How to Minimize Risk for Higher Returns

It seems to be impossible to have that combination of low risk and high returns but it has been historically shown that International portfolios will do that when compared to domestic portfolios. The best way to manage your risk is through Smart Diversification. Or what i called Intelligent Risk Taking. The way to do that is to invest your money into an international Portfolio, the trick here or the most important part is to invest in stock that are not correlated.

Wherever there is low correlation between the stocks, then there is a great chance for diversification. When u have 2 stocks are both highly correlated, then there is no reason to diversify , we just go with the stock that has the highest return. So look for stocks that have very small correlation, and in international markets, that way you hedge the currency risk and exposure, being in more than one market and one economy, and pursue higher returns because it has been historically shown that international portfolios have higher returns with lower standard deviation which means lower risk. International Portfolio also capture higher number of stocks where in domestic markets , you are only limited to a certain number.

To make it easier, use asset allocation softwares. those available software will do the allocation part for you, the software will test for correlation between the stocks you have picked and give u the optimal percentage combination between those stocks. Google " Asset allocation programs" and you will get plenty that will help you to do that task.

Remember, International Portfolio, 8 to 10 stocks, low correlation between the stocks though using an asset allocation program to determine the optimal combination between the stocks. it will only make your life easier and your investing more intelligent.10

The Dark Side of Prepaid Credit Cards

Prepaid credit cards are becoming increasingly popular. The problem is that greedy financial scoundrels have noticed this popularity increase and are trying to get in on the action. If you're considering getting one or two prepaid credit cards, there are a few things you need to know.

1. They Don't Do Anything For Your Credit

Some people have made the mistake of confusing prepaid credit cards with secured credit cards and then regretting it when the damage was already done. It's important to understand that there is a huge difference between these two financial tools.

The only real similarity between secured credit cards and prepaid credit cards is that both of them require money up front and the amount you supply determines your available credit (or balance). That, however, is where the similarities end.

Unlike secured credit cards, prepaid credit cards do not offer a revolving line of credit, you do not earn interest on the money that was used to establish your initial credit line and your account activity isn't reported to the credit bureaus.

All things considered, prepaid credit cards are not a good idea if you want to re-establish your credit history or establish a revolving line of credit. However, if you want to give someone a gift or put your child's allowance on plastic, prepaid credit cards might be a solution.

2. The Good, The Bad and The Ugly

Like most financial tools, not all prepaid credit cards are equal. Some are good, some aren't so good and some are downright ridiculous.

Before purchasing prepaid credit cards, it's essential that you know the terms of the card you're buying. Believe it or not, some prepaid credit cards not only charge a monthly fee, they actually charge you money every time you use the card.

If you charge your $4 coffee house order with your prepaid credit card, you might actually be paying $5 for that cup of joe after the credit card company tacks on their $1 fee. Then, to add insult to injury, the credit card company may bill you almost $10 a month for the privilege.

Make sure you are familiar with ALL of the fees (including monthly fees, transaction fees, deposit fees, etc.) before committing to any prepaid credit cards.

3. Where'd It All Go?

So you get a prepaid credit card for $50 and you have it in your wallet for a four or five months. Then one day you go to use it on a $30 purchase but the card isn't working. You call to find out your balance and you realize it's less than $20. How did it happen?

Well, if you're not careful, those monthly fees can quickly add up. If you buy a prepaid credit card with a monthly fee of $6.95, after five months that card is going to have incurred charges of $34.75. That means your $50 card now only has an available balance of $15.25 and you haven't even used it yet!

Remember, when dealing with prepaid credit cards, what seems like a nominal fee can really add up over the months and you need to be careful. Not all prepaid credit cards are bad, but if you aren't careful and you don't look at the small print, you may end up with one of the ugly ones.

Stock Picks 101 - Cut Your Losses and Let Your Profits Run

Did you know that many successful traders win less than 50% of their trades? Yes, top traders know that they can be VERY successful winning only 40% of the time.

“How can that be?” you ask. Simple, really. They are truly following the old adage of “Cut Your Losses and Let Your Profits Run.” Let’s see how this might actually work.

Suppose you had a stock pick, and it hit your stop loss at 98% of your entry price, which gives you a loss. You pick another stock, and again, it hits your stop loss, for another 2% ding to your account. Third time’s the charm, and your stock pick gains 15% before falling back and triggering your trailing stop at 10% above your entry price. In other words, you made 10%.

In this example, you had two losers and one winner for a win/loss percentage of 33%, yet you are ahead by about 6%. You let your profits run and cut your losses short.

It is not easy having more losers than winners, because you can easily find yourself with 5, 10 or even a string of 20 losses in a row. But those numbers are deceptive, because each loss will be fairly small.

Think of it in terms of baseball. A player can have only a fair lifetime batting average and still be a great player if he hits a home run when he finally does connect with the ball.

It takes confidence in yourself as a trader to work a stock trading system that only wins less than half the time. It’s not easy to be wrong most of the time. But that is why the market rewards such a strategy so highly, if it is done right.

In other words, don’t dismiss a system out of hand because it has more losers than winners. As long as the average win is significantly larger than the average loss, you can be very successful with such a system in the long run.

So keep this in mind as you are searching around for the right strategy for you. Many small losses and a few big winners can be much more profitable then a lot of little winners and a few large losses that take it all back and then some.

College Loans - Easy Money

Today a check came in the mail… $5,338.00.

The check came in my daughters name. She'll be a senior at St John's University this year in September.

But, she needs to go to summer school. She will be taking 2 classes... Spanish Level II - 3.0 credits and Public Speaking Col - 3.0 credits ……… for a total of 6.0 credits.

Language Lab Fee………… $25.00 Tuition: St Johns College……$5,238.00

University General Fee………$50.00. … Total - $5,338.00 …

That's how much the check was for… $5,338.00 It was from her favorite lender Sallie Mae.

The envelope with the check was addressed to my daughter, not me. I didn't even know she had applied for the loan. She didn't ask my opinion or advice or permission. She's 20 years old, no longer my little girl. Old enough to borrow $5,338.00 on her own. Damn!

There will come a time when that $5,338 will have to be paid back. There is a price to be paid for this "easy-money".

At about $50/mo, it will take about 10 years to pay that off. … Not so easy to pay back! My daughter owes $28,973.13 in student loans so far. She still has at least 1 more year to go for a bachelors degree.

Plus she has to go to grad school for at least another 2 years if she wants to find a job in Psychology...

And she's talking about going for a doctorate degree. Another 2 years. If she keeps borrowing at the same rate over the next 5 years, to get her PhD, she'll owe $72,432 in student loans.

$72,432 in student loans - Easy Money!

And that doesn't take into account inflation and the increasing cost of higher education each and every year.

Most students (and their parents) will end up taking out student loans. However, if you can get some scholarship money, that is money you don't have to pay back. Since ALL schools are inundated with too many applications for scholarship money, emphasis is placed on the scholarship essay to determine who will get the available scholarship monies.

Unfortunately, many students and parents don't know how to apply for scholarships. Here is a quick but important tip for winning scholarship money. Set yourself apart from the thousands of other applicants by being specific about what you have done in your life. If you've achieved, tell the judges. Put your best foot forward.

If you have family responsibilities, tell them what you do. Otherwise the judges don't know. Write about what you have actually done and you will be remembered by the committee members and increase your chances of winning scholarships.

Types and Characteristics of Trading Gaps

Gaps are a common occurance in the markets. Everyday there is always at least one stock that has gapped up or down when the market opens. Why? As long there is some event happening somewhere between the market close of the previous day to the opening of today, there will be gaps. Even if the markets eventually move little by little toward the inevitable 24-hour format, there will always be gaps. After all, somewhere around the world, there is some event happening during the weekends as well. Plus, there is always an excited group of investors who making a big deal out of something or even for no reason unknown to the rest of us. So, gaps are a fact of life and there is no avoiding it. The best thing is to take it in stride and learn how to profit from it.

There are three different types of gaps: Breakaway, Runaway and Exhaustion gaps. Each of these gaps appear at a different cycles of the markets.

Breakaway gaps occur when a stock has been in a consolidation stage; instead of a normal market-session move, it breaks out with an opening gap. Normally, these gap in the same direction before to the consolidation stage. There is one caveat: when the breakout happens, it can be in either direction. This gap is trickier than the others because the intent of direction is unclear.

In the chart example above, the market was going through a correction. When it finally finished consolidating (a symmetrical triangle pattern), it broke out with a gap to the upside to end the correction period.

As for Runaway gaps appear when the stock has been trending for some time. Instead of a normal move up during market hours, they open with a gap in continuation of the dominant trend. It shows there is more interest in the stock, possibly by some positive news to further boost the investors' eagerness to own it. Runaway gaps are also called Measuring gaps because they are often used as a centering point of measurement from the beginning of the trend to the gap, then from the other side of the gap to measure the next likely level where it would reach.

The chart below shows the prevailing trend, moving steadily upward. Along comes the opening gap, pushing in the same direction higher, not even a moment's pause or pullback until much later in the trend.

Below is the example of how a Runaway gap is also used as a Measuring tool. When the gap has been identified, the measurement is taken from the beginning of the trend (61.98) up to the bottom of the gap (87.08). From that distance, it is used to measure how far the prices will likely to continue. So the measured target starts at the upper part of the gap (102.64) to the expected level above it. In this example, the target was 130.27. This is a very powerful and easy-to-apply concept which can be used to find profitable trades.

The last type of gaps is the Exhaustion gaps. These occur when the market has been trending for a long period of time, normally after a bull market or bear market that as been lasting for a few years. When it appears, there is a period of slowing of the trend slowing, or period of consolidation. They usually appear near tops or consolidation areas after strong trends. Many times, the Exhaustion and Breakaway gaps are mistaken for one another. Depending on the location and whether or not it was an up gap or a down gap. The Exhaustion gap is an up gap appearing in the market tops, and a down gap in market bottoms. As for the Breakaway gaps, they are up gaps in market bottoms (and from consolidations) and down gaps on market tops (and from consolidations).

Below is example of each to better identify the difference. The market has been forming what look like a top, with the symmetrical triangle consolidation. Triangles are usually trend continuation patterns, but as the chart shows, the gap was break away from the pattern to the downside. This is a breakaway gap. After that gap, YHOO attempted to push prices up again with an up gap. The prices gapped up to a new high, then turned around immediately the same day. Then the next following days, the prices filled the gap, confirming that the previous gap and the direction of the market (now downtrend) are real. The Exhaustion gap was at last identified as such when considering the surrounding price action. The action created an island reversal.

The example below is the exhaustion gap (down) at market bottom. The market has been trending down with determination. Finally, a blow-off came with a big gap down, but there were no more selling. The next few days show the market stabilizing, even some buying. Finally, more buying pushed the market higher, ending the market bottom.

Knowing where the gap is located in the chart can quickly help identify what type of gap it is. These gaps give clues to the strength or weakness of the stock since they are usually turning points in the market direction. Paying extra attention to them can provide unique opportunities to trade with the right trend (or reversals) and profit from them. The next article will discuss the tactics in entering and exiting in trading these gaps.

Futures Contracts - Profitable Investment Alternatives?

With the growing popularity of futures trading, more and more people are jumping into this interesting form of investing. People quickly find out that futures contracts are vastly different than agreements to purchase common stocks; with futures contracts, you are not actually buying a particular commodity, you are obtaining the right to purchase the underlying asset during a particular time period.

Pork Bellies?

Another difference between investing in the stock market and investing in futures contracts is the asset itself. Of course stocks are the assets involved in the stock market, while the commodity assets in futures contracts include:

• Currencies – The currency market is one of the best known commodities, trading the likes of the British pound and the American dollar.

• Interest Rate Futures – T-Bonds represent long-term interest rates and Eurodollars are for short-term interest rates.

• Energy Futures – Natural gas, heating oil and crude oil futures are the most widely known in this sector.

• Food Sector – Coffee, orange juice and sugar are well known commodities in this sector.

• Metals – Gold, silver and copper are traditionally strong commodities.

• Agricultural – Wheat, coffee, cotton, soybeans, pork bellies and corn futures are among those that are best known.

With so many futures contracts available, it can be difficult to decide which commodities interest you, especially if you are new to commodities trading. Sometimes it can be helpful when you start trading to begin with more popular commodities.

Below are five of the most popularly traded futures contracts:

1. S&P 500 E-mini – This is extremely popular for those investing in the futures markets. The E-mini can be traded electronically 24 hours a day, five days a week. In addition, the E-mini has most of the same advantages of the regular S&P 500 commodity but the cost of investment is much less.

2. E-mini NASDAQ 100 – The E-mini NASDAQ 100 follows the movement of the NASDAQ 100. Like the S&P 500 E-mini, this futures contract can be electronically traded and the contract and the amount of margin you have to set aside to trade the contract are smaller than a standard contract. Since most individuals don't have large enough accounts to trade regular contracts for the NASDAQ 100, the E-mini works out great.

3. Light Sweet Crude Oil – Probably the most famous commodity traded is oil futures. When you see the price of oil discussed on the evening news or in an investment newsletter, this is exactly what they are discussing.

4. Gold – If oil isn’t the most famous futures contract, then gold surely is. A gold contract tracks the price variations of one ounce of gold. Gold became an important part of the US economy when the United States went to the Gold Standard in the 1970’s. Since then, the price of gold changes dramatically, almost always in the opposite direction of the US dollar. Gold investments are frequently used as hedge funds because of the relationship with the US dollar.

5. E-mini Euro FX - The E-mini Euro FX contract tracks the movement of the exchange rate between the U.S. dollar and the Euro. The "E-mini" means that the contract and the amount of margin you have to set aside to trade these futures contracts are smaller than regular contracts. Most individuals don't have large enough accounts to trade a regular contract for the Euro, so E-minis are excellent investment strategies.

Conclusion

Futures contracts provide interesting and potentially profitable investment alternatives to many investors. Understanding the investment basics of futures contracts and commodities such as these will help you to be a more successful trader when it comes to futures contracts.

Futures Contracts - Profitable Investment Alternatives?

With the growing popularity of futures trading, more and more people are jumping into this interesting form of investing. People quickly find out that futures contracts are vastly different than agreements to purchase common stocks; with futures contracts, you are not actually buying a particular commodity, you are obtaining the right to purchase the underlying asset during a particular time period.

Pork Bellies?

Another difference between investing in the stock market and investing in futures contracts is the asset itself. Of course stocks are the assets involved in the stock market, while the commodity assets in futures contracts include:

• Currencies – The currency market is one of the best known commodities, trading the likes of the British pound and the American dollar.

• Interest Rate Futures – T-Bonds represent long-term interest rates and Eurodollars are for short-term interest rates.

• Energy Futures – Natural gas, heating oil and crude oil futures are the most widely known in this sector.

• Food Sector – Coffee, orange juice and sugar are well known commodities in this sector.

• Metals – Gold, silver and copper are traditionally strong commodities.

• Agricultural – Wheat, coffee, cotton, soybeans, pork bellies and corn futures are among those that are best known.

With so many futures contracts available, it can be difficult to decide which commodities interest you, especially if you are new to commodities trading. Sometimes it can be helpful when you start trading to begin with more popular commodities.

Below are five of the most popularly traded futures contracts:

1. S&P 500 E-mini – This is extremely popular for those investing in the futures markets. The E-mini can be traded electronically 24 hours a day, five days a week. In addition, the E-mini has most of the same advantages of the regular S&P 500 commodity but the cost of investment is much less.

2. E-mini NASDAQ 100 – The E-mini NASDAQ 100 follows the movement of the NASDAQ 100. Like the S&P 500 E-mini, this futures contract can be electronically traded and the contract and the amount of margin you have to set aside to trade the contract are smaller than a standard contract. Since most individuals don't have large enough accounts to trade regular contracts for the NASDAQ 100, the E-mini works out great.

3. Light Sweet Crude Oil – Probably the most famous commodity traded is oil futures. When you see the price of oil discussed on the evening news or in an investment newsletter, this is exactly what they are discussing.

4. Gold – If oil isn’t the most famous futures contract, then gold surely is. A gold contract tracks the price variations of one ounce of gold. Gold became an important part of the US economy when the United States went to the Gold Standard in the 1970’s. Since then, the price of gold changes dramatically, almost always in the opposite direction of the US dollar. Gold investments are frequently used as hedge funds because of the relationship with the US dollar.

5. E-mini Euro FX - The E-mini Euro FX contract tracks the movement of the exchange rate between the U.S. dollar and the Euro. The "E-mini" means that the contract and the amount of margin you have to set aside to trade these futures contracts are smaller than regular contracts. Most individuals don't have large enough accounts to trade a regular contract for the Euro, so E-minis are excellent investment strategies.

Conclusion

Futures contracts provide interesting and potentially profitable investment alternatives to many investors. Understanding the investment basics of futures contracts and commodities such as these will help you to be a more successful trader when it comes to futures contracts.

Futures Options - Opening New Markets

Futures options are similar to futures themselves in that both give the holder the right to buy or sell the underlying commodity for a specific price on a specific day. Beyond this there are some significant difference between the two and how they are traded.

Rights and Requirements

The main difference between futures options and futures has to do with rights and requirements. Futures options give the holder the right to buy or sell (depending on the option) the underlying commodity for a specific price on a specific date while futures obligate the purchase or sale. While there are investment strategies for futures that eliminate the need for an investor to accept delivery of 10 tons of pork bellies, the basic concept is the same; futures require the buyer to take delivery (in one form or another) of the commodity in question.

Futures Options Contracts

Futures options markets trade options contracts, which specify the underlying asset, the expiration date, and the strike price. Those involved in day trading can trade options contracts to make a profit on the difference between the buying price and the selling price when the options are sold before expiration, or to make a profit from the underlying asset when they are exercised.

As with futures contracts, futures options contracts are traded by day traders and longer term traders in futures markets, and also by non traders with an interest in the underlying commodity. When traded for the underlying commodity, options contracts work the same way as futures contracts, but only give the right to buy or sell the underlying commodity rather than the obligation. For example, a farmer will sell options on his cattle if he thinks prices are going to drop before he takes them to market; conversely, a meat processing company will buy futures on cattle if they believe that prices will rise. Both are non-traders but they have interests in the commodity. The final part of the equation is the investor who attempts to make a profit by successfully trading these commodities.

Futures or Cash Settlement

Futures options are settled in either cash or a futures contract in the underlying security when they are exercised. In-the-money, cash-settled futures options are valued using the trading price of the underlying security at expiration, and the profit is placed into the trader's account. In-the-money, futures settled options are converted into the appropriate futures contract, which the trader can then buy or sell to realize the profit or hold the purchase and simply continue commodity trading.

Because futures options contracts only give the holder the right to purchase, successful traders don’t have to purchase losing positions. If an investor is holding a position that has not prospered according to the contract, he or she can just walk away from the agreement and let it expire. This is the benefit of futures options over standard futures contracts; the ability to walk away from a losing position leaves the investor with a reduced exposure. Conversely, an investor that is holding a contract when the buyer does not exercise his or her position has profited by receiving the premium for selling that position. Such a strategy is helpful during negative periods in the market because it allows for profit taking in a less risky manner.

Conclusion

Futures options, although they are quite similar to standard futures contracts, still possess features that make them very desirable for successful trading. This type of trading can open new markets for investors looking to make money.

The History of Futures

With a history of over 160 years, futures trading has a rich past as well as a bright road ahead. Although futures trading has been around for such a long time, it is currently viewed by many as the ”next new thing.” With the buzz that has been surrounding futures, a little history lesson in commodity trading might be in order.

The Origins of the Futures Markets

The origins of futures markets are found during the 1840’s, when Chicago was transformed from a sleepy town to a booming commercial center. No longer isolated from the East, Chicago now was connected by both the railroad and the telegraph. About the same time, the McCormick reaper was introduced; this machine revolutionized wheat production and lead to tremendous increases in yields at harvest time. Farmers from throughout the Midwest came to Chicago to wheat dealers; these dealers in turn shipped the wheat all over the country.

When a farmer arrived in Chicago, he was hopeful that he would receive a fair price for his crops. Unfortunately, the city had very few storage centers and no standard methods for weighing or grading the grain, creating a very unstable market. In the end, a farmer was left hoping for the best, having to rely on the dealer to be fair with his evaluation and pricing.

Creating a Fair Solution

In 1848 a central location was opened, the predecessor of futures exchanges, where dealers and farmers could meet to deal in “spot” grain; this was similar to an open market where dealers paid cash to farmers for on the spot deliveries of grain.

The next phase occurred when farmers and dealers began to agree on futures contracts; this business practice was beneficial to both the farmers and the dealers since both could know in advance exactly what the price of the wheat would be. The two parties may have exchanged a written contract detailing this agreement and may have even exchanged a small amount of money representing a "guarantee."

History in the Making

Over these contracts became common and could even be used as collateral for bank loans. Transferability was also created at this time. If a dealer held a futures option but didn’t want to take delivery, he would sell his options to someone who did want the grain; the same might occur if the farmer didn’t want to deliver at a certain price as well. Factors such as weather and harvest size had a direct impact on the cost of the grain.

No long after this form of arrangement took place, others got involved that had no intention of actually buying or selling wheat. These people were speculators who looked for the price fluctuations and bought and sold contracts, taking the investment risk in order to capitalize on these price differences. Even in these early days, the very principles of futures trading could be seen as modern-day futures trading was born and took shape.

Some Things Never Change

Just as the basis of commodities trading is unchanged from the 1840’s, the best method for tracking and analyzing the futures market has its basis in history. Japanese Candlesticks was invented during the 17th Century for use in the Japanese rice markets. The principles used have evolved into the very best solution for market analysis in today’s futures markets.

Savings Account Calculator Variables You Need To Know

It does not take one having psychic capabilities to see that our global market is progressing towards greater technology. The ease of online banking as well as its low overhead is creating more banking institutional options online. One such option is the internet savings accounts.

While savings account calculators are a great financial tool, there are many that create variables in the results presented.

The first variable that needs description relates to how much money will be invested including the starting amount and any additional contributions over time. The initial deposited amount or starting balance entered in a savings account calculator describes the amount first invested or saved.

Additional contributions describe the amount of money that is to be added to the savings account over a defined amount of time. Savings account calculators that use additional contributions as an option when calculating the final amount of money earned typically assume that the additional contributions will be added at the beginning of the stated period.

The second variable that needs to be defined is the amount of time that the investment will be earning interest in the account.

The rate of return is the third variable of interest when using a savings account calculator. The rate of return is influenced by the unique annual interest-bearing rate associated with the account.

A fourth variable that is highly controversial and differs from account to account addresses the issue of compounding interest. If offered, compounding interest can rapidly build the balance of the account over time, generating much more money earned that previously thought. Knowing the rate of compounding is essential knowledge to have when using a savings account calculator because it helps to accurately predict how much interest will be gained or given to a consumer over a certain amount of time.

In the case of savings account calculator, years is the total number of years that a person plans to make savings or the investment. Using a savings account calculator can help estimate gains on an investment based on the initial investment, the period of time saving, and the annual percentage yield. Thus, the savings account calculator demonstrates to a person how exactly his savings strategy would work and how he can make the best use of it. The savings account calculator can always be found at the websites of financial institutions or banks etc.

Using a savings account calculator can be a helpful tool when comparing rates of different financial institutions to find the most lucrative source for maximum savings contributions.

While you are doing a research on savings account calculator, try to get to the essence of what you are trying to find out. It is true of mundane areas as well. As you search for information about this subject, try and reach the best value, definitions and clarity.

To Create Wealth, Copy the Habits of the Wealthy

One of the wealthiest men in America, John Jacob Astor, once stated, “Wealth is largely a result of habit.”

Astor created his wealth during the Industrial Revolution, yet his message as just as true today as it was then. In my opinion, Astor’s quote may also apply to poverty, or just getting by in life. Sadly, the truth ain’t always pretty, but here it is:

Where you are at today is the result of habit.

To achieve financial wealth you need to take an objective look at your habits. Are you in the habit of spending more than you earn? Or, are you in the habit of tucking a piece of each paycheck into a savings account or investment? The habit of saving is the bedrock to financial success, so much so that W. Clement Stone claimed your ability to save is a prerequisite to creating personal wealth.

3 Habits That Wreak Havoc On Your Finances:

1. Buying things that you don’t need that always depreciate in value, such as a new car, recreational vehicle, or the latest and greatest living room furniture. Robert Kiyosaki referred to these things as “doodads” in his book Rich Dad, Poor Dad.

2. Failing to recognize or acknowledge the power of the Internet to help you create additional income.

3. Squandering your hard-earned money on things or recreational activities that provide instant gratification while ignoring the long-term implications of not investing for the future.

Wealthy people make creating wealth a priority in their lives. They accept personal responsibility for their success, create goals, and use money to build businesses, support charities, and enjoy life.

You could argue that the wealthy were lucky enough to be born into a wealthy family, but the statistics state otherwise. Only 15% of the wealthy households in America attribute their wealth to inheritances. That means 85% of the wealthy population earned their wealth through hard work, wise investments, and successful businesses. In a sense they found something that worked and repeated it over and over—kind of like a habit, you might say.

Wealthy people habitually do those things that create wealth. You can join this elite group by developing new habits, such as starting a home-based business using the power of the Internet. Today you have access to the most powerful marketing system in the history of humankind—the Internet. Using the Internet and exploring sights such as the one listed in my bio, entrepreneurs have literally gone from rags to riches overnight.

An Investor's Eye View of the Corporate Income Tax

The Investor's Eye view of politics is a simplistic, practical, "dot-connecting" approach to sorting things out so that positive (win/win) change can be considered. Real World politics is not concerned with such things, and that is one of the most serious problems facing investors today. As outlined in "Investment Politics 2008", there are at least ten issues that require government action if we are to maintain our competitive position in the World Economy. Most of these are interrelated and need to be acted upon simultaneously… thus causing a major political dilemma. Politicians are much more interested in talking about change than they are in actually legislating it; they prefer to champion just one specific issue at a time so as not to appear too independent; and they can't keep themselves from back sliding into the now archaic distinction between investors and poor people. Rich or poor, most Americans have investments. For the small investor to become wealthier, his or her efforts must be encouraged by the tax code… the wealthy will become wealthier in spite of the tax code! And, believe it or don't, the vast majority of the wealthy (even corporate executives) are good, productive, caring-about-the-environment, people.

At the root of the problem is the tremendous investment the major parties have in nurturing divisiveness, jealousy, and misunderstanding in the electorate. The Republicans or Democrats in power are (always) ruining the country and, of course, the guys who are seeking power, will undoubtedly do the same. Perhaps the most obvious example of misguided political handiwork is the negative attitude of most individuals toward corporations, big business, and international economic collaboration. As non-voting but taxable entities, corporations are easy to blame for all that is wrong in society, easy to sue frivolously with no remorse or control, and popular to tax… by both parties! The sad thing is that most people don't take the time to appreciate just how important business success and profitability are to their own financial interests, short and long term. Mutual Funds, for example, perform better when businesses, large and small, prosper. Profitable businesses produce more jobs, provide higher salaries, and (once all the extra fees, mandates, taxes, and handouts are eliminated) lower prices.

Politicians have neither been shy about dictating "proper" behavior to individuals nor hesitant in shamelessly picking the pockets of businesses to fund their projects. Self-employed business owners, for example, pay a minimum 35% Federal Income Tax, State and Local taxes of various kinds, and the usual Workers Compensation, Medicare, and double Social Security Taxes. It adds up to better than 50% quickly, and, at every level, all taxes, fees, subsidies, assessments, withholdings, compliance costs, etc. are: 1) added to the price of goods and services, 2) considered in hiring decisions at all levels in all business entities, and 3) factored into decisions regarding new plant locations and service function outsourcing. Businesses will only produce jobs in an environment that recognizes the importance of the contributions they make. Meaningful Tax Reform needs to begin where the jobs begin. Reforms to the Individual Tax Code and the Social Security/Retirement System can then be integrated into the business framework…

Just as Congress picks corporate pockets, Corporations pick those of their shareholders. The compensation of corporate officers is a clear example of how this has gone totally out of control, even if it is understandable under existing tax codes… both corporate and individual. Million Dollar salaries, bonuses, deferred compensation and option packages are all designed to avoid and/or to defer taxes while, at the same time, they are deductible on a dollar for dollar basis from business taxes. Changes on the personal side could clean this up quickly but, for now, politicians need to focus more on protecting shareholders from these creative, and excessive, compensation schemes. Eliminating the Corporate Income Tax, and all tax deferral/option/bonus mechanisms that are not available to all employees at all levels, would be an excellent start. Then cap total compensation packages at a specific number… any excess being paid only in the form of dividends to all shareholders.

The Corporate Income Tax is a non-productive weight on business decision makers, causing expenditures that would not be considered were they not tax deductible. Ironically, salaries are not increased to reduce the tax bite because every dollar of salary brings with it an additional 40% or so in overhead! All the actual costs of doing business (and all the perceived risks associated with doing business) wind up in the price of goods and services. The fact that governments can raise corporate costs so much more easily than they can raise individual's taxes is perhaps the biggest shell game threatening our economic well being today. If instead, Congress would cultivate the profitability of corporations, while focusing regulatory efforts on the economic abuses of shareholders, employees, and consumers, a whole new era of economic expansion and productivity growth would ensue… and we're just getting started.

Investors need to impress upon candidates that they expect meaningful change throughout the tax code, and that a second term just won't happen without it. After the Corporate Tax environment changes, politicians will be able to devote their energies to defining "proper corporate and non-corporate business behavior", and monitoring compliance with a whole new set of rules and regulations. Converting the United States into a Free Trade Zone, by eliminating all nuisance assessments from all levels of government, would: increase employment, reduce prices, and multiply distributable dividends. Making it happen should not be that difficult, particularly with the growing outrage concerning the obscene compensation of high level corporate executives, and considering how successful the FTZs have been on the local level. Managers will make these changes work because the incentives are where they belong… on the bottom line instead of the tax return. Small businesses would benefit from the reduction in taxation, and fees, and would be less constrained in their efforts to grow. If they don't do the right thing, they will become less competitive in the marketplace, and that is the way capitalism is supposed to work. But, don't be naive. Publicly held companies will need direction, guidance, and policing... an excellent new career for displaced accountants and lobbyists!

Are You Being Cheap or Are You Managing Your Money Well?

In response to a recent article, a reader asked (I've edited out the personal details):

"Here's a question I've been struggling with since reading your article 'Why You Should Always Buy the Best'."

"I like to buy good clothing. It's not cheap, but I like to buy on sale. The more on sale an item is, the better I like them. In fact, two dresses are on sale, I can buy two good dresses instead of one expensive one."

"Does that qualify as being cheap?"

"I just have a hard time buying things at regular price when in a few weeks it will be on sale (which is the price it should've been in the first place, in my opinion)."

"Anyway, that's my question. I'm looking forward to your answer and any advice you can offer."

Excellent question. :-)

Here's my answer...

Although there's sometimes a *very* fine line between the two, there's a distinct difference between "being cheap" and managing your money well and it's *vitally* important for you to know and understand the difference between the two.

Let's take a look at a few examples, beginning with the example above (please keep in mind I don't know the first thing about buying a dress :-))...

Let's say you had $100.00 to spend on a dress and found one you *really* liked for $100.00, but instead decided to buy one you didn't like nearly as much (or at all) for $50.00 just to save $50.00, that's "being cheap".

On the other hand...

If you were able to buy that exact same $100.00 dress you *really* liked on sale for $50.00 and were able to buy two you *really* liked for the same $100.00, that's managing your money well.

Here's another example...

Let's say you need or want to put gas in your car and on the way to going somewhere you were going anyway you pass two gas stations right next to one another.

Gas is $3.00 a gallon at one and $3.10 a gallon at the other.

All other factors being equal (the key word here is *equal*), you'd have to be a total idiot not to buy the $3.00 a gallon gas...

That's managing your money well.

On the other hand...

To kill a half an hour of your time driving clear the heck across town, way out of your way, just to "save" a buck or two would be "being cheap".

One more example...

Let's say you do your grocery shopping at one particular grocery store and you have certain brands you *really* like.

Taking a minute or two to thumb through their weekly circular checking for any coupons or sales for the items you *really* like and would buy anyway would be managing your money well.

On the other hand...

Spending four hours combing through the all the circulars that come with your Sunday newspaper, noting sales and clipping coupons, and then spending the rest of the day running all over creation trying to save a few dollars, buying stuff you don't even like just because it's cheap is...

Well...

"Being cheap". :-)

What's wrong with "being cheap", you ask?

In an article titled "The Constructive Attitude", the fifth article in his "Lessons in Constructive Science" series, Wallace D. Wattles, best known for his classic masterpiece "The Science of Getting Rich", said this on the subject:

"... if you wear cheap clothes, eat cheap foods and surround yourself with cheap things to "save money" you will put yourself in the mental attitude of cheapness and inferiority. You will think of yourself in connection with cheap and inferior things, and so will see yourself as a cheap and inferior person. The cheap and inferior within you will be brought to the surface, and you will never do your best. You will be incapable of exerting your whole power, and by the law of reaction, cheap and inferior things will move toward you."

As I said above...

Although there's sometimes a *very* fine line between the two, there's a distinct difference between "being cheap" and managing your money well and it's *vitally* important for you to know and understand the difference between the two.

Knowing and understanding this distinct difference and applying its underlying principle to your life could well make the difference between your being wealthy and your being poor.