Stock Preacher

Creating Balance Sheet

Create a balance sheet based on the prior steps in this article to illustrate your current finances. Take a close look at it and try to identify and changes. You can make to increase your wealth. Sometimes reaching your financial goals can be as simple as refocusing the items on your balance sheet. Here are some brief points of consider;

Is the money in your emergency fund sitting in an ultra safe account and earning the highest interest available?

Bank money market account or money market funds are recommended. The safest type of account is a U.S. Treasury money market fund. Bank are backed by the Federal Deposit Insurance Corporation while U.S. Treasury securities are backed by the “full faith and credit” of the Federal Government.

Can you replace depreciating assets with appreciating assets?

Say that you have two stereo systems. Why not sell one and invest the proceeds? You may say, “But I bought that until two years ago for $500 and if I sell it now, I will only get $300. That’s your choice. You need to decide what helps your financial situation more a $500 item that keep shrinking in value or $300 that can grow in value when invested.

Can you replace low-yield investment with high yield investment?

May be you have $5000 in a bank certificate of deposit earning three percent. You can certainly shop around for a better rate at another bank, but you can also seek alternative that can offer a higher yield, such as U.S. Savings bond or short-term bond funds.

Can you pay off any high-interest debt with funds from low-interest assets?

If, for example, you have $5000 earning 2 percent in a taxable bank account, and you have $2500 on credit card charging 18 percent, you may as well pay off the credit card balance and save on the interest.

If you are carrying debt, are you using that money for an investment return that is greater than the interest you are paying?

Carrying a loan with an interest rate of 8 percent is acceptable if that borrowed money is yeilding more than 8 percent elsewhere. Suppose that you have $6000 in cash in a brokerage account. If you qualify, you can actually make a stock purchase greater than $6000 by using margin. You can buy $12000 of stock using your $6000 in cash, with the remainder financed by the broker. Of course, you pay interest on that margin loan. But what if the interest rate is 6 percent and the stock you are about to invest has a dividend that yields 9 percent? In that case, the dividend can help you pay off the margin loan, and you keep the additional income

Can you sell any personal stuff for cash?

You can replace unproductive assets with cash from garage sales and auction web sites.

Can you use your home equity to pay off consumer debt?

Borrowing against you home has more favorable interest rates, and this interest is still tax deductible.

Paying off consumer debt by using funds borrowed against your home is a great way to wipe the slate clean. What a relief to get rid of your credit card balances! Just don’t turn around and run up the consumer debt again. You can get overburdened and experience financial ruin.

The important point to remember is that you can take control of your finances with discipline.

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What are Financial Assets?

Investing in Penny Stock is a way to success in the stock market. Like I said before on my last article “Emergency Fund”, we touched on what your own personal financial goals are and how you want to achieve them without touching your “Emergency Fund”.

Today we are talking about Financial Assets.

Liquid assets aren’t references to beer or cola… Instead, liquidity refer to how quickly you can convert a particular asset into cash. If you know the liquidity of your assets, including investments, you have some options when you need cash to buy some stock. All too often people are short on cash and have too much wealth tied up in illiquid investments such as real estate. Illiquid is just a fancy way of saying that you don’t have the immediate cash to meet a pressing need. Review your assets and take measures to ensure that you have enough liquid assets.

Listing your assets in order of liquidity on your balance sheet gives you an immediate picture of which assets you can quickly convert to cash and which one you can’t. If you need money now, you can see that cash in hand, your checking account, your saving account are at the top of the list. The items last in order of liquidity become obvious; they are things like real estate and other assets that can take a long time to convert to cash.

Selling real estate, even in a seller’s market, can take months, Investors who don’t have adequate liquid assets run the danger of selling assets quickly and possibly at a loss because they scramble to accumulate the cash for their short-term financial obligations. For stock investors, this scramble may including prematurely selling stocks that they originally intended to use as long-term investments.

Let take a look at the table

Personal Assets as of December 31, 2008

Assets	Market Value	Annual Growth Rate %
Current Assets
Cash on hand and in checking	$150	0
Banking saving accounts	$500	2%
Stocks	$2000	11% (stockpreacher : at least 500%)
Mutual funds	$2400	9%
Other assets
(Collectibles, etc.)	$240
Total current assets	$5290
Long-term assets
Auto	$1800	-10%
Residence	150000	5%
Real estate invest	$129000	6%
Total Long term Assets	$280800

Total assets $286090

The first column of the table describes the asset. You can quickly convert current assets to cash. Long term assets have value, but you can’t necessarily convert them to cash quickly.

Please take note. I have stocks listed as short-term in the table. The reason is that this balance sheet is meant to list items in order of liquidity. Liquidity is best embodied in the question “how quickly can I turn this assets into cash?” Because stock can be sold and converted to cash very quickly, it is a good example of a liquid.

The second column gives the current market value for that item. Keep in mind that this value is not the purchase price or original value; it’s the amount you would realistically get if you sold the asset in the current market at the moment.

The third column tells you how well that investment is doing, compared to one year ago. If they percentage rate is 5 percent, that item increased in value by 5 percent from a year ago. You need to know how well all your assets are doing. Why? To adjust your assets for maximum growth or to get rid of assets that are losing money. Assets that are doing well are kept, and assets that are down in value are candidates for removal. Perhaps you can sell them and reinvest the money elsewhere. In addition, the realized loss has tax benefits

Figuring the annual growth rate as a percentage isn’t difficult. Say that you buy 100 share of the stockpreacher stock picks (GAL), and its market value on dec 31, 2003, is $50 per share for a total market value of $5000 (100 share x $50 per share). When you check its value on December 31 2004 you find our the stock is at $60 per share. The annual growth rate is 20 percent. You calculate this by taking the amount of the gain ($60 per share less $50 per share = $10 gain per share), which is $1000 (100 shares times the $10 gain), and dividing it by the value at the beginning of the time period ($5000). In this case, you get 20 percent ($1000 divided by $5000). What if GAL also generates a dividend of $2 per share during that period; now what? In this case, GAL generates a total return of 24 percent. To calculate the total return, add the appreciation ($10 per share times 100 share equals $1000) and the dividend income ($2 per share times 100 shares equal $200) and divide that sum ($1000 + $200, or $1200) by the value at the beginning of the year ($50 per share times 100 shates or $5000). The total is $1200 ($1000 of appreciation and $200 total dividents), or 24 percent ($1200 / $5000)

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Make sure you have an Emergency Fund!

This week is undoubtedly one of the most important articles in this blog. At first, you may think this article is more suitable for some sort of general blog on personal finance…

Wrong!

Unsucessful investors’ greatest weakness is not understanding their financial situation and how stocks fit in. Often, I counsel people to stay out of the stock market because they aren’t prepared for the responsibilities of stock investing.

This is why so many people sign up the StockPreacher Newsletter on the top of this page, so they can keep up with the ever changing Stock Market in the StockPreacher Newsletter on top of the information you receive from your registered investment advisor, the StockPreacher Newsletter also touchs on certain elements that can aid you with your stock education, for FREE!

Investing in stock requires balance. Investors sometimes tie up too much money in stocks, putting themselves at risk of losing a significant portion of their wealth if the market plunges. Then again, other investors place little or no money in stocks, and therefore miss out on excellent opportunities to grow their wealth. Investors should make a stocks a part of their portfolios, but the operative word is part. You should only let stocks take up a portion of your money. A disciplined investors also has money in bank accounts, bonds, and other assets that offer growth or income opportunities. Diversification is key to minimizing risk.

Your Emergency Fund

Before you invest in Penny Stocks one of the things you need to have is an “Emergency Fund”

First, list all of your cash on your balance sheet. You goal is to have in reserve, at least three to six months‘ worth of your gross living expense in cash. The cash is important because it gives you a cushion. Three to six months is usually enough to get you through the most common forms of financial disruption, such as losing your job. Finding a new job can take anywhere from three to six months.

If your monthly expense are $2000, you should have at least $6000, and probably closer to $12000 in a secure, FDIC-insured, interest bearing bank account. Consider this account an emergency fund and not an investment. Don’t use this money to buy stocks.

Too many Americans don’t have an emergency fund, meaning that they put themselves at risk. Walking across a busy street while wearing a blindfold is a great example of putting yourself at risk, and in recent years, investors have much into investments (such as stocks) that they didn’t understand, and had little or no savings. One of the biggest problems during 2000-2003 was that savings were sinking to record lows while debt levels were reaching new heights. People then sold many stocks because they needed funds for paying bills and debt.

Resist the urge to start thinking of your investment in stocks as a savings account generating over 20 percent per year. This is dangerous thinking! If your investments tank, or if you lose your job, you will have financial difficulty and that will affect your stock portfolio. An emergency fund helps you through a temporary cash crunch.

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