Today’s topic is Inflation and how does it affect your financial goals. Inflation is represented by the Consumer Price Index (CPI) which measures current and past prices of a sample “market basket” of goods from several categories such as housing, food, transportation and clothing and other discretionary and non-discretionary goods.
Inflation (rising prices) affects the cost of living, cost of doing business, borrowing money, mortgages, health care costs, etc. Inflation makes a $1 next year worth less than a $1 today because the $1 will buy less goods a year from now. If annual inflation is 2%, then $1 today is worth $.98 a year from now. This is a characterization of all fiat currencies (one that isn’t backed by anything other than the full faith and credit of the underlying government).
So how can inflation be any good for anyone? It depends. To me, inflation can be your friend. Think of your parents or grandparents first home. Inflation also affects your investment portfolio and inflation must be considered when determining how much you need to retire comfortably:
1. Stocks have historically performed better than other assets and more likely to outpace inflation.
2. Bond prices will fall when inflation rises because of the reduced purchasing power of future interest coupons.
3. Commodity prices (oil, gold) tend to rise with inflation.
4. Real estate tends to keep up with inflation.
5. Borrowers using adjustable rate mortgage will pay higher mortgage payments if interest rates rise.
Of course this is an important topic for you and it requires more than a one minute video and a website. For more financial insight, go to www.SamalinGroup.com/blog, enter your info and let’s stay in touch. Thanks for watching.
Today’s topic is market capitalization and enterprise value. Market capitalization (market-cap) is the market value of a publicly traded company’s outstanding shares. It is calculated by multiplying number of shares outstanding by the current share price.
Enterprise value adds the outstanding debt to the market cap. Why is it important? Because it can show the difference in valuation between competitors in an industry, it can show the value between the equity and debt of acompany; it can absolute value or over-valuation of a company itself.
Public companies are divided according to market capitalization: large cap ($10 billion or more), mid-cap ($2 billion to $10 billion), small-cap ($300 million to $2billion) and micro-cap (less than $300 million).
A diversified portfolio may consist of various market-cap companies or index funds. The portfolio management implications are important. There are also metrics and ratios among and between these different market sectors which can uncover both opportunities and risks for the investor like you.
Is share price an indicator of much? $1 vs $100BRK vs FB share price; watch the video for my explanation. Of course this is an important topic for you and it requires more than a oneminute video and a website. For more financial insight, enter your info and let’s stay in touch.
Today’s topic is compound interest. When you deposit funds in your bank saving account, you earn intereston your principal. The bank pays interest each month on the original principal and on the interest from the prior month. Compound interes tis the result of reinvesting interest, rather than paying it out, so that interest compounds upon itself.
The same applies to investing in your brokerage account. Suppose you invest $100,000 by buying shares of a stock which pays you a 7% dividend every year. You have the choice of either spending those dividend payments as cash, or reinvesting those payments into additional shares. If you choose the re-investment option, reinvesting the dividends and compounding them with your initial $100,000 investment, then the returns you generate will start to grow over time.
Starting with the $100,000, earning 7% over 30 years, you’ll have over $750,000 vs $300,000 using simple interest (disclaimer” this is a hypothetical investment, not a guarantee).
There is a reason Warren Buffet calls compound interest the Eighth Wonder of the World. By saving/investing earlier in one’s life, you benefit from compoundinterest over a longer period. Starting to invest in your 20s will result in more substantially more capital in your account at age 65 then if you hadstarted in your 30s and invested the same amount annually.
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