Two Very Important Points That Need Reiterating - Part One

Two very important points that need reiterating – Part One


Hello, and welcome to Making Finance Work.


This is part one of a two part reiteration process that needs to be drummed into your head before you can get rich.We do not go in to the stock market to gamble, and if you think we do, you are quite simply wrong.


Investors have gotten into so many arguments over the years, having to defend their positive income stream against a tirade of people who simply do not understand how stocks and shares work.


Let us take a company that we are all familiar with – Disney. (NYSE: DIS)In July 1963, a share in Disney would cost you ten cents.



Let us say that you bought 100, spending $10.On January 3rd 2000 you would have $158,400, so… Well done there. If 40 years is too long for you, I suggest you read the rules or go else where. 40 Years will be here regardless, where will you be?



The above scenario is an investment strategy – buy and hold. Warren Buffett’s preferred method of riches accumulation. It takes time, but a good company with good fundamentals will propel towards the sky taking you, as an investor along the way; a good company will lavish you with dividends in the process.


Being able to understand a business and the fundamentals of that business will help you pick a good stock. Once you have bought it hang on to it for as long as possible, but whatever you do, don’t gamble it.



Disney didn’t just rise and rise every single day – the price of the stock fluctuates daily.



On October 2nd 1972 Disney’s stock price was $2.46. It would then not see that price until October 1985 – 13 years later!Can you imagine gambling on that? I mean purchasing at that price on Oct 2nd, hoping it would rise the next day? The pain!The pain comes from the gamble.



Avoid gambling at all costs.



Only invest money in the stock market that you intend to leave in the stock market. Make a budget and stick to it, the rest can go in a stocks and shares ISA that you promise not to touch until you are ready to retire. And do not invest until you have eradicated debt.



Don’t day trade on the markets. Nobody knows what they are going to do in the short term – only in the long term. The younger you are, the longer you have to stay invested and the richer you will be, because the general direction is up.Disney could have gone bust. Many companies do, which is why it is important to diversify your stock portfolio. I have holdings in oil, retail, entertainment, finance, and yes, I do own 10 shares in Disney.



Speak Soon,
Oliver Jones
Making Finance Work

How do we get the best rate of return?

How do you get the “best rate” of return?

Hello and welcome to the Making Finance Work Blog.

In the article The Eradication of Debt, we talked about the importance of interest rates, and moreover the wonder that is compound interest.

From this we can understand that:

1. £1000 lay dormant in a savings account for 10 years with an interest rate of 6% will give us £1790.

2. £1000 lay dormant for 10 years with an interest rate of £3105.

Suffice to say, the higher the interest rate – the better.

But how do we get these sorts of returns? As we are more than aware at the time of writing we are stuck in a firm recession, indeed no bank in the land are willing to hand out the good old fashioned 5-8% savings accounts for the foreseeable future.

What about bonds?

Maybe.

Gilts?

Could do

What else?

The Stock Market.

Definitely.

Stop! Wait a minute! I am not gambling my money away! No chance. Stocks and shares are for gamblers – I am not one of those!

Relax. Please. Listen to me.

Over the last 50 years the annual return on cash/savings – 6%

Over the last 50 Years the annual return on S and P 500 – 10.92%

The S & P 500 is a conglomerate of the 500 largest companies trading in the United States, the same as the FTSE100

Amazingly, property, bonds and gilts all fall between these two brackets.

The stock market will always be a volatile place in the short term. You could have easily have invested £10,000 in 1996 only to find that it is now worth £4000. However, over time, the margins get wider and wider. Understand the difference in day trading, speculation and gambling. And understand the value of long term investing with compounding price rises and compounding dividends and you will position yourself to reap the rewards in retirement and beyond.

Next time we will look at the stock market in greater detail.

Someone's sitting in the shade today because someone planted a tree a long time ago.
Warren Buffett

Speak Soon,

Oliver JonesMaking Finance Work