Fees In Mutual Funds

Mutual Fund Fees

Mutual funds are the most popular choice for diversified funds in today's marketplace (though ETFs are fast on the rise, and MLP’s, REITS, BDC’s can be better due to having both dividend and value growth potential). However, for all of their popularity, some investors still do not fully understand the fee structure and all of the possible charges that can be associated with investing in one of these products, and this is what I would like to share with you this week.

•Expense Ratio: The most obvious and up-front cost, an expense ratio or management fee, is paid each year to the fund's management team out of the fund's assets. The average mutual fund charges 1.3% to 1.5% each year, which can add up quickly and eat up your position over time.  When stated as a percentage of assets, average fees do look low — a little over 1% of assets for individuals and a little less than one-half of 1% for institutional investors. But the investors already own those assets, so investment management fees should really be based on what investors are getting in the returns that managers produce. Calculated correctly, as a percentage of returns, fees no longer look low. Do the math. If returns average, say, 8% a year, then those same fees are not 1% or one-half of 1%. They are much higher — typically over 12% for individuals and 6% for institutions.

•Transaction Fees: Most funds will charge a fee when making your initial purchase and some will also charge a redemption fee, which comes when you sell the fund. Both of these fees are paid to the fund, making them different charges than the next two items on our list.

•Front-end Load: This is a fee charged at the purchase of some funds; it is paid to the brokers that sell you the product. A front load is usually charged as a percentage and comes out of your initial investment. If you were to buy $10,000 worth of a fund that charged a 3% front-end load, $300 would go to the broker, while $9,700 would actually be invested.

•Back-end Load: This works the same way as a front-end fee, but it is charged when you sell certain funds. Back-end fees typically taper off as time goes on; for example, the fund can charge 3% if you sell within one year, 2% within two years and so on. These typically won't hurt a long-term investor, but they can be a nasty surprise if you need to exit a position earlier than anticipated.

A no-load fund sells its shares without a commission or sales charge. Some in the mutual fund industry will tell you that the load is the fee that pays for the service of a broker choosing the correct fund for you. According to this argument, your returns will be higher because the professional advice put you into a better fund. There is little to no evidence that shows a correlation between load funds and superior performance. In fact, when you take the fees into account, the average load fund performs worse than a no-load fund.

•Account Fees: Certain companies will charge investors an account fee, which is a cost associated with the maintenance of an account. These include necessities such as postage, record keeping, customer service, cappuccino machines, etc. Some funds are excellent at minimizing these costs while others (the ones with the cappuccino machines in the office) are not.

• The last part of the ongoing fee (in the United States anyway) is known as the 12B-1 fee. This expense goes toward paying brokerage commissions and toward advertising and promoting the fund. That's right, if you invest in a fund with a 12B-1 fee, you are paying for the fund to run commercials and sell itself!

  Not all mutual funds will incur the aforementioned fees, and there are plenty of options that manage these costs quite well. Still, investors should watch out for the fee structure associated with any mutual funds they purchase and be sure that they understand the costs associated with the investment. If a fund has a fee structure that you are not comfortable with, try looking into ETF’s, REITS, MLP’s & BDC’s, those products are often more cost effective and still offer most of the advantages associated with mutual funds, to include dividend growth and greater value growth potential.

Happy Investing

Suburbantrader.info

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

Rip Offs

I’ve shared with people that I talk to for years that I thought that the typical 401(K) plan was a rip-off, a path to mediocrity.  One important key to investing is to monitor your investment expenses and if you begin to look into your 401 (K) holdings that would be an excellent place to start.  For most of you that don’t know that not only are 401 (K)’s predominantly mutual funds, but that mutual funds normally offer two types of shares and they are Institutional and Retail shares.  The main differences between the two are the fees.  In the event you make the wrong choice on which ones to purchase you can say goodbye to huge amounts of your money. 

   There is a case going on at the Supreme Court in Washington that involves $3.8 billion in assets and some 20,000 folk that would like to retire.  The goal of the court is to decide whether the plan’s sponsor, EDISON INTERNATIONAL (NYSE: EIX), is at fault for purposely putting its employees in high-free retail shares in order to slash the company’s administrative costs by $8 million.

   Why is the Supreme Court interested in this case you ask?  Mainly because what has happened at Edison, happens across the financial world daily.  Unsuspecting investors subsidize the wealth of the well-informed.  The uneducated investors believe that the “institutional” shares sound like something that only the likes of a Goldman Sachs or a Berkshire Hathaway have access to, however that idea is completely false.  In the case for many funds, the only qualifying factor is the minimum investment.  There are some retail shares that may have a minimum investment as low as $500, however, if you have $10,000 to invest (and sometimes less), you can get the so-called institutional shares.  The shares and the management of the shares are the same but the differences in the fees are huge.  The Oxford Club uncovered one that had a low 0.05% in annual fee for its institutional shares but the ones that purchased the retail shares were hit with a 0.17% in management fees.  As you see over the course of your investing towards retirement the compounded difference is tens of thousands of dollars.

   The writers of the Oxford Club were given access recently to an eye opening report prepared by some of the nation’s top financial scholars.  Professors Ian Ayres of Yale Law School and Quinn Curtis of University of Virginia just released a paper called “Beyond Diversification: The pervasive Problem of Excessive Fees and Dominated Funds in 401 (K) plans.”  A full 16% of the plans the duo studied had fees so high that “young investors would be better off forgoing tax benefit and investing in stand-alone funds.”  This is what we at Suburban Trader suggest then set up a Trust Fund.  Even worse, they saw that several plans offer mutual funds with negative guaranteed interest rates.  It is amazing what a little research can turn up, so many people have 401 (K)’s that have fees that are so exorbitant that the supposed tax savings are destroyed.  Fees are so high that the only person getting rich from the plans are the folks selling the mutual funds.  If you like your 401 (K) fine, but do some research of your own and look at some low cost options.

Great Investing.

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

Natural Gas

   I told several people a few years ago that this was going to happen but they didn’t believe me then, now here is a little proof of what is going on around us. If I were to ask you to name the state with the fastest year-over-year natural gas production growth, which would you guess? Since most people may not know let’s get right to the answer. It's Pennsylvania. Marketed natural gas in the Keystone State grew an eye-popping 72% from 2011 to 2012. That moved it from the seventh- to the third-largest gas-producing state in the U.S.  The state of North Dakota is now number two just behind Texas as the largest oil producer in the U.S. and has more jobs available than people to work.

  Pennsylvania's gas is coming from the Marcellus Shale deposit, which runs through the central part of the state from north to south. Production in the Marcellus began only five years ago. But now it produces about 18% of all natural gas in the U.S. The fact is, as the U.S. Energy Information Administration (EIA) reports, "Marcellus production alone accounted for 75% of all production growth over the past year in the six basins covered in EIA's recently released Drilling Productivity Report (DPR), which highlights the latest regional trends in drilling, completion, and production from gas- and oil-producing wells."

  An even more amazing fact is that if Pennsylvania's Marcellus Shale field were a country, it would be the world's eighth-largest natural gas producer. Incredibly, it now out produces Saudi Arabia. The production at Marcellus has shocked experts like Sam Gorgen of the EIA and Terry Engelder, a Penn State University geologist. Engelder, a leading researcher of the formation, predicted that Marcellus production wouldn't hit the 12 Bcf/d rate until 2015. So much for that... the Marcellus is already there. Marcellus production has already surpassed 14 billion cubic feet per day (Bcf/d).

 At present the Marcellus' production is equivalent to about 550 million barrels of oil per year. The growth rate in new-well gas production per rig continues to rise, even as exploration and production (E&P) companies drill more of them. Why is this? With each well drilled, E&P companies gain a greater understanding of the underlying geology. They combine that knowledge with continually improving fracking techniques. The result: a continual rise in well production rates.  This growth in production rates is likely to continue in the future. That will mean a faster and higher rate of return on Marcellus wells. It also means drillers can make money even with natural gas prices at today's low levels.

  We have a couple of companies that we have in our portfolio that are involved in the movement and drilling for natural gas and we will be adding two more to our portfolio for our subscribers today.  Out of consideration to our paying subscribers I’m unable to reveal their names, however, the good news for you is that they are not the only ones drilling in that area or involved in the production of natural gas.  Being that it’s in your back yard don’t miss out on a great opportunity to cash in on it.

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

Investment Idea

One of the biggest myths to me in investing is the old adage, buy low and sell high.  I’ve made money by always favoring the stocks that have rising prices.  While buying a stock at a lower price makes a lot of sense, it can still be misleading. I remember I had an opportunity to by Toyota from $30 a share up to it finally reaching $82 a share, I purchased it at $82 and some change about two years ago and it sets at around $114 a share today.  One of the reasons I don’t necessarily look for a stock when the price is at a low point is because you never know when the stock is going to hit its bottom.  When you purchase your stocks on the way down it lessens your chances of winning.  Most investors dream of buying a stock at its low point and riding it to the stars, that’s a fantastic desire but very seldom happens. Choosing stocks with rising prices not only obviates that problem but offers several advantages.  One of the main things is that in buying a stock that is rising in price is the fact that it is already doing what you want it to do; go up.  Also, a stock that is hitting new highs has essentially no overhead resistance.  In a book by Bart Diliddo, PHD “Stocks Strategies & Common Sense,” he teaches on buying stocks after they have hit their 52 week high.  It is at this time that the stocks have had plenty of time to consolidate, and are showing new signs of life.

Always, if you’re looking at doing this on your own, pick safe stocks and undervalued stocks with rising prices.  Here are some steps in his book that I’ve found to be helpful in finding great stock picks that you want to rise in share price and not necessarily looking for a dividend:

1. Look at the financial section of your local paper, the Wall Street Journal, Investors Business Daily Barrons, the internet.  Find the list of stocks that have just hit new 52 week highs.  All of these stocks are definitely rising in price.
2. Rank all these stocks in ascending order of Price to Earnings ratio, P/E ratio.  While this may take some work on your part.  Look for low P/E ratio stocks of course, they are undervalued.
3. Assess each stock for safety.  To do this look at Standard & Poor’s Stock Guide, Yahoo Finance.
4. Finally put all the information together in a logical, unemotional way.  Pick the ones you think are the safest, most undervalued and rising in price the fastest.

Common sense and simple logic dictate that picking safe, undervalued stocks rising in price should result in above average performance.  If you don’t have the time we can do it for you with a subscription to Suburban Trader; it is only $10.99 a month for our weekly and bi-weekly stock picks.

Happy Investing

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

Attitude

Attitude

 

 A little girl walked to and from school daily.  /though the weather that morning was questionable and clouds were forming, she made her daily trek to school.  As the afternoon progressed, the winds whipped up, along with lightning.  The mother of the little girl felt concerned that her daughter would be frightened as she walked home from school. She also feared the electrical storm might harm her child.

 

  Full of concern, the mother got into her car and quickly drove along the route to her child's school.  As she did, she saw her little girl walking along.  At each flash of lightning, the child would stop, look up, and smile.  More lightning followed quickly and with each, the little girl would stop and look at the streak of light and smile.  When the mother drew up beside the child, she lowered the window and called, "What are you doing?"  The child answered, "I am trying to look pretty because God keeps taking my picture."  

 

Thought: Face the trials that come your way with a smile of hope!  Churchill says, "Attitude is a little thing that makes a big difference." 

To Your Blessings and Successes!

Five Investment Risks

This week is a short one; I just want to quickly share with you Five Investment Risks to avoid and an allocation of stocks structure.

Here are Five Major Investment Risks to avoid:

1. Being too conservative. This means your net worth doesn't grow fast enough to exceed inflation or meet your investment objectives.

2. Being too aggressive. Extreme optimism is a benefit in the business world but can be your undoing in volatile financial markets.

3. Trying and failing to time the market. Remember that there are only two types of market timers: those who don't know what they're doing and those who don't know they don't know what they're doing.

4. Using expensive fund managers who underperform their benchmarks. As more than 95% of them do over a decade or more. ETFs and Vanguard index funds are effective, low-cost and tax-efficient.

5. Unwise delegation. Bernie Madoff and his ilk can't run off with money they don't manage.

If it is one thing that we have learned over the years at Suburban Trader is not to try to analyze and follow the right predictions, but make sure that we are following the right principles.  As one of the great investors in this present time Alex Green, we always attempt to asset allocate properly, diversify broadly, minimize our taxes and expenses and rebalance annually.  The following is a good asset allocation to look at when purchasing stocks that pay dividends or any stock for that matter.

 The first asset allocation exercise you should do with your dividend portfolio is to look at all the economic sectors which is the foundation of Suburban Trader’s  portfolio:

Basic Materials

Communications

Consumer, Cyclical

Consumer, non-Cyclical

Energy

Financial

Industrial

Technology

Utilities

Ideally, a good dividend asset allocation would include dividend stocks from each sector, which is how we do. Therefore, you are not only picking solid dividend payers but you also invest in different sectors that will react differently to economic cycles. This will allow you to have a smoother investment return over the long run.  Now after looking at the different sectors you might also want to look at different countries.  It easy to trade Canadian stocks here in the US and they are known to pay higher dividends than the US in their Energy sector.  And no matter what sector or country do not forget to always set at least a minimum of a 25% trailing stop.

To your Investing Success

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

Suburban Trader

INFRASTRUCTURE

One of the things that the President mentioned last night during his address was the fact of building up our infrastructure; while that is good news as investors we need to be careful in the way that we may invest in order to capitalize on it. Infrastructure alone is no precursor to economic growth. The late British economist Peter Bauer pointed out in his extensive research that infrastructure alone is insufficient to assure growth. According to Bauer, infrastructure develops in the course of economic development, not ahead of it. In other words, economic development and infrastructure develop in tandem, with growth powering infrastructure spending. To build, and then to expect “they” will come, is folly. Build a magnificent urban infrastructure in Antarctica and that's all that will exist. Infrastructure arises as needed; infrastructure follows, it doesn't lead. This is no matter of small importance: To be a successful investor you must understand the economic consequences of your investments. If you don't, you invest at the whim of speculators.

The problem with many infrastructural investments is that they adhere to a one-and-done paradigm. Sustained value is difficult to gauge. Once a bridge is built or a road paved, that's it. Contractors must scramble to ensure another bridge to build or road to pave is in the waiting. Concurrently, they must maintain the expensive fixed capital to ensure they can build or pave if a bridge or road is in the waiting.

The safer course is to invest in infrastructure that creates value, and then does it repetitively on the initial investment. After all, it's riskier to continually find new projects than to continually tap established projects for revenue, earnings, and cash flow. In other words, the infrastructure company itself must have a stable infrastructure. In looking at that we believe that we have found such a company this week for our members that meet those criteria. The company itself has a stable infrastructure, it has a 27% upside potential over the next 12 to 18 months and at present it boasting a 6.61% dividend yield with the potential of increase, and its paying .87 a share.

Remember you can’t make income if you don’t get in the game and play.

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

Suburban Trader

Let's get this year started off with a bang; change our thinking and doing habits.

Go from whining to winning

Go from lukewarm to "On Fire."

Go form security to opportunity.

Go from fear to faith.

Go from resisting to receiving.

Go from thinking of yourself to thinking of others.

Go from complaining to obtaining.

Go from drifting to steering.

Go from burnout to recharged.

Go from failure to learning.

Go from regrets of the past to dreams of the future.

Go from frustrated to focused.

Go from ordinary to extraordinary.

Go from defective to effective.

Go from despiteful to insightful.

Go from being a problem to being an answer.

Go from a copy to an original.

Go from envying others to serving others.

Go from ingratitude to thanksgiving.

Go from faultfinding to forgiveness.

Go from criticism to compliments.

Go from alibis to action.

Go from procrastination to progress.

Go from hesitation to obedience.

Go from blending in to standing out.

Go from fractured to focused.

Go from taking to giving.

Go from wishing to wisdom.

Go from quitting to starting.

Go from late to great!

Taken from "Expect to Win", John Mason.

Make this year the best, not in multiplying material things but in multiplying the knowledge you gain in becoming a better you and enhancing the life of those around you.

In the last few weeks it would appear as if our bull market is slowing down.  Don’t sweat it, it isn’t; it is going into a sideways market which is normal and no cause for alarm.  Especially when you are purchasing stocks that pay dividends, it gives you the opportunity to pick up on some good paying stocks that may have been moving out of your purchase price reach.  Also remember if you are a little scared don’t forget to place at least a 25% Trailing stop behind each position.

While most people either don’t know or just like to invest in the market upon pure speculation; investment Guru Bill Gross in a statement due to the market climate backs dividend stocks. 

PIMCO's legendary Managing Director, Bill Gross, a world-famous investment analyst, recently published an Investment Outlook column, called "Investment Potions."

"Stock P/Es will rest at lower historical norms, and higher stock prices will ultimately depend on tangible earnings growth in the form of increased dividends, not green shoots hope. An investor should remember that a journey to 3% nominal GDP means default/haircuts for assets on the upper end of the risk spectrum, as well as extremely low yielding returns for government and government-guaranteed assets at the bottom end. There is no investment potion for this new environment other than steady income-producing bond and equity investments in companies with strong balance sheets and high dividend yields, as well as selectively chosen emerging market commitments where nominal GDP growth prospects are tilted upward as opposed to gravitating to new lower norms."

Bill Gross, Managing Director of PIMCO

Here is another quick added thought: If you start investing through mutual funds, which is what most 401K’s have, you will most likely start your investing journey at -2%. This is because you will have to pay roughly 2% in fees to a portfolio manager that will be trading for you.  On the other side, if you buy a 3% dividend yield stock, you start your investing journey at +3%.

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

Suburban Trader

A Napoleon Hill Thought

 

 

"If you want a job done promptly and well, get a busy person to do it. The idle one knows too many substitutes and shortcuts."

Most of us will never know our true capacity for achievement because we never challenge ourselves to perform at our best every day. This truism becomes apparent when you are presented with an opportunity that really interests you. No matter how busy you may be, somehow you will find the time to pursue it. Conversely, duties that have little appeal for you are easily postponed and eventually forgotten. Busy people are not procrastinators. They know that life, as John David Wright once observed about business, "is like riding a bicycle. Either you keep moving, or you fall down." The most effective people have a sense of urgency. They set deadlines and force themselves to establish priorities. Even if your activities don't usually require strict deadlines, set them for yourself. You will be amazed at how much you can accomplish in a short time - if that's all the time you have.

I shared with you in an earlier writing that I bought Twitter when it opened on the market.  A neighborhood friend and I were sharing on Facebook about the purchase, I had purchased it at $47 a share and it went down and he purchased it at around $43 a share.  At the time of the market close on 12/17/13 Twitter was setting at $59 a share, not bad for a play.  This week I’m starting to do some Dividend Capture’s for a few of my subscribers, here is a little information on how that works.  A stock may pay a quarterly dividend and have 4 ex-dividend dates in a calendar year.  The ex-dividend date is mentioned when a dividend payout announcement occurs. Even if a company is known to pay regular dividends, they must make payout announcement each time they issue a dividend. The ex-dividend date is the date that’s exactly two business days prior to the date of record. What this means is that the firm that is giving out the dividend establishes and figures out exactly which individuals are entitled to receive a dividend from the company.  If you’re one of the investors that purchases the stock before this specific date then you are entitled to the dividend when it comes out.  If you purchase the stock on this specific date or the time after it, then the previous owners are entitled to the dividend payout when it arrives. He will receive the dividend payout in cash even if he doesn’t hold the position at the time of the dividend issue. What is important is to know if you are holding the shares prior to the ex-dividend date, not when the dividend is paid.

Investors often ask “why own the stock for the entire 365 days in the year when technically you can own it for 4 days in the year to capture the dividends?” So one of them has $10,000 to invest and the other one has $1,200.  Because on the ex-dividend date the stock will periodically lose the amount of the dividend per share the one investing the $10,000 for a particular stock will make after all is said and done around $700 and the one investing in the same stock with $1,200 will make around $90.  Not bad for a quick safe 4 day investment.  There are a few people that do this monthly with around $4,000 and average making around $10,000 or better a year with their consistent $4,000 investment two to three times a month.

Safe Investing

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

Suburban Trader

 

If you want to make quick money in the market other than investing in guaranteed money from dividends you could also look at trending.  One of the sleeping trends now is Pharmaceuticals.  Pharmaceuticals are slotted to make big swings after the ACA, (Affordable Care Act), gets into full effect.  The reason is due to more people having access to insurance there will be a doubling affect on the purchase of prescription Meds, just our thoughts at Suburban Trader and we are in this week with a pick for our subscribers.  The stock is at $68 a share, but, I slept a year ago with several opportunities to by Toyota at $6, $20, $30, $60 and finally $80 a share.  I reluctantly bought some shares at $82 a share and it is trading now at $128 as of last week.  High or low it is not the price that I'm concerned about, with this strategy I'm only concerned about the trend.

Timeless Advice from Jesse Livermore, from the blog A Wealth of Common Sense.

“Whenever I have lost money in the stock market I have always considered that I have learned something; that if I have lost money I have gained experience, so that the money really went for a tuition fee. A man has to have experience and he has to pay for it.” - Jesse Livermore

Reminiscences of a Stock Operator by Edwin Lefevre is an investment classic that often finds its way onto the short list of best investment books ever written.

It’s not a get rich quick or how to kind of book. It simply chronicles the investing exploits of one of the most famous Wall Street traders of all-time, Jesse Livermore. It’s amazing how well this book holds up today considering it takes place during the late 1800s and early 1900s.

The book was actually first published in 1923.

Livermore made his first trade at the ripe age of 15. He started small but ended up making and losing millions throughout career as a professional trader.

My biggest takeaway from this book isn’t just that Livermore was an insanely smart trader (he was); it’s that his biggest advantage over the other side of his trades was that he understood human nature.

And even 100 years or so later, human nature still rules the markets and can lead to manias and panics. The structure and technology of the markets is different, but really it remains the same because emotions still rule the decisions of investors.

Here is some of the timeless advice from the book along with my thoughts:

Speculation is a hard and trying business, and a speculator must be on the job all the time or soon he’ll have no job. Being a full time trader is extremely difficult to pull off. Being a part time trader is impossible to pull off.

Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. The players may change but not their motives.

Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore. The financial media loves to look for reasons that the market moves up or down on certain days. Most of the time there’s no explanation.

There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily - or sufficient knowledge to make his play an intelligent play.  Doing nothing is a perfectly legitimate strategy the majority of the time with your investments. Livermore was a trader and even he knew that inaction worked most of the time.

It takes a man a long time to learn all the lessons of all his mistakes. I make mistakes all the time, but I’m trying to learn from them. Complex financial markets lead to mistakes no matter how smart or experienced you are. You can be wrong just don’t stay wrong for too long.

There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn! Learning what not to do can be more important than learning what you do need to do to have success.

But not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish. All a man needs to know to make money is to appraise conditions.Markets trade in cycles and sometimes they don’t care about external events.  Valuation, trends, cycles and sentiment determine the direction of the market.

After spending many years on Wall Street and after making and losing millions of dollars I want to tell you this: It was never my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!Patience is a key virtue for investment success.

One of the most helpful things that anybody can learn is to give up trying to catch the last eighth - or the first. These two are the most expensive eighths in the world. Investors get themselves in trouble by becoming greedy after large gains and fearful after large losses. Don’t fall into this trap by making big moves at the extremes.

But the average man doesn’t wish to be told that it is a bull or bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think. Investors love looking for hot stock tips and market timing signals. They don’t exist on a consistent basis. Tactics are context dependent and they don’t last for long.

As a rule a man adapts himself to conditions so quickly that he loses the perspective. He does not feel the difference much - that is, he does not vividly remember how it felt not to be a millionaire. This line of thinking keeps people from saving more as they make more money. Keeping a consistent lifestyle is the key to saving.

Man will risk half his fortune in the stock market with less reflection than he deviates to the selection of a medium-priced automobile. It’s funny, because it’s true.

A man may beat a stock or a group at a certain time, but no man living can beat the stock market! Price is the ultimate judge and jury of the market. Don’t try to be outsmart than the market, especially over the short term.

The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to. Another example of the power of process over outcomes. This is one of the hardest things to do as an investor because you can clearly see your wins and losses, but doing it the right way is the best way to increase your probability for success.

Source:  Reminiscences of a Stock Operator

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

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It is little wonder, therefore, that many people meet with failure throughout their lives, if we stop to consider that nature forces human beings to absorb and become a part of their daily environments. The most important part of any man's environment is his association with other people. If this association is not one of harmony, the inevitable result is failure.

Successful men choose their daily associates as carefully as they choose their food, and they make sure that their environment is harmonious and thus constructive and beneficial to themselves and to others as well. And they spend no time in the company of people who do not contribute something to their welfare!

"Selfish!" some will exclaim. No, not necessarily selfish. Particular would be the better word.  Successful men know that their lives are influenced by those with whom they associate most intimately, and they so arrange their human relationships that they are influenced in a beneficial way.

It is every man's duty to achieve personal success, and every normal person desires to be successful in his chosen occupation. Inasmuch as success is inseparably associated with human relationships, it is an important part of a man's duty to choose his associates with great care.

The successful man may have sympathy for the man who is a failure, but he will not permit it to contaminate his own mind with the defeatist's mental attitude. He will recognize that it would be better for him to suffer loneliness than to associate intimately with those whose minds are contaminated with thoughts of failure and distress

Every great accomplishment began with the germ of an idea in the mind of a great person, then was shaped for practical usefulness and finally transformed into reality. Make your mind a fertile ground for ideas through constant study and learning, and condition through constant practice to discipline yourself to follow through on your good ideas. The most brilliant concept in the world is only a dream unless you take action. Even a mediocre idea that is put into practice is far more valuable than a flash of genius that languishes in a fallow, undisciplined mind.

  

To your Blessings and Success

Annuities cap your Income potential!!

Annuities are mostly sold to people on the notion of safety, and they guarantee your income. If the market goes down, you can't lose money. Now that sounds nice, however, does anyone realize first of all how expensive they are.  Currently, the average annual fee is around 2.28%. Not only is that high, but it's cause has to do with the fact that annuity salespeople receive high commissions.

On top of that, your money is locked up and your gains are capped. (This is a feature that many people don't understand.)  For an example, even though the stock market is up 18% this year, with an annuity, your gains could be capped at 5%.

If you had taken out a variable annuity with 5% caps in 2009, you'd have missed out on over 129% gains during the past four years. Not to mention, if you haven't noticed, Wall Street's good years have always made up for its down years, and then some, to date.

I have a friend whose Husband passed and a friend of hers talked her into an annuity and I was floored at what she said he had told her, but I couldn't get her to listen to me.  There is one form of an Annuity called an ALDA let me share with you the basics of an ALDA. Like a regular annuity, it will pay a defined amount of money over a specified period of time. However, the ALDA will pay out later in life. So for example, you can be 65 years old, pay a lump sum today and start collecting the income stream starting at 80.  The ALDA will be cheaper than a regular annuity because the income collected will likely be less than if you started immediately at 65. But if you die before 80, the insurance company keeps the lump sum payment. You don’t collect anything!

In other words, you’re placing a bet with the insurance company that you’re going to live long enough to recapture all of your lump sum payments in the form of monthly income. As you can see there’s a reason these executives make millions and fly private jets – because they bet the right way more often than not.  Now that doesn’t mean you can’t live to a ripe old age. It just means that financially, an annuity of any kind isn’t designed to work out for your benefit. It was created to generate profits for the insurance company.

I've never been a fan of annuities or any investment where I'm not somewhat in control, or at least have knowledge of what is going on.  That is one of the reason's I share information that I've gained on the Suburban Trader web site and blog.  From the information and knowledge that I've gained over the years that is why the portfolio at Suburban Trader is around 90% invested in stocks that pay handsome dividends.

One interesting book to read is Get Rich With Dividends by Marc Lichtenfeld; it's just one of many but may be a good start for some of our readers.  But let’s get on with the information. If you don’t need the income stream for 10 years or more, buy quality Perpetual Dividend Raisers – companies that raise their dividend every year – and reinvest the dividends.

Here’s the way it would work:

Let’s say you buy a portfolio of quality Perpetual Dividend Raisers with an average yield of 4% and average annual dividend growth of 10%.

If the companies continue to raise the dividend by an average of 10% every year, as we've stated that they have over the past 10 years, and the market generates its historical average return, a $200,000 initial investment will be worth $635,549 in 10 years.

If at that point you need the income stream, you simply stop reinvesting and instead collect the $28,808 per year in dividend income. That is likely 50% more than you’d receive if you invested the same $200,000 in a deferred annuity.

In 15 years, the $200,000 portfolio is worth $1,179,868 and spins off $59,968 per year in income. That’s way better than giving an insurance company $200,000 at 65, hope you make it to 80, and then collect less per month than you would investing in quality dividend stocks.

Even better is that as long as the companies continue to raise the dividend, you’ll get an increase every year, something that won’t happen with an annuity.

So if you’re collecting $59,968 at age 80 and the companies you’ve invested in are raising the dividend by 10% per year, at age 81, you’ll collect $65,964. The next year you’ll receive $72,560, etc. And when you pass away, that million-dollar nest egg will go to your heirs instead of an insurance company’s bottom line.

As you can see, that investing in Perpetual Dividend Raisers is the least expensive method of investing. You get to hang on to and compound your savings rather than pay for an insurance executive’s salary. Furthermore, you’ll make more money than you would with an annuity, and, importantly, your assets will stay with your family.  Marc also writes an article for Seeking Alpha.

 There are hundreds of companies that have been raising their dividend for years. Some, like Procter & Gamble (NYSE: PG), have done so since Eisenhower was president. Others, like Texas Instruments (Nasdaq: TXN), have a 10-year track record.

Also, it would afford you the opportunity to participate in the considerable upside that stocks offer. Is there some risk? Of course, but over 10-year periods, stocks have gone up 91% of the time.  In fact, the only time stocks did not rise over 10 years was if an investor sold during the heart of the Great Depression or Great Recession. The average increase over those 10 years (including the losing years) was 128%. Does an annuity do that?  In actuality, stocks that raise the dividend every year have never been down over 10-year periods, not even including the Great Depression, for which the data was not available. But that does include the Great Recession. In fact, if you sold at the end of 2008, right near the bottom of the market, you still made 40%.

Stocks, particularly Perpetual Dividend Raisers, are not as risky as people think when you're talking about the long term. If you have a 10-year or longer horizon, it's riskier not to be in stocks as your money won't grow and keep up with rising prices.

 

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

Suburban Trader

 

One of the major benefits of investing in dividend paying stocks is their constant cash flow. The cash received from the dividend payments returns investors with a certain return despite what happens to the stock market overall.

 Inflation?

Inflation occurs when a currency becomes worth less. This happens naturally in economies around the world. In the United States, the inflation rate is measured by the consumer price index, referred to as the CPI. The CPI measures the cost of a “basket of goods” each month. Over time, the cost of the goods will slowly rise. According to the Bureau of Labor Statistics, the government organization responsible for measuring the CPI, inflation in the United States has ranged from -2% per month to slightly over 4% per month (at an annual rate) over the last ten years. Other than in the year of 2009, however, it has always trended upward.

 Example of Inflation

Assuming a 3% annual inflation rate (this is an arbitrary number chosen for this example, it is not based on the current inflation rate), the cost of everything you buy is going to rise by 3% per year. If a loaf of bread cost $1.00 at the beginning of the year, it will cost $1.03 at the end of the year. While $0.03 doesn’t sound like a huge number, imagine if you have an inflation of 3% over the next 20 years; your loaf of bred will cost $1.81. Inflation has the reverse effect on financial instruments. If you have a dollar at the beginning of the year and leave it in your wallet, it will still be worth a dollar at the end of the year. However, you will only be able to buy what .97 cents would have bought you at the beginning of the year.

Investing in Dividend paying stocks vs Inflation

This rate impacts your investments as well. If you own shares of a non-dividend paying stock that rises 3% over the year, on the surface you have made a 3% return. 3% is better than no return, but did you really earn 3%? In the situation above, based on a 3% interest rate, you actually came out even. Your 3% gain was cannibalized by the inflation rate.

If you own shares of a dividend paying stock, the situation is different. The dividend acts as a hedge, or protection, against inflation. If you own a stock that pays a 2.5% annual dividend and rises 3% over the year, you have earned a 5.5% annual return. After subtracting 3% for inflation, you have earned a 2.5% annual return. The dividend accounted for your entire return over the calendar year.

Natural Gas

According to Commodity HQ, as fracking continues to develop, and with new reserves being discovered on a daily basis, the world has watched natural gas production surge. Though still a non-renewable resource, natural gas burns cleaner and is cheaper than crude oil. As the world looks to replace dated energy sources, natural gas figures to be an increasingly significant commodity. At the forefront of the NG movement has been the U.S., as its presence in the natural gas world has continued to skyrocket in recent years.

The U.S. is now king of the gas world. In 2011, the country produced 62.7 billion cubic feet per day (bcfd), a record figure. That record was shattered in 2012, when the U.S. showed 65.7 bcfd for the 12 month period, an increase of 4.8% from the prior year. That figure also accounted for approximately 20% of natural gas produced worldwide. For 2013, the U.S. is already on pace to show another production record.

HYPERLINK "http://commodityhq.com/wp-content/uploads/PD-Natural-Gas3.jpg"As production has surged, prices for the commodity have been battered, keeping something of a ceiling on NG. While this has hurt some traders and bottom line revenues for major producers, it has translated into lower energy bills and more money in the pocket of the consumer. The excess in supply has also led to speculation that the U.S. will begin exporting NG to foreign countries as some of the price differentials have painted a prime opportunity.  “US natural gas producers have begun eyeing these markets due to the large differential in price between US natural gas and LNG prices in certain countries” writes Robert Rapier. Rapier goes on to explain that transporting NG products overseas costs approximately $6/MMBtu. Last year saw a price difference between the U.S. and Japan of $14/MMBtu and $8/MMBtu for European markets, leaving plenty of room for U.S. producers to turn a handsome profit.

For our members this week we have looked at several of these companies for exportation of the fuel and have chosen one to place in our portfolio that is poised to do well in this market in the coming years.

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

Investment Strategies

Is there Money Overseas?

While pondering on what to share this week I remembered this  stock that I placed in our portfolio last week to give us some overseas exposure.  It is a stock in a country where most of their companies pay out dividends and at present it has a 10.64% dividend yield.  Dividends from overseas is a great way to diversify some of your holdings by purchasing out of the United States while yet still being able to purchase them on our Exchange. 

Follwing is an article that I would like to share from the Wall Street Journal by Ms Reshma Kapadia and her findings on Overseas investing.  She agrees with me that the stocks that pay the biggest dividends on the market today probably aren't where you think. They're mostly outside the U.S.

Nice steady dividends have taken on a newfound shine in recent years. A company's ability to pay a dividend is "an indicator of management's confidence in the future of the business, which is really important in this climate," says Causeway International Value co-manager Harry Hartford.  Fund managers who focus on dividends and other investment pros say many foreign companies pay bigger dividends than U.S. businesses today.

Companies in Europe have a culture of favoring dividends over buybacks, and an investor base that demands a payout. Companies in Asia and emerging markets in general, meanwhile, increasingly see dividends as an important tool to attract capital and boost confidence in their prospects.

YOU ASK, HOW DO THEY COMPARE

So, the 2% average dividend yield for companies that make up the Standard & Poor's 500-stock index may look attractive compared with the recent yield of 2.6% on the 10-year Treasury bond.

But the average payout for the MSCI World index excluding the U.S. is almost 3%; dividends for companies in the euro zone average 3.5%; and in so-called frontier markets—places like Nigeria and Indonesia, with less liquidity and greater risk than more established emerging markets—the average is 4.1%.

Investment professionals say foreign stocks also have a better outlook for dividend increases, helped by earnings growth prospects—especially in emerging markets—and the recent adoption of dividend policies in parts of Asia.

Over the past fiscal year, dividend growth for the world outside the U.S. has averaged almost 11%, with Europe coming in at nearly 16%. That compares with about 5% growth in the U.S., according to MSCI.

One way to profit from the higher rates available abroad is through international dividend funds. In addition to bigger dividends, they offer an income stream from a geographically diverse base of companies, some of which operate in markets not affected greatly by the recent global downturn. Some funds also include emerging-markets and frontier-market plays.

CAVEATS

While there seem to be plenty of downsides to overseas dividends, including currency fluctuations, which can dent the value of a payout if the dividend's base currency falls in relation to the dollar. Some funds hedge against this risk, though. Foreign companies also have a tendency to issue special dividends when profits are exceptional or the company has amassed a heap of cash, which can muddle investors' efforts to determine normal yields.

Another danger: Many foreign companies link their dividends to a percentage of earnings, meaning dividends can fall abruptly when earnings do. Fund managers look for companies that set a floor for their dividends. Still, overseas dividend income streams can vary more than their U.S. counterparts.

With all of that being said there is still money to be made in the Overseas Market with dividends.  Another good place to look at Overseas involvement in dividend paying companies is in the Emerging Markets area.  Dividends are probably not the reason many investors look for opportunities in emerging markets, but there are plenty of good payouts to be found.

"In some of these markets, information in companies is difficult to obtain, so when a company pays a dividend it speaks volumes about management's views and credibility," says David Ruff, manager of Forward International Dividend. His fund has shares of Turkish dairy Pinar Sut Mamulleri Sanayii AS, yielding nearly 10%, and Nigerian Breweries PLC, paying about 5%.

Shares of companies in emerging markets can be volatile when liquidity is poor. But investors have been moving into countries like Indonesia and Thailand where consumer spending is on the rise.

Some of Thailand's biggest companies pay yields of 5% to 6% and appear likely to increase those, says Mr. Harriss. Thai companies make up 15%, the third-largest weighting, in the Guinness Atkinson Asia Pacific Dividend fund.

The company that we added to our portfolio is a Chilean based company that is traded on the NYSE and it has been paying dividends since 1990.

Of course if you don't have the time, we've done all of the leg work for you with a money back guarantee at Suburbantrader.info

May your investing be profitable.

Disclaimer:  Suburban Trader is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment adviser.  You are responsible for your own investment decisions.  All information contained in our newsletters or on our web site(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence.

suburbantrader.info