Non-financial factors and stock prices – Where to Invest?
Stock investments are a crucial component of an individual’s investment portfolio. Stocks have the ability to pay high returns in lesser time than most of the other forms of investments. However, these investments are also considered riskier than traditional investments like fixed deposits, LIC or postal savings.
The volatility of the stock markets makes it even more important to keep your eyes on movement of stocks on regular basis. Do not simply rely on somebody else’s advice including your broker or investment agent. Self-study is extremely important. There are various financial as well as non-financial measures to evaluate stocks. We will consider the subjective or non-financial measures here.
- Keep a track of news about companies in which you are a stockholder. Positive news will most likely cause stock prices to rise. On the contrary, negative news in the media is likely to pull down stock value of the company. Here you need to understand the nature of the news and also the tenure of the effect it is likely to have on the stock prices. This is important when you make decisions about selling or keeping a stock. For example, news like a successful CEO leaving the organization is likely to create a stir in its stock prices. However, the duration of this price decline depends on factors like reason for the resignation, the choice of a replacement candidate etc.
- Business news about the company can also impact its share prices. The news of a new product launch, labor dispute or a significant trade agreement affects stock prices. This is because these factors affect the investor’s conception and confidence about the company. For example, very recently, the Reliance Industries share prices went up drastically when the news of its Lyondell bid being rejected hit the market. This is because the investors had feared that Reliance would overpay for this international deal. - Insider information or leaking of confidential information about the company can also create a stir in its stock prices. To give an example, the stock prices of Reliance Communications took a dip (almost 26%) in the month of October of 2009 when information given in the government commissioned audit report that the company had understated revenue to the government, was revealed.
- Customer satisfaction has an impact on a company’s business and hence its stock value. Keep yourself informed about the company’s reputation amongst its customers. Your investment is good as long as customers are happy with the company. This is especially true in highly competitive markets. For example, markets for food and beverages are very sensitive to customer satisfaction and consumer tastes and preferences.
- A consistent performing management is important for organizational well-being. Some companies like Hindustan Lever or P&G do well consistently. The reason being that their management has by and large performed well in spite of changes in the economic situation and market trends. Investing in companies with reliable management is a safe bet since they have the ability to overcome unfavorable situations. A good management builds trust and confidence in investor’s mind.
- Stock prices of a company are influenced by the developments in the stock market in general and vice versa. The stock market sensex is affected by various factors like consumer spending, interest rates, general economic condition, etc. For example, the US stock prices faced a decline in February 2010 due to factors like slow economic recovery, dismal job market and loss of consumer confidence. Intel Corp, American Express and Alcoa Inc lost 2.4% bringing down the Dow Jones Industrial Average.
Keep your eyes on investment fundamentals rather than on stock market bubbles. A bull or bear market is only a temporary indicator of the stock’s potential. A sound business model, good management, consistent good financial ratios, consistent profitability and positive cash flow are indicators of a sound organization and hence a good investment.
Caught in loans you cannot repay? Read this!
Try to lower your interest rate. Negotiate with your bank. One other way is to convert your credit card debt into a personal loan debt. It will definitely be lesser than the credit card interest rate. Calculate your net worth and see if any of your investments could help you prepay a part of your loans.
Akash was an IT employee who was well settled in his career. With a take home that more than met his needs, Akash decided to invest in his future. Let us see how he managed his finances. He applied for a car loan and a home loan. The car was worth Rs.10 L, a bit of an indulgence but then he had always wanted to own the brand. He then invested in a premium upmarket 5-bedroom apartment. His spouse Sheela tried suggesting that they should not be so extravagant but to no avail.
She had recently given up her job to take a break and spend more time with her one year old child. With no bulk savings for the immediate future she was worried about the manner in which Akash was spending the sole income they had. To top it off he invested all the money that remained from spending on the EMIs and his monthly expenses, in stocks. This was the year 2007. They were managing fine till Akash’s stocks started tumbling in 2008. Instead of choosing another avenue, Akash started buying more stocks as they were cheaper during this period. The real shocker came when Akash was laid off when the global recession hit and his company had to cut back on resources to counter the effects.
How did Akash cope? How did he manage to pay his EMIs?
Akash did one smart thing though. He decided to approach a debt counseling centre for his financial hassles. They showed him the right way to manage his finances. They also mediated between him and his bank.
Luckily for him Sheela had an ancestral home back in her home town, which was bequeathed to her. She also had some fixed deposits and some gold that she had invested her savings in when she had an income. Based on the debt counselors’ advice, she obtained a loan against her property. She then helped Akash pay a portion of the money towards his home loan and another portion towards his car loan as part prepayment. He also obtained written consent from the bank that he would resume repaying his loan once he got a job. In such situations banks do oblige you if you manage to repay most of the money or part of the money if not all as it was a better deal than no money at all.
Sheela whose industry was not so badly hit by the recession went back to her old job while Akash took a break and got to spend more time with his son. Fortunately for him, his peace of mind was restored thanks to Sheela’s timely aid and the debt counselors’ help.
Six months later he managed to land a good job with a reasonably good pay, though about 20% lesser than his previous pay. He resumed his EMI payments and as banks were slashing interest rates he again negotiated with his bank for a lower interest rate. As it timed with the pressure from RBI on banks for lowering interest rates for existing borrowers also, he managed to come to an understanding with his bank. Agreed, not all can get as lucky as Akash. It was a pretty close brush with fate for him and he could have fallen in a abyss of debt! Yes…he got very very lucky indeed.
However, Akash learnt a valuable lesson for life. He started following simple but smart methods to avert a future disaster.
a. He put aside three months of his pay into a separate account meant to serve as an emergency fund. He planned to put aside 3 more months of pay into that account.
b. He ensured that his current EMI did not exceed 40% of his current income. He manage prepay his home loan at regular intervals to bring this under control.
c. He with the help of Sheela managed to keep his monthly expenses including his loans within 60% of his income and put aside the rest as savings and investment
d. When he invested now he took care to diversify his portfolio and not stick to equities alone to survive a future stock market crash.
Here are some suggestions if you are stuck in debt and do not know how to cope.
- Try to lower your interest rate. Negotiate with your bank. One other way is to convert your credit card debt into a personal loan debt. It will definitely be lesser than the credit card interest rate.
- Calculate your net worth and see if any of your investments could help you prepay a part of your loans.
- Make a contingency plan for the immediate future. Talk to your bank along with your debt counselors and explain your situation and see if you can resume your loan at a later date but do make an effort to prepay some amount.
- If it is a double income household try and see if your spouse can support you in the event of a job loss in the short term before you land a job, in case you are suffering from a lay off.
- Manage your current finances judiciously to battle through the current situation and emerge wiser.
Types of Investment Options – 401K Plans, Life Insurance, Stocks, Bonds, Mutual Funds, Money Market Funds, Annuities, Brokered Certificates of Deposit (CDs), Real Estate
These days, you can't retire without using the returns from investments. You can't count on your social security checks to cover your expenses when you retire. It's barely enough for people who are receiving it now to have food, shelter and utilities. That doesn't account for any care you may need or in the even that you need to take advantage of such funds much earlier in life. It is important to have your own financial plan. There are many kinds of investments you can make that will make your life much easier down the road.
The following are brief descriptions for beginning investors to familiarize themselves with different kinds of investment options:
401K Plans
The easiest and most popular kind of investment is a 401K plan. This is due to the fact that most jobs offer this savings program where the money can be automatically deducted from your payroll check and you never realize it is missing.
Life Insurance
Life Insurance policies are another kind of investment that is fairly popular. It is a way to ensure income for your family when you die. It allows you a sense of security and provides a valuable tax deduction.
Stocks
Stocks are a unique kind of investment because they allow you to take partial ownership in a company. Because of this, the returns are potentially bigger and they have a history of being a wise way to invest your money.
Bonds
A bond is basically a promise note from the government or a private company. You agree to give them a set amount of money as a loan and they keep it for a set number of years with a predetermined amount of interest. This is typically a safe bet and one that is a good investment for a first time investor because there is little risk of losing your money.
Mutual Funds
Mutual funds are a kind of investment that are based on the gains and losses of a shareholder. Basically one person manages the money of several or many investors and invests in a list of various stocks to lessen the effect of any losses that may occur.
Money Market Funds
A good short-term investment is a Money Market Fund. With this kind of investment you can earn interest as an independent shareholder.
Annuities
If you are interested in tax-deferred income, then annuities may be the right kind of investment for you. This is an agreement between you and the insurer. It works to produce income for you and protect your earning potential.
Brokered Certificates of Deposit (CDs)
CDs are a kind of investment where you deposit money for a set amount of time. The good thing about CDs is that you can take the money out at any time without paying a penalty fee. We all know life isn't predictable, so this is a nice feature to have in your option.
Real Estate
Real Estate is a tangible kind of investment. It includes your land and anything permanently attached to your piece of property. This may include your home, rental properties, your company or empty pieces of land. Real estate is typically a smart and can make you a lot of money over time
What's new
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The children Grow-Up Life Insurance Plan
Give your child a powerful head start!
We all want to give our children an advantage in life. The Grow-Up Plan is a whole life insurance policy that protects your child while starting a nest egg for the future.
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A Gift that DoublesYour Grow-Up Plan not only provides up to $50,000 of whole life insurance protection now, but the coverage amount automatically doubles during age 18, at no extra cost!
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Security for Today, Savings for TomorrowAs soon as you get the Grow-Up Plan, you lock in a low childhood premium rate that's guaranteed never to increase. It's like a 60% discount - a big savings - on what your child would otherwise pay for new coverage as an adult.
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A Plan that GrowsIn addition to the coverage amount automatically doubling, your child will have several opportunities to increase coverage as an adult. Thanks to you, your child can always have protection to count on.
Grow-Up Plan Details
Learn more about the ways that the Grow-Up Plan can give your child an advantage for a lifetime.
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Adult-size coverage with child-size premiums
You can start your child with a $5,000, $10,000, $15,000, $25,000, $35,000 or $50,000 whole life policy and lock in a low childhood premium that will never increase. Parents, grandparents and permanent legal guardians may apply when children are 14 days to 14 years old.
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Coverage that doubles
During age 18, the Grow-Up Plan’s coverage amount doubles automatically. For example, a $10,000 policy doubles to $20,000, a $15,000 policy doubles to $30,000 and so on – with no increase in your monthly premium. That’s right, double the coverage at the same low childhood premium – guaranteed!
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Guaranteed life insurance coverage for your child as an adult
Your child can keep the Grow-Up Plan as an adult and can increase the coverage, at our standard rate for your child's age at that time, and as long as premiums are paid. Your child can purchase up to 10 times the original coverage amount. This is a guaranteed right, regardless of health, occupation or anything else – even if your child cannot get insurance from other companies.
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Builds cash value
Your Grow-Up Plan accumulates cash value as long as premiums are paid. By giving Grow-Up to your child now, you can give him or her a head start on the future. After 25 years, the policy’s cash value will be at least equal to or greater than 100% of premiums paid.
What kind of insurance does the GROW-UP Plan provide?
The policy is whole life insurance that builds cash value. You are the policy owner until your child reaches age 21. At that time, he or she becomes the policy owner.