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Tag: Penny Stocks

  • The Wolf of Wall Street: Why the S&P 500 Index is still the ticket to riches

    The Wolf of Wall Street: Why the S&P 500 Index is still the ticket to riches

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    Jordan Belfort, the author of the new book “The Wolf of Investing,” has some salty things to say about Wall Street.

    For starters, he described it as a “giant, bloodsucking monster … the Wall Street fee machine complex atop the entire global financial system — extracting excess fees and commissions and creating general financial mayhem.”

    Average investors, he added, lose all the time because they are baited by the latest stock tip they hear from a friend or read about on TikTok. There’s more: “Depending on who’s been advising you, there’s an excellent chance that a significant portion of your annual returns are being unnecessarily cannibalized by fees, commissions, and pumped-up annual performance bonuses,” he told me.

    You may already be familiar with Belfort. His best-selling autobiography, “The Wolf of Wall Street,” is the basis for the 2013 Oscar-winning film of the same name starring Leonardo DiCaprio. Belfort, a former broker, made loads of dough by peddling shady sales of penny stocks — and turned around and blew it away on drugs, sex, and other debauchery.

    Belfort served 22 months in jail for securities fraud relating to his activities in the 1980s and ’90s with his brokerage firm Stratton Oakmont.

    This time out of the gate, Belfort’s take on Wall Street is far less titillating and decidedly more conventional, but “you can thank me when you’re ready to retire, and you have a giant nest egg waiting for you,” he wrote.

    Recently, Belfort discussed with Yahoo Finance his simple investing advice like sticking to an S&P 500 index fund, which so far this year is up 7.75% and has gained about 10.7% on average annually since it was introduced in 1957.

    Sure it sounds boring, but there are some hot tech stocks along with proven stalwarts in the S&P 500 Index, which includes Microsoft, Amazon, Alphabet, Tesla, Meta, and Berkshire Hathaway.

    Edited excerpts:

    Oh boy, Jordan, let’s jump right into it. Rage against the machine aside, what’s the overall thesis of your book?

    It’s about long-term investing. Picking individual stocks or bonds and trying to beat the market, so to speak, has historically proven to be extremely difficult. People have trouble wrapping their heads around how even a small amount of money over time through long-term compounding, reinvesting dividends, and making small contributions along the way to your portfolio can amount to a truly massive amount of money. You don’t need to make massive returns every single year to have a very, very rich portfolio when you retire.

    Jordan Belfort, known for his best-selling autobiography,

    Jordan Belfort, known for his best-selling autobiography, “The Wolf of Wall Street.” (Jordan Belfort)

    What makes you crazy about the way Wall Street works, or doesn’t, for the average investor?

    It is this two-headed monster. It’s got the useful part where they create massive value and they serve a vital mission function to the US economy. Then they have the not-so-good part.

    You’re a huge fan of the S&P 500 Index, quite a leap from your broker days. What’s the magic there?

    Here’s why I love it. The S&P index of 500 stocks is this perfect mouse trap capturing the value of the US economy and also the global economy because a great portion of these companies do 34% of their business overseas. You’re getting global exposure to the creation of wealth with the best managers.

    Vanguard created this amazing vehicle for the average person anywhere in the world to get all the best out of the value that Wall Street creates and not get sucked into the disastrous allure of short-term trading in the next shiny object. The fact is that human beings, including me, are lousy stock pickers by nature. We sell when we should be buying and buy when we should be selling. The way to protect against this sort of human nature of doing the wrong thing and selling into fear is through indexing.

    The S&P 500 Index has been a great investment historically. Over 20 years, it always makes money and it balances out to an annual return of 10.5% give or take a percentage. As you get older, you want to start shifting more into more index bond funds in your portfolio percentage-wise because you want to have less exposure to risk.

    How would you advise someone who is stashing away funds for retirement?

    Generally speaking, if I were in my thirties or forties, I would have 80% of my money in the S&P 500 Index and maybe 20% in a total bond market index. As you get older, you could start bringing that down to 70/30 and ultimately to 60/40.

    Of course, there are other things like your general risk tolerance to consider. But I really love index funds because they take away the guesswork. They protect you from your own worst impulses, which is to trade for the short term and try to pick stocks that are winners. And that’s just really, really hard to do.

    Automatically check the box to reinvest your dividends and keep putting money into your funds every month or every quarter as you can, whatever the amount is, whether it’s $25, $50 a month, $100, $500, $1,000, whatever you could afford to do, just keep putting more money into the funds along the way at regular intervals. Don’t even consider the prices you are paying. And ignore if the market is up, down, or sideways.

    Jordan, admit it, it’s fun to invest in individual company stocks…

    It’s great to take a small percentage of your capital and set it aside for healthy speculation, if you like that stuff, right? It’s fun, and it’s empowering, and it’s great to do that. I just think that you have to set aside a certain amount of capital for that, stick to it, and be ready to lose it.

    What’s the investing trap for people?

    They think if they only have a small amount to invest that they are never going to get rich. ‘I need to go buy a penny stock where I can hopefully go up a thousand percent and I could make a big hit.’ That’s the trap. They try to time buying a growth stock. ‘I want to buy the next Apple because that’s the only way I’m gonna get rich,’ they say. ‘I’m not gonna get rich buying the S&P 500.’

    The answer is it does work out through long-term compounding. But you have to wait until this late stage threshold, which starts at 23, 24 years, and then suddenly you are like, whoa, this stuff actually works. It’s math.

    A parting thought?

    The Wall Street fee machine con is out there, and it’s very obvious once you recognize what’s going on with these advertisements and propaganda that basically leads people to make decisions that go against their best self-interest.

    It’s this wild sort of circus that’s convincing people to stay in this game, this casino, which is really tilted heavily against you. The odds are stacked against you on so many levels.

    By the way, if any one of Wall Street’s newfangled ideas hits, guess what? It becomes part of the S&P 500, and you’ll make money.

    Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on Twitter @kerryhannon.

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  • 6 Tempting Investments To Avoid

    6 Tempting Investments To Avoid

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    Opinions expressed by Entrepreneur contributors are their own.

    As investors, we’re often told to be active and diversified. But are some investments not worth your time or money? Indeed, certain types of investments should be avoided at all costs. Here’s a list of common financial products and how they might affect your portfolio.

    1. Whole life insurance

    Whole life insurance costs substantially more than term insurance. Whole life premiums are typically much higher than term premiums, and the cost of whole life policies can be even higher for older individuals. It’s also important to note that since whole life policies cannot be cashed out, you can’t use them as collateral if you decide you need money from your investments in the future. Additionally, if someone dies before their policy expires (which often happens with whole life policies), their beneficiaries only receive a fraction of what they were expecting because of how much this type of insurance costs.

    In addition to these issues with cost-effectiveness and liquidity, whole life insurance also offers fewer death benefits than other types of investments due to its nature as an annuity contract instead of a mutual fund or stock portfolio; this means that there won’t be any growth potential after purchasing your plan which would otherwise come from investing in other funds or stocks over time.

    2. Low-interest saving accounts

    A low-interest savings account is an investment you can make with money that you don’t need to use immediately. Savings accounts are generally insured by the government and offer a slight interest, which is often lower than inflation. These accounts are not liquid, meaning you cannot withdraw your savings without penalty if you need them for something else. They also have high fees attached to them and may even charge high minimum balances if you aren’t putting enough money in there every month. Furthermore, since these types of investments don’t earn much interest on the cash inside them, they may lose value over time due to inflation.

    Related: How Generation Z Can Jump-start Savings (Advice Anyone Can Use)

    3. Penny stocks

    Penny stocks are low-priced shares of small companies that trade over the counter rather than through an exchange. They can be risky investments because they aren’t regulated by the Securities and Exchange Commission (SEC). This means that penny stocks are not required to follow the same strict rules as other investments, which makes them more likely to be scams.

    Penny stock investors don’t have many options for selling their shares — penny stocks typically don’t trade on any of the major exchanges where investors can sell them for cash. If you want to sell your shares, you’ll usually need to find someone who wants them badly enough that they’ll accept less than market value. And since most people have no idea what these “spare” shares are worth, it’s easy for folks posing as brokers who say they’ll buy your shares at an inflated price (or even just a flat rate) without even checking if there’s any demand for those particular shares on an actual exchange somewhere else in the world.

    Related: 5 Things Millionaires Do That Most People Don’t

    4. Gold coins

    Gold coins are not a good investment. They’re essentially just a store of value, like other precious metals. While some people may see this as an advantage in that it can be bought and sold easily (which is true), it does not generate income as stocks or bonds do — and it can also lose value if gold prices go down. If you want to buy something tangible, buy silver instead: It’s cheaper than gold on an ounce-by-ounce basis, has more industrial uses (such as being used to manufacture electronics), and has been less volatile over time than gold has been.

    Related: Why It’s Never a Bad Time to Invest in Precious Metals

    5. Hyper-aggressive growth mutual funds

    A hyper-aggressive growth fund invests in companies with high growth potential. These funds tend to invest in risky stocks, meaning they could quickly lose value if the company’s stock price falls or the economy goes into recession. The risks of these types of funds are twofold: first, there are times when the market will crash, and your investment will be lost entirely; second, even under normal conditions, you may see an overall loss over time because these types of investments tend to fluctuate in value more than other investments (like bonds). If you’re looking for an aggressive option with a chance of making some serious money, consider an aggressive growth fund instead.

    6. Complex private limited partnerships

    There are some types of investments you should avoid at all costs. One such type is a complex private limited partnership. These investments are dangerous because they often have hidden risks that can lead to significant financial losses. A good example is the Madoff Ponzi scheme, which ended with many investors losing their savings.

    Another reason you should avoid these types of investments is that they involve high tax implications, which can be challenging to understand and may require professional assistance from an accountant or other expert to comprehensively comprehend the tax laws governing them. Some companies may also try to sell you investment opportunities with very little information about what exactly it is that they’re offering. These products are often sold by unscrupulous individuals who will take advantage of people’s lack of knowledge about financial products to make quick cash off their victims’ backs without ever completing any work on their behalf (which means no profits).

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    Christopher Massimine

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