back on coffee, invite friends to your home, instead to see them in restaurants. Eating out is expensive anyway. You will not need that for a while.

    Give your budget a one-month chance. Make notes every day, use the app on your mobile or some software on your computer. Follow the spending of every cent. And you will see where you need to adjust your spending. Decide where to cut. Oh, yes! Don’t try to exclude supermarkets, utilities, and rent. You have to buy food, you must have a place to live and you need electricity and other utilities. Just reduce the light (you are not living in the surgery room, for God’s sake), and start to cook.

    And try to find more income.

     

  • Money Management

    Money Management

    Money Management
    Hans Stam

    by Hans Stam

    A little off topic but well received within my group how I manage money.

    So I decided to put this in writing to your benefit. 

    Many don’t know where all the money went at the end of their month. 

    Usually, they have a bit of month left at the end of their money. 

    Others make a lot of money but always seem to have a shortage anyway. 

    Some are doing just fine but don’t seem to get ahead in their finances. 

    The process of Money Management

    Here is the process I went through personally.

    I had one account at my bank as most people have. 

    All my money came in on that account and all payments were made from that account. 

    I started to write down all my expenses.

    Then I noticed I was overpaying for some services like my phone, so I contacted the phone company for a better deal and instantly got more than 50% discount. That was my first step in money management. 

    Same with other bills, I noticed some things I spent but didn’t really need or that could be done differently. 

    When I had a complete picture of all my expenses per month, I divided it into daily portions. 

    2nd Account in the process of Money Management?

    I opened a second bank account at another bank, and whatever income I had I placed at that central account. 

    Not only the usual income but also whatever money I got like tax returns or bonuses, etc.

    Then I set up automated daily payments from that central bank account to the initial bank account where most bills were deducted automatically. 

    The way it was set up plus perhaps a few bucks a day was taking care of the bills and it grew a bit every day. 

    Why another bank? 

    Anything can happen, and when it hits the fan, you better keep control yourself instead of letting the bank decide for you!

    3rd Account?! 

    Then I set up a third Bank account. I decided on a number I needed to do groceries on a daily bases.

    So from my central account, I got daily payments to use for shopping.

    Now I knew what was there every day to use and not overspend.

    4rth Account!!

    I also got Gas money from jobs I do.

    So I opened a Fourth Bank account.

    Every time I’m getting gas money, I deposit it in that account. 

    Most times I’m getting more than needed so all other car bills like taxes and maintenance are being paid from that account. 

    Central Account for Better Money Management

    When I did set it up that way, all I needed to focus on was the central bank account and I knew exactly what I needed a day, week, month. 

    I noticed at first it wasn’t easy but I was determined to get it right.

    So then I realized I needed a buffer of 3-6 months based on my daily payments. 

    I knew what I needed to survive 3-6 months without any income in case something happens. 

    This has saved me several times as I do not have a steady income. 

    Interest

    I noticed I was paying interest on open balances.

    So how did that happen? 

    I was in need of a car, and that’s a huge sum for most people. 

    So that had to be paid from the Gas account, but there wasn’t enough. 

    So I had to loan from a bank, but I paid more due to interest. 

    I decided to calculate the interest and paid the same interest amount into my central account as well. 

    Basically, I was paying back the bank, and now also myself. 

    Over time I needed more money on bigger spendings.

    So I loaned from the central account and paid it back from the account I needed it for with interest!

    How does that work?

    When I saw something in the shops I really wanted to have, I just paid it from the central account to my Groceries account. 

    Same goes for Gas-account when in need of more cash instantly like buying another car.

    Then by the daily income, I was getting on those accounts, I paid it back to the central account with interest.  

    It also made me aware that at times I did not really have to buy whatever it was I wanted, so it kept me from buying the item. 

    All I need to watch for is the buffer on the Central bank account to keep my internal economy going. 

    But before there was a buffer, I took care of small bills that were past due and made them disappear quickly. 

    Doing that gave me more and more control to work towards my buffer.

    Investments as the best way for Money Management

    When I wanted to start investing, I didn’t really have much money to do it with. 

    So I loaned money from my central account, and whatever money went out, I paid back with interest from my income. 

    So even if that investment was not working out, it was covered by future manageable income, bit by bit. 

    Whatever the investment did produce was placed back into the central account which also helped to pay off the initial loan. 

    If the investment made more, I was free to either let it grow or to fund the central account after the internal loan was settled. 

    When I invested more I considered it to be a separate loan which re-entered the process. 

    No logic

    It doesn’t seem logical to work with your money like that, it seems too complicated.

    But what it did do for me was that it gave me control over my bills which all happens automatically and it made me think twice before spending outside the balance on the cards. 

    So in a way, it made me focus and I know what I have to do next. 

    If my investments are not providing enough for my buffer, I know I need to get another job and quickly maintain my Central Account.

    Anything can happen in life, and I never really valued stability really going day by day without much thought until the day came I got stuck financially.

    So through desperation and a whole lot of debt, I decided to set it up to the way I have it now. 

    And although it did not help me overnight, the action alone to contact another bank and set up the accounts gave me a feeling of control.

    It also made me go look for other ways to make an income like another job to maintain the central account. 

    This got me moving with a plan in action and it has given me many benefits in my financial life.

    Back on control

    I took back control, and I crawled back from a deep hole which made me an investor and Trader. 

    Hopefully, you are not facing that mountain of debt in your life and you might not give this a second thought as long as you always have enough, but even millionaires can go bankrupt if they don’t pay attention. 

    Be wise, don’t let money become a problem where it doesn’t have to be. 

    I surely hope this off-topic article will benefit you, as money is not everything and it should not control your life. 

    Yes, we need it, so let’s deal with it and go on with other important things in life. 

    If you can support my work as a Mentor, please click here for a donation

    I really appreciate your encouragement. 

    Also, any support you like to show through PayPal is very much appreciated!

    to your success,

    Hans Stam