Monday, February 9, 2015

How Do You Know How You Should Invest?


Forte

                                 2015 Forte starting msrp$15,890* city/hwy mpg26/39*
 
People ask me for stocks that I think will go up. In other words, they want me to give them a stock tip. Usually, when that happens and it does not work out, they come back and tell me about their dissatisfaction with my tip. If I don't give people a tip, then they claim that I think I am all that and stuck up.  Many people proclaim that I am a raciest bigoted. If I try to give them a stock strategy, neither Black or White people will take it.  Honestly, I can't catch a break!

However, most people who follow a strategy that I design for them do make money and achieve their objectives.
 
 
Investing or speculating is about understanding your risk, your objective, and how long you plan to tie up your money in your financial venture.  For example, I know that I will go off,  if I lose a dime. So I have to adjust my savings and investments so that I have a good chance of making money in the period of time when I want to use the money. I have to think about the risk that I am taking.  Let me give you an idea what I am talking about.
 
I need to save money for my new car that I plan to buy in the year 2020. It is the year 2015 so I have 5 years to invest.   I am hoping that the car that I have will last that long.  2020 is when I need the money.  I know that I have a set amount of money to work with from my savings account or when I was working from my IRA, 401K or any other savings.  Let's say that I can get my hands on $10,000 from a death insurance plan, from work savings, family savings, or a line of credit.  
 
 
2015 Kia Forte
 
 
I want to buy a car in 5 years! 
The first thing that I would do is figure out the future value of a new or used car. I like fuel efficient cars such as a $15,890 Kia Forte.  I want safety and I want to make as much money as I can with the least risk as I can have. This is why I invest my money in High Yield Corporate Bonds. The higher the interest rate, the higher the Business and inflation risk.  Psychological Risk meaning that buyer's and seller's  greed and fear make bonds go up and down. This can only work against investor before the bond matures.  The closer the time to maturity, the less volatile the price movement of the bond.  But that is the only risk that I have with Individual High Yield bonds.  Inflation risk is not as great if the interest rate given to you by the bond is high.
 
How about Mutual Bond Funds and Stock Funds!
 Bond mutual funds are not Individual bonds.  A bond mutual fund has Inflation Risk and Interest Rate Risk. They have Market Risk meaning since bond funds do not mature,  they go up and down with the markets governed by Psychological Risk.   Stocks have the same risk and is not as safe in my opinion as High Yielding Bonds.  With stocks, we cannot plan because we have no idea how fast if ever, the stock will rise in value.    
 

So we picked the security to make the money for the new car!
If today you were to invest $10,000.00 at a rate of 17.00%, you would have $21,924.48 at the end of a 5 year period. In other words, a future value of $21,924.48 is equal to a present value of only $10,000.00.
What does this mean to you or me? Well, if you had a choice between taking an amount higher than the $10,000.00 today and taking the $21,924.48 at the end of 5 years, you should take the money today and invest it. By doing so, you would be able to invest the higher amount at 17.00% for 5 equal years, which would end up giving you more than $21,924.48.
 
 
As of February 2, 2015, this bond below sold for;
 
  •  $483.50 and gives 20.247%. The maturity is July 15, 2022. Moody's Rating for safety is B2 and Standard and Poor's rating is B-.  That is only 2 years off your timeline for a new car.
 
 
 
CUSIP No. 818097AB3   SEVENTY SEVEN ENERGY INC SR NT 6.5%22 6.500% due 07/15/2022

So if we have the means of making $36,000, maybe we should look at a $36,550 Lexus IS and may the rest of the inflated money off by taking out a car loan?

The car will cost $21,264.40 and you will buy the car with $21,924.48 or more. That means that you bought the car with only $10,000.
$10,000 can buy 20 bonds for $483.50 giving $26,000 in interest and $10,000 in principle or $36,000. That should be enough to buy a car.
RC
 
Maybe I should buy a Lexus IS instead! This car starts at $36,550. I would have a substantial down payment and I can finance the rest. 
 
 
 
 
 
 
 
 
 
 

 

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