Happy one year blog anniversary to Fresh Life Advice! One year ago, I opened the doors of FreshLifeAdvice.com to the world.
Of course, these doors are electronic and metaphorical.
As a teenager, I can remember using some super cool website called Myspace.com to learn about HTML coding and website building. Myspace was the first social network to reach a global audience, but we all know how the rest of that story ended…
Rest in peace to Myspace as we pour one out for Tom.
Soon, Mark Zuckerberg took over the social media sphere. With roughly 2.89 billion monthly active users as of the second quarter of 2021, Facebook is now the biggest social network worldwide. In the third quarter of 2012, the number of active Facebook users surpassed one billion, making it the first social network ever to do so.
The internet, social media, and technology, in general, are rapidly changing. I had always wanted to a piece of that pie. FLA was my chance of making a small contribution to the big world wide web.
How FreshLifeAdvice.com Was Born
After college, I wanted to fill my free time with a project that would be beneficial to the general public.
I was already writing anything and everything to escape from the daily struggle of the corporate world. Lengthy emails to friends and colleagues, forum posts about stocks, and even personal journal entries.
FLA was born with the mission in mind to help 10 million people with their own path to financial freedom. It sounds crazy, but every life-changing invention also sounded crazy before it revolutionized its respective industry.
As of January 2021, there were 4.66 billion active internet users worldwide – 59.5 percent of the global population. Of this total, 92.6 percent (4.32 billion) accessed the internet via mobile devices. Six in every ten people around the globe now use the internet…
Sure, the internet had plenty of personal finance blogs, but they all had a similar theme. Older retired bloggers who already had a large nest egg just didn’t seem relatable to the younger crowd about to embark on an arduous start to their careers. To be fair, they did inspire me to envision a prosperous future.
The millennial generation is who I wanted to reach, because, well…I’m a part of that crowd.
The mid-20s person sits at a fork in the road. It’s the age when the world presents a choice: head down a path of continuous stress and financial woes, or set yourself up for a lifetime of money mastery.
My net worth steadily grew after the Post-2008 financial crisis. Having this credibility might help people take my advice seriously, so I purchased the domain FreshLifeAdvice.com through Bluehost for any aspiring website owners.
The goal was to put a fresh perspective on personal finance. Hence, Fresh Life Advice was born.
The Great Blogging Experiment – One Year Later
I then spent the next six months nervously designing the site. Hey, I had some good-looking shoes to fill!
Of course, the design wasn’t actually the 6-month hang-up. Truthfully, I was terrified of going live.
What if nobody likes my writing? What if nobody cares what I say? And what if the only visitors are me and my mom, again?
Publishing all your thoughts and opinions for the world to see is scary enough. Baring all on a subject as taboo as money is even scarier.
Against my better judgment, on September 01, 2020, the blog you’re reading right now went live. This was the post.
When I published that first article, I made myself a promise: I was going to make it to FLA’s 1st blog anniversary, no matter what, before I could give up.
I knew I enjoyed writing, but the internet is a big place. And I was just one voice in the chatter. Maybe after one year, I’d be able to tell if anyone cared.
Well, here we are. One year later. I’m happy to report that the site has been a raging success, and I have zerointentions to shut it down.
This blogging experiment has truly been one of the most rewarding projects I’ve ever involved myself in. Every time I receive a personal reader email, an inspiring article comment, or an enthusiastic Facebook share, I can’t help but get excited and marvel at the wonders of the internet.
So, I want to say THANK YOU! At the risk of sounding extremely cliché, you – the reader – are what makes this site what it is.
I’m just a guy typing some nonsense on a keyboard. You’re the one who keeps this site alive.
One Year of FreshLifeAdvice.com Blog Anniversary Statistics
299 Page views in the blog’s first month.
150 About how many of those page views came from me.
100 Page views the first day I thought an article went viral. I remember my heart pounding as I watched the page stats, refreshing them repeatedly.
697 The most page views in a single month.
8 Total email subscribers after the first 4 months.
52 Email subscribers today. (You are on the cool kids’ email list, right?)
25 Total articles published in the past year.
2,217 Average Words Per Post
470,000 Total number of words in the Webster’s Third New International Dictionary, Unabridged, together with its 1993 Addenda Section.
52,070 Total number of words written by FLA. That’s 11% of the entire English Dictionary!
82 International countries reached out the of possible total 195 countries. That’s 42% of the world!
‘Mr. Worldwide’ refers to the self-ascribed nickname of American rapper and music producer Pitbull. Soon, FLA will self-ascribe a similar nickname of ‘Mr. Personal Finance Worldwide’.
These top 5 blogger commenters certainly deserve a shout-out. They’ve supported this site from the beginning. I enjoy reading and commenting on as many personal finance blogs as I can.
The Most Popular Day is Friday, accounting for 21% of views. And the Most Popular Time is 3:00 PM, accounting for 9% of views.
There must be something about Fresh Life Advice that really gets people excited about their weekends.
The stats don’t lie. Every single human falls into one or more of the DISC personality traits so it was no surprise this appeal to many different audiences. It was FLA’s way of putting a fresh twist on personality tests and spending habits.
Conveniently, this post checks both boxes of fun and helpful.
Index funds have been touted across the finance world as the proven way to invest hard earned cash. However, the wealthy have turned their backs on passively managed index funds for other types of assets. But why? Why don’t the rich invest in index funds?
Despite popularity, the ultra-wealthy high net worth individuals aren’t as apt to invest in these low-cost funds.
What are Index Funds? What’s the Advantage?
An index fund is a mutual fund or exchange-traded fund designed to follow certain preset rules so that the fund can track a specified basket of underlying investments.
Over the long term, index funds have generally outperformed other types of mutual funds. Other benefits of index funds include low fees, tax advantages (they generate less taxable income), and low risk (since they’re highly diversified).
At FLA, we preach choosing passively managed index funds or ETF’s (i.e., NYSEARCA: VTI or MUTF: VTSAX) with the lowest expense ratios (less than 0.15%) in lieu of picking individual stocks, mutual funds with high fees, or actively managed hedge funds.
Let us dig into the pros and cons of index funds:
Pros of Index Funds
Losing the principal investment is an investor’s worst nightmare. Index funds offer a low-risk option for investing in batch of stocks. They are inherently diversified, representing many different sectors within an index, which protects against deep losses. When one index is performing better than others, the index fund effectively captures these gains that individual stock picking gurus may miss out on.
2. Steady Growth
A central advantage to index funds is that they are designed for steady, long-term growth. The ideal timeline for an investor is to have their money compound forever. No one can predict the future. As a result, having so many stocks in one fund allows for diversification in addition to a self-cleansing system. The dogs are ousted, and the winners continue to ride high.
Index funds are not designed to beat the market, but simply capture the average return. Stock-picking is much harder than one would expect. For instance, U.S. News & World Report noted in 2011 that index funds tied to the Standard & Poor’s 500 (S&P 500) index generated better returns over the previous three years than almost two-thirds of large-cap actively managed mutual funds.
3. Low Fees
Index funds offer lower fees for investors than non-index funds. This means that even when a non-index fund outperforms index funds, it must perform better by a certain margin to generate returns that overcome the management fees that it charges.
Cons of Index Funds
1. Lack of Flexibility
Because index fund managers must follow policies and strategies that require them to attempt to perform in lockstep with an index, they enjoy less flexibility than managed funds. Investment decisions on index funds must be made within the constraints of matching index returns. For instance, if the returns in an index are declining strongly, index fund managers have few options to attempt to limit those losses. In contrast, managers of an actively managed fund have more flexibility to act to find better-performing options in good times or in bad.
2. No Big Gains
An index fund does not carry the potential to outpace the market the way that managed funds can. This means that if you invest in an index fund you are surrendering the possibility of a massive gain. The top-performing non-index funds can perform far better than the top-performing index funds in a given year. However, the top-performing non-index funds may vary from year to year, so those under-performing years can cancel out the over-performing ones, while index funds’ performance remains steadier.
Why invest in VTSAX or VTI?
Beats 82% of active managed funds
Expense ratio of 0.04% / 0.03%
Self-cleansing (companies come and go)
Tracks the U.S. stock market.
Buy the whole stack, instead of looking for the needles.
Why Are Index Funds So Popular?
A stock index consists of a basket of stocks that is meant to represent something else. Sometimes, this something else is an entire stock market. Other times, this something else is a section of a stock market that serves as a stand-in for either an industry or some other kind of segment.
Whatever the case, it is very common to see interested individuals put their money in an index fund, which is either a mutual fund or an exchange-traded fund that tracks an underlying index.
Index fund investing has become popular since Jack Bogle of Vanguard introduced the Vanguard 500 fund in 1976. The fund tracked the returns of the S&P 500 and marked the first index fund marketed to retail investors.
Index investing is popular for a variety of reasons:
Index investing is a very passive way of investing, which can be contrasted with more active investment strategies that see individuals buying and selling stocks on a regular basis.
It’s extremely tough to beat the market in the long run. Once taxes and trading costs are incorporated into calculations, the index funds prevail.
There is empirical evidence that shows actively managed funds consistently underperform in the long run.
Index investing is a very useful way for investors to protect themselves from non-systematic risks through means of diversification. This is due to the fact they have spread out their money rather than concentrate it in the stocks of a small number of companies.
Individual stock picking can be time consuming. Many hours of research are required before an investor has truly educated opinion on whether to invest. Index funds a practical solution that reduces the necessary time and effort.
Unless you have the knowledge, time, and patience to vet each individual company you’re considering before buying its stock, you could wind up with a portfolio that’s weighed down with bad deals and underperformers. That’s one reason why many investors tend to appreciate the beauty of index funds.
Fees Add Up
When you invest in any mutual fund, you pay a set of annual fees that add up to its expense ratio. In exchange for the actively managed fund’s cost, you are getting the expertise of a seasoned fund manager. The manager and their team will assemble a well-researched collection of stocks, put it into a neat package, and shift the fund’s holdings when they see that as a smart idea.
That doesn’t come cheap.
With index funds, by contrast, most of that work (and pricey expertise) is not necessary, so their expense ratios can be as little as one-tenth of what you’d pay for an actively managed fund. But despite the many benefits of index funds, they aren’t particularly popular among wealthy investors.
Why the Rich Tend to Look Elsewhere
Index funds are an extremely cost-effective, convenient investment choice. But they generally aim to match the performance of their associated indexes, not surpass it. The ultra-wealthy, however, may not be satisfied with that.
Instead, they turn to other money-making assets, such as private equity, art, and even IPO’s. These investments are often far riskier than your average index fund, but they have far greater upside potential. The wealthy can take on this risk because they can still get back on their feet, even after losing a relatively large sum of money. The middle and lower classes do not have this luxury.
Let’s walk through a scenario.
Imagine that you have $500,000 invested in stocks in your tax-advantaged retirement accounts. That’s probably a lot of cash for you. If your portfolio declined in value by half, or worse, it could have a major impact on your future quality of life.
But, for example, someone with an investment portfolio worth $50 million could suffer a major loss and would still be left very relatively wealthy. That allows them the freedom to take on more risk than the average retail investor would be comfortable with.
The rich can pursue high-risk, high-reward investment opportunities without worries because their wealth can make for a very effective cushion from such problems.
In fact, wealthy investors often favor actively managed mutual funds. Their iffy odds of delivering that sought-after outperformance can be overwhelming appealing despite the higher fees. The large majority of actively managed funds won’t beat the market, and over multi-year periods, the share of them that do, drops even further. By contrast, index funds often outperform active funds across different asset classes.
The wealthy also can more easily invest in real estate, antiques, and other less-liquid assets — whereas you probably can’t afford to take on the risk associated with buying a $100,000 piece of art you hope will appreciate in value. And in the “actively managed” sphere, the wealthy also have the ability to put money into hedge funds, which most of us are legally barred from.
In order to protect normal people, the SEC has created all sorts of rules and regulations for how companies that invest money on behalf of other people should operate. While this makes the investments safer and less volatile, it prevents the firm making investments from chasing riskier but possibly more profitable investments.
Hedge funds are not allowed to have more than 100 investors, and they are not allowed to take on any investors with less than $1 million in wealth.
The goal of hedge funds is to earn absolute returns. What this means is that they make money every year, regardless of what the stock market does. A few funds have done this, but 2008 demonstrated that most funds were bluffing in saying they were able to do that, and many of them went out of business.
Why Don’t the Wealthy Invest in Low-Fee Index Funds?
They sometimes do. But it is also easier to buy individual stocks when one is investing large sums.
Also, many wealthy people have business experience which gives them insight into economic trends and specific companies. This leads them to buy individual stocks. Whether they perform better than the indexes is not assured.
A majority of the wealthy seek for Alpha. The finance world defines Alpha (α) as excess or abnormal return over a benchmark index.
In addition, they want to diversify their portfolio across asset class and earn underlying performance return, which is different from an index fund. This has resulted in huge investment growth in the following:
Portfolio Management Service (PMS)
The wealthy use these investment vehicles because there is a barrier to entry with high entrance costs. These risky investments generally require large buy-in costs and carry high fees, while promising the opportunity for outsized rewards.
High Risk, High Reward
Over the past 90 years, the S&P 500 averaged around a 9.5% annualized return. You’d think the rich would be satisfied with that type of return on their investments. For example, $10,000 invested in the S&P 500 in 1955 would be worth more than $3 million at the end of 2016. Investing in the whole market with index funds offers consistent returns while minimizing the risks associated with individual stocks.
But the wealthy can afford to take some risks in the service of multiplying their millions (or billions). For another example, look at world-famous investor and speculator George Soros. He once made $1.5 billion in one month by betting that the British pound and several other European currencies were overvalued against the German Deutsche mark.
Hedge funds aim for those sorts of extraordinary gains, although history is filled with examples of years when many hedge funds failed to outperform the stock market indices. But they can also pay off in a big way for their rich clients. That’s why the wealthy are willing to risk hefty buy-in fees of $100,000 to $25 million for the opportunity to reap great returns.
The one percent’s investing habits also tend to reflect their interests. As most wealthy people earned their millions (or billions) from business, they see this path as a way to continue maximizing their finances while sticking to what they know best — corporate structure and market performance.
For that matter, the rich can sink their money into luxuries such as art pieces, sprawling real estate properties, cars, and other collectibles. In this case, they can enjoy grandeur while still benefiting from their increase in value over time. By buying these luxuries, the wealthy not only enhance their lifestyles but also enjoy the value appreciation as a nice bonus.
How the Wealthy Invest
As an example, let’s look at the former CEO of Microsoft, Steve Ballmer. He holds a net worth of about $84 billion in 2021. Even after walking away from Microsoft, Ballmer owns over 300 million shares in the company. This alone translates to a multi-billion-dollar investment.
Some of the other ways Ballmer chose to invest his money included:
A roughly 4% stake in Twitter (before he sold his shares in 2018)
Real estate investments in Hunts Point, Washington, and Whidbey Island
Purchase and ownership of the Los Angeles Clippers basketball team for $2 billion.
The rich can make huge investments in the industries that catch their interest, as shown by the numerous businesspeople who have winded up buying sports teams of one kind or another.
Ballmer’s wealth is concentrated in a handful of investments. This is a far cry from the hundreds of investments that come with Buffett’s and other personal finance gurus’ recommendation of buying low fee index funds.
Hedge funds are likewise popular with the wealthy. These funds of the rich require investors to demonstrate $5,000,000 or more in net worth! The sophisticated strategies intended to beat the market are the allure of the funds. But hedge funds charge approximately 2% of fees and 20% of profits. Investors need to get huge returns to support those high fees!
This isn’t to suggest that the wealthy don’t own traditional stocks, bonds, and fund investments—they do. Yet, their riches and interests open doors to other types of exciting and exclusive investments that aren’t typically available to the average person.
The Bottom Line
It is true that the wealthy have many opportunities not readily available to the middle and lower class. But this doesn’t necessarily mean they are guaranteed higher rates of return. They won’t always beat index funds, but they more often than not can afford to take on this risk. All in all, they are less dependent on steady growth and returns.
Warren Buffett might be the world’s most famous investor, and he frequently touts the benefits of investing in low-cost index funds. In fact, he’s instructed the trustee of his estate to invest in index funds.
“My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”
-Berkshire Hathaway’s 2013 annual letter to shareholders
If a simple, straightforward low-fee index fund is good enough for Warren Buffett, then it’s certainly adequate for the average investor.
Even though index funds aren’t popular among the very rich, they’re still a great choice for the everyday investor. If that’s the category you identify with, you’d be wise to add some to your portfolio. They may not make you rich overnight. However, by capitalizing on the broad long-term gains of the U.S. market, you could accumulate quite a substantial sum over time and achieve your own financial goals.
Disclosure: Fresh Life Advice is an opinion-based website. I am not a financial advisor, and the opinions on this site should not be considered financial advice.
Disclosure: Fresh Life Advice may receive commissions for affiliate links included in this stocks article. However, we only include links to products that we believe in and utilize ourselves. These recommendations are not given out lightly.
The Main Rules of Fresh Life Advice Stock Investing Strategy
Of all the articles published in this blog’s archives, you can really boil down my incoherent ramblings into a few fundamentals that anyone can use to become a wealthy investor:
Save more than you spend. Live below your means to be able to invest as much money as possible and as early as possible.
Choose passively managed index funds or ETF’s (i.e. NYSEARCA: VTI or MUTF: VTSAX) with the lowest expense ratios (less than 0.15%) in lieu of picking individual stocks, mutual funds with high fees, or actively managed hedge funds.
Buy and hold for as long as possible, preferably forever. The longer you remain invested, the less “rigged” the market is.
Pick a portfolio allocation and stick to it. Asset allocation trumps stock-picking and a constant search for alpha.
With all that being said, sometimes I will occasionally indulge my animalistic instincts and make speculative plays. In these cases, I am essentially betting on a certain equity (stock) to outperform the market.
But it’s important to realize individual stock investing should not be the majority of your portfolio. We are talking less than 20% of your net worth. Think of it as fun money. If you theoretically lost it all, you would not be devastated.
I know, even losing more than a penny, can be devastating to one’s fragile ego.
INVESTING IN INDIVIDUAL STOCKS
Investing in individual stocks and equities can be overwhelming. There are so many options to choose from. How do you know which will perform well?
The truth is… No one knows.
No one can confidently predict the future without knowing. That’s why investing in low cost index funds is such a trusted solution.
In general, the index funds track the overall market performance. Since indexes like the Standard & Poor’s 500 (S&P 500) are composed of 500 large public stocks, they can capture the stocks that do incredibly well. However, they also contain stocks that possibly underperform or file for bankruptcy.
The world usually references the S&P 500 or the Dow Jones Industrial Average as two major indexes that capture the stock market. They are two different indexes, but both are composed of some of the major companies that drive the market.
Although there is no way to tell what the future holds, studying the general market structure and where we are in the current market cycle can help provide a framework for better decision making and future market expectations.
The chart below shows the historical performance of the S&P 500 Index throughout the U.S. Bull and Bear Markets from 1926 all the way up to 2019. It’s imperative to remember past performance is no guarantee of future results. Nevertheless, looking at the history of the market’s expansions and recessions does help to gain a ‘Fresh Life Advice’ perspective on the benefits of investing for the long haul.
On the other hand, the Dow Jones Industrial Average (DJIA) is comprised of 30 large public companies. In the financial industry, the DJIA is used as a benchmark for the largest stock market in the world.
What can you observe from looking at the charts above?
Have a child look at this, and even they will be able to tell you the line goes up over time.
Investing, otherwise known as buying and holding, is notthe same as gambling. If you invest in the market long enough, your investment will increase! Great news for investors!
Due to the former factors, the rate of return for index funds is much more stable than for individual stocks. In other words, the increases and decreases may not be as significant as other equities. This is also what’s known in the finance world as lower volatility.
Stocks are a risky investment vehicle – don’t get me wrong. But index funds are so diversified that it’s nearly impossible for you to lose your entire investment since the fund is unlikely to crash 100% when so many different companies are held in the fund portfolio.
However, as we’ve seen in the past (Covid-19 Correction of March 2020, Financial Crisis of 2008-2009, Dot-Com Bubble of 2000, etc.), investing in individual companies that do go bankrupt can lead to you lose all of your equity in that respective company.
“The markets can stay irrational longer than we can stay solvent…”
– John Maynard Keynes, Economist
Essentially, just because you made the right fundamental investment doesn’t mean the market will treat you fairly. It’s an “Eat-or-be-eaten” world. And the market can easily strip you of all your hard-earned money if you aren’t careful with your risk.
I’m a firm believer that you should never invest in anything that causes you to lose sleep. Dale Carnegie mentions in his famous best-selling book How to Stop Worrying and Start Living.
Without further ado, the two main approaches to use for investing in individual stocks are fundamental analysis and technical analysis.
Fundamental analysis measures stocks by looking at their intrinsic value. For this theory, companies are worth the net present value of their cash flows. Long-term investors study everything from the overall economy and industry conditions to the financial strength and management of individual companies. Earnings, expenses, assets, and liabilities all come under scrutiny by fundamental analysts.
Let’s run through 3 main aspects of fundamentals to check before investing in a stock.
1. Quarterly Earnings
Quarterly earnings are arguably the most important quality of a good stock.
If the company is consistently making money, you will be consistently making money too!
People always like to advise “Let your winners win”. I interpret this as the classic buy and never sell model that Warren Buffett’s mentor, Benjamin Graham, preaches in his book The Intelligent Investor. The underlying basis of this novel is fundamental analysis.
Companies that flaunt consistent earnings beat will see a steady increase in price. This is a major indication that the company is doing something right.
Many investment gurus also claim that past performance does not indicate future results. There is no denying this, but instincts tell us this isn’t painting the whole picture.
Warren Buffett bought more than $1 billion of Coca-Cola (KO) shares in 1988, an amount equivalent to 6.2% of the company, making it the largest position in his portfolio at the time. It remains one of Berkshire Hathaway’s biggest holdings today. Coca-Cola’s iconic name and global reach created a moat around its core soft drink product, so Buffett did not have to worry a competitor would come and take away its market share.
There was a profound perspective Warren touted: no matter who was the CEO of Coca-Cola, the company would still thrive due to the economic powerhouse it had become.
For 99% of the other companies, leadership matters. If a company doesn’t have a strong C-Suite or Board of Directors, the company’s profits may suffer too.
3. PE Ratio
Price-to-Earnings (P/E) Ratio: A ratio used for valuing companies and to find out whether they are overvalued or undervalued.
A highPrice-Earnings ratio indicates that investors are expecting higher growth of company’s earnings in the future compared to companies with a lower Price-Earnings ratio.
A lowPrice-Earnings ratio may indicate either that a company may currently be undervalued or that the company is doing exceptionally well relative to its past trends.
When a company has no earnings or is posting losses, in both cases P/E will be expressed as “N/A.” Though it is possible to calculate a negative P/E, this is not the common convention.
In general, if you see this P/E ratio higher than 30, the stock is likely overvalued unless there is significant future growth planned.
Siegel is the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania. He discusses extensively on the economy and financial markets.
PE Ratio in Action
In his novel, Siegel argues that P/E ratio matters. He compares all kinds of stocks. For example, he asks you if you’d rather invest in Standard Oil of NJ or IBM from 1950 to 2003. What do you think?
Initial instinct tells you IBM because of the technological revolution. As a result, IBM did well because investors expected it to do well.
The basic principle of return states that the long-term return on a stock depends not on the actual growth of its earnings but on how those earnings compare to what investors expected.
The results? Standard Oil of NJ beat out IBM by a narrow margin of a 14.42% return vs a 13.83% return.
Although the difference seems small, when you look at equal initial investments of $1,000 in each company, the outcome is astounding!
After 53 years, the small investment in the oil giant yields $1,260,000 while IBM yields $961,000. That’s 24% less…
Who really would want to leave that $299,000 difference on the table? No one.
Siegel also strongly advises reinvesting dividends, just like I do in my monthly income reports. Reinvesting dividends is the critical factor giving the edge to most winning stocks in the long run.
Siegel has stated that IPOs typically disappoint. In fact, he analyzed 9,000 IPOs between 1968 and 2003 and concluded that they consistently underperformed a small-cap index in nearly 4 out 5 cases. That’s a whopping 80%! Others disagree, especially with some of the hottest tech IPO’s that debuted between 2003 and present day.
If you were curious, Siegel has found the best performing stock from 1925 to 2003. Not many would have guessed it, but Phillip Morris, now known as Altria Group (NYSE: MO), dominated.
Phillip Morris (NYSE: MO)
Abbott Labs (NYSE: ABT)
Bristol Myers Squibb (NYSE: BMY)
Tootsie Rolls (NYSE: TR)
I’m sure no one would have expected Tootsie Rolls to be on that list, but chocolate candies were popular during this time!
The top 20 average is 15.26%, versus 10.85% for the S&P 500.
Average PE ratio of these companies is 19.04 versus S&P 500 PE ratio of 17.35.
Note that the average dividend yield is 3.40%, so they return cash to shareholders.
Siegel says if you look at every stock traded from 1925, the best performing stock is Phillip Morris. If you look at the best performing stock since 1950, it is Philip Morris. What is best stock since 1957? You guessed it – Philip Morris.
If you put $1,000 in the S&P 500 in 1957, it would be $124,522 by the end of 2004.
If you had put that same $1,000 in Philip Morris, it would be worth $4.6 million.
Philip Morris has even paid $125 billion to litigants for cigarette liability… And they still have outperformed the rest of the market.
History shows that, on average, just two stocks from the global market-cap top 10 list remain on the list a decade later. The two survivors almost always include the number-one stock.
But the number-one stock has never been top dog a decade later, ultimately underperforming and moving lower in the list. The second surviving stock has 50/50 odds of beating the market. If this history repeats, 9 of the top 10 market-cap stocks will underperform the market over the next 10 years, and just one has a 50% chance of underperforming.
Fundamental Analysis Summary
Companies are worth the net present value of their cash flows
Buy and hold companies priced below their intrinsic value
Markets are 90% rational, 10% psychological
Technical analysis uses visual patterns on a chart created by price to determine where the market is moving. For technical analysis, traders attempt to identify opportunities by looking at statistical trends, such as movements in a stock’s price and volume. Traders theorize there is no need to pay attention to the fundamentals since they are assumed to be factored into the price already. Technical analysts do not attempt to measure a security’s intrinsic value. Instead, they use stock charts to identify patterns and trends that suggest what a stock will do in the future.
1. RSI Indicator
Relative Strength Index (RSI): A momentum oscillator that is able to measure the velocity and magnitude of stock price changes.
The relative strength index (RSI) conveys a stock’s momentum, where RSI is calculated as the ratio of positive price changes to negative price changes.
RSI analysis compares the current RSI against different conditions.
An RSI value of 70 indicates the stock is Overbought. Recommended Action: Hold or Sell.
An RSI value of 50 indicates the stock is Neutral. Recommended Action: Hold.
An RSI value of 30 indicates the stock is Oversold. Recommended Action: Buy.
When determining whether to buy a stock, you should go through many steps. Some steps are implicit, but all are necessary in the process.
When checking the RSI of a stock, ensure the indicator somewhere between 25 and 45 before pulling the trigger on the ‘Buy’ button.
2. MACD Indicator
Moving Average Convergence-Divergence (MACD): Difference between short-term and long-term exponential moving averages, as plotted against a center line that represents where the two averages equal each other.
The best-known volume indicator is the moving average convergence-divergence (MACD) indicator.
A positive MACD value shows that the short-term average is above the long-term average and the market should move upward. Recommended Action: Hold or Sell.
A negative MACD value shows that the short-term average is below the long-term average and that the market is moving downward. Recommended Action: Buy.
When the MACD is plotted on a chart, and its line crosses the centerline, it shows when the moving averages that make it up cross over.
The MACD indicator is the most popular tool in technical analysis because it gives traders the ability to quickly and easily identify the short-term trend direction. This helps traders to ensure that they are trading in the direction of momentum.
3. ADX Indicator
Average Directional Index (ADX): Uses positive and negative directional indicators to determine how strong an uptrend or downtrend is on a scale of 0 to 100.
Values below 25 indicate a weak trend.
Values over25 indicate a strong trend.
The ADX indicator can be used to dictate if a security is trending or not. This deduction helps traders choose between a trend-following system or a non-trend-following system. The ADX indicator is an average of expanding price range values.
The Aroon indicator is a very similar tool to analyze trends. The ADX is composed of a total of 3 lines, while the Aroon indicator is composed of 2.
The Aroon indicator plots the lengths of time since the highest and lowest trading prices were reached, using that data to ascertain the nature and strength of the trend or the onset of a new trend.
Technical Analysis Summary
Companies are worth what other investors perceive their as their worth
Buy and sell companies based on movement in stock prices
Markets are 10% rational, 90% psychological
If you want to learn more about technical analysis, a great place to start is Technical Analysis for Dummies. Don’t be too offended by the title. The book really does a great job of taking a complex subject and educating using terms that an average investor can easily digest.
ARE STOCK ANALYSIS METHODS OUTDATED?
We can look at popular stock like Amazon.com, Inc. (NASDAQ: AMZN) and wonder “Is fundamental analysis broken?”
Here, we see the PE ratio of Amazon reached insane levels of near 500 in 2016. Yes, shareholders were paying more than 500 times the earnings…
Yet, when we look at the stock price graph above, the stock continued to soar despite overvaluation.
Some of the most popular tech stocks are from the FAAMG acronym, which stands for:
Facebook (NASDAQ: FB)
Amazon (NASDAQ: AMZN)
Apple (NASDAQ: AAPL)
Microsoft (NASDAQ: MSFT)
Google (NASDAQ: GOOGL / NASDAQ: GOOG)
As of April 01, 2021, the market capitalization of these companies summed up to $848.14B + $1.58T + $2.06T + $1.82T + $1.44T = $7.75 trillion.
Each of the stocks in the FAAMG class is in the top 10, by market cap, of the S&P 500 index. Although the five stocks are only 1% of the 500 companies in the index, they make up 22% of the market value weighting in the S&P 500.
Since the S&P 500 has widely been accepted as representation of the US economy, a collective upward (or downward) movement in the stock performance of FAAMG will most likely lead to a similar movement in the index and the market.
Some experts are predicting another tech bubble and market crash like the one in 2000.
However, some analysts have noted that there is a major difference this time. Nowadays, there is plenty room for the current tech class to grow as areas of cloud computing, social media, e-commerce, artificial intelligence (AI), machine learning, and big data are still being explored and developed.
Only time will tell.
It feels like everyone is day trading or hitting the jackpot. Remind yourself to stay on your own investing course. Boring and slow often is the way to wealth.
USING FUNDAMENTAL AND TECHNICAL ANALYSIS TOGETHER
The Efficient Market Hypothesis argues that asset prices reflect all available information, so you cannot reliably use fundamental analysis (expert stock selection) or technical analysis (market timing) alone to outperform the overall market.
Should you buy what’s been working? Pour money into your losers? Pick new stocks altogether?
Yes, buying individual stocks offers the potential for greater gains but it also opens you up to all sorts of psychological pitfalls that don’t necessarily apply when owning the entire stock market.
The problem for many investors these days is they only believe in their stocks when they’re rising. If you don’t believe in those same stocks when they’re falling, you have no business owning them over the long haul.
You don’t have to meticulously study the stock market day in and day out like some hedge funds or financial analysts, but if you keep an occasional watchful eye, you will be able to tell when the stock market is hot or cooling off.
Buy low, sell high. You’re well aware of this trite advice, but it’s easier said than done. When you’re experiencing 30% – 50% drops of your entire net worth within months, and even in the short span of days, are you really going to have the discipline to refrain from panic selling?
This is, by all means, not the most comprehensive method of buying stocks. However, I can guarantee you’ll have an edge over the average Joe.
One of the biggest reasons why I believe my portfolio has outperformed the S&P is pure luck because I never sell. I’ve never sold a stock.
And I don’t plan to until I actually need the money. You ask – when will that be, FLA?
Once I’ve left my corporate 9-5 job, I will live off the dividends of my stocks to financially support my ideal retirement.
WIN OR LOSE
Don’t forget that for every stock buy, there is someone on the other side of the deal that is selling their shares. That’s mainly where you see the buy / ask price. The broker is looking for a seller that agrees to the asking price.
The bid price refers to the highest price a buyer will pay for a security. The ask price refers to the lowest price a seller will accept for a security. The spread is the difference between these two prices. The smaller the spread, the greater the liquidity is of the given security.
For every stock transaction, there will be a winner and loser. Which side will you be on?
Disclosure: Fresh Life Advice is an opinion-based website. I am not a financial advisor, and the opinions on this site should not be considered financial advice.
So what is going on with GameStop stock? What has happened to the stock ticker NYSE: GME? Let’s break it down into layman’s terms and explain this roller coaster ride of a company.
GameStop Corp. went from being nearly bankrupt to seeing its shares up by 2,000% in less than a week — but how did it happen, what’s Reddit have to do with it, and is it even legal?
First, let us define some financial terms.
What Does This Have To Do With Hedge Funds?
Hedge Fund: A group of investors with large amounts of capital – think in terms of billions. These funds hire analysts to track trends in the market to “hedge” against changes in the future.
Point72 Asset Management, Melvin Capital, Citron Research, D1 Capital Partners, Maplelane Capital, and Candlestick Capital Management are all hedge funds that have suffered immense losses, some in the range of billions of dollars, due to the events that have unfolded around GameStop Corp.
How Does Short Selling Work?
Short Selling: Basically, you borrow a stock on credit, and sell it to someone else. Then, you offer to buy it back when the price decreases. Ultimately, you gain the difference in price and it has been the traditional way to gain money off a market crash or decline.
I’d recommend watching the movie The Big Short as it effectively delves into how short selling was pragmatically utilized during the Financial crisis of 2007–2008. The movie also helps to visualize how the economic collapse in America transpired.
In addition, it may be helpful to watch Season 1 Episode 4 of the HBO show Billions because the episode conveys a prime fictitious example of a short squeeze.
Short Squeeze: When two of these hedge funds get into a financial argument, one fund often shorts because they think the stock will go down, and one buys because they think it will go up. The one buying attempts to buy faster than the stock was dipping to put pressure on the shorter to buy back stock to cover its losses.
Okay, thank you for making it this far, very boring, I know.
GameStop Stock (GME) Frenzy
So what happened is there’s a group of individuals on Reddit that like to gamble on stocks (it is speculative gambling, some may argue investing, but advisors can assure you otherwise) called WallStreetBets (WSB). These guys are as young as 17 years old, using new apps like Robinhood that make investing cheap and easy.
WSB were tracking a regime change at GameStop (yes, that video game store). For those of you unfamiliar, GameStop is an American video game, consumer electronics, and gaming merchandise retailer.
GameStop Corp. got a new investor that wanted to change the business strategy there, citing management problems being the biggest issue for the failing company. The investor started working on developing an online presence for the company to buy/rent/sell games for better prices than they were currently offering. This amelioration took the price from about $4 per share in June/July of 2020 to upwards of $10 per share in August/September of the same year.
This was a problem though… “But stocks going up are good, right?” Right… Unless you were shorting the stock due to a guaranteed decline on the back of an outdated business model turning negative revenue.
That’s right, our old friends – those aforementioned hedge funds, had shorted GME upwards of 140% of the available GameStop stock. This was actually such a heavy short that it was contributing to the decline of the stock price up until the regime change.
Meanwhile, on the subreddit WSB, some of these guys figured it out, and began buying the stock, simultaneously encouraging others to buy as well. The stock even got an unexpected bump from Tesla’s / SpaceX’s CEO Elon Musk’s tweet.
See, the hedge funds were so confident they could keep the price down, they did not anticipate a short squeeze, but a couple hundred thousand people on the Internet got together and began squeezing anyway. And squeezing, and squeezing until BOOM…
Suddenly, GME hits all-time highs $100, $150, $200, $300, and $400 per share. At its highest peak, the company was valued high enough to be in the Fortune 500. Yes, you read that correctly. GameStop in the Fortune 500! This is all occurring while GameStop’s physical stores are closing down from lack of business during a global pandemic.
This hit the hedge funds so hard that they borrowed (legitimately) almost 3 billion dollars to short against a couple hundred thousand guys on the Internet.
Some of these WSB guys (and teenagers) have made between $100k and $25 million. They are paying off student loans, medical bills, paying their way through college, etc.
And the hedge funds? Some of them are reporting a 100% loss (in the billions of dollars, mind you).
Why Is This Significant? Should I Care?
Why is this significant if there’s no way this can last? Yes, GME will go back down probably to $20 and there’s no way to tell when. It’s a ticking time bomb of a stock.
But, some of these same hedge funds were bailed out between 2008 and 2010 by the federal government. Guess what. These funds were just taken to the cleaners by a bunch of college-aged common folk with nothing but a free app and a Discord server so they could pay for college and also get rich.
Don’t let anyone tell you that this was some sort of illegal scheme or the poor fund managers are losing too much money. These games are played on Wall Street all the time. That’s just the way the system is set up. This anomaly proved that anything can happen.
How Much Money Are We Talking?
Here’s the original guy on Reddit posting his 20 MILLION DOLLAR gain in ONE DAY. For a grand total of 48 MILLION DOLLARS LEFT IN THE MARKET.
He bought 500 call contracts (100 shares per contract ) at $0.20 per share and bought 50,000 shares at about 15 dollars per share. For context, if the trend theoretically continued, GME would hit $2k per share in a few weeks, and he will have more money than the entire market cap of GameStop was worth in July 2020.
Where To Go From Here
In modern times, it feels like everyone is day trading or hitting the jackpot. Remind yourself to stay on your own investing course. Boring and slow often is the way to wealth. These market success stories that trickle into the mainstream media are there to grab your attention.
For every person that’s winning big, there’s also someone on the other side of that coin that may have lost their shirt. You rarely hear about those stories because they are not “newsworthy”.
Some people have higher risk tolerances than others. It’s ultimately up to you to determine whether you can stomach the volatility of some of these individual stocks. Is it worth the stress? Can you sleep soundly at night?
As for FLA, we are going to continue touting the index funds that have produced sound returns since the beginning of the stock market. The great news is that we don’t have to be the world’s greatest investor to benefit from this phenomenon. I mean, if FLA lucked his way into this, I think the rest of us will do just fine.
With some of the index funds, you can also rationalize that you do in fact own a small portion of GameStop via the index, along with every other stock in the U.S. market. At least, that’s how I help myself sleep at night.
With enough time and patience, nearly every investment you hold can turn into a money printing machine. And that’s when the compound interest starts to go crazy.
End Game for GameStop Stock
The GameStop C-Suite and board of directors are indeed shareholders of GME and are most likely in awe of their stock’s dramatic increase. We can be sure they have had intense meetings to decide on the next company maneuver.
As of the recent short squeeze, there are simply not enough shares of the GameStop stock to meet the demand in the market. That’s exactly why the stock has skyrocketed. But if GameStop can fill this gap, by raising capital, selling stock, and supplying shares to the market, then they will make a hefty profit.
However, given that the shareholder base is a bunch of teenagers from a subreddit, GameStop should know better not to take money from these people at $200+ per share, let alone the huge commissions that will probably go to Wall Street in a capital raise like this.
All in all, this business is unlikely to support such a high valuation. GameStop is not suddenly the new Facebook, Apple, Amazon, Netflix, or Google. It’s still mostly a business that derives its value from brick and mortar stores in malls. If you look around, you know that this is not exactly a big growth area in the coming years.
The WSB community has made a quick buck from the power of technology and online forums, but will it change the way Wall Street operates in the future? I doubt it. To be determined.
These amateur investors have also targeted other heavily shorted names including AMC Entertainment and Bed Bath & Beyond, leaving Wall Street analysts’ targets in the dust.
Robinhood has now restricted users from buying GameStop, AMC, BlackBerry, Nokia stock to stop the madness. I do not see how Robinhood remains unscathed after limiting its users like this.
Disclosure:I / We have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. This site does not receive direct compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
What are your thoughts on the GameStop frenzy? Let me know in the comments below.
The DISC personality assessment shows us that there are four main quadrants or variants of personality, consisting of Dominance, Influence, Steadiness and Conscientiousness. Which category do you fall under? More importantly, how does your DISC personality affect your spending habits?
The four main DISC personality types stem between two dichotomies: Active or Passive, and Task-Oriented or People-Oriented. When combined in different ways, you get a person who responds drastically differently to a particular conversation, assignment, task, environment, or anything else.
A research white paper done by Bill J. Bonnstetter, Dave Bonnstetter and Ron Bonnstetter, PhD examines 10 different countries and their DISC profile makeup. The following chart conveys how the United States DISC profiles have changed over the last 20 years.
Though it may seem shallow and superficial to categorize all human beings into only 4 categories, it really is remarkable how the combination of nature and nurture effectively influences your overall behavior.
It’s also important to remember that the DISC personality is not meant to judge, but it is intended to be utilized as a useful tool to help you deal and work with others that may or may not have the same personality as oneself.
Let’s take a look at each personality style and how it affects your spending habits.
The D-personality type characterizes people who are Direct, Decisive, and Determined.
They are both Active and Task-Oriented.
D-types ask the “what” questions, “What is the bottom line?” or ” What is in it for me?”
Those with the D (Captain) personality type, also known as Type A personality, tend to be assertive, intense, and ambitious. They are usually pragmatic, results-oriented executors who work quickly and make decisions with firmness and objectivity. With a position on the top left of the DISC, Captains prefer more independence and may be drained when others expect them to be more collaborative.
The D-type of person is most concerned with deadlines. These natural born leaders are afraid of running out of time. It’s very important for them to feel like they are in control to get things done.
Core Belief: I’m valuable if I can produce.
Here are some examples of famous celebrities with the Dominance (D) personality:
Franklin D. Roosevelt
Robert De Niro
Money Strengths: Dominant people love to take action. When you shop, you get things done efficiently. In-and-out. That’s also a great trait to have when others are fearful, let’s say, during a market correction. You’re not afraid to pull the trigger on buying an equity on-sale.
Money Improvement Plan of Action: You can be impulsive at times. Take a step back and take notes from observing your C-type counterparts. Do more research before blindly diving into investments you don’t fully understand. Take a breather and plan out a detailed budget. Once you lay the groundwork, you are ready to continue your “Go-Go-Go” attitude!
The I-personality type characterizes people who are Interactive, Imaginative, and Involved.
They are both Active and People-Oriented.
I-types ask the “who” questions, “Who is at the meeting?” or “Who else uses this?”
People with the I (Motivator) personality type tend to be enthusiastic, cheerful, and outgoing. They typically have an easy, relaxed, casual manner when speaking or interacting with others.
The biggest fear of each group can indicate a lot about that person. For example, the I-style’s biggest fear is rejection. It’s sort of an irrational fear because in many ways, the social butterfly I’s are the life of the party that bring a positive mood to the group or party.
Core Belief: I’m valuable if I can attract people.
Here are some examples of famous celebrities with the Influence (I) personality:
Dick Van Dyke
John F. Kennedy
Money Strengths: Shopping is often a social activity for you. The positive spin here is that you know you’ll be making purchases you feel good about because you’ll have the affirmations of your friends, family, or significant other.
Money Improvement Plan of Action: Although, the 30% off deal on shoes may make you feel warm and fuzzy internally, you tend to go overboard and discover as many deals as you possibly can. Keep shopping a social event but bring a friend to hold you accountable to a limited number of purchases. Then, you will have leftover money to spend on other social activities that bring you joy, like a family-style dinner or even going out for a night on the town.
The S-personality type characterizes people who are Sympathetic, Stable, and Sweet.
They are both Passive and People-Oriented.
S-types ask the “how” questions – “How are we going to do this?” or “How does this impact us?”
People with the S (Supporter) personality type tend to be calm, patient and respectful in their interactions with others. Rarely angered or excited, they are likely to work to maintain a peaceful and harmonious environment.
S-styles greatest fears are conflict and instability. In fact, S-styles worry about inconveniencing others or being a burden. Stability is important to S-style so it’s imperative to give them what they want. Contrary to how the S-personality thinks, conflict can be productive and healthy when working through prevalent issues.
Core Belief: I’m valuable if I can help others.
Here are some examples of famous celebrities with the Steadiness (S) personality:
Lana Del Ray
Michael J. Fox
Money Strengths: You live and die by the motto “If it ain’t broke, don’t fix it”. This is a great money-saving mindset when it comes to everyday consumer goods. Many highly regarded brands also reward these types of loyal customers with discounts and other types of dependable deals. The S-types are also aware that wealth building takes consistency – you invest periodically in the income producing assets, even when things get hectic and markets may be uncertain.
Money Improvement Plan of Action: Change can be hard for you. Although you like to stick to your guns, it can be advantageous to take the road less traveled sometimes. Look outside your comfort zones for other creative ways to invest and reduce your liabilities. And don’t be afraid to buy a new tube of toothpaste; no one should be putting in that much effort to squeeze out the last drop.
The C-personality type characterizes people who are Calculating, Competent, and Cautious.
They are both Passive and Task-Oriented.
C-types ask the “why” questions – “Why does it work this way?” or “Why is this step needed?”
Conscientiousness is the personality trait of being careful, or diligent. Conscientiousness implies a desire to do a task well, and to take obligations to others seriously. Conscientious people tend to be efficient and organized as opposed to easy-going and disorderly.
People with the C-personality type tend to be objective, skeptical, and logical in their behavior. They are usually fiercely pragmatic and frequently solve problems with an analytical, fact-driven approach. They are likely to be more reserved in groups and may take a long time before they build enough trust to open up.
A C-style person’s greatest fears are ambiguity and criticism. C’s are the biggest critics of their own work as they are often perfectionists. He or she always needs more time to perfect his or her craft. Make sure not to rush these C-types, as this is often their biggest pet peeve. Sometimes, it is necessary to constrain their time otherwise they may be working endlessly until the end of time. Prevent any distractions that may impede their ability to accomplish the desired task.
Core Belief: I’m valuable if I am competent.
Here are some examples of famous celebrities with the Conscientiousness (C) personality:
Money Strengths: You are thorough and careful, which helps to avoid falling for any get-rich-quick schemes. If there’s a stock you’re interested in, you’ve kept a watchful eye on the equity for countless days and have conducted all the research you possibly can conduct to minimize risk. You meticulously weigh the pros and cons before making any purchases.
Money Improvement Plan of Action: Your hesitance and precaution may be a downfall that leads to analysis paralysis. You may have missed a few once-in-a-lifetime shopping deals or stocks at an all-time low price because you were not 100% certain at the moment. While these regrets may haunt you, fret not as you can still adapt to be more decisive in the future. You always think you need more time to analyze the good and the bad. The truth is that there never is a truly “right time”. Don’t get caught up in the details; Carpe diem and chase your fiscal goals without delay!
From the above infographic, C-Suite employees have predominantly the same style personalities regardless of their country of origin. CEO’s and CFO’s in many different companies had D as their dominant personality style. Findings in the U.S. yielded similar results.
Albeit, D’s may be more geared to climb the corporate ladder, but every personality style has the capacity for excellent leadership. Moreover, every personality style lends itself to a different, but equally beneficial, leadership style.
COVID Effect on DISC Personality
The COVID-19 global pandemic is affecting every person differently. It can help to realize how you are handling the consequences.
For instance, an analytical C-style person may want to dive into the precise numbers and daily updated stats of the virus.
On the other hand, the I-style person may feel neglected and miserable from lack of social interaction with friends and loved ones.
Maybe the D-style person is demanding too much from his or her spouse and has too high of expectations of his or her kids to complete all of their schoolwork in a timely manner.
Finally, the S-style individual may have taken on a workload they can’t possibly handle, but will suffer in silence because they want to please everyone around them.
Everyone has unique reactions to problems and issues they encounter day in and day out. It’s important to realize how we can help each other cope with the pandemic ramifications.
DISC Personality Interaction
As you would expect, the opposite personalities clash the most (i.e. D’s clash with S’s while I’s clash with C’s.)
Unsurprisingly, adjacent personalities get along more (D’s with I’s and C’s, I’s with S’s and D’s, S’s with I’s and C’s, C’s with S’s and D’s).
No matter how unique our parents or teachers tell us we are, each one of us can be categorized into four categories. At times, we may wander from one quadrant to the other depending on the situation or location (i.e. at work vs. at home), but our fundamental personalities are predominately anchored to one of the DISC letters.
Having the DISC personality information at your disposal allows you to effectively interact with different types of people as well as you possibly can. Once you can understand personalities, you can begin to depersonalize behaviors and realize a person is acting predictably based on the situation he or she is presented with.
As a result, one may decrease frustration, miscommunication, and error in judgement. This allows you to have more empathy and to improve relationships with friends, family, colleagues, and even strangers.
Where Does Your DISC Personality Fit In?
If you want to find out what DISC personality you have, feel free to take a free 5 minute DISC test right here (No email address or personal data required).
The test only consists of 28 groups of four statements.
For each group of four descriptions, you should have one most like you and only one least like you. Very simple and fun!
Which DISC Personality style are you? Let me know in the comments below.
Welcome to the 1st FLA Guest Blog Post! Today we explore what you should do with credit card debt when you are laid off. Thank you to Bethaine from Debt Consolidation US for sharing these helpful answers to a frequently asked question.
She freely shares her magical money secrets to climb out of debt – which really aren’t too magical or secretive – that helped her build her net worth tremendously.
What Should You Do with Credit Card Debt When You Are Laid Off?
The first and most important matter is you need a good survival plan immediately when you are laid off and need to cope with the credit card debt.
In the case of the ‘Layoff’ scenario, the importance of a good survival plan is very necessary. Usually, the layoff order does not give you enough time to control your finances.
For the present condition, your goal must be to chalk out a survival plan for you and your family until you get a new job again. Along with it, you must check yourself from falling into a huge debt hole and take care of your credit score as well.
In this article, the intention is to brainstorm a plan for you so that you can survive your layoff as well as cope with your credit card debt.
1. You Can Pay Off Just the Minimum Amount Now
Usually, it is a bad idea to pay off the minimum amount on your credit card debt. Nonetheless, this idea will work for you when you no longer have a job.
Thus, the better option for you will be to pay off the minimum amount rather than paying almost nothing.
If you pay nothing, then the credit card companies may charge penalties, fees, and fines against you and it will most likely negatively affect your credit score.
It will be better for you to pay off at least the minimum amount for now. Further down the line when you can generate steady income again, you can then pay off more than the minimum amount.
By this strategy, you can salvage your credit score, get protection from late fees and fines, and won’t get any pesky calls from debt collection agencies.
2. You Can Negotiate an Agreement with Your Credit Card Firm
People often forget: everything is negotiable. After all, exchange of money is just a barter system.
You may contact your credit card firm and state your case to their representative regarding your present financial condition.
Nowadays, overseeing the current COVID-19 situation, many credit card companies are offering special assistance programs for those who are laid off due to Coronavirus.
With the special assistance program, you can come into an agreement with your credit card firm so that you can skip the monthly payment for a few months, waive your credit card interest and you may get other benefits also.
You have to get in touch with the credit card firm to get the special assistance that is only available in the pandemic time period.
3. You Should Try to Create a Family Budget and Continue Your Daily Expenses According to It
Creating a strict family budget and continuing your daily expenses according to the budget, can be a useful way to cope with credit card debt.
A strict family budget will decide for you what you need in your life now and where you can stop spending. This may, in turn, prove that some of your superfluous spending is surprisingly a luxury for you.
A budget may help you with some extra saved dollars that you can use to pay at least the minimum amount every month of your credit card debt.
4. You Can Consider the Credit Card Debt Consolidation Option to Tackle the Debt Burden
You can easily opt for the credit card debt consolidation to consolidate or merge all your credit card debts and make it into a single payment.
The balance transfer card can be another option for you that you can choose. You can transfer all your credit card dues to the balance transfer card.
With a balance transfer card, you may get a 0% interest promotional offer for 6 months to 18 months. You have to pay off your credit card dues with the benefit of a 0% interest rate and that is within 12 to 18 months.
Therefore, you can repay a major portion of your outstanding balance without paying any interest rate.
Thus, you can apply either the credit card debt consolidation method or the balance transfer card method to repay your credit card debt when you’re going through the inauspicious layoff situation.
5. The Wise Decision Will be to Shun Using Credit Cards for a While and Use the Cash Payment Option
In normal times, people use credit cards more than cash payment because,with credit card buying, you may get several rewards and points that are not possible with normal cash payment options.
But this restriction-free-buying mode has a negative side too. With the lure of rewards and offers, we sometimes spend more balance than our given necessity.
The ultimate result is you have to bear the debt burden on your shoulders.
So, when you are out of a job and your earning avenues are limited, return to the traditional cash-payment method.
It will keep you within a spending limit and you’ll be saved from any type of additional credit card debt burden.
These are the 5 ways that you can choose to take action when you are unemployed, concerned about your retirement, and the stress of how to repay your credit card debt is gulping you.
What Can Be Your Last Resort If You Are Completely Unable to Pay Off Your Credit Card Bill?
According to financial experts, when you are unemployed and don’t have enough savings even for paying off the minimum credit card amount, you can opt for the bankruptcy option.
You may get some immediate relief by choosing the bankruptcy option, but experts always recommend using the bankruptcy option as your last resort.
You may file bankruptcy under Chapter 7 and Chapter 13 under the bankruptcy act, but beware of the negative effect because bankruptcy may damage your credit for the long-term.
The best option is at least you should try to pay off the minimum amount on your credit card debt. At this fundamental point, you can avoid any late fee charges, penalties, etc. You should not try to avail of the bankruptcy option as your first option. Later when your financial situation will improve again, the best course of action is to try and pay off your credit card debt in the standard way.
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