Looking After Your Money

July 29th, 2010

How to preserve your capital

As global financial markets continue to yo-yo in brutal swings, and with deposit and bond yields returning next to nothing, many investors are searching for ways to still have market exposure but without the risk.

Risk vs reward

Most investors are familiar with the principal: The higher the risk, the greater the potential reward. Conversely, minimum risk usually implies limited or low returns. How do you know if “risk” is for you? It helps to know what kind of an investor you are, or what type of personality you have. Are you the type of person who enjoys the ups and downs, twists and turns of a roller coaster? Or do you take one look at that roller coaster and head straight for the merry-go-round instead?

The reward

The reward for holding on to your investments until the end of the rollercoaster ride is that they may grow in value. You have to be willing to hold on through the long term in hopes of reaching your goals. If you go the slower route on the merry-go-round, your investments will probably fluctuate less but may not reward you as much in the long run.

Structured products

Over the past 15 years, investment companies have created products that combine exposure to growth with the safety of a deposit or a bond. They succeeded in creating what are termed capital- or principal-protected structured notes. These products allow investors to share in the upside of some predetermined stock index or other asset class while guaranteeing the initial principal invested.

Too good to be true?

If something sounds too good to be true, it probably is. So the question is: “Where’s the catch?” It’s very important to read the small print and understand the structure of each individual product.

The small print

When reading the fine print you may also find the following terms:

• Capped upside:

To make sure your principal is secured, you must sometimes sacrifice the maximum amount you can make. For example, the deal might limit your positive return to 8% in any one year. While that might sound fine, keep in mind that that is not much participation in the index.

• Liquidity:

Structured products are meant for people who intend on holding their investment until maturity. The principal protection guarantee doesn’t apply to people who liquidate early. It’s quite common that if you want to sell before the program is over, even if the underlying investment has gone up, you’ll end up getting back less than you paid. Why? Because there’s not much of a secondary market for these investments, and the redemption fees take their toll.

Speak with your adviser

While structured products may seem ideal because of the growth potential and the principal protection, keep in mind that you need to understand what the terms of each product are prior to investing. Before you consider purchasing them for your portfolio, it’s a good idea to speak with your financial adviser to determine how, and if, they fit into your financial plan.

Tags: financial adviser, Investments, Risk vs reward, The stock market
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Psst! How Much Is Your Phone Bill This Month?

July 28th, 2010

How did my communications bill get so big?

I passed the $400 last month. I am stunned. In my wildest dreams and in my most outrageous household budgets I never allowed a figure like this. It covers my wife, two teenagers and me. Okay, I understand that it includes the phone, cell-phones, internet and TV, a lot of services all bundled with one company, which was guaranteed to save me up to 15% a month. But $400? For the same monthly payment, I could walk off the lot with a 2010 Toyota Corolla with no money down based on four years of financing.

Too easy

It all looks so easy and it’s so convenient. We can track our children 24 hours a day. We can work from wherever we are. We can stay in touch and be informed instantly about anything we want to know.

I’ll pay

I’ll end up paying with a rather forced smile. This communications account allows me to stay home and work from time to time, so I can’t complain about that. In addition all four of us in the house are downloading information of some sort all the time. The cell-phones are a godsend and none of would think of going out without their cell-phone.

Remember when

I remember that back in 1990, before the age of the Internet, I was spending about $60 or $70 a month on phone and TV. That’s the figure I always remember. Now we’re up to $400 a month. Some increase!

Necessity

We live in the communications age. There is a new device, a new chip, a new service every day. Speed goes up and the costs go down, everything except the bill. Says a communications consultant: “You would have that thought with unemployment rising and people working fewer hours and nobody getting a raise that one of things people would have cut would have been their value-added phone services, Internet services and cable. It turns out not to be the case. Look at the phone companies’ numbers, and how the number of wireless users is going up. Communications has become a necessity.”

Must have and must pay

It follows that if our telecommunications products mean so much to us, we are willing to pay for them. “It’s not just entertainment, it’s all kinds of things, it’s a source of music, a source of social connection, a source of information, a source of mapping. There are just so many potential uses.” One of things we learned during the last recession is that telecommunications services are untouchable.

Drop the land-line

Reports suggest that many people are ditching their home phones. That is a growing trend that is going to continue among younger people. Those people have found a way to cut their costs. If you have a cell phone you are always available and you need a landline in addition. And if the company is paying for the cell phone…? Now, what else can you cut?

Tags: Bills, Cell phones, Communications, Internet, Phones, TV
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