March 2014

Short Selling Stocks: Why You And I Should Probably Stay Away

Why you shouldn't be short selling stocks

For many investors, experienced and novice alike, the idea of short selling stocks can be enticing. You can make money investing even if the stock market is in a downturn. You can earn a profit on days when others are losing money.

But selling a stock short can severely punish investors — especially if they don’t understand the risks.

What Is Short Selling?

You can win on a bet — no matter which way the stock is moving — as long as you’re guessing the right direction. Short selling allows you to invest in stocks even when you think that their share price will decrease.

Unlike typical long investors, who buy hoping that share prices will increase, being on the short side of the position, or a short seller,

is the exact opposite. You’re actually counting on the shares decreasing in value. Naturally, that’s a little counterintuitive for many investors.

When you think that a stock’s price will decline, you can tell your brokerage firm to short the stock for you. Essentially, you’re borrowing shares from the brokerage and then selling them; when — or rather, if — the price declines, you purchase the shares yourself at a lower price, return those “borrowed shares” to the brokerage, and lock in your profit. The brokerage earns a commission on the transaction and a small amount of interest in most cases, depending on how long you borrow the stock.

Ten Top Insurance Payouts In Recent Years

by Guest Contributor

Whether claims are due to natural disasters or man-made ones, the insurance industry has had several huge payouts to make over recent years. This list sums looks back at some of the biggest insurance payouts.

The financial collapse – Billions

There has not been a figure set in stone as to the amount lost in the 2008 banking collapse, but billions of pounds is a conservative estimate. While the exact figure may still be unknown, what is known is the knock-on effect of bailouts and unemployment has caused the insurance industry to lose out in a big way.

Hurricane Katrina – £78 billion

A natural disaster of catastrophic proportions, when Hurricane Katrina ripped through the American south in 2005 – in particular New Orleans – it was a game-changer for insurance companies. In total, they had to pay out an estimated £78 billion.

9/11 – £25 billion

The September 11 terrorist attack which occurred in 2001, in New York, and destroyed the World Trade Centre’s twin towers is a tragedy that will hopefully never be repeated. Claims for the likes of business interruption claims, property damage and life insurance amounted to £25 billion in total – making it as expensive as it was catastrophic.

Swine flu pandemic – £1.24 billion

Originating in Mexico in 2009, fears of swine flu swept the globe as the year went on. In the UK, the threat was taken seriously and millions of doses of anti-virals were produced for the epidemic. In the end, 457 people in the country died with a total cost of £1.24 billion recorded.

Why I Don’t Mind Losing Money As A Landlord

by Hank Coleman

I have a confession to make: I lose money on my rental property every month. But I’m OK with that. I’ve got a long-term plan. Or I’m still delusional and hoping for a turnaround in the housing market. Either way, I stubbornly refuse to lose $30,000 in home equity by selling. I’d rather pay $300 a month out of my pocket in the hopes of hanging on to what little equity I have left.

It’s a Renters Market Out There

Much like a home buyer, a renter has a lot of purchasing power. It’s a pure case of supply and demand if there ever was one.

There are simply more homes on the market for rent in many parts of the country than there are renters. Renters have pricing power to force homeowners to lower the price of rent they pay each month, and as a landlord this causes me to personally lose about $300 a month.

But I’m fine with losing $300 a month. In fact, I’m actually happy about it. Let me tell you why you should be, too, if you’re ever in the same situation.

My Tenants’ Rent Doesn’t Cover My Mortgage

Like many accidental landlords, I found myself stuck with a house a few years ago that I couldn’t sell. Or, if I really wanted to sell it, I would’ve had to at a steep markdown from what I’d bought it for just six years ago during the housing market boom.

Affordable Home Insurance Checklist – Are You Paying too Much?

by Guest Contributor

Periodic review of our personal finances extends to many areas. Portfolio rebalancing helps your investments match changing time horizons and risk tolerances. As our families grow or coverage options change, we must review our health insurance for the best choices.

Home insurance is an essential cost that may not receive the same attention. Houses are not as dynamic in comparison to investments or healthcare. Unless moving, many homeowners rarely check their home policies.

However, checking your home insurance coverage for overlaps or excess coverage can yield instant savings. The process is also simple and time efficient with a potentially big ROI.

First time buyers and existing homeowners alike can benefit from a few practical steps.

Here is a home insurance checklist to get started:

Choose a Sensible Deductible

A sensible deductible results in month over month savings that is leverage for:

Investing
College Savings
Debt Reduction
Meeting Monthly Expenses

You can speak with an agent to discuss the impact of raising deductibles on premiums. A practical deductible protects homes yet leverages savings to improve personal finances. Even in the instance of a small claim, the time value of money may pay for itself.

The time value of money as leverage: A dollar is more valuable today than at some date in the future, which is seen in inflation or other economic concepts. The monthly savings from a higher deductible are leverage to increase investment contributions or chip away at principal on debt.

Investment Manager Elliott Broidy is among the money managers known to consider money’s time value when making portfolio decisions. The same approach has everyday value to consumers, as well.

Savings on interest expense from credit cards or compounding investment returns can exceed out of pocket costs on home insurance claims.

Each situation is unique, but you may consider working with an agent to discuss the value of each insurance rider beyond catastrophes.

How You Can Budget With A Credit Card

by Hank Coleman

My wife and I budget a little differently than most families. We budget with a credit card. We use a credit card for most of our purchases instead of cash or checks, and use that to monitor our family’s monthly spending.

According to a recent Gallup poll, fewer than one-third of Americans follow a detailed written budget every month. Out of those who do, not all of them strictly follow their budgets. This may be a stark indication as to why American families are in financial trouble, with shrinking savings and increasing debt.

So why do we have such a hard time sticking to a budget? Perhaps we feel our spending is often too hard to track. If that’s the case, we might need to simplify things.

Budgeting the Traditional Way With Cash and Envelopes

Many financial experts, like Dave Ramsey, recommend that families use a written monthly budget and account for every dollar they spend. Ramsey even goes so far as to suggest that families use a cash envelope system, in which there’s an envelope for every category in your budget such as housing, entertainment, gas or groceries.

For example, if you and your family budget $100 each month for eating out, you would place $100 cash in an envelope. You spend the cash until it’s gone. When the envelope is empty, your family has to stop eating out.

There’s a reason people say cash burns a hole in your pocket.

My wife and I found that the envelope system worked — as long as I remembered to bring her the receipts after making a purchase. But I can’t even remember to use a coupon I have in my pocket at the cash register most days, let alone track receipts.

So the envelope method of budgeting just didn’t work for us. That’s why we switched to budgeting with America’s favorite financial invention — the credit card.