Atlantic Capital Management

Atlantic Capital Management (105)

Wednesday, 04 April 2018 15:35

Wise Money Moves Young Women Can Make

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Want a better financial future for yourself? Act now.

As a young woman, you have an opportunity to make some major financial strides. You truly have time on your side when it comes to investing, saving, and harnessing the power of compounding. Now is the time to pay yourself first and do those things that could make you wealthy in the future.

Your first move should be debt reduction. This frees up money for the other moves you can make and lessens the amount of money you pay to others, instead of yourself, each month.

Consider attacking your highest-interest debts first rather than your largest debts. If you have big credit card balances, high-interest car loans, or similar financial obligations, that borrowed money may be extremely expensive. Credit bureau Experian says that monthly household credit card balances in this country hover around $6,375. According to personal finance website NerdWallet, the average interest rate on a credit card right now is 14.87%, and the average U.S. household pays out $904 a year just in credit card interest. A constant debt of $6,000 is bad enough, but having to pay roughly another $1,000 a year just for the opportunity to borrow? That really hurts.1

Whether your major debts are larger or smaller, think of the progress you could possibly make by devoting thousands of dollars you pay to others to yourself. Say you direct $3,000 you would otherwise pay to creditors during a year into an investment account returning 6%. Say you do this for 10 consecutive years. At the end of that 10-year period, you are looking at $47,287, not simply $30,000. That is what compound interest – the best kind of interest – can do for you financially.2

Across longer time periods, compound interest has a proportionately greater positive effect. Stretch the above example out to 35 years and those annual $3,000 investments at a 6% return grow to $377,421. (Keep in mind, you may be able to save and invest considerably more than $3,000 annually as you earn more money per year.)2    

Save or invest whatever you can. Setting aside a little cash for yourself is good, too. You want to build some kind of emergency fund with money you can touch; money you can get at right away if you need it quickly.

Many retirement savings vehicles offer you tax breaks. The common workplace retirement plan or IRA is tax favored: money within the account grows tax free, and it is subtracted from your paycheck before taxes. You only pay taxes on the money when it is withdrawn. In addition, many employers will partially match your contributions if you meet a certain minimum. Roth IRAs and workplace plans allow both tax-free growth and tax-free withdrawals, provided Internal Revenue Service rules are followed. While you get no up-front tax break for contributing to a Roth account, you also have the potential to withdraw the money tax free for retirement, which is a great thing.3

Not using these saving and investing accounts could be a big mistake. Some people are skittish about Wall Street investments, but largely speaking, those are the kinds of investments that have the potential to return better than 5% a year (think about the scenario from a few paragraphs earlier). In fact, the S&P 500, the broad benchmark of the stock market, gained an impressive 19.42% last year.4

Parking too much money in cash and avoiding all risk can come with an opportunity cost you may not be able to afford. Sallie Krawcheck, the former president of the investment management division of Bank of America and CEO of Ellevest, estimates that a woman making $85,000 annually who puts 20% of her yearly pay into a bank account rather than an investment account could effectively forfeit more than $1 million after four decades of doing so.5

Now is the ideal time to plan to get ahead financially. Think about your future, and make the wise money moves that give you the potential to make it bright.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 - tinyurl.com/ybxskou6 [2/19/18]

2 - bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx [2/22/18]

3 - fool.com/retirement/2017/05/20/taxable-vs-tax-advantaged-savings.aspx [5/20/17]

4 - ycharts.com/indicators/sandp_500_return_annual [2/22/18]

5 - money.cnn.com/2017/03/08/pf/financial-moves-sallie-krawcheck/ [3/8/17]

Tuesday, 20 March 2018 13:44

The Value of a Stop-Loss Strategy

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Why you may want to have one in place in any market climate.

What is a stop-loss strategy, and how can it potentially aid an investor? Savvy investors use stop-loss orders as a kind of “insurance” against stock market losses. Simply explained, a stop-loss order is an order you give to a brokerage to sell a stock when the share price falls to a certain level.

A stop-loss strategy may be used to preserve gains and alleviate downside risk. Say you buy 10 shares at $60 a share, and eight months later the price is at $68 a share. You place a stop-loss order with your broker, telling your broker you want to sell if the share price dips to $66. One day, the share price falls to that level, and the stop-loss order becomes a market order authorizing a trade. If the market (or market sector) dives quickly, you may not be able to sell your shares for $66, but you will likely be able to sell them near that price.1

You can also employ trailing stops as part of a stop-loss strategy. This can be useful with a growth stock. As an example, suppose you buy into a company at $20 a share, and two years later, the share price stands at $35 and seems poised to rise further. Is it time for profit-taking, or should you hang on to those shares a bit longer?

A trailing stop may provide an answer to this dilemma. When you put a trailing stop in place, you authorize your broker to sell the stock when the price dips a certain percentage below the current market value – say, 10% under market price. So if shares move up to $50, then fall to $45, you are able to sell at or near $45, and you profit more than you would had you sold at $35.2

The trailing stop moves up as the share price moves up. Obviously, you do not want to set the trailing stop only a handful of percentage points below the current price, because that could mean activating the stop too soon.

Profit targets are also part of stop-loss strategies. When the price of a stock reaches a certain level – a target price – you sell. In setting a profit target, you know when to get out, and you know your degree of profit as you close the trade.

How much gain do you need to break even or profit? Here is the key question in a stop-loss strategy. Reaching a price target represents a win, and a stop-loss represents a loss. At a glance, it seems easy to gauge whether your stop-loss strategy is a success: the wins merely have to exceed the losses. The evaluation is not quite that simple. You can use relatively simple math to figure out your break-even percentage: (Stop Loss ÷ (Target + Stop Loss)) x 100.3

For the sake of simplicity, say your average loss is $100 and your average target $200. The calculation becomes: (100 ÷ (200 + 100)) x 100, or 0.33 x 100 = 33%. Commissions aside, you need to win on 33% of your trades to break even. Win more trades than that and you are profiting.

When exactly will you break even or profit? Time will tell, but the answer may directly relate to the difference in your loss level and your target level. If your target level is way above your loss level, in theory you will have to win very few trades to profit – but in reality, you may have a hard time winning any trades, and your strategy could fail. When your target level is closer to your loss level, you must win more often to break even, but winning may become easier for you.

A stop-loss strategy could help you sustain the income stream from your portfolio. A little reflection will reveal why. When Wall Street slumps, a buy-and-hold investor can become a buy-and-fold investor, hanging onto losers too long and then selling them at or near a market bottom. Alternately, an investor may fall in love with a winner so much that no profit is ever taken – he or she learns a tough lesson when its share price falls and the opportunity to sell high is lost. Having price targets and stop orders in place takes some of the emotion out of trading in these circumstances, helping to mitigate losses and lock in gains.

Sure, there are potential drawbacks to a stop-loss strategy. Some people prefer price alerts to automatic stop-losses, because they want to stay hands-on and not cede control of trades to software and algorithms – and in a steep market drop, those algorithms may quickly drive a stock’s price well under a stop in the blink of an eye. An opportunity cost can also be paid with the use of price targets – maybe this or that stock clearly has more upside, and it really feels like you are selling too soon when the target is reached. These points aside, a well-considered stop-loss strategy may have real value for an investor, especially one who does not actively trade stocks on a day-to-day basis.  

  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 - investopedia.com/ask/answers/06/stoplossorderdetails.asp [1/4/18]

2 - thebalance.com/trailing-stop-1031394 [7/25/17]

3 - thebalance.com/calculating-your-break-even-percentage-1031085 [10/14/16]

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