Here’s a guest post from a fellow blogger who is truly inquisitive about the economy, stock market, and all things financial. Investment terms can be overwhelming and hard to understand, but if you study up on just a few terms a week, you can become a savvy investor in no time — or at least you can talk like one!
Learn New Wall Street Terms
This latest downtrend or recession has taught a common man many new financial terms. These terms are not new to the financial sector, they were just buried under the good economy for some time. Now, they are becoming part of our everyday conversations.
1. Ponzi Scheme: A Ponzi scheme is also known as a pyramid scheme. It’s a fraudulent investment plan promising very high returns to investors from their own money or money paid by earlier investors rather than from any actual profits earned. One common way for the Ponzi scheme to attract investors is with the promise of high short term returns. This scheme was named after Charles Ponzi who made this scheme popular in the 20s. Thanks to Bernie Madoff this scheme was brought again into the limelight!
The US Federal Trade Commission says that because of the pyramid’s very nature, at least 70 percent of those who invest in a Ponzie Scheme will NOT see any returns and will lose their investment. It is mathematically impossible to recruit enough investors to pay out to all levels of the pyramid. (more…)
The e-mail that accompanied this post made me really appreciate the many kind and wonderful people I’ve met with this blog… and there’s a lot of them! Of course there were some jerks in the beginning, but I don’t even remember their names. It’s the good ones that make a lasting impression on me and this guy, Sean, is one of them! Here’s an excerpt from his e-mail:
“I don’t even have the time or money to invest into the website I was building, but I checked yours and saw that you were sick. It reminded me that money isn’t everything and health is the most precious thing. I wanted to pay my respect by making a post. I know this economy is full of negativity. It only takes a change in prospective for people to appreciate what was right there in front of them from the start.”
This guest post is a thought provoking op-ed (opinion editorial) about America in a time when it’s so easy to feel negative about our circumstances. After the touching e-mail, I had to know more about Sean and I asked for a bio. As it turns out, Sean’s bio is an interesting story all on it’s own. He was a successful day trader who lost EVERYTHING in this economic downturn! He’s only 22 and full of ambition, with an attitude like his I have no doubt Sean will succeed in whatever path he chooses.
Thanks Sean, I’m so glad to have met you! (more…)
We’ve seen a lot of loss in the U.S. stock market this week with the Dow going down below 9000 for the first time in 5 years. Our bad economy is having a global effect hitting the Asian markets, the European market, and all others too, I’m sure. Despite the crisis with financial institutions and it’s effect on housing and mortgages, The Wall Street Journal and others in the know agree… it is lack of confidence that is driving this poor economy. Yes, we had problems, and we put a safety device in place but it caused a lack of confidence in people and now fear is causing more problems than we started with. t’s like when someone screams fire in a crowded building and everyone panics. They all run for the exits and people get trampled and hurt, even when it’s a false alarm.
We’re being told that we should not panic even after this “black week” of seeing the Dow go down below 9000 for the first time in 5 years. It’s hard not to panic, yet we really have no other choice but to be calm. When you’re in panic mode, someone telling you “don’t panic” just doesn’t always seem to sink in. If you think of this as the same advice they give in any emergency situation, then it makes sense. Fear and panic puts you (and everyone else around you) in harm’s way.
Recessions Can Make Millionaires!
It’s recessions (or crashes) like these that can make millionaires out of investors. If you keep a steady head and refuse to panic you can make money but you have to think long term. Warren Buffet makes his money solely from the stock market and is he letting fear dictate him in this market? No way! Warren just surpassed Bill Gates as being the richest man in the world by making over $8 billion in this past month (earnings from the end of August to October 1.) As Warren has said many times before, all we have to do is think smart and use this and every recession as an opportunity to buy low and sell high just as we are supposed to do. He puts his money where his mouth is and he buys low (but of course low to Warren Buffett can be considered very high to the rest of us! lol) and when he does sell, he sells high. Warren invests for the long term and he doesn’t panic and pull all of his money out of the stock market while it’s down… and neither should we.
Are You Buying HIGH and Selling LOW in the Stock Market?
We all know the first rule to the stock market is to “Buy low, sell high” but historically that’s not what the average individual investor does. Most of us don’t usually make much money in the stock market because we do the EXACT opposite. Individual investors tend to only buy when times are good and they hear how well the stock market is doing in the news. As a result, they make a few bucks here, and a few bucks there but the minute the market goes down, most individual investors actually SELL their stock and get out… so not only do they not make any money in the stock market, they lose money. Then they go back and do the same thing again when times are good and the market goes up. (and it ALWAYS goes up!)
Many people stop putting money into their 401K plans, IRAs, and mutual funds when they hear things are bad in the market. When you do this, you miss out on a great opportunity to be buying stock at a low price which is the whole point of investing. If you keep putting your money into your fund regularly, you’re buying shares in the fund at a low price and that is GOOD! (You’re buying low and you’ll sell high later on!) The worst thing someone can do is to close their 401 or retirement plan just because the market has crashed. Not only do you lock in your losses, you also have to pay the capital gains taxes on those losses, and a 10% penalty on top of that! Wow, talk about a loss…
Don’t act out of fear!
So don’t act out of fear! Keep a level head and know your options. If all of this talk about the stock market really bothers you, then just don’t look at your statements for a while. I know it sounds crazy, but that’s what the experts advise and hey, we really don’t have many other options, do we? If you’re already in the stock market you have to ride it out, and look for opportunities to buy some good stock if you have the money right now because there are deals to be had (and there will be more!). The only other alternative is to take a loss. It’s your money and your choice, but don’t let fear rule your actions.
As I said in my last post, if you’re just starting to get into the stock market “pretending to play the stock market online” is a great way to learn more about it. Some people think the stock market is just for wealthy people so they don’t even bother getting into “the game” or even trying it. If you have ever thought that way, then you should change your thinking to this: The stock market isn’t just for wealthy people… the stock market is HOW most wealthy people became wealthy in the first place! Even if you don’t have the money to start investing in stock you should go online and get familiar with the trading process (buying and selling). It’s a fun learning experience and by making a game of trading and being in the environment, you’ll definitely want to get into it for real.
Investing in stock and mutual funds is one of the quickest ways to get rich, but most people just think about it and say “some day I’ll invest” and they never end up really doing it. So, like I said, by making a fun game out of it, you learn and you’ll be one step closer to doing it for real. One thing to remember is not to get stressed while practicing… this is supposed to be fun! lol I know when I first started “playing” the stock market online, I started getting stressed when I had a good “find”… I worried that if I didn’t buy it right then and there I would miss out on the BIG ONE. But believe me when I say this… there will be ALWAYS be plenty of opportunities for you to find good deals whenever you play the stock market. (but if you do have the money now, then go for it!)
One commenter, Mark Berger, gave us a great site to use for this purpose. It’s called the WallStreetSurvivor.com. I signed up for it, but haven’t gone any further yet as I’m busy with other things right now, but I will definitely go and try it out when I get the chance. They let you play with $50,000 and it looks like you can win money by playing the game, if you sign up before August 29th! (more…)
When I started here on MomsCashBlog I said I never made any money online…. (except 11 cents, if you want to count that! lol) and so I wanted to give blogging a try. Well, it turns out that I forgot about the money I made from online trading! I forgot all about this, until a while ago when I got a letter from my financial advisor telling me not to panic when I see my Mutual Funds and Stock Market Portfolio. That was months ago, and I did not panic… in fact I put a little more into my mutual funds and some stock because this is the perfect time to do so if you have any extra money to invest (and if you look for some good deals that you think will do well in the future!).
Some of my stock was generated online made me a lot of money. It did so well I turned it over to my financial advisor and let her take care of it. So it’s been “out of sight… out of mind” just as good stock should be, and growing every month and every year. Little by little I weeded out certain ones and bought some better stock with the help of my financial advisor… but I have to say, I did soooo much better with the stock I bought online by myself! So I am going to get back into online trading now that I’m always on the computer with this blog. (more…)