Introduction to Investing for Profit

Types of Stock and Bond Brokerages, Risk vs Return, and More

by Kelly R. Smith

Warren Buffett vs George Soros
Warren Buffett vs George Soros
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Standard Disclaimer—The author is not a financial advisor and this article is intended as educational material gained from 20 years of stock market investing. It is not intended as advice.

Many people still look at making financial investments for profit as a pastime that only the rich such as Warren Buffett engage in. And perhaps that was true in the past, but no longer. There has been a shift over time from pensions to self-directed retirement plans like the 401K.

These are highly managed plans; you look over a menu of funds and choose an assorted basket of funds, hopefully after doing much in-depth research. Some funds are primarily domestic, some are emerging markets, some are bonds—it goes on and on.

Most people are knowledgeable about one kind of investment–the home they pay a mortgage on and occasionally sweeten their real estate investment by remodeling or doing capital improvements like building out their basement.



Risk vs Return

As a general rule of thumb, funds and individual stock and bond returns range from high risk/high return to low risk/low return. Which is right for you? One of the most important factors to consider is how many years you are from retirement.

The most widely-accepted strategy is to begin with high risk positions when you are young with a long window of taking risks. You then re-balance your portfolio (collection of investments taken as a whole), each year so that you are taking less financial risk as you get closer to your golden years.

Choosing Between Buying Stocks or Bonds

Ideally, you want to own both; the ratio is up to you. Bonds tend to less volatile than stocks; they yield less return than stocks. But generally, when stocks are doing well, bonds perform less well and vice versa. When the market and economy burps, as it tends to do, you might want to make adjustments to your portfolio. Stocks like a bull market and bonds like a bear market.

Taking this approach has the tendency to smooth out the net worth of your portfolio, depending on whether we are experiencing a bull or a bear market. Forbes Advisor says, “According to market ‘astrology,’ a bear indicates the market is in decline while a bull signals the market is growing.”1 See the logic here? Always consider the fees that your broker charges per transaction.

As an example, when the conditions were spot-on I began acquiring Blackrock Municipal Income Fund and I did quite well with it. What makes municipal bonds so attractive? It is very stable, and of course, tax-free. There are always exceptions. Liquor, wine, and beer are called “sin stocks.” They almost always do well because as the saying goes, “people drink when the market is up because they’re happy and they drink when it’s down because they’re sad.”

You have probably voted on a “bond issue” in your community to build a new school or library. Upon approval, your city or county borrowed the money from a municipal bond fund and you and your neighbors paid it back over time with your taxes. It’s sort of like financing a vehicle.

How Much Time do You Want to Spend on Portfolio Management?

Investors come in different flavors. They vary from the timid and/or time-challenged to the type that wants to self-manage. If you’re the first type then you might stick with a relatively hands-off completely managed portfolio, like the 401K that your employer might offer.

If you are the hand-off type, keep in mind that you will be swapping convenience for potentially high management fees. Another strategy is to establish a personal account with a brokerage firm like JP Morgan Asset Management. As they say on their website, “We have a deeply resourced global network of investment professionals who take a research-driven approach analyzing every detail to uncover opportunities and risks to help our clients build stronger portfolios.”2

You will be paying for personal attention and remember that your broker is possibly more motivated by his commissions than with your profitability.

Exchange Traded Funds: What Are ETFs?

Forbes Advisor puts it this way, “Exchange traded funds (ETFs) are a type of security that combines the flexibility of stocks with the diversification of mutual funds. The exchange traded part of the name refers to how these securities are bought and sold on the market like stocks. The fund part refers to how an ETF provides easy access to diversification and exposure to a wide variety of asset classes.”3

The financial services company buys a basket of assets, stocks or bonds, currencies or commodity futures contracts, that make up the fund. Buying shares in an ETF doesn’t mean owning a portion of the underlying assets, as it would with shares of stock in a company. The financial services firm that runs the ETF owns the assets and manages them.



Invest at Your Pace with a DRIP Fund

I really like these. When I first started researching, I had rather shallow pockets meaning not much disposable income but I was eager to join in. DRIP funds (Dividend Reinvestment Plans) offer several advantages.

To begin with, they are very affordable. Brokerages operate like this: they charge a nominal fee such as $10 dollars per month for 2 trades. Unlike other types of brokerages, using this approach you can buy a percentage of a single stock. For example, if a stock is trading at $100.00/share, you can get in at half a share for a mere $50.

Another advantage is that in many cases you can sidestep a stock broker altogether and deal directly with the company you are buying into. The best way to identify participating companies is to look through a DRIP fund directory.

When your positions (individual companies you own) pay a dividend, the company (or DRIP brokerage) automatically uses it to purchase yet more percentage of shares and credits your account automatically. It is a frills-free brokerage so you must do your own research.

Play the Market like a Pro

Finally, there are on-line brokerages such as TD Ameritrade. You pay for individual trades, but again, you must do all your research. One good thing is that their on-line tools are extensive. You can drill way, way down when you are analyzing a potential position. You can trade options or you can choose from an extensive line-up of trading options including market, stop market, limit, stop limit, and more.

I hope you found something good to take away from this article on stocks and bonds, brokerages, and the risk vs return of investments.

You Might Also Enjoy:

Resources

  1. Kat Tretina, Forbes Advisor, What Are Bear And Bull Markets?, https://www.forbes.com/advisor/investing/bear-market-vs-bull-market/
  2. J.P. Morgan, The path to stronger portfolios, https://am.jpmorgan.com/us/en/asset-management/adv/about-us/
  3. Miranda Marquit, Forbes Advisor, Exchange Traded Funds: What Are ETFs?, https://www.forbes.com/advisor/investing/what-are-etfs/

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About the Author:

Photo of Kelly R. SmithKelly R. Smith is an Air Force veteran and was a commercial carpenter for 20 years before returning to night school at the University of Houston where he earned a Bachelor’s Degree in Computer Science. After working at NASA for a few years, he went on to develop software for the transportation, financial, and energy-trading industries. He has been writing, in one capacity or another, since he could hold a pencil. As a freelance writer now, he specializes in producing articles and blog content for a variety of clients. His personal blog is at I Can Fix Up My Home Blog where he muses on many different topics.

How to Improve Your Credit Score

A range of credit cards
A range of credit cards


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One of the best things you can do to to improve your odds of purchasing big-ticket items such as cars and a home is to improve your credit score. It is also essential to be in good standing when applying for loans, mortgages, credit cards, and even some jobs. A minimum target is a score of at least 720, while 850 is the highest you can go.

Credit Bureaus Determine Your Fate

Three credit bureaus (the Big Three, as they say) tabulate Americans’ credit scores: Equifax, Experion, and Transunion. You might assume that these are government agencies, but you would be wrong. They’re independent companies in the business of calculating and reporting your score. The methods they employ to come up with your score and how to improve it are closely guarded secrets.

iPhone Accessory Sale

A Strategy to Improve Your Credit Score

Raising your credit score does not happen overnight; you have to work at it. How to go about it? There are various thoughts on the matter but Phil Tirone, author of the book 7 Steps to a 720 Credit Score, hits on 3 key points that everybody can agree on. Don’t fall for online scams that promise to magically raise your score. Rely instead on these principles.

  1. “Aim to have three credit cards—not just one or two—but never more than three. If you have more than that, pay them off and cancel them as soon as you can.”
  2. “Never use more than 30 percent of your credit limit. In other words, if you have a $10,000 credit limit, do not borrow more than $3,000.” To do so would be unwise in any event.
  3. “Have one paid revolving account—the kind you can maintain at a furniture store. Purchase something like a sofa and then pay it off. Use it every so often, and be sure to pay it off every time.”

One caveat here that he didn’t mention is to never be late on a payment. That will poison your attempt to raise your credit score. Automatic withdrawals are perfect for this. Set and forget.

A Higher Credit Score will Save You Money

For example, if an average consumer owns one credit card, one car loan and a house mortgage of $150,000 and raises his credit score by 50 points or so, he could save as much as $700 a month. Now why would that be? Because that makes him less of a risk. He can secure better terms and interest on a mortgage and more favorable car financing.

Consider what a benefit that $700/month is. The consequences are far-reaching. Typically Congress favors American taxpayers with about $700 every few years in the form of a tax rebate, and the economy gets a good bump. Imagine if every american were saving $700 a month and could use that to recharge the economy!

So now you know how to improve your credit score. The question is, “When?” The answer of course is, “Now!” 


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Online Scams to Watch Out For



Beware of internet scam and spam
Beware of internet scam and spam

Article updated 11/14/18.

Scamming rubes is nothing new; it has been around as long as the unscrupulous among us began to figure out how to separate the gullible from their cash. Snake oil anyone? Step right up. Methods vary but the digital age has really opened up the floodgates for these charlatans. Forget the iconic “Nigerian prince and Middle East widow;” things have gotten more sophisticated. Here are a few online scams to watch out for.

Trump Bonus Checks, Freedom Checks, and the 501(k)

This one has been making the rounds for some time now. There are many variations but what it boils down to is that money is out there for the average American to claim (But hurry! There’s a deadline!) Yeah right, and every time that deadline expires it’s pushed forward.

Some of them claim that large corporations are just falling over in their eagerness to cut huge checks. Others actually seem to claim that President Trump actually signed legislation to hand out money like candy (But hurry! There’s a deadline!). These are called Trump Bonus Checks. They never specifically claim that the Donald had anything to do with it but the slippery bums plant the seed of reality by taking advantage of a little thing called greed.

The reality? These shysters are selling expensive stock-pick newsletters. Couldn’t cut it as legitimate brokers, I suppose.

Have You Seen Ads About the 501(k)?

Regarding one that I just saw this morning the hook read, “Trump’s New Law Could Mean Big Changes for Retirees.” Did Trump change something in his tax reduction? No! He simply did not reference or eliminate certain already existing tax loopholes. But these “advisors,” ahem, are clever with words. And targeting retirees online? Sad.

In reality they want to send you a book that tells you how to invest in their “secret plan,” of which they say, “Because government heavily restricts the advertising for this “account,” most people aren’t aware of just how great it is.”

Heavily restricted? But their have their ads plastered all over the internet? This is so odoriferous; it stinks to high heaven of chicanery.

The “Consumer Bonus” Hidden in Section 11042

Shhh, don’t tell anyone but this bonus has been “hidden”in the Trump tax reform bill. The online video tripe put out by the Oxford Club (now, doesn’t that name just radiate confidence?) claims the average citizen can get a bonus of cash of up to $3,700 for purchases. In their words, anything from a pair of shoes to a yacht. And the best part is that the IRS doesn’t even care if you save receipts. Yowsa!

But hold your horses. Does this pass the smell test, I ask? As Intuit Turbotax puts it, “This is bogus, a play on words, and nothing of substance. If you read the language of that section, that is indeed the section that limits the SALT deduction, a provision that was subject to much political debate. Before enactment of HR 1, you could fully deduct your paid state and local income taxes. This provision limits that amount for tax years after 2017 and before 2026 to $10,000.”

“So the claim is “legit” in the sense that if you are at the top marginal tax rate and you itemize your deductions and you paid $10,000 or more in state or local taxes, your tax bill will be $3,700 lower in 2018 than it would be without 26 USC 164 (which Section 11042 modifies).”

“However, it is entirely bogus because that section of the 2017 tax bill does not provide any new benefit at all, like the copy explicitly states (it is in fact limiting an existing benefit) and because that provision does not even apply to tax year 2017 anyway. If you were already benefiting from “this section” you will continue to benefit (albeit to a lesser extent). If you were not already benefiting, you will continue to not benefit.”

OK, that was a bit long-winded but it’s the gospel according to Turbotax and if anyone knows the code, it’s them. So what the heck is up with that illustrious organization the Oxford Club? Same old, same old bait and switch show. They want you to subscribe to The Oxford Communiqué. They are basically selling you their stock tips. But really, if they had to stitch together that whole bogus tale of the Shhhh, Hidden Consumer Bonus, do you really trust their tips?

Just Sign the Petition…

This one is usually has a political flavor. Sometimes it comes from a bona fide politician. Sometimes it comes from a third party, maybe a legitimate fundraiser, maybe not. In any event, here is the way it works. The email concerns an alarmist political issue.

“Dear fellow patriot, we desperately need your support. Please click to sign the petition which we will deliver to X,Y, or Z. Clicking will indeed take you to a petition for you to “sign.” How can typing your name hold water? Next you are taken to a page asking for a monetary contribution.

Why does it work? People that are politically aware are emotional about their side on most issues, whether it is for the Republicans or the Democrats. It is a classic emotion-play. But in the case of a third party solicitation, what percentage actually goes to the cause and how much to “operating expenses?” If you really want to contribute, go right to the party.

This is another one that is designed to tug on your heartstrings. Booooooing! You will usually be shown a sad photo of a child, people, etc. in a horrible situation. Next they go to work exaggerating the back story about these people. After the story, they then ask that you donate some money to this noble cause.




Unfortunately even the supposedly reliable charities don’t always make the grade. Several years ago the Red Cross got a slew of bad press for the incredible expenses they went through while doing some remodeling on their headquarters.

Rather than just handing over your cash on the spot, ask to see in writing the way and what percentage of funds actually get distributed. If they are legit they will be glad to oblige. If they hesitate or hem ‘n haw, give them the boot.

Search for Your Name

This money-grabber comes cloaked in a number of come-ons. It might say “Scary what this site knows bout Americans. Enter any name,” “Have you Googled Yourself?,” or something similar. Clicking will take you to a page that allows you to enter a name, state, etc. It will yield some basic facts but then wants to charge your credit card to give you the real scoop. What they don’t tell you is that all this info is all in the public records.


Do you really know your employees?


All you are really paying for is for someone (actually something, an algorithm) to do the leg work for you. If you don’t mind paying for that, OK. But keep in mind that this is a sneaky come-on and as long as they have aggregated your data they can easily use it themselves or sell it to others as a basis for identity theft.

Bottom line? Don’t trust anyone; approach each situation as a business transaction. Do not open any email attachments that you do not trust. Keep your emotions in check. Sign up for the Kim Komando newsletter. She is always on top of new scams.


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Trump Bonus Checks & More Scams

Freedom Checks, the Foreign Lottery Scam, the 501(k), and More

by Kelly R. Smith

Get rich fast schemes
Get rich fast schemes
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This article was updated on 01/07/21.

Ads we feature have been independently selected and reviewed. If you make a purchase using the links included, we may earn commission, which helps support the site.

Get rich fast schemes have been around for a long, long time. Why? Because everybody wants something for nothing (Socialism in America is a hot topic right now), or at least by expending the least effort possible. People want to hear what they want to hear. If not, we wouldn’t be such a ripe crop for fake news. If it sounds too good to be true…

The fact is that the digital age has ushered in a whole new generation of characters determined to separate us from our money. It is just a lot easier to reach a lot more suckers. As P. T. Barnum said,”There’s a sucker born every minute.” Let’s take a look at a few email scams that are taking up space in our email accounts.

Trump Bonus Checks

I’ve been getting this one for a while now. As with most of these messages, you have to watch a real snoozer of a long, long video while the narrator skirts around the meat of the matter until the very end.

Despite the name, he stops just short of claiming that President Trump actually legislated or recommended this “bonus” although he certainly implies it.

President Donald Trump thumbs up
President Donald Trump thumbs up

Of course there is an often-repeated call to action (CTA) to create a sense of urgency by telling you that you need to get yourself on the list by May 14. Or what? Some other poor slob will get my money? OK, got it. After all, there is a limit of exactly $15 trillion of cold, hard cash available!

The bottom line? He wants to sell you $502 worth of information for a low, low price of $49. Basically he is going to sell you investment tips. What does that have to do with Trump? Nothing; he’s just riding on the Donald’s coattails.

Now, just for the sake of having some fun, how long do you think it will take for this particular scam to morph into Biden Bonus Checks? Smart money says it will not be overly long.

Freedom Checks

Freedom Checks have been around for at least a few years now, or at least that is when they started showing up in my email. Lately they have also been running ads on the radio. To finance that they must be finding some gullible takers. The radio spots are mercifully shorter that the video that accompanies the email.

I had to sit through the agony of the entire thing (for the sake of research for this post; see, I took a bullet for you), before the narrator got down to brass tacks about what it is really all about. Bottom line? The same basic Trump Bonus model although the investments seemed to focus more narrowly on the mining industry.

This is another pitch to sell $49 newsletters. The question I had to ask myself is, “If this guy some investment genius, why is he spending time with newsletters? How does he have the time or inclination?”

Phishing Scammers Posing as YouTube

Yes, it was just a matter of time, wasn’t it? This one wants all your sensitive YouTube information. Sometimes they can make it look quite legit. This video explains it:

The 501(k)

Bankonyourself.com explains that the 501(k) plan is “a safe savings and wealth-building strategy based on a specific type of high cash value dividend-paying whole life insurance.” Now while this is true, these scammers are not interested in guiding your financial market investment, they just want your money.

An organization called the Palm Beach Research Group markets it under the guise that it is a tax shelter for the rich. The implication here is that if it is good enough for the likes for the very rich it ought to be good enough for a poor Joe Shmoe like me. After all, this is America, right?

Although the 501(k) is a legitimate investment vehicle and it can be quite lucrative, the approach taken b y the Palm Beach Group is to print and sell newsletters. These will set you back from $199 for the basic publication to $4,500 for the “Palm Beach Confidential.” Pssst, this is between you and me, OK?

The Foreign Lottery Scam

This foreign lottery scam is one of the most often-received email scams. You receive what appears to be an official email from a foreign lottery company. The subject line offers a congratulatory announcement (yea, you), and might include the supposed amount of money you’ve “won.” Tip-offs:

  • The sender is a person, NOT a lottery company.
  • Your name is not listed in the “to” field of the email header.
  • The lottery doesn’t even exist. Do a search.
  • It asks for sensitive personal information.

The bottom line? Most of us would do better to steer clear of these schemes and consult with a professional investment adviser face-to-face or sign up with a broker like Ameritrade. Don’t be a rube. There is no get-rich-quick in life no matter what a bunch of newsletter quacks say. Please take a moment to participate in the poll on the right-hand sidebar of this page. I’m conducting a study and your response is important.



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About the author:

Photo of Kelly R. SmithKelly R. Smith is an Air Force veteran and was a commercial carpenter for 20 years before returning to night school at the University of Houston where he earned a Bachelor’s Degree in Computer Science. After working at NASA for a few years, he went on to develop software for the transportation and financial and energy trading industries. He has been writing, in one capacity or another, since he could hold a pencil. As a freelance writer now, he specializes in producing articles and blog content for a variety of clients. His personal blog is at I Can Fix Up My Home Blog where he muses on many different topics.