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TradeGyani by Brijendra Singh - 4M ago
After an exciting finish to the first version of D-Street Challenge 2.0, we are back with Trading Cup. More prizes, bigger prizes, bigger ..read more
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It’s never too early to start developing smart financial habits. We’ve summarized 5 key areas to focus on for those beginning their careers. Just as we all have different diet and exercise habits, we also all have different financial habits. As one begins one’s career and potentially starts making money for the first time, it’s important to develop financial discipline. These practices can help one save and earn money wisely throughout life. Develop a Personal Budget It is important to know how much one can afford for each expense category. Creating a budget based on income and expenses allows for the setting of weekly, monthly and annual spending and saving goals.The “50-30-20 Rule” is a common budgeting method with broad guidelines. The rule states that 50% of one’s post-tax income should be used for essential spending categories, such as groceries, housing, utilities and transportation. The next 30% of one’s income can be used for discretionary spending on things like entertainment, vacations or new clothes. Finally, the 50-30-20 rule advises that 20% of one’s income should be reserved for savings and debt repayments.It is important to note that the 50-30-20 rule is only a guideline to help initiate good budgeting practices, but a specific person’s expenses may not fit neatly within these buckets. One can set limits that make sense for one’s unique expenses, and these limits could gradually improve over time. Last, although it’s important to think of all possible expenses, unexpected ones can always come up. If one’s income allows for it, try to allow for some extra buffer to cover the unforeseen. Use a Credit Card, But Avoid Credit Card Debt Taking advantage of credit card rewards programs can save the average consumer thousands of rupees annually. In addition to these savings, using a credit card helps individuals build their personal credit histories and credit scores.Credit cards issuers charge a very high interest rate of about 41% on average in India. So, cards should be used for expenses that can be paid back quickly to avoid accumulating debt. Most banks allow one to make automatic payments each month to avoid accidentally accumulating debt. This is a helpful feature, but it is crucial to have enough money in one’s linked account to cover the entire month’s bill. Pay off Loans If one has accumulated student loans or other types of debt, it is important to begin paying them off as soon as possible. Compound interest, the concept of charging interest on interest, can cause one’s loan balances to grow over time if left untouched. Thus, paydowns are even more important for those with large debt burdens. It would be prudent to make a plan for regular repayments with a calculated date in mind for when the debt would be completely paid off. This will keep one organized and motivated to get to the finish line while minimizing surprises. Open a Savings Account and Contribute Regularly Opening a savings account allows one to track and segment savings from the cash needed for everyday expenses. It is important to consistently save money, even if the contributions are small at first. This helps in building an emergency fund for unexpected expenses or saving for a large future purchase. It also helps one immediately get in the habit of spending less than one earns and saving throughout one’s career. Start Investing Early After budgeting expenses, planning debt paydown and saving, starting to invest early in one’s career is highly beneficial. This habit can yield great returns over a long period of time due to the power of compounding returns on investment, which works the same way as compounding interest on debt. As an illustrative example, an individual that starts investing 10 years earlier than another person could earn several times more during one’s career, all else equal (such as investing the same amount in stocks and receiving the same annual rate of return). The most common way to begin investing is to open a brokerage account, which offers traditional investments, such as stocks, bonds or ETFs. Some intermediate-level, alternative options include crowdfunding investing platforms, which offer investment opportunities in small businesses. After one becomes sufficiently skilled in investing, one could consider advanced tactics. About Author Value Champion ValueChampion is a free source for information to help consumers make educated decisions on personal financial matters. View all posts The post 5 Healthy Financial Habits for Young Professionals to Develop Early appeared first on TradeGyani . ..read more
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Many prominent investors have used leverage to achieve significantly greater returns on their portfolios than they would have otherwise. What is leverage and how can an average investor use it? Warren Buffett, one of the most successful investors of all time, is famous for discouraging people from using leverage to boost their investment returns. However, Buffett himself has in fact employed leverage along his way to becoming one of the richest people alive. If used correctly, leverage is an effective and savvy investing tactic that can increase one’s wealth materially over time. Here, we discuss what leverage is and how smart investors can use it to boost their returns without exposing themselves to an irresponsible amount of risk. How Leverage Works Borrowing money in certain circumstances can be prohibitively costly, but it can also be used to generate strong profits in the stock market. “Using leverage” means borrowing money for an investment in an effort to magnify one’s returns.For example, say one has Rs. 5,000 of cash to invest in a stock. But, instead of just buying Rs. 5,000 worth of stock, one decides to borrow Rs. 15,000 to buy a total of Rs. 20,000. If the stock goes up by 10%, one can make Rs. 2,000 of profit (minus interest owed on the borrowed Rs. 15,000) instead of Rs. 500 one would have made on only investing Rs. 5,000. In other words, using leverage would result in a return of 40% (Rs. 2,000 profit ÷ Rs. 5,000 cash invested), excluding interest, instead of only 10% (Rs. 500 ÷ Rs. 5,000). Although this sounds like a fantastic way to make money in theory, Buffett discourages leverage because it can be a double-edged sword. If the stock in the above example instead drops 10%, one would lose Rs. 2,000 or 40%, and he would still have to pay back the lender (plus interest). So, how do smart investors like Buffett use this technique while minimizing risk? Leverage Shouldn't Be Pure Gambling Before diving into the question, it is important to note that careful investing is not the same as guessing whether the roulette wheel at a casino will land on red or black. Savvy investors are able to identify a disconnect in an asset’s fair value and its current market price. Therefore, it is important to focus on how much a stock is truly worth versus guessing whether its price will go up or down.Given the risk of potentially magnified losses from using leverage, one should only consider its use for high-conviction ideas with a wide margin of safety – a combination of conservativeness and aggressiveness. One should only invest if there is a large value-to-price disconnect even based on conservative estimates. Investing aggressively into such opportunities will maximize gains and minimize risk.Warren Buffett has done this by using “borrowed” money from his insurance companies’ clients (an insurer collects insurance premiums upfront, but typically doesn’t pay out claims until much later). He has used such funds to purchase high-quality, franchise companies (like Coca Cola) when their shares were cheap (such as during financial crises). In fact, some studies have highlighted that his returns would not have been as spectacular without this combination of conservativeness and aggressiveness in his investing strategy. How to Use Leverage Smartly If one of the best investors of all time has used leverage successfully, it’s worthwhile to consider how an average investor can use it for his own portfolio.To echo an earlier point, an average investor should use leverage selectively. As we demonstrated, leverage is a double-edged sword, and exposing oneself too much and too often could result in serious losses. One should only employ leverage on a select set of opportunities for which one has the most knowledge, understanding and conviction.Next, an average investor should consider different leverage tools depending on his opportunities. For example, trading on margin or with CFDs (Contract for Difference) is more suitable for longer-term trades that are aimed at a gradual closing of the value-to-price gap. It can also be lucrative to buy dividend-type securities on margin, so long as one has confidence in the underlying issuer’s ability to uphold its payouts. On the other hand, using options can be an excellent way to boost returns if, again, one has high conviction on certain events happening in the short term (such as a company beating earnings estimates).Last, it may be advisable to start using leverage when one is young. There are a number of reasons why leverage is more appropriate for people in their 20s than for those closer to retirement. First, young people have less capital they can invest, and are therefore underexposed to the stock market, which has been a huge engine of growth over time. And, those in their 20s can afford a higher risk tolerance as compared to older cohorts – losing money early on can hurt, but it won’t ruin your life. However, losing a big chunk of your retirement portfolio can be devastating.Overall, investors should always be knowledgeable about what they buy. Notably, high-probability outcomes don’t always turn out, so never invest more than one can afford to lose. But, if one invests conservatively and carefully over time, leverage has the potential to be a very profitable tool. About Author Value Champion ValueChampion is a free source for information to help consumers make educated decisions on personal financial matters. View all posts The post How Sophisticated Investors Use Leverage to Boost Returns appeared first on TradeGyani . ..read more
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Kids emulate their parents in many ways and follow their example. This means ..read more
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Most companies have announced their March 2019 results and the picture is not ..read more
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TradeGyani by Brijendra Singh - 6M ago
After an exciting finish to the first version of D-Street Challenge, we are back with D-Street Challenge 2.0. More prizes, bigger prizes ..read more
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Stamp duty is a certain amount of money levied on the value of shares transferred. In India, stamp duty or other regularity duty is levied ..read more
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Chart Patterns - Cup & Handle With Nooresh Merani - YouTube ..read more
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E.V.Viswanath is an independent SEBI Registered Research Analyst. Earlier, ..read more
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#AskGyani - How to analyse management quality - YouTube ..read more

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