Category / Investing


Investment Tips for Twentysomethings

You’re on your own two feet

At this time of your life, you’ve graduated and are working your way up the first few rungs of your career ladder. You’ve got that all-important salary, and the first thing you should do, investment-wise, is start an emergency fund. You should aim to have at least three months’ worth of rent, utilities and grocery money tucked away in an interest-earning account to deal with unforeseen circumstances. You don’t want to be relying on a loan provider (eg. to be bailing you out of trouble, as these can quickly spiral out of control into a debt black hole – young people with no savings are particularly susceptible to this.

Once you’ve saved up at least £5,000, reduce the monthly amount you put into this fund and start thinking further ahead.

Think about retirement – yes, really!

You’re four decades away from retirement, but it’s because it’s such a long time away that it’s such a good idea to start saving now. Try to put 10 per cent of your salary towards a retirement fund. If you can’t manage 10 per cent, make it five per cent, but just keep doing it, month after month, because you’re going to be making use of good old compound interest to bump these savings up. By the time you retire, you should be very comfortable indeed. If you leave it until your forties to start saving, you’ll need to give up a third or more of your monthly salary – at a time when you’ll probably have a young family. Not good!

A roof over your head

Once you’ve got your long-term investments sorted, it’s time to look at more immediate goals, like a house deposit. You’ll need a big lump sum for this, so to get this deposit together, open a brokerage account and make payments into it by monthly direct debit. By paying the same amount into it every month, this account will buy lots of shares when they’re low in price, and fewer when they’re higher. If you do this consistently, over time, your average actual spend can be lower than the average actual price of shares. Keep a steady eye on your shares and sell some off at opportune times to build your deposit fund.

Because you have a longer time frame than older people, you can afford to opt for slow-growing, more reliable investments and just leave them to do their thing. Take at least five years to save this sum, as shorter time frames are more vulnerable to the upswings and downswings of the stock market.


Don’t put all your eggs in one basket – make sure you invest in lots of different stocks, different industries and in different continents (more advice on diversifying your portfolio can be found here). This will buffer your money against the rises and falls of different sectors and different regions. Over time, you’re almost certain to make money with this approach. It’s slow but steady, and you’ll never have to resort to 

The best investment you can make is in some advice. Make an appointment with a portfolio consultant and don’t be shy about asking questions, no matter how silly they might seem. This is your money, and your future.


Binary Options: Money saved through lesser liquidity requirements

Except for a job, doing any business or investment venture requires that you maintain working capital. In a job you don’t have to set up a supply chain, pressure debtors to pay full and quick, or think of delaying tactics when paying creditors. However, when you are doing any business, you need to maintain cash or bank to continuously fund running core operations until a profit is attained. Insufficient funds just halt to a grinding stop any business.

In the same manner as any business, trading derivatives also requires maintenance of “working capital”. This is particularly the case in trading regular options. Whenever a trade starts to go bad, you have to make good the margin calls to avoid closure of your position in a loss. Even so, you never know for how long or deep the loss position will go on. And until you find an amicable position, you need to keep funds at the ready. In regular options trading, you decide at the inception of any trading account the leverage you wish to use. The higher leverage you use, the greater will be your funding requirements in case of an ongoing loss.

Trading binary options would also require one to keep his funds at the ready. However, the requirement is never as intensive as it is in regular options trading. You do not have to worry about margin funding once you run a loss; when you run a loss, it’s a loss. You do not have to maintain liquidity for margin funding. In this aspect, binary options save you money inherently. For example, unlike regular options trading, if trades get deeply out of the money, traders borrow from the broker or banks at very high interest rates to remain liquid.

So what exactly do you need the working capital fund in binary trading? The answer is, to make more trades. You have to remain liquid enough to make trades whenever you see the “technicals” on your interface blinking an opportunity. If a 10 minute binary option leads you to a loss, it does not matter. If the loss is a one way slide, make another trade with the funds available and may be use a shorter trade time frame. This way you can always recover your losses quickly and save your money.

Consider a situation in regular options trading. You make a loss by big margin, that leads to a margin call. You have no other way but to close you position with a higher amount of loss then your original investment. You have to start over again to recover all those losses, “capital plus what you lost in margin call”. Now if this was a binary options trade, your position would have expired in a short period leaving you a loss of your invested capital. However, you minimize your loss and save money quicker, by making another trade considering the market slide; there is no requirement to recover “capital plus loss in margin call”.

Therefore, it is comfortably proved that operating a binary options trading portfolio, practically requires minimum liquidity maintenance, and hence save you quite a lot of money.


Answering the question – Why should I trade CFDs?

According to one of the top financial analysts at Olsson Capital, CFD is a common term within the financial markets and you will come across it every time you research about the financial markets. CFD is an acronym of Contract for Difference, which is a form of derivative trading. CFD trading is a pervasive form of trading and one of the fastest growing industries after Forex.


What is the difference between CFDs Trading and Forex trading?

There are several similarities between Forex and CFDs like the fact that both involve similar types of trade executing process and both are traded on similar trading platforms with market pricing and charts being similar. Also, when trading either Forex or CFDs, you do not own the underlying asset. You only speculate how the exchange rates will change over time.


Forex has become a very common term among traders to the extent that they tend to think that every other trading is just Forex. No! Forex typically involves currencies from different countries and economic regions while CFDs involve trading other forms of contracts like indices, metals and energy. When trading CFDs, you only speculate how the prices of these securities will change in the future as a trader.


The most significant difference between Forex and CFDs trading it the factors that influence the two markets. The forex markets are affected by events around the world like political changes and rate of employment.  On the other hand, the CFDs markets are influenced by the demand and supply within the business sector since it involves real goods which are typically bought and sold across business entities across the world.


What are the benefits of trading CFDs?

With all said, what is the benefit of trading CFDs in relation to other financial trading ventures? Why should you opt to trade CFDs as a financial trader?

One, almost every financial broker offers CFDs trading securities and especially those brokers who provide Forex trading since the CFDs utilise the same trading platform as that of Forex and the process of executing trades is also similar to that of used in trading Forex. The instruments involved in the CFDs trading are fast moving goods and therefore the CFDs financial markets are relatively volatile. This makes them a very lucrative market for traders since they have large daily ranges which translate to huge profits when the trader places a trade. The prices of the indices, metals and energies are known to change as fast as the exchange rates of currencies although relatively slower.

Also, when it comes to CFDs trading, there are no trading commissions involved unless trading Shares CFDs, which is Contract for Difference derived from stocks markets. For all the other forms of CFDs, the only charges are the spread. The spread is the difference between the selling and buying price. The buying price is normally higher than the market price to create the spread which is usually the profit of your broker.

Since when trading CFDs you do not own the underlying asset, you will not be charged any stamp duty. However, you will be charged capital gains tax from the profits you make when trading.

CFD trading is usually done over the counter meaning that it is done over the internet through trading platforms offered by financial market brokers. Therefore, you can trade CFDs from the comfort of your home since the only thing that you require is a good internet connection and a good computer.

There are no academic qualifications required to become a CFDs trader. The only thing that you will have to do is to research and learn about how to trade CFDs, and you can do that online. There are lots of materials on the internet to help you sharpen your trading skills. In addition, most brokers offer demo trading accounts where trader practice trading before going to trade with their real hard earned saving.

CFD trading is one of the best ways of earning an extra coin in addition to what you get paid in your formal employment. And it doesn’t matter how busy you are because you can use automated trading strategies or even open a managed account to invest in the CFDs trading.


Debunking 401k Theory

Step Brothers

If you have a 401(k) retirement savings plan and you’re like the rest of working Americans, it’s highly likely that you don’t plan on touching that money until well, retirement. With social security increasingly becoming an unreliable source of income for many people, the younger generation is putting a lot of stock in their 401(k) savings.

Television gurus like Suze Orman and Jean Chatzky all preach the message that it’s a heinous crime to withdraw money early from your 401(k). But what if Suze Orman is wrong? Can it actually be smarter to cash in some of your retirement well before you will ever retire? If you have consumer debt, the answer is….yes!

How 401(k) plans work

Let’s quickly review how employer-sponsored 401(k) plans work. Employees are given the opportunity to elect to have a portion (usually no more than fifteen percent) of their pre-tax wages set aside in an investment account. In short, you get the benefit of saving money while deferring taxes.

Generally, the company will match part or all of the employee’s contribution to their 401(k), or offer a profit-sharing contribution to the plan. Because the nature of a 401(k) is that it’s an investment account, it can and usually will grow significantly over time. All 401(k) earnings (interest, capital gains, or dividends) are tax deferred, culminating in the blessed occasion when you turn 59 ½ and can withdraw funds without any penalties beyond regular income tax.

The good and the bad news

So why do all the gurus tell you not to withdraw early? It’s not because you can’t; it’s because the government imposes severe penalties to the tune of extremely high taxation whenever you withdraw early. Many 401(k) plans also allow withdrawals in the form of loans you eventually have to pay back with interest. Oftentimes, you can end up paying taxes twice over when you withdraw from your 401(k) early.

Is there really any good reason to withdraw early from your 401(k)? Absolutely, definitely, and yes. You will never hear the famous financial gurus tell you this, but sometimes waiting until you retire is quite simply too long. The number one reason to withdraw early from your 401(k) is to pay off debt.

Early withdrawal can save you money

For a person with thousands of dollars worth of personal loans that are growing at a very high interest rate, cashing out part of a 401(k) might be just the solution.

With interest rates on the rise, consumer loans and bad debt can quickly drain a person’s cash flow. Sure, early withdrawal from your 401(k) will get you tax penalties. But if the trade off is that you can move toward being debt-free and freeing up cash flow, tax penalties are a small price to pay for financial freedom

Consider the long term impact

It’s important to do long term cost analysis before choosing to withdraw early from your 401(k). If you’re in a situation where you’re only able to pay the minimum due on a high interest, high balance credit card, the long term consequences of not paying off that credit card can have a far greater impact on your finances than losing a few thousand dollars in taxes from your 401(k). For people who aren’t facing any type of hardship or significant debt burden, early withdrawal most likely isn’t the best solution.

Only you truly know your own financial circumstances. Do your own research and absorb as much knowledge as you can. Besides, it’s always possible that by the time you’re 59 ½ years old, you’ll be dead. I like to leave on a positive note so here’s a smiley face :)


Using Letters of Credit

Letters of credit are used for the purpose of substituting a customer’s credit for that of the banks. This transaction provides the ability to facilitate a trade. Letters of credit are often used for international trading, where a seller lives in one country and the buyer lives in another. There are essentially two types of letters of credit – the commercial letters of credit and the standby letters of credit. The primary payment used for a transaction is the commercial letters of credit and the standby letters of credit are considered as the secondary payment option.

Commercial Letters of Credit 

A commercial letter of credit has been used for hundreds of years as a way to facilitate payments for international trading. As the global economy is continuing to evolve, the letters of credit will continue to be used. 

The governing agency of commercial letters of credit is the International Chamber of Commerce Uniform Customs. The provisions and definitions of the documents are binding for all parties that are involved in the transaction. 

The document is a contract agreement between the bank that issues it and one of their customers. The letter of credit authorises the confirming bank to make the payment. A customer will request that the issuing bank open the letter of credit and the bank will commit to honour the drawings that are made through the credit. Typically, the provider of the service or goods will be the beneficiary. Simply put, the issuing bank is replacing their customer as the payer. Letters of credit act as a guarantee for suppliersand an international finance corporationcan routinely issue these.

Letter of Credit Elements 

1. Issuing bank undertakes a payment on behalf of the applicant in order to pay the seller a set amount of money

2. If specified, documents that represent the goods that are supplied are presented within the specified time frame

3. Documents have to meet the terms and conditions as set out in the letter of credit document

4. The documents have to be presented in a place that is specified. 


If the beneficiary provides the necessary documents as evidence as stated in the letters of credit, he/she is entitled to payment. Letters of credit are distinct and separate documents from the sales contract that it is based on. The parties will deal with documents and not with goods and the issuing bank cannot be held liable for the contract that has been set between the customer and the beneficiary. The obligation of the bank is to inspect the documents in order toensure that they meet the terms and conditions that were set for the credit. If the bank finds that the conditions have been met it will issue the payment as directed.

Characteristics of the Letter of Credit 

Typically a letter of credit will be negotiable. The bank that issues the letter will be obligated to pay the beneficiary, as well as the bank that is nominated by the beneficiary. The instrument can be passed between parties in the same manner as money exchanging hands. In order for the letter to be negotiable there will need to be a clause that states there is an unconditional promise to make a payment on demand or within a specified time. 

When creating a letter of credit the parties may choose to make it irrevocable or revocable. Revocable letters can be changed at any time for any reason, without notification from the issuing bank. This type of letter may not be confirmed. 

If the letter is irrevocable it cannot be changed unless all parties agree. This type of letter is insurance for the beneficiary, stating that if the correct documents are presented payment will be made.