WARREN BUFFETT Chairman, Berkshire Hathaway
I have no idea what the stock market’s going to do tomorrow, or next week, or next month or next year. But over a ten-year period you will do considerably better owning a group of equities than you will owning Treasuries. In fighting the economic war, we’ve taken action that sows the seeds of substantial inflation down the road. Not in the next six months or year, but ten years from now the dollar will buy a lot less than it buys today.
BOB RODRIGUEZ Chief executive officer, First Pacific Advisors
Don’t run with the herd. Being surrounded by people who are doing the same thing as you offers a false sense of protection. Being a loner is extremely uncomfortable, but it’s far better. Today, being a loner means owning short-maturity, high-quality debt on the bond side. And if the U.S. government continues to blow up the nation’s balance sheet through massive deficits, you should probably move at least 20% to 40% of your assets out of the U.S. (more…)
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rssYou Can Still Make Money When The Stock Exchange Closes
With all trading halted in New York City on Tuesday, some may be wondering where to invest money aside from the stock exchanges. Here are a few options to consider:
Certificates of deposit (CDs): A certificate of deposit is an investment tool that allows financial institutions to borrow funds for a predetermined period of time (typically six months to five years) while paying back interest to the investment. Since CD funds are not liquid, institutions pay higher interest rates than savings accounts, though they are just as easy to open at a local bank or credit union. CDs are deemed low-risk investments because they are federally-insured for up to $250,000.
- Money markets: Money markets are investments that allow individuals to buy shares; however, these shares are safer than stocks because they rarely fluctuate. Unlike CDs, which offer higher interest for investing money over a longer period of time, money markets reward individuals who invest larger sums of money. Money markets also offer liquidity through a checkbook, making them similar to checking accounts. Funds added to a money market account are federally insured for up to $250,000.
- Life insurance annuities: Many people don’t consider life insurance as an investment option, but with a life insurance annuity, you can invest premium payments on a tax-deferred basis. Later in life, those premium payments are returned to you in increments or a lump sum.
While many banks and insurance companies along the east coast are likely closed today, individuals living in other parts of the country may be able to invest using these avenues while waiting for the stock exchanges to reopen.
5 bits of trading wisdom
- Most of the time, you want to own the stock before it breaks out, then sell it to the momentum players after it breaks out. If you buy breakouts, realize that professional traders are handing off their positions to you in order to test the strength of the trend. They will typically buy it back below the breakout point—which is typically where you will set your stop when you buy a breakout. Greed comes into play when the stock breaks out again, and the momentum players are forced to chase it and “pay up” for the stock. Be aware of how trends are established and use that to your advantage to enter and exit positions.
- Embracing your opinion leads to financial ruin. When you find yourself rationalizing or justifying a decline by saying things like, “They are just shaking out weak hands here,” or “The market makers are just dropping the bid here,” then you are embracing your opinion. Don’t hang onto a loser. Cut your losses. You can always get back in.
- Unfortunately, discipline is typically not learned until you have wiped out a trading account. Until you have wiped out an account, you typically think it cannot happen to you. It is precisely that attitude that makes you hold onto losers and rationalize them all the way into the ground.
- Siphoning out your trading profits each month and sticking them in a money market account is a good practice. This action helps to focus your attitude that this is a business, and your business should generate profits on a monthly basis.
- “Professional traders only place a small portion of their assets into 1 position. Or if they take on a large position, then they strictly limit their risk to 1-2% of their current equity. Amateurs typically place a large portion of their assets into 1 position, and they give it “room to move” in case they are actually right. This type of situation creates emotions that ruin accounts, while professionals are able to make decisions and cut losses because they strictly define their risk.”