How to be a successful investor

Many people have been searching for the secrets to be a successful investor. However many of them would refuse to listen to sound advice but would fall prey to charlatan and people like bernard madoff. The reason is that most people want to be rich quickly and people like madoff tell them that they can. While some can get rich quickly many would lose everything they have.

So what are the secrets of investing?

To most people the stock market is a strange world where they hear stories of people losing money and companies go bankrupt. However there are opportunities to make it in the stock market, provided that you adhere to some sound principles.

Most of the investment gurus (John Templeton, Peter Lynch, Warren Buffett) have explain some pretty simple principles to which the beginner investor must adhere to.And if there’s one thing that they all agree on, it is the fact that the beginner investor must go for the long term and not aim at making large profits on the short term. In simple term, invest in the stock market not to make money today, but to make money in the long run. Successful investors that make alot of profits have invested for the long term and are not looking for the hot stock that would make them rich. The problem with this way of investing is that it is impossible to get to the hot stock before its price goes up.

Investing principles 1

Although it has been said time and again, it doesn’t seem to stick: when investing, time is on your side. The stock market always go up on the long run even if they go down in the short term. The longer an investment is held, the greater its chance to increase in value.As an investor, if you understand this, day-to-day market fluctuations will not drive you crazy and you will be able to concentrate on the one variable that you can (literally) bank on: TIME. Also buying and selling make your broker rich because each time you do a transaction you are paying a fee to him.

Investing principles 2

Start out small and build your confidence while taking small risks. Invest only $100 or $1,000 instead of your entire savings.There are a lot of things that you will never know unless you’re learning by doing.

Investing principles 3

Imitate the investment masters and read about successful investors. Talk to successful people you may know and ask them how they accomplished their goals. You could be surprised how open truly successful people are.

Investing principles 4

Don’t panic and sell if things go down. Actually you should even expect them to. If you buy good companies with sound fundamentals, drops in the market value of the stock will only be temporary and might even be good times for you to buy the stock when it’s “on sale”.

Here you go guys. Keep investing and stay put in this recession.

Good luck.

How to calculate the interest in your loan

The question that many people have been asking me is how to calculate the interest in the monthly payment, the part that is capital and how much capital is there left to be paid.

So i am going to explain it to you. Remember that each time the interest rate change you will have to repeat the calculation.

Suppose you have a loan of $100000 at 5% and payable in 10 years.

10 years = 120 months = 10 *365 = 3650 days.

Hence interest per day = 5 % / 365 = 0.013699%. It is better to leave a few significant figures.

Hence the interest payable for a day = 10000 * 0.013699/100 = $ 1.3699

Interest for first month = 1.3699* 30 = $ 41.097

Suppose that you are paying a monthly payment of $200

As a result you capital payment for the first month is $200 - $41.097 = $158.907

If you are using the diminishing balance method, it means that you now owe $100000-$158.907 = $99841.097

Hence, the next month your interest will be calculated on the lower balance i.e $99841.097

However if the interest rate increase the interest part would increase. If you want to pay the same amount monthly, you can pay less capital and pay the loan in more time. Or vice versa if interest rate decreases.

I hope that these tips would help you. However every lender can supply to you an amortisation schedule with the breakdown of your loan. Read about it here.

Are you having any difficulties to determine the interest part of your loan? Leave a comment below.

The snow ball. A better way of reducing your debt.
How to live within your means
Good debt or bad debt. Can you make the difference?
What is debt consolidation?
How to consolidate a debt?

The snow ball effect - A better way of reducing debt

I was once a firm believer that the best way to reduce debt is to pay high interest debt first. In fact it make sense. As you pay high interest debt first the burden of the remaining debt become less heavy and the remaining debt become easier to pay. Until i fell on this article by Dave Ramsey.

This article made me think and I actually think that he has a point there. If you think about it, a small debt is easier to pay and once you have succeeded it gives you courage. It entails an easy financial effort that is easier to make than the effort and sacrifice needed to pay a large debt.

As you have finished paying the smallest debt, then paying the next debt will be less painful and it only require a small additional effort and financial sacrifices. It also would not disrupt your budget .

As a result you would gradually increase your efforts and financial sacrifices painlessly and pay the higher debts.

I do not know about you but i think this guy make sense. What about you? What do you think?

If you have tried the opposite method and it did not work try this one it might work.

Simple and compound interest

Calculating interest on an investment is often a requirement for the budding investment.
There are several terms that must be understood before using the formula.

The principal which is the money that is being invested known from now on as P.

The no of years that the investment will earn interest known from now on as Y

The interest rate known from now on as I

The simple interest

The simple interest means that interest will be earned yearly on the same amount.It also mean that you will not allow interest to accrue on the interest. You will probably remove it for spending.

It is calculates as follows.

Interest yearly = P x I/100
Total interest after Y years = P x (I/100) x Y

eg $10000 invested at 10 % for five years.

Interest every year = P x I = 10000 x (10 /100) = 10000 x 0.1 = 1000
Interest after five years = P x I x Y = 10000 x (10 /100) x 5 = 10000 x 0.1 x 5 = 5000

Amount after five years = $ 15000

If you are having problems with the mathematics, I have created a calculator to determine the simple interest here.

The compound interest

In compound interest the calculation is a little bit different. Each yearly interest is added to the principle to calculate the following year's interest. As a result with time the principal increases and the the interest increases. Provided you don't use the yearly interest.

Lets say $ 100000 is invested at an interest rate of 10 % for five years

After one year the interest obtained = 10000 x 0.1 = 1000
On the second year the interest obtained = (10000 +1000)x 0.1 = 1100
As you can see $ 100 dollar is obtained more than the first year. This will continue to increase for each year. More interest is obtained. However if you use the interest it would be a simple interest. The key is to leave the interest untouched.

Now this is a little bit difficult if the investment will last over several years. Here is general formula.

Lets say $ 10000 is invested at an interest rate of 10 % for five years.

I = 10 % = 10/100 = 0.1

i = 0.1+1 =1.1

The total amount after five years = P x i x i x i x i x i = P x i ^ Y = 10000 x 1.1 x 1.1 x 1.1 x 1.1 x 1.1 = 16105

As you can see compared to the simple interest $1600 dollars more is obtained. When a compound interest system is obtained the gain over the long term is more than the simple interest system.

If you are having problems with the maths. I have created a calculator to determine the compound interest here.


What is compounding?
How to calculate the interest in your loan
Fixed and variable interest.
How to calculate simple interest on an investment
Simple and compound interest
How to calculate compound interest on an investment

Fixed and variable interest

I have been asked the question lately between fixed and variable interest. Some people cannot understand the difference between the two.

Fixed interest loans have the interest remaining the same for the whole duration of the loan. While it may seems to be an advantage to have a fixed interest rate, it is in fact a disadvantage because the interest rate is set not at the medium or half way between the maximum and minimum possible rate, but at slightly above that. So that for a majority of time you will pay more than the official bank rate. This also remove the advantage of paying at a low interest rate when the official lending rate falls.

The variable rate is always a few percentage points above the official lending rate. The interest will then vary with the official lending rate. The disadvantage of having a variable rate is that in time of high interest rate the loan can be difficult to service.

Asset Allocation - How to allocate your money in your portfolio

After a person has decided to invest, the most important decision a person has to make is asset allocation. i.e. How much money will be allocated to each asset class.

For recapitulation their are several asset classes that one can invest their money in. I would leave out the most difficult and complex which are not worthy to invest into.

1. Stocks
2. Bonds
3. cash
4. Fixed deposits or certificate of deposit
5. Precious metals

The first decision to take is how much risk you can tolerate. You can learn about risk and risk tolerance here. Because some of those assets can vary widely in value, can crash and be wiped out, then your tolerance such risks and changes in the value of your portfolio will determine how much you allocate in each class.

The following list the asset class from the most risky to the most safe.

stocks, precious metals, bonds, cash, certificate of deposits

However the riskier an asset class the more the return associated with it. So those that want to have high return will have to increase the percentage of risky assets in their portfolio.
Hence there are several ways to allocate assets in a portfolio based on the tolerance of risk and the return required.

High risk, high return
100 % stocks and high yield bonds

medium risk, medium return
50 % stocks, 25 % cds, 25 % bonds

low risk, low return
25 % stocks, 25 % cds, 50 % bonds

Inflation hedge
75 % gold and silver, 25 % bonds indexed with inflation

Hyperinflation portfolio
100 % gold and silver

I choose the medium risk and medium return portfolio. I think that it can cater for all types of catastrophe in the market.

The choice is yours guys.

How to plan your investments and spendings

In a modern family many projects need to be achieved and these have to be done with some planning or else some would fail. I am going to list them in order of importance.

1. Retirement
2. Mortgage
2. Children study
3. Buying a car
4. Holidays

These expenses were done in the past without any planning at all. As a result in many families some of them failed. The money in the family was used recklessly.

So folks now we have calculators that can help us to divide our money so that these projects can be realised.
So get used to them and your budget will be healthier even in this recession.