Financial Literacy 101

The next year can bring some unwanted gifts that can be unwrapped if the government doesn't take action.  These include a smaller pay check, cuts on Medicare and tax increases on investments.  Whether these events take place or not it is best to hedge, stocks may be in for the roller coaster ride we experienced in summer 2011 as another credit downgrade for the U.S. may be just around the corner.  We have already been downgraded harshly by China's Dagong Global Credit Rating Co in 2010-11.  Whether you have no clue about the world of finance or are financially literate following a few steps to free yourself of worries and doubts is a good way to start the new year. Why don't you stuff the following steps down your newly emptied Christmas stockings:


1. Be Frugal

It all starts with freeing money to pursue activities/investments you like.  There are things we can't avoid such as rent, mortgage, food, clothes and utilities but even these can be played around with.  Try to shop for deals and get in the habit of buying items that can easily be resold once you don't need or want them anymore.  Open up an eBay account to resell items.  Take advantage of the close to free sites you can make money from such as YouTube, Gumroad and T3Media.  It's not a crime to be cheap it's a gift for those who possess it.

2. Save

Try to save as much as you can from every paycheck or monetary gift.  If you are in debt get rid of it as soon as possible there is no point in giving companies so much of your hard earned money in the form of high interest rates.  You need to save to feel safe and to give yourself breathing room as you don't want to have the feeling of going to work and knowing that if you lose your job you will be in deep financial trouble, get rid of the paycheck to paycheck lifestyle.  You don't want to give anybody that much power or control over you.  Financial troubles are one of the top reasons couples argue, the risk of family violence is greater when the family's income level is low.

3.  Invest

By following step 1 and 2 successfully you are now ready to invest.  It doesn't really matter what you do for a living or even the name of the company where you work at with the right mentality you can multiply your money.  The younger you start the more time you have to let the money pile up.  You have to take risk in order to enjoy the finer things in life.  Yes, 401k's are fine but why not learn about investing by opening up your own stock trading account.  When other people manage your money for you it doesn't put you in the position of control as when you do the investing yourself.  A business, real estate, more education and futures contract trading are other forms of investing that you may want to try.  Sure there will be losses along the way, how you handle them will make the difference between becoming financially free or stuck in a 9-5 job you don't like for life.

4. Be Well Informed

You don't create wealth by coincidence it takes hard work and knowledge of the tax law and the rules that govern investments to make money.  You need to be well informed on how to protect your money and you have to keep finding ways to multiply it.  Get in the habit of reading and reaching out to experts to stay informed.  Go to the bank and ask about mortgage rates, credit cards and interest rates.  Don't place all your trust on others they mostly serve as supplemental instructors most of the hard work will need to be done by you.

5. Be Strategic

As a financially literate person you must think of money making opportunities at all times.  During the 2008 recession when people were losing their homes, as tough as it was for the masses it was also the best time to get in on stocks and commodities as well as real estate.  Once you get the experience and confidence that financial literacy brings set out to make your own path.  You don't acquire wealth by being a sweetheart and letting others decide what is best for you. 

Holiday Trading

The end of the year usually brings us joy, laughter and good times.  For the most part trading slows down this time a year, sure there are strategic moves that can be made as well as those who believe in the January Effect.  Although retirement accounts that are tax sheltered may reduce the need to sell to get a tax credit, uncertainty with dividend tax rates may bring last minute selling.  In the article written by Jay Kaeppel his chart reveals the cumulative % gains from buying the Dow on the 3 days before and 3 days after a major holiday.  A major holiday includes the 9 holidays in which the NYSE is closed 2 being Christmas and New Year's Day.  Overall trading during the holidays looks pretty attractive and profitable.  Enter December 2012 had you bought the Dow (DJI) on the 20th of December you would have experienced a slight gain followed by two days of drops but of course there are still another 4 days to go which inter lap with the New Year's Day trading period.  If the opening bell tomorrow brings gains then buying on the 21st/22nd would have been a good idea. 

 

 

 

Let's get realistic we are not talking about the usual Christmas Day trading session here, we are near the edge of a fiscal cliff. When the fate of the stock market rides on a major decision that could take us back to a recession one has to consider if staying out of the market's way is best. Investing during the fiscal cliff fiasco is the equivalent of rolling a pair of loaded dice as you don't know what you are going to get "Grand Bargain Shrinks as Congress Nearing U.S. Budget Deadline" and you don't want your money to be on the wrong side of that bet.

 

Then there are those investors that consider the (^VIX) to be a market indicator.  On Friday the VIX hit 19 for the first time in December, the index indicates fear it likes to rise as the market falls.  When comparing the VIX, Dow and the S&P 500 (^GSPC) the link shows how the VIX tends to be lower when the market is rising and it creeps upward when the market is dropping.  There are times when the market and the VIX do not prove to be as reliable, during 2007 the S&P was making new all time highs yet the VIX did not make new all time lows.  If you are young and planning to buy for the long term buy stocks with out panicking.  If you are not a high income earner including baby boomers buy yourself the high yielding stock (JE) for the holidays and hold onto it ... go ahead why don't you?

 

Stock futures are currently in the red, Obama is in Hawaii with his family spending Christmas and the little drummer boy beats his drum so the beat goes on da da dum da dum ...

 

 

 

Staying Positive During Hard Times

Despite the bad news like high unemployment rates for young adults, european recession, troubled economy, uncertainty with the tax system, troubled healthcare system and slow housing market recovery not all these roads lead to failure.  What better time to start a business and contribute to the economy by adding jobs.  When starting a new business consider that technology is the second most common way American billionaires have created their wealth.  Pursue another career as long as this new passion is an employable one and a good return on investment.  At some point in your career you may be able to combine both degrees and help out others or contribute to academia.

Whether day trading losses, real estate crashes or business failures the medicine is the same; stay positive and allow yourself to recover.  According to Barbara Fredrickson a professor of psychology at the University of North Carolina "positive emotions help speed recovery from negative emotions" the negative emotions block the brain's ability to think outside the box and the ability to be creative.  As professor Fredrickson states "losses loom larger than gains" "our mind is drawn into this mental time travel, and we're obsessing about something negative that happened in the past or we're worrying what will happen in the future."  In her studies test subjects with high levels of anxiety were able to lower their blood pressure by viewing relaxing imagery.  The moral of the story is to stay positive, take risk and recover from failure by having hope and showing gratitude.