Difference between investment and speculation according to Benjamin Graham

Investment and speculation are two concepts widely used in the world of the stock. Often used interchangeably, although they have very different connotations from the perspective of value investing .

In this article we look at the difference between investment and speculation according to Benjamin Graham , analyze the characteristics required for a financial transaction not qualifying considered speculative and end the separation between the two.

Definition of investment and speculation by Benjamin Graham

Benjamin Graham defines investment in his book "The Intelligent Investor" as follows:

"An investment operation is one which, upon thorough analysis, promises security to principal and an adequate return"

Speculation is defined by Graham opposed to investment:

"Operations not meeting these requirements are speculative"

The 3 requirements of a non-speculative investment by Graham

• Comprehensive analysis of the company

For Graham, a comprehensive analysis is:

"The study of the facts in light of the established safety criteria"

Therefore, an inversion to be made ​​without prior analysis is speculative. The greater the depth of analysis, less investment is speculative.

• Security of our investment

According Benjamin Graham, this implies:

"Protection against losses under conditions or normal variations or reasonable"

As we see, this is a rather vague concept or subjective, so this will depend on what we consider normal. Warren Buffett is much more forceful with the requirement of investment security with its historic phrase:

"Rule No.1 is never lose money. Rule # 2 is never forget rule # 1 "

• Adequate performance

Graham considered adequate or satisfactory performance:

"Any type or quantity of performance, small it may be, that the investor is willing to accept as long as it acts with reasonable intelligence"

Again this is a subjective concept, because it depends on the investor's return objectives.

Is it possible to invest without speculating?

For Graham, any financial transaction that does not meet the requirements enumerated above are considered speculative. However, I consider it necessary to clarify the difference between investment and speculation of Benjamin Graham.

First, we must start from the fact that all investments are subject to some uncertainty, however small. As there is always the possibility of losing our investment, we can say that any investment involves speculation in varying degrees. There may be speculation without investment, but not without some speculation investment.

Although there is the economic concept of "risk-free rate" (rate of return without risk), this no longer an abstract concept nonexistent in practice. For many American bonds or German bonds are practical representations of this concept. However, it is possible (although unlikely) that these countries can not pay if it happens some totally unforeseen event, such as a war or a natural disaster.

What we try to do is minimize speculation to maximize the safety of our investments and, therefore, minimize the risk. We have three methods reduce speculation and, therefore, increase the security of our investments:

• We invest in companies easily assessed, typically those with more predictable revenues.
• Deeper analysis of companies.
• Better analyze our investments, increasing our knowledge and experience.

The combination of these three methods, along with a large dose of common sense and experience, is what has made Warren Buffett the third richest man in the world and the best investor in history. Ye may not be investing in the list of world's richest by Forbes magazine, but with a little effort will succeed a good return for your savings sleeping well at night.

Five crowdfunding platforms with which they seek funding for your project

The topic of crowdfunding (or collective financing) through online platforms through which anyone can contribute their own funds to a project has been running for the past few years but lately the issue has taken special importance not only for the current situation, in which for certain projects can come better than ever as crowdfunding support, but for some specific cases in which it has raised exaggerated amounts of money and have made ​​headlines everywhere.
I'm thinking now in the case of Double Fine , the game studio owned by Tim Schafer (one of the creators of 'The Secret of Monkey Island' , in case you helps the data) that in February this year Kickstarter opened a campaign with the goal of getting $ 400,000 to develop a new graphic adventure and eventually reached $ 3,336,371 thanks to the contributions of 87,142 people. A truly absurd figure.
It is because of cases like Double Fine when this route of financing charges a much larger role and anyone who has a project in mind you will be going through your head the possibility of doing things differently. As there are many crowdfunding platforms available to us I think are worth knowing at least the most powerful and interesting (two of them are American and three Spanish) to know where to direct us depending on the type of project you have in hand. Some do not delimit by type, others do.
Normally they all have a number of common features: one that starts a campaign puts an economic objective to be achieved in a time limit (usually around the month, month and a half) and a series of rewards for those who choose to contribute some amount. The greater the input, the reward juicier. On the other hand it is essential to know that the amount you choose to provide will only become effective if the campaign reaches the target set within the stipulated time.

Kickstarter

Kickstarter is a crowdfunding platform fashion. Of U.S. origin and born in 2008, has thousands of active campaigns of all types and a very large user community that make it the most interesting.
The bad news for those who live outside the United States is that in principle allows only based projects in that country (requires a bank account to receive funds there as well). What we can do is support existing campaigns, but I have to emphasize that only supports a payment method: Amazon Payments. Kickstarter keeps 5% of the target quantity in a campaign as long as it is reached. Otherwise there is no charge.
Official Site | Kickstarter

Verkami

Verkami was one of the first crowdfunding platform created in Spain. His proposal, as opposed to Kickstarter, is aimed solely at those independent creators who want to finance their projects through this channel. The created a father and his two sons in 2010 and during this short period of time have made some renown.
Make it clear that the creators of the works that are generated through the capital raised through rights Verkami keep them (CDs, books, etc..).
Verkami charges 5% of each project only if they get funding.
Official Site | Verkami

Drip

Drip is a crowdfunding platform and distributed collaboration (services, infrastructure, microtasks) for projects that promote the commons, open source and / or free knowledge. The code of the platform, as have those responsible, will be opened when it is structured properly tested. They have no place here, therefore, for-profit projects or fundraising for charity, for example.
If funding is achieved, the commission is 8%.
Official Site | Drip

Indiegogo

The Indiegogo operation is almost similar to Kickstarter, but has a remarkable difference. While all of these platforms are carried by their leaders rule 5% of the total amount achieved by a campaign funded in Indiegogo Two types of funding. In the Flexible Funding they take 4% if the target is achieved and 9% if not achieved, but the campaign creator gets the amount he had managed to run out the time limit for the campaign. This forces seeking funding to set reasonable prices and promote the campaign well.
Then there is the Fixed Funding, where Indiegoo takes 4% if the target is achieved and nothing if not achieved, but the creator also earn a single dollar. This is the system that is used more commonly in other platforms, although it is true that Indiegogo takes the lowest percentage (4% vs. 5% standard).
Official Site | Indiegogo

Lánzanos

In the above platforms we have seen the maximum time for each project is determined by the service itself and is usually around 30 to 40 days. In Lánzanos is the creator of the campaign which sets the time it expects to raise the targeted amount of funding. And there is no maximum, but once started the campaign and can not be modified.
Lánzanos makers take 5% of each successfully funded, a figure that is reduced to 1% if it is a charity project. Payments can be made via PayPal or by using the payment gateway of La Caixa.
Official Site | Lánzanos
As said earlier, the network can find many crowdfunding platforms, but these five are the most powerful, if not more. I hope you will be helpful.

Why invest in commodities? How to invest in commodities?

Historically, the process of building investment portfolios has focused on two asset classes: stocks and bonds, although in recent years investors have become increasingly interested in finding non-traditional assets with potential to increase performance, smooth volatility, or both if possible.
Thus the interest in raw materials, in particular, has increased as investors have found exposure to natural resource prices a "third asset class" with which optimize traditional portfolios of stocks and bonds .
The great returns generated by the asset class historically may serve as further evidence of the enormous potential of raw materials . However, the raw materials are complex assets and options that investors have access to this asset class are often complicated and difficult to understand. On the other hand there is a universe of possibilities in raw materials, with dozens of families and specific assets, many of which risk profiles / return drastically different.
Commodities are risky assets , but the understanding of the components of the prices and details of investment vehicles that offer exposure to these resources can lead investors to this asset class used efficiently and as a vehicle investment.
The classification as a commodity focuses on the concept of fungibility, which means that the products are treated as equivalent or exchangeable for end users and financial investors alike. In essence, the fungibility requires standardized identical physical properties, being similar consumables regardless of where they occur or where they are. Gold is perhaps the best example: a bar of gold in London is the same as a bar stocked in New York and Singapore. Light, sweet crude oil is light sweet crude oil, regardless of whether they reside in a tanker in the middle of the Atlantic or a pipeline in Louisiana.
The possibility of exchange is a fundamental concept in commodity markets and standardizing the market and enables investors worldwide market large volumes of goods daily.
The possibility of exchange with respect to raw materials simplifies the valuation of these assets significantly, prices of commodities are derived from the supply and demand only. Of course, predict and understand the factors of supply and demand is not easy, but the pricing equation in the raw materials is extremely simple.
Market segmentation Product: forking raw materials in soft commodities and hard commodities. Soft commodities grown in plants or trees as extracted from the soil hard. Soft Commodities are many agricultural resources such as corn, wheat, sugar, cattle and soybeans. Hard Products include industrial and precious metals such as gold, copper, nickel, silver, platinum, and zinc. Also falls under the classification "hard" petroleum products such as oil and natural gas Brent or WTI.
A more detailed commodity is to segment the market into product families that generally have similar physical properties and uses. The six major product families include:

1. Precious Metals: Gold, silver, platinum and palladium all fall under this category.
2. Industrial Metals: This category includes metals that are generally less expensive than precious metals and more used in sectors such as construction and industry
3. Agricultural products: This category includes natural resources that are frequently used for human consumption, including corn, wheat and soybeans.
4. Livestock: This category includes animals, livestock generally much beef as pork.
5. Energy: Raw materials related to energy production are among the most actively traded, this category includes crude oil in its two variables Brent and WTI, natural gas, and other mixtures and derivatives such as gasoline, diesel and furnace oil .
6. Perishable: In this category, sometimes grouped with other agricultural products include coffee, cotton, sugar, cocoa and orange juice.

Why invest in commodities?

Commodities are assets that have unique and cash flows associated with the underlying asset: a gold bar will never generate cash or make a dividend payment, and a wheat field never made a coupon payment or repayment on investment.
The appeal of raw materials is the ability of the asset class of smoothing overall portfolio volatility and protecting against certain adverse economic environments with low probability but high impact event in returns. inversely Adding assets correlated to a portfolio has the effect of smoothing the overall volatility, since it is unlikely that these components move in the same direction simultaneously. Thus mainstream appeal of the products lies in the correlation or lack thereof to traditional asset classes like stocks and bonds with the consequent potential to reduce overall risk.
Of course at the expense of reduced volatility of returns is not the desire of an investor, although there is evidence to suggest that the raw materials have historically delivered appreciation while overall lower volatility. in other words, the raw materials can provide the best of both worlds when it comes to asset allocation strategies.
The inflation coverage is a major concern for all investors, especially those living on fixed incomes, as the rise in prices erodes the purchasing power of existing wealth yields and eats all kinds of assets. On this side another attractive aspect of the raw materials is the ability of the asset class to act as a hedge against inflation due to the appreciation in value when inflation kicks in, which offset losses elsewhere (dividends, coupons, interest, rents) of the portfolio as a result of a general price increase. Inflation is an increase in prices, and as such, usually include an increase in raw material prices that are inputs into goods and manufacturing processes. In other words, inflation probably will not happen unless the prices of raw materials, including oil, metals and agricultural products become more expensive.
On the other side the raw materials can also function as a commitment to the maintenance of world economic growth, and in particular the expansion of emerging economies. Developing economies to supply rapidly urbanizing migration of rural populations to the cities, so it motivates the demand for raw materials to build infrastructure, to feed growing populations, and serve the consumer goods manufacturing. For those who believe that these demographic trends are favorable to increased demand for natural resources, investment in raw materials could be an optimal way to gain exposure to this investment thesis.

How to invest in commodities?

There are four main options for investors seeking exposure to commodities, each of which has advantages and potential disadvantages:

1. Physical exposure: The most basic way of achieving exposure simply involves purchasing and storage of the goods desired. This method ensures the investor exposure to changes in the spot price of raw materials. Unfortunately, physical exposure only makes sense for products that exhibit certain physical standards and involves the maintenance of a sufficient value to weight ratio to keep storage costs to a reasonable level. The storage of gold coins in a safe is one thing, but trying to get physical exposure to crude oil or livestock presents a number of logistical and cost barriers that hinder investment opportunities.
2. Futures Contracts: Developed in the futures markets allow investors to gain exposure to commodity prices through financial contracts with natural resources as underlying assets. While this method simplifies the investment process, it also introduces additional risk factors as the return of such assets derived not only depends on changes in spot prices, but also the slope of the futures curve and the current level of interest rates, and leverage suppose what some investors may feel uncomfortable or even limited by regulation. Futures are contracts created as a hedging tool for producers and traders of raw materials, but speculators have used as an investment vehicle at the same time.
3. Shares: shares in companies engaged in the production or extraction of raw materials. Because the profitability of these companies usually depends on the market price of their products, their perspectives tend to improve with increasing prices of raw materials in question and vice versa.
4. ETCs: Investment Vehicles listed on a stock exchange and traded like stocks that allow investors to gain exposure to commodities individually, sectoral or global. These exchange-traded commodities for benefiting from all the qualities I have outlined above, taking into account certain risks common to futures contracts, as such ETCs replicate indices whose constituents are commodity futures in question.

Below I discuss some tables with cumulative returns for different periods of time, the correlations with key benchmark stock indexes, volatility and Sharpe ratio for each of the reference materials used as ETF Securities ETCs.
 

Precious Metals

Industrial Metals

Agriculture

Energy

how to Invest in renewables energy

In recent years, renewable energy investment has increased in popularity largely because the world is becoming increasingly aware that the current economic model is based on finite resources and this has to change. Although crude oil and other fossil fuels will last us for the foreseeable future, there will come a time when our energy consumption will have to look for alternative and renewable sources.
And here come into play renewable energy, although this sector is still relatively immature in global terms, the growth opportunities presented are huge and it is worth considering exposure to renewable energy.

How to invest in alternative energy?

Biofuels:

Biofuels are an alternative form of energy derived from carbon based organisms. There are many different options including bio-alcohols, biodiesel, green diesel, vegetable oil ... Recently, the International Energy Agency has stated that biofuels have the potential to replace 27% of transport fuels by 2050, effectively reducing emissions greenhouse gases by 2.1 million tons per year. Even some countries already have existing mandates requiring companies to blend biofuels with gasoline, giving these various fuels with high growth potential.
Some companies with which exposure to biofuels, and thereby to alternative energies are:

• Archer-Daniels-Midland Company (ADM) company dedicated to the production of different agricultural commodities and also has many of its operations based in the biofuels industry.
• Methanex Corporation (MeOH): this is a company dedicated to the production and sale of methanol, a chemical that, among other things, is a very popular agent mixed with gasoline. Methanol is also one of the key components of biodiesel. MeOH pays a dividend yield of 2.6%.

Hydropower:

Hydroelectric power has become the most powerful energy alternative at this time, but of the least popular. Hydropower generates water currents moving and exercising more on large dams and rivers.
It is presented as one of the alternative energy sectors with greatest growth opportunity.

• China Hydroelectric Corporation (CHC): This company is engaged in the acquisition, ownership and development of hydropower in China. HCC has assets of $ 77 million.
• Zhaoheng Hydropower Ltd. (ZHYLF.PK): Zhaoheng generates electricity mainly in the southern and midwestern China.

Nuclear:

After the tragedy of Fukushima has questioned the safety of many nuclear plants, and that is why Germany has completely abandoned nuclear power. But with the new facilities are much safer and more efficient nuclear plants like Fukushima, so that investors take into account this energy Fuenta its considerable growth potential.
We expose ourselves to nuclear energy by investing in ETFs or companies related to these materials:

• Market Vectors Uranium + Nuclear Energy ETF (NLR): This ETF provides direct exposure to nuclear energy because it has stakes in companies such as Exelon Corp, Uranium One, and Areva engaged in the manufacture of this alternative energy.
• Uranium ETF (URA) ETF focuses on the mining of uranium it is considered a direct exposure to nuclear energy and impact the growth of this industry.

Solar:

The solar energy sector is the fastest growing developed in recent years, and a favorite for investors. The industry is still relatively small, but has an average growth of 39% annually over the last decade and a strong predictions for the future. For now, China dominates the solar market, and most companies base their operations in emerging markets.
To be exposed to this alternative energy we can choose companies or ETFs:

• First Solar, Inc. (FSLR): This US-based company is one of the best known in the solar energy sector. Even after the death of CEO of First Solar the company's future is uncertain.
• Market Vectors Solar Energy ETF (KWT): This ETF invests in companies that, on a weighted basis, get a 90% or more of their income from the solar energy sector. The main investments of the fund are in companies like First Solar, GT Solar and MEMC Electronic Materials.

Aeolian:

Wind power is one of the most established alternative energy in the world, and many countries have chosen it as an alternative to fossil fuels. Currently, wind power amounts to just over 2% of the world's energy supply, but its growth rate is increasing, and this figure is expected alcanzace 8% in 2018. Like so many other forms of renewable energy, energy companies are hard to find in equities, but this trend will change as the industry continues to grow.

• Broadwind Energy, Inc. (BWEN) sector company wind energies, based in Chicago. Owns more than $ 44 million in assets.
• Iberdrola SA (IBE.MC): This Spanish utility company, is part of your business based on wind energy production by Iberdrola Renovables, so it is an attractive investment option.
• ISE Global Wind Energy Index Fund (FAN): a fund that focuses all his interest in the wind industry. Your participation is divided into different companies, those companies which are exclusively in the wind business receive a higher weight than those with a broader business model.

What other way to invest in renewable energy you know?

Investing in gold, yes or no?

Is it a good idea to invest in gold? At this time I found two quite substantiated opinions about investing in gold. Both are by people who I think are experts on the subject and I do not have a secondary interest in the subject. So I find it interesting to hear.

On one side in favor of investing in gold is Marc Garrigasat, the blog author Investors Conundrum and president of the Koala Capital SICAV. According to Marc Gold is the true currency of payment of the planet universally accepted, is much older and is not affected by debt that may have taken the issuing state.

On the other side is that of John Reed, author of several books and articles on real estate investment in the United States and one about protecting the savings in bad times. He says that gold is a bad asset to hedge against inflation. Although he recognized advantages such as high density value, says that gold holds its value can lower long-term, and that in the future end up losing because value is above its historical average inflation-adjusted.

In full crisis investing in gold this who would be at the whim of rich sound, but we must also recognize that the turbulence and the high price of it are causing many mediates class people engaged in buying gold, no more than see the shops and businesses that have emerged, some of them with great success and attention given by the media. In fact it has spoken to install gold vending machines . All this without counting the movements of large investors (investment funds, banks, etc.) that are around gold.

Who is right? Should we sell everything we have and buy yellow metal or should we invest in other intangible assets? Personally I think the future imagined by each of the persons mentioned is different, and the period in which the investments contemplated. Meanwhile asks readers? Invest in gold or invest in gold?

The most profitable mutual funds 2012 , Hedge funds.

I found it very interesting annual returns are able to get the big hedge funds, also known as the most profitable investment funds in the world.   We understand how big hedge funds who manage more than 1,000 million dollars. In the list we have the 100 with better performance in 2012 (from 01-01-12 to 31-10-12) and we can compare it with the result obtained in the previous year (2,011).
In the list we can see that most of Hedge Funds exceeds 1,000 million managed and some 5,000 million. The best-performing hedge funds have gained hover between 20% and 40%, which is not bad considering the vast amounts of capital managed.
In this post I put the list of the top 12, with photo of the manager and all data relating to the company, the name of the fund, the strategy used and the yields obtained. The full list of the 100 best in the big hedge funds you have it here .

1st. Background: Metacapital Mortgage Opportunities . Manager: Deepak Narula. Location: USA.
Company: Metacapital Management. Strategy: Mortgage-backed arbitrage
Managed capital: 1,500 million
Performance in the year 2012 (from 01-01-12 to 31-10-12): 37.8%
Performance in the year 2011: 23.6%

2nd. Background: Pine River Fixed Income. Manager: Steve Kuhn. Location: USA.
Company: Pine River Capital Management. Strategy: Mortgage-backed arbitrage
Managed capital: 3.600 billion.
Performance in the year 2012 (from 01-01-12 to 31-10-12): 32.9%
Performance in the year 2011: 4.8%

3rd. Background: CQS Directional Opportunities. manager Michael Hintze
Company: CQS. Location: UK Strategy: Multistrategy
Managed capital: 1.500 billion.
Performance in the year 2012 (from 01-01-12 to 31-10-12): 28.9%
Performance in the year 2011: -10.4%

4th. Background: Pine River Liquid Mortgage . Manager: Steve Kuhn. Location: USA
Company: Chen Jiayi Pine River Capital Management. Strategy: Mortgage-backed arbitrage
Managed capital: 1.100 billion.
Performance in the year 2012 (from 01-01-12 to 31-10-12): 28.0%
Performance in the year 2011: 7.2%

5th. Background: Omega Overseas Partners . Manager: Leon Cooperman
Company: Omega Advisors. Location: USA. Strategy: Long / short
Managed capital: 1.400 billion.
Performance in the year 2012 (from 01-01-12 to 31-10-12): 21.7%
Performance in the year 2011: -1.4%

6th. Fund: European Odey. manager: Crispin Odey. Location: UK
Company: Odey Asset Management. Strategy: Macro
Managed capital: 1.800 billion.
Performance in the year 2012 (from 01-01-12 to 31-10-12): 24.1%
Performance in the year 2011: -20.3%

7th. Background: Marathon Securitized Credit . Managers: Bruce Richards, Louis Hanover
Company: Marathon Asset Management. Location: USA. Strategy: Asset backed
Managed capital: 1.200 billion.
Performance in the year 2012 (from 01-01-12 to 31-10-12): 24.0%
Performance in the year 2011: - 4.2%

8th. Background: Palomino . Manager: David Tepper
Company: Appaloosa Management. Location: USA. Strategy: Multistrategy
Managed capital: 4.900 billion.
Performance in the year 2012 (from 01-01-12 to 31-10-12): 24.0%
Performance in the year 2011: -3.5%

9th. Background: BTG Pactual GEMM. Managers: Team managed (Andre Esteves)
Company: BTG Pactual Global Asset Management. Location: USA. Strategy: Macro
Managed capital: 3.600 billion.
Performance in the year 2012 (from 01-01-12 to 31-10-12): 23.1%
Performance in the year 2011: 3.4%

10 °. Fund: Third Point Ultra . Manager: Daniel Loeb
Company: Third Point. Location: USA. Strategy: Multistrategy
Managed capital: 1.300 billion.
Performance in the year 2012 (from 01-01-12 to 31-10-12): 22.1%
Performance in the year 2011: -2.3%

11 º. Background: Seer Capital Partners. Manager: Philip Weingord
Company: Seer Capital Management. Location: USA. Strategy: Asset backed
Managed capital: 1.200 billion.
Performance in the year 2012 (from 01-01-12 to 31-10-12): 21.6%
Performance in the year 2011: 2.1%

12 º. Background: Tiger Global . Managers: Feroz Dewan, Chase Coleman
Company: Tiger Global Management. Location: USA. Strategy: Long / short
Managed capital: 6.000 billion.
Performance in the year 2012 (from 01-01-12 to 31-10-12): 21.0%
Performance in the year 2011: 45.0%

The Compound Interest (part II)

In the previous article we discussed that with compound interest was not very difficult to arrive at a figure of, say, € 300,000.

Well, needless to say, despite not be complicated requiring high doses of patience and discipline. Highly difficult thing when you have a considerable amount of money in hand, the temptation to eat uncontrollably or buying a luxury item, see a car, a house etc. exponentially increase.

A major plus point is the age at which you start, it is clear that the longer devote the most amount of compound interest can gather during a given period of time. So begin no later than age 30 would be ideal.

The first is to score a goal. Then decide how we figure that we will be around for a few years head.

Suppose we do not want risks and we're moving from, for example, 3-4% will give us a bank deposit and give us 5-7% by acquiring quality corporate debt. We mark a savings rate X which in monthly maturities of our investments go humble adding interest.

 

 

At the end of each year will add to the annual CPI rate of savings we had last year so we make sure we do not lose purchasing power over the years and inflation were not gaining ground.

An example. Monthly savings rate € 500, in a year together € 6,000. The next year we will have € 6,000 in an investment for example at 4.5% APR so that at the end of the second year we will have € 6,000 the first year, plus interest of € 6000 to 4.5% (213 euros after tax ( 21%)), but the 6000 euros (plus CPI should have risen to the saving rate) in the second year. A total of 12,213 euros in two years just.

Do you get the idea right? The third year we invested 12,213 euros, for example, the 4.5% that we will generate € 434 after tax, but the 6000 (plus annual CPI) for the third year, in total € 18,647.

In three years we will have € 18,647 without having updated the saving rate not to complicate the explanation. I think it's pretty clear the concept.

It is clear that more and more savings rate interest we reached the goal faster. But the same does not increase the interest savings. If you double the interest rate at which you are making your money work the result will not bend but is multiplied by 3'5. So imagine that can happen maximizing the savings rate and get a higher annual interest average. Spectacular.

It happens snowball effect, the principle is much start but once we have run for anyone.

To give more examples and see how it affects a slight increase projected interest rate over time.

Starting with 0 and with a savings rate of 610 € monthly, 3% compound interest capitalized through in 20 years we will have about 200,000 euros, in fact rather more in the calculation because we have not updated the CPI savings rate.

Just changing the 3% to 5% and we almost € 250,000. Can we imagine if we get over it?

If for whatever reason we can start from a number other than 0 that we have gained in time.

Let everyone do their calculations, charts and projections and let your imagination run wild. On the net there are plenty of calculators and compound interest tables .

Anyone is more motivated? You just have to want it.

The Compound Interest (part I)

Often one has talked about this on the net. In fact Einstein once said and the power it has is brutal and compared it to the most important laws that came to discover in his time.

Everyone can invest at compound interest is more, everyone should invest in this way.

The only concept that you have to hold in your mind is that the interest earned on the investment, whatever, have to be reinvested. If you get X amount take an additional 10% for your next investment will be in X amount plus 10%, and so on.

 











Each time you will be investing a larger amount, and over the years you might have considerable capital.

A clear example of safe investment, how deposits, can be combined with compound interest, a powerful tool to raise capital face higher.

You just need to have two things: time and patience. With the very fact continuously reinvest our capital interest is increasing and if you also add fruit saving periodic contributions and the issue is more interesting.

It is clear that the more interest you can get faster increase our capital, but since most people do not want to take greater risks, take for good the interest that we can offer a bank or, how are all the rage now, some bonds autonomous. Although there are many other options how large corporations that offer senior notes, for example, at a good interest and security of solvency.

Well, what we were going. An initial capital plus an acceptable interest and adding a regular savings result gives how, over time, a capital that many do not even have arisen in life.

In the next part of the article we will make a realistic example of how awesome it is compound interest, and never too late to start, but since one of the requirements asked of us is the time because the sooner we start better, more joys reach have.

An advance is not difficult to reach € 300,000.

Strategy for change Euros into another currency. The right way.

There are quite a stir with the Spanish financial system and not for less. There are many people who come to the blog through an article I wrote about how to protect ourselves in case of financial playpen . Well, there are many readers who ask about the foreign exchange, exchange euros for dollars or Swiss francs.

A priori there is no secret but deep down is a dangerous operation to our heritage and here we will explain some concepts.

We will explain a strategy to follow if you want to change our euros for another currency, so whether there playpen, etc. back to the peseta.

Let's start from the premise that there is a strategy for all profiles and you have to be very clear concepts, which has a high risk and often not worth the want to protect with the end result.

To protect small amounts best and most practical refrain would buy U.S. stocks, get the money from the bank and save it at home or invest in a product that is not in euros and that is outside of our national borders.

Come to the point. It turns out that if we change our euros for Swiss francs Swiss francs have more euros as it changes at a rate of 1.20 francs per euro. If you always had this change of currency would not have any problem but not, it fluctuates daily and can vary significantly over time. For example, the October 12, 2007 was changed at a rate of 1.67 euro and Swiss franc on August 10 de 2011 to 1.04 francs a euro, almost parity.

What does that mean? Somebody would have changed 1000 euros into Swiss francs maximum day would have had 1670 Swiss francs and minimum day with the same 1000 euros only 1040 Swiss francs.

Example. If we change 10,000 euros to obtain CHF 12,000 CHF (Swiss Francs). (We do not have commissions to make it easier).

The change of today is 1 Euro 1.20 CHF but if in one year we have to recover the money and change is in 1.40 not recover the 10,000 euros but we have to do the following calculation: 12,000 / 1.40 = 8571 euros. With only twenty cents change coin we lost 1429 euros.

On the contrary if we do change to 1.10 Swiss francs will earn 10 cents euro the currency exchange and we bagged 900 euros obtaining a total of 10,900 euros.

So far there is no secret, pure mathematics. Doing this is very simple but do it well and minimizing risk is more complicated.

What would we do? Would open an account with a Forex broker (broker who works with currencies) and we we would have to create a hedge on our exchange.

If bought at 1.20 and increases (1.25, 1.30 ...) lose money so we will long (buy) in the EUR / CHF, ie bet that the change will continue to grow, that way currency exchange our money but lose our operation in derivatives will win, and more or less have to compensate.

We detect that the price turns and the Swiss franc starts to revalue against the euro, as long as we closed our investment in itself is no longer in losses.

If detected again as trends change can re-open a long or short hedging.

Summarizing. If the investment goes well we do nothing, if it goes wrong we opened a financial derivative currency pair opposite to our investment and investment lose but win with derivatives, to compensate. By detecting turnaround derivative will be closed and that our investment will not pro our derivative loss itself.

Surely there are people who do not understand these concepts, as I said at the start that it is a strategy for people who have some mastery of finance. But basically it's not complicated. You just have to learn to manage financial derivatives in Forex is tricky as there are lots of leverage and we can be more expensive the coverage of investment loss itself.

He opened the floor to questions

Difference between active and passive

Of all the definitions of assets and liabilities are only have to stay with the most important, and you have to remember forever.

An asset is something, an investment that puts money in your pocket. However slightly.

A liability is something that takes away the money from his pocket. An expense.

Do not confuse these two concepts as there are many people who think that the house where he lives is an asset and a good investment and nothing is further from reality. A commonly used house is a liability because it does not receive any income from it, and will only be active if one day we decided to sell it to cash, and keep the money.

 

While the home where you live "cost you" money as much as your expectations make you think that in ten years you will get high returns are sitting on a pile of bricks and not on an investment.

Could encompass how active an investment in stock , bonds , a house to rent a bank deposit ...

And conversely a liability would be for example the commonly used home, second homes, a car and all that to make ends meet instead of giving money taketh away.

Spain is deeply rooted in the idea of ​​buying a flat / house and think it's an investment, "a piggy bank" for the future in case of contingencies or just spend the feel you're going to have a possession to be worth tens of thousands euros and you feel you've "invested" or you're going to invest the money.

And you have to be very careful as always not buy is more profitable than renting . The other day I read that 80% of people who have a mortgage for 5-10 years ago is paying more than it is actually worth your floor. And that's not an investment. It is a liability how a house never better.

From the moment you decide to live financially in an efficient manner have an obligation to be creating assets and go slowly getting rid of liabilities that have made ​​previously, and we saw what is the best way to start eliminating debt .

A monthly savings combined with any investment, simple or complicated, and applied over time with compound interest is the best way to create quality assets that slowly but gradually will be putting money in your pocket.

And you've started to build assets? We invite you to tell us what is your strategy to get more and more in his pocket.

Equities vs. fixed income

We want to invest but do not know where to start. We heard that a neighbor buys shares, another has-bills ... but it sounds like Chinese. The most common among the ordinary people, not familiar with the investment world is to know the stock exchange. Equities bag not associated with on many occasions.

If we go a step further, on the other side of the sidewalk, no bonds. Four out of five people questioned in the street has never heard of the bonds, but the bonds of state and treasury bills.

There is a lack of knowledge of concepts and the association has to be clear that equity = stock exchange = buy / sell shares on an exchange.

And fixed income = letters / bonds / debentures, although in this case it is not so easy to explain as above.

I am often asked which is better, if the fixed or variable?, is an open question as it is not a duel to be the best way to invest, but every one of the options requires a plan or strategy determined and made ​​to measure.

By email I have received a comment on why equities RECOMMEND even. I have to say that I've never done, just position myself where best suits me and I adapt to the rules of the game on the fly. Who else who ever invested less in stock, if not he will have done so indirectly through your bank in a structured deposit or a mutual fund. Of all the people who have bought shares being aware of what they did, probably 8 out of 10 will have lost money, have won something and that ten will be made ​​in August. It's pure statistics. To earn a few most be missed.

The bag is fascinating. But never an individual investor may invest to a "higher level" because just as fascinating is equally manipulable. If I want to buy shares of Google I can do with a few mouse clicks. I can think that the company is "on fire" and that will go far. But managers may hedge funds, pension funds and large investment funds do not think the same and withdraw their positions. In that case the action begin letting down caught out if I have not heard before, either by choice or by the use of a stop loss (stop loss).

The strategy followed by these three groups of investors is quite simple in concept. They come in solid companies with good growth and the mere fact of having a reputation draws lots of people, and I do not mean people like you and me (also), but managers and smaller funds and large investors capital private. When the action is "hot" is said, the great go through the back door, by stealth, reaping the benefits and leaving others with an action that is devalued by simply taking away a part of its value . This happens every day, and is to blame for that 8 out of 10 of us lose money in stock market.

If you look at a recent case we can see if Apple / Google. The first was the world's most powerful company, shares more than 700 usd and bank account filled to the brim, to say nothing of the benefits you get. Until one day a great manager decides he has had enough and leaves, of course others are wary and follow him. There is no reason. Humans are like dogs when you shoot with a stick.

Source | Yahoo! Finance

So where has the money gone? Much of it directly to Google. In six months is up 40% to more than 900 usd per share, your business is going well or very well, but Apple is stronger and gets more benefits. And the box (cash money) is several times larger than that of the search engine block. But the funds are positioned in the search, making skyrocket while Apple already looks like 700 usd far and passes through a discrete (to be what it is) 400 usd.

Source | Yahoo! Finance

Until some lit, some other privileged information worldwide leading company, decides to abandon positions. The action will begin to lose because it is what makes the law of supply and demand. If a site is removed as there are less.

With fixed income this can not happen in this measure. Market does not work like this. As much as the bond is not fixed for the purpose of this type of investment is not the same. In this market, commonly, it comes knowing what is going to win, and although we can speculate without any problem, large funds do not use this method. In this market, which we are most knowing the outcome. Knowing that the current uncertainty is no reason for you to lose money, and if all goes well I will recover the initial capital plus interest at maturity.

Clearly positioning myself for fixed income, but that does not mean they do not use the equity (if I use it) but I move into what best suits my investment method.

I see it like a business. Imagine you are the manager of a company and you have two possible scenarios for the end of year results. Think of your choice dependent jobs. On one side of the table is the aggressive option (the reference to equities), this option is as follows: if the thing goes well the company will earn a 25% in this fiscal year. If something goes wrong the company will lose 15% and you have to make a cut of 30% of the workforce.

Across the table is the most relaxed (relating to bonds), in that you will not lose in that year but the benefits will not 8%.

Which do you prefer?

Sure you reflect on this example you have decided that the bond is better. No, not better. It's different. It is used for different things. It depends on your plan and your ambition. Not the same winning by 8% to 25%, but it is the same to win by 8% to lose 15%.

Quite some time I am in favor of adding 8 at 8, and not from adding 25 +10 -15 -8. I hope you understand. I am more than convinced that long-term earning just over fixed income than equities.

Just to give an example, a well-known blog (I will not say the name), which have a public investment portfolio. Since 2008, have achieved 16% revalue. A 16% cumulative, then dividing by the years from the start date is plus or minus 3%.

  In fixed income, and without being a "master business" minimum multiply that number by two.

This is not to say it's easy and those who invest in equities fools. Not at all. Only that each tool is used to a certain way of working.