Daily Gains Letter

savings


The Priceless Lesson Investors in BlackBerry Received

By for Daily Gains Letter | Jul 2, 2013

A BlackBerry-Inspired Lesson in LeveragingMy old friend who is always chasing the big trades, Mr. Speculator, is at it again.

In a recent discussion with him, he said that “investors should always borrow on the capital they have, so their returns are better…instead of just making a measly two percent, they can make 10%.” In other words: he suggests leveraging your portfolio for higher gains.

I have to give credit to Mr. Speculator, because he has the concept right, to say the least; leverage can increase an investor’s profits substantially, and magnify smaller moves into much bigger rewards.

Consider this scenario: Say you have $1,000 in your portfolio, and you borrow an additional $5,000 from your broker—or anyone else, for that matter—to buy shares of ABC Inc., which trade for $5.00 each. With this sum of money, you will be able to buy 1,200 shares. Now, if the price of the stock goes up in value by, say, 10%, the return on your original investment ($1,000) will be 60% (the stock yields a profit of $0.50, and 1,200 shares gives you a total profit of $600.00).

Impressive, right?

But Mr. Speculator is forgetting the dark side of leverage—increased loss.

Look at the chart below for BlackBerry (NASDAQ/BBRY), formerly known as Research In Motion Limited, after the company reported a loss of $84.0 million, or $0. 16 per share, for the three months ended June 1, 2013. (Source: “RIM posts larger-than-expected loss, shares plunge,” Associated Press, June 28 2013.)

BlackBerry Chart

 Chart courtesy of www.StockCharts.com

The share prices plummeted more than 27% at the open after the announcement. Now, consider if you had $1,000 and you borrowed … Read More


This ETF Can Increase Your Retirement Savings Substantially

By for Daily Gains Letter | Feb 20, 2013

DL_Feb_20_2013_MoeSaving money for retirement is a long-term process. It is true that the longer you have, the more you can save. Unfortunately for some, this might not be the case. For example, a person starting to save for retirement at the age of 25 can certainly save more over time by saving smaller amounts than a person starting to save higher amounts at the age of 55 and planning to retire by the age of 65.

Consider this; if a 25-year-old saves $150.00 a month, by the retirement age of 65, they will have total savings of $72,000—assuming no investing of any sort. On the other hand, the person who begins at 55 and puts away $300.00 a month—twice as much—towards retirement savings will only have $36,000 at the age of retirement.

But don’t let this discourage you if you are in the latter situation—there are ways to increase your savings significantly without really putting up extra income and making changes to your lifestyle.

Look at WisdomTree SmallCap Dividend (NYSE/DES) exchange-traded fund (ETF), for example. (Please note that this is not a specific buy recommendation, but is meant to serve as an example of the type of opportunity you should seek out.)

This ETF seeks to follow the performance of the WisdomTree SmallCap Dividend index. The fund invests in companies that the index comprises—mainly small-cap dividend paying companies in the U.S. (Source: WisdomTree web site, last accessed February 15, 2013.)

In addition to providing diversification by investing in companies in different sectors, this WisdomTree ETF also pays out a monthly dividend. The current yearly dividend yield on this ETF is … Read More